Corporate Governance in Japan: One Year Later

Global Risk & Investigations Practice (GRIP)

August 8, 2016

Japan Silhuoettes

In July 2011, former Olympus President Michael Woodford opened his inbox to discover several emails forwarding a story from Japanese business magazine, Facta. The magazine had reported on suspicious fees Olympus had paid to acquire Gyrus, a medical technology developer, including a US$687 million “advisory fee” to a Cayman Islands registered company.

This led Woodford to question further the company’s acquisition of non-core businesses, including a mail order face cream company and microwave cookery company, in addition to Gyrus. Such questioning ultimately led him to be ousted as President and CEO of the company in October 2011.

The Olympus acquisitions snowballed into Japan’s largest corporate scandal. An investigation revealed that these transactions were made in an attempt to hide investment losses that went back to the bubble economy of the 1980s.

“When I go to Japan, I’m treated by men and women in the street with great friendliness and warmth,” Michael Woodford told FTI Consulting almost five years after the incident.

“However, I would estimate 80% or more of Japanese corporate leaders consider that I betrayed my company and bit the hand that fed me.”

The Olympus incident was not the first major Japanese corporate scandal, nor was it the last. A number of other scandals over the years have highlighted Japan’s lax corporate governance standards:

  • In 2006, the internet company Livedoor used stock splits, swaps and share purchases to boost its share price. As a result, the founder, Takafumi Horie spent two and a half years in prison and the company was delisted from the Tokyo Stock Exchange.
  • In 2013 a consumer finance firm affiliated with one of Japan’s largest banks was found to have loaned more than US$2 million to people affiliated with the Yakuza (Japanese criminal organisation). It was later revealed that senior executives within the bank were aware of these loans.
  • More recently, in 2015 it was found that electronics maker Toshiba had falsified accounts for seven years, inflating profits by over US$1.2 billion.

Calls to improve Japan’s corporate governance record were fueled in part by scandals such as the above, and four years later, Japan began reform with the introduction of a Stewardship Code in 2014 and a Corporate Governance Code in 2015.


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