Olympus’s admission that it had covered up losses on securities investments dating back to the 1990s by booking them as acquisition fees of up to $1.4bn between 2006 and 2008 has once again thrown the spotlight on the weak corporate governance of Japanese companies.
The company declined to provide details of how it kept those losses off its books for so long, but the revelation that a practice most closely associated with the bursting of Japan’s bubble economy in the 1990s had been going on as recently as a few years ago, stunned the investment community.
“We have to look into whether the corporate auditor system was functioning properly, whether the company’s accountants were properly checking the company and whether the board of directors acted as a check [on management],” said Tsutomu Okubo, a ruling party member of the Upper House.
Mr Okubo is to chair a newly formed working team in the ruling Democratic Party, which will debate reforms to the company act with the aim of strengthening corporate governance.
Mr Okubo said it was necessary to examine whether the company’s accountants had performed their role properly.
Although he stressed that without further information he could only speak in general terms, he said “the role of the accountants [in disclosing financial fraud] is important. In that respect, the accounting firm has to function properly and those that do not have to be penalised. In some cases, there might be a need to take their licence away,” he said.
He also called for a review of Japan’s regulatory bodies as well as its corporate governance system, to determine whether they are performing their roles sufficiently.
The Olympus affair also raises serious questions about the role of the board, said Toshio Oguchi, representative director of Governance for Owners in Tokyo.
“Even if they didn’t know about the tobashi [transfer of losses off the books], the fact that the board approved the payment cannot have been a correct decision,” he said. “The board did not function at all.”