By Kosaku Narioka 

TOKYO--New York-based hedge fund King Street Capital Management LP has proposed new independent directors at Toshiba Corp., according to people familiar with the matter, the first indication of dissatisfaction among the foreign funds that bought into the Japanese industrial conglomerate last year.

King Street is one of the biggest shareholders in Toshiba, amassing a 5.2% stake, according to a regulatory filing on May 29. As of March 31, 72% of Toshiba's shares were held by non-Japanese investors, according to the company.

The relationship between Toshiba and its non-Japanese shareholders could be an indicator of how shareholder activism is changing company management in Japan. Calls by Prime Minister Shinzo Abe's government for shareholder-friendly management and better corporate governance have been drawing the interest of foreign investors.

The names of the director candidates proposed by King Street and the hedge fund's rationale for seeking a board shake-up couldn't be learned. One person with knowledge of a letter sent by King Street to Toshiba said it was a friendly approach. Another foreign investor familiar with King Street's proposal said his team supported installing new independent directors.

A King Street representative declined to comment. Toshiba representatives didn't respond to requests for comment.

Toshiba has been going through a tumultuous period since an accounting scandal came to light in 2015. The company suffered big losses when its U.S. nuclear subsidiary, Westinghouse Electric Co., went bankrupt in March 2017.

To fill a capital shortfall and avoid a delisting from the Tokyo Stock Exchange, Toshiba agreed in September 2017 to sell its cash-cow memory-chip unit to a group led by U.S. private-equity firm Bain Capital, and it raised some $5.3 billion from foreign investors by issuing new shares in December 2017.

After delays, Toshiba completed the chip-unit sale in June 2018 and announced a $6.3 billion share buyback using the proceeds.

In April, former banker Nobuaki Kurumatani took over as Toshiba's chief executive. Some foreign investors think he should do a bigger share buyback and carry it out more quickly. So far, Toshiba hasn't said when the buyback will happen.

At Toshiba's annual shareholder meeting in June, Mr. Kurumatani was elected as a Toshiba director, but with only 63% support.

Since the accounting problems, Toshiba has restructured its board by reducing the number of directors and boosting the number of outsiders. Currently, seven of its 12 directors are independent.

Toshiba has sold many of the businesses that used to be associated with its brand name, including personal computers, television sets and medical devices. Still, the 143-year-old company remains one of the best-known in Japan with more than 132,000 group employees and $35 billion in annual revenue.

Julie Steinberg and Cara Lombardo contributed to this article.

Write to Kosaku Narioka at kosaku.narioka@wsj.com

(END) Dow Jones Newswires

August 31, 2018 01:36 ET (05:36 GMT)