Presentation Summary #1
KOBAYASHI Yotaro Japan Association of Corporate Executives
Japan's new Commercial Code is promoting more outside directors. And more generally, recent scandals have made issues of compliance more urgent. There should be a division between operations and supervision. Today, corporate boards are internal in Japan. We believe the role of the board should be clearer. And greater accountability is needed in the nomination and dismissal of top management.
How can the board be made accountable? There are at least three options: the Japanese model, the US model, or midway between the two. The Japanese approach left the supervisory role of the board unclear. The US approach focuses too much on the short term. Yet, we feel that long-term value for shareholders is a key issue to address. A start would be a greater separation of operational management and strategic monitoring. There also must be objective evaluation of what the company is doing. While we do not propose requiring a majority of outsiders, the number of external directors needs to be increased.
A central question remains open: For whom does the company exist? It is there for the welfare of society; it should fulfill social needs; it is for all components of society, people directly and indirectly related to the company-in other words, the stakeholders. Although focusing on shareholders is simpler, the corporation exists to serve society.
Corporate social responsibility (CSR) should include a wide range of social responsibilities. We are studying these issues in Europe, and examining ways to quantify CSR to eventually rank companies. Another important component is to identify best practices in socially responsible investing. This effort should yield important practical tools and be considered an integral part of corporate governance. Improving return to shareholders is nonetheless very important to halt the decline of Japan's competitiveness. And the incidents around the world related to corporate excesses need to be addressed in order to restore confidence of investors. It is not permissible to profit at all costs. Corporate governance is needed to maintain corporate competitiveness and society's confidence.
As Alan Greenspan said, it boils down to individuals. The highly educated leaders of Japan`s post-war generation are retiring. The new generation of managers have had only rote learning in Japan. So we cannot leave everything to the market. The cooperation of these managers is needed to better understand the voice of outsiders, and create more teamwork between inside and outside the company.
