TOKYO (Reuters) - Japan’s corporate governance system is not to blame for the huge accounting scandal at Olympus Corp, and foreign investors are unlikely to abandon Japanese firms, an official at the powerful business lobby Keidanren said on Wednesday.
Shares of Olympus have dropped around 50 percent since the scandal erupted and some experts have said the case could dampen foreign investors’ willingness to invest in Japan.
But Yasuhisa Abe, director of the Keidanren’s business infrastructure bureau, said he was not worried because foreigners’ share of investment in Japanese stocks has been rising and investment decisions are made based on other factors.
“Investments are dependent on firms’ performance or the moves of the Japanese economy. I can assert that no one makes decisions on investments looking only at governance,” he told Reuters in an interview.
Olympus is at risk of being delisted over its $1.7 billion accounting scandal, one of the biggest ever in Japan, which broke in October after its former British CEO Michael Woodford blew the whistle on expensive and questionable acquisitions.
The scandal has put the spotlight on an ongoing review of Japan’s Corporate Law, on which a Justice Ministry advisory panel has been working for over a year. Panels in the ruling Democratic Party and main opposition Liberal Democratic Party are also discussing the topic of corporate governance.
“I do not think that there are any problems in terms of the (corporate governance) system. The issue really is about individual firms,” Abe said.
Abe said he understood the need to review the corporate law, but the process should not be linked to specific cases including Olympus, which is a member of the lobby.
A harshly worded report by an external panel that investigated the Olympus scandal on Tuesday urged legal action against executives responsible for the two-decade cover-up and criticized external auditors who signed off on the books of the 92-year-old medical equipment and camera maker.
The panel also said that reviewing the corporate governance system could help prevent similar cases, although ultimately directors and auditors themselves need to act responsibly.
The Olympus case suggests it may be necessary to reconsider the roles of auditors, Abe said.
But he said the lobby staunchly opposed making it mandatory to appoint external directors, a proposal that the Justice Ministry’s panel is considering, noting that Olympus’s three outside directors did not prevent the scandal.
“There are no prevention measures,” Abe said, referring to the Olympus case. “It is not a matter of preventing such cases by creating some kind of a structure,” he said .
Outside directors, also known as non-executive directors, are not employees or stakeholders in a company and are seen as relatively free from the conflicts of interest that may affect those with direct links to the organization.
But many in business are concerned that making outside directors mandatory would reduce their management freedom.
Keidanren’s opposition to legal changes has been a key factor in stalling corporate governance reform, experts say.
Additional reporting by Yuka Obayashi; Editing by Linda Sieg and Chris Gallagher