Article below taken from Wall Street Journal.
What are your opinions on this issue guys?
"Seiko Shake-Up Reflects a Changing Culture.
By JURO OSAWA, June 22, 2010
TOKYO—For years, employees at Seiko Holdings Corp. felt bullied by a top director, according to a report drafted by outside lawyers commissioned by the watchmaker and interviews with two Seiko executives. The director would scold employees, occasionally for hours at a time, and punish them by taking their assignments away or telling them to stop coming to work.
Nobody challenged Noriko Unoura because she was protected by her mentor, the company's 89-year-old honorary chairman, Reijiro Hattori, who is a grandson of Seiko's founder, according to the executives. She controlled decisions to fire or demote executives, they said.
The Seiko shake-up is the latest in a series of boardroom dramas that have opened windows into Japan's historically insular business culture. Technology conglomerate Fujitsu Ltd. is in court battles with its former president, who claims he was forced out by false accusations of links to organized crime. Mizuho Financial Group Inc., Japan's No. 2 bank, said last month that three top officials would step down simultaneously amid criticism that an unwieldy management structure complicates its decision-making.
At Seiko, the drama pitted a great grandson of the founder against Mr. Hattori—who is also his uncle—and Ms. Unoura.
"It was a heartbreaking decision," Shinji Hattori, the 57-year-old, fourth-generation member of the founding family who became Seiko's president amid the shake-up, said of the pair's removal in an interview with The Wall Street Journal. "There were many employees who were mentally distressed because of Ms. Unoura's power abuse, and some promising talents were leaving the company."
Neither Ms. Unoura nor the senior Mr. Hattori could be reached for comment. Seiko officials declined to make them available, or to disclose how they could be contacted. Attempts to reach them through independent contacts were unsuccessful.
The shake-up comes as Seiko struggled to turn around its operations. It posted losses in its past two fiscal years due to the economic downturn and its revenue has been flat at about 200 billion yen ($2.2 billion) for the past decade.
Through economic difficulties and new rules, Japanese companies are under pressure to adopt stronger checks and balances. A new rule implemented in March, for example, requires publicly listed companies for the first time to disclose in detail compensation of certain executives.
In the U.S., companies listed on the New York Stock Exchange are required to have a majority of their directors working outside the firm. A 2009 study by the Tokyo Stock Exchange showed that 54% of all listed companies didn't have a single outside director on their board. That's down from 2000, when 67% of Tokyo-listed firms were without any outside director.
Reijiro Hattori lost his executive position in Seiko's retail business.
Seiko was founded in 1881 by Kintaro Hattori as a jewelry store and importer of timepieces. It has largely been family controlled over the past 120 years, though nonfamily members have sometimes been tapped as president.
"I think our company had a quite secretive culture," said the younger Mr. Hattori. "Until recently, decisions were made by only a handful of people."
Over the past several years, many executives have left Seiko group, a diversified firm that gets about 30% of its revenue from watches, makes computer chips and electronic devices and owns a department store where Ms. Unoura was a senior executive. One unit, Seiko Clock Inc., had four presidents in the past two years.
"When Unoura-san had a problem with a certain executive, she'd tell the honorary chairman about it," said managing director Yoshinobu Nakamura, who joined the Journal interview with Shinji Hattori. Mr. Nakamura said the senior Mr. Hattori trusted her as his sole informant on the company's internal affairs, and then-president Koichi Murano would follow their orders to remove or demote the executives in question. Mr. Murano couldn't be reached for comment.
Ms. Unoura's alleged influence was detailed in a report by outside lawyers, compiled after a labor union in March urged the company look into the matter, Mr. Nakamura said. The unioncomplained of excessive management turnover, questionable real-estate investments, and abuses by management, said union head Shozo Nakamura.
At an afternoon board meeting on April 30, outside director and retired prosecutor Akio Harada proposed to dismiss Mr. Murano as company president, saying he had been responsible for allowing Ms. Unoura and Reijiro Hattori to influence executive appointments, the executives said. Mr. Harada had coordinated earlier with the younger Mr. Hattori and Mr. Nakamura. With those three voting in favor, a split board endorsed the appointment of the younger Mr. Hattori as president and removal of Mr. Murano.
Later that day, the new president dismissed his uncle and Ms. Unoura from their executive roles at the retail unit. In early May, the two Hattoris spoke for the first time since the management shakeup.
"He told me that he was sorry, he apologized for getting involved in personnel decisions," the younger Mr. Hattori said. "I believe that he will distance himself from executive decisions from now on."
In the wake of the shake-up, Seiko also said it will add another outside board member in addition to Mr. Harada. On Tuesday, Seiko released a statement explaining the outside lawyers' report on management problems. The company also offered a list of new measures to improve Seiko's governance, including creation of a system that enables employees to report problems to outside lawyers as well as the start of internal committees on disclosure and risk management.
The elder Mr. Hattori remains honorary chairman and Seiko's second-largest shareholder with a 9.7% stake. The biggest shareholder is the Hattori family's asset management firm.
"The latest reshuffle at Seiko won't immediately solve its corporate governance problems." said Toshiaki Yamaguchi, an Osaka-based attorney specializing in corporate law and governance issues.
"But the fact that Seiko is adding another external board member is definitely good news to shareholders," he added.
