Japan Land: The Setting Sun

Summary

Japan Land Limited was incorporated on 28 October 1997 as a business-to-business (B2B) company and
was listed on the Singapore Exchange (SGX) Mainboard in 2000. Through its subsidiaries and associated
companies, Japan Land’s businesses spanned property development, project management and customised
housing in Japan, Singapore and Vietnam.

The many key subsidiaries that Japan Land has for development and investment purposes are held
through Japan Asia Land Limited (JALL), a wholly-owned subsidiary of Japan Land was incorporated in Japan.

The board of JALL was chaired by the Managing Director of Japan Land, Mitsutoshi Ono, since 2005. Junya
Kitada was the Executive Director-cum-Chief Financial Officer of JALL, as well as the principal of ‘Accounting
Factory’, the accounting firm which has been providing accounting services to JALL for an undisclosed
number of years.
Issues

• Review and oversight of the accounting practices

One of the issues faced by both the JALL’s and Japan Land’s boards
was the review and oversight of the accounting practices of the
company. Junya Kitada and the JALL board would draw up the
accounts, which would then be approved by the staff of Accounting
Factory. Mitsutoshi Ono also set up an audit committee authorising
Kitada as an internal auditor to perform audits on JALL and its
subsidiaries, without notifying the Audit Committee of Japan Land.

• Lack of proper monitoring and reporting of subsidiaries.

In September 2009, Ernst & Young, Japan Land’s auditor since
2000, raised the issue of lack of timely communication and sharing
of information between the finance department of the head office
and the Audit Committee with regard to its subsidiaries,
particularly JALL.
 Case Questions
1. What are the key corporate governance issues raised in the Japan Land case? What are the major underlying causes of
these issues?
Ans: The key corporate governance issues raised in the Japan Land case are review and oversight of the accounting
practices and lack of proper monitoring and reporting of subsidiaries.

2. Explain the key potential conflicts of interest highlighted in the case and explain why they undermine corporate
governance in the company.
Ans: Junya Kitada was the Executive Director-cum-Chief Financial Officer of JALL, as well as the principal of ‘Accounting
Factory’, the accounting firm which has been providing accounting services to JALL for an undisclosed number of years.

3. There were a succession of resignations from the company. To what extent did these resignations indicate systemic
corporate governance issues within the company?
Ans: These succession of resignations indicate systemic corporate governance issues within the company that already
impacted whole company.

4. Do you think the independent director should have resigned? Under what circumstances should a director resign and
how should he communicate this decision?
Ans: Yes. A director is entitled to resign during his term of office, but he should not do so without a serious reason and
at an inopportune moment, if he does not want to risk being held liable for the damages that may be caused by his
resignation.
5. Do you think the company and the external auditors acted appropriately when the
external auditors resigned just three days after accepting re-appointment?
Ans: No. But unfortunately Japan Land said the reason for the change in auditor was
to improve the corporate governance of the company.

6. In your opinion, were the financial woes faced by the company caused by its
corporate governance problems?
Ans: Yes. There will be no problems if their company applied good corporate
governance from the start.

7. Recently, there was a major scandal involving Olympus, a large Japanese listed
company. Do you believe that there are certain cultural or business norms involving
Japanese companies which may pose systemic corporate governance issues in
Japanese companies?
Ans: Yes. Certain cultural or business norms involving Japanese companies may pose
systemic corporate governance issues in Japanese companies.