December 16, 2011 1:00 pm

Japan tightens M&A rules after Olympus

Japan said on Friday that it would strengthen financial regulations in areas such as merger and acquisition disclosure and corporate governance in the wake of the accounting scandal at Olympus, which has shaken investor confidence in the market.

The Financial Services Agency said it would work with the country’s stock exchanges to prevent the kind of “dishonest” practices that occurred at Olympus, and the measures could include bolstering M&A disclosure (which was at the centre of Olympus’s elaborate loss-covering scheme), the role and independence of directors at Japanese companies and external auditing procedures.

“It is troubling to see investors, both domestic and abroad, question the fairness and transparency of the Japanese financial markets,” said Shozaburo Jimi, head of the FSA. “I believe it is not appropriate to judge that all the listed companies and financial markets in Japan are not well-disciplined, based on this incident regarding the Olympus Corporation.”

The scandal at Olympus, where former management designed a complicated scheme that lasted over 13 years to hide more than Y100bn ($1.3bn) in investment losses, has rocked investors in Japan and raised questions about many facets of the country’s corporate governance and auditing system, which were already under fire.

Investors and corporate governance experts will be watching very closely to see if Mr Jimi’s remarks will bear fruit. They come amid proposed legal changes to the country’s Company Act, which critics argue will be counterproductive to raising the standard of corporate governance.

The current proposals include the introduction of just one outside director, who acting alone could do very little to challenge the rest of a board composed of internal management.

It is not only the FSA that is expressing concern about the fallout of the Olympus scandal on Japan’s floundering equity markets, which are trading close to lows not seen since the depths of the global financial crisis.

Tsutomu Okubo, a member of the ruling Democratic party, last month formed a working team to debate improvements required in corporate governance in the wake of the scandal.

“In order for Japanese companies to achieve sound and strong growth, it is essential that we restore investors’ confidence in the Japanese financial markets,” Mr Jimi said.

Separately, Olympus said on Friday that, after the restatement of its accounts for the past five years, some of its dividend payments exceeded what should have been permissible at the time. A committee it has set up to investigate managerial and auditor issues will look into whether the payments involved a violation of “due care of manager” requirements under the law, it added.

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