The leader behind Toyota's hybrid revolution is facing a critical test

Fueled by increasing demand for hybrid-electric vehicles, one of the world's largest automakers; Japanese auto giant Toyota  (TM)  is raking in the profits.

The architect behind the success is Toyota's current Chairman Akio Toyoda — the grandson of Toyota founder Kiichiro Toyoda, and a person whose rhetoric influences the chambers and corridors responsible for legendary cars like the Camry, Corolla and the 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 that he held for 14 years. Although Koji Sato has taken over as Toyota's chief executive in 2023, board members and investors believe that Toyoda's influence has siphoned power and influence from the true CEO, leaving the company vulnerable to scandal and Toyoda's seat on the board of directors in jeopardy.

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Scandal

Toyota Motor Company on June 18 holds its its annual shareholder meeting, where Chairman Akio Toyoda's position on the board of directors will be up for a vote. 

According to a report by Nikkei, some investment advisers are heavily opposing the election of Toyoda, noting 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 advisers 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

Another U.S. proxy advisory service, Institutional Shareholder Services also advised Toyota investors to vote against Akio Toyoda's reappointment, concluding that the company's board structure enables the chairman and a toxic corporate culture.

"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.

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."

Toyota, which trades on the New York Stock Exchange under ticker TM, closed on June 17 down 0.98%, ending at $195.20 at the closing bell. 

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