Shareholders at crisis-ridden Toshiba Corp (6502.T) voted out its board chairman and one other director on Friday, a forceful rebuke of the company after it was found to have colluded with the government in suppressing foreign investor interests.

For many, the result at the annual general meeting marks a new watershed moment for corporate governance in Japan after activist Toshiba shareholders prevailed earlier this year in securing a probe into the allegations of pressure on overseas investors.

“This result is a sign of a paradigm shift in Japan and will only embolden activist investors whether foreign or domestic,” said Justin Tang, head of Asian research at United First Partners in Singapore.

But supporters of now former board chairman Osamu Nagayama say his failure to win re-election will only set Toshiba further back, depriving the industrial conglomerate, which has lurched from crisis to crisis since 2015, of experienced leadership.

A breakdown of the vote was not immediately disclosed. The newly elected board will meet later on Friday to discuss who will head the new board.

According to one Toshiba source, foreign investors had voted in greater numbers than in the company’s previous shareholder meetings as they saw it as an important test case of corporate governance in Japan. The source was not authorised to speak to media and declined to be identified.

Just how the government will respond to the results of the AGM remains to be seen.

Toshiba, makes defence equipment and nuclear reactors, is strategically important to the government and Trade Minister Hiroshi Kajiyama has been unapologetic about his ministry’s dealings with the company, saying the policies it implemented were natural ones for the ministry to take.

“In general the hope is that corporate governance can be improved through discussions with shareholders and at the same time we work to secure the stable development of businesses and technology that are important from a national security standpoint,” he told a regular news conference ahead of the AGM.

On Thursday, Akira Amari, a former economy minister and an influential lawmaker in the ruling Liberal Democratic Party, accused activist investors of focusing only on short-term profits and called for better monitoring of such investors to protect economic security. read more

SHAREHOLDER REVOLT

Shares in Toshiba recouped earlier losses to be be flat after the result. The stock has increased more than two-thirds in value this year, bolstered by a $20 billion bid for the company by private equity company CVC Capital. Although Toshiba has dimissed that bid, it has promised a strategic review.

Nagayama only joined Toshiba’s board in mid-2020 after the alleged pressuring of foreign shareholders to vote in line with management’s board nominees took place.

A former Chugai Pharmaceutical (4519.T) CEO and Sony Group Corp (6758.T) board director, he is well respected and both the electronics giant and former U.S. ambassador to Japan John Roos had expressed their support for him.

But his critics argued he should step down to take responsibility for the board’s resistance to address the allegations.

Shareholder advisory firms Institutional Shareholder Services Inc and Glass Lewis had recommended shareholders not reappoint him, while 3D Investment Partners, Toshiba’s Singapore-based No. 2 shareholder with a 7.2% stake, had called for his resignation.

3D Investment said in a statement after the result that it hoped the AGM marked the beginning of a new era at Toshiba and it looked forward to constructive, ongoing dialogue with Toshiba’s board and management team.

Toshiba nominated 11 directors at the AGM, including Nagayama. Nobuyuki Kobayashi, a member of the audit committee, was also voted out.