Toyota chairman faces showdown amid scandal fallout

Toyota Chairman Akio Toyoda is set to face a challenging shareholders' meeting this week as two prominent proxy advisory groups call for a vote against his reappointment. The upcoming June 18 meeting follows Toyota's recent apology for fraudulent vehicle certification tests, a significant blow to the company's reputation for high quality. Despite no safety issues or recalls reported, Toyota has halted production of three models manufactured by its group companies in Japan.

Toyota's stock, which had tripled over the past five years to nearly 3,800 yen ($24), has recently dropped to just over 3,000 yen ($20), erasing about 3 trillion yen ($18 billion) in market value.

Institutional Shareholder Services (ISS), majority owned by Deutsche Borse Group, has advised investors to vote against Toyoda's reappointment, citing his ultimate accountability for the scandal. ISS criticised the lack of board reshuffling and expressed doubts about the company’s commitment to preventing future issues. “The company’s propensity to preserve its corporate culture is in fact suspected, and Toyoda should be held accountable for that,” ISS stated.

Glass Lewis & Co., another influential proxy advisory firm, echoed this sentiment. It recommended voting against both Toyoda and Shigeru Hayakawa, another senior executive. The firm highlighted failures in maintaining internal controls and implementing effective governance measures across Toyota’s group companies. Glass Lewis also called for more independent board members and increased transparency in Toyota’s lobbying efforts on climate change.

Despite the scandals, Akio Toyoda is not expected to be ousted at the shareholders' meeting, which will take place at Toyota's headquarters in the city named after the automaker. The largest of Toyota’s nearly 1 million shareholders are Japanese banks and financial institutions that typically support the company. Toyota Industries, a group company, is the second-largest shareholder.

Under Toyoda's leadership, Toyota has advocated for a "multi-pathway" approach to environmentally friendly vehicles, focusing on hybrids and hydrogen fuel rather than solely on battery electric vehicles. Despite this strategy, Toyota has faced criticism for lagging in the EV market. Nonetheless, the company remains the world’s leading automaker, with sales of 9.4 million vehicles in the fiscal year ending in March.

According to some financial professionals, the recent scandals are expected to leave only a limited impression on Toyota in the long run. Aaron Ho, equity analyst at CFRA Research, indicates that the problems only made a "soft hit" in the corporation’s finances. He pointed out that the considerable halt in production is likely to be temporary and the company's management or culture are fine.

Toyota reported a doubling of profits in the fiscal year ending in March, reaching $31.9 billion, surpassing its projections. This growth was driven by a surge in vehicle sales and the benefit of a weaker yen.