The Japan Investment Corp. — the nation's largest public-private fund, with ¥2 trillion in capital — plunged into paralysis just three months after it was launched in a reorganization of its predecessor, the Innovation Network Corp. of Japan, when all nine of its board members from the private sector tendered their resignations, including president and CEO Masaaki Tanaka. In the bitter standoff between JIC's management and the Ministry of Economy, Trade and Industry that eventually led the fund's board members to quit, disagreements over their executive compensation were highlighted. The fundamental cause of the rift, however, was their differences over how the public-private fund — designed to invest in promising businesses and technology to revive Japan's industrial competitiveness — should be run. Unless this issue is resolved, the future of JIC — and other public-private funds for that matter — will remain in doubt.

Tanaka, a former vice president of Mitsubishi UFJ Financial Group who was tapped by METI to lead the fund in its launch, said he and other private-sector members of JIC's board were resigning because mutual trust was lost when METI frequently changed what it told JIC's management. METI reportedly agreed in September to pay JIC executives as much as ¥100 million or more, but unilaterally retracted the offer in November. METI chief Hiroshige Seko this month stated, "There is a sense of an appropriate level that the public can accept," indicating that the executive pay of over ¥100 million was too high, which raises the question why such compensation was offered in the first place. Seko insisted that the amount initially presented to the JIC management was an idea that had yet to be finalized.

But the spat over remuneration was not the only problem that marred the trust between JIC and the government, its largest shareholder. The JIC executives were reportedly unhappy that the government, which initially left individual investment decisions up to them, began to demand that the fund obtain its approval for each investment. That poses the larger question of how such a fund should be run: whether the government should have a role in its investment decisions because it provided the financing, or whether the fund's management should be left in the hands of the private-sector professionals who were tapped to the jobs for their expertise.