Corporate Governance

Corporate governance Japan: external independent directors on Japanese Boards

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 HitachiHitachi several outside and non-Japanese Board Members, including also one foreign woman recently.

Copyright 2014 Eurotechnology Japan KK All Rights Reserved