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Introduction

• Risk management in corporation is a vital aspect and it
has a worldwide influence in the financial field.
• The Japan based Hamanaka and Sumitomo copper
scandal had implications of financial crises in a world
wide level.
• The control of Hamanaka over the world copper supply
displayed compromised compliance and governance in
Sumitomo Corporation and it led to the risks of huge
losses and conviction of the manager, therefore calling
for the organization’s readjustment to prevent similar
occurrences in future.

Corporate Reputation

• According to Sakurai and Scarbrough (2006) risk
management implies to the management of daily financial
related risks and involves the activities, processes as well
as the systems of monitoring possible areas for problem
development in business
• The issue of risk management has been on the limelight
due to its significance in global financial trends (No author,
2000).
• The Hamanaka and Sumitomo copper scandal had
multinational implications of risk management
• The scandal raised the focus of risk management from just
statistical investment to strategic appropriateness, corporate
governance and compliance

According to statistics, Hamanaka controlled
about 5 percent of the world’s copper supply,
which was significantly high.
The fact that copper is an illiquid commodity
and there is a significant involvement of costs
in its transfer made this seemingly insignificant
amount to threaten the world copper supply
industry. The five percent that Hamanaka
controlled had a significant influence in the
global copper market.
Hamanaka cornered and squeezed the copper
market New York Times article (March 26,
1998).

Hamanaka controlled the London Metal exchange
through the Sumitomo Corporation’s finance imposing
risks to the world finance (Financial Services Authority,
2009).
.

§The Hamanaka and Sumitomo copper scandal had
the strategic and operational risks ensuing from the
fact that Hamanaka was a vital stakeholder in the
copper market through Sumitomo.
§His forgery of the supervisor’s signature arnished
the corporate reputation as people believed that the
company was behind the dealings of Sumitomo from
the argument that the company had benefited from the
copper dealings for years (Witzel & Hirsch, 2008).

§It is expected that the stakeholders in a corporate
including its members and management are
involved on daily basis in maintaining the
corporate reputation, thus calling for efforts of
risk management although it is hard to avoid risks
completely
§Hamanaka was aware of the company’s wrong
doings, but he threw in more and more money to stop
any speculations to his price of copper, thus he was
involved in bringing the company down (Perils of
profit, 1996).

§risks are argued to be seeds of corporate
opportunities (Sakurai & Scarbrough, 2006)
§When risks are faced and managed appropriately,
they become more of advantage to the organization
than when they are avoided (no author, 2000).
§Although the Sumitomo Company benefited from
the input of finance by Hamanaka, it suffered and
transferred Hamanaka from his trading post and lost as
the prices of copper dropped drastically
§The cover that Hamanaka had placed on the
Sumitomo Company can be argued to have prevented
the company from being prepared from the risk of a
big drop on the copper market.

§Other than falling into the big drop, Sumitomo also
shortened its position and therefore, and it lost money
faster than it had made through the manipulation of
Hamanaka
§The probe by Commodity Future Trading Commission
(CFTC) and the London Metal Exchange (LME) was
further nail on the coffin of the Sumitomo’s reputation
as it uncovered the manipulation of the world copper
market, leading to the corporation settling its copper
supplies.
§The timing for the settlement was risky to the
organization and it incurred a loss of over 1.8 US
dollars (Perils of profit, 1996).

Compliance and governance risks

• Corporate governance and compliance are the crucial
sources of risks in organizations (no author, 1997)
• Risks of Corporate compliance are different from those
of corporate governance in that the top management
takes the crucial role in corporate governance risks
while the compliance risks involve both the governance
and the employees as well
• Both compliance and governance instigated risks
played a role in the Hamananaka and Sumitomo copper
scandal

•Since compliance in risk management of organization
is closely linked to ethics and integrity, every member
to an organization is expected to uphold high levels
of ethics and integrity for the good of the corporate
reputation
•Hamanaka through his manipulation of the Sumitomo
and dealing illegally behind the backs of the other
management broke the compliance rules of ethics and
integrity and thus risked the reputation of the company
•Hamanaka also blanketed the ethical and integrity
efforts of the employees by inputting so much money
to block fair competition.

•The disastrous end of the huge amount of loss and
the transfer of an influential figure in the company
were indication of the power of compliance in the
risk management of an organization
•The eventual conviction and sentencing of
Hamanaka was also as a result of the compromised
compliance in the organization ($1.6B scandal,
1996).

Restructuring and empowerment of
staff (1997) Sumitomo
vIn agreement with WuDunn

Corporation had a long history and solid brand
vThe company’s internal accounting and
operational control are also intact, but the issue of
corporate compliance continued raising a risk to
the company
vThe experience of the Hamanaka and Sumitomo
copper scandal has brought new dimensions in the
corporate risk management efforts

vReports reveal that the company is engaging its
employees and management in education and training
to counter attack risks in future (Norihiko & Robert,
1996)
vAccording to Fennell and Tom (1996) Hamanaka
caused the illegal act in the Sumitomo Corporation but
the possibilities of more strongly established functional
cannot be ignored
vTherefore, the whole lot of employees and
government in the organization are better placed in the
educational program to avoid a recap of similar risks
due to compromised compliance and governance.

Conclusion

• The Hamanaka and Sumitomo copper scandal
brought the issues of risk management in an
international perspective
• The scandal also influenced the focus of risk
management issue from being based on statistics
alone, but on compliance and governance of
corporation as well.
• This follows from the revelations of how the
compromise by the management of the Sumitomo
Corporation on ethical and integrity issues as well
as on governance issues by Hamanaka brought
about a great loss to the company as well as the
sentence of Hamanaka.

After the scandal, the Sumimoto Corporation
restructured its management and initiated
trainings and education to its members so as to
prevent future risks resulting from compromised
compliance and governance.

References

Ø Sakura & Scarbrough, D. P. 2006. ‘Decline of
Corporate Reputation caused by Violation of
Corporate Governance and Compliance: The Japanese
Case . reputationinstitute. Retrieved November 11,
2011, from Decline of Corporate Reputation caused by
Violation of Corporate Governance and Compliance:
The Japanese Case
Ø Witzel, S. M., & Hirsch, E. A, 2008, ‘Securities
and commodities Regulations’,
FINRA, 41(18), 233-242. Retrieved from http:/
/www.friedfrank.com/siteFiles/Publications/
0DE324C5F11412575C064B192DAC86D6.pdf
Ø Joanne, H., 2004, ‘Ashurst and CC set for final drama
in Sumitomo trial’, Trade Publication, 18(37), 10.

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Retrieved from http://www.friedfrank.com/siteFiles/
Publications/0DE324C5F11412575C064B192DAC86D6.pdf