An Empirical Analysis of Japanese Corporate Boards

This paper examines the nature and the role of Japanese board of directors and thereby reveals the future path of Japanese corporate boards. The changing nature of board of directors has been investigated through 63 companies covering 25 out of 33 officially classified sectors of the Tokyo Stock Exchange and another 15 small and medium scale companies. In addition to the analysis of the overall sample, this study investigates four sub- samples that are constructed on the basis of different patterns of corporate governance. The examination includes a questionnaire survey followed by 10 critical incidents and another 30 telephone interviews as a means of corroborating evidence. The results give in-depth understanding compared to the previous studies based on the evidence derive through the sub-samples representing different patterns of governance. Leader of the board of directors meeting is basically the president, especially in the companies having a traditional approach to corporate governance. Conversely, the companies which shifted to US committee system the leader of the board of directors meeting is mainly an outside director. A large number of the companies have already started to circulate a formal set of proceedings with a notice at least a week before the next board meeting even in several small and medium scale companies while there are still some companies that do not distribute the documents in advance. The keiei-iinkai or a similar decision making board of directors is still the center for major decisions in small and medium scale companies, and companies having traditional governance system. The major decisions of global companies having either committee system or intermediate system are taken at the board of directors meeting. When attaining a long-term goal is in an uncertainty, disregarding the nature of governance system, Japanese boards try to grasp any failure through their monitoring function. The larger companies having either intermediate or committee system shifted the power of selecting the next president from the existing president to a board committee. About half of the companies have already implemented the outside directors though some of them are not independent in actual terms. Particularly in larger companies having shifted to US committee system, there are independent directors similar to their Western counterparts. No matter the system is traditional or US committee, the board of directors and president of Japanese companies have an above average influence on their corporate governance systems. At present the companies are more concern about very specific board reforms such as implementation of performance evaluation and review of compensation. The 'ceremonial nature' of Japanese Corporate Board has been shifting away to some extent and emphasizing more on efficient and effective decision making. The nature and the role of board of directors of companies shifted to US committee system and intermediate system have been significantly changed. There is a trend of monitoring over execution indicating a tendency of converging towards the Anglo-Saxon model. Conversely, there are several larger companies greatly refuse to accept the new reforms instead they consider improving the system along with the local and global requirements. The small and medium scale companies still prefer the traditional approach which benefits them over half a century. They have taken some measures to improve their traditional system for better governance.