There are ways to prevent corporate scandals, and the key to prevention is the attitude of corporate executives, according to an executive at Japan's largest economic organization.

If something happens that could cause a scandal, it is important for a company to disclose information even though it could affect the firm's image and business, said Ryukoh Wada, senior managing director of the Japan Federation of Economic Organizations (Keidanren).

"Even if the company succeeded in hiding the information, it could easily become a target of a 'sokaiya' corporate extortionist," Wada said. Earlier this month, Keidanren suspended Dai-Ichi Kangyo Bank and Nomura Securities Co. from members' activities for six months due to their deals with sokaiya racketeers. The decision was in accordance with the federation's Charter for Good Corporate Behavior, which is based on 10 principles concerning company behavior.

Keidanren first drafted the charter in 1990. But a series of scandals last year pushed the revision in December. The stricter rules came on the heels of Sumitomo Corp.'s copper trading debacle and Takashimaya Co.'s payoffs to sokaiya.

If members violate the principles, the Keidanren chairman will set up a special committee to decide on appropriate penalties. Offending firms could be expelled or disqualified for a certain period, or their executives holding Keidanren posts could be forced to resign.

Wada said that a growing number of scandals stems partly from Japan's corporate culture. "Japanese employees tend to compare themselves with their coworkers," he said. "And if the others are doing something similar, they feel it is OK to do so, even though they may be violating the law."

In the same manner, they also compare the actions of their company with that of other companies, he said. Employees of Japanese companies also tend to justify their action as long as they are doing it for the company, he added. "Such a way of thinking must be changed," Wada stressed.

With the 10 principles of the charter, Keidanren created a manual that spells out the corporate behavior and responsibility expected of its members. In addition to providing a good working environment for employees, companies are responsible for disclosing as much corporate information as possible to the public and shareholders.

It also says that if a company has discovered a scandal involving employees, it should quickly disclose the necessary information and punish those involved. Wada said he knows that the effectiveness of the charter is limited and that it cannot completely change corporate behavior. Wada said, however, that merely following the charter accomplishes little unless each company constantly educates and reminds its employees about things that must be done and those that must not be done.