“Sokaiya”: Japan's Corporate Racketeers
How the Yakuza took hostage Corporate Japan's Annual Shareholder Meetings
The annual general meeting (AGM) of Japan Airlines in the late 1970s was on track becoming the common short and orchestrated ritual.
The setting changed abruptly when Kaoru Ogawa, a middle- aged man, from head to toe dressed in white, entered the stage and immediately shouted. "Kaneko, you're a liar! You are hiding something!”
It was the prelude of a three-hour rant in a Japanese slang usually used by Yakuza mobsters. Speaker after speaker would verbally attack Isao Kaneko, the president of the company. One speaker even sent physical threats to the management. “If management does not improve, then bam, bam, - there will be shootings!”
Fellow shareholders started to wonder if they suddenly found themselves watching a B- rated gangster movie. But what they were witnessing was Japan Airline’s AGM taken hostage by “Sōkaiya”.
“Sōkaiya”: Definition and History
Defining “Sōkaiya” is as difficult as defining Geishas. They could be fixers for a firm, making bad press go away. Or extortionists, demanding money from a company to keep quiet.
Originally, “Sōkaiya” were unconnected to organized crime. In literature “Sōkaiya” were first mentioned in the late nineteenth-century. A time when the majority of private enterprises in Japan were organized as unlimited liabilities. Entrepreneurs would frequently solicit assistance of “Sōkaiya” to protect their business and personal fortunes negatively impacted by rumours and scandals. In that respect “Sōkaiya” can be compared to corporate lawyers in the U.S.
During the post war period “Sōkaiya” remained useful for corporate Japan by turning into “general meeting specialists”. After Japan’s high growth era of the 1950’s and 1960’s the society became more politically engaged. Social activism was on the rise, for example criticizing pollution by Japanese companies. With the help of “Sōkaiya”, acting on behalf of the corporation, those protests were muted or silenced.
Chisso Corporation serves as a good example. The company had been polluting a river close to its factory with mercury for years (Minamata pollution). “Sōkaiya” were hired by the corporation at the AGM following the scandal. An aggressive mob shouted down environmental activists and the victims. Much to the liking of management the AGM ended quickly.
It is said that Yakuza started to realize the profit potential of “Sōkaiya” in the mid 1960’s, actively tying up with various “Sōkaiya” groups. The outcome was a hybrid “Yakuza- Sōkaiya”, specialized in racketeering corporate Japan. It is that hybrid that most Western observers refer to when talking about the phenomenon.
How “Sōkaiya” Worked And Countermeasures
Their activities followed a standard procedure. Purchase the minimum number of shares to be eligible to attend a company’s AGM. Before the AGM contact executives threatening to troll them personally or the company in general at the shareholder meeting. Think: real/ imaginary facts about product liability claims, irregularities and payoffs and/ or pointing to personal misconduct, love affairs, etc. If the company had an interest in the AGM proceeding smoothly, they would have to pay off the racketeers by purchasing absurdly expensive subscriptions to useless magazines, paying rent for office plants, etc.
If companies refused, an armada of trolls would stir up the AGM like in aforementioned JAL case. Sometimes, racketeers even started vandalism: Spraying paint, lighting fires, throwing bottles at the chairman's desk.
In the early 1980s racketeering corporate Japan was getting out of control and Japan’s authorities finally addressing the issue. In 1982 the Commercial Code was amended, and the minimum unit stock rule introduced. Since, individuals have to own shares worth at least fifty thousand yen in a corporation as a prerequisite to exercise any privileges and/ or right at a shareholder meeting. The same year a law was enacted that prohibited Japanese corporations to pay- off “Sokaiya”.
In addition, a specific division of the Tokyo police was formed with the sole responsibility tackling “Sokaiya”. Corporate Japan also did their part fighting the phenomenon. They scheduled AGMs on the same day to limit the number of companies that could be struck by “Yakuza- Sokaiya”.
Those countermeasures worked. In the early 1980’s, 6’800 “Sokaiya” in five hundred separate groups were active. They extorted as much as $400 million annually from corporate Japan. Virtually all “Sokaiya” had linked up with the Yakuza syndicates who ended up with approx. 70% of the annual take.
In the early 1990’s only 1’000 hybrid “Sokaiyas” remained active. But those still active would turn more violent in a last demonstration of power. Between 1992-1994 the Japanese police had records of 18 attacks on executives or their families.
Violence culminated in the murder of Mr. Suzuki, a senior managing director for the Fuji Photo Film Company, who was in charge of dealing with the “Sokaiya. In 1994 he was stepped to death in front of his house.
The good old days of “Sōkaiya” have long passed. Nowadays, if at all, hybrid “Sōkaiya” come in form of fake right-wing groups, or “Uyoku Dantai”. They position black vehicles, equipped with loudspeakers, in front of the AGM’s venues, blaring messages about supposed misconduct by corporations or their management. To silence them a pay- out would be necessary. But corporate Japan, and its shareholders, mostly just ignore them.
Source:
ejcjs - Sōkaiya and Japanese Corporations (japanesestudies.org.uk)
Sōkaiya : corruption or Japanese business solution - Perdu en Asie (getlostinasia.com)
https://www.theguardian.com/business/1999/jun/30/6
Microsoft Word - Yakuza and Bubble Final.docx (psu.edu)
Where Meetings Are Truly Feared - The New York Times (nytimes.com)
Amazing. Now that's shareholder activism!