How Seiko dissidents called time
By Jonathan Soble
Published: August 16 2010 22:11 | Last updated: August 16 2010 22:11
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| The outsider: Akio Harada’s agreement to lead a group of directors in confronting the president of Seiko proved decisive |
On the night of April 29 this year, several directors at Seiko, the Japanese watchmaker, gathered for an emergency meeting in central Tokyo. A long-running management battle was coming to a head, and the following day the company, best known for creating the quartz wristwatch in the 1960s, would lose both its president and a powerful senior executive in a boardroom coup.
The meeting was convened by the coup’s plotters. Shinji Hattori, the 57-year-old great-grandson of Seiko’s founder, and a handful of other board members who had grown alarmed by what they saw as abuses and mismanagement by the company’s leaders.
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The behaviour of a senior managing director, Noriko Unoura, was especially troubling.
Ms Unoura was a protégée of the Hattori clan’s patriarch, Reijiro, Shinji Hattori’s 89-year-old uncle, and was known inside and outside the company as “the empress”. Seiko’s employee union had recently presented a report to the board accusing her of repeated acts of “power harassment”, from verbal abuse of employees to arbitrary sackings. A potentially embarrassing lawsuit was in the pipeline.
Of the dissident directors at the April meeting, all but one were long-standing Seiko employees. That was hardly remarkable in Japan, where most managers spend their careers at a single company and corporate boards are stuffed with insiders. While businesses listed on the New York Stock Exchange, for example, must draw half their directors from outside the company, no such regulation exists in Japan, and fewer than half the country’s quoted groups have any external directors at all.
Seiko, however, did. Its lone outside director was Akio Harada, a 70-year-old former prosecutor. Grey-haired and plain-spoken, Mr Harada had spent his career jailing murderers, thieves and corrupt politicians before becoming Japan’s prosecutor general, the state’s highest-ranking criminal attorney, in 2001.
Now retired, he occupied himself by serving on the boards of companies such as Seiko, the cosmetics group Shiseido and the Japanese post office.
Fujitsu and the role of its external directors
The presence of outsiders on a board of directors is usually taken as a sign of healthy corporate governance – but it is no guarantee. Just ask investors in Fujitsu.
The Japanese technology group’s four non-executive board members – out of a total of 10 – did not stop it bungling the ousting of its president last year.
Kuniaki Nozoe left in September for what Fujitsu initially said were health-related reasons. Months later, after he claimed unfair dismissal, it changed its story: Mr Nozoe was asked to leave, Fujitsu said, because of ties to an investment fund suspected of links to organised crime.
Mr Nozoe has vehemently denied the charge, and the conflict has spawned lawsuits and hurt Fujitsu’s share price.
In June, Glass Lewis, the proxy voting service, said Fujitsu’s board had “intentionally misinformed investors” and “blatantly disregard[ed] the most basic standards of corporate disclosure”. It urged shareholders not to reappoint the company’s chairman and one senior non-executive director. (A majority voted them back in anyway.) Mr Nozoe has suggested Fujitsu’s outside directors were misinformed in the case.
Whatever they were told, two of the four were hardly impartial strangers to the company’s politics: one was an ex-Fujitsu executive and another the president of a Fujitsu affiliate.
Seiko’s management battle featured a number of headline-grabbing elements – an allegedly power-tripping female executive, family infighting and a general public messiness rarely witnessed in harmony-obsessed Japan.
Yet, to anyone interested in how Japanese companies are organised and run, it was the decisive role played by Mr Harada in determining the outcome of the confrontation that may matter most.
“I had never been involved in managing a company before,” Mr Harada says, speaking in his sparsely furnished office in a Tokyo law firm. “In the four years I had been on [Seiko’s] board, several directors left without warning. I didn’t think anything of it at the time. It would be explained that they had moved on to another important role within the company. But eventually I started to wonder whether this was OK from the point of view of corporate governance.”
Other issues had also begun to bother him. Shinji Hattori, who became a director in 2007, had been complaining at board meetings about Seiko’s heavy debts and the “huge losses” it had suffered on real estate investments made several years earlier. Parts of Seiko’s business strategy also seemed out of touch to many who knew the company. Its Wako chain of jewellery shops, for instance, had been losing money for more than a decade, and yet – unusually for a Japanese retailer – it stayed closed on Sundays.
“This was not the sort of problem that should be sorted out quietly behind a curtain,” Mr Harada says.
The final trigger for the late April meeting was a proposal by Seiko’s president, Koichi Murano, who had been in charge since 2001, to remove the company’s chief financial officer, Yoshinobu Nakamura, who had come to share Shinji Hattori’s doubts about the company’s direction.
Management purges had become almost routine at Seiko – Seiko Clock, a core unit, had gone through four presidents in two years – and it appeared another one was under way. A vote was to be taken at a board meeting the very next day, April 30.
Afraid that they would be forced out, Mr Nakamura and Shinji Hattori sought Mr Harada’s help. They hoped to recruit enough supporters on the board to block the ousting of Mr Nakamura, and then to pass a countermotion to remove Mr Murano and Ms Unoura instead.
“It was a very delicate issue for the board,” says Mr Harada. “Who would present the motion? How would the vote play out? The executive directors worried that if it failed, they would be held responsible and expelled just like [others had been] in the past.”
By the end of the meeting, Mr Harada had volunteered to take the lead. The next day he duly proposed to remove the president and Ms Unoura, and his motion was passed by a narrow margin. Mr Nakamura kept his job, and Shinji Hattori was nominated to become Seiko’s next president.
“Harada-san has a strong sense of justice,” Mr Hattori says, “He was willing to step in even if it meant being resented, even if it meant taking on the role of the bad guy.”
Neither Mr Murano nor Ms Unoura could be reached for comment. Both have left the company since being stripped of their positions.
According to Seiko, Ms Unoura acknowledged as part of the terms of her resignation that she had exerted inappropriate influence over personnel decisions, but denied that her behaviour violated any laws.
Commentators have mostly welcomed the change of management at Seiko – and Mr Harada’s role in bringing it about – as a step forward for Japanese corporate governance. Under Shinji Hattori, the company has since added a second veteran lawyer as an outside director on its board.
But the reaction from Japanese business leaders in general has been more mixed, according to Mr Harada, who believes that many still see no place for outsiders in supervising companies’ affairs. “People have said to me, ‘You were a prosecutor, so you just like to throw your weight around, don’t you?’ ”
He admits that before he had direct experience, he too was not always convinced of the value of external controls.
“I never really thought they were necessary before. Companies have outside auditors, and I thought that was enough. But after going through this experience I’ve come to believe that there is meaning in having outsiders with a vote sitting on the board. When issues become complex ... executives are forced to make their case and win these people over.”
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