Reference no: EM133091311

Hayashibara Co., Ltd. Basic InformationListed or Unlisted: Unlisted Industry: Bio-chemical makers, such as chemical,, cosmetic and food materials

Location: Okayama City

Established: 1883

Capital: ¥7.5billion

Employees: 636

Hayashibara Co., Ltd. is a bio-chemical producer, operating an art and science museum as mesenat activities. It went bankrupt in 2011 after an accounting fraud came into light in 2010. The company was merged by Nagase Industry Co., Ltd in 2012.

Katsutaro HAYASHIBARA established a malt syrup maker in 1883. In 1932, it became a limited company when Ichro HAYASHIBARA took the position of president as the 3rd president. He promoted R&D and a diversification of business lines. The company expanded the sales of malt syrup to not only Japan but also outside of Japan. After World War II, the company became No.1 malt syrup manufacture in Japan. It started real estate business and owned a huge land around Okayama Station. The company made enormous profits by attaining many patents from developing various ways of producing syrup from different kinds of materials. It changed their business model into an R&D oriented model, which developed new items and production technologies.

After Takeshi HAYASHIBARA took over the presidency in 1961, the company succeeded in mass production systems of glucose (grape sugar) and physiological active substances while founding many subsidiaries. He also launched mesenat activities such as opening museums, studies on Paleontology, aid to ape research and so forth. After the 1990s, it developed and marketed trehalose and interferon in the world.

In the end of 2010, the Sumitomo Trust Bank and the Bank of Chugoku did some internal investigation on Hayashibara Co., Ltd. together. They found out out that there was a discrepancy about the amount of debt on the balance sheet. It was a accounting fraud. The both banks forced the chemical resources company to start the corporate rehabilitation procedures by hinting to make a bill of the company dishonored. The company finally decided to apply for the rehabilitation procedures to court in March 2011.

Yasushi HAYASHIBARA, executive director and the younger brother of Takeshi, said, "the Kibi Plant for manufacturing interferon worked only at 20% of its full capacity. That was one of the reasons for the bankruptcy. What was worse, the then president of Otsuka Pharmacy resigned because he was involved in a bribery case in terms of a new drug development. Hayashibara's sales relationship with Otsuka Pharmacy was suspended.

Takeshi was president, Yasushi was executive director and other family members occupied other executive positions. The direct reasons for the collapse were an accounting fraud, window-dressing accounting, outflow of large capital, but Takeshi said, "The main cause of the ruin was the relationship with Yasushi, my brother, executive director in charge of finance.

The Hayashibara brothers were from the founding family and absolute existence. However, they were not on equal terms with each other at all. Yasushi obeyed Takeshi. The younger brother was too much scared with the older brother. Yasushi spoke to Takeshi too politely. Takeshi added, "This kind of seniority order was a tradition of the Hayashibaras. I, as the first son, was required to possess absolute strength, and Yasushi was expected to show absolute loyalty.

The problem was that Takeshi as the absolute existence was not interested in the company management. He said in his latest book the following:

"I didn't go to office usually. I spent only a few hours a day when I went. I had no idea about the profits, debts and sales of the company. I left everything about the management to Yasushi. What I used to do was participating in various conferences and seminars about biotechnology and medical science, reading reference books and articles about these topics, and was absorbed in finding research topics. I lived a research life at home. I passively waited for the reports from executive members including Yasushi."

Meanwhile, Takeshi spent money like water. He was known as an art collector and purchased expensive items for the museums of the company. He confessed that he bought many high-priced art works not because he liked them but because fine art dealers begged me.

"Yasushi felt increasingly dissatisfied with what I did. He multiplied his rebellion activities behind my back while pretending to be obedient on the surface. I got to know from the investigation after the collapse that he secretly transferred a large amount of capital to Taiyo Corporation, his own company.

He did it to preserve his own profits just in case. As the result, I ended up being indebted for ¥2.0billion. I was completely confused when I heard the company got broke. It was a bolt from the blue."

Question 1: Why do you think this scandal happened? Answer this question by listing direct and indirect causes.

Question 2: What do you think they should do in order to prevent this kind of scandal from happening again?