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Recent scandals involving Japanese businesses have included bank loans to the underworld and misrepresentations of restaurant menus at leading hotels, and many of the media reports have focused on how management takes responsibility for the mess. I would like to highlight three points that need to be taken into account when discussing such issues:

First, circumstances change with the passage of time. In these fast-changing economic times, corporations that were once considered top-tier can be forced into bankruptcy. Regarding bank loans to problematic borrowers, it is possible for borrowers to meet all requisite conditions when the loans were initially granted but then find themselves in a different situation over time. In such cases, corporations must be in a position to respond appropriately, which effectively means having established in-house oversight mechanisms already in place. In the case of Mizuho Bank, this mechanism appears to have been corrupted as a result of management problems typical of a bank that’s been created through the merger of multiple financial institutions, where the management structure tends to be vertically laid out along the divisional lines of each original bank.

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