Shareholder friendliness counts for little if boards can't effectively oversee management
By Quentin Webb
HONG KONG (Reuters Breakingviews) — The fiasco at Mitsubishi Motors shows where Japan's corporate reforms lack oomph. At best, management and directors were in the dark for 25 years about dodgy fuel-economy tests.
As in many Japanese blow-ups, the malfeasance looks more like a misguided attempt to help the company, rather than a way for employees to get rich quick. The carmaker's chief operating officer partly blames pressure to hit unrealistic targets. That echoes the impossibly tough "challenges" that prompted Toshiba to spend years fiddling its books.
However, unlike Toshiba and Olympus, the latest scandal is not about ropey accounting. Nor do bosses appear to be directly implicated. And automakers everywhere seem to have difficulty staying out of trouble: just look at the testing and safety crises at Volkswagen and Ford.
Nevertheless, the scandal is a setback for Prime Minister Shinzo Abe's attempts to revamp Japanese corporate governance. Progress is visible: return targets and buybacks are proliferating, and firms like Sharp and Seven & I are clearly listening to investors. It's also encouraging that, as Reuters reports, other Mitsubishi Group companies are wary of helping their troubled sibling for fear of upsetting their owners.
But shareholder-friendliness counts for little if boards can't effectively oversee management, and if leaders can't keep staff honest. When the system collapses, so does shareholder value: Mitsubishi Motors stock is off 55 percent this year.
Though Japanese companies have hired independent directors, oversight remains iffy. Jefferies analysts argue just one per cent of top firms have good board structures. Too many are stuffed with geriatric insiders, academics and lawyers who lack professional skills and independence.
Mitsubishi Motors' 14-member board looks both too big and insufficiently independent. It has just four independent directors — and these include the president of Mitsubishi Heavy and the former president of Mitsubishi Corp. One man is both chairman and chief executive.
An independent probe will examine just what went wrong at Mitsubishi Motors. The group already planned to adopt a stronger, "supervisory committee" board system, and says more details will be disclosed soon on how the company is steered. Though that's welcome, it is only one of many Japanese companies in need of a governance overhaul.
