Japanese Regulator Faults Bank Officials

Reviewed By Hitoshi URABE

Article:
"Japanese Regulator Faults Bank Officials"
http://www.washingtonpost.com/wp-dyn/articles/A14100-2002Jun19.html
Washington Post

Comments:

The Financial Services Agency last week issued a business improvement order to the Mizuho Financial Group, instructing it to clarify the cause of the large system failure in April and implement necessary measures to prevent future occurrences.

A "business improvement order" does not sound much, but it is considered to be a punishment, falling just short of prosecution only because it had not been caused by a deliberate breach of law. The scheme was implemented a few years ago to better control the financial sector by the government, to display it as a whip, hoping that it would not be needed to use it.

The order has clearly stated that the system trouble was caused not only from the evident computer program errors and handling mistakes by clerks, the important element behind all the trouble was the lack of effective corporate management.

Indeed, it surprised many when it was announced by the three banks then, The Dai-Ichi Kangyo Bank, The Fuji Bank, and The Industrial Bank of Japan, that when they initially formed a holding company, the three CEO's of three merging banks would be the CEO's, yes three CEO's, of the holding company. Having three persons as such obviously defeats and challenges the concept of Chief Executive Officer, and it made quite a number of people uneasy, becoming suspicious of where the leadership is and the responsibility lies in the new organization.

It has become clear, after it was reported by the FSA, that the fear had in fact materialized at Mizuho Group. It was said from the outset that the most difficult task for a successful merger was to consolidate the spirit of the officers and employees of merging banks. The issue was not imaginary, as it had a number of precedence, of which the most notable being the experience of one of the merging banks. Dai-Ichi Kangyo Bank, which itself was a product of a merger of quarter of a century ago, had at the time set up two separate personnel departments within the merged bank, one to take care of the employees of an old banks, Dai-Ichi Bank, and the other to look after those of another, Nippon Kangyo Bank. The astonishing part is that they had to maintain the two nominally and practically separate personnel departments for two decades, until no one with the experience of either of the two old banks were working any longer.

However, almost every story leaking out of Mizuho in its primary stage was indicating that the officers of three merging banks were fighting vigorously to protect and expand their own turf within the new organization.

It has been pointed out in a number of commentaries that the trouble could have been avoided if a senior officer akin to that of Chief Information Officer were appointed to supervise that segment of merger. It might be so, but the problem was exactly that the sort of authority had not been able to be established due to the conflicts among the three organizations at every level of hierarchy.

The incident has provided a good case for study in corporate governance, or a misgovernance, especially of Japanese corporations.