After Olympus, Can Japan Inc Reform?
Image Credit: Wikimedia Commons

After Olympus, Can Japan Inc Reform?


It may have taken a foreign whistleblower named Michael Woodford to force the issue. But with demands for change growing louder in the wake of the Olympus and other scandals, is Japan Inc. finally ready to accept reform?

Activists have been given plenty of ammunition in recent months, with Woodford exposing Olympus’s $1.7 billion accounting fraud following his ousting as chief executive, a scandal at Daio Paper over $140 million in illicit borrowings and a $2 billion pension fund fraud at AIJ Investment Advisors.

Similarly, a culture of collusion between companies and regulators in the so-called “nuclear village” has sparked heated debate over energy policy and shown the need for greater transparency.

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According to analysts, a growing fiscal deficit has made the case for reform more pressing, given the risk to government and corporate pensions from an undervalued stock market. Adding to the clamor for change has been pressure from foreign shareholders, more willing than their domestic counterparts to publicly flex their muscles.

Yet judging by those surveyed by The Diplomat, reforms planned next year by the ruling Democratic Party of Japan (DPJ) barely scratch the surface of what needs to be done, with fierce resistance to change by the nation’s major business lobby groups and a mixed response from the Tokyo Stock Exchange (TSE). Notable among the reforms is the requirement that large companies appoint at least one outside director, along with other new rules aimed at strengthening shareholders’ rights.

Although most observers see improvement since the introduction of the new Company Law in 2006, Japan’s standards of corporate governance are still seen as lagging behind those of its Asian rivals.

“Foreign investors may not invest in Japan due to its opaque system of corporate governance,” warned Japanese corporate lawyer, Takao Shojima.

“The Tokyo Stock Exchange used to be one of the three major global centers, but now Hong Kong and Singapore are rising and one of the differences is corporate governance.”

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