'Antisocial' allegations

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By Lisa Twaronite, MarketWatch

TOKYO (MarketWatch) -- Fujitsu Ltd.'s disclosure incident this week shows how much Japan has changed -- and also how much it remains the same.

Late Tuesday, the Tokyo Stock Exchange gave Fujitsu Ltd. (JP:6702 589.00, -12.00, -2.00%) /quotes/comstock/11i!fjtsf (FJTSF 6.55, +0.10, +1.55%) a verbal warning to the technology firm for altering its official reason disclosed to explain why its president resigned last fall.

Fujitsu originally said its former president Kuniaki Nozoe's resignation on Sept. 25 after 15 months at the company's helm was due to "illness." But on Saturday, the company said Nozoe agreed to step down after an internal investigation found he had an unsavory business connection.

Nozoe's lawyer was widely quoted in media reports denying the allegations and saying Fujitsu misled Nozoe with false information that an associate of his had ties to "antisocial forces" -- typically a reference to Japan's underworld of organized crime. Nozoe sought to have his resignation rescinded, claiming Fujitsu executives forced him to remove himself from the company on false grounds.

In a country where large, publicly traded companies rarely make headlines for management disputes, the reports spooked Japanese investors. Fujitsu's shares lost a total of 6.5% in trading Monday and Tuesday, but pared that loss Wednesday, when they added 1.3%.

For the time being, the damage appears contained. The TSE's warning addressed the biggest risk to Fujitsu's shares, wrote Morgan Stanley analyst Masaharu Miyachi in a report -- investors had feared the issue might be put on watch. Miyachi has an overweight rating on the stock.

Miyachi also cited possible risks relating to disclosure of responsibility concerning the company's pension funds, if Fujitsu's allegations that former management had dubious associations were true, as well as "mounting concerns about Fujitsu's corporate governance and disclosure."

Fujitusu's revision of the reason for Nozoe's departure "exposed a sense of uncertainty at the management level, and our impression is that this is likely to delay the timing of a renewed push to realign the company's business portfolio," said analysts at Merrill Lynch, who maintain their buy rating but said they needed to "keep a close eye on business restructuring progress."

Some legacies fading

The concept of "corporate governance" in Japan is a relatively new one -- in fact, the term itself is usually phonetically rendered from English rather than described with equivalent Japanese kanji characters.

But some Japanese legacies that work against corporate governance are fading out.

One such tradition is cross-shareholding, in which companies with business ties take stakes in each other to cement their connection, such as those between lenders and borrowers.

Over the past two decades, Japan's changing accounting regulations and falling share prices eroded the profitability of these mutual holdings -- though they also made some companies reluctant to unwind the positions at steep losses.

The influence of "sokaiya" -- racketeers who made a career out of corporate extortion -- has also waned.

Sokaiya used to regularly disrupt Japanese shareholder meetings, or would refrain from doing so, in exchange for monetary "gifts" from companies. Direct payments to sokaiya were banned in 1982, but the practice continued.

In 1994, a senior executive at Fuji Photo Film (JP:4901 2,728, -14.00, -0.51%) /quotes/comstock/11i!fuji.y (FUJIY 31.06, +0.20, +0.65%) was killed by a suspected racketeer he had refused to pay.

Then in 1997, sokaiya-related scandals rocked Japan's four big securities firms, including Nomura Securities Co. (JP:8604 489.00, -3.00, -0.61%) /quotes/comstock/13*!nmr/quotes/nls/nmr (NMR 5.62, +0.06, +1.08%) . Later that year, Mitsubishi Motors Corp.'s (JP:7211 116.00, +2.00, +1.75%) top two executives resigned amid allegations of suspected payoffs to sokaiya. Japan's parliament beefed up laws to give corporate extortionists tougher penalties.

In fact, most of the incidents and scandals of the past make Fujitsu's current troubles seem quite tame by comparison.

On the other hand, the fact that Nozoe's contentions and Fujitsu's revelation garnered so much attention shows just how uncommon such events still are here -- and perhaps the true test of progress in corporate governance will come when disclosure incidents make headlines more often.

Lisa Twaronite is MarketWatch's Tokyo bureau chief.