Since the Olympus scandal of 2011, the debate on what to do about Japanese corporate governance continues, without much conclusion apart from an aborted proposal to make it a legal obligation to appoint external directors. Colin Mayer, Peter Moores Professor of Management Studies at the Saïd Business School at the University of Oxford, points out in a Nikkei interview that Olympus already had external directors when the scandal broke. “Actually the research shows that external directors do not have that a big impact on performance… more than half of the directors of British companies are external, but it is not necessarily connected to better corporate governance.”
Professor Mayer makes a couple of proposals – firstly that two types of board be appointed – one comprised of directors who support management (a mix of internal and external appointees), and the other comprised of directors who audit (exclusively external appointees). He also suggests that there are dual class shares, with greater decision making rights for those shareholders who commit to holding shares for the long term.
He also recommends looking at the “Industrial Foundation” way of structuring the ownership of a company, citing how this approach is used by Tata, the Indian owner of Landrover and Jaguar as well as by Bosch, Carlsberg and Ikea. The Trustees do not get involved in the management of the company, but audit the management.
I remember managers at Bosch remarking a few years ago that their corporate culture felt similar to Denso and other Japanese companies, because of being owned by the Bosch Foundation, and therefore more focused on the long term, and working for the benefit of society, rather than the next quarter’s profit. So it could be that this structure is culturally compatible for Japanese companies. Not sure that it will inject the renewed dynamism that many of them are seeking though.
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