Behavioral Analysis of Group Decisions under the Companies Act

Abstract

Japanese corporate law requires that boards have three or more directors, and thus makes group decision making obligatory within firms. But according to some observers, boards of directors are often a mere formality in Japan, especially for non-public and small-to-medium-sized firms. The literature of behavioral science shows that group decision making does not necessarily produce better outcomes than individual decisions. The three-or-more requirement was formed with path dependency dating back to the late 19^th century, when Japan transplanted legal systems from overseas, but it was by no means the standard. Giving managers flexibility in organizational design is desirable in that it can facilitate the establishment of startups, new subsidiaries and joint ventures both by existing firms and entrepreneurs, and can also address potential labor shortages in an aging Japan.