Terrie's Take: Anti-Corruption in Asia, Death Row Amnesty, SoftBank's Window Dressing, & More!
Terrie’s Take is a selection of Japan-centric news collected and collated by long-time resident and media business professional Terrie Lloyd. AkihabaraNews is pleased to present Terrie’s learned perspective; we all could use another take on the news - here’s Terrie’s:
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Terrie’s Take on March March 31, 2014
- Anti-corruption Challenges in Asia
- Death row inmate freed after 48 years
- Softbank shows how to do window dressing legally
- Ring-ring: "In-bound missile on its way..."
- Heat-resistant Li-ion batteries on the way
- "McDonald-fying" Benesse
Anti-Corruption Challenges in Asia
Interesting case going on in Vietnam at present. It involves the bribery of at least 4 and possibly as many as 14 Vietnam Railways Corporation (VRC) officials by a Japanese contracting firm called JTC. The case is interesting because it involves Japanese Overseas Development Aid (ODA) and JTC has been involved in at least four other ODA-funded projects, so this could be the tip of a rather large problem. Further, with over 14 projects under its belt since 1993, JTC is no newbie to the Vietnam public works scene, and therefore for them to get caught like this probably means they thought it was business as usual -- you have to bribe to get contracts in Vietnam.
Well that's the consensus anyway, but given the seriousness with which this case is being treated by the authorities, despite the relatively small amount of money involved (JPY80m or so), it seems that the leadership in both Vietnam and Japan have decided that things must change. With the flood of Japanese ODA money going to the region, and Vietnam in particular, the temptation for public officials to ask for some of it must be huge. Out of the US$1.3bn in ODA grants and loans aid (outstanding) to Asia in 2011, most of it, about US$1bn, went to Vietnam. The authorities both in Japan and in Vietnam are making this a landmark case, and cooperation by the Japanese side is being headed by the Japanese Ambassador in Vietnam personally, while for the Vietnamese side it is by the Transport Minister.
This case is not to say that Japanese companies are corrupt by nature, although they certainly were until the mid-70's. After the high-profile bribery scandals of the 70's (Lockheed and PM Tanaka) and 80's (Recruit's Ezoe), Japan has made a lot of progress in anti-corruption, especially over the last 20 years. According to NPO Transparency International, in its 2011 Bribe Payers index (http://bpi.transparency.org/bpi2011/results/), companies from Japan are the fourth LEAST likely group to pay bribes to get business. This puts Japan behind Holland, Switzerland, and Belgium, and ahead of Australia and Canada. The USA was in tenth place.
Unfortunately, the reality of doing business in emerging economies is having to deal with government officials asking for under-the-table payments and it's a habit that is hard to break, especially when you have to compete against the Chinese and South Koreans and their proxies. We imagine that fierce competition makes it difficult to win business when your competitors have less scruples or are working through locals with little concern about the corruption laws in far-off USA. Japan's trading companies in particular, have a hard time of it, and one company has now been labeled a repeat transgressor by the U.S. authorities -- trading giant Marubeni.
Marubeni was found guilty recently of breaching the USA's Foreign Corruption Prevention Act (FCPA) over a power plant project in Indonesia. Marubeni and France's Alstom apparently retained two consultants to pay US$350k to three Indonesian officials, one of whom was a Member of Parliament. After being found out, Marubeni was fined US$88m. Unfortunately for them, this case came not so long after a similar fine for bribery in Nigeria, and so a law firm following the case said that there were two major reasons the DOJ came down so hard on the Japanese trader: i) the company acted guiltily, by not contesting the prosecution, and ii) Marubeni is a repeat offender and obviously doesn't have an effective FCPA compliance program.
What about their partner in crime, Alstrom? Well there are rumors that Alstom, which did not come clean, is going to face a blockbuster fine when the DOJ finally takes them to court.
You may ask why the U.S. DOJ is even involved in policing the actions of a Japanese trading company in Indonesia. Perhaps it is because although the U.S. has prosecuted a number of corruption cases in the last couple of years, the Japanese government has actioned only two, and the penalties were essentially a slap on the wrist. So perhaps the Americans are sending a message to their Japanese counterparts that it's time for them to tighten up. If so, then the current high-level Vietnamese investigation into the JTC case is understandable. On the other hand, one could also say cynically that it's a case of the Americans expanding their sphere of influence, and thus fines revenue, by enmeshing any company that is remotely related to U.S. interests -- much the same as they are doing with FATCA. Of course bribery is wrong, but is the act of bribing worth a JPY9bn fine? It's hard to say.
Whatever the morals of the case, Marubeni, and indeed most Japanese exporters are now having to accept that one of the costs of being a global citizen is in having to comply with U.S. laws such as FCPA. So what is an "effective" compliance program that will satisfy the U.S. authorities and reduce the likelihood of more fines in the future? This is an important question, because as a 2012 Kroll report implies, probably less than 60% of Japanese multinationals (and Asian companies in general) have an FCPA compliance program at present, let alone an effective one. Here is the prescription that the DOJ set for Marubeni
1. High level commitment by Marubeni's directors and senior management to comply in the future with FCPA rules.
2. Visible policies and procedures.
3. Creation of a periodic risk assessment program that is relevant to Marubeni's situation, i.e., foreign bribery risks.
4. The policies and procedures must apply equally to all directors officers, and employees, as well as agents.
5. Comprehensive coverage of all at-risk actions, including gifts, hospitality, customer travel, political contributions, charitable donations, etc.
6. Financial and Accounting systems that provide internal controls over the use of questionable expenses.
7. Appointment of an empowered and adequately resourced senior executive who oversees the compliance activities, and who reports directly to the board.
8. A minimum of annual reviews and updates of policies and procedures, comparing with best practice globally.
9. Thorough implementation of FCPA rules, through periodic training, certifications, and resources capable of consulting and advice.
10. Establishing and maintaining an effective Whistleblower program, including a commitment to follow up on information coming from such people.
11. Enforcing FCPA rules and disciplining employees who breach them.
12. Ensuring there is adequate risk-based due diligence before M&A.
13. Proper screening and management of third party consultants working on company's behalf.
14. Periodic monitoring and testing of the FCPA compliance regime, to ensure that it continues to evolve and meet global best practice.
Yup, there is a lot of heavy lifting in this list that goes right against the grain of Japanese firms. Items that catch the eye include the need to encourage whistleblowers, offering equal treatment of managers and employees alike, and putting in tracking systems -- all of which are "soft" skills that Japanese firms have until now found hard to do. We think that the only way to get full compliance with FCPA rules is for METI to start some really solid lobbying of Japan's top managers to ensure that they adopt suitable systems and procedures in a top-down approach. METI should also start bringing in foreign best practice and IT consultants to help firms create the solutions needed -- before another Marubeni situation occurs.
Death row inmate freed after 48 years
An Amnesty International statement summed up the recent release of death row inmate Iwao Hakamada, saying, "The Japanese authorities should be ashamed of the barbaric treatment Hakamada has received." Hakamada was released from prison after serving 48 years, the longest incarceration by a death row inmate in the world. He was released after his sister and lawyers managed to get a court review of his case and presented fresh DNA evidence that shows blood found at the scene of the crime in 1966 was not from Hakamada. The Defense say that Hakamada's confession was coerced after 20 days of interrogation... ***Ed: Yet one more reason why Japan should suspend the death penalty...** (Source: TT commentary from smh.com.au, Mar 28, 2014)
Softbank shows how to do window dressing legally
Window dressing, the act of doctoring one's financials with in-house or fake transactions to make the company look more financially healthy than it really is, is illegal. Horie of Livedoor Holdings and Tsutsumi of Seibu both learned this the hard way. Interesting, then to see Softbank do pretty much the same thing, but legally, in its recent transaction with Yahoo Japan. It is common knowledge that eAccess was in a mess when Masayoshi Son bought it for JPY180bn in 2012. Now Son has pushed those assets on to Yahoo Japan for JPY324bn, creating a nice little profit of JPY144bn (about US$1.5bn). Trouble is, since Softbank is the largest single shareholder of Yahoo Japan, this transaction is definitely not being done at arm's length. Further, Yahoo Japan doesn't need the eAccess business, doing perfectly well in the digital space. ***Ed: We'd be surprised if some Yahoo Japan shareholders didn't decide to take this transaction to court. It's a clear conflict of interest and if Son is not careful he could be starting a serious fire in his own back yard. As it is, Yahoo Japan's market cap fell by JPY175bn on Friday, more than the amount of profit that Softbank will book because of the transaction. We guess that Son is hoping shareholders have short memories... and lots of patience for such shenanigans.** (Source: TT commentary from bloomberg.com, Mar 28, 2014)
Ring-ring: "In-bound missile on its way..."
It is surely a sign of the times when the Japanese national earthquake cell phone warning system is upgraded to include alerts of incoming missiles...! Sounds like an April Fools prank, but apparently it's true. Next Tuesday (April 1st) the Fire and Disaster Management Agency (FDMA) will include missile alerts in its line-up of warnings to be sent out to cell phone users. Presumably the warnings are related to North Korea's recent activity with missile launches. ***Ed: Actually, when we first saw this news item and the date the service was supposed to start, we thought it was an early April Fool's hoax. However, if you go to the FDMA website and to page 2 of this following PDF document, sure enough, you can see a mention of missiles and a cute little image of an incoming missile on their system diagram... http://bit.ly/1f9fryq. (Source: TT commentary from theverge.com, Mar 28, 2014)
Heat-resistant Li-ion batteries on the way
One of the biggest obstacles to the wider adoption of Lithium-ion battery technology in automobiles and other consumer applications is their tendency to catch fire when they overheat. If the reason for the overheating is a short-circuit, there isn't much you can do to stop it, other than including cut-out electronics in every cell pack. However, if the problem is environmental overheating, such as under car bonnets on a hot summer day, then manufacturers would like to have a fix. Currently Li-ion batteries are reliable up to about 45 degrees and above that need to be cooled to stop performance deterioration and possible cell ignition. The need for cooling reduces the effective power available from a Li-ion battery by about 30%, so many companies are working on getting heat-resistance up to at least 65 degrees. Among the recent developments are a new electrolyte from Daikin (the air conditioning people), and new electrodes and separators from Nippon Kodoshi. Interestingly, the Nippon Kodoshi technology uses finely processed plant fibers instead of conventional resins to create the separation film. The company says the plant fibers are more heat stable. ***Ed: Yet another example of Japanese processing technology being applied to natural materials rather than just cooking up more complex chemistry.** (Source: TT commentary from asia.nikkei.com, Mar 28, 2014)
Very interesting senior appointment this week, in the selection of Eiko Harada, Chairman of McDonald's Holdings, as the incoming Chairman and President of Benesse Holdings. Harada is noted for his largely successful helmsmanship of McDonald's in Japan, and is a strong operations and marketing guy. Benesse has fallen on hard times of late, largely due to "inbreeding" of its management layer and aging of its target consumers, and it needs some outside blood to turn its potentially lucrative operations around. The company is still the largest private provider of after-school education to Japan's school kids, as well as being in the call center and nursing care businesses. Harada is just 65, young by Japanese standards, and is expected to take up his new role after election at Benesse's June AGM. (Source: TT commentary from the-japan-news.com, Mar 28, 2014)
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That was Terrie's Take.
What's yours? Let us know down below.