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2009 Vol.2
Japan’s School Governance and Financial Risk Management

2009/04/01

There have been numerous media reports since November 2008 of schools losing money in relation to managing their assets. In this paper, I begin my discussion by considering such basic questions as “How did this happen?” and “What measures could have been taken to avoid such losses?”
What has emerged as a causal factor is the strong desire on the part of schools to increase their imputed income as much as possible in the age of the low birthrate. There are cases of investments seeking extraordinarily high returns in the low interest rate environment, regarded as out-of-line from reality in assets management. Accordingly, some schools have performed poor risk management, even though the investments include high-risk instruments, resulting in unexpected losses.
In the actual investment activities, there is too much burden placed on the person in charge of dealing operations. Nevertheless, provision of organized structure and relative management rules to control financial risks and assist in the investment activities is insufficient.
A series of media reports on asset management will provide a good opportunity for schools to prepare an organized structure and formulate financial risk management rules for asset management, and to consider the question of “what form should effective school governance and financial risk management systems take?”

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