May 10, 2010 6:45 pm

Ex-Fujitsu president critical of governance

The former president of Fujitsu has hit out at the Japanese company’s corporate governance and suggested that it is failing shareholders by not selling or restructuring Nifty, its internet service provider business.

“I think Fujitsu needs to make a choice. Nifty has many powerful competitors and it needs further reform to strengthen it,” Kuniaki Nozoe told the Financial Times in an interview.

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Mr Nozoe resigned from Fujitsu last September at the request of a group of the company’s directors, who said that an investment fund he was dealing with over the sale of Nifty was suspected of links to “antisocial forces” – a Japanese euphemism for organised crime.

Fujitsu initially said Mr Nozoe had quit due to illness. But this March Mr Nozoe demanded his job back, alleging that he had been forced to resign for false reasons.

He is now campaigning for an investigation into why he was pushed out in a case that raises questions about corporate governance in Japan.

As president of the electronics group, Mr Nozoe sold off subscale operations such as Fujitsu’s hard disk drives business in a drive to focus on providing IT services to big businesses and companies.

Masami Yamamoto, the company’s new president, has said that Nifty is making better than expected progress in offering “cloud service”, and that Fujitsu does not need any more drastic restructuring for now.

The public row between Fujitsu and its former president is extraordinary for Japan and has spawned a number of lawsuits.

Mr Nozoe denies any links to organised crime, as does the investment fund in question.

“What I’m thinking about is due process,” said Mr Nozoe. He questioned the way a small group of company elders demanded his resignation without putting the issue to the full board.

Fujitsu said that a board meeting was not the normal place to ask for a resignation: “We had the agreement of a majority of the board members beforehand – including the external directors – and had also made preparations for a dismissal [had Mr Nozoe not agreed to resign].”

Mr Nozoe said he wanted to find out what the external directors were told and what mandate they gave the group who talked to him.

Fujitsu’s external directors either declined to comment or could not be reached for comment.

Another corporate governance issue centres on the role of Naoyuki Akikusa, a former Fujitsu president and chairman who had been on the board for 22 years. Many Japanese companies keep past executives as advisers, but some governance experts oppose the practice, because it can make it hard for new managers to question past decisions.

“I think it is a problem,” said Mr Nozoe. He played down the importance of senior advisers in making decisions at Fujitsu, but said that it becomes difficult when the board has a chairman as well.

Another issue raised by the case is the composition of the board itself. Four of Fujitsu’s 10 directors come from outside the company, but one was an ex-Fujitsu executive and another the president of a Fujitsu affiliate. Mr Nozoe said that it was hard for a large and complex company such as Fujitsu to find outside directors who understood its workings, but he questioned who speaks for shareholders in the current system – a perennial complaint of foreign investors in Japan.

Alexander Flatscher, who has written about Japanese corporate governance for the CFA Institute, notes that Fujitsu is closer to best practice than many of its rivals. He contrasts, for example, the four external directors on Fujitsu’s 10-person board to Toyota, where all 29 directors are from within the company.

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