Abstract
The aim of this paper is the re-examination of corporate governance and business ethics at Japanese companies and the pursuit of a more desirable model, by discussing and examining the significance of and limitations to corporate governance reforms currently underway in Japan, particularly from a point of view of business ethics.
In this paper, I will present the following two combinations of a coherent corporate governance system with business ethics system:
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1)
‘shareholder-centred governance’ and ‘the establishment of compliance-style business ethics’;
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2)
‘corporate-conscience-based governance’ and ‘the establishment of business ethics through value sharing’.
I will argue that from the perspective of effectiveness, the latter is superior. I will also argue for the need to work towards the establishment of an ethical organizational culture.
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Notes
The related arguments below have been taken from Tsuno (2003: 179–200).
However, I also believe that it is appropriate for each company to have its own unique way of creating a governance structure. Thus, if, after carrying out sufficient investigation into the form of management at the company, a company decides upon the values of ‘implementing shareholder-centred management’, and goes about establishing an American-style governance system, I would respect that as the expression of the ‘corporate conscience’ of the company itself, and would expect positive outcomes. However, I do not believe effectiveness can be expected when a governance system is created through the indiscriminate acceptance of ‘shareholder sovereignty’ as a result of being swayed by general contemporary trends and imitating the format without due consideration.
In Japan, procedures for bringing about shareholder lawsuits were simplified by the 1993 amendment to the Commercial Code; it then became possible for any shareholder to hold a director or auditor accountable by suing them instead of the company, simply by paying court fees of 8,200 yen. However, a further revision at the end of 2001 put an upper limit on directors’ liability for damages after a dramatic increase in the number of lawsuits filed was accompanied by cases in which individual company directors were ordered to pay excessively large amounts in damages.
In this sense, I would like to pay close attention to the future actions of companies that are pursuing the creation of unique governance systems while at the same time continuing already-extant methods (eg Canon, Toyota, Matsushita and Kao). Incidentally, not a single company that had shifted to the ‘Companies with Committees’ system made the top 10 of the special feature ‘Respected Companies: CSR Ranking — The Best 100 Companies’ that appeared in the 26 July 2004 edition of Nikkei Business.
In Japan, a large number of surveys have been carried out into the extent to which business ethics and compliance systems have been established at companies, but empirical studies of their results and effectiveness are totally lacking. There is a need to accumulate this type of empirical research and empirical evidence.
Although some companies began to take measures to construct business ethics systems in the early 1990s, following the exposure of the problem of illegal compensation for damages at Japanese security trading companies in the aftermath of the bubble economy, they were few in number.
Signs of this trend can be seen in the results of surveys with which I was personally involved (Nakano and Yamada, 2003), and I have often heard similar opinions in meetings with business practitioners.
Umezu (2003) summarizes below the basic differences between the ‘compliance-style’ and ‘value-sharing’ ethical strategies (Umezu, 2003: 24).illustration
Accordingly, it is my opinion that in the current situation in Japan, the choice as to which approach to be taken depends on the individual company, and that each company should carry out investigations into its own individual style of governance and business ethics systems. However, I also believe that the illogical combination of (1) and (2) above (in other words, mistaken combinations such as ‘shareholder-centred governance’ and ‘the establishment of business ethics through value sharing’, or ‘corporate-conscience-based governance’ and ‘the establishment of compliance-style business ethics’) would only be ineffective, but also carry the danger of generating unnecessary confusion.
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Nakano, C. The Significance and Limitations of Corporate Governance from the Perspective of Business Ethics: Towards the Creation of an Ethical Organizational Culture. Asian Bus Manage 6, 163–178 (2007). https://doi.org/10.1057/palgrave.abm.9200216
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DOI: https://doi.org/10.1057/palgrave.abm.9200216