Corporate Governance In Established Japanese Firms: Will The Olympus Scandal Happen Again?

After the Second World War, manufacturing establishments in Japan experienced vigorous growth from the 1960s through 1970s, and they achieved international success in the 1980s, during which they developed their own way of running firms, called Japanese style management, and a unique corporate governance system called the insider-type of corporate governance. Under this system, the main banks monitor and check the behaviors of corporate executives, who have usually had a long career in the companies. The Japanese style of management and the insider-type of corporate governance system stopped working well in the 1990s, however, when Japanese businesses experienced the collapse of the asset-inflated economy in the domestic market, began to receive a large number of foreign investors in their stock market, and found that they had to be involved in global competition. The country, therefore, from the late 1990s, shifted its strategies, restructured organizations, and tried to change its management style and corporate governance system to ones better fitted to the new business environment. A key to the Japanese manufacturers' resurgence is an entrepreneurial challenge to promote innovation in modular-technology-core industries, as well as maintenance and strengthening of their traditional competitive advantage in integral-technology-core industries. The challenge imperatively requires a more transparent and nimble governance system for global financing and agile decision making. However, despite efforts to restructure, the core structure of the traditional governance system still remains intact, as was demonstrated by the Olympus scandal of 2011. The reason that large Japanese firms cannot change their creaky governance system is not because it still shows efficiency or effectiveness, but because Japanese business society still holds to orthodox views regarding the large, established companies. As long as the people concerned hold to orthodox views of large traditional firms, big banks, and bureaucracy, the traditional insider-type of corporate governance will survive, and another corporate scandal is liable to happen in the near future.