The Fuji TV scandal: lessons in Japanese corporate governance and shareholder activism

The Fuji TV scandal

From the point we’ve entered the New Year, the most hotly debated topic in Japan has been the sexual misconduct scandal involving a popular TV personality, Masahiro Nakai and an unnamed woman in her twenties who worked for Fuji Television Network (Fuji TV), one of the legacy terrestrial media. In December 2024, the Weekly Bunshun, a leading tabloid magazine, published an allegation article that a producer of Fuji TV, the core subsidiary of Fuji Media Holdings, played a major role in setting up the date, over which Nakai admitted to paying an out-of-court settlement fee of 90M JPY (580M USD) to the woman. The incident in question is believed to be non-consensual intercourse, which occurred in June 2023.

Subsequently, the President of Fuji TV, Koichi Minato held his first news conference by limiting admission and prohibiting video cameras, where he apologized over the allegations. Minato announced that an investigation panel consisting of third-party attorneys would be established, though it is unlikely to follow the guidelines from the Japan Federation of Bar Associations (JFBA). He conspicuously evaded to explain much under the cover of protecting the woman’s privacy, and refused to provide direct answers. He added that Fuji TV was aware of the incident in June 2023, but did not disclose the matter in the interest of the woman’s privacy and her physical and mental recovery, while the Company continued to cast Nakai for a year and a half.

The public response to this attitude was extremely severe, which resulted to seventy-five Japanese corporations pulling their commercials out from Fuji TV (as of January 21st, 2025), which account to a half of the networks’ whole advertising accounts. Oddly, about a half of Fuji TV’s ads were replaced with Advertising Council Japan, which distributes public service announcements. A week later, Fuji TV held another damage-control press conference where the resignations of Shuji Kano, the Chairman of Fuji TV, and Koichi Minato were announced. The company also announced that the independent committee of third-party panelists will comply with JFBA guidelines. This conference went on for more than ten hours while Fuji TV zealously guarded the privacy of the woman. At the end of January 2025, the Weekly Bunshun corrected its previous article by saying it was Nakai who directly invited the woman to his condominium. The independent committee plans to disclose the findings by the end of March 2025.

Other corporate scandals and issues of governance

Last year, many Japanese public companies encountered scandals. Toyota, Honda, Mazda, to falsify the collision and engine power tests. MUFG Bank’s former employee stole more than 1B JPY (6.5M USD) in customer assets from safety deposit boxes using the spare keys. While a former employee of Sumitomo Mitsui Trust Bank was involved in insider trading, a former employee of Nomura Securities was indicted for attempted murder and robbery of his client and arson.

In recent years, the investors are closely scrutinizing Japan’s publicly traded companies over their legal compliance issues, however, the Fuji TV scandal raised a question of human rights. It’s been 39 years since the enforcement of the Equal Employment Opportunity Law in Japan, but the TV station is still accused of male chauvinism at work. Through this dialogue, we have come to realize that the Fuji TV’s media relation was at the mercy of the tabloid magazine and the associated YouTube videos. Every conceivable matter was irresponsibly discussed on social media based on the rumored stories. It was as if an aircraft carrier was shot like a beehive by a drone attack, with no way to fight back. However, the fact remains that the certain leadership members of Fuji TV concealed this scandal without involving their compliance department and continued to cast Nakai for the TV programs.

Enter the activist

The US-based Dalton Investments’ affiliate, Rising Sun Management which owns over 7% of Fuji Media Holdings shares, sent an open letter to the company pointing out deficiencies in corporate governance and requesting to launch an independent investigation into this scandal. Their letter said, “Sadly, our view of the recent series of events at your Company relating to the uproar created by Mr. Masahiro Nakai is that it reflects not only a problem in the entertainment industry generally, but, specifically, it exposes serious flaws in your corporate governance. The lack of consistency and, importantly, transparency in both reporting the facts and the subsequent unforgiveable shortcomings in your response merit serious condemnation that serves not only to undermine viewer trust, but also leads directly to erode shareholder value. A case that shakes viewers’ trust and undermines confidence in your Company’s transparency and crisis management capabilities, leads inevitably to questioning the fundamental honesty of the corporation.”

Activism resembles “mendokusai” (bothersome) mentality towards many board directors of Japanese public corporations. Hassle is something they wish to avoid, even if it means to improve the state of their business. In fact, sweeping trouble under the rug is a stereotypical behavior in a quiet harmonized society, because “See no evil, hear no evil, speak no evil” is ingrained in one’s system. “Sokaiya” (corporate racketeers) has become an obsolete word, but some board directors may even regard activists to be different but similar, simply because “mono-yu-kabunushi” (activist) can be directly translated as “opinionating shareholder”.

Public companies with such corporate mindset often treat business operations inspectors and auditors to be nuisances, and knowingly limit the quality and volume of information shared with the outside directors. The corporate planning and general affairs departments of a public company usually co-handle a general meeting of shareholders, and when the event ends in a short period of time without any difficult questions and answers, the involving preparation members, often technocrats, are praised for accomplishing a “shan-shan-kai” (smooth and flawless meeting). This philosophy which often contradicts with fiduciary duty, is also applied to the meeting of board directors, so they do not have to deal with pointing fingers or undergoing a hard-decision-making process, thus responsibility.

As a matter of fact, those who succeeded in meeting minimum formality and performed well to protect the board directors are often promoted, and those who revealed the problem and escalated the matter to the compliance committee are demoted or receive a “shima-nagashi” (transfer to an inconvenient distant location) treatment, or both. Up until recent years, there were hardly any people ridiculing such an unusual state of management. The distorted principle of conceding facts to avoid trouble is gradually surfacing.

As a part of Tokyo Stock Exchange’s capital market reforms, cross-ownership of shares is collapsing, therefore, the ratios of free-floating shares are increasing in many companies. As a result, we are witnessing many activist funds owning substantial shares of Japanese public companies with outstanding compliance issues. From the corporate governance perspective, this dynamic is turning out to be a game changer against the historically low valuations of Japanese equities.

The Japanese Corporate Law stipulates a 1% owner of outstanding shares will be eligible to request proposals at the general meeting of shareholders, a 3% owner can request general meeting of shareholders, dismissal of directors, or inspection of accounting books, and a shareholder owning more than six months can file a representative lawsuit. When any one of these rights is executed, there is absolutely no loophole for not disclosing the event, while having a proxy fight will certainly rock the boat, which is the last thing the board directors would want.

The weight of history… and geography

The national isolation in Edo era, which completely excluded foreigners, took place between 1639-1854, primarily to prevent the spread of Christianity, thus potentially fragment Japan’s feudally organized society, and prevent local war loads to profit and gain power through foreign trading. Japan has significantly opened its boundaries and civilized since then, but many corporations continue to refuse blending Western-style management. Unlike the G7 countries in North America and EU, Japan has always been a remote and lonely country. Its culture and business practices were poles apart from the Western business methodology.

While domestically shrinking Nippon Steel tried to survive by acquiring a controlling stake in US Steel, both Seven Eleven and Nissan denied to be acquired by foreign entities, which sound convenient from Western perspectives. In Spring 2024, despite Japan’s Broadcasting Act and Wireless Telegraphy (Radio) Act prohibiting a total of foreign held shares to not exceed 20%, Rising Sun Management proposed an MBO to Fuji Media Holdings which apparently failed, so the recent open letter has a significant meaning. It’s highly likely that the silent shareholders will come into alignment with Dalton Investments in the general meeting of shareholders in June 2025.

Can Fuji TV improve its transparency level, effectively manage risks, and bring a sense of tension to the management? We will soon find out.

Picture credits: Reuters