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Compliance Intended to Increase Corporate Value

―From Anonymous Reporting to Dialogue Reporting: Design Change for Internal Reporting Systems―

Kiyoshi Endo
Instructor, Chuo Law School
Area of Specialization: Compliance

This work was supported by JSPS KAKENHI Grant Number 15K03220. (Public Relations Office)

1 From a teaching podium at my alma mater

I completed my legal studies at the Chuo Law School (member of the first graduating class). Currently, I work as an attorney in Kanda Jimbocho. At Chuo Law School (CLS), I received instruction via a truly heartfelt method. I obtained sudden understanding regarding my studies through repeated Q&A sessions with my instructors. This was an exciting learning method which is completely different from independent study. CLS was the origin of my image regarding dialogue; specifically, that discussions lead to realizations and deeper understanding.

Even after becoming a lawyer, I have been involved with CLS as a practical instructor. Also, under the guidance of my former instructor Shinichiro Toyama, I work at the secretariat of a KAKENHI research committee which focuses on compliance intended to increase corporate value. I am very grateful for how generosity of CLS has made it possible for me to wear the two hats of a law practitioner and a researcher. Starting from this spring, I now teach a class at CLS. This new position requires me to change a perspective and examine compliance intended to increase corporate value from a teaching podium at my alma mater.

Having opportunity to study compliance intended to increase corporate value is yet another advantage of being a researcher at CLS, which has both researchers and legal professionals. Chuo University also features the Chuo Graduate School of Strategic Management, so it is possible to concurrently engage in legal studies and management studies. This interaction among researchers/professionals and the law school/business school is very important. I will discuss this point further in this article.

2 What is compliance intended to increase corporate value?

Now, what exactly is compliance intended to increase corporate value?

In the first place, there is no consistent understanding for the contents of compliance. Normally, compliance is generally understood as obeying rules. However, as opposed to the conventional compliance, I would like to propose compliance intended to increase corporate value, which is, roughly speaking, based on the idea of increasing corporate value through compliance. Instead of viewing compliance as a brake for preventing untoward events, I propose that we actively embrace compliance as a tool for increasing corporate value. Although there are various definitions of corporate value, the core of increasing corporate value is to emphasize relationships with stakeholders. Accordingly, compliance intended to increase corporate value focuses on dialogue with stakeholders. To give an extremely broad definition, I propose that compliance should be viewed as optimal adjustment of stakeholder benefit for each time that an issue arises. In other words, from the perspective of compliance intended to increase corporate value, the essence of compliance exceeds conformance with the law to include appropriate response to rational requests from stakeholders.

3 From anonymous reporting to dialogue reporting: Design change for internal reporting systems

Internal reporting systems are attracting increased attention as one method of compliance. Today, amidst the never-ending stream of corporate scandals, internal reporting is the starting point for identifying untoward events. Also, how internal reporting clarifies facts and background factors makes it possible to prevent further spread of damage. In many cases, this leads to the appropriate enforcing of the liability and prevention of recurrence. Currently, discussions are being held for revision of the Whistleblower Protection Act. Furthermore, the Consumer Affairs Agency revised guidelines for private businesses on December 9, 2016, and revised guidelines for administrative agencies on March 21, 2017. (Guidelines for administrative agencies consist of two parts: guidelines related to coping with reporting by internal employees, etc., and guidelines related to coping with reporting from external laborers, etc. Furthermore, guidelines related to coping with reporting from external laborers, etc. possess the function of creating competition among systems for internal reporting inside of a business entity and external reporting to administrative agencies. This is important from the perspective of incentives for enhancing internal reporting systems.)

Internal reporting systems based on conventional compliance have been lacking perspective of dialogue with whistleblowers. Instead, they have generally been viewed as one-way anonymous reporting from whistleblowers to business entities. In this respect, when discussing internal reporting systems, there has been a tendency to overemphasize the protection of anonymity and other forms of protection for whistleblowers (of course, the importance of such protection cannot be denied). Moreover, conventional compliance focuses on the prevention of scandals. Therefore, based on the idea that there is no need to protect individuals involved in scandals, systems such as internal leniency systems have often been viewed as unnecessary.

In contrast, compliance intended to increase corporate value emphasizes a dialogue between business entities and whistleblowers (in this case, whistleblowers can be viewed as representatives of stakeholders). In this case, the basic concept for designing internal reporting systems is to realize two-way communication. In that sense, internal leniency systems should be actively recognized and utilized. Business entities and whistleblowers cooperate to protect corporations. Two-way involvement in internal reporting systems facilitates better communication at corporations, and this corporate climate is the essence of compliance. Indeed, the new guidelines for private businesses have significantly shifted their orientation toward promoting the spread of internal reporting systems based on dialogue. Specific examples include clarifying the responsibility of top executives, touching upon the necessity for top executives to continually communicate a clear message to core managers and all other employees, enhancing the development of an environment which enables reporting with peace of mind, recognizing the value of appropriately evaluating contributions by whistleblowers, etc. who have contributed to the implementation of compliance management, and recommending the development of internal leniency systems.

In this way, it is now necessary to change the design of internal reporting systems from the conventional anonymous reporting to dialogue. As the ideal future form of systems, I propose dialogue internal reporting systems based on compliance intended to increase corporate value.

References
  • Shinichiro Toyama, Nobuhiko Sugiura, Masayuki Tokiwa, Kiyoshi Endo “Corporate Misbehavior and its Relation to Efforts to Increase Corporate Value” Chuo Law Journal Vol. 12, Issue 3 (2015)
  • Shinichiro Toyama “Construction Process Theory of the Corporate Value Improvement Type Compliance Preparation Model” Chuo Law Review Vol. 122, Issues 9/10 (2016)
  • Shinichiro Toyama “Compliance Intended to Increase Corporate Value: Issues in Criminal Policy for Severing Relationships between Corporations and Anti-Social Forces” Chuo Law Review Vol. 123, Issues 9/10 (2017)
  • Shinichiro Toyama, Kiyoshi Endo “Compliance Intended to Increase Corporate Value: Design Change Theory of Internal Reporting Systems” Chuo Law Review Vol. 123, Issues 11/12 (2017)
Kiyoshi Endo
Instructor, Chuo Law School
Area of Specialization: Compliance
Kiyoshi Endo graduated from the Department of Law in the Keio University Faculty of Law. He completed the Master’s Program (major in public law) in the Keio University Graduate School of Law. He completed his studies in the Chuo Law School. He was registered as a lawyer in 2008 (Daini Tokyo Bar Association). He founded the Endo Kiyoshi Law Office in 2016.
Currently, he holds various positions including member of the Whistleblower Protection Council of the Tokyo San Bengoshikai, representative of the Ministry of Defense Helpline, representative of the ATLA (Acquisition, Technology & Logistics Agency) Helpline, instructor at the Chuo Law School, instructor at the Chuo Graduate School of Strategic Management, instructor at the Chuo University Faculty of Law, instructor at the Senshu University Extension Center, cooperating researcher with JSPS KAKENHI Grant Number 15K03220, and external auditor of Taiyo Holdings Co., Ltd. (listed on the First Section of the Tokyo Stock Exchange).