Kansai Electric Power Company Promises to Reform Corporate Governance After Three Decade-Plus Bribery Scheme

On March 30, the Japan Times reported that Kansai Electric Power Company (Kepco) publicly stated, in response to a directive by the Japanese Ministry of Economy, Trade and Industry (METI), that it would reform its corporate governance by appointing a new chairman and creating panels “consisting mostly of outside directors to oversee the nomination, remuneration and audits of its executives.”

The plan is a direct response to the public outcry caused when a third-party investigation found that for more than three decades starting in 1987, the late Deputy Mayor of the town of Takahama, Eiji Moriyama, had paid some ¥360 million ($3.4 million) in cash and gifts to 75 people that included a number of Kepco executives, “to favor a construction company that was linked to him.”

According to the Japan Times, the executives “said they could not reject the bribes for fear of retribution against their companies and themselves.”  METI has directed Kepco to report on its progress in improving corporate governance by the end of June 2020.

Note: Kepco will need to do more than fill executive positions to address its governance problems in the wake of the Moriyama scandal.  As the Japan Times has separately reported, since 1987 Moriyama “had served as a powerful local fixer between Kepco officials and Takahama businesses, giving cash and gifts to Kepco officials in exchange for kickbacks and giving contracts to construction-related firms with ties to Moriyama, which then paid Moriyama a consulting fee.”

Although Moriyama may have been uniquely powerful in his relationships with Kepco executives, the new Kepco leadership will also need to consider further changes in its governance and compliance structures to dispel the deep-seated corporate tolerance for bribery.  That effort will not be easy, as there are indications that Kepco’s prevailing culture has operated to shield senior executives from accountability for misdeeds and errors.  The Japan Times noted that

18 executives who took pay cuts totaling about ¥1.94 billion between March 2012 and June 2019 due to the utility’s poor performance after 3/11 [the 2011 earthquake and tsunami that caused nuclear accidents at the Fukushima nuclear power plant] then secretly received a total of ¥260 million [$2.4 million] between July 2016 and October 2019 upon their respective retirements, as way to at least partially repay the earlier cuts.

Kepco has reportedly said that it will seek a return of the money secretly paid to the 18 executives.  Yet it continues to face questions whether those executives will be investigated, and whether Kepco officials received bribes from other local officials connected with other nuclear power plants in the region.  Ultimately, Kepco will need to demonstrate – to METI and to the public  — that its commitment to responsible governance and effective compliance is real and that it is actively working toward a genuine culture of compliance.

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