Corporate governance reforms, labor law developments, and the future of Japan's practice-dependent stakeholder model

Law and reality often disagree. The Japanese corporate law presupposes that a corporation is a shareholders’ property and the role of management is to maximize the interest of shareholders. Unlike German codetermination law which opens the supervisory board to employee representatives, Japanese law does not give employees or their representatives any status as a constituent of the corporation. Unlike many advanced countries, until the 2003 revision of the Labor Standards Law, Japanese labor legislation did not require any just cause for dismissals and maintained the employment at will doctrine prescribed in the Civil Code. Thus ostensibly Japanese law resembles more the Anglo-Saxon marketoriented model. In practice, however, it has long been held that employees are the corporation's most important stakeholders. The following comments made by the two leading corporate law professors at the University of Tokyo in the early 1990s illustrated the common perception of Japanese corporate governance at that time: “There has been a consensus among most corporate law professors that, irrespective of the principles and theories stated in the corporate laws, in practice, larger companies are administered by prioritizing interests of employees including both blue and white collar workers.” “The [German co-determination] system [which attracted attention both in the US and Japan in the 1970s] was not accepted and supported in the United States and Japan. The reasons were, however, quite different.