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Business trends

Do Japanese companies need posts for retired CEOs? Nissan says no

Companies must clarify the management roles for better transparency

Hiroto Saikawa resigned as Nissan Motor's CEO in September following a pay scandal but remains a company director (Nikkei Montage). 

TOKYO -- Nissan Motor filed a report Thursday with the Tokyo Stock Exchange noting that the carmaker had decided to abolish senior adviser posts, a move which questions the controversial role of such posts in Japanese companies.

While senior advisers -- positions known as sodanyaku and komon, which are often given to those who worked as a company's chief executive or other high-profile roles -- are expected to share their abundant experience with the younger generation of management, the system has been abused at some companies, with advisers improperly interfering with decision-making processes.

Japanese companies have often been criticized for their reluctance to make their layers of management more transparent, as many have fewer outside directors and less of a focus on auditing than foreign companies. Human resources experts say companies should clearly disclose the responsibilities of senior advisers so that they cannot undermine corporate governance.

Nissan is following the example of several companies who have abolished the system, as a way to prevent the influence of former CEOs. This includes Hiroto Saikawa, who resigned from the helm of the carmaker in September, but remains a company director until a shareholders' meeting on Feb. 18. Saikawa's departure was triggered by a pay scandal, as was the case for ousted Nissan Chairman Carlos Ghosn.

"There are no concerns that [senior advisers] unjustifiably exercise influence on the current management," stressed Nissan in the report, noting that they were not involved with daily operations or business judgments as they did not attend board meetings. However, Nissan took the decision at a board meeting on Tuesday to abolish the senior adviser posts, the report added.

Japan Inc. is known to keep the posts of senior advisers "to assure a stable lifetime for CEOs after they retire," according to Yasuharu Inoue, a specialist in corporate governance at human resources consulting firm Mercer Japan. The majority of Japanese companies no longer award retirement bonuses to directors, so companies tend to support them in a different way after their careers have ended.

According to a survey published by the Ministry of Economy, Trade and Industry in 2017, nearly 80% of 871 Japanese companies that responded had made use of the system of senior advisers reserved for former executives. Approximately 60% said they were currently using such senior advisers.

Research by the Tokyo Stock Exchange reveals that while senior advisers with less than one year since resignation made up the largest amount, at 196 people, there were 140 who had resigned from their companies between 10 and 15 years ago.

One senior adviser at a financial institution has also been engaged at a regional Chamber of Commerce and as executive director at a university. He said that the financial institution's current CEO sometimes asked him for advice on important matters. "Not only [a company with] a former chief as senior adviser, but any organization or regime can find itself in an unclear state of governance if there is a lack of openness and trust," he said.

The criticism of the system is that the role of a senior adviser in Japan is sometimes unclear. While there are other advisers who are invited from outside a company to share their expertise, previous chief executives can end up controlling decision-making processes by gaining the upper hand over current CEOs. They are commonly provided with a car, an office and a secretary.

"The post of 'senior adviser' for a retired former senior executive is typically a sinecure," said Stephen Givens, a Tokyo-based corporate lawyer, as these advisers are not expected to give real advice. However, senior advisers can "hang on and try to prevent changes that reflect badly on the previous administration," he added.

One example is Toshiba, from which CEO Hisao Tanaka and other top executives resigned in July 2015 for their involvement in an accounting scandal which resulted from the interference of senior advisers. At the beginning of the 2000s, the conglomerate adopted a series of committees to separate oversight and executive functions, but at one point it still managed to have five sodanyaku who were experienced former CEOs and 27 komon who had stepped down from other important roles -- with the result that management found it difficult to make decisions.

Electronics maker Sharp also faced difficulties, with CEO Kozo Takahashi unable to make necessary changes to turn the company around after its struggles in the liquid crystal display business, an area where competition with foreign players was fierce. The business had been aggressively expanded by his predecessor Katsuhiko Machida, who remained in the company as senior adviser after stepping down as chief executive and chairman. The company was rescued from collapse in 2016 by Taiwan's Foxconn.

Scandals involving corporate governance can trigger reforms, like at Nissan, to abolish senior adviser posts. But that sits uneasily with Japanese companies, which generally have a tradition of jobs for life and promotion in line with age and seniority. "When the current CEO thinks of [his future] after he retires from his role, he would prefer to leave the system as it is," said Inoue from Mercer.

Still, some companies have started to do away with senior advisers posts for experienced executives. Cosmetics group Shiseido in 2017 abolished the system and now makes individual contracts with ex-executives for advice in their areas of strength. In another bold move, Shiseido in 2014 welcomed the former president and chairman of Coca-Cola (Japan) Masahiko Uotani as its first CEO from outside the company. Uotani has since been reforming the company's corporate governance to make it more transparent.

Panasonic in 2018 scrapped the positions of paid senior advisers, which used to be reserved for former CEOs. Toyota Motor in 2018 also slashed the number of paid senior advisers from 61 to nine. Mitsubishi UFJ Financial Group and other big banks have also abolished the system.

Since January 2018, the Tokyo Stock Exchange recommends that companies disclose the role and its function when a chief executive steps down and is appointed as a senior adviser.

"It is important for companies to disclose to investors what responsibility their senior advisers have and how much they are paid," pointed out Inoue.

The gradual changes are at least a start in gaining the understanding of domestic and international investors.

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