TOKYO — It is the second wild boardroom drama to shake up corporate Japan in days: the country’s leading tissue maker, Daio Paper, said on Friday that it would file a criminal complaint against its former chairman, accusing him of illicitly borrowing $140 million in company funds and channeling some of that money to a Las Vegas casino company.
The controversy provides yet another lens into the seemingly free-wheeling behavior — and disregard for corporate governance — still seen among top management at some of Japan’s leading companies.
Olympus, the medical imaging and digital camera maker, has lost half its stock market value this month since its ousted chief executive released internal documents that he said showed the company made over $1 billion in improper payments over a series of acquisitions.
But the scandal at Daio Paper, which makes the best-selling Elleair brand of tissues in Japan and other paper products, is unique because the company has made public the ex-chairman’s alleged shenanigans. In a report filed with the Tokyo Stock Exchange on Friday, the company also acknowledged gross lapses in its corporate governance.
According to the report, the former chairman, Mototaka Ikawa, routinely ordered subsidiaries to deposit money into his personal bank account and to an account held by a Japanese subsidiary of the casino operator Las Vegas Sands. Mr. Ikawa has since repaid almost half of the money, the report said, but has claimed he used the rest on currency trading and dealing on the stock market.
Mr. Ikawa has denounced the report, calling it biased, but has not responded publicly to specific charges, according to the public broadcaster NHK. The report says that Mr. Ikawa has admitted to borrowing some of the money, but has suggested he intended to return it. But he failed to turn up at most of the meetings requested by the authors of the report, it said.
Daio Paper’s share price has dropped about 15 percent since reports about the loans started surfacing in the local media. Mr. Ikawa stepped down on Sept. 16.
“I apologize from the bottom of my heart for the discovery of 10.7 billion yen in loans to our former chairman, which has brought great inconvenience to our shareholders,” the president of Daio Paper, Masayoshi Sako, told a packed news conference.
Mr. Sato said the company had also fired Mr. Ikawa’s brother, a board member, Takahiro Ikawa, and their father, Takao Ikawa, who is an adviser to Daio Paper and a former chairman. His father, Isekichi Ikawa, founded the company in 1943.
The dominance still wielded by the founding family was excessive, Mr. Sato said, though he added that the company would still ask Takao Ikawa for advice from time to time. The Ikawa family is a major shareholder in the company.
According to the report filed with the stock exchange, which the company said was prepared by an outside panel of legal experts, Mr. Ikawa ordered seven subsidiaries to lend him a total of 10.68 billion yen between May 2010 and September 2011. He has since repaid 4.75 billion yen.
“In many cases, the former chairman would unilaterally demand: ‘You must deposit X million yen into my account by tomorrow,’ ” the report said. Executives at the subsidiaries knew Mr. Ikawa wanted the funds for personal use but did not question him, and the loans were made without collateral, it said.
Some of the subsidiaries were forced to take on more debt to cover for the loans to Mr. Ikawa, the report said. In the year to March, the company booked a net loss of 8 billion yen on sales of about 410 billion yen.
According to the report, Mr. Ikawa demanded that the money be paid into a personal account held under his name or to the casino company, sometimes through another Daio Paper subsidiary. Daio Paper has no business dealings with Las Vegas Sands, the report said.
In a harsh self-criticism, the report said that company executives, board members and even its auditors turned a blind eye to the loans.
“At the Daio Paper Group, speaking out against the Ikawa family has not been condoned,” the report said. “When the former chairman asked for a transfer of funds, his wishes were obeyed without question.”
Daio Paper said that it would ask Mr. Ikawa to repay the remaining 5.93 billion yen and investigate how he used the money.
The company also announced a 50 percent pay cut for the president, Mr. Sako, and other censures for its board members, and said it would set up a special committee to study ways to bolster its corporate governance.
Article source: http://www.nytimes.com/2011/10/29/business/global/new-scandal-presses-corporate-japan.html?partner=rss&emc=rss
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