The failure of the department store operator Sogo Co. is a typical case of corporate governance gone awry. It has exposed some of the old problems in Japanese-style management, relations between main creditor banks and corporate clients, and bank regulation by the Finance Ministry. The incident offers valuable lessons concerning the future of the Japanese economic system.
Sogo collapsed under a crushing debt burden -- a legacy of the reckless expansion policy pursued by its charismatic leader Hiroo Mizushima. About half of the 20-odd deluxe stores the group opened across the country during his reign were in the red. The Commercial Law provides for an internal system of corporate governance whereby directors and auditors are appointed to monitor or restrain corporate management. In Sogo's case, this system did not work as it was supposed to.
The Industrial Bank of Japan, Sogo's main creditor bank, jacked up lending to the retailer with the help of Mizushima, a former IBJ officer. Mizushima himself said recently that IBJ had forced Sogo to take out unwanted loans. The unspoken message is that the main bank is partly responsible for the debt debacle. But IBJ President Masao Nishimura, speaking at a Diet hearing, denied any lender responsibility.
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