False securities filings and the delisting of Seibu Railway (2004)

The limits of closed family control

The heart of this affair was not a bookkeeping error. A black box of nominee shareholdings, preserved for some forty years since Tsutsumi Yasujiro’s day, had been quietly violating a listing rule that goes to the foundation of the stock market. That the investigation of a comparatively minor scandal — payments to corporate racketeers — should have led investigators to the far larger prize of how Kokudo was actually funded shows how small a tear it takes for closed family control to come apart.

That Tsutsumi Yoshiaki could say “for the management of the group as a whole, I am necessary” and still put off resigning suggests he underestimated what had happened. The outcome — delisting and criminal prosecution as the price of deceiving the market — was Japan’s capital market answering a particular governance form, in which an unlisted holding company effectively controls a listed subsidiary, with expulsion.