by Gerhard Fasol

Corporate governance Japan is now in the focus of Prime Minister Shinzo Abe’s reforms

Reform of corporate governance is an ongoing issue in Japan, and part of Prime-Minister’s Abenomics’ “third arrow” revival efforts. Here is a note, that I added to a recent article in The Economist, entitled “Corporate governance in Japan – A revolution in the making“:

“Outside Directors” is only one step along the way to end the “inbreeding problem”. Bringing diversity into the management of Japanese companies is critical for growth in Japan: non-Japanese directors, women directors, non-Japanese women directors.

Corporate governance Japan: in the end the markets decide whether diversity is necessary, or whether in-breading wins

Of course the market decides: I believe that companies which do not bring in management diversity will find lower market capitalization than those which do.

I am European and independent Board Member of a Japanese company, traded on the Tokyo Stock Exchange. Since all business and all board meetings are in Japanese, full command of business Japanese is necessary, including the ability to read a big volume of Japanese reports 100s of pages long sometimes from one day to the next.

Corporate governance Japan: very few non-Japanese are capable of functioning on the Board of a Japanese corporation

There are only very very few non-Japanese people with the qualifications to serve as independent Board Directors, who have the necessary full command of Japanese. So there is a substantial bottle neck against bringing diversity into Japanese corporations even if there was a strong pull from Japanese corporations. Currently only a few excellent Japanese corporations exercise this pull, to pull in non-Japanese external Board Members.

One company which is remarkably advanced is Hitachi – Hitachi several outside and non-Japanese Board Members, including also one foreign woman recently.

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