Presented ByAmbu GyawaliAnita K. LuitelAyush Nepal

Barsha ShresthaBidur Koirala

The Corporate Governance Model of Japan

Shareholders are not Rulers

Introduction

Models of Corporate Governance from Developed Capital Markets

Anglo-US Model

Japanese Model

Global Corporate GovernanceThe U.S. & The U.K

Share Holder Centric Model of Corporate Governance

Japanese ModelFocuses on Business Relationship

Germans and other European NationsStake Holder Centric Model of Corporate

Governance

Literature ReviewAlthough it may not be possible to obtain efficiency it may be

possible to achieve a better allocation of resources with the board view than with the narrow one.(Allen and Gale, 2000 & Allen, 2005)

The legal obligation of director is such that they may be liable for gross negligence in performance of their duties, including the duty to the supervise. (Scott, 1998)

Executives in Japan are among the lowest paid in the world and relatively little is tied to the stock price of the company.(Bearley, Myers and Allen, 2006)

The main bank relationship ensures the bank acts as the delegated monitor and helps to overcome the agency problem between managers and the firm.(Hoshi, Kashyap & Scharfstein, 1991 and Aloki & Patrick, 1994)

Significance of the StudyTo understand various Corporate Governance

Models around the world. It is directed towards understanding the

widespread philosophies of corporate governance and importance of equity ownership by financial institutions in Japan and Germany.

The study also shows the implications of corporate governance in growing economy like China.

Study Methodology/Data Analysis

Study Focuses on Five Major Parts• The Board of Directors• Executive Compensation• The Managerial Organization of Corporations• The Market for Corporate Control• Concentrated Holdings and Monitoring by

Financial Institutions

The study shows the holding of investment with reinvestment of dividends from 1972 until the end of 2006

Choices of senior managers at a sample of major co-operations in five countries Japan, Germany, France, the U.S and the U.K. between two alternatives:A company exits for the interest of all the

stakeholders (Dark Bar)Shareholder interest should be given the first

priority (Light Bar)

Study Methodology/Data Analysis Contd…

Survey also asked the managers what their priorities were with regard to dividends and employee layoff. The specific alternatives they were asked to choose between were:Executives should maintain dividend payments,

even if they must layoff a number of employees (Dark Bar)

Executives should maintain stable employment, even if they must reduce dividends (Light Bar)

Study Methodology/Data Analysis Contd…

Survey shows that the size of Japanese boards is much larger than in other countries.

There has been a survey about traditional U.S. hierarchical firm, the “H-Mode”, with the Japanese firm structure, the “J-Mode”.

“H-Mode” is characterized byHierarchical separation between planning and implemental

operationAn emphasis on economies of specialization

“J-Mode” is characterized by:Horizontal coordination among operating unitsSharing of ex-post on-site information

Study Methodology/Data Analysis Contd…

Figures in Parentheses•U.S.: Outside Directors•U.K.: Non Executive (Outside) Directors•Japan: Outside Directors (Including Cross Directorships)

ConclusionThe Anglo-US model is characterized by share ownership of individual, and

increasingly institutional, investors not affiliated with the corporation known as outside shareholders or “outsiders”

Well-developed legal framework defining the rights and responsibilities of three key players, namely: management, directors and shareholders

Comparatively uncomplicated procedure for interaction between shareholder and corporation as well as among shareholders.

This model is based on a narrow view of the role of corporation in the economy. This is that the firm should focus on creating wealth for shareholders. Whereas, in other countries, particularly Japan, a broader view of corporate governance is taken. This requires that companies use resources efficiently by taking the interest of a range of stockholders, not just shareholders, into account.

For countries such as China that are reforming their corporate governance systems, the Anglo-American model provided by the U.S. and the U.K. provides one possible direction to go in.