Paper scandal points to shortcomings of Japan Inc

Corporate governance is a relatively new concept in Japan, the world’s second-largest economy.

It ranks 38th out of 49 nations, lagging behind South Africa, Venezuela and Peru, according to GovernanceMetrics International, a corporate governance ratings agency.

The scandals come on top of what analysts see as insular management styles in Japan and an insufficient number of outside directors.

Japan’s Nikkei benchmark average was the worst performing index among among major stock markets in 2007.

Restructuring and economic malaise in the late 1990s and early 2000s, as well as the erosion of Japan’s lifetime employment system weakened employee loyalty, giving rise to whistleblowers as well as making consumers more outspoken.

The paper scandal, which has enveloped other major domestic paper makers, was revealed by a whistleblower, said TV broadcaster TBS which broke the news.

It follows cases where firms sold food past its expiry date — mostly by small firms but also affecting McDonald’s Japan, which said some of its stores may have done so.

Staffing agency Goodwill Group Inc suspended on Friday all its branch operations for several months — a government penalty for breaching employment regulations when it sent out temporary workers out. It also withdrew from nursing care services last year after it inflated staff numbers.

Other high-profile scandals last year included the failure of Japan’s biggest English language school chain Nova, after fraudulent advertising.

“There have been so many scandals, I guess there are worries about what industry is going to be next,” said Takeo Omura, a corporate governance analyst at the Daiwa Institute of Research.

http://www.forbes.com/reuters/feeds/reuters/2008/01/18/2008-01-18T105019Z_01_T49215_RTRIDST_0_JAPAN-SCANDALS.html

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