Aoki: A Company in Need of Governance Reform
Aoki is facing serious corporate governance concerns under the leadership of President and Vice President Aoki, including problematic stock option issuances, potential misuse of company assets by Mr. Keisei Aoki, Aoki’s founder and the father of the current President & Vice President Aoki, and a worst-in-class approach to engagement with shareholders.
Board oversight has not functioned appropriately to protect minority shareholders from these governance failures, which have hindered the Company from achieving its full potential.
Aoki’s Corporate Governance Failures:
1. Problematic stock option issuance: In January 2020, Aoki issued stock options to President Hinori Aoki and his brother, Vice President Takanori Aoki. The disclosed fair value of the stock options was JPY7.256bn, however, the Aoki brothers only paid JPY52.5mn to acquire the options. The Company’s auditor, KPMG Azsa, resigned after the issuance of the stock options. The issuance of the options, which could dilute shareholders by 11.1% if exercised, was approved by a board resolution, without approval by shareholders at an AGM. The issuance followed questionable and abrupt downward revisions to earnings forecasts, impacting the stock price. After the stock options had been issued, the Company announced financial results that were stronger than the initial guidance. Oasis suspects financial pressure on the Aoki family during the issuance, as their shares were collateralized. We demand the president and his brother to pay the fair price for the options or return the options to the company at book value.
2. Potential Misuse of Company Assets: Mr. Keisei Aoki, Aoki’s founder and the father of President and Vice President Aoki, currently lives in a large (1,700 square meter) complex owned in part by the Company. According to public records, the east side of the facility is owned by Mr. Keisei Aoki, but the west side is owned by the Company. Oasis research confirms this is a single facility that is connected across irrigation water. Based on on-site inspections, this facility is Mr. Keisei Aoki’s residence, raising concerns about the potential inappropriate use of company assets.
3. Unsuitable outside director candidate: Oasis has serious questions about the independence of the Company’s proposed director candidate, Mr. Hiromitsu Fujii, due to his previous employment record at the Company. In addition, data from a survey firm reveals that his companies, Taion 365 and Taion Holdings, have faced multiple years of unprofitability and insolvency. Moreover, the businesses he manages are significantly smaller in scale (about one thousand times smaller) than Aoki. The delayed start of Mr. Fujii’s biomass project, which was scheduled to commence more than two years ago, raises concerns about his management capabilities. For these reasons, Oasis firmly believes that Mr. Fujii is not a suitable candidate for Aoki’s new outside director position, and believes the Company nominated Mr. Fujii in a blatant effort to block Oasis’s proposal by filling its empty board seat.
4. Disregard for shareholders and extremely poor levels of transparency and communication: Aoki has also refused to engage in dialogue or make its representatives available to meet with shareholders. As a shareholder, Oasis has repeatedly requested to meet with President Hironori Aoki since November 2022. Despite our frequent attempts to meet him to engage in meaningful dialogue, we have been consistently denied this opportunity. This refusal to engage with Oasis not only falls short of meeting the recommendations of Japan’s Corporate Governance Code, but also serves to demonstrate the severity of the Aoki family entrenchment, and is among the worst we have seen in Japan in terms of disregard for shareholders. The Company has also refused our multiple requests for meetings between the Oasis’s proposed director candidate and the Company’s outside directors.
The Need for Change:
Aoki’s governance practices demonstrate a concerning trend of prioritizing the interests of the founding Aoki family over the broader shareholder base. The Company’s governance deficiencies are becoming more apparent. Oasis believes that urgent governance reforms are required.
Shareholders must act now to improve corporate governance at Aoki
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