Comment on Corporate Governance and Enron
Alastair Morgan (Senior Advisor, Ministry of Economy, Industry and Trade, Japan)
This comment originally appeared in the "Japan-U.S. Discussion Fourm" (http://lists.nbr.org/japanforum) on May 2, 2002: posted here with the author's permission.
METI's web-site carries the April 2002 report (in Japanese) of an external Study Group established by the Ministry to consider corporate management and financial disclosure.
I also have an (unofficial) English summary of the report. I would be happy to e-mail this on request. My own e-mail address is
I attended one meeting of the Study Group at which there was a presentation by a US lawyer on behalf of the American Chamber of Commerce in Japan. Although Enron and Andersen's were mentioned in the discussion that followed, I detected no inclination to score points. This is also true of the final report. For example:
"Financial reports offer information on operating results and financial conditions of companies to stakeholders as well as to shareholders. Consequently, there is the possibility that illegal financial reports could cause widespread damage to society. It is common knowledge that when Enron failed in the US at the end of last year, fraudulent financial reports of the company had a widespread and severe impact on employees and business acquaintances as well as on investors. Also in Japan, there have been many cases where bankruptcies of companies, which involved fraudulent financial reports, have done much damage to various stakeholders as well as to shareholders.... It is urgently required that the efficient disclosure of information that is relevant in the making of investment decisions be promoted, and that the credibility of the information in Japanese corporate financial reports be improved in response to international trends in financial reporting, in order to strengthen the competitiveness of industries and to ensure appropriate corporate activity." And:
"Audit by independent external auditors who have professional capabilities is necessary so that the reliability of financial statements of companies can be secured. It is therefore essential to secure the reliability of external audits as well as to take effective measures in firms... such as clarifying the responsibility for preparing financial statements and the preparation process in order to secure reliable financial reports. However, since there have been cases in which window-dressing settlements by companies came to light after the companies failed, although they had been given positive evaluations by external auditors just before they declared bankruptcy, doubts arise as to the independence and usefulness of external audits.
"With due regard to this background, related institutions are carrying out various reviews to secure the reliability of external audits, such as a revision of auditing standards for external audit, discussions in sectional meetings of certified public accountants in the Council on Financial Services, and consideration by the Japanese Institute of Certified Public Accountants. In addition, the following matters should be considered. 1) Enhancing the transparency of appointment and dismissal of auditors [as under the US Securities Exchange Act]...2) Disclosure of external auditors' fees related and unrelated to audits [as in the US and several European countries]...."