BREAKINGVIEWS-Toyota CEO shuffle creates new governance headache

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Katrina Hamlin

HONG KONG, Feb 6 (Reuters Breakingviews) - Toyota Motor’s 7203.T CEO rejig is muddying its corporate governance credentials. The $314 billion carmaker's incoming boss Kenta Kon was the architect of a controversial plan to buy out Toyota Industries 6201.T, a related entity. Meanwhile, his predecessor stays on in a newly invented role, in which he will answer to founding family member and Chair Akio Toyoda. The messy reshuffle looks odd amidst Japan’s value push.

Among the top candidates leading businesses in Toyota's sprawling web of companies and subsidiaries, the new CEO stood out. He is currently finance chief of Toyota Motors itself. He’s also a director at both Woven – the carmaker’s software-focused unit – and Toyota Fudosan. The latter has been thrown into the spotlight as the would-be acquirer in a controversial buyout of Toyota Industries.

Being on both sides of the closely watched deal is awkward, though Kon says he did not participate in Toyota Motor’s decision-making process. However, actions at Toyota Fudosan hardly reflect well on Kon. The $36 billion price tag on Industries, which includes Toyota group shareholdings as well as a lucrative forklift truck business, undervalues the entity by some 40%, per Breakingviews calculations, and has attracted considerable criticism from investors including Paul Singer's Elliott Investment Management and others.

The new arrangement has further downsides too. Though Sato is stepping away from his current role and sacrificing his seat on the board, he is taking up a new role as “Chief Industry Officer”. Meanwhile, another former CEO, Toyoda, remains chair. The latter is the great-grandson of Sakichi Toyoda, credited with founding the Toyota group and the modern Japanese auto industry. The younger Toyoda's tenure as CEO lasted 14 years.

Such arrangements are common in Japan, and the changes are intended to accelerate decision-making during a tumultuous period for the sector. But having so many bosses could also complicate management.

The succession comes as Japan continues its years-long campaign to improve corporate governance. Toyota has made some progress on this front, like starting to unravel cross-shareholdings. But the de facto national champion has more to do and the danger is the latest governance muddle will undermine some of its achievements.

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CONTEXT NEWS

Toyota Motor Chief Executive Koji Sato will step down, the company said on February 6, and will be replaced by the automaker's chief financial officer, Kenta Kon.

In their new roles Kon will focus on internal company management while Sato will take on a newly established role as "Chief Industry Officer", the company said in a statement.

(Editing by Aimee Donnellan; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on HAMLIN/katrina.hamlin@thomsonreuters.com; Reuters Messaging: katrina.hamlin.thomsonreuters.com@reuters.net))