Corporate Governance in Japan: Institutional Change and Organizational Diversity (review)

Institutional change has become a hot topic in the social sciences. In the Japanese context, recent contributions have focused on various angles of institutional adjustments since 1990, such as institutional inertia and its causes ¹ as well as the extent and underlying mechanisms of those changes that have occurred.² The present edited volume fits neatly into this stream of research. Its stated objective is to contribute to the discussion of whether Japan remained fundamentally unchanged during the 1990s or was converging on the U.S. model and to do so by presenting a “third perspective” (p. vii). The editors and contributors thus speak to an eminently important topic, with possible implications not only for our understanding of Japan but also of the evolution of different varieties of capitalism ³ more generally.

Of the 15 individual chapters, 12 focus on the empirics of different aspects of corporate governance. Together, they provide a comprehensive overview of the topic, with an emphasis on developments in the 1990s. Included are explorations of relationship banking (Yasuhiro Arikawa and Hideaki Miyajima); the unwinding of cross-shareholdings (Miyajima and Fumiaki Kuroki); foreign investors (Christina Ahmadjian); venture capital (Nobuyuki Hata, Haruhiko Ando, and Yoshiaki Ishii); bankruptcy regulations (Peng Xu); corporate revival funds (Noriyuki Yanagawa); business portfolio restructuring (Tatsuya Kikutani, Hideshi Itoh, and Osamu Hayashida); human resources practices (Masahiro Abe and Takeo Hoshi as well as Gregory Jackson); corporate law (Zenichi Shishido); the performance effects of corporate governance changes (Miyajima); and the impact of recent changes on quality of management and actual practice (Ronald Dore). If one could ask to add one more piece to this very comprehensive treatment, it would be a chapter dedicated to mergers and acquisitions, and particularly to the issue of hostile takeovers (or lack thereof).

Of these empirically oriented chapters, especially chapter 13 by Dore deserves a wide readership. There is a general tendency in the social sciences to take structural change, be it in Japanese corporate governance or in other institutions, at face value. Dore asks whether in corporate governance there have been concomitant adjustments in actual practice. This is a pivotal question. As Aoki puts it in his concluding chapter, “the law defines the formal rules, but we should ultimately be concerned with are [sic] the ‘ways by which the game is actually played’ ” (p. 434).

The overall picture that emerges from Dore’s chapter is that changes in actual practice remain fairly limited. As Dore explains, “all attempts to make it appear that Japanese firms are as subject to external scrutiny and control as American firms, are, with a tiny number of possible exceptions, largely cosmetic” (p. 390). For instance, for some firms, what looks from the outside like a reform of corporate boards toward a U.S.-style committee system in reality seems to have been in good part a renaming exercise. In other examples, Dore tells us how the “loose definition of external director as ‘never an employee of the firm’” has allowed companies such as Nomura and Hitachi to get closer control over subsidiaries by appointing members of the core firms as “external” directors (p. 375); how the appeal of the new board system is in part based on legal advantages, such as reduced liability of the firm in case of shareholder suits (pp. 376–77); and how the new governance structure can also be used to diminish the degree of outside scrutiny (p. 377). There clearly is great potential for firms to subvert the intentions of recent corporate governance reforms, a caveat worth keeping in mind when reading research on formal structures.

The remaining empirical chapters provide valuable insights into their respective aspects of corporate governance that will be very useful for further research on the topic. Given space constraints, a detailed overview of each chapter is beyond the scope of this review. If one had to identify one broader area of concern...