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Toyota Investors Question Heir’s Control at a ‘Pivotal Moment’

During his long tenure as chief executive, Akio Toyoda led Toyota Motor to the top of the car industry. Under his leadership, Toyota became the world’s leading automaker in terms of sales. Toyoda’s strategic focus on hybrid gas-electric vehicles played a crucial role in the company achieving the largest annual profit in Japanese history last year.

Akio Toyoda, whose grandfather founded Toyota in 1937, has been a driving force behind the company’s success. However, his dominant influence has raised concerns among some individuals both inside and outside Toyota. In early 2023, after nearly 14 years as chief executive, Toyoda stepped down to become chairman. Despite this transition, some Toyota board members have expressed concerns that he continues to exert significant control over major projects.

This ongoing influence has led several large Toyota investors to plan to vote against Toyoda’s re-election to the board of directors at the company’s annual shareholder meeting. Michael Garland, head of corporate governance at the New York City Comptroller’s Office, emphasized the need for greater independent board oversight at Toyota.

Replacing successful chief executives, particularly those with long tenures, presents a challenge. Companies must ensure a smooth transition for successors without disrupting effective business practices and profitability. Howard Yu, director of IMD Business School’s advanced management program, noted that Toyota is at a critical juncture where it needs to balance continuity and innovation.

During his time as chief executive, Toyoda navigated Toyota through several significant challenges. In 2009, he took over amidst the global financial crisis and a series of quality problems that led to the worst crisis in Toyota’s history. The company recalled millions of vehicles due to reports of uncontrolled acceleration, resulting in numerous lawsuits and a substantial fine from the U.S. Justice Department. Toyoda responded by restructuring the executive ranks, transferring power to regional heads, and cutting costs, which eventually led to increased sales.

In recent years, Toyoda has been vocal about not rushing into the electric vehicle market before consumers are ready to transition from gasoline-powered cars. While many automakers have aggressively shifted towards electric vehicles, Toyota has continued to invest in hybrid technology, often drawing criticism from environmental groups.

In January 2023, Toyoda announced that longtime Toyota engineer Koji Sato would take over as chief executive. Sato, 53 at the time, was tasked with guiding Toyota into an era dominated by electric and software-driven vehicles. Shortly after Sato took over, the dynamics of the global car market shifted. Demand for electric vehicles cooled, while hybrid cars saw a surge in popularity, benefiting Toyota significantly. The company posted a record operating profit of over 5 trillion yen ($32 billion) for the fiscal year ending in March.

Despite stepping down as chief executive, Toyoda’s continued influence has raised concerns about the concentration of power. Some board members believe that this could hinder independent oversight and decision-making. Recently, six new directors were appointed to Toyota’s board, and some insiders have noted that these changes have left Toyoda surrounded by individuals who do not challenge him.

Investors have also taken notice of these concerns. Seven large investor groups have indicated plans to vote against Toyoda’s re-election due to governance issues and his perceived responsibility for recent testing problems disclosed by Toyota and its group companies. Prominent advisory firms Glass Lewis and Institutional Shareholder Services have recommended voting against Toyoda’s re-election.

While board members in Japan are typically re-elected with near-unanimous shareholder support, dissenting votes against Toyoda’s reappointment are expected to remain a minority. Over the past decade, his reappointment votes have received an average approval of over 96 percent.

Last year marked Toyoda’s final year leading Toyota’s annual shareholder meeting, where he expressed his confidence in Sato’s future leadership. This year, for the first time, Sato will preside over the meeting. According to Howard Yu of IMD Business School, how Toyota manages this succession will be crucial for its future direction. The key question for Toyota is whether it needs to reinvent itself under new leadership.

Jonathan James
Jonathan James
I serve as a Senior Executive Journalist of The National Era
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