Abstract
This chapter discusses the corporate governance reform in Japanese firms since around 2000. It was initially modeled on US firms because in contrast to the prolonged slump in Japanese firms, US firms were praised for their prosperity due to prioritizing shareholder interests in corporate governance. However, Japanese firms did not adopt such a direction of shareholder-oriented corporate governance despite the increasing shareholder pressure. They preserved the stakeholder-oriented corporate governance and reformed managerial organization to restore their corporate performance. This chapter investigates the actual change in the governance structure, particularly focusing on the board structure, and presents that change is incremental and cumulative contrary to the assertion of an overall institutional change such as US-style committee system. Japanese firms preserve their own governance structure and present a diversity among different forms. We found change and continuity unfold as the reform proceeds in the course of gradual institutional change.
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- 1.
A symbolic event was that Toyota’s rating was lowered in 1989 when they announced the policy to keep long-term employment against shareholder pressure. However, it was soon raised to the highest level on seeing Toyota’s excellent subsequent performance.
- 2.
This was a theory of ‘managerial firm’ in the 1960s and 1970s (Marris 1964). In fact, stock prices remained at the level of 800 dollars during the 1970s. This not only reflected the US firms’ stagnation but also their policy to stock markets. In other words, stock prices were a constrained condition to the corporate behavior; objective was the growth of the firm. US managerial firms pursued conglomerate strategy for the growth. However, as Chandler (1990) mentioned, it failed due to the neglect of the organizational synergy; he addressed it as the degenerate of managerial firm. Thereafter, managerial firms were forced to be transformed to shareholder firms during the 1980s, and established it during the 1990s as seen in the present style, wherein stock prices became an objective for the corporate behavior.
- 3.
Although the phrase of “lost decade” or “lost two decades” embraces Japanese economy in a pessimistic mood, it may be just a return to the original state of Japanese economy before the economic bubble.
- 4.
Japanese firms seem not to release these shareholdings, at least try to preserve it, because it serves for the last resort to protect their managerial autonomy.
- 5.
The case of Sogo was caused by the noncooperative behavior by non-main banks. The rebuilding plan initiated by main banks need the cooperation by non-main banks to suspend the repayment of a loan. However, one non-main bank, acquired by a foreign fund, refused to cooperate with the IBJ.
- 6.
There is no doubt that the appearance of Gone, who succeeded in rebuilding Nissan in a short time, brought a big impact to the existing Japanese firms. Ironically, his success may strengthen the Japanese firm’s will to rebuild management by their own effort, that is, to expel the outsider to preserve their managerial autonomy.
- 7.
Sample is 3487 firms joining JASBMA. Seventy-four percent had more than 300 million yen in capital.
- 8.
These firms suffered from deteriorating business performance at that time. It was said that the Ministry of Economy, Trade, and Industry (METI) strongly persuaded or enforced them to adopt the committee system in exchange for the introduction of consolidated accounting rule, which saved these firms.
- 9.
This can be confirmed by the occupation of the independent directors. In the audit committee-type structure, 48% of them are lawyer, accountant, or scholar. The corresponding proportion in audit board type and full committee type is 31% and 32.1%, respectively. Lawyers, accountants, and scholars are mainly appointed as independent auditors. They are likely to be appointed again as an independent director in the audit committee-type structure.
- 10.
As regards the textile industry—the oldest industry in the advanced economies—ten major firms still survive by developing new technologies such as water treatment filter and carbon fiber, by which they are changing to the chemical or material industry.
- 11.
Theoretically, stakeholder-oriented corporate governance can be grounded by the relation-specific investment conducted by stakeholders (Miyamoto 2004; Hirota 2015). As in the case of shareholder model—shareholders’ return is not determined by contract, thus shareholders should monitor management to insure their residual incomes—the return for the relation-specific investment by stakeholders is not determined by initial contract. Therefore, they have a reason to monitor management of, and make commitment to their firm, as in the case of shareholder model.
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Miyamoto, M. (2018). Change and Continuity in Japanese Corporate Governance. In: The new Japanese Firm as a Hybrid Organization. Evolutionary Economics and Social Complexity Science, vol 16. Springer, Singapore. https://doi.org/10.1007/978-981-10-8851-3_1
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