Japan Land: The Setting Sun

Background of the Company

Japan Land Limited, an investment holding company, provides various real estate and related
solutions and services. The company engages in the management of development projects;
and provision of construction management services. It is also involved in the development of
offices and other commercial properties, hotels, retail complexes, and resorts and residences.
In addition, the company provides various management services, such as cash
flow/procurement, development, and operations.
Issues
Japan Land Ltd was found to have been deficient in the area of corporate governance. There
was a lack of proper review over accounting practices of the company as well as the lack of
proper monitoring of its subsidiaries .The uncovering of these practices was accompanied
with the successive resignations of Japan Lands management in July 2009. Japan Land
subsequently acknowledged the existence of several conflicts of interests, including the
duality of roles held by the Chairman cum Managing Director, Mitsutoshi Ono.
The share prices of Japan Land plunged soon after. The company later also fell into financial
difficulties, eventually delisting in June 2011. The company failed to solve any conflict of
interest or any negative effect of additional work load on board members holding multiple
positions in its standing committees. The conflict of interest arose as Japan Land's managing
director Mitsutoshi Ono is also president of the firm's subsidiary, Japan Land Asia resigned.
The positives of separating the President and Managing Director roles are appealing. The
board is directly responsible for the hiring and firing of the managing director and is charged
with general oversight of the corporations affairs and its management. As a result, appointing
the Managing Director, the one person directly responsible for that management as the
President could indicate a conflict of interest. An independent Managing Director can create
an independent source of authority with tangible authority to address the concerns of the
board. This independent perspective creates an opportunity for the board to more effectively
address any abuses that may occur, and to address any concerns about the performance of the
Managing Director
JALLs and Japan Lands board had problems in review and over sighting of accounting
practices. Junya Kitada and JALL board basically did the accounts and the accounts were
approved by the Accounting Factory staff. The mess up here was the decision of Mitsutoshi
to nominate Kitada himself as the auditor for JALL and its subsidiaries. An unified role leads
to a lack of oversight and diminishes the independence of a board On the other hand, the
potential conflicts of interest described above can create opportunities for abuse, as the
accountant in an auditors role may abuse his position and conceal from the board potential
problems and any issues created in the accounts. It remains essential to have an independent,
engaged and inquisitive person that actively involves in the business in order to safeguard
shareholder interests.

Japan Land was also not able to avoid the timing of the resignation made by auditors Ernst &
Young. The issue cropped up after Japan Land's independent director, lawyer and Member of
Parliament for Tampines GRC Sin Boon Ann, resigned from the board. Mr Sin as he was not
satisfied that the firm has adequate control of its operating subsidiary, Japan Asia Land
Limited. Based on the proven incidents happened , Japan Land exhibits lack of proper
monitoring and reports of subsidiaries. Their auditor, Ernst & Young raised concern on the
issue of the lack in timely communication and sharing of information between Head office
and the AC with regards to the subsidiaries especially JALL. They had also highlighted that
the overseas reporting entities had lack of accounting knowledge and compliances. It was
reported that investment proposal of JALL (Fuchu, Japan) and JDD (Singapore & Vietnam)
was not notified to Japanland board for evaluation and approval. Moreover, the budget report
of the Vietnam project had no proper budget details and projections. There was also no timely
cashflow and project report by JALL to its parent firm.
In addition, an inter-company loan of S$10 Million to finance Fuchu Data Center (matured in
2009) was signed and extended to 2011 by Mitsutoshi Ono behalf of Japan Land & JALL
Executive Director Yoko Yamashita without notifying the board. Nonetheless, even the
proceeds from the Data centre was not employed to repay back the loan. JALL also issued
JPY 700 Million worth of bonds to Aizawa , a related party using Japan Lands investments
as security and it was also not alerted to the board.
Conclusion
For running the business of companies, especially large public companies there is need for
efficiency, transparency and accountability. Corporate governance is the process to control
and direct the companies for long term results. There has been many ways to achieve this via
good corporate governance but failure of some big companies raised various questions and
issues. One of these big corporate failures is the collapse of Japanland, a successful company.
There were many reasons for the collapse of Japan Land but one of the major concerns was
the role and lack of effectiveness of management as well as dual positions. Along with these
problems is the issue when companies give too much power in the hands of an individual .In
many cases one person enjoy the powers of two separate, the combination of these two
important position results in the concentration of powers in the hands of one person and thus
results in the abuse of powers.