For Japan Inc. and Its Regulators, the Dinner Date's Off
By Sandra Sugawara
Both sides would describe the meetings as a crucial lubricant for the corporate-government partnership that built the country's prosperity. And if, as usually happened, the corporate people picked up the bill, which could easily run to $500 per person for the evening, that was only because corporations had more money. These days, the limos are in short supply in Mukojima. "We have no customers," lamented the owner of one restaurant here.
"Business is half what it used to be," said a woman who runs another. "Customers are very nervous."
The reason: In one of Japan's more startling turnarounds, prosecutors and other officials have begun treating this kind of entertainment as improper, even a criminal bribe for special treatment.
On Friday, the Bank of Japan announced it had disciplined 98 of its officials for accepting excessive entertainment from financial institutions that have regular contact with the bank. The salary of five officials was cut by 20 percent for up to five months; others received lesser punishment, such as formal reprimands. Some of the Bank of Japan officials were found to have leaked confidential information.
Last month, prosecutors indicted two former Finance Ministry officials on charges they received wining, dining and golf worth $69,000 from five companies over four years in return for product approvals and leaked information.
No one is quite sure why authorities have declared war after decades of largely turning a blind eye -- they say they're simply enforcing the law. Whatever the reasons, the arrests target a key practice of the clubby economic system that built prosperity for Japan in the postwar era, but since 1990 has been unable to pull it out of stagnation.
In one foreign diplomat's view, it's part of a shifting of the tectonic plates underlying the business and political world here, causing a massive earthquake within Japan Inc.
For years, bureaucrats have operated without written rules, giving them broad discretion to approve or deny business products or strategies. Companies have refused to disclose detailed financial information, forcing outsiders to study their ties with their main banks and keiretsu business groups to determine corporate health. Relationships, not rules, were what mattered.
Today that system is under attack. Last fall, the government stood by as bankruptcy overtook major financial companies, which had been thought secure due to relationships with their banks and keiretsu partners.
"All these things, including this entertainment scandal, are forcing us to stop and think about the traditional Japanese practices," said Yoshio Terasawa, a member of parliament and former top executive at Nomura Securities Co. "I think there will be less informal guidances, and more specific written laws. In modern countries, everything is written down in the law. In other words, Japan is transitioning from an old-fashioned, in some ways still feudalistic state, into a modern state."
Business entertainment has drawn controversy in the United States as well. But the cost in Japan can be staggering. In fact, bureaucrats and executives say privately the amount spent on the arrested Finance Ministry officials was not particularly high. An evening at a choice Japanese restaurant can easily cost $500 per person. If geisha entertainers are hired, the price goes far higher. And often, there are after-dinner visits to hostess bars that can bring a night's tab to more than $1,000 per person.
People here say the practice of lavish dining outings all begins with the fact that Japanese houses are small. "So people tend to entertain outside of the home," said Tetsundo Iwakuni, a member of parliament who previously worked abroad in the securities industry. "In New York and London, people would have you over to their homes. Also, Japanese wives are not very receptive about entertaining business friends at home."
Some also blame the aversion to confrontation that is found throughout Japanese culture. While Americans are more likely to voice controversial opinions at office meetings, "Japanese people tend not to speak out face-to-face during the daytime," said a high-ranking Finance Ministry official. "So to listen to what they really think, it is important to meet later and have really frank conversations over dinner." Because government officials are not paid much, it was only natural for companies pick up the bill, he added.
Business entertainment has often seemed a natural extension of Japan's gift-giving culture, said a Japanese businessman. Many families give expensive gifts annually to their physicians, their children's professors, their bosses and others. Some see it as a kind of insurance policy for good treatment from a doctor or job recommendations from a professor. Others see it as a sign of respect or obligation to those of superior status.
Al Sieg, who headed Eastman Kodak Co.'s Japan operations in the 1980s and early 1990s, said in his book "The Tokyo Chronicles" that during his years in Japan, he was struck by how the U.S. and Japanese systems differed on this issue.
He said that Kodak's Japanese managers felt Kodak's policy forbidding cash gifts to government officials meant the company missed "an opportunity to fit into the culture and 'grease' the bureaucratic machinery. In retrospect, we may have been too cautious, and we should have played the money game; had we done so, we probably would have been able to maneuver more quickly through the bureaucracy."
Earlier scandals in Japan established clearly that accepting cash was "off limits," said a Finance Ministry bureaucrat. "But taking a dinner or something like that, no one thought that constituted a crime. . . . These people were only doing what their predecessors did. I don't think individuals should be blamed. The system should be criticized."
Another Finance Ministry official compared what is happening now to a "witch hunt."
But so far, the ministry -- long considered the most powerful and arrogant of the ministries -- has received little support from bureaucrats elsewhere in the government. For instance, one high-ranking Foreign Ministry official dismissed the "witch hunt" characterization: "In a witch hunt, they are hunting innocent people. These people are not innocent." But he agreed that the practice could be found at many ministries.
Rules established by Japanese ministries two years ago banned bureaucrats from accepting meals or gifts from companies they regulate, unless they obtain approval from their superiors. But the rules were not legally binding and were largely ignored.
Until this year, the Japanese parliament had declined to make the practice a crime. But it is now considering various proposals to restrict the favors government officials can accept, a move supported by 81 percent of the public, according to a recent poll by Gallup-Jmar. Few of the legislative proposals under discussion are as strict as the U.S. law, which prohibits gifts and entertainment over $20.
Companies aren't waiting for the law to change, however. Major financial institutions such as Tokyo-Mitsubishi Bank, Industrial Bank of Japan and Nomura Securities say they have simply stopped entertaining government officials.
Likewise, bureaucrats say an expense account night-on-the-town with executives is now taboo. "We never meet over dinner anymore, only formally in the office here," said one Finance Ministry official. He described the mood in the ministry as depressed and panicked. Colleagues under investigation have been trailed night and day by reporters. Two ministry officials have committed suicide.
One Japanese businessmen for a mid-sized medical equipment company said he personally is happy to see a cutback on the dinners. "They are exhausting. You stay out late and still have to show up for work the next day," he said. He is just waiting for the new rules of the game to be clearly stated -- because he doesn't want to commit any crimes, but he doesn't want to insult any key government officials either.
Special correspondent Akiko Kashiwagi contributed to this report.
© Copyright 1998 The Washington Post Company