Research Focus in Japanese Law
Two themes of current interest are presently at the centre of research in regards to Japan. The first is the paradigmatic transformation of the Japanese regulatory and supervisory models adopted slightly less than a decade ago as a response to the challenges of globalisation. The second theme, loosely related in terms of subject matter, entails the changes experienced within Japanese corporate governance. Both themes constitute a feature of the modern legal and institutional comparison found within the “Triad” (USA – EU – Japan). Thus, they comprise an element of the discussion contemplating the shape and borders of a possible international system convergence.
Transformation of the Regulatory Model
As a result of having intentionally circumscribed access to legal processes, the Japanese legal reality has until now been characterized by an extremely low volume of cases adjudicated and a small legal profession untypical for a modern, industrialized nation. This aspect was matched by a particular – bureaucratically controlled – approach towards the regulation and monitoring of economic activity. However, the prolonged structurally-based economic crisis of the 1990’s made it clear that this long-successful model for economic regulation had reached its limits. Namely, the pronounced bureaucratic paternalism which had long dominated inside of Japan had shown itself to be no match for the dynamics of a free market. As it became clear that only a regulatory and administrative paradigm shift could provide a remedy, a wide and fascinating array of de-regulatory reforms as well as some “re-regulatory” reforms were instituted across nearly all legal fields. The stated goal was and is to create a transparent regime of market-oriented regulations which affords market forces priority over bureaucratic control and which can competently exist amid competing international regulatory schemes.
The heart of the reform is a fundamental system transformation which replaces a consensus oriented, secretive, discretionary and bureaucratically vested model of economic guidance with a rule-based, regulatory model which provides market participants with clear rules of conduct whose observance is monitored and whose violation is sanctioned in retrospect. This signifies a paradigmatic shift from ex ante monitoring where market entry is dependent on governmental approval to ex post supervision where market behaviour is reviewed by the courts. Though the reform process may not yet even have reached its conclusion, those reforms already implemented have essentially turned the former regulatory structure onto its head. At the same time, one can observe a general effort to more strongly control the actions of public agencies in Japan through specific legal provisions and to imbue the administration process with a corresponding legal character, i.e. more transparency and less discretion. The change makes an expeditious reconfiguration of the judiciary indispensable since court-based, ex post supervision places a premium on efficient judicial institutions. In the Japanese context this means above all a drastic increase in the number of attorneys and judges. Accordingly, Japan has recently enacted a fundamental reform in respect of legal education with the goal of significantly raising the number of qualified and practice-minded jurists.
Alterations in Corporate Governance
As a result of the opening of Japanese markets compelled by globalisation and the decrease in the exchange rate compelled by the recession, large amounts of foreign equity capital has been flowing into Japan since the end of the 1990’s. Until the middle of the 90’s, the fraction of non-Japanese stock holders in market-listed Japanese firms was regularly under 5% and as such considerably less than the average within OECD nations. In the course of only a handful of years this figure has risen to the above-average level of 25%. Parallel to this development, the number of typical cross-over shares has significantly receded in both Germany (“Deutschland AG”) as well as in Japan (“Japan Inc.”). Correspondingly diminished is the number of so-called “stable stockholders” who protect the management of listed companies from unapproved takeovers. Since 2003 Japan has in fact experienced its first (earnest) hostile takeovers; the so far underdeveloped market for management control has begun to take shape. Within corporate financing the emphasis has shifted from indirect financing by (main) banks to directly raising funds via the capital markets. As in Germany, all of these developments have resulted in a significant impact upon corporate governance and the corporate model of firm management and supervision traditionally practiced in Japan.
The practice of advisory boards and other committees being occupied exclusively by firm insiders as opposed to independent supervisory participants is one that is beginning to relax. The traditional conceptualization of a firm was oriented around the firm itself and the interests of those there employed – in short, the stakeholder value model. However, advancing the value of the stock, what was decades-long a non-priority for Japanese managers, has more recently ascended to the number one corporate aim. This has resulted in a conscious focus on the interests of the stock owners; hence, shareholder value is presently preached in Japan rather than stakeholder value.
Beginning in 2001, the Japanese legislature has in the course of several incremental measures comprehensively reformed company law, making it far less regulated and far more flexible. As such, overcoming the economic crisis should prove an easier task and the competitive capabilities of domestic companies should improve. In respect of organisational structure and corporate governance, a wealth of configurations now stand at the ready for incorporated businesses, i.e. the stock corporation, representing the dominant legal entity in Japan. The limited liability company, viewed as a business form unsuitable for the future, was abolished in 2005 though widely used before. For the corresponding German reform discussions, these developments are of great interest. In light of the first hostile takeover attempts and the growing fear of foreign firms, principles developed by courts in the U.S. state of Delaware were embodied in a ministerial guideline and thus quasi-adopted as a legal transplant in 2005. Since that time defensive measures in the form of the so-called poison pill have been deemed permissible in Japan. Several hundred listed firms have already installed this particular defensive measure.…
Transformation of the Regulatory Model
As a result of having intentionally circumscribed access to legal processes, the Japanese legal reality has until now been characterized by an extremely low volume of cases adjudicated and a small legal profession untypical for a modern, industrialized nation. This aspect was matched by a particular – bureaucratically controlled – approach towards the regulation and monitoring of economic activity. However, the prolonged structurally-based economic crisis of the 1990’s made it clear that this long-successful model for economic regulation had reached its limits. Namely, the pronounced bureaucratic paternalism which had long dominated inside of Japan had shown itself to be no match for the dynamics of a free market. As it became clear that only a regulatory and administrative paradigm shift could provide a remedy, a wide and fascinating array of de-regulatory reforms as well as some “re-regulatory” reforms were instituted across nearly all legal fields. The stated goal was and is to create a transparent regime of market-oriented regulations which affords market forces priority over bureaucratic control and which can competently exist amid competing international regulatory schemes.
The heart of the reform is a fundamental system transformation which replaces a consensus oriented, secretive, discretionary and bureaucratically vested model of economic guidance with a rule-based, regulatory model which provides market participants with clear rules of conduct whose observance is monitored and whose violation is sanctioned in retrospect. This signifies a paradigmatic shift from ex ante monitoring where market entry is dependent on governmental approval to ex post supervision where market behaviour is reviewed by the courts. Though the reform process may not yet even have reached its conclusion, those reforms already implemented have essentially turned the former regulatory structure onto its head. At the same time, one can observe a general effort to more strongly control the actions of public agencies in Japan through specific legal provisions and to imbue the administration process with a corresponding legal character, i.e. more transparency and less discretion. The change makes an expeditious reconfiguration of the judiciary indispensable since court-based, ex post supervision places a premium on efficient judicial institutions. In the Japanese context this means above all a drastic increase in the number of attorneys and judges. Accordingly, Japan has recently enacted a fundamental reform in respect of legal education with the goal of significantly raising the number of qualified and practice-minded jurists.
Alterations in Corporate Governance
As a result of the opening of Japanese markets compelled by globalisation and the decrease in the exchange rate compelled by the recession, large amounts of foreign equity capital has been flowing into Japan since the end of the 1990’s. Until the middle of the 90’s, the fraction of non-Japanese stock holders in market-listed Japanese firms was regularly under 5% and as such considerably less than the average within OECD nations. In the course of only a handful of years this figure has risen to the above-average level of 25%. Parallel to this development, the number of typical cross-over shares has significantly receded in both Germany (“Deutschland AG”) as well as in Japan (“Japan Inc.”). Correspondingly diminished is the number of so-called “stable stockholders” who protect the management of listed companies from unapproved takeovers. Since 2003 Japan has in fact experienced its first (earnest) hostile takeovers; the so far underdeveloped market for management control has begun to take shape. Within corporate financing the emphasis has shifted from indirect financing by (main) banks to directly raising funds via the capital markets. As in Germany, all of these developments have resulted in a significant impact upon corporate governance and the corporate model of firm management and supervision traditionally practiced in Japan.
The practice of advisory boards and other committees being occupied exclusively by firm insiders as opposed to independent supervisory participants is one that is beginning to relax. The traditional conceptualization of a firm was oriented around the firm itself and the interests of those there employed – in short, the stakeholder value model. However, advancing the value of the stock, what was decades-long a non-priority for Japanese managers, has more recently ascended to the number one corporate aim. This has resulted in a conscious focus on the interests of the stock owners; hence, shareholder value is presently preached in Japan rather than stakeholder value.
Beginning in 2001, the Japanese legislature has in the course of several incremental measures comprehensively reformed company law, making it far less regulated and far more flexible. As such, overcoming the economic crisis should prove an easier task and the competitive capabilities of domestic companies should improve. In respect of organisational structure and corporate governance, a wealth of configurations now stand at the ready for incorporated businesses, i.e. the stock corporation, representing the dominant legal entity in Japan. The limited liability company, viewed as a business form unsuitable for the future, was abolished in 2005 though widely used before. For the corresponding German reform discussions, these developments are of great interest. In light of the first hostile takeover attempts and the growing fear of foreign firms, principles developed by courts in the U.S. state of Delaware were embodied in a ministerial guideline and thus quasi-adopted as a legal transplant in 2005. Since that time defensive measures in the form of the so-called poison pill have been deemed permissible in Japan. Several hundred listed firms have already installed this particular defensive measure.…