Chapter 10: Will the Japanese Corporate Governance System Survive? Challenges of Toyota and Sony
Megumi Suto and Motomi Hashimoto INTRODUCTION For the ten years since the end of 1989 after the Bubble burst, the ‘missing ten years’, Japanese companies were exposed to prolonged economic depression and ﬁnancial distress, and there was a sort of a vacuum in corporate governance mechanisms due to the retreat of the main bank system and the erosion of tight business relations supported by cross-shareholdings. A comprehensive reform plan of the Japanese ﬁnancial system, known as ‘Financial Big Bang’, started in 1996, calling for revitalization of the capital market, liberalization in various ﬁnancial businesses including asset management and banking, strengthening of a sound banking system and increasing transparency of the capital market, aiming to promote a free and fair system competitive with global standards. Since the end of the 1990s, shareholders’ activism gradually emerged among institutional investors. Some public pension funds and several leading corporate pensions have become increasingly sensitive about the execution of voting rights from a viewpoint of ﬁduciary responsibility. A rapidly ageing society pressed the institutional investors towards improvement in investment performance of the pension funds and such pressures will likely further accelerate shareholders’ activism. In these changing corporate circumstances, the general view on corporate governance that decision-making of companies should be left to professional managers was questioned and a new view to seek independent external monitoring has been gradually but broadly spread in Japan. Some of the big companies began to adopt the US-type internal control system characterized by committees and outside directors, but others still...
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