RIETI Report December 10 2021

Crucial Viewpoint on Corporate Governance: Developing a "New Japanese Model"

Dear Readers,
Welcome to RIETI Report.
This bi-weekly newsletter will keep you updated with the recent columns, event information and research results by RIETI fellows and other leading economists in Japan and around the world.

In this edition, we are presenting topics related to corporate governance in Japan. How should Japan aim to update its corporate governance and newly design a "Japanese model 2.0.?
We hope you will enjoy it. If you have any feedback, we would love to hear from you.
Editors of RIETI Report (Facebook: @en.RIETI / Twitter: @RIETIenglish / URL: https://www.rieti.go.jp/en/)

This month's featured article

Crucial Viewpoint on Corporate Governance: Developing a "New Japanese Model"

MIYAJIMA HideakiFaculty Fellow, RIETI

As the social norms related to the purpose of companies have changed significantly, the approach of placing emphasis on stakeholders has become more prevalent worldwide. In the past, it was expected that the world would converge toward the U.S. model of governance, which advocated the maximization of shareholder value as the purpose of companies. But in fact, the Anglo-American world is now tilting toward a stakeholder-focused model.

On the other hand, in Japan, companies were exposed to the new global trends exactly when they were reorganizing their governance arrangement as a part of the reforms of the Shinzo Abe Administration, which were intended to realize corporate growth through the strengthening of shareholder primacy. Which direction should corporate governance in Japan take?

In contrast to the United Kingdom and the United States, where there is growing concern related to the overly strong governance by shareholders, in Japan, the continued weak governance by shareholders is regarded as a crucial problem. This is presumed to be the cause of the internationally low level of return on equity (ROE), lagging business restructuring, and overly conservative management. What Japan's corporate governance reform has aimed to do is to resolve these problems by strengthening shareholder engagement and reforming boards of directors.

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