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Politics

Tokyo finds ouster of fund chief harder than expected

JIC head intends to stay on the job, leaving economy ministry few options

Minister of Economy, Trade and Industry Hiroshige Seko, left, and JIC President Masaaki Tanaka.
Minister of Economy, Trade and Industry Hiroshige Seko, left, and JIC President Masaaki Tanaka.

TOKYO -- The Ministry of Economy, Trade and Industry finds itself confronting the messy task of booting the head of a newly revamped public-private innovation fund, who has withstood pressure to step down over disagreements on business management.

But because of the way the Japan Investment Corp. has been set up, it could take months to eject President Masaaki Tanaka, all the while undermining the original goals of the quasi-sovereign wealth fund.

The JIC launched in September as a successor to the Innovation Network Corp. of Japan, long criticized for focusing on rescuing struggling businesses instead of supporting transformative enterprises. But the economy ministry, which supervises JIC, quickly clashed with Tanaka over the amount of input the government would have in business decisions.

As part of a campaign to force Tanaka to resign, the agency is in talks with the Ministry of Finance about rescinding the funding it had previously requested for the JIC. It also does not plan to approve government guarantees that would have backed 1.8 trillion yen ($16 billion) in financing from private-sector lenders.

However, Tanaka has no intentions of leaving at this time, according to a knowledgeable source. His resolve may be based in part on the 160.4 billion yen in cash equivalents JIC inherited from its predecessor fund.

"I have heard that the funds can be used for investments and the fund's operation for the time being," Hiroshige Seko, Japan's economy minister, told the press on Friday.

Furthermore, allocation for $2 billion directed toward the first fund under JIC's umbrella has already been approved, so stopping those investment activities would be difficult.

If the government succeeds in getting Tanaka to leave on his own, there is a very real chance that JICs directors would resign in unison. Finding replacements would be an arduous task, especially amid the cloud left by the squabble. JIC would come to a virtual standstill as a result.

That leaves the ministry two more scenarios, one of which is to fire Tanaka outright. The Japanese government holds nearly all of JIC's capital, meaning the president can be discharged as soon as the next shareholders meeting.

But any such meeting must be approved by the board of directors. And Tanaka, who once served as vice president of Mitsubishi UFJ Financial Group, persuaded several contacts from the investment industry to join JIC's top ranks.

The result is a JIC board that largely sympathizes with Tanaka -- and very little chance of a shareholders meeting being scheduled. The government could break the gridlock by going to court and forcing such a meeting, but the whole process would take months.

That leaves the final option, where the two sides could reach a compromise. Because of the amount of time that would be involved in firing Tanaka, there is a non-zero possibility of that scenario playing out, if the parties decide to reopen lines of communication.

But such talks would have to address the biggest point of contention between Tanaka and the ministry: conflicting management principles. The ministry, focused on policy objectives and answerable to lawmakers, seeks a high degree of transparency from JIC. Tanaka, meanwhile, champions the independence and flexibility of investment funds.

JIC plans to form an organization composed of funds under its umbrella, with smaller funds underneath those. The ministry is concerned that such a format would obscure whether or not the subsidiary funds are following JIC's investment guidelines and would make compensation structures opaque.

Still, both sides could find common ground on this issue, leading to a breakthrough. "Mr. Tanaka is enthusiastic about disclosures," said a source, pointing to the simplicity of hunting talent if compensation is revealed.

The two factions are believed to have broken off discussions after the troubles began. If JIC stalls in its mission to back growth sectors with needed risk funding, the situation may invite international doubt over Japan's commitment to developing industry.

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