Japan in Depth: Corporate culture breeds scandal

Japan in Depth: Corporate culture breeds scandal

The recent cases of Mizuho Bank, which has come under fire for a scandal over loans to crime syndicate members, and Hokkaido Railway Co., which has been criticised for sloppy track maintenance, point to a common denominator: Corporate culture that ignores problems and avoids stirring up trouble.

Even after problems were pointed out by supervisory authorities, the companies failed to take immediate action. Behind their negligence is a corporate culture characterized by a lack of information disclosure, a lack of awareness of legal compliance and a tendency to avoid clarifying responsibility for any irregularities.

Four executives of Mizuho Bank in charge of compliance learned about the faulty loans in December 2010, but left the problem unattended for more than two years. The bank, the core unit of Mizuho Financial Group Inc., finally took action this spring by asking for repayment of the loans, which had been extended through Mizuho's group credit company Orient Corp.

The executives failed to report the matter to the bank's top management after they were notified by the concerned section. Although the Financial Services Agency raised questions over the loans during its inspection, which began last December, Mizuho Bank never launched a full-fledged investigation.

The bank's delay in holding a press conference to explain the matter also underscores its lack of awareness about the seriousness of the matter.

Some observers say internal divisions still remain after three banks-Dai-Ichi Kangyo Bank, Fuji Bank and the Industrial Bank of Japan-were merged to form Mizuho Bank in 2002.

Orient Corp., which provided crime syndicate members with loans, is linked to Dai-Ichi Kangyo Bank, whose ranks many former Mizuho executives in charge of compliance happen to come from. In light of this, some observers have speculated that feelings of camaraderie made them hesitant to take action, leaving the problem unsolved.

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