2001 Volume 11 Issue 1 Pages 3-29
Corporate governance, by definition, consists of three components: the concept of the corporation which determines the key stakeholder, the oversight mechanism over the management, and the compensation system for the management designed to promote their entrepreneurship. The concept of the corporation is, therefore, the basis on which the corporate governance system is built. Since the middle of the '90s the Anglo-American shareholder primacy has provoked widespread debates in Japan, Germany and France as to who the key stakeholder is. The outcome of such discussions is not yet conclusive with opponents, supporters and the middle ground deploying their respective arguments.
It is not well known in Japan that, even in the United States, managers who believe in the shareholder primacy are in the minority, with the majority convinced that they are accountable not only to shareholders but also to the stakeholders. Moreover a number of different anti-takeover mechanisms installed by US managers are contrary to the interests of shareholders, as they are deprived of the opportunity to realize high takeover premiums in case of a contested takeover. US top executives also exercised their influence on politicians of the State where their company is registered to amend State corporate laws so that hostile takeovers would be more difficult. Lastly, the shareholder primacy is not supported by the majority of the American citizens.
The superiority of the US corporate governance system, however, lies in its monitoring effectiveness. Independence of outside directors, detailed definitions of director independence by the SEC, IRS and public pension funds, fairness, effectiveness, liquidity and transparency of the stock market, shareholder activism by public pension funds, and various Board committees including the Audit Committee, Nominating Committee, and Compensation Committee.
Japanese attempts at Board reforms should draw lessons from this US oversight effectiveness and be focused on the formalization of the principles of corporate governance, strengthening of the internal audit of operations, introduction of independent outside directors, installment of Board committees, age limit for directors and benefits for long-term shareholders to replace crossshareholdings.
