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Consultant recommends rejection of auditor appointments

June 24, 1997

TOKYO (AP) _ U.S. consultants are urging investors to reject the proposed appointments of several auditors for Japan’s largest brokerage and a major bank on the grounds they failed to prevent payoffs to racketeers.

The appointments of the four auditors at Nomura Securities Co. and one at Dai-Ichi Kangyo Bank are to be decided at shareholder meetings Friday.

Institutional Shareholder Services, which advises big investors on how to vote their shares, recommends that its clients vote ``no.″

``They should have known about the payments,″ Bruce Babcock, the firm’s chief operating officer, said in a telephone interview earlier this week. ``And if they didn’t know about them, they weren’t doing their jobs.″

The candidates aren’t independent enough to monitor the companies because they are current or previous board members, Institutional Shareholder Services said in analyses completed last week. Auditors in Japan often come from affiliated companies or have ties to the board.

When asked for comment, Nomura spokesman Takushi Abe would say only: ``It is good to have many views.″ Dai-Ichi Kangyo refused comment.

Executives at Nomura and Dai-Ichi Kangyo are accused of funneling millions of dollars to an alleged racketeer. Fourteen executives, including a former president, have been arrested.

The scandal has highlighted the rampant racketeering against top Japanese companies.

Known as ``sokaiya,″ the racketeers, who often have links with underworld gangs, for decades have received regular payments from major companies by threatening to disrupt shareholder meetings.

In an effort to stretch sokaiya ranks thin, most Japanese companies hold their shareholder meetings on the same day. This year, more than 2,600 companies will hold shareholder meetings Friday under the watch of some 10,000 police officers.

Institutional Shareholder Services, based in Bethesda, Md., serves about 400 institutional clients in North America, Europe and Australia, and recommends votes for about 12,000 shareholder meetings around the world a year.

Foreign investors are still a minority in Japanese companies, but they are increasing.

They make up 15 percent of the investors at Nomura and 5 percent at Dai-Ichi Kangyo. They are mostly voting by proxy, or mail.

Japanese investors rarely speak up at shareholder meetings, which are over in about half an hour with a ritualistic reading of items on the agenda, followed by a chorus of yells in agreement.

Jose Arau, principle investment officer at California Public Employees Retirement System, in Sacramento, which $4.5 billion invested in Japanese companies, said Japanese shareholder meetings need to change.

``We would like them to modernize their meetings to bring them up to American standards, to be more open to questions,″ he said in a telephone interview.

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