Corporate Governance in the 21st Century
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Corporate Governance in the 21st Century

Japan’s Gradual Transformation

Edited by Luke Nottage, Leon Wolff and Kent Anderson

The ‘lost decade’ of economic stagnation in Japan during the 1990s has become a ‘found decade’ for regulatory and institutional reform. Nowhere is this more evident than in corporate law. In 2005, for example, a spate of reforms to the Commercial Code culminated in the new Company Act, a statute promising greater organisational flexibility and shareholder empowerment for Japanese corporations competing in a more globalised economy. But does this new law herald a more ‘Americanised’ system of corporate governance? Has Japan embraced shareholder primacy over its traditional loyalty to other key stakeholders such as ‘main banks’, core employees, and partners within diffuse corporate (keiretsu) groups? This book argues that a more complex ‘gradual transformation’ is unfolding in Japan – a process evident in many other post-industrial economies.
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Chapter 4: Perverse Rescue in the Lost Decade: Main Banks in the Post-Bubble Era

Dan W. Puchniak


* Dan W. Puchniak Academic theories are attractive – especially to academics. When the theory is simple, contrarian, and championed by eminent Tokyo University and Harvard professors, it is almost irresistible. However, when it fails to make sense of reality, it quickly loses its appeal. So, despite the temptation to embrace Yoshiro Miwa and Mark Ramseyer’s (M&R) new theory of Japanese corporate governance, which finds decades of research to have constructed ‘a myth’, I resist. The story told by M&R is enchanting in its simplicity and universality. In their world: Whether in the United States or in Japan, firms raise funds in competitive capital markets, and buy and sell in competitive labor, service, and product markets. Whether here or there, in order to survive, they will need good governance schemes. . . . The scheme they pick will vary from firm to firm. The fact that they will pick the optimal scheme or die will not (M&R, 2002, p. 421, emphasis added). It all sounds logical, because it is – unless unique and perverse institutional incentives, and not free-market forces, drive corporate governance.1 In which case, the incentives for ‘bad governance’ and ‘suboptimal schemes’ may be greater than those for ‘good governance’ and ‘optimal schemes’. Perverse it is, but mythical it is not. * This is an updated and condensed version of an article that was first published in the Pacific Rim Law & Policy Journal: Puchniak (2007a). For a further critique of M&R’s free-market theory, see Puchniak (2007b), with acknowledgements for research funding...

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