The New Community Firm: Employment, Governance and Management Reform in Japan (review)

Takeshi Inagami and D. Hugh Whittaker, two sociologists, have joined forces to analyze changes in Japanese large-firm organization and employment practices. Inagami's longitudinal studies complement nicely Whittaker's in-depth study of one firm, Hitachi, to provide two very different perspectives on change and the change process in Japanese firms. While they recognize that the traditional structures of what they call the "community firm" are being challenged, they argue that the result is evolution rather than collapse—reform that builds on the principles that have guided these firms throughout the postwar period. They are interested in continuity (p. xi) based on the firm as a community of interests of workers, managers, and stockholder, even as "these very community characteristics . . . must change" (p. 4).

The first two chapters give a good quick summary of the literature that shows the potential for countries to create systems incorporating both culturally distinct and shared elements. The three areas of investigation in the book, employment practices, corporate governance, and managerial priorities, are presented. From chapter three, the study moves to Inagami's studies of worker and managerial attitudes. These studies have been done periodically from 1975 to 2000 and thus provide ways to test the continuity and change issues.

Evidence offered in chapter three shows there has been no revolution in the nature of the Japanese employment system. While there is more spread now in compensation at midcareer, Inagami finds no systematic evidence of the sea change that many anecdotal accounts suggest. In chapter four, he breaks down the sample to determine if those most challenged by the new environment, what he calls creative workers, have different attitudes, but he sees no difference in commitment to the system. He finds no evidence that substantial pay incentives have a great impact on commitment, though one-time awards and better job assignments are much more common now. Ina-gami suggests this is consistent with the potential for creative work in a more traditional employment environment, especially when ideas constantly enter from outside via the more open market. Here, as in most of the chapters, a reader wishes for more of Inagami's insights in addition to the numbers. But Inagami chooses to leave most of the analysis to the later chapters.

In chapter five, Inagami takes advantage of a one-time government survey from 1999 to look at changing CEO values and another 1999 survey of corporate planning office managers. He prefaces this data analysis with a short and concise description of the changes in the legal environment for corporate governance in Japan and presentation of the characteristics of different types of corporate governance. Even ten years after the end of the bubble, he does not find significant change in the board structure (three-quarters still had operating responsibilities). This is true even as the CEOs themselves desired more independent participation by board members. All the CEOs and planning managers expected the structure of their firms to change over the next few years, and the chapter offers insights on the nature of that change. Some common Western management principles were less accepted by the CEOs and planning managers (an MBA was not viewed as valuable for promotion to director; stock options were not expected to be a key element in compensation; outsider CEOs would not be common). But both CEOs and planning managers believed the objective of the community firm would change (more emphasis on profit) and promotion within the community would be more on merit, even as layoffs were avoided. These survey results help us understand what elements are more central to the community firm environment and what adjustments can be more easily handled within the community firm organizational structure.

Chapter six uses another component of the traditional postwar system (transfers to affiliated firms) to illustrate how firms deal with change. With holding companies now legally permitted, firms are allowed...