Economic Organizations and Corporate Governance in Japan: The Impact of Formal and Informal Rules (review)

Economic Organizations and Corporate Governance in Japan comprises seven case studies by two leading American scholars of Japanese law. The topics include shareholder derivative suits, venture capital, the "jūsen problem," sokaiya, organized crime, and an analysis of elite law career preferences as lawyers or as bureaucrats. Each is based on articles authored by one or the other or both during the last decade. Each chapter individually and the book as a whole offer informative and insightful perspectives on Japanese economic organizations and governance. The authors unquestionably achieve their principal aim in describing tensions, pressures for change, and failures of formal and informal institutional arrangements. Although their definition of "informal rules" to include norms, practices, and shared beliefs may bother readers who prefer analytical clarity, the resulting breadth of their inquiry enables them to connect each chapter more effectively and thereby produce a more coherent composite.

Underlying each chapter is a remarkably orthodox view of Japanese governance. On the one hand, the authors add fresh support for what were once considered "revisionist" claims. In the first chapter they explore the dramatic increase in shareholder derivative suits following the 1993 reduction of filing fees and the structure of institutional incentives and disincentives for such actions, echoing arguments made here in 1978.¹ Similar echoes are heard in chapters five and six on sokaiya and organized crime as they explain the prevalence and role of organized crime in Japan in terms of weak law enforcement, especially with respect to disclosure rules and the enforcement of property rights.² They also offer new support for prior arguments about the interrelationships between law and social practices and broader issues of governance. They conclude that the increase in shareholder derivative suits added little if any shareholder value, confirming the classic 1953 critique by Thomas Blakemore and Makoto Yazawa of the occupation-era commercial code revisions.³ With respect to the continued role of sokaiya—the gangsters who are paid either to prevent disclosure of unwanted information or to maintain "order" in anticipation of expression of legitimate shareholder concerns—they provide a detailed analysis of the failure of disclosure rules and thereby confirm earlier impressions.⁴

The authors seem to accept views that may have been conventional three or four decades ago but that have been either substantially revised or at least persuasively challenged by more recent research. They argue, for example, that the jūsen problem of bad loans in the mid-1980s is best understood in terms of what they refer to as a "regulatory cartel" of coordinated decision making among various actors representing bureaucratic, private banking, agricultural, and political interests. In effect, they revive under a new rubric the notion of "Japan Incorporated" as a "participatory partnership" of government and private-sector interests.⁵ To the extent limited to the Ministry of Finance and the financial services industry or even perhaps the Ministry of Agriculture, Forestry, and Fisheries and agricultural interests, including cooperatives, few would argue with their notion of coordinated policymaking. However, as conflict rather than coordinated decision making among the various actors involved in the jūsen problem attests, the study confirms the sort of bitter interagency and political interest rivalry and dispute that scholars have described over the last three decades as more the norm of Japanese governance.

In their selection of issues, they write largely to American readers, especially those interested in corporation law and finance, with little if any background on Japan. Consequently, they write with a distinctly American perspective and a peculiarly American agenda of interest. The chapter on venture capital is exemplary. For them the problem seems to be the variety of structural reasons that explain why Japan has not developed an institutional environment that allows the development and growth of an American-styled venture capital industry. Although at the outset they assert that their primary concern remains corporate governance and...