After Toshiba scandal, foreign investors want tougher Japan governance steps

Wed Jul 22, 2015 7:07am EDT
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Denny Thomas and Michelle Price

HONG KONG (Reuters) - Japan needs bolder measures such as harsher criminal sanctions for fraud and whistleblower protections to improve corporate transparency and prevent a repeat of the accounting scandal seen at Toshiba Corp, foreign investors and governance experts said.

Toshiba's chief executive Hisao Tanaka and a string of other senior officials resigned on Tuesday after an independent inquiry found he had been aware the company had inflated its profits by $1.2 billion over several years.

The scandal is a major setback for the government of Prime Minister Shinzo Abe, who has made improving corporate governance a central theme in his bid to reinvigorate Japan's economy and entice more foreign capital.

"This is a negative headline in what's been 18 months of positive momentum in Japan," said Singapore-based David Smith, head of corporate governance at Aberdeen Asset Management, which owns Japan stocks. An Aberdeen affiliate had a very small equity holding in Toshiba as of end-May, Reuters data shows.

"This is a black mark for corporate Japan in the face of positive news and strong markets. The government may want to act tough," said Smith, who helps manage about $115 billion in Asia.

Japan's listed companies have long-had tense relations with their foreign shareholders, who have frequently blamed long-term insiders' dominance of corporate boards for low returns and weak oversight.

In response to this criticism, the Abe government last month introduced new rules requiring listed company boards to appoint at least two outside independent directors, but investors said this did not go far enough - Toshiba already had four independent directors as part of its 16-person board.

"The Toshiba scandal further underlines the need for board training as well as a robust whistleblower protection system," said Seth Fischer, chief investment officer at Hong Kong-based hedge fund Oasis Management and a corporate governance activist who successfully pushed for reforms at Nintendo Co Ltd.   Continued...

 
Toshiba Corp President and Chief Executive Officer Hisao Tanaka bows at the start of news conference at the company headquarters in Tokyo July 21, 2015.  REUTERS/Toru Hanai