Japan Land: The Setting Sun: Case Overview
Japan Land: The Setting Sun: Case Overview
Japan Land:
The Setting Sun
Case Overview
Corporate governance issues surrounding the independence and conflict
of interest within the board in Japan Land surfaced in 2009, following the
successive resignations of its Deputy Managing Director, Chief Financial
Officer, external auditor and an independent director. Following the
revelations of these corporate governance issues, the company’s share
price fell from $0.37 in July to close at an all time low of $0.27 at the end
of November. On 30 March 2010, Japan Land suspended the trading
of shares1 in the face of financial woes affecting one of its subsidiaries,
Jurong Data Centre Development (JDD). By the end of June 2011, Japan
Land was delisted from the Singapore Exchange. The objective of this
case is to allow a discussion of issues such as board composition and
director independence, resignations of independent directors, auditors
and key officers and whether they are “red flags”, internal control and risk
management, conflicts of interest and ethics.
Company Overview
Japan Land Limited was incorporated on 28 October 1997 as a business-
to-business (B2B) company and was listed on the Singapore Exchange
(SGX) Mainboard in 2000. In 2004, Japan Land added the real estate
and related sector to the Group’s core business, with an emphasis on
the Japanese property market. Through its subsidiaries and associated
Jiang Xinyan, Beatrice Kwek Pei Shan and Teo Yonghui prepared this case under the supervision of Professor
Mak Yuen Teen. The case was developed from published sources solely for class discussion and is not intended to
serve as illustrations of effective or ineffective management. Consequently, the interpretations and perspectives in
this case are not necessarily those of the organisations named in the case, or any of their directors or employees.
This abridged version was prepared by Joanna Ng Yi Mei under the supervision of Professor Mak Yuen Teen.
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Japan Land: The Setting Sun
Group Structure
The many key subsidiaries that Japan Land has for development and
investment purposes are held through Japan Asia Land Limited (JALL),
a wholly-owned subsidiary of Japan Land which was incorporated
in Japan. JALL is an investment holding company that owns 50 per
cent of Lux Partners Co. Ltd. (Lux Partners), 75.5 per cent of Japan
Asia (Vietnam) Company Ltd (JAVCO), 83.33 per cent of Jurong Data
Centre Development Pte Ltd (JDD) and 20 per cent of Katsumi Housing
Corporation Limited (KHC). It oversees the operations of these companies
and plays a central role in promoting development projects in Japan,
in addition to providing advisory services on corporate revitalisation
programmes and underscoring Japan Land’s focus on becoming a
leading real estate player.
Board of Directors
Japan Land’s board was made up of seven members, five of whom
are non-executive directors. Of the five non-executive directors, the
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Japan Land: The Setting Sun
Remuneration Policy
The board of directors in Japan Land was compensated in the form of
basic director’s fees, committee, attendance fees and share options.
The director’s fee policy was based on a scale of fees divided into
basic retainer fees as director and additional fees for attendance and
serving on specialised committees.3 Executive directors did not receive
director fees and instead receive a mix of salary, allowances, bonuses
and share options. The proposed director’s fee for 2009 was S$279,686,
which covered a period of 14 months4. In 2010, the proposed fee was
S$304,0745.
The company had a 2000 Japan Land Limited Share Option Scheme
(“2000 scheme”) which was approved and implemented in 2000. This
scheme granted stock options to employees of the Group and both
executive and non-executive directors of the company. In the case where
the directors receiving options are controlling shareholders or associates
of the company, it required the approval of shareholders in the general
meeting.
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Japan Land: The Setting Sun
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Japan Land: The Setting Sun
On 2 October 2009, Ernst & Young gave notice to the company of its
intention to resign as the company’s auditor11, just three days after its
re-appointment in the company’s Annual General Meeting. However, in
a news announcement dated 14 October, Japan Land said the reason
for the change in auditor was to improve the corporate governance of the
company12,13. KPMG LLP was then appointed to be the external auditor
of Japan Land Limited.
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Japan Land: The Setting Sun
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Japan Land: The Setting Sun
To resume the trading of the company’s shares, Japan Land was to submit
a proposal by 29 March 2011, failing which SGX would have the option
to delist the company22. On 25 May 2011, Japan Land’s application for
time extension in the Preliminary Resumption Proposal submission was
rejected by SGX. Among the reasons cited, SGX said it was uncertain of
Japan Land’s ability to meet the continuing listing requirements, due to
the negative working capital and poor operating cashflow position for the
financial years ended 31 January 2010 and 31 January 2011.23
As of April 2010, the outstanding sum that Japan Land owed to the main
contractor, M+W Singapore amounted to S$200 million24. The company
kept its negotiations with M+W Singapore Pte Ltd going until a decision
was reached to wind up JDD. Due to the troubled financial standing
of Japan Land, JDD was eventually sold to M+W Singapore on 15
November 2010 for S$145 million.25
Japan Land was notified by SGX that its shares will be delisted with
effect from 30 June 2011. Japan Land then became an unlisted public
limited company with its existing shareholders still holding shares in the
company.26
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Japan Land: The Setting Sun
Discussion Questions
1. What are the key corporate governance issues raised in the Japan
Land case? What are the major underlying causes of these issues?
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Japan Land: The Setting Sun
Endnotes:
1
Enriquez, Millet, ‘Japan Land issues profit warning’, Channel NewsAsia,
31 March 2010. <http://www.channelnewsasia.com/stories/singapore
businessnews/view/1047124/1/.html>
2
Japan Land Limited. Annual Report 2009, p.12.
3
Japan Land Limited. Annual Report 2009, p. 26.
4
Ibid, 28.
5
Japan Land Limited. Annual Report 2010, p. 11.
6
Sim, Arthur. “Japan Land independent director speaks up”, 10 December
2009, The Business Times.
7
Ibid.
8
Japan Land Limited, ‘Reporting of JALL_ic And Management
Weaknesses’. 9 December 2009. <http://www.japanlandltd.com/pdf-article.
php?id=277&art=ann>, accessed on 14 December 2011.
9
Japan Land Limited. “Announcement of Cessation as Deputy Managing
Director” 6 July 2009. <http://www.japanlandltd.com/pdf/2009/cessation
06jul09.pdf>, accessed on 28 January 2012.
10
Japan Land Limited. “Announcement of Cessation as Chief Financial
Officer”. 11 August 2009. <http://www.japanlandltd.com/pdf/2009/
announcement%202_001.pdf>, accessed on 28 January 2012.
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Japan Land: The Setting Sun
15
Japan Land Limited. “Appointment of independent Non-Executive Director.”
11 January 2010. <http://www.japanlandltd.com/pdf/2010/JLLAnncApptDir_
EdwardTiongsgx.pdf> , accessed on 17 December 2011.
16
Japan Land Limited. “Resignation Of Managing Director And Resignation
Of Executive Director Of Subsidiary, Japan Asia Land Limited”. 7 December
2009. <http://www.japanlandltd.com/pdf/2009/JLLannc7Dec2009.pdf>,
accessed on 28 January 2012.
17
Ibid.
18
Hock, Lock Siew. ‘Japan Land Twisting in Ever Tighter Knots’, 9 December
2009. The Business Times.
<http://www.japanlandltd.com/pdf/2010/Saleofdatacentre.pdf>,
accessed on 20 December 2011.
<http://www.japanlandltd.com/pdf/2011/20110629Delisting.pdf>,
accessed on 20 December 2011.
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