TT-637 -- Olympus Redux & Corporate Governance, ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, November 06, 2011, Issue No. 637


- What's New -- Olympus Redux & Corporate Governance
- News -- Flight of Capital
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback
- News Credits

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We continue to watch the Olympus debacle with interest. As
you will recall, Olympus appointed Briton Michael Woodford
to become its first foreign president, only to have him
challenge the autocratic chairman Tsuyoshi Kikukawa and his
entire board of directors over four dubious M&A
transactions, including a US$2.2bn takeover of UK firm
Gyrus, over the last 3-4 years. Woodford was subsequently
fired for insubordination, a charge that looks to been made
to stop further digging into the suspect M&As.

Now the rumors circulating around town are that Olympus
could have been the target of Yakuza extortion, and that
the Yakuza are in fact that ultimate beneficiaries of the
huge commissions paid by Olympus to the Cayman Islands
advisory company which looked after the Gyrus deal. We
first became aware of these rumors after reading a blog
post by Jake Adelstein last week (,
but chose not to repeat them because we feel one source
isn't sufficient foundation for claims of this nature.
However, some media entities are now freely talking about
such a possibility, and we have since heard from another
entirely separate source that specifically it is the
Yamaguchi-gumi who are involved.

The Olympus carryings on are certainly stimulating a lot
of media speculation, and one wonders if the company can
survive this crisis in its current form. A lot will depend
on what the Tokyo Stock Exchange, the FSA, and other
authorities decide to do about the situation. From all
appearances, they want the problem to blow over or at least
be resolved quietly. One can deduce this from their lack of
forcefulness regarding the selection of an "independent"
investigation panel by the company. The currently selected
committee appear to be independent, but they were in fact
chosen by two board members who have been involved with
the Woodford firing -- so just how independent will it be?

Corporate governance in Japan has been called into
question over the Olympus affair, prompting even the Prime
Minister, Yoshihiko Noda, to comment on the case. The
perception amongst foreign investors in particular is that
Japanese major companies are run as personal fiefdoms by
powerful men who don't care about shareholders rights nor
the trust given to them to lead a publicly run company.
It's hard to disagree with this perception, especially in
light of two more developing governance-related scandals,
being a huge private loan to the founding family of Daio
Paper and alleged underworld links in Europe and the Middle
East by Japan Tobacco International (JTI).

JTI overview is here:

[Continued below...]

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[...Article continues]

But first, some observations about one puzzling point in
the Olympus affair, courtesy of a reader:

"Why is it that Michael Woodford was promoted to CEO with
full powers just mere days before getting fired? What
really went on?

On May 11, Olympus announced that MW would be elected as a
director at the 6/29 shareholders' meeting, and would be
appointed as Rep. Dir. by the board. Normally the latter
appointment would have been made at the board meeting that
took place immediately after the AGM. In this case it was
not, which is very strange. Instead, for almost three full
months, even though MW supposedly was not actively
investigating the transactions yet, the board delayed his
appointment. [Point of speculation #1: was he already
asking a few awkward questions here and there, causing the
rest of the board angst? Most likely.]

Then, on 9/23 he started more actively investigating, by
sending a list of questions to Messrs. Kikukawa and Mori.
Soon after that, on 9/29, he repeated his request to
Kikukawa that he be appointed "CEO" -- by which, MW
clearly meant Representative Director status. A single
day later, Kikukawa appears to have done the nemawashi to
tell his board how to vote and duly promoted MW. [Point of
speculation #2: for what reason did Kikukawa agree to MW's
promotion so quickly? Did he think that he could buy MW's
loyalty? Or was the evidence too strong to ignore?]

One rather suspects that: a) Kikukawa and the board thought
MW would stop investigating if they gave him the Rep. Dir.
role since any subsequent actions by MW would also
implicate himself, and b) since the promotion was the first
item on the agenda, when MW went on to yet again bring up
the acquisitions at the end of the board meeting, there
must have been some very angry people realizing that he
couldn't be controlled. No doubt they told him to drop the
subject and the board meeting just ended that way.

As added spice to this mystery, there is the fact that as
far as I [Ed: our reader] can ascertain, there was never any
announcement in Japanese of MW's appointment as
Rep. Dir. I am told that it was announced in English, but
now the people who tell me they saw it cannot find any
mention of the promotion -- so I can only imagine that it
must have been taken down from Olympus' web site.

The fact that they seem to have never disclosed it in
Japanese is also pointed out here:

Such non-disclosure may not be sufficient reason to put
this company on supervision post, but at minimum, it shows
the company's attitude towards disclosure in general, and
it REALLY makes you wonder what happened on 9/29 and 9/30
-- or for that matter in the previous four years."

[Back to us...] Yes, indeed, corporate governance in
Olympus appears to be extremely soft and Kikukawa even
though now gone appears to still be controlling the new CEO.
Such is the nature of strong men. This idea of a driven and
rather ruthless individual running a public company as if it
was his own is quite common in highly competitive
Japan, so it is with little surprise that another egregious
case has surfaced -- that of Daio Paper.

In this case, the grandson of the founder of Japan's third
largest paper company, Ehime-based Daio Paper, is said to
have received JPY10.7bn (US$141m) in unsecured loans from
the company's subsidiaries between May 2010 and September
2011. Amazingly, while he was tapping the firm for such a
large sum, the company itself reported a loss of JPY8.1bn
for FY2010. Furthermore, the Daio directors, although they
knew full well about the loans, agreed to let them happen
and didn't divulge their existence to shareholders until
forced to after a newspaper blew the whistle on the goings

Daio is now being punished in the stock market and the
President has announced that there will be an
investigation and a possible law suit in the courts over
the matter. But the damage is done, and Daio has been
revealed for what it is: a publicly traded family-run
company paying lip service its responsibility to

We won't go into the JTI case here, but with these three
cases opening up in just 3 weeks, it's obvious that there
is a deeply dysfunctional corporate governance problem
in some major Japanese public companies. We think that it
is about time that Japan takes corporate governance
seriously. Perhaps Moody's or some other risk-related
assessment company needs to create an index based on each
firms' independence of outside board members and its
historical track record of corporate governance. At very
least, there needs to be some new regulation requiring
listed companies to have at least a percentage of its
directors be licenced after attending ethics, legal, and
disclosure courses, run by a statutory or duly licenced
commercial entity. As the nation undertakes significant
M&As abroad, major firms can no longer hide from the
demands of international rules and a persistent and
investigative foreign media.

...The information janitors/


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+++ NEWS

- Flight of capital
- Taiwanese tourists coming back to Japan
- Biggest tourism fall is around Mt. Fuji
- Public debt to exceed JPY1Q this fiscal year
- Japantourist website launched

-> Flight of capital

Mark Schreiber over at the Japan TImes had an interesting
column this week, with comments from the Shukan Bunshun
about the flight of savings from Japanese wealthy
individuals, who are concerned about Japan's financial
future. Apparently a source at HSBC in Japan told the
weekly magazine that from March through May, requests to
open off-shore accounts by Japanese customers jumped 500%,
and even today, 8 months later, such inquiries are running
300% over pre-January 2011 levels. ***Ed: Clearly the
prospect of higher taxes and deterioration of social
welfare payments is rattling the smart money -- as it
should.**(Source: TT commentary from, Nov
6, 2011)

-> Taiwanese tourists coming back to Japan

While the overall Japanese tourism scene is still in a
depressed state, some sectors are seeing a rebound, and one
of these is that of Taiwanese tourists. In fact, more than
457,000 Taiwanese visited Japan between June and September
this year, a 5.6% increase over the same period last year.
Apparently they are coming without the need for significant
discounting, and winter in Hokkaido looks to be one of the
more popular destinations. ***Ed: Interestingly, Korean
Tourism is saying that inbound traffic to Korea from
Taiwan has dropped about 14% as Taiwanese switch back to
Japan.** (Source: TT commentary from, Nov
6, 2011)

-> Biggest tourism fall is around Mt. Fuji

According to the Japan Tourism Agency, the location with
the highest fall off in tourists was Yamanashi-ken, home
prefecture of Mt. Fuji. The area had a 91% drop off in
foreign tourists, plummeting from 219,270 to just 19,730
guests staying at hotels in the area. This was even greater
than the 87.9% drop for Fukushima and 89.7% for Iwate.
***Ed: This anomaly can probably be explained by the fact
that both Fukushima and Iwate benefited from a lot of
foreign volunteers pitching in on the relief efforts.**
(Source: TT commentary from, Nov 5, 2011)

-> Public debt to exceed JPY1Q this fiscal year

A historical number will soon have been reached, with
Japanese public debt due to exceed JPY1Q (one quadrillion
= 1,000,000,000,000,000) by March next year. Originally
the government proposed to increase national debt by
JPY71trn, to a total of JPY995.92trn in 2011, but the
Tsunami and Fukushima crises have pushed that number up
by another 11.5trn and FX intervention by an additional
JPY15trn. ***Ed: This is a lot of zeros, and equals debt
of about JPY7.9m per man, woman, and child alive today.
A perfect storm in the making?** (Source: TT commentary
from, Nov 5, 2011)

-> Japantourist website launched

Our sister company, Metropolis magazine, has launched an
inbound tourism website at The website
caters to foreigners abroad or resident in one of the major
cities, who want to explore Japan in more detail. The
website uses partners and contributors to build its
database, so it is still a work in progress, but already it
is the fastest growing English-language tourism website in
Japan and by mid-next year should be the largest. Key
differentiators for are: i) regional
partners, ensuring less well known areas are covered, ii)
rewards for contributors, increasing input volume and
quality, iii) national coverage, essential for major
advertisers, iv) user recommendations, not unique but
within Japan in English, a first, and v) syndication
strategy ensuring wide dissemination around the internet.
(Source: Metropolis' own press announcement, Nov 5,

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.



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