The Corporate Governance Model of Japan

1. Presented By
Ambu Gyawali
Anita K. Luitel
Ayush Nepal
Barsha Shrestha
Bidur Koirala
The Corporate Governance
Model of Japan
Shareholders are not Rulers

2. Introduction

3. Models of Corporate
Governance from Developed
Capital Markets
Anglo-US Model
Japanese Model

4. Global Corporate Governance
 The U.S. & The U.K
 Share Holder Centric Model of Corporate Governance
 Japanese Model
 Focuses on Business Relationship
 Germans and other European Nations
 Stake Holder Centric Model of Corporate Governance

5. Literature Review
 Although it may not be possible to obtain efficiency it may be
possible to achieve a better allocation of resources with the board
view than with the narrow one.
(Allen and Gale, 2000 & Allen, 2005)
 The legal obligation of director is such that they may be liable for
gross negligence in performance of their duties, including the duty to
the supervise.
(Scott, 1998)
 Executives in Japan are among the lowest paid in the world and
relatively little is tied to the stock price of the company.
(Bearley, Myers and Allen, 2006)
 The main bank relationship ensures the bank acts as the delegated
monitor and helps to overcome the agency problem between
managers and the firm.
(Hoshi, Kashyap & Scharfstein, 1991 and Aloki & Patrick, 1994)

6. Significance of the Study
 To understand various Corporate Governance Models
around the world.
 It is directed towards understanding the widespread
philosophies of corporate governance and importance
of equity ownership by financial institutions in Japan
and Germany.
 The study also shows the implications of corporate
governance in growing economy like China.

7. Study Methodology/Data Analysis
Study Focuses on Five Major Parts
• The Board of Directors
• Executive Compensation
• The Managerial Organization of Corporations
• The Market for Corporate Control
• Concentrated Holdings and Monitoring by Financial
Institutions

8.  The study shows the holding of investment with
reinvestment of dividends from 1972 until the end of
2006
 Choices of senior managers at a sample of major co-
operations in five countries Japan, Germany, France,
the U.S and the U.K. between two alternatives:
 A company exits for the interest of all the stakeholders
(Dark Bar)
 Shareholder interest should be given the first priority
(Light Bar)
Study Methodology/Data Analysis Contd…

10.  Survey also asked the managers what their priorities
were with regard to dividends and employee layoff.
The specific alternatives they were asked to choose
between were:
 Executives should maintain dividend payments, even if
they must layoff a number of employees (Dark Bar)
 Executives should maintain stable employment, even if
they must reduce dividends (Light Bar)
Study Methodology/Data Analysis Contd…

12.  Survey shows that the size of Japanese boards is much larger
than in other countries.
 There has been a survey about traditional U.S. hierarchical firm,
the “H-Mode”, with the Japanese firm structure, the “J-Mode”.
“H-Mode” is characterized by
 Hierarchical separation between planning and implemental
operation
 An emphasis on economies of specialization
“J-Mode” is characterized by:
 Horizontal coordination among operating units
 Sharing of ex-post on-site information
Study Methodology/Data Analysis Contd…

13. Figures in
Parentheses
•U.S.: Outside
Directors
•U.K.: Non
Executive
(Outside)
Directors
•Japan: Outside
Directors
(Including Cross
Directorships)

15. Conclusion
 The Anglo-US model is characterized by share ownership of individual, and
increasingly institutional, investors not affiliated with the corporation known as
outside shareholders or “outsiders”
 Well-developed legal framework defining the rights and responsibilities of
three key players, namely: management, directors and shareholders
 Comparatively uncomplicated procedure for interaction between shareholder
and corporation as well as among shareholders.
 This model is based on a narrow view of the role of corporation in the economy.
This is that the firm should focus on creating wealth for shareholders. Whereas,
in other countries, particularly Japan, a broader view of corporate governance is
taken. This requires that companies use resources efficiently by taking the
interest of a range of stockholders, not just shareholders, into account.
 For countries such as China that are reforming their corporate governance
systems, the Anglo-American model provided by the U.S. and the U.K. provides
one possible direction to go in.