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A Lost Decade for Corporate Governance? What’s Changed, What Hasn’t, and Why

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  • Milhaupt, Curtis

    ()
    (Columbia University School of Law)

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    Abstract

    Analysis of Japanese corporate law reveals a striking amount of formal institutional change in the past ten years, occurring at an ever-accelerating pace. This feature of law reform can be traced to a heightened awareness of the organizational straightjacket imposed on Japanese firms by the Commercial Code, and to a more competitive and market-responsive environment for the production of corporate law. It has been a “sea change decade” for Japanese corporate law. Yet it has been an ambiguous decade for Japanese corporate practices. Signs of change in response to the new institutional environment can be found in the areas of shareholder activism, corporate mergers and acquisitions and other organizational changes, board structure, and corporate finance. At the same time, however, domestic institutional investors remain passive, management remains largely insulated from the market for corporate control, and “lifetime” employment practices, while covering a shrinking subset of the Japanese workforce, remain firmly in place. This paper accounts for the observed pattern of change and non-change by analyzing the political economy of corporate law reform, the complementarities at work between corporate law and other institutions, and the relationship between corporate law and corporate governance. Ultimately, corporate law bears only a limited relationship to corporate governance. Changes in corporate practices are brought about by dynamics external to the formal corporate governance institutions. Thus, the sea change in Japanese corporate governance must await further changes in the distribution of shareholders, in the capital markets, and in the incentive structures for management, and the further erosion of corporate norms that promote employee and managerial interests over shareholder interests.

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    Bibliographic Info

    Paper provided by The European Institute of Japanese Studies in its series EIJS Working Paper Series with number 202.

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    Length: 35 pages
    Date of creation: 01 Sep 2004
    Date of revision:
    Handle: RePEc:hhs:eijswp:0202

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    Keywords: Japan; corporate law; commercial code; corporate mergers; shareholder activism; board structure; outside directors; corporate finance; corporate governance; shareholder derivative suits; board of auditors; stock options.;

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    References

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    1. Goto, Akira & Odagiri, Hiroyuki (ed.), 1997. "Innovation in Japan," OUP Catalogue, Oxford University Press, number 9780198289852, September.
    2. West, Mark D, 2001. "Why Shareholders Sue: The Evidence from Japan," The Journal of Legal Studies, University of Chicago Press, vol. 30(2), pages 351-82, Part I Ju.
    3. Posner, Richard A, 1997. "Social Norms and the Law: An Economic Approach," American Economic Review, American Economic Association, vol. 87(2), pages 365-69, May.
    4. Milgrom, Paul & Roberts, John, 1994. "Complementarities and systems: Understanding japanese economic organization," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 9(1), pages 3-42.
    5. Kato, Takao, 2001. "The End of Lifetime Employment in Japan?: Evidence from National Surveys and Field Research," Journal of the Japanese and International Economies, Elsevier, vol. 15(4), pages 489-514, December.
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