Toho Holdings' Governance Crisis: A Call for Leadership Overhaul to Avert Disaster

The governance failures at Toho Holdings Co., Ltd. (TSE: 8129) have reached a critical juncture, with shareholder activist 3D Investment Partners sounding the alarm over systemic risks that threaten the company's long-term viability. As Japan's pharmaceutical wholesale sector faces heightened regulatory scrutiny and competitive pressures, Toho's entrenched leadership has failed to address governance flaws, compliance scandals, and operational inefficiencies—creating a perfect storm of value destruction. Shareholders must act decisively at the upcoming Annual General Meeting to demand leadership changes and avert catastrophe.

A House of Cards: Governance Failures Exposed

Toho's crisis is not merely financial but structural. The company's lack of a coherent governance framework has allowed repeated mismanagement, including unstructured acquisitions that bloated its portfolio to 57 subsidiaries and 11 affiliated companies by March 2024. This complexity has stifled profitability, with core operations lagging behind rivals like Medipal Holdings and Alfresa Holdings.

At the heart of the problem is leadership's refusal to address compliance failures. A

underscores the disconnect between its public image and internal realities. The Nihon University Incident—a scheme involving illicit payments to shell companies—revealed top-tier involvement, with former President Katsuya Kato directly approving the transaction. Internal emails and court records further suggest systemic misuse of shell companies, yet Toho's leadership has dismissed these allegations as isolated incidents.

Compliance Catastrophes: A Pattern of Negligence

Toho's track record is alarming. Over the past two decades, its subsidiaries have been implicated in three pharmaceutical bid-rigging scandals, incurring fines and criminal charges. The Nihon University Incident, however, represents a new low: payments funneled through a shell company to misappropriate funds from university-affiliated hospitals. Despite 3D's demands for an independent investigation, Toho's “Special Committee on Governance Enhancement” has been rendered toothless—lacking authority to probe or enforce reforms.

The consequences are dire. Janssen Pharmaceutical (Johnson & Johnson) recently severed ties over compliance concerns, a warning shot for other partners. With pharmaceutical manufacturers increasingly prioritizing distributors with robust compliance protocols, Toho's reputation as a high-risk partner could trigger a cascade of lost contracts.

Leadership Failure: Why Change is Non-Negotiable

While 3D Investment Partners has not explicitly called for CEO removal, the evidence demands it. The current leadership's response to governance failures—denial, opacity, and inaction—has eroded trust. Consider these red flags:
- Rejection of Value-Enhancing Proposals: 3D's 2023 plan to monetize underperforming assets, streamline operations, and prioritize capital discipline was dismissed.
- Resistance to Transparency: Toho blocked an independent investigation into the Nihon University scandal, opting for a whitewash “committee” that cannot hold anyone accountable.
- Strategic Stagnation: Competitors are outpacing Toho in operational efficiency and compliance, while its stock has plummeted.

This chart starkly illustrates Toho's decline compared to peers, a direct result of poor governance and leadership.

The Path Forward: Shareholder Action Now

At the upcoming AGM, shareholders must vote to replace three board members: Hiromi Edahiro (President/CFO, implicated in the Nihon University scandal), and outside directors Yoshiaki Kamoya and Hidehito Kotani. Their continued presence perpetuates the status quo—a recipe for further value destruction.

3D's proposals provide a roadmap:
1. Simplify the Corporate Structure: Sell non-core assets and reduce subsidiaries to focus on high-margin pharmaceutical distribution.
2. Implement Independent Oversight: Mandate third-party investigations into compliance issues and enforce accountability.
3. Adopt Capital Discipline: Redirect resources to growth areas, not opaque shell companies or ill-conceived acquisitions.

Why Act Now?

The stakes are existential. Toho's intrinsic value—undermined by inefficiency and scandal—is being erased by the day. Shareholders who ignore governance risks will face irreversible losses as partners flee and regulators tighten the screws.

Final Call to Action:
Toho's shareholders must seize this moment. Vote against reappointing Edahiro, Kamoya, and Kotani. Demand transparency, enforce accountability, and prioritize leadership that can rebuild trust. The cost of inaction is too high.

The clock is ticking—act now before it's too late.