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Japanese employees often stay in line and avoid reporting wrongdoing at their companies, as they have little protection against being fired in retaliation.
Politics

Japan seeks firmer protections for corporate whistleblowers

Fear of retaliation perpetuates poor internal controls

TOKYO -- The Japanese government looks to bolster protections for corporate whistleblowers in an effort to create greater deterrence against the likes of systemic cheating and wrongdoings that have surfaced one after another in recent years.

Some Japanese businesses have internal systems through which employees can spill the beans on illegal behavior. One such system helped expose inadequate internal controls at Toshiba regarding then-U.S. nuclear unit Westinghouse's purchase of an American nuclear power services company. But at least 80% of those businesses receive just five or fewer reports of wrongdoing per year, surveys by Deloitte Touche Tohmatsu and others show.

The lack of protection for whistleblowers contributes heavily to the low figure. Those who come forward often face retaliation from employers by way of firing or other unfair treatment. But under the current system, they must take companies to civil court to invalidate their firing or receive compensation.

Olympus, a Japanese medical equipment maker, transferred a whistleblower to a different position in retaliation after the employee in 2007 exposed a superior's malfeasance. Reaching a resolution -- including monetary reparations -- took a full decade.

Japan's protections "lack teeth," so "employees hesitate to report things due to fear of retaliation," said Koichi Kozen, a lawyer familiar with the system.

The government is considering administrative penalties, such as official warnings or naming and shaming, in response to retaliatory firings, transfers or other mistreatment of whistleblowers. But criminal penalties including fines and imprisonment will be considered for egregious cases.

With the lead of the Consumer Affairs Agency, the government aims to finalize a proposal for a revision of the whistleblower protection law in time for debate at the Diet next year.

The government wants companies to improve risk management and reduce the possibility of consumers receiving poor-quality products due to problems that went unreported. Such issues came to light last year amid a raft of quality scandals at companies including Kobe Steel.

Yet the government remains wary of treading on businesses. Floods of internal reports could overburden companies and harm reputations by spreading rumors. Determining whether an employee was fired for valid reasons also can be difficult, along with defining what counts as mistreating a whistleblower.

But covering up wrongdoing ultimately hurt businesses themselves. A report by research company Teikoku Databank shows that a record 289 businesses went bankrupt due to accounting fraud and other compliance breaches in fiscal 2015. 

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