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A long-standing US investor in one of Toyota’s largest subsidiaries has blamed the sprawling car group’s structure for recent data scandals and called for an urgent governance overhaul, as well as the unwinding of “corrosive” cross-shareholdings.
GMO, which has $60bn in assets under management, has held shares for 13 years in Toyota Industries (TIC), the world’s largest manufacturer of forklift trucks and also a producer of cars, textiles and electronics.
TIC has admitted to falsifying engine data and GMO sent a letter last week urging changes to its leadership, capital structure and a “submissive culture” that it said was “unable to oppose demands by the Toyota Group”.
GMO’s head of Japan equities Drew Edwards said in the letter, seen by the Financial Times, that recent scandals were “just one symptom of a larger problem of broken corporate governance and culture at TIC and Toyota Group as a whole”.
He added that the scandals put “not only TIC’s management and board, but also [Toyota Motor’s] management and board, on notice that Toyota Group is no longer exempt from following guidelines designed to make Japan’s corporate governance work to the benefit of all stakeholders”.
TIC had followed Hino Motors and Daihatsu in becoming the third Toyota company to disclose widespread problems with testing data, specifically for its car and fork-lift truck engines. After the revelations, Toyota chair Akio Toyoda said he took “full responsibility” and promised action, adding that he would be attending each of the group companies’ annual meetings to see what measures they had decided to put in place.
On Tuesday, Toyota announced an overhaul of wholly owned Daihatsu’s top management following its crash-testing data scandal.
GMO’s Edwards, whose team manages roughly $2bn in Japanese equities, said that one cause of the scandal at TIC was that management “lacked the independence and courage to push back against” Toyota Motors’ demands — going further than advisable in order to meet deadlines for the larger company.
Calling for TIC to put in place “urgently” an independent leadership team and board of directors that could overhaul its culture and admit its mistakes, GMO also pushed for the group to “unwind its tangled cross-shareholdings with the Toyota Group”.
The pressure from GMO, which owns less than 1 per cent of TIC, mirrors concerns from other shareholders over the causes of the data scandal and how cross-shareholdings might unfairly protect management from criticism. It also comes as regulators are calling for Japanese companies to address low valuations and improve governance.
Toyota has already unwound some of its cross-shareholdings to mobilise resources for the massive investments needed in battery electric vehicles and technology.
TIC currently owns about 7.3 per cent of Toyota Motors, while the much larger company owns 23.5 per cent of TIC, according to LSEG data. Other Toyota subsidiaries also own stakes and analysts have long speculated about how the group structure might evolve.
CLSA’s John Seagrim suggested in a recent note to clients that “in theory, Toyota could launch a 31.5 per cent premium bid in Toyota shares . . . for [TIC] and it could pay for the entire acquisition in its own Toyota shares it would reacquire as a result of the acquisition”.
GMO’s Edwards said that Toyota Group had “shown little inclination to follow the consensus on corporate governance with respect to listed subsidiaries and cross-shareholdings” and its recent moves had been “too little, too late”.
However, one other Toyota investor, speaking on condition of anonymity, said that the group’s long, successful history meant it “deserves the benefit of the doubt about its group structure”.
GMO, TIC and Toyota Motors all declined to comment.
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