It is odd that Japan Land did not mention who had been in charge of the accounts for its subsidiary - Japan Asia Land - at a press conference last week.
Because if the board had said then that Junya Kitada - chief financial officer of Japan Asia Land until Nov 30 - was also the head of the company’s hired accounting firm, that fact would have been added to the company’s litany of corporate governance flops.
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Japan Land twisting in ever tighter knots
By JAMIE LEE
09 December 2009
It is odd that Japan Land did not mention who had been in charge of the accounts for its subsidiary - Japan Asia Land - at a press conference last week.
Because if the board had said then that Junya Kitada - chief financial officer of Japan Asia Land until Nov 30 - was also the head of the company’s hired accounting firm, that fact would have been added to the company’s litany of corporate governance flops.
On Monday, Japan Land announced that Mr. Kitada - who has been an executive director since October 2004 - had resigned from an appointment that presented, as the company said in the most understated fashion, ‘a conflict of interest’.
Japan Land would only tell BT yesterday that the firm - Accounting Factory - had been hired ‘for a number of years’ and would still offer accounting services to Japan Asia Land after Mr. Kitada’s resignation.
This revelation highlights an appalling lapse in corporate governance that should have been addressed in the five years that Mr. Kitada was on the board.
For Mr. Kitada and the board to draw up the accounts together and then for him to stamp his approval (or have his staff at his accounting firm) do so, is like getting a kid to design his science project every year so that he can grade it and give himself a distinction.
The science project and in Japan Land’s case, the accounts, might be worthy of an ‘A’ but that’s really not the point. The merits of the financial statements should have been assessed by an independent party, not one that is paid director fees to manage the accounts.
Amnesia aside, one must ask why the executive and independent directors appear to have been comfortable with the arrangement until last month.
This is especially since most of the independent directors have been with Japan Land for at least five years. That leaves ignorance out of the picture.
The accountant’s cosy relationship with the board could be one reason that led independent director Sin Boon Ann to resign on Nov 18, saying that he was dissatisfied with the control that Japan Land had over Japan Asia Land.
His resignation, after being on the board for just over a year, forced Japan Land’s board to admit the existence of several conflicts of interest.
These, according to board members present at last week’s press conference, included the lack of prompt disclosure of project cashflows from Japan Asia Land and having its managing director Mitsutoshi Ono simultaneously playing the role of the president of the subsidiary.
The board’s explanation unfortunately, raises more questions.
It did not provide details on the amount of cash that the company expected to be reported by the subsidiary and was unclear on how the dual position of Mr. Ono - who has since resigned as Japan Land’s managing director - is a conflict.
Japan Land has also argued that it does not know why Ernst & Young quit as its external auditors in October, an issue brought up by the Singapore Exchange and Mak Yuen Teen, co-director of the Corporate Governance and Financial Reporting Centre at the National University of Singapore.
This is a pity, and something that should have been given more clarity because resignations by auditors - like the one by an independent director - are red flags signalling corporate governance disagreements. Citing client confidentiality, Ernst & Young has also declined to reveal more.
Why these governance potholes were not spotted and dealt with earlier, given that the board is made up of directors familiar with Japan Land, is a nagging question. Apart from the issue of proper controls, there are also question marks over the ability of the board to offer independent judgment.
Credit should go to Mr. Sin for signalling the flaws in corporate governance with his resignation. But one wonders if Mr. Sin should have shed more light about the governance issues, so that less is left to speculation, especially now when the company is proving so reticent. As it is, it’s now for minority shareholders, still left largely in the dark, to push for more answers.
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