Page 3 of
3 The fall of a Japanese business
iconoclast By Hisane Masaki
would be equivalent to the US
Securities and Exchange Commission. Japan only has
a small team of bureaucrats with little punitive
authority to do the job, and mostly relies on
prosecutors to crack down on irregularities.
Nikko Cordial Corp, Japan's third-largest
brokerage, was fined 500 million yen ($4.26
million) on charges of falsifying financial
statements. It was the largest fine ever levied by
Japan's financial authorities. Citigroup Inc
launched a tender offer for Nikko Cordial
on
Thursday, two days after raising its offer price
by 26% for the scandal-tainted brokerage to dispel
shareholder opposition.
The US banking
giant, which owned a 4.9% stake in Nikko Cordial
at the end of 2006, will conduct the tender offer
for the remaining shares through April 26 in a
deal worth up to $13.35 billion. The purchase, if
realized, will be the biggest foreign acquisition
of a Japanese securities company.
Nikko
Cordial was spared delisting from the Tokyo Stock
Exchange, beating widespread predictions and
raising questions about the exchange's decision.
The bourse decided on Monday to keep Nikko Cordial
listed, after concluding that the securities
firm's wrongdoing did not justify delisting. The
exchange said, "We could not obtain solid evidence
that the false accounting was carried out by the
company systematically," adding that the amount of
inflated earnings was relatively small.
Late last month, Sanyo Electric Co
admitted that the Securities and Exchange
Surveillance Commission was investigating its
accounting practices. Kanebo Ltd was delisted in
2005 for hiding excessive debts by reporting more
than 200 billion yen in non-existent profits. The
company had a negative net worth for nine years,
but disguised its financial troubles by altering
its books. It was later acquired by Kao Corp,
Japan's largest manufacturer of household
products.
Seibu Railway Co was delisted in
2004 for falsely reporting the composition of its
shareholders over 40 years. The firm was ruled by
Yoshiaki Tsutsumi, who was named the world's
richest man in 1990 by Forbes magazine. Tsutsumi
resigned over the scandal and was later sentenced
to 30 months in prison, suspended for four years.
Meanwhile, Misuzu Audit Corp, the new
incarnation of disgraced accountancy ChuoAoyama
PricewaterhouseCoopers, will in effect be forced
to disband as the company decided late last month
to shift most of its operations to other auditors
around July. Misuzu, then just ChuoAoyama, was
ordered last year to suspend business for two
months after it was found to be part of a massive
earnings fraud by Kanebo. The auditing firm came
under increased criticism recently because it was
the auditor of Nikko Cordial - and also of Sanyo -
for the period during which their accounting
problems occurred.
After witnessing the
relentless onslaught by Livedoor and the Murakami
Fund on even some major companies, many Japanese
firms have become highly sensitive to possible
hostile takeover bids, especially from foreign
investors, and have begun to take defense
measures. "Poison pills", designed to make a
threatened takeover more expensive and therefore
less attractive to bidders, have surged in
popularity in Japan since 2005. They are commonly
used in the United States.
At the center
of attention now is Steel Partners Japan Strategic
Fund (Offshore) LP's bid to take control of
Sapporo Holdings Ltd, Japan's third-biggest brewer
in terms of shipments. Steel Partners has proposed
negotiations with Sapporo to acquire a stake of
66.6% in the brewer in terms of voting rights in a
friendly manner.
But opposition from
Sapporo's management could force the brewer to
trigger its proposed anti-takeover measures if
Steel Partners proceeds with its bid. This could
set the stage for a new skirmish between activist
investors and Japanese management over listed
Japanese companies' duties to maximize shareholder
value.
Steel Partners will attempt to vote
down the proposed defense measures at Sapporo's
shareholders meeting on March 29. Steel Partners
is already Sapporo's top shareholder, with an
estimated 18.64% stake. Foreign shareholders,
including a US investment fund, own a combined 30%
of the holding company of Sapporo Breweries Ltd.
In an extreme defense measure against
hostile takeover bids, some Japanese firms have
even opted to make themselves privately owned
through a management buyout. Among those firms are
major apparel maker World Co, beverage maker Pokka
Corp and major restaurant-chain operator Skylark
Co.
The Corporate Law, which integrated
several business-related laws and regulations,
came into force last May. A new takeover technique
widely referred to as a "triangular merger" was
incorporated in the new law. Under the triangular
merger formula, a foreign company can place a
Japanese company under its umbrella by merging its
Japanese subsidiary with the targeted company. The
parent company can use its own shares to
compensate the shareholders of the acquired
company in exchange for their shares.
However, the introduction of the
triangular merger was delayed for a year, until
May this year, to allow domestic companies time to
devise preventive measures against merger attempts
by foreign predators. Many in the Japanese
business community fear foreign companies may use
large market capitalization to seek out triangular
mergers. The Japan Business Federation (Nippon
Keidanren), the nation's biggest business lobby,
has strenuously called for tighter requirements
for the new takeover technique.
Some
people say that Murakami's aggressiveness as a
"shareholder who speaks" has had the desirable
effect of enhancing awareness among Japanese
corporate executives of the need for better
management and preventive measures against hostile
takeover bids. But others point out that this
aggressive way of business does not necessarily
suit the Japanese business environment, and the
blind worship of US-style business practices,
prevalent during Japan's post-bubble malaise
years, seems to have receded.
Many experts
say that too much emphasis on short-term profit
can impede an accumulation of capital and
technology at companies, an essential prerequisite
for their long-term growth and prosperity.
To be sure, the nation's traditional
employment practices, such as lifetime jobs and a
seniority-based salary system, are crumbling. But
most Japanese firms still place greater importance
than their US counterparts on stable
labor-management relations in the long term. They
view employees as stakeholders of an equal or
perhaps even more important status than
shareholders.
Top leaders of Toyota Motor
Corp and Canon Inc, two Japanese firms widely seen
as "winners" in the increasingly tough global
competition, are known to be staunch advocates of
maintaining good points of the Japanese-style
corporate management. Those leaders - former
Toyota chairman Hiroshi Okuda and Canon chairman
Fujio Mitarai - are former and incumbent chairmen
respectively of the Japan Business Federation.
Hisane Masaki is a Tokyo-based
journalist, commentator and scholar on
international politics and economy. Masaki's
e-mail address is yiu45535@nifty.com.
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