In the rigidly hierarchal world of Japanese business, Yoshiaki Tsutsumi was one of the last corporate shoguns.

Once named the richest man on Earth by Forbes magazine, Tsutsumi, 71, wielded absolute power for four decades over the mammoth Seibu group -- a constellation of railroads, real estate, sports teams and glitzy hotels from Toronto to Tokyo. Those who earned his displeasure, former employees say, endured punishments ranging from a slap across the face to a pink slip. When Tsutsumi exited the company's busy commuter lines in northern Tokyo, rows of Seibu workers would bow in unison as he left his private train car. For almost seven years, until 2004, he never held an official board meeting -- ruling by decree instead.

The Tsutsumi cult of loyalty was so strong that when Japanese regulators last year began probing long-heard rumors of vast corporate corruption at the publicly held Seibu Railways Co., two company executives committed suicide rather than squeal on their big boss. But in a dramatic spiral that has dragged down one of the biggest patriarchs of Japanese business, authorities hauled Tsutsumi out of one of his lavish Prince hotels in March. Charged with massive insider trading and falsifying corporate records, Tsutsumi -- now free on $1 million bail -- faces the start of what is likely to be one of the nation's highest-profile trials in recent history next Thursday.

Tsutsumi's startling fall from grace is being viewed by many here as a milestone in Japan's attempt to shift away from decades of meek corporate accountability and a my-way-or-the-highway style of governance, ushering in more modern management styles. Regulators and the private sector have taken unusually bold steps to shake up the tradition-bound culture inside Japanese boardrooms that has allowed leaders like Tsutsumi to thrive for generations.

In recent months, the Tokyo Stock Exchange has delisted Seibu and three other companies including the cosmetics giant Kanebo for willfully misleading investors -- grounds it hasn't used to eject a public company in 25 years. In a culture where saving face is prized above all else, the stock exchange is now demanding all chief executives of public companies sign statements personally vouching for the accuracy of their company's financial reports.

In Japan, a deep bow and a resignation have typically ended a chief executive's responsibility. But companies in the world's second-largest economy are now taking aim at executives' wallets. On March 31, for instance, scandal-plagued Mitsubishi Motors Corp. demanded that seven of its former executives, including its former chief executive and chairman, personally pay $12 million in compensation for the coverup of faulty auto parts that happened during their administration. The fees are equal to the value of the executives' retirement packages.

At the same time, the insular old boys network of Japan's warlords-in-business suits is gradually cracking. Sony Corp. will be headed by a foreigner, Welsh-born Howard Stringer, if the board gives its approval later this month.

"The old type of Japanese-style corporate governance is collapsing with Mr. Tsutsumi," said Eisuke Nagatomo, managing director of the Tokyo Stock Exchange. "He was a charismatic CEO; nobody could tell him anything he did not want to hear. But when you are the CEO of a public company, your responsibility is to the shareholders. . . . That idea has not always been at front and center in Japan, but this is finally changing."

To be sure, the process of corporate reform in Japan stems back to the late 1990s, when increasing capital flows from abroad -- foreigners now own 34 percent of Japanese shares compared with 23 percent just six years ago -- stimulated independent shareholders and Japanese pension funds to demand public companies become less opaque. The process, analysts say, had been chugging along ever since at a painfully slow pace.

But it has gained new momentum with the shocking arrest of Tsutsumi. The news is being taken as a message that the time for transparency has finally come. Such changes are being viewed as essential to hopes of expanding Japan's nascent economic recovery after a decade-long recession by finally luring personal savings into the stock market. About 8 percent of Japanese household savings is now invested in the stock market, compared with 34 percent in the United States, according to the Bank of Japan.

To boost public confidence, new changes to securities transaction laws will go into effect next month giving financial regulators -- long considered paper tigers with an annual budget only 4 percent that of the U.S. Securities and Exchange Commission -- greater authority to investigate corporate wrongdoing. Sensing the climate change, scores of publicly traded Japanese companies have recently strengthened disclosure and compliance practices.

Yet critics -- particularly foreign observers and major domestic investment funds -- insist that while a burst of progress is indeed underway, Japan is still adopting a one-step-forward-two-steps back approach to new corporate protocols. The push for higher bars of accountability comes as companies here are also undergoing a wave of takeover paranoia following a nasty battle earlier this year in which Takafumi Horie, an upstart corporate raider who shuns Japan's revered gray business suits for T-shirts and jeans, attempted a hostile takeover of the button-up Nippon Broadcasting System. As a result, more and more companies here are adopting new defense measures -- including so-called poison pills designed to help entrenched management teams prevent hostile takeovers. Analysts worry that such defenses are stunting the pace of corporate reforms, by avoiding situations in which managers are put under the investor spotlight.

But the case of Tsutsumi shows they can't avoid the spotlight entirely.

Yasujiro Tsutsumi, son of a poor rice farmer, founded what would become the Seibu group in the 1920s, buying land and railways by leveraging his political power as a national legislator. After Yasujiro dropped dead of a stroke while walking through Tokyo Station in 1964, Yoshiaki, his father's third son by a mistress, inherited the family's corporate dynasty -- including a private holding company named Kokudo Corp. and the publicly listed Seibu Railways Co.

Yoshiaki Tsutsumi demanded military-like reverence from employees. He built a sprawling mausoleum for his father with a ceremonial hall and imperial lion statue on one of the highest peaks in the picturesque Japanese town of Kamakura. Until last year, when the Seibu scandal began to unravel, rotating pairs of business-suited Seibu employees were forced to keep vigil at the grave site every night -- chasing away black crows from Yasujiro's granite gravestone and chiming a massive Buddhist bell at 6 a.m. The drill: 10 rings in 30-second intervals. Those who made errors, employees say, would be scolded, demoted or fired.

"There were usually at least two of us," said one former Seibu official who held vigil at the mausoleum several times. He asked that his name be withheld because he still works for a company related to Seibu. "One of us would collect 10 stones, and toss away one at a time to keep count of the chimes."

Why did the employees do it? "Because," the former Seibu official said, "we were told to."

That became Seibu's mantra. "Individual employees were honest people, but they could not have their say," said Takashi Goto, who has been assigned by Seibu's creditors to help clean up and rebuild the company. "I believe the bottom of the problem was a lack of corporate governance."

The floodgates on those problems began to leak last year after senior executives at Seibu were arrested for paying off underworld extortionists who had obtained damaging information about corporate wrongdoing and threatened to bring them to light at the company's shareholder meetings. After a police raid on Seibu's headquarters and media reports about illicit activity at the company, Tsutsumi's hand was forced. At a sensational press conference in Tokyo, he resigned his official corporate posts on Oct. 13, admitting that large portions of Seibu's stock had actually been controlled by Tsutsumi's private Kokudo Corp. through a network of false names. The company later admitted the practice had been going on since at least 1957; though Tsutsumi claimed he had only recently discovered the practice from his aides.

"It originated from the [company's] old nature," Tsutsumi simply put it.

Tsutsumi, through his lawyer, declined to comment for this story.

Tsutsumi's admission generated a burst of outrage from the media, investors and, worse, his creditors, peers and finally, government authorities, who arrested him.

Kokudo's and Seibu's holdings are now in the midst of a creditor-led restructuring. Technically, Tsutsumi remains the largest shareholder in Kokudo, which in turn is the largest shareholder of Seibu. But sources familiar with the ongoing cleanup assert it is unlikely Tsutsumi could return to the throne of the Seibu empire.

"In the postwar era, Japanese companies rebuilt based in part on training employees to have loyalty to management," said Ken Moroi, head of the Seibu Reform Committee appointed by the company's creditors. "But it is clear that the focus now must be on public trust. We are at a turning point. The Tsutsumi way does not work anymore."

Special correspondent Sachiko Sakamaki contributed to this report.

Railway mogul Yoshiaki Tsutsumi faces trial in Japan on charges of insider trading, falsifying records.