Corporate governance is the system of rules, practices and processes by which a company is directed and controlled.
Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community(investopedia). The Board of Directors currently comprises 20 directors, including 2 outside directors and has 7 auditors, including 4 outside auditors (p.161,Tricker,2015).
This clearly shows that, there is no any significant role of outside directors in taking the major decisions. Not only this, out of two outside directors, one of them,was chairman of Dai-lchi Life insurance, which was connected financially with TEPCO (Tricker,2015). Because of lack of independent board of directors, they instead of improving their records in risk management issues, rather falsified safety test records back in 2002.
Also, the company is reluctant in appointing the president from outside with no any conflict of interest; which I think is the major issues contributing to the failures of board structure.Although, the TEPCO company seemed to have a sound corporate governance, but the reality did not resemble their commitment, (Tricker,2015). At first glance, the web site seems to reflect a company strongly committed to sound corporate governance: ‘corporate governance policies and practices a primary issue’, ‘interactive communication with our valued stakeholders’, ‘corporate governance a critical task’.
So how to account for the discrepancies between the company’s alleged concern for corporate governance and the catastrophic failure of its Fukushima reactors?(Tricker,2011). The directors could not see clear differences between management and governance. This company has board of directors that were promoted on the basis of tenure rather than performance and were basically working with the same company throughout their life. So, the average people can also reach at the top management level with no any vision. This was a company that apparently did not accept the significance of professional corporate governance thinking, but went through the motivations to satisfy the regulators and stock market investors.In the classical Japanese model, boards of directors tend to be large and are, in effect, the top layers of the management pyramid(Tricker,2011).
And most of the directors have been appointed from within the company after their retirement. So, they have no experience whatsoever of working at the leadership level in any company. Hence, my advice to the president of TEPCO would be firstly reduce the size of board of directors so that they could be effective; secondly, try to increase the number of independent directors; and lastly appoint the directors on the basis of their performance not on their seniority.References