Japan's organisational culture behind corporate scandals: Experts

TOKYO • Japan Inc has been hit by two major corporate governance scandals in as many months, with experts pointing to organisational practices unique to the country as reasons behind the controversies.

Last month, a probe by independent lawyers found that tech giant Toshiba had colluded with the Ministry of Economy, Trade and Industry in suppressing foreign investor interests, a plan which Prime Minister Yoshihide Suga was aware of.

This month, Mitsubishi Electric unearthed three decades of "organisational misconduct" after it found that data on inspections for air conditioners and compressors for train use was faked.

The two scandals have caused boardroom turmoil in two of the country's most well-known companies.

Yet there is a sense of deja vu - in 2017, several companies including Kobe Steel, Nissan, Subaru, Mitsubishi Materials and Toray Industries confessed to systematic data fraud.

Top corporate governance lawyer Shin Ushijima told The Straits Times that Japan's traditional lifetime employment and seniority-based hierarchy form the backdrop of the problems.

"These systems create strong incentives for executives and employees to systematically defend themselves, which resulted in the recent scandals," he said, adding that if functioning effectively, they would ordinarily be keys to success.

Dr Parissa Haghirian, an expert in international management at Tokyo's Sophia University, stressed that "not every scandal is rooted in immoral behaviour".

The lack of diversity on corporate boards in Japan adds to the problem, she said.

"The people on corporate boards have been together for decades and know each other like brothers and cousins. This creates a certain power dynamic which leads to a sense of entitlement that they must be doing things right."

A version of this article appeared in the print edition of The Straits Times on July 19, 2021, with the headline 'Japan's organisational culture behind corporate scandals: Experts'. Subscribe