On December 4, 2025, Tokyo Cosmos Electric Co., Ltd. (“TOCOS”), which underwent a change in management structure as a result of shareholder proposals submitted by an activist investor, disclosed a “Notice Regarding the Publication of the Special Investigation Committee’s Report” together with the attached investigation report (disclosure version) (the “Report”). Although TOCOS is not one of our portfolio companies, we believe the Report offers many insights for directors of listed companies, investors, and governance professionals and consultants. Today, we are making this post with our duly respect for the activist investor who has triggered this transformation, as we would like these insights to be widely shared with the market.
“Notice Regarding the Publication of the Special Investigation Committee’s Report” (Japanese only)
TOCOS is a company with an Audit and Supervisory Committee, and even during the main investigation period covered by the Report (2024–2025), its governance structure appeared, at least on the surface, to meet the key elements of the governance standards expected of a listed company. However, the Report sets out in detail that, behind this façade, there were extremely serious corporate governance problems. We suspect that what is revealed in TOCOS’s case is likely just the tip of the iceberg amongst listed Japanese companies. We would like to comment as follows some of the key red flags we saw in the report about past TOCOS:
・The tender offer (TOB) by the Japanese subsidiary of the U.S. company Bourns appears to have been conceived primarily as a way to escape shareholder pressure, and there is no trace that the Board of Directors properly discussed about how this transaction evolved in its early stage.
・In order to avoid the break-up risk of the deal due to excessively pushing for high TOB price, the company, together with its advisors, sought to “manage” the business plan assumptions downward in an arbitrary manner. Furthermore, with respect to the provisional opinion of the special committee, which indicated a neutral stance on tendering to the TOB, some executive directors expressed strong dissatisfaction.
・Another domestic listed company had separately expressed interest in a potential business combination including an acquisition of TOCOS, but because this timing overlapped with the review of the proposed Bourns acquisition, TOCOS delayed meetings and otherwise sought to minimize substantive dialogue as much as possible with this company.
・In the medium-term management plan disclosed in 2024, the company indicated that there would be no growth for the coming three years labeling this period to be a “investment-for-growth-period,” even though there appear to have been virtually no concrete investment plans.
・TOCOS failed to engage in good faith with shareholder proposals and instead conducted a negative campaign against the proponent shareholder, based on a predetermined conclusion of “how to oppose” the proposal, even when outside directors were correctly pointed out that capital allocation and related matters had not been sufficiently considered internally.
Companies Act and the Civil Code clearly stipulates the fiduciary duties of company board members. We are shocked to observe such serious miss-behaviour of the management, in an environment where their mission is implicitly understood to be the maximization of corporate value and shareholders’ interests and during when things are “In-Play” for the company—namely, in responding to shareholder proposals and negotiating M&A transactions, both of which have a major impact on corporate value.
Lastly, for those who are pressed for time, we would encourage you to at least read this section “VI. TOCOS’s Corporate Governance (as Part of the Root Cause Analysis),” starting from page 70 of the Report as it provides a clear and accessible summary of the various governance dysfunctions in this case.
The accuracy of the data and information collected in the preparation of this document is taken with great care, but the accuracy is not guaranteed. In addition, this post does not constitute a solicitation for an offer to acquire or recommend the purchase or sale of specific securities, or advice on investment, legal, tax, accounting, or any other matters. In the event of any discrepancy or conflict between the English and Japanese versions, unless otherwise noted, the meaning of the Japanese language version shall prevail unless otherwise expressly indicated.