Secrecy and hierarchy haunt Japanese corporate culture despite Abe’s reforms

TOKYO (Reuters) – A series of high-profile scandals at large Japanese companies show that reforms and rhetoric aimed at improving the country’s corporate governance do not go far enough to dispel the culture of secrecy and hierarchy that plagues Japan Inc.

Toshiba Corp President and CEO Masashi Muromachi attends a press conference at the company’s headquarters in Tokyo, Japan on September 7, 2015. REUTERS / Toru Hanai / File Photo

Prime Minister Shinzo Abe has been applauded for introducing new corporate governance rules over the past two years with the aim of attracting foreign investment and disrupting Japan’s overly comfortable corporate culture.

But scandals, including that of Mitsubishi Motor Corp 7211.T the admission that it has used substandard fuel economy test methods for decades and the admission last year by nuclear-powered laptop conglomerate Toshiba Corp 6502.T that it had inflated the profits suggest that there is still a long way to go.

Almost five years after Michael Woodford was fired for revealing a cover-up at Olympus Corp 7733.T, the former British CEO of the Japanese medical imaging equipment maker says he’s still treated like an outcast in Japan, a fairly common opinion in a corporate culture where whistleblowers are more often looked down upon than admired.

“It’s obvious to me that 80% or more of top business executives (in Japan) see me as someone who betrayed my business,” said Woodford, who now runs a business consulting firm and lives in London, to Reuters in a telephone interview.

“I am seen as a leper in Japan.”

Better whistleblower protection, board training, and tougher penalties are some of the steps experts are prescribing to change an introverted corporate culture that values ​​unconditional loyalty to top bosses.

“Japanese companies still have significant problems with the secrecy of their business transactions and the lack of transparency in their finances and operations,” said Thomas Clarke, director of the Key University Research Center for Corporate Governance at the University of Technology of Sydney.

Abe’s policy team introduced a new corporate governance code in 2015, setting out rules on disclosure, shareholder rights and independent directors.

While not legally binding, the Tokyo Stock Exchange requires listed companies to “comply or explain” why, and a “code of stewardship” introduced the previous year was supposed to encourage disgruntled investors to s ‘Express.

Experts praise the changes and say they may even be partly responsible for the recent scandals that have come to light.

“Bad things happen in big companies. The question is how are they treated, ”said Jesper Koll, CEO of fund manager WisdomTree Japan. “Sweeping them under the rug is no longer an option.”


Experts also warn against mass adoption of a US model linking executive pay to short-term investor returns. Some warn of pointing fingers only at Japan, given scandals around the world, including that of Volkswagen VOWG_p.DE cheat on shows.

“If you start going around the world, Japan has its problems, but are they really worse than anywhere else? Said Andrew DeWit, professor of political studies at Rikkyo University in Tokyo.

However, major gaps remain to be filled in Japan.

“Politically, it’s dramatic, but the content is disappointing,” Jamie Allen, secretary general of the Hong Kong-based Asian Corporate Governance Association, told Reuters.

Requiring two outside directors – Toshiba had four on its 16-member board even as the scandal loomed – is insufficient if they lack the authority or independence to challenge the CEO and other directors internal.

“Most outside directors won’t think they should question the corporate culture. They’ve been invited to the board and they think they need to be polite, ”said Nicholas Benes, representative director of the Board Director Training Institute of Japan.

Better protection for whistleblowers like Woodford would help. The government has a hotline for anonymous complaints, but offers little protection or incentive for employees to speak out. Stepping up such protection would signal companies that they have no alternative but to operate a clean vessel, Benes said.

Glimmers of change have appeared.

Seven & i distribution group 3382.T appointed an executive backed by activist American investor Daniel Loeb as president of its parent company earlier this month, prompting his patriarch Toshifumi Suzuki, 83, to step down.

Beaten Sharp Corp’s 6753.T The recent selection of Foxconn of Taiwan as a successful takeover candidate may also reflect the desire for better corporate governance.

Nonetheless, wider and deeper change will take time, bolder reforms and education at all levels of the company, as well as among institutional investors, who are often reluctant to challenge management.

“It’s a cultural question – they have to give up hierarchical obedience,” said Clarke of the University of Technology. “They have to do it because if they can’t be more alert and nimble as businesses, they won’t be successful in the modern world.”

Additional reporting by Stanley White and Ritsuko Ando; Editing by Lincoln Feast

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