BDTI is happy to share a Research Paper titled ”Japanese Corporate Governance from the Perspective of Family Firms” by Hokuto Dazai (Independent), Takuji Saito (Waseda University), Zenichi Shishido (Hitotsubashi University Graduate School of International Corporate Strategy; Independent) and Noriyuki Yanagawa (University of Tokyo – Faculty of Economics).
The research attempts to answer the questions: why have the performances of the Japanese Model of corporate governance (J-form firms) deteriorated since the Japanese economic bubble in the mid-1980s, and why have J-family firms generally outperformed non-family firms? It goes on to analyze and compare J-form and J-family firms on general issues of corporate governance, including internal and external governance, internal promotion rules, long-run reward systems, and incentive mechanisms.
The researchers’ findings are that the strong internal governance of J-form firms not only provide an advantage over the Anglo-Saxon model (A-form firms), but also raise serious trade-off problems. However, J-family firms are better able to compromise the trade-off. While keeping the core element of J-form internal governance, J-family firms incorporate four elements of A-form corporate governance: shareholder monitoring, equity incentives for CEOs, younger and longer CEOs, and use of the external manager market. In other words, J-family firms are a hybrid of the J-form and A – form. This hybrid has been performing better than the ”genuine” J-form since the end of Japanese economic growth in the mid-1980s.
This research paper concludes that the degree of hybrid characteristics taken from the J-form and A-form depend on the balance between the internal governance and external governance. This accordingly depends on markets (product, capital, and labor), social norms (maximizing shareholder interest, or balancing stakeholder interests), and laws (employment protection and investor protection).
It also suggests that one model will not fit all. It lastly proposes giving CEOs stronger incentives of equity that will not necessarily induce a trade-off with strong internal governance.
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