Paying ¥76 million in “consulting fees” earned Kadokawa Corporation the right to sponsor a delayed, spectator-free Olympics — and may land some executives in jail.

With thousands of companies holding AGMs during proxy season, it’s hard to know where to start. Glass Lewis’ Controversy Alert service can help, identifying the most crucial meetings globally and allowing investors to make better informed voting decisions with the latest information in hand.

In this post, we provide a roundup of the AGMs taking place this week that were previously highlighted by Controversy Alerts, and look deeper at the situation at Kadokawa Corporation. To get alerted ahead of time, get in touch and sign up for Glass Lewis’ Controversy Alert service.

Controversy Alerts June 19 — June 23, 2023

6/19 Paninvest Tbk; Controversy Alert issued 6/5 
6/19 Panin Financial Terbuka; issued 6/5 
6/21 Adler Group SA; issued 6/8 
6/22 Bank Pan Indonesia; issued 6/10
6/22 Clipan Finance; issued 6/10
6/22 Kadokawa Corporation; issued 6/6 
6/22 PT Salim Ivomas Pratama Terbuka; issued 6/10 
6/23 Suzuki Motor Corporation; issued 6/8 

Deep Dive: Kadokawa Corporation

After being delayed by a year due to COVID-19, the 2020 Tokyo Olympics and Paralympic Games were held behind closed doors in 2021. The decision to go ahead without spectators was detrimental to sponsors who were hoping to reach the public – particularly those, like Kadokawa Corporation, who had allegedly paid quasi-public servants large sums of money for preferential treatment via dodgy “consulting fees”.

Last September company insiders, including chair Tsuguhiko Kadokawa, were arrested for suspected bribery in response to a criminal investigation by the Tokyo District Public Prosecutors Office’s Special Investigation Department. It came a month after a former executive of the Tokyo 2020 Organising Committee was arrested on suspicion of receiving bribes in relation to the Olympics and Paralympic Games.

A total of 15 people from five companies (Aoki Holdings, Daiko Advertising, ADK Holdings Inc. and Sun Arrow Inc., along with Kadokawa) have been indicted in relation to the scheme, which involved approximately ¥198 million in bribes (roughly $1.4 million). Kadokawa’s alleged ¥76 million payment is the largest among the companies.

The various court proceedings are ongoing, but executives at other companies have been found guilty, and Kadokawa’s own internal investigations have already yielded some notable findings.

Although the former Olympic Committee executive at the heart of the scandal has professed ignorance regarding any impropriety, it appears that there were no illusions within Kadokawa about what the payments constituted. After company officials were questioned by the Tokyo Public Prosecutors Office in August 2022, an internal investigation to accurately determine the facts of the case was established the same month. This initial internal investigation found that there were doubts about the necessity and rationale for the consulting services contract which served as a mechanism for the payments, and that the possibility that this contract may constitute bribery had been pointed out by the Legal Department. The investigation concluded that further investigation was warranted.

In October, Kadokawa announced the formation of a Corporate Governance Inspection Committee consisting mainly of outside experts to investigate further, as well as the resignation of both chair Tsuguhiko Kadokawa and vice chair Masaki Matsubara (though they remained as directors until November 2022 and March 2023, respectively). The Inspection Committee’s findings, released in January 2023, included that:

  • the payments were highly likely to constitute bribery,
  • top management (including the chair, president and executive managing officer) understood the deal but took no action to intervene, and
  • the process of approval violated the company’s internal controls.

Moreover the Inspection Committee’s report provided additional detail on just how early in the process internal alarm bells had been raised. After initial consultations about the arrangements in early 2017, the company’s Intellectual Property Legal Department developed a research paper that found the payments constituted bribery, and that “no matter what scheme is adopted, it only reduces the chance of being convicted in a criminal trial and is still considered a crime.” Despite the paper’s findings, which were shared with the then-head of the department, and despite skipping some of the standard approvals and controls, the department nonetheless went ahead with the contract.

In response to the scandal, Kadokawa has restructured its board — both by adopting a nominating committee system (previously an audit committee system), and appointing additional outside directors so that a majority of the board is independent — as part of broader efforts to address company culture and accountability.

Looking for More?

Don’t wait until the vote deadline has passed. Glass Lewis’ Controversy Alert service allows you to leverage the local market expertise of our highly knowledgeable research teams to identify the significant ESG votes that really matter for your organization ahead of time.

Receive crucial controversy alerts during the height of proxy season, fully integrated into our Viewpoint voting platform, so you don’t miss important votes. Our timely alerts are designed to provide the details you need to understand the biggest controversies at a glance, giving you time to analyze and take action through voting and engagement. You can read about the methodology here, or get in touch to sign up.