One of the world's largest automakers, Japanese auto giant Toyota (TM) , is raking in profits fueled by increasing demand for hybrid-electric vehicles.
The architect behind the success is Toyota's current Chairman, Akio Toyoda—the grandson of Toyota founder Kiichiro Toyoda, whose rhetoric influences the chambers and corridors responsible for legendary cars like the Camry, Corolla, and Prius.
As the chairman of his family's automaker, Mr. Toyoda is supposed to have a significantly reduced role compared to the chief executive position he held for 14 years. Although Koji Sato took over as Toyota's chief executive in 2023, board members and investors believe that Toyoda's influence has siphoned power and influence from the actual CEO, leaving the company vulnerable to scandal and in leadership disarray.
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Scandals threaten Toyoda's leadership
At Toyota Motor Company's annual shareholder meeting on June 18, chairman Akio Toyoda's position on the board of directors was reinstated, but not without objection and controversy.
At the meeting, Toyoda and the rest of Toyota's management were grilled on a number of issues that have contributed to the objections and concerns of investment advisors and individual shareholders.
According to a report by Nikkei, some investment advisers opposed the election of Toyoda prior to the shareholder meeting, pointing out that he should be held accountable for his role in scandals that have rocked the Japanese automaker, including active investigations into recently discovered testing irregularities and governance concerns.
Earlier this month, the Japanese Ministry of Land, Infrastructure, Transport and Tourism announced that Toyota, Honda and other automakers have admitted irregularities in crash safety tests in some of its models. As per Toyota, the application to authorize production of four models that were sold only in Japan, were submitted to the ministry using "inadequate data in pedestrian and occupant protection tests."
These irregularities prompted an investigation that included a raid on Toyota's headquarters earlier this month. As a result of the scandal, U.S. proxy advisory firm Glass, Lewis & Co. advised Toyota investors to vote against Toyoda's reappointment, which blamed Toyoda by name for the scandal at hand.
"We believe that Mr. Toyoda holds responsibility for failing to ensure that the group maintained appropriate internal controls and for the failure to ensure appropriate governance measures were implemented at group companies," the firm said in its report.
"Given the widespread occurrence of issues throughout the Toyota Group, this further raises questions concerning the corporate culture which has developed under the leadership of Mr. Toyoda."
Last year, the firm recommended to block Toyoda's reelection as a director, citing lack of corporate governance. Toyoda won his seat in 2023.
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Power, Corruption, Lies and Ego
Ahead of the meeting, two significant shareholders — the California Public Employees’ Retirement System (CalPERS) and the Office of the New York City Comptroller voted against the reappointment of Toyoda.
In a statement, Michael Garland, the New York City Assistant Comptroller for Corporate Governance noted that there were serious concerns about Toyoda and his role within the company's corporate culture.
“Our vote against Mr. Toyoda was driven by a pattern of safety and compliance concerns. Setting a tone at the top is critical,” Garland said in a statement. “As investors, we see a lack of independent board oversight as a major governance issue, particularly as the company works to change its culture in response to mounting safety and regulatory violations.”
Additionally, another U.S. proxy advisory service, Institutional Shareholder Services also advised Toyota investors to vote against Akio Toyoda's reappointment prior to the meeting, citing similar reasons.
"As a longtime top executive, Toyoda should be considered ultimately accountable for a spate of certification irregularities within the Toyota Motor group," ISS said in its report.
"Judging from the board members nominated, as well as the countermeasures announced by the company, contrary to the company's assertions regarding changes to the corporate culture, the company's propensity to preserve its corporate culture is in fact suspected, and Toyoda should be held accountable for that."
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Experts and insiders within Toyota noted that the man with the Toyoda family name may have a bit of an ego, which fuels the corporate culture problem cited by advisers and major investors.
In a report published by The New York Times, Jeffrey Liker, the head of the Liker Lean Advisors consulting firm and the author of books that extensively document Toyota's unique management system, cited its current and future positive financial roadmap for Akio to feel he's been "proven right" when it came to his controversial opinions regarding the electric future of the automotive industry.
In January 2024, Toyoda predicted that battery-electric vehicles will peak at a 30% market share, leaving the other 70% to hybrids, fuel-cell electric vehicles and hydrogen-powered vehicles. With opinions like this, Liker warned that Toyoda "may have more influence than he wants," so much so that his opinions can be taken "as the word of God."
According to three internal sources at Toyota cited by the Times, other board members have grown increasingly concerned that the company's success is cementing a "problematic concentration of power by Mr. Toyoda." They told the Times that some members of the automaker's management see Toyoda with an outsized role as chairman, acting like a CEO that commands meetings and continues to drive major company initiatives.
Additionally, Toyoda recently made some significant changes to Toyota management, including the addition of six new members to the board of directors in 2023.
In an interview with Japanese weekly news magazine Shukan Bunshun (週刊文春), outside Toyota board member Ikuro Sugrawara noted that the chairman has surrounded himself with loyal "yes men" that don't question his authority.
"Mr. Akio has changed," the Toyota, Fujifilm and Hitachi board member told the magazine. "He used to have people around him who voiced their opinions."
As per Automotive News, Toyoda defended his outsized role as Chairman at the shareholder meeting, describing it as being a kind of "shadow cabinet" to the CEO and the much younger generation of leaders in charge at the automaker.
“Governance is not about me trying to control everything,” Toyoda said, translated from Japanese. “I take responsibility and the executive members make the decisions. I will talk with them to give advice.”
Toyota, which trades on the New York Stock Exchange under ticker TM, is down 0.69%, trading at $193.75 at the time of writing.
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