A widening vote-counting scandal in Japan has highlighted problems with the way big banks handle mail-in ballots. Now investors want answers as to whether their votes counted.
The problem first surfaced at Toshiba (TOSBF) . Its largest investor is now demanding an investigation into a shareholder vote in July, since it is now clear some shareholders were deprived of their vote.
The problems trace back to the banks charged with handling shareholder ballots.
Sumitomo Mitsui Trust Bank (SUTNY) and Mizuho Trust & Banking have revealed problems in handling the vote counting at more than 1,300 companies. The vast majority of them are listed, meaning around one-third of public companies in Japan have experienced undercounting of mail-in ballots.
Sumitomo Mitsui Trust says it has uncovered 3.4 million votes that were not counted in handling votes at 975 companies.
Mizuho Trust, part of Mizuho Financial Group (MFG) , then said it found 22,848 voting forms that went uncounted at the shareholder meetings of 371 corporate clients.
The two trust companies tally the votes for shareholder meetings in a joint venture called Japan Stockholders Data Service.
It was the botched Toshiba vote that led to the discovery. Toshiba now says 1,139 postal voting forms went missing for its July 31 meeting and weren't counted. Sumitomo Mitsui admits some Toshiba shareholder votes were mistakenly left out of the final tally of the voting.
The problems at Toshiba have led to this broadening discovery that 1,346 Japanese corporations have had their shareholder votes mismanaged by the trust companies.
Singapore-based Effissimo Capital Management is now called for an investigation into the July shareholder meeting. It is Toshiba's biggest shareholder, owning 9.9% of the industrial conglomerate's shares.
Reuters reports it has seen a copy of the letter from Effissimo to the Toshiba board, calling for an inquiry. The letter, dated September 23, says that Toshiba should set up a committee comprised only of independent members to investigate if the July vote was fair.
Another Singapore-based fund, 3D Investment Partners, has also called for an investigation and says its vote was not recognized.
Toshiba in June 2019 elected its first non-Japanese board members in more than 80 years. They include Raymond Zage, who runs the private-equity company Tiga Investments and was the hedge-fund manager who set up Farallon Capital Management's Asia business.
Sumitomo Mitsui says the missing votes would not have changed any of the outcomes in shareholder meetings. But the mistake strips bare not only the occasionally antiquated way that Japanese companies do business but also a long-standing issue demonstrated by Japan Inc. with minority shareholders.
Sumitomo Mitsui says it missed the votes through clerical error. At peak season for shareholder meetings, it asks for the postal service to deliver the mail early by special arrangement. But it then records mail items as being received the day after they were actually delivered. Voting cards that arrived on time around the cutoff date were sometimes cast out because they were recorded as arriving a day late.
"We deeply apologize for the mishandling of the vote counting," Sumitomo Mitsui senior managing executive officer Atsushi Kaibara told a news conference. Kaibara said the company takes the matter seriously. Sumitomo Mitsui says it will promote online voting rather than through the postal service.
Such errors have continued for around two decades. Sumitomo Mitsui says the existing vote-counting procedure has been in place for a "significantly long time." It pledged to scrap the practice.
Only 14% of institutional investor votes were made online in Japan in 2017, according to the Economy, Trade and Industry Ministry. That compares to 90% of institutional votes coming online in the United States.