Alterations in Corporate Governance
As part of the opening of Japanese markets due to globalisation and the decrease in the value of the yen due to the recession, large amounts of foreign equity capital have been flowing into Japan since the late 1990s. Until the mid-nineties, the proportion of non-Japanese stock holders in market-listed Japanese firms was consistently lower than 5% and, as such, considerably lower than the OECD average. 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 declined in both Japan (“Japan Inc.”) and Germany (“Deutschland AG”). Correspondingly diminished is the number of “stable stockholders” who protect the management of listed companies from unapproved takeovers. Since 2003, Japan has in fact experienced its first (serious) hostile takeover attempts; the previously underdeveloped market for management control has now begun to take shape. Corporate financing has shifted its emphasis from indirect financing by (main) banks to direct raising of funds via the capital markets. Like in Germany, all of these developments have significantly impacted corporate governance as well as the traditionally practiced corporate model of firm management and supervision.
The practice of filling advisory boards and other committees exclusively with firm insiders as opposed to independent supervisory participants is one that is beginning to relax. The traditional understanding of a firm was oriented around the firm itself and the interests of those employed there – in short, the stakeholder value model. In contrast, increasing the value of the stock, which was a very low priority for Japanese managers for decades, has more recently become the number one corporate aim. This has resulted in a stronger focus on the interests of shareholders; hence, shareholder value rather than stakeholder value is presently preached in Japan.
Beginning in 2001, the Japanese legislature has incrementally undertaken a comprehensive reform of company law, making it far less regulated and far more flexible. This was meant to help overcome the economic crisis and enhance the competitive strength of domestic companies. A host of options for configuring their organisational structure and corporate governance are now available to stock corporations, which are the predominant legal structure for businesses in Japan. The limited liability company was abolished in 2005 on the grounds that it was an unsuitable business form for the future. These developments are of great interest for the related German reform discussions. In light of the first hostile takeover attempts and the growing fear of foreign takeovers, in 2005 Japan adopted principles developed by courts in the U.S. state of Delaware as a legal transplant in the form of a ministerial guideline. Since that time, the defensive measures known as the “poison pill” have been considered permissible in Japan. Several hundred listed firms have already installed this type of defensive measure.