Corporate governance reforms in Japan: a talk at the Embassy of Sweden

Corporate governance reforms in Japan

Changing the way Japanese corporations are managed: Can it make Japanese iconic corporations great again?

A talk by Gerhard Fasol at the Embassy of Sweden organized by the Embassy of Sweden, The Swedish Chamber of Commerce in Japan (SCCJ), and the Stockholm School of Economics

Abstract: Changing the way Japanese corporations are managed

The Executive Management Board and the Supervisory Board are normally independent and composed of different people – except in Japan. In Japan traditionally Executive Management Board and the Supervisory Board are one and the same, ie the Executives of traditional Japanese companies supervise themselves – no surprise that the CEO seldom fires himself!

It is obvious that such self-supervision has big disadvantages, and may be one of the major reasons for Japan’s weak economic growth, and several recent corporate scandals. Companies in basically all other countries are managed by an Executive Management Board, which is supervised by a Supervisory Board, which approves or vetoes all major decisions of the company, and evaluates the performance of the Executive Manager, including the Chief Executive/CEO, and if necessary fires executives including the CEO, and selects and approves the new CEO.

To remedy this problem with the governance of Japanese corporations, Japan’s Government, the Tokyo Stock Exchange, and the Financial Services Agency have been changing the rules to improve the supervision of Japanese companies.

Speaker profile

Dr. Gerhard Fasol is one of a microscopic number of foreigners who is an independent Director on the Management and Supervisory Board, and also a Member of the Audit Board of a stock market listed Japanese corporation, and he will talk from several years of first-hand experience of how Japanese companies are supervised, which changes are on the way, and which further improvements are necessary to improve the management and supervision of Japanese corporations.

Date: Thursday October 6th, 2016, 18:30

Place: Alfred Nobel Auditorium, Embassy of Sweden, 10-3-400 Roppongi 1-chome, Minato-ku, Tokyo 106-0032

Details and registration

Further details here.

To register please contact the Swedish Chamber of Commerce in Japan.

Gerhard Fasol on corporate governance reforms in Japan at the Embassy of Sweden on 6 October 2016
Gerhard Fasol on corporate governance reforms in Japan at the Embassy of Sweden on 6 October 2016
Gerhard Fasol on corporate governance reforms in Japan at the Embassy of Sweden on 6 October 2016
Gerhard Fasol on corporate governance reforms in Japan at the Embassy of Sweden on 6 October 2016
Gerhard Fasol on corporate governance reforms in Japan at the Embassy of Sweden on 6 October 2016
Gerhard Fasol on corporate governance reforms in Japan at the Embassy of Sweden on 6 October 2016
Gerhard Fasol on corporate governance reforms in Japan at the Embassy of Sweden on 6 October 2016
Gerhard Fasol on corporate governance reforms in Japan at the Embassy of Sweden on 6 October 2016
Gerhard Fasol on corporate governance reforms in Japan at the Embassy of Sweden on 6 October 2016
Gerhard Fasol on corporate governance reforms in Japan at the Embassy of Sweden on 6 October 2016
Gerhard Fasol on corporate governance reforms in Japan at the Embassy of Sweden on 6 October 2016
Gerhard Fasol on corporate governance reforms in Japan at the Embassy of Sweden on 6 October 2016

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Toshiba income restatement: corporate governance issues

Toshiba income restatement: corporate governance issues

Toshiba’s income restatement announced by the independent 3rd party committee

Independent 3rd party committee chaired by former Chief Prosecutor of Tokyo High Court

On 12 June, 2015, Toshiba announced corrections to income reports, and at the same time engaged an independent 3rd party investigation committee headed by former Chief Prosecutor at the Tokyo High Court, Mr Ueda, to investigate. This independent 3rd party committee submitted their report yesterday, and held a Press Conference this evening.

Lets look at the announced Toshiba financial data in detail. The figure below shows:

  • Toshiba’s previously reported operating income/profits (blue curve),
  • corrections announced by an internal committee on June 12, 2015 (green curve),
  • corrections announced by the independent 3rd party committee on July 20, 2015 (red curve).

The combined amount of downward corrections determined by the independent 3rd party committee is YEN 151.8 billion (US$ 1.22 billion) in total.

Lets put this amount into context:

  • annual sales: approx. YEN 6000 billion (US$ 60 billion)
  • annual operating income (average over last 17 years): YEN 148 billion (US$ 1.5 billion)
  • annual net income (average over last 17 years): YEN 19 billion (US$ 190 million)

Therefore the downward correction summed over the years corresponds to:

  • approx. 2.5% of average annual sales
  • approx. 103% of average annual operating profits, ie more than a full year of average operating profits
  • approx. 8 years of net profits

Toshiba – typical for Japan’s large electronics corporations – operates with razor-thin profit margins: Toshiba’s net profit margin averaged over the last 17 years is 0.25%.

Therefore, the downward correction corresponds to 8 years of average net income/profits.

Toshiba's corrections: internal investigation (June 12, 2015, green) vs independent 3rd party committee (July 20, 2015, red)
Toshiba’s corrections: internal investigation (June 12, 2015, green) vs independent 3rd party committee (July 20, 2015, red)
  • Blue curve shows Toshiba’s initially reported operating income.
  • Green curve shows corrections determined by an internal examination, announced on June 12, 2015. Corrections amount to approx. YEN 50 billion (= approx. US$ 0.5 billion).
  • Red curve shows corrections determined by the independent 3rd party commission, chaired by former Tokyo High Court Chief Prosecutor Ueda and announced on July 20, 2015. Corrections amount to YEN 151.8 billion (= approx. US$ 1.22 billion)

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