In the 1970s television series Columbo, there was never the slightest element of surprise: you knew from the first few minutes how the crime was done, who did it and how it would all end.
The Tokyo Stock Exchange’s decision on Wednesday to remove Toshiba from “security on alert” status will leave many convinced they are in the final stretch of a similarly back-to-front show: a disheveled but inexorable drama whose finale, in which Toshiba escapes being delisted, has always been known.
It may still have that ending but there remains the chance of at least one big off-script twist. The forces demanding the expected outcome — which most prominently include Toshiba itself, the Japanese government and the nation’s largest banks — have relentlessly pushed the idea that the conglomerate’s massive government contracts, vast labour force, wide base of individual investors and commitments to the Fukushima nuclear clean-up, make it too big to fail (TBTF).
The TSE, left with making the actual call, has been forced to put on an uncomfortable performance where it wears the clothes of unbending stickler but ultimately agrees with the TBTF lobbying.
Until quite recently, the difficulty with the TSE’s act has been the three unambiguous threats to Toshiba’s listed status arising first from the company’s 2015 profit-padding accounts scandal and later from the crippling December 2016 writedown on its US nuclear business.
The first of the delisting threats was the company’s inability to submit accounts for the financial year ending March 2017 that had been fully signed off by an auditor. After a lot of rancour and delay, that risk lifted in August when PwC Aarata endorsed Toshiba’s accounts, but with a rare “qualified opinion”.
The second threat arose from the ¥552bn chasm in Toshiba’s shareholder equity created by the Westinghouse writedown. Filling that before the delisting deadline of March 30 next year has been the driving force behind the tortuous, eight-month effort to sell Toshiba’s prized memory chip business. The late September sale of the unit to a consortium led by Bain Capital for ¥2tn appears to solve that problem, though decidedly not neatly: a legal dispute and a regulatory review leave what Standard & Poor’s describe as an “over a one-in-three chance” that Toshiba will not receive the proceeds of the sale in time.
Still, Toshiba’s share price has risen in recent weeks on the belief that the worst of the delisting risk is over — a rally that continued on Thursday as the market responded to the TSE’s decision to take Toshiba off the “security on alert” watchlist where it had languished, humiliatingly for such an establishment company, for more than two years since its accounting scandal.
This, the TSE must have known, was probably the biggest stretch and, tellingly, it waited to make the call until the other two delisting threats were mostly out of the way. Announcing it as a euphoric market saw the Topix hit a 10-year high was just good luck. But the exchange’s decision means that it now officially believes the conglomerate has adequate internal controls — a position somewhat at odds with that of Toshiba’s auditor, which concluded in August that Toshiba still suffered from deficiencies in internal control and that they “have significant effects on financial reporting”. So, not a triumphal moment for the TSE, but it’s what everyone wanted.
At any other time, the Colombo-esque script might have been downheartening — particularly at a time when momentum for corporate governance reform is visibly flagging and a show of grit from the bourse might have perked things up. But the past few months, along with the TSE’s political positioning on the matter, set up an opportunity for shareholders — spectacularly, if they choose — to have a hand in the narrative and make it clear they preferred it when corporate governance was moving forwards.
Because Toshiba’s auditor could only sign off the accounts with a caveat, Japanese corporate law requires companies to seek shareholder approval of the financial statements — in this case, they will be allowed to vote on them at a special meeting on October 24 but without much risk that a show of disapproval will trigger a delisting. To spice matters further, the appointment of 10 directors, including Satoshi Tsunakawa, the chief executive, is also on the table. Proxy voting group Institutional Shareholder Services is recommending a vote against approving the accounts, and against five senior directors.
Investors in Japanese companies do not usually vote for anything other than the usual script: they are unlikely to do so this time but, with the Toshiba saga, you never know.