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Corporate Governance Problems at Seibu, Japan's Major Private Railway: Board to be Blamed?



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Code : GOV0019

Year :
2005

Industry : Transportation

Region : Japan

Teaching Note: Not Available

Structured Assignment : Not Available

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Introduction: Seibu Group is a giant Japanese conglomerate with assets estimated at 1.8 trillion yen, with its principal business operations in railways, tourism and real estate. The group has 135 corporations and more than 160 hotels, golf courses, and other resort facilities. It also owns Seibu Lions - a Japanese professional baseball club, and an amusement park. The groupís flagship company, the Seibu Railway Company (Seibu) is a major private railway company in Japan. Though Seibu has grown into a major group, due to poor corporate governance, it was mired in losses and scandals in 2004. The company recorded revenues of $3925.8million during the fiscal year endedMarch 2004, an increase of 12.1%over 2003, while it witnessed a net loss of $80.5 million. The companyís chairman Yoshiaki Tsutsumi (Tsutsumi) quit in 2004 amid a payoff scandal that led to charges against several board executives. Later in the same year, the Tokyo Stock Exchange delisted the company because of alleged false statements about the ownership structure of shareholders.Seibuís share value has plunged and it is the target of a takeover bid. To revive its fortunes, the company established a reform committee with outsidemembers and decided to improve corporate governance practices. However, some analysts are skeptical about the newmanagement and the board, as Tsutsumi indirectly controls the board through his stake.

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