The case for stronger whistleblower protections in Japan

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In April, a month after Japan’s biggest sex abuse scandal in the entertainment industry came to light, the talent agency under question belatedly established a whistleblower hotline that would allow victims to come forward. 

The hotline, however, had a major flaw. It was only open to employees of Johnny & Associates, meaning the hundreds of self-employed young male entertainers who may have been abused by its late founder Johnny Kitagawa were not eligible to use the new mechanism to report their complaints.

This lack of an operational hotline is just one of many serious shortcomings in internal controls that allowed Kitagawa, a pioneer of the Asian boy band genre who died in 2019, to engage in sexual abuse since allegations first emerged in the 1950s, according to a panel of external experts that was commissioned by the agency. 

But the Johnny incident, as well as a series of other recent corporate scandals, have laid bare the broader weakness of legal protections for whistleblowers in Japan, resulting in victims suffering in silence and corporate misconduct being overlooked for much longer than it should have been.  

The continued absence of several safeguards, which are available in the US and Europe, contrasts with the pitches by Japanese companies to foreign investors that cite improved corporate governance as a reason to invest more money in the country. 

However, the issue is rising up the agenda. Yutaka Arai, the commissioner for Japan’s consumer affairs agency, last week announced that it would conduct a hearing of 10,000 firms to investigate whether they had proper grievance mechanisms in place. 

Japan revised its Whistleblower Protection Act in 2020, which expanded the scope of who would qualify as a whistleblower and mandated companies with more than 300 employees to set up internal reporting channels. The changes were important, but lawyers say the reforms do not go far enough.

First, the definition of a whistleblower remains narrow. While the scope was expanded to include former employees and directors, it excludes those who are self-employed and families of employees as well as contractors and suppliers, which are all part of the EU’s rules. 

Second, there are no criminal or administrative penalties against companies that retaliate against whistleblowers by firing or demoting individuals who report complaints. There are also no financial rewards for individuals who come forward as in the case of the US or South Korea. Those who face retaliation can take the case to court, but the process is time-consuming and the burden falls on the whistleblowers to gather evidence. As a result, the risks for employees often outweigh the benefits of reporting corporate misconduct. “Even with the revision, it hasn’t become easier to blow the whistle,” said Masato Nakamura, a lawyer and expert on whistleblower protections. 

Under the revised law, the consumer affairs agency can issue mild administrative measures against companies that do not set up internal reporting mechanisms. The agency used its newly found mandate in September against Bigmotor, a chain of used car dealerships and repair shops, which recently admitted to inflating insurance claims by intentionally damaging cars brought in for servicing. The administrative order to report improvement measures came after a panel of external experts found the company had previously covered up a complaint made by repair staff to conceal its misconduct. 

Still, Toshihiro Okuyama, professor at Sophia University, says the agency with its limited resources could exert more pressure on companies if it could carry out harder measures such as on-site inspections. If the internal hotline is not effective, it would be better if whistleblowers can take their case directly to the media, but that is also not easy in Japan.

Under the existing framework, the only financial penalties that can be imposed are against individuals who leak confidential information about the whistleblower but the sanctions do not extend to the company as a whole. “The reality is that there were hardly any cases where the Whistleblowers Protection Act was actually used,” Okuyama said.

One potential silver lining is that there is room to make further legal changes on penalties for retaliation as the 2020 Act is finalised in the next two years. In 2018, Keidanren, Japan’s most influential business lobby group, resisted introducing penalties against companies to strengthen whistleblower protections. That stance might be harder to maintain if the Kishida administration prioritises improving corporate governance and transparency.

kana.inagaki@ft.com