Corporate Governance and Corporate Performance: Case Study Japan

Abstract

After the bursting of the stock market bubble at the end of the 1980s Japan began to comprehensively reform its corporate governance system. Modernising Japan’s corporate governance system was seen as one of the key levers to making Japanese companies more profitable, faster growing and less risk-prone, with the overarching goal of revitalising the Japanese economy in the long term.

The first phase of the reform lost some of its momentum in the wake of the great financial crisis that broke out in 2008. Prime Minister Abe then pushed the reform process forward again with vehemence from 2012 onwards. Abe’s reform efforts encompassed several elements, such as the reform of company law and the introduction of a corporate governance code and a stewardship code. At the same time, the Tokyo Stock Exchange has influenced the corporate governance of Japanese companies through its listing rules.

From a regulatory perspective, the Japanese corporate governance system can be described as modern and efficient. However, corporate practice often lags behind. The Fujitec case study at the end of this chapter shows two things: first, how lacking the actual practice of corporate governance can be despite good rules. Second, it shows how determined shareholders today have the power to protect their interests and ensure that Japan’s modern corporate governance rules are brought to life, to the benefit of employees, shareholders and the Japanese economy as a whole.