In July 2013, Mizuho Financial Group president Satoh stated, “In the spirit of One MIZUHO, we will aim to become the most trusted financial services group with a global presence and a broad customer base, contributing to the prosperity of the world, Asia, and Japan.” Surely these are admirable, lofty goals for the company.
However, only three months later, on September 27, 2013, the Financial Service Agency (“FSA”) ordered Mizuho Bank, a subsidiary of Mizuho Financial Group (“Mizuho”), to submit a business improvement report after an FSA investigation revealed that Mizuho Bank conducted business transactions with organized crime groups (which in Japan are referred to as “anti-social” groups). The transactions at the center of the FSA’s investigation involve the lending of money to “anti-social” groups totaling approximately ¥200 million. On October 4, 2013, Mizuho’s vice president, Okabe, admitted that at least four high ranking officers of Mizuho Bank, including a former vice president, were aware of such transactions since 2010 but never reported the transactions to top executives nor did they take appropriate action to stop those transactions. However, on October 8, 2013, Mizuho’s president, Satoh, admitted that former members of top management including its current adviser of Mizuho, Nishibori, who served as Mizuho’s president from 2009 to 2011, was aware of the money-lending to “anti-social” groups, which contradicts Okabe’s previous statement.
For Mizuho, this is not the first time it has come under scrutiny from the FSA. In 2011, Mizuho Bank experienced a systems meltdown that caused all of its automatic teller machines across Japan to cease functioning. This resulted in the FSA issuing a business improvement order, requiring Mizuho to submit a plan to ensure further compliance with laws and regulations. In 2012, Mizuho Securities USA Inc., a wholly-owned subsidiary of Mizuho Financial Group, agreed to pay $127.5 million to settle charges brought by the U.S. Securities Exchange Commission that alleged Mizuho Securities USA misled investors by using “dummy assets” to inflate the credit rating of a collateralized debt obligation.
The aforementioned scandals clearly indicate weak oversight, poor internal controls and a lack of risk management at Mizuho. The board is dominated by inside directors and it has been criticized for its top-down management structure. As a result, the previous two annual general meetings (“AGMs”) have featured shareholder proposals regarding officer training. At the 2013 AGM, the proposal (which Glass Lewis supported in light of the unfolding scandals) received support from 31% of Mizuho’s shareholders. Ultimately, Mizuho should heed the call from shareholders to revise its corporate governance framework in response to the scandals that have tarnished this company. However, should meaningful changes to its corporate governance framework not be made, then confidence in Mizuho and its’ board stands to further deteriorate, unfortunately at the expense of its shareholders.