DIALOGUE WITH ANCHOR SHAREHOLDERS AND EMPLOYEES IN JAPANESE FIRMS

Abstract

 This paper discusses the direction of corporate governance reform in Japanese companies. When discussing the direction of reform, the most important issue has been “dialogue” with the stock market and investors. Currently, the importance of dialogue with a wide range of stakeholders is also being emphasized. However, the importance of dialogue with the stock market and investors has not been denied. The concept of governance is sometimes narrowly defined as a mechanism to reflect shareholders' intentions and expectations in corporate management. This paper does not adopt such a narrow definition. It will incorporate the intentions and expectations of diverse stakeholders, including those of employees. We will argue that “dialogue” with the stock market and investors is important, but not the only way. We will argue from the standpoint that reform is still in its infancy, that there is no “one-size-fits-all” governance structure at present, and that trial and error is required.

 In the U.S., after discussions on “Board 1.0” and “Board 2.0,” discussions on “Board 3.0” are active. In addition, the revised Corporate Governance Code in the U.K. presents in-depth best practices for the relationship between employees and the company. The key point of the revision is the incorporation of employees' opinions. The emphasis is on how to reflect their opinions in corporate management and how to reflect them to society through corporate management. Internationally, the debate continues.

 This paper pays particular attention to listed subsidiaries. In particular, we will focus on the role they have played in the creation of new businesses. A prime example is the birth and growth of Toyota Motor Corporation. The history of Fujitsu and Fanuc, both of which were created out of Furukawa Zaibatsu, is also a representative example. In addition to these, many other examples can be observed. Today, listed subsidiaries are spoken of in a negative light. It is argued that they should not exist in the stock market. Foreign investors are particularly negative. However, a review of a century of new business creation in Japan shows that spin-offs have played an important role. In some cases, they have contributed to the transformation of the parent company's business structure. There is no empirical analysis that shows that listed subsidiaries have harmed the interests of minority shareholders. Listed subsidiaries should naturally interact with the stock market. At the same time, they should also deepen dialogue with the parent company, which has commitments, to fulfill the growth of both businesses.

 Japan has a history of governance by employees and labor unions. In the so-called “GAFA,” labor unions have also been organized. As mentioned above, the UK Corporate Governance Code recommends dialogue with employees. In light of these international trends, it is necessary to have a deep discussion on how dialogue with employees should be conducted.