The current antitrust violations and recurrence prevention measures

On 30th July 2019, the JFTC Issued Cease and Desist Orders and Surcharge Payment Orders to the Manufactures of Asphalt Mixture(link).
Followings are details of the cases above. As stated before, Seikitokyu has set the recurrence prevention measures after the disposition by the JFTC for 3 cases of antitrust violations. However, Seikitokyu could not voluntarily report about a cartel to apply for the leniency program not to pay the surcharge.

On-site inspection by JFTC（the current 2 cases）

④On 29th September 2016, JFTC conducted on-site inspection as Seikitokyu was suspected that it had increased the sales prices of asphalt mixture in concert with other manufacturer and seller of the same material in Kobe city area. (Link)

⑤On 28th February 2017, JFTC conducted on-site inspection as Seikitokyu was suspected that it had increased the sales prices of asphalt mixture in concert with other manufacturer and seller of the same material nationwide in japan.（Link）

On 7th March 2019, Seikitokyu announced that it received a Prior Written Notice of a cease and desist order (draft) and a surcharge payment order (draft) from JFTC.（Link）Seikitokyu also released Notice of the Voluntary Return of Directors’ Compensation as followings.

CEO, Representative director
→30％ of compensation for 3 months
Executive operating officer and Representative director
→20％ of compensation for 3 months
2 of Representative operating officers
→10％ of compensation for 3 months

On the same day, Seikitokyu announced the downward revision of its earning forecast and expected dividends because it reported an extraordinary loss. Although Seikitokyu had already allocated 3,036 mil reserves for antitrust violation, the estimated amount of surcharge based on the surcharge payment order (draft) from JFTC exceeded such reserves. Seikitokyu estimated 4,300 mil surcharge payment and reported 1,300 mil extraordinary loss to make up the difference.（Link）

On 30th July, Seikitokyu released that it received Cease and Desist Order and Surcharge Payment Order from the JFTC(link) and changed guidance due to above(link).

What we cannot ignore is that Seikitokyu had already set a concrete measure for early detection of the recurrence. Followings are 3 measures Serikitokyu announced to detect the recurrence at the early stage;

Strengthening of the internal reporting system
Implementation of internal leniency program
Strengthening of the internal audit

As stated above, Seikitokyu had already set recurrence prevention measures. However, the internal leniency program had not worked and Seikitokyu could not voluntarily report about a cartel to apply for the leniency program of JFTC. Also, the recurrence prevention measures were not established by an Independent Investigation Committee (hereinafter referred to as “IIC”).

Generally speaking, a company which commit scandals is required to set effective recurrence prevention measures based on clarification of the facts, analysis of the cause and etc.
From the viewpoint above, more companies are adopting IIC in recent years.

Number of investigation reports published by IIC of listed companies

（出所：daisanshaiinkai.com、Strategic Capital）

Seikitokyu has violated antitrust law several times before. Considering the recurrence of violation, that is, the price cartel of asphalt mixture this time, it is obvious that the recurrence prevention measures are not effective.
Instead of leaving the recurrence risk, Seikitokyu should establish IIC that conforms to the guideline prescribed by the Japan Federation of Bar Association to set new recurrence prevention measures.

Shareholders considers the risk is increased when a scandal happens to a company. If the risk increases, it increases the cost of capital and become a downward pressure on the valuation of shares. We hope Seikitokyu to establish effective IIC, regain shareholders’ trust and increase shareholders’ value.