KOBE – Four Kobe Steel Ltd. shareholders agreed Friday to settle a suit against the company on condition that six former executives and a corporate racketeer pay a total of 310 million yen to the company in compensation for damages caused from a payoff scandal in the 1990s.
The shareholders filed the damages suit against seven former executives of Kobe Steel and the racketeer at the Kobe District Court, demanding that about 390 million yen be repaid to the company.
In recommending the settlement, presiding Judge Akinori Ueda, in a rare move, expressed his opinion on the case, saying, “Top executives of a company cannot avoid responsibility by simply making the excuse that they did not know (about the wrongdoings of their subordinates).”
The six former executives accepted the settlement and are expected to pay compensation to the company along with Sokichi Kametaka, a former chairman of Kobe Steel. Kametaka has accepted full responsibility for compensating the firm.
Kametaka was in a position to easily discover the wrongdoing, Ueda said, adding that the other executives should have established an in-house control system to prevent such payoffs. Kametaka had earlier insisted that he was unable to detect the payoff because it had been carried out secretly by the other executives.
Motoo Kakizoe, the plaintiffs’ chief lawyer, said he considers the settlement a victory as it supports the claim that top corporate management cannot evade responsibility for the actions of their subordinates.
The shareholders dropped their claim against Kobe Steel President Koshi Mizukoshi, as the duration of his alleged involvement in the scandal was brief.
According to the settlement, the former executives paid about 200 million yen to the racketeer between 1990 and 1999.
The executives also illegally set aside about 166 million yen in slush funds between 1995 and 1997 at the company’s iron works in Kakogawa, Hyogo Prefecture, and gave 30 million yen of the funds to the racketeer, whose name was withheld.
Under the terms of the settlement, the racketeer can no longer engage in any illegal activities and the company must establish an organization headed by an outside lawyer to prevent the problem occurring again.
Mizukoshi said, “Learning from the payoff case and the damages suit with shareholders, we want to make efforts to establish a system to ensure observance of laws and promote corporate governance.”
Police arrested the racketeer in November 1999 on suspicion of receiving 30 million yen from former company executives, including a former senior managing director, as a reward for ensuring a smooth ending to the company’s general shareholders’ meeting in 1997.
Police also sent to prosecutors papers on three former executives, including the senior managing director, in connection with the case.
The Osaka District Court has sentenced the racketeer to a six-month prison term, given the senior managing director a suspended term and ordered two other executives to pay fines.
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