Oasis Calls for EGM at Kobayashi Pharmaceutical to Elect New Outside Directors and Independent Investigator

HONG KONG--( BUSINESS WIRE )-- Oasis Management Company Ltd. (“Oasis”) is the manager to funds that beneficially own over 7.5% of Japanese pharmaceuticals and food products manufacturer Kobayashi Pharmaceutical Co., Ltd. (4967 JT) (“Kobayashi Pharma” or the “Company”).

As a Kobayashi Pharma shareholder, Oasis expresses its deepest condolences to all the victims and their families who have been harmed by the Beni-Koji supplement.

Oasis has been engaging with Kobayashi Pharma since 2023 with the aim to help improve the Company’s corporate governance and corporate value. In light of the health hazard scandal (the “Beni-koji Scandal”) that surfaced in March 2024 related to the Company’s Beni-koji Choleste-Help products (the “Products”), Oasis has accelerated its engagement efforts to enhance the Company’s governance, to secure appropriate reparations for the victims, and to ensure improved product safety going forward.

To address Kobayashi Pharma’s failures related to health, safety, and compliance, Oasis has decided to take action as a responsible shareholder by calling for an extraordinary general shareholders’ meeting (“EGM”). Oasis urges fellow shareholders to vote FOR the Oasis shareholder proposals at the upcoming EGM, including:

Vote FOR:

Election of three new independent director candidates:

1. Mr. Richard Dols Young, a former partner at a venerable US product liability law firm, who has led global product safety compliance for a multinational corporation.
2. Dr. Tomoko Chubachi, an experienced physician and former Chief Medical Officer of a pharmaceutical manufacturer, who has expertise in sanitation, health and safety, and regulatory compliance.
3. Mr. Yoshio Nakamura, a lawyer and former prosecutor who has extensive investigative experience, including serving as a committee member in past scandal investigations.

Vote FOR:

Election of Mr. Shin Ushijima, president of the Japan Corporate Governance Network and founding partner of law firm Ushijima & Partners, to lead an independent investigation into the Beni-Koji scandal from an unbiased third-party perspective.

Background: Kobayashi Pharma’s Beni-Koji Scandal

Although the Company was informed by a physician in early January 2024 of a health hazard incident possibly caused by the Products, the Company only finally announced a voluntary recall of Beni-koji-related products including the Products on March 22, 2024. On March 27, 2024, the Ministry of Health, Labor and Welfare (the “MHLW”) presented its view that the Products produced by Kobayashi Pharma should be treated as a violation of Article 6, Item 2 of the Food Sanitation Law.

The damage to consumers caused by the health hazard incident is extremely serious. Specifically, according to the MHLW, as of December 1, 2024, the health damage status, of which the Company was aware, was 397 fatalities, 542 inpatients requiring hospitalization and 2,635 patients in medical institutions. The number of victims continues to increase, and the final number has yet to be determined.

Issues with the Fact-Finding Committee

Following the incident, Kobayashi Pharma set up a “Fact-Finding Committee” instead of a conventional Third-Party Committee, as is recommended by the Japan Exchange Group (“JPX Group”) in its “Principals for Responding to Corporate Scandals”. In addition, the Fact-Finding Committee did not observe the “Guidelines for Third-Party Committee in Case of Corporate Scandals” compiled by the Japan Federation of Bar Associations (“JFBA”). A Third-Party Committee is considered vital, particularly for cases like the Beni-Koji scandal, which cause material social impacts and/or raise doubts about the reliability of the management and the effectiveness of internal control systems. Companies should “avoid establishing third-party investigative committees as merely formal gestures with the aim of lending a simplistic, insufficient investigation with a false air of independence and neutrality” as noted in the “Principles for Responding to Corporate Scandal” by the JPX Group.

Oasis believes that there were various issues with the Fact-Finding Committee as outlined below, and that it represented an attempt by Kobayashi Pharma management to wind up the exploration of the cause of the incident by conducting its investigation through the Fact-Finding Committee of questionable independence and neutrality and, thus, to evade the Directors’ responsibilities.

• Lack of Independence from the Targets to be Investigated
  • As the investigation by the Fact-Finding Committee was supported by the law firm that has separately provided legal advice for the interest of the Company with respect to Beni-Koji scandal, its independence was not guaranteed.
  • The Fact-Finding Committee shared the results of its investigation and contents of its report with the internal Directors of the Company and finalized the report only after discussion with the Directors. This casts doubt about the independence of the investigation and the objectivity of the report and violates the principles established to ensure Third-Party Committee independence.

• Limited Scope of Investigation
  • The investigation was limited to events that took place between the time Case 1 was reported in mid-January 2024 and the time the Press Release was issued on March 22, 2024.
  • This excludes events that took place after the Company’s disclosure of the incident on March 22, 2024. For example, the Company’s decision not to update the number of potential deaths and its reporting of inaccurate information to the MHLW are outside the scope of the investigation.
  • The Fact-Finding Committee was commissioned to merely investigate “the course of the factual events that took place between mid-January 2024 to March 22, 2024” for the purpose of using the findings as the basis for the Board of Directors’ post-facto assessment of the Beni Koji scandal. It was not necessarily aimed at clarifying the “root causes of the misconduct”, as mentioned in the “Principles for Responding to Corporate Scandals” outlined by the JPX Group. The Fact-Finding Committee itself admitted that their investigation was inadequate in terms of identifying root causes.

• Incomplete Investigation, Including Lack of Recommendations for Recurrence Prevention Measures
  • Under the JFBA Guidelines regarding Third-Party Committees, the committee has the responsibility to make recommendations for measures to prevent recurrence based on its investigation.
  • However, the scope of investigation for the Fact-Finding Committee was limited to events up to March 22, 2024, and the Board of Directors did not commission the Fact-Finding Committee to recommend recurrence avoidance measures.

Issues Within Kobayashi Pharma Highlighted by the Fact-Finding Committee

Oasis believes that there is an urgent need to conduct another investigation led by an external professional given absolute authority and complete discretion in order to identify all misconduct that occurred and the root causes thereof, including after the scandal was disclosed to the public. In fact, the Fact-Finding Committee also recommended a full-scale investigation into the Company’s internal-control system and quality-control system in order to identify the root causes of misconduct revealed in their report. However, Kobayashi Pharma’s Board of Directors adopted recurrence avoidance measures without conducting the recommended full-scale investigation.

Despite our concerns about the independence and objectivity of the Fact-Finding Committee, it still uncovered numerous shocking deficiencies and failures within Kobayashi Pharma in terms of its sanitation and hygiene protocols and corporate governance, including:

1. Failure to establish and implement a valid quality-control system and raise employee awareness
2. Failure to prevent the spread of harm to the lives, bodies, and health of consumers
3. Failure to respond appropriately to the incident
4. Failure of its corporate auditors and independent directors to oversee management

The Company’s corporate governance framework has been rendered ineffective by the founding family’s (i.e., Mr. Kazumasa Kobayashi and Mr. Akihiro Kobayashi) effective control over the Board. In fact, former Chairman Mr. Kazumasa Kobayashi has been retained by the Company to serve as a Special Advisor and still keeps the office he used during his tenure as Chairman. Likewise, former President Mr. Akihiro Kobayashi remains a director of the Company despite failing to demonstrate leadership during the Beni-koji Scandal and contributing to the spread of the damage.

The independent outside Directors not only failed to provide appropriate oversight as they lacked expertise in food sanitation and hygiene and a sense of duty to monitor the management, but they also failed to hold management accountable. We firmly believe that our proposals for a change at the Board level are necessary to prevent this tragedy from recurring, and to establish appropriate quality control and internal control systems.

Seth Fischer, Founder and Chief Investment Officer of Oasis, said:

“The Beni-Koji scandal exposed significant deficiencies in Kobayashi Pharma’s sanitation standards and a lack of integrity within the Board, as they repeatedly concealed critical findings from the public. We believe these issues stem from a lack of effective corporate governance and the undue influence that the founding family still maintains over the Company.

We urge all shareholders to support Oasis’s proposals, which aim to restore effective governance by finding the root causes of the scandal through an independent investigation and removing Mr. Kobayashi’s influence. Oasis believes this is essential for Kobayashi Pharma to implement appropriate sanitation and hygiene standards that should have been in place already and to ensure consumer safety.”

We call on all shareholders who care about improving Kobayashi Pharma’s compliance and health and safety standards through the restoration of effective corporate governance to vote FOR Oasis’s proposals.

To learn more about Oasis’s proposals, please visit www.KobayashiCorpGov.com . We welcome all stakeholders to contact Oasis at info@KobayashiCorpGov.com to help improve Kobayashi Pharma’s corporate governance and, thus, ensure consumer safety.

Oasis Management Company Ltd. manages private investment funds focused on opportunities in a wide array of asset classes across countries and sectors. Oasis was founded in 2002 by Seth H. Fischer, who leads the firm as its Chief Investment Officer. More information about Oasis is available at https://oasiscm.com . Oasis has adopted the Japan FSA’s “Principles of Responsible Institutional Investors” (a/k/a the Japan Stewardship Code) and, in line with those principles, Oasis monitors and engages with our investee companies.

The information and opinion contained in this press release (referred to as the "Document") is provided by Oasis Management Company (“Oasis”) for informational purposes only or for reference purposes only. The Document is not intended to solicit or seek shareholders to, jointly with Oasis, acquire or transfer, or exercise any voting rights or other shareholder’s rights with respect to any shares or other securities of a specific company which are subject to the disclosure requirements under the large shareholding disclosure rules under the Financial Instrument and Exchange Act (“FIEA”). Shareholders that have an agreement to jointly acquire or transfer, or exercise their voting rights or other shareholder’s rights with respect to any shares or other securities of a specific company are regarded as Joint Holders under the Japanese large shareholding disclosure rules and they must file notification of their aggregate shareholding with the relevant Japanese authority for public disclosure under the Financial Instruments and Exchange Act. Except for the case where Oasis expressly enters into such agreement, Oasis does not intend to be treated as a Joint Holder and/or a Specially Related Person with other shareholders under the Japanese FIEA or to take any action triggering reporting obligations as a Joint Holder. Oasis does not have any intention to receive any power to represent other shareholders in relation to the exercise of their voting rights. The Document exclusively represents the opinions, interpretations, and estimates of Oasis.

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