By Damion Rallis, Senior Research Associate
The past few weeks for Japanese automaker Toyota Motor Corporation (ADR) (NYSE:TM) perfectly encapsulate the recent rollercoaster ride of one of the worldâ€™s most powerful car companies. While the news that Toyota reclaimed the title of worldâ€™s largest carmaker is certainly something for investors to cheer about, it is offset by yet another massive recall along with a class action suit settlement valued at over a billion dollars. The question is not whether Toyota has what it takes to compete in the short-term, but rather if its management culture is sufficiently equipped to be the innovator to an increasingly design conscious consumer, and if this ability can be matched with the operational know how to prevent headline grabbing recalls from eroding its brand equity.
Currently, Toyota’s AGR Ratingâ€”a measure of the integrity of accounting and governance practicesâ€”is “Average,â€ť its “D” rating for ESG reflects a high level of long-term sustainability risk. Further, GMI Ratings’ Litigation Risk model has been flashing warning signs for several rating periods. The company’s score is 10 (on a scale from 1 to 100), meaning “High Risk.” This places the company in the 10th percentile of all companies in North America, indicating higher shareholder class-action litigation risk than 90% of all rated companies in this region.Â Specifically:
- Board Practices â€“ Among several red flags, Toyota has no independent directors and has not adopted a formal governance policy.
- Social Red Flags â€“ Toyota has been flagged for Social Impact Events.
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