Livedoor Paper
Download the paper here (PDF file, 850KB):
Livedoor and a New Wave in Japanese Corporate Governance
Written on 1st SEP 2006
[Acknowledgement]
This work was made possible through the supervision of Simon Learmount, a lecturer at Judge Business School, University of Cambridge, who gave me insightful advice on the issue. I am also extremely grateful to Livedoor, its group companies, employees of its companies and any others involved. In particular, this work would not be possible without interviews with Kozo Hiramatsu, the current CEO of Livedoor, Takeshi Idezawa, Livedoor Operating Officer and Noriyuki Yamazaki, Livedoor’s former Representative Director. People involved in Livedoor have gone through an extremely hard time for more than half a year, but I believe that this hardship is a precious opportunity to learn and grow. I personally feel that I am part of this scandal because it is not only the accused who should face criticism, but also every director and senior manager, including myself. Although Livedoor’s actions have been judged as wrong, I believe that rehabilitation is possible by learning from this failure. Finally, I express my sincere condolences on the death of Hideaki Noguchi. As an ex-colleague of his on the board, I will cherish my memories of working with him and how amazing he was.
[Abstract]
Traditionally, Japanese corporate governance has often been characterised by the strong involvement of stakeholders, especially employees. While some have attributed the amazing recovery of Japan’s economy following World War II to its unique corporate governance style, others have criticised it for neglecting shareholders’ rights. Since the bubble economy burst in the early 1990s, Japanese corporate governance and its methodology has been questioned with regards to global competitiveness. In line with this, Japan now appears to be on the cusp of reforming its corporate governance style.
The rise and collapse of dot-com start-up company Livedoor was a symbolic event in the ongoing reformation of Japanese corporate governance. Livedoor stimulated extensive public response by placing the greatest emphasis on shareholder value, by attempting a large hostile takeover and, ultimately, by collapsing due to accounting fraud. The term ‘Livedoor shock’ was coined in reference to allegations of window-dressing accounting and following several days of panic selling on the Tokyo Stock Exchange prompted by the allegations.
This paper will look into the Livedoor case within the context of corporate governance. It will review theories of corporate governance comparing shareholder and stakeholder perspectives, discuss Japanese corporate governance and its ongoing reformation and introduce the Livedoor case. In the final chapter, several reasons for Livedoor’s collapse will be presented with the intent to uncover lessons for the future of Japanese corporate governance.
As a former board member of Livedoor, I feel somewhat responsible for the situation as well as a strong desire to understand the Livedoor case though an in-depth investigation.
[Q&A]
Q: Hey, what’s is this about?
A: I’ve worked on this as a master thesis. The one I submitted in August 2006 was, of course, much shorter, but actually I’ve written a lot more than the word limit of the master thesis. This is the longer version.
Q: How do you assess your work, then?
A: I feel I could do much better, though some parts are well written. If you look at the later part, i.e. analytical part, you’ll find some inconsistencies. This is mainly because I was unsure how to discuss the issue: perhaps I was too insider to objectively look into the case. Nevertheless, I think this work can be a good reference at least to some people because there are only a few English papers discussing the Livedoor case.
Q: Why did you publish this NOW? (Mid-April 2007)
A: I haven’t found some closure for several months.
Q: Are you OK now?
A: Thanks. I’m all right. I have been neither involved in the prosecutors’ investigation nor invited to the court. I have a new job and new responsibility now. Can’t complain.
Q: Any comments?
A: Since I am not fully satisfied with my paper yet, I’d love to redo this some time in the future, only if my schedule allows me, of course.