Japanese boardrooms grapple with reforms
By Anthony Faiola
Washington Post
TOKYO — In the rigidly hierarchal world of Japanese business, Yoshiaki Tsutsumi was one of the last corporate shoguns.
Once named the richest man on Earth by Forbes magazine, Tsutsumi, 71, wielded absolute power for four decades over the mammoth Seibu group — a constellation of railroads, real estate, sports teams and glitzy hotels from Toronto to Tokyo. Those who earned his displeasure, former employees say, endured punishments ranging from a slap across the face to a pink slip. When Tsutsumi exited the company's busy commuter lines in northern Tokyo, rows of Seibu workers would bow in unison as he left his private train car. For almost seven years, until 2004, he never held an official board meeting — ruling by decree instead.
The Tsutsumi cult of loyalty was so strong that when Japanese regulators last year began probing long-heard rumors of vast corporate corruption at the publicly held Seibu Railways Co., two company executives committed suicide rather than squeal on their big boss. But in a dramatic spiral that has dragged down one of the biggest patriarchs of Japanese business, authorities hauled Tsutsumi out of one of his lavish Prince hotels in March. Charged with massive insider trading and falsifying corporate records, Tsutsumi — now free on $1 million bail — faces the start of what is likely to be one of the nation's highest-profile trials in recent history Thursday.
Fall from grace
Tsutsumi's startling fall from grace is being viewed by many here as a milestone in Japan's attempt to shift away from decades of meek corporate accountability and a my-way-or-the-highway style of governance, ushering in more modern management styles. Regulators and the private sector have taken unusually bold steps to shake up the tradition-bound culture inside Japanese boardrooms that has allowed leaders like Tsutsumi to thrive for generations.
In recent months, the Tokyo Stock Exchange has delisted Seibu and three other companies including cosmetics giant Kanebo for willfully misleading investors — grounds it hasn't used to eject a public company in 25 years. In a culture where saving face is prized above all else, the stock exchange is now demanding all chief executives of public companies sign statements personally vouching for the accuracy of their company's financial reports.
In Japan, a deep bow and a resignation have typically ended a chief executive's responsibility. But companies in the world's second-largest economy are now taking aim at executives' wallets. On March 31, for instance, scandal-plagued Mitsubishi Motors Corp. demanded that seven of its former executives, including its former chief executive and chairman, personally pay $12 million in compensation for the coverup of faulty auto parts that happened during their administration. The fees are equal to the value of the executives' retirement packages.
At the same time, the insular old boys network of Japan's warlords-in-business suits is gradually cracking. Sony Corp. will be headed by a foreigner, Welsh-born Howard Stringer, if the board gives its approval later this month.
"The old type of Japanese-style corporate governance is collapsing with Mr. Tsutsumi," said Eisuke Nagatomo, managing director of the Tokyo Stock Exchange. "He was a charismatic CEO; nobody could tell him anything he did not want to hear. But when you are the CEO of a public company, your responsibility is to the shareholders. ... That idea has not always been at front and center in Japan, but this is finally changing."
To be sure, the process of corporate reform in Japan stems to the late 1990s, when increasing capital flows from abroad — foreigners now own 34 percent of Japanese shares compared with 23 percent just six years ago — stimulated independent shareholders and pension funds to demand public companies become less opaque. The process, analysts say, had been chugging along ever since at a painfully slow pace.
Changes essential
But it has gained new momentum with the shocking arrest of Tsutsumi. The news is being taken as a message that the time for transparency has finally come. Such changes are being viewed as essential to hopes of expanding Japan's nascent economic recovery after a decade-long recession by finally luring personal savings into the stock market. About 8 percent of Japanese household savings is now invested in the stock market, compared with 34 percent in the United States, according to the Bank of Japan.
To boost public confidence, new changes to securities transaction laws will go into effect next month giving financial regulators — long considered paper tigers with an annual budget only 4 percent that of the U.S. Securities and Exchange Commission — greater authority to investigate corporate wrongdoing. Publicly traded Japanese companies have recently strengthened disclosure and compliance practices.
Yet critics — particularly foreign observers and domestic investment funds — insist that while a burst of progress is indeed under way, Japan is still adopting a one-step-forward-two-steps back approach to new corporate protocols.
More and more companies here are adopting new defense measures — including so-called poison pills designed to help entrenched management teams prevent hostile takeovers. Analysts worry that such defenses are stunting the pace of corporate reforms, by avoiding situations in which managers are put under the investor spotlight.
Special correspondent Sachiko Sakamaki contributed to this report.
