Japan's Corporate Scandals, Reconsidered

What features characterize corporate scandals in Japan? 

An oft-raised claim is that scandals in Japan are a result of actions taken for the sake of the corporation, rather than for the wrongdoer’s personal benefit. For example, employees may manipulate the quality inspection process for corporate products to cut costs, or management may decide not to disclose product defects or personal wrongdoing, such as sexual misconduct, to protect the corporation's reputation. Cases of outright tunneling by the CEO or controlling shareholder— a typical corporate scandal in many Asian jurisdictions— are relatively uncommon in Japan. This would seem to support the claim about the nature of scandals in Japan seeking to benefit the company rather than the individual. 

However, a close analysis of three recent major Japanese corporate scandals calls the validity of the claim into question. For example, the accounting fraud at Olympus (see Aronson 2012) involved an off-balancing of a large unrealized loss that was carried out with the permission of the then-president and shared among succeeding presidents. While the concealment may have been subjectively committed to preserve the reputation of Olympus, it has arguably served the personal benefit of the presidents, who would not have welcomed disclosing the loss or its concealment during their tenure, as it could have led to their resignation. To use the terminology from the criminology theory of “fraud triangle” (see National Whistleblower Center), the “for the sake of the corporation” argument is a mere rationalization, and wrongdoers have a separate personal motivation to commit wrongdoing (see also Funaishi 2025).

The concealment of a sexual assault at Fuji Television (see New York Times 2025), together with the Olympus scandal, reveals a downside of the traditional Japanese corporate governance system — characterized by insider-dominated boards, lifetime employment, and an illiquid labor market (see Shishido 2000) — which fosters homogeneity, groupthink, and excessive deference to authority. It is easy to imagine that management and employees, with no realistic option for mid-career job changes, have had no choice but to commit wrongdoings to survive in their corporations, telling themselves that “this is for the sake of the corporation”.

The product quality manipulation scandal at the Toyota Group that came to light in 2022–2024 (see New York Times 2024) highlights the importance of establishing an effective internal control system across corporate groups and an adequate whistleblower protection system for the board of directors to obtain sufficient information on wrongdoings. 

If one of the causes of corporate scandals is traditional Japanese corporate governance, a natural question that follows is whether recent transformations to it would change how corporate scandals occur in Japan. In particular, the increase in board independence induced by the Abenomics corporate governance reforms since the mid-2010s could alter the dynamics in boardrooms by interrupting groupthink and resisting the temptation to conceal detected problems, if independent directors are genuinely independent and respected by insiders. 

Responses to corporate scandals are also unique. Since the Olympus scandal, it has become customary in Japan for a scandal-affected corporation to voluntarily establish an independent “third-party committee” to investigate alleged wrongdoing. It became so popular that even a delay in establishing a third-party committee can itself be a source of criticism, as in the case of Fuji TV. Due to the historical absence of truly independent directors, a third-party committee was the only realistic option a Japanese corporation could resort to in order to appeal its self-cleansing ability to the public. The public has also welcomed the information production by third-party committees as substitutes for the discovery system used in class actions or derivative suits in the United States.

Of course, third-party committees are not without problems. They are sometimes criticized for lacking independence and expertise, and for rubber-stamping the corporation’s story and providing a cleansing effect to the corporation and its management, sometimes by scapegoating someone. At the same time, some practitioners caution against overreliance on third-party committees, noting that their reports do not specify the evidence and that the accused are not given the opportunity to refute, and argue that the committee’s findings should not be taken as a given premise.

A more recent phenomenon is the rise of scandal-induced interventions by hedge fund activists. For example, in Fuji TV’s scandal, Dalton Investments, which had long invested in Fuji TV’s parent corporation Fuji Media Holdings, requested an investigation by a third-party committee in the initial phase of the scandal, and later proposed its own director candidates and launched a proxy fight. Dalton lost this proxy fight, but it continued to put pressure on FMH’s management on a different agenda, i.e., a spin-off of the real estate subsidiary, and eventually, FMH bought back most of the shares Dalton held. It is not surprising that activists receive more support from other shareholders when a scandal is perceived as indicating a fundamental flaw in the governance of the corporation in question. Whether such scandal-induced activism will become a systematic feature of Japanese corporate governance, and whether it will improve long-term governance quality, remains an open question.

Corporate scandals and responses in Japan continue to evolve.

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Gen Goto is Professor of Law at the University of Tokyo, Graduate Schools for Law and Politics.

This post draws on the forthcoming chapter, “Corporate Scandals in Japan: For the Sake of the Corporation?” in Corporate Scandals in Asia: Legal and Policy Implications (Luh Luh Lan, Ernest Lim & Joon Hyug Chung eds., Cambridge University Press, 2027), which was presented at the Conference "Corporate Scandals in Asia and Beyond: Legal and Policy Implications", held in Singapore and hosted by NUS in collaboration with ECGI. Visit the event page to explore more conference-related blogs.

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