[paper] Why Has the Board of Directors Failed to Work?

Hiroyuki Yanai: Executive Director & COO, Japan Association of Corporate Directors

Hiroyuki Yanai, born in 1955, is a member of the Study Group on Complementary Nature of Legal Systems and Management at the Research Institute of Economy, Trade & Industry. He participated in drafting Revised Corporate Governance Principles 2001. He was the co-author of Good Governance, Good Company, and Nihon Kigyo no Corporate Governance wo Tou (Questioning Corporate Governance of Japanese Companies). Yanai is a graduate from the Department of Philosophy of Keio University.

Mizuho's report on its computer system glitch, while specifying the direct cause of the trouble, discusses only technical and field responses to the trouble. It indicates that Mizuho has an intention to regard the problem as an isolated incident.
The core problem is the reason why the board of directors as the top decision-making body failed to work in forestalling or responding to the trouble. But the report indicates that Mizuho has failed to be aware of the distinction between the execution and oversight of management actions and between the management committee and the board of directors. Backing up the indication are Mizuho's documents published upon the merger of the three banks. Offering five principles for the merger, Mizuho pledged to provide comprehensive financial services at the highest levels to customers and business partners. But it failed to discuss the oversight of management actions, the roles of the board of directors, or outside directors.

In contrast, UFJ's documents, which were published almost simultaneously with the Mizuho documents, discuss the board of directors and outside directors from the viewpoints establishing governance structure in order to achieve improved transparency and fairness of management an maximum efficiency at the same time. Unlike the Genron NPO report, the Mizuho report has no focus on the necessity and effectiveness of the mechanism to check management. Mizuho has had six outside directors and statutory auditors elected from outside. What had they been elected and expected to do? Lessons leant from the Enron problem that emerged from the board's failure to work, the United States has begun to tightened requirements for the independence of outside directors. We cannot learn lessons from the Mizuho trouble unless Mizuho specifies what its outside directors and statutory auditors had been expected to do.

Mizuho is also required to review its management. Genron NPO has concluded that Mizuho has lacked management is role ae nd responsibility. We must question why banks had no management or no need for them. In the past when banks had been accustomed to the Ministry of Finance governance, they did not develop people with management skills. Especially for Mizuho where management had been little awareness of governance, the management issue must have been more serious than for other banks.