Despite leadership changes Kobayashi Pharma still struggling with reform

Japan Times

2 days ago

Kobayashi Pharmaceutical remains only halfway through overhauling its corporate governance, as it struggles to restore public trust following the revelation of health problems linked to some of its dietary supplements more than a year ago.
In an effort to move past its troubled legacy, the Osaka-based company has replaced its president twice and appointed an external chairman. These steps were intended to reduce the influence of the founding family, whose dominance has been widely seen as a root cause of the scandal.
The family is believed to hold a 30% equity stake in the company and wields significant influence, posing a formidable barrier to meaningful internal reform efforts.
In March last year, Kobayashi Pharmaceutical reported a series of health issues, including cases of kidney disease, among consumers who had taken dietary supplements containing beni kōji, rice fermented with red yeast. In response, the company has been compelled to review its management structure, compensate affected individuals and investigate the root cause of the problem.
A report by an independent fact-finding committee comprising external attorneys concluded that then-President Akihiro Kobayashi "failed to take the lead on conducting a product recall or issuing a warning to ensure consumer safety." Following these findings, the company announced in July the same year that both Kobayashi and his father, Chairman Kazumasa Kobayashi, would resign from their positions.
Satoshi Yamane, who was promoted from senior managing director to president the following month, described the company's corporate culture up to that point as one of "homogeneity" centered around the founding family.
He noted that this culture had led to an overreliance on the Kobayashi family, and initiated efforts to reduce management's dependence on the family and foster a more diverse and resilient leadership structure.
But in January this year, Yamane announced his resignation as president, with Executive Officer Norikazu Toyoda succeeding him. Additionally, three of the four outside directors decided to step down. As a result, five of the seven directors, including outside directors, who were in office when the beni kōji issue emerged have now left their positions.
To further strengthen its leadership, Kobayashi Pharmaceutical has appointed Yoshihito Ota, known for his role in the management turnaround of Japan Airlines, as chairman following Toyoda's promotion to president.
While the embattled company is highlighting progress in its management reforms, fully distancing itself from the founding family remains a significant challenge. Former Chairman Kazumasa Kobayashi continues to serve the company as a special adviser, while former President Akihiro Kobayashi now holds the position of director in charge of compensation.
Oasis Management, a Hong Kong-based investment fund that owns 10% of Kobayashi Pharmaceutical's outstanding shares, has been critical of the company's management since last autumn. At an extraordinary shareholders' meeting in February, Oasis Management proposed its own slate of directors, but the proposal was rejected by a majority vote.
In an unexpected turn of events in March, shareholders rejected a proposal by management to amend the company's articles of incorporation at the annual meeting. The proposed revision had been intended to advance governance reform.
Currently, the articles of incorporation stipulate that the chairman and president serve as co-chairs of the board of directors. Management's proposal sought to change the provision so that, in principle, the chairmanship of the board would be held by an outside director.
The proposal was rejected primarily because shareholders from the founding family voted against it, highlighting their significant influence over the company.
In a recent interview, President Toyoda reflected on the outcome of the March general shareholders' meeting. He acknowledged, "We should have held more discussions to gain support from the founding family" regarding the proposed changes to the articles of incorporation. "The founding family also understands the importance of governance reform," he added.
Toyoda expressed confidence that future internal reforms, compensation for victims and the implementation of measures to prevent a recurrence of the health issue would not be affected.
In May, Kobayashi Pharmaceutical published its first newspaper advertisement since the scandal broke, and in June it resumed television commercials.
With compensation for the victims still incomplete, however, consumer confidence in the company is still low. "We have yet to see whether (the resumption of commercials) will actually bring back customers," Toyoda said.