Toshiba CEO exit gives better governance a chance

Error-prone Toshiba (6502.T) has yet another chance to get things right.

Chief Executive Nobuaki Kurumatani resigned on Wednesday after a series of controversial missteps cost him the support of investors and staff. His ties to buyout bidder CVC Capital Partners may have caused problems in the boardroom, too. There’s a chance now to get the corporate governance right.

Kurumatani, who arrived following an accounting scandal and the collapse of the company’s U.S. nuclear business Westinghouse, was already in a precarious position when he only narrowly secured re-election at the company’s annual meeting last year. Some uncounted postal votes caused concern as did reports that Harvard University’s endowment fund was pressured into not casting a ballot. In a rare victory for pushy investors in Japan, Toshiba shareholders voted last month in favour of an independent investigation into the affair.

The disarray made Toshiba vulnerable. It has attracted what the company called an unsolicited approach from CVC, at $20 billion as reported by media. Another cause of concern is that the suitor is Kurumatani’s former employer. And according to Toshiba director Osamu Nagayama, the proposal envisioned keeping Kurumatani in charge. Moreover, another CVC executive, Yoshiaki Fujimori, sits on Toshiba’s board, having joined after Kurumatani became the boss.

Toshiba could have set up an independent committee to scrutinise the bid, but such chummy relationships look bad. And Kurumatani already had clouds hanging over him.

Nagayama says Fujimori will not take part in any review of CVC’S offer. That’s a start. The board can go further by setting up a robust and open process for reviewing the CVC bid, as Farallon Capital is urging. With so much private equity money sloshing around Asia, more suitors are also bound to turn up. KKR (KKR.N) and Brookfield Asset Management (BAMA.TO) are already considering the possibility, according to media reports.

More conscientious work from Toshiba will be necessary, however. The new CEO is Chairman Satoshi Tsunakawa, who was Kurumatani’s immediate predecessor. Such executive shuffling is hardly best practise. There’s also a chance the independent inquiry into last year’s vote will not reflect well on the board either. It’s one more reason to be sure and secure a good deal for shareholders.