Japan Pays a Price For Smooth Meetings

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IF a society is open and democratic politically, it is usually open and democratic economically as well.

Japan's claim to be an open and democratic society has been tarnished politically by a recent spate of scandals involving politicians, rightist extremists, and the yakuza, the mafia of Japan. Media attention has focused on these political scandals.

Less attention has been paid to the economic downside of Japanese society - for instance, the Ito-Yokado case, a scandal involving payments to a gangster group by Japan's biggest convenience-store chain, a company that as recently as September was commended for its services to consumers by the Tokyo Stock Exchange and the Ministry of International Trade and Industry.

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Ito-Yokado owns Seven-Eleven convenience stores in Japan and the United States, having acquired a majority interest two years ago in the Southland Corporation of Dallas, from which it originally learned the business. Ito-Yokado has long been a favorite of international stock analysts because of its "sqeaky-clean" image (as one analyst told the Wall Street Journal recently), its super-efficient distribution system, and its conservative fiscal management.

But last month its founder and longtime president, Masatoshi Ito, was forced to resign after police arrested a couple of his close subordinates on charges of illegally funneling 27 million yen (about $216,000) to a gangster group known as sokaiya. Sokai means "general assembly" in Japanese and is the term for the annual meeting of company shareholders. Ya is the equivalent of "-er" as in cobbler or carpenter. So a sokaiya is a person who makes a business out of attending company shareholder meetings.

A typical sokaiya does own a few shares in the company whose meetings he attends. He also usually publishes what purports to be a newsletter giving the inside story of various company dealings. With these as his weapons, he goes to a targeted company and threatens to reveal some scandal the company wishes to hide - perhaps a director's marital problems, perhaps something involving shoddy products or unethical dealings.

There may be some truth in the sokaiya's claims, or maybe not. In any case, a company wishing to run a smooth shareholders' meeting will make a "contribution" to the sokaiya. The practice is illegal and must therefore be concealed. In Ito-Yokado's case, one of the company's auditors (who has been indicted) is said to have salted away company funds under various pretenses and deposited them in a bank account owned by the wife of the company president. Payment to the sokaiya was made from this account.

Police have not made clear what scandal, if any, Ito-Yokado wished to conceal, nor did Mr. Ito, in his resignation statement, go further than apologize for having "disturbed" society. What is more interesting, to an outsider, is that Japanese society seems to accept the presence of sokaiya as a necessary evil and that almost all Japanese companies, including some of the most internationally well-known ones, avail themselves of their services. A recent questionnaire sent to 2,084 companies listed on the T okyo stock exchange showed 65.3 percent acknowledging some degree of company involvement with sokaiya.

Stockholders are legally the owners of a company, yet at their annual meetings company managements try to answer as few questions as possible and to conclude the meetings as rapidly as possible. There is an informal speed competition between companies: If company A took 28 minutes for its annual meeting, company B will make it a point of honor to get its meeting finished in 27. If a shareholder stands up to ask an embarrassing question, he is promptly shouted down by sokaiya, nor will the chair allow him

the floor.

Commenting on the Ito-Yokado case in the newspaper Yomiuri recently, economist Hiroshi Okumura said that whereas in Europe and America, the principle of company democracy has long been established, in Japan it is still "company dictatorship" that prevails. As long as managements do not want to run open, democratic annual meetings, and as long as shareholders show no great interest in the affairs of the companies they nominally own, the sokaiya business will continue to flourish in a country that prides i tself on how smoothly everything runs.

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