[Last Mile Labor Union] "We're already public, so it's okay to make mistakes sometimes": CEO Makoto Watanabe's inverted theory of internal controls

Generally, when a company goes public, its accountability to shareholders, investors, customers, exchanges, and auditors increases. Higher levels of reliability are also required compared to when it was private in terms of financial reporting, information management, legal compliance, board oversight, and internal controls.

However, in multiple employee training sessions at Last One Mile Co., Ltd. that were reported to our union by current Last One Mile employees, Representative Director, Chairman, and CEO Makoto Watanabe repeatedly expressed the opposite view.

Before going public, it was necessary to manage things strictly to avoid even a single mistake, but after completing the IPO, the explanation is that some mistakes or legal issues are acceptable.

We are already listed, so it's okay to make mistakes once in a while.

Before going public, we kept decision-making authority high because we couldn't afford a single mistake. Now that we are already public, decision-making authority can be lower. It's okay to make mistakes once in a while.

Going public is not an entrance exam where you temporarily act like you have strict controls just to pass. Because you continue to hold funds entrusted by investors and your shares are traded on the market even after listing, you need to maintain and continuously improve your internal controls.

If you only prepare the documents before the listing and loosen management after passing the screening, was the system demonstrated in the listing screening a management foundation promised to investors for the long term, or just a stage setting solely for the purpose of going public?

We were strict before the IPO, but we don't need to do that anymore now.

Even in the discussion regarding the collection and retention of retirement documents, Makoto Watanabe explained that the standards changed before and after the IPO.

Before going public, the standards were different so we were strict about it, but now we don't have to do it. Since our own costs are higher, you can skip all of it.

If we can't get the documents, so be it. Ignore it. We don't need them.

The obligation to retain records and their evidentiary value do not disappear on the day a company goes public. Rather, after an IPO, the scale of employees, transactions, litigation, administrative responses, whistleblowing, and audits expands, increasing the importance of proper record management.

I hope it doesn't get delisted

In the legal training, the risks that the company must avoid the most are explained as follows:

The risk we must avoid stepping on most of all is not damages. It is delisting.

Avoiding delisting is important. However, if the only reason to comply with laws, customer information, employee rights, and contracts with business partners is whether or not it will lead to delisting, then any issue that is not directly tied to delisting would become permissible.

Even if there is little chance of being sued for reselling a customer list without permission, I would do it. Even if there is a possibility of a data leak, I would do it as long as it passes an audit. Even if employees use company cards for personal expenses, I would accept it as long as the company doesn't go bankrupt. Even if accounting is off by 10 million yen, it's fine as long as it doesn't disrupt business operations.

When looking across the seven training sessions, you can see that these are not accidental slips of the tongue, but all stem from the same criteria for judgment.

Not whether it's legal, but whether the company can survive it

Makoto Watanabe's business decisions are structured around whether the company can withstand the damages, rather than whether the action is right.

However, the idea that the company can infringe upon the rights of others just because it can afford the payment treats sanctions like a service fee.

If a company can afford to pay fines for running red lights, does that mean its company cars are allowed to run red lights every day? If an accident happens, is it okay for the company to just pay the damages?

Compliance is not a system for calculating whether the costs of a violation are lower than the profits.

Place the internal control department below operating income

The legal department does not judge legality, but passes the probability of risk to sales. The information systems department does not say no because it is dangerous, but shows the bare minimum line that can withstand an audit. The accounting department does not pursue accuracy, but allows discrepancies that do not interfere with management. The human resources department does not consider the impact on other departments, but reduces its own workload.

Instead of each department independently putting the brakes on the company, they are being transformed into a department that calculates just how close to the edge of danger they can go in order to maximize operating profit.

To use a car as an analogy, it’s not that the brakes have been removed. Rather, the person in charge of the brakes is being ordered not to stop the car, but only to report how many meters are left until the cliff.

Open questions to the Board of Directors and the Audit and Supervisory Committee

1. Were you aware of the training content stating, "Since we are already listed, it's okay to make mistakes occasionally"?
2. Can you specifically disclose which controls introduced before the IPO were abolished or relaxed after the IPO?
3. Were discussions held by the Board of Directors or the Audit and Supervisory Committee when easing the controls?
4. Do the legal, accounting, human resources, general affairs, and IT departments have the authority to veto decisions made by sales or management?
5. Does the company treat statutory violations or contractual breaches that do not directly lead to delisting as acceptable risks?
6. How will you explain the consistency between the training content and the currently published corporate governance policy?

Going public is not the finish line

What is needed after going public is not to weaken management, but to continuously supervise the company entrusted by the shareholders.

If there are companies that are strict only before going public and don't mind making mistakes after listing, what did investors trust the controls at the time of the IPO screening for?

The management team of Last One Mile Inc. needs to explicitly explain what they omitted, what they permitted, and what kind of accidents they swallowed up behind the phrase, "We've already gone public."