Japanese lawyer group to rate 3rd-party probes, fight cozy corporate ties

TOKYO, April 1 Tue Apr 1, 2014 4:02am EDT

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TOKYO, April 1 (Reuters) - A group of Japanese lawyers is setting up a rating service to evaluate investigations on corporate scandals amid criticism that third-party panels hired for things like bribery cases often lack objectivity and help to whitewash misdeeds.

While the ratings will not carry any legal weight, the group hopes they will encourage more thorough and independent investigations.

Establishing third-party investigative panels has become a widely used method by Japanese companies looking to address and mitigate scandals. But such panels lack legal authority and are vulnerable to manipulation. They also have sometimes been criticised for rubber-stamping story lines favoured by management.

The move comes as Prime Minister Shinzo Abe is trying to woo more foreign investors to Japan. A major criticism among investors has been an insular corporate culture that has failed to hold executives and companies accountable for malfeasance.

One of the most controversial cases was in 2011 when Kyushu Electric Power Co watered down a third-party panel report on its alleged attempts to manipulate public opinion on the restarting of nuclear reactors.

"Quite a few third-party committees are just not functioning properly and allow companies that choose panel members to do whatever they want," attorney Hideaki Kubori, one of the group's members, told Reuters. "This is an awful situation and we cannot just ignore it and let it go."

Kubori said the group, which plans its first meeting on Wednesday, will rate whether panels hired to investigate corporate scandals are independent, neutral and thorough.

He said they plan to rate a report on a scandal at lender Mizuho Financial Group Inc last year over an affiliate's loans to organised crime networks, a case that showed ties remained between Japanese banks and "yakuza" gangs.

Nicholas Benes, representative director of The Board Director Training Institute of Japan, said that while he supported "the spirit" of the move to rate investigations, he believed it would leave a core governance problem unaddressed.

In the United States and other countries such investigations would be handled by committees picked by independent directors who could be held liable for their veracity. In Japan boards are packed with insiders and there is no clear line of accountability for such investigations.

The priority should be on creating a legal framework to boost the independence and accountability of Japanese boards, Benes said.

"It's a Band-aid that is better than not having a Band-aid, but it is being directed at a wound which is of much larger proportions and needs antibiotics and legal structures as well," he said of the rating service.

"And the more we go we down this crazy road of creating extra-legal solutions where people don't have fiduciary duties they should have, we are always going to be creating something that is not optimal."

(Additional reporting by Emi Emoto; Editing by Matt Driskill)

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