KARUIZAWA, Nagano Pref. — Japanese-style management must undergo reform to place more focus on shareholders and establish effective corporate governance, according to business leaders at the 12th summer seminar of the Japanese Association of Corporate Executives (Keizai Doyukai).

During the session July 18 of the two-day seminar, participants suggested that Japan’s corporate culture nurtures wrongdoing, such as in the current scandals involving Nomura Securities and Dai-Ichi Kangyo Bank. Harumi Sakamoto, vice president of Seiyu Ltd., said that to achieve corporate governance, Japan’s corporate culture needs to change its focus from seeking internal harmony to facing internal opposition.

“Corporate scandals in Japan often occur when management cannot stop (firms’) past practices. This is different from cases in which people are engaged in misconduct for their own private interest,” Sakamoto said. “It is not comfortable for them to change the long-standing practices of the firms. But, leaders must face internal opposition (in doing so),” he said.

Takeo Shiina, chairman of IBM Japan, suggested that the reason why corporate scandals keep occurring in Japan lies in the absence of penalties for those engaged in misconduct. “When it comes to (company) auditors and executives, the current system allows executives to act freely. To achieve checks and balances for management, Japanese firms will from now on go through trial and error,” Shiina said.

On the subject of corporate scandals and ethics, participants discussed criticism of Japanese executives who allegedly make light of the interests of shareholders. Yoshihiko Miyauchi, president of Orix Corp., pointed out that the current system does not reflect efforts by management to pass profits to stockholders. This, he said, is the result of such practices as cross-holding of shares by banks that have business ties with firms as well as the lack of information disclosure by management. “We should arrange the environment so that when management makes efforts to raise profits, stock prices respond to results of those efforts,” Miyauchi said.

However, Hiroshi Watanabe, chairman of The Sanwa Bank Ltd., argued that it is the companies that want banks as their main shareholders to keep their management stable. “It is rare that banks want to cross-hold shares of companies that they finance. Cross-holding exists because firms ask their main banks to hold their shares,” Watanabe said.

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