Game of thrones: Board battle at toilet maker Lixil a test for Japan Inc
24/04/2019 24:00
(Repeats with no changes to text)
* Seto's resignation prompted protest by minority investors
* Shareholders have long complained about rights in Japan
Inc
* Seto seeking CEO job back, says will propose new slate for
board
* Lixil known for luxury toilets, American Standard brand
By Junko Fujita
TOKYO, April 23 (Reuters) - A simmering boardroom battle at
toilet maker Lixil Group 5938.T has emerged as a test case for
whether minority shareholders can improve corporate governance
in Japan, the man at the centre of the tussle told Reuters.
Kinya Seto, whose abrupt resignation as Lixil's CEO in 2018
prompted a revolt by minority shareholders, said the company is
controlled by an old guard of management "kingmakers" who
prioritise their interests over shareholders'.
"In Japan even fairly big companies have these kingmakers
who are in power for a decade or two and even the chief
executive can't oppose them," Seto said.
"Their opinions do not necessarily represent shareholders'
opinions. Companies may prioritise kingmakers' opinions and as a
result Japanese companies do not function properly."
The current CEO and chairman of Lixil's board, Yoichiro
Ushioda, hails from one of the company's founding families. His
prompt appointment after Seto's departure had raised concerns
about corporate governance and led to calls for him to resign.
Ushioda bowed to investor pressure and said last week he
would step down in May - but not before publicly putting the
blame on Seto for Lixil's bleak financial performance.
Activist investors have been gaining momentum in Japan and
have complained about what they see as poor performance as well
as returns from cash-hoarding firms, with Prime Minister Shinzo
Abe advocating strengthening corporate governance.
But companies are often able to ignore minority investors
given the longstanding practice of cross-shareholding, where
firms hold stakes in each other to cement business ties.
"If the governance of Japanese companies changes, then
corporate management will improve," said Seto, who remains a
director at Lixil and is seeking to take back the CEO post.
He and another director have said they will propose a new
slate of board members.
"I need to win. If I fail, that becomes a bad example of
Japanese corporate governance," Seto told Reuters this week.
KINGMAKER
Lixil was created in 2011 through a merger of five Japanese
building materials and housing firms, including Tostem and Inax.
It is well known in Japan for its high-tech, luxury toilets,
while its overseas brands include American Standard and Grohe.
It has been roiled by the boardroom drama, which has been
unusually fractious by the standards of corporate Japan, since
Seto's resignation in October.
According to a report from a group of independent lawyers
commissioned by Lixil, Ushioda last year "engaged in behaviour
giving the false impression that Mr Seto had a concrete and
clear intention to resign as CEO".
The February report also cites a company director as saying:
"No one could object to Mr. Ushioda, a member of a founding
family, saying he will become CEO".
Ushioda, when announcing his resignation, said he was doing
so to take responsibility for previously appointing Seto.
"The appointment of Seto as CEO was my biggest mistake,"
Ushioda told a news conference, saying Seto was responsible for
the loss at Lixil's Italian subsidiary, which forced the company
to warn of a full-year net loss. urn:newsml:reuters.com:*:nL3N2202UL
Seto, in turn, has accused Ushioda of being a "kingmaker"
who wields power from the sidelines of companies and ultimately
damages them. Ushioda's willingness to stay on as adviser points
to his desire to hold sway over the company, Seto added.
A Lixil spokesman, however, pointed out that Ushioda had
said he would resign from the board and management.
"Lixil has been and will try to strengthen corporate
governance in order to boost corporate value sustainably."
($1 = 111.9200 yen)
(Reporting by Junko Fujita; Editing by David Dolan and Himani
Sarkar)
((813-6441-1840, junko.fujita@thomsonreuters.com, Reuters
Messaging:junko.fujita.reuters.com@reuters.net;))