Seminar II The Corporate Governance Model of Japan Shareholders are not Rulers

Submitted To:
Prof. Dr. R. S. Pradhan Financial Management Group I Anjana Budathoki Anil Basnet Anshu Manandhar Arjun Raj Kafle Asmita Subedi

Contents
1. 2. 3. 4. INTRODUCTION OBJECTIVE OF STUDY RESEARCH METHODOLOGY CORPORATE GOVERNANCE DIFFERENCES IN PRACTICE 5. PRESENTATION AND ANALYSIS OF DATA 6. CONCLUSION

Introduction
In US and UK Corporate Governance mainly focuses on maximizing Shareholders wealth. In Japan and some other countries, firms concerned are found within stakeholders as well as shareholder. There is a system of codetermination in Germany

Purpose of This Article Introduction

Managers of US and UK have a very strong duty to act in interest of shareholders. Managers of Japan do not have a fiduciary responsibility to shareholders

How this Article Differs from its Predecessors Objectives of Study

To determine why there is a difference in the goal of US, UK and Japan Corporate Governance. To determine whether the shareholders are the rulers, actual owners of a company or not. To determine the difference between the Anglo American System, the Japanese and other countries like US and UK system of Corporate Governance.

Objectives of Study To determine which view of corporate governance is suitable among different markets. To determine whether the perfect competition market where no transaction costs or similar frictions, no hindrances from externalities do really exist or not. To determine whether the company will be well in case of distributing more dividends i.e. satisfying the shareholders or retain more dividends.

Research Methodology Measures Finding

Secondary source of data: Collected form
Asahi Breweries, Ltd. Case, 1989, Harvard Business School, 9-389-114. Institute of Fiscal and Monetary Policy (1996), Chart III-3-3, p.69.

No. of firm surveyed: Japan- 68, US- 82, UK -78, Germany 100, France- 50 (Institute of Fiscal and Monetary Policy (1996), Chart II-1-2, p.57, Chart III-4-6, p.84.

Corporate Governance Difference in Practice Difference in Corporate governance mechanisms based on: 1. The board of directors 2. Executive compensation 3. The managerial organization of corporations 4. The market of corporate control 5. Concentrated holding and monitoring by financial institution

The Board of Directors Board of Directors is elected by shareholders in US and UK. Mixture of outside and inside directors who are the top executives in firm. Management implement policies determined by board. Proxy fight outside directors are nominated by the incumbent management allegiance with C.E.O

Executive Compensation
Anticipated future profitability Stock price accounting based performance measures are also frequently used. Another motivating force -dismissal for bad performance Manager difficult to find another job and so may bear a large penalty /may be bid away at higher U.S. pay on performance /Japan -lowest pay -world. Important mechanisms -provided investors have an incentive to gather information and stock market prices.

The Managerial Organization of Corporation

Aoki (1990) survey -hierarchical firm * H-mode Hierarchical separation between planning and implemental operation. An emphasis on economics of specialization * J-mode Horizontal coordination among operation units based The sharing of ex post on-site information Lifetime employment, seniority advancement and management discipline are important. Japanese decision are focused on employee and influenced by owners

Methodology Used Control The Market for Corporate

Important, operation, capitalist economies Allows management team to control the large resource within small time Policies- shareholders wealth- manager replaced. 3ways market for corporate control operate.
i. Proxy contests ii. Friendly mergers iii. Hostile takeovers

Concentrated Holdings and Monitoring by Contd.. Methodology Used Financial Institutions

Japan and Germany- agency problem- solved Japan- main bank system Characteristics *Long term relationship bank & clients firm *Holding debt, equity -Active intervention financial distressed *Over come agency problem Works in financial distress Less important -doing well

Major Findings Corporate Philosophy of Asahi Breweries Ltd. Contributing society as a whole- seeks to attain trust and confidence of consumer.

Exhibit 1: Analysis of Working Capital of Techniques Table.2. No. of Members on Board Directors
U.S. Ford 15 (10) IBM 14 (11) Exxon 12 (9) Mobil 16 (10) Philip Morris 16 (4) RJR Nabisco 9 (6) Texaco 13 (11) Johnson & Johnson 14 (12) GAP 11 (8) U.K. Glaxo 16 (7) Hanson 19 (8) Guinness 10 (6) British Airways 10 (6) Allied Domecq 12 (4) Grand Metropolitan 14 (1) BTR 10 (4) Associated British Food 7 (1) British Steel 8 (0) Japan Toyota 60 (1) Hitachi 36 (3) Matsushita 37 (6) Nissan 49 (5) Toshiba 40 (3) Honda 37 (3) Sony 41 (6) NEC 42 (5) Fujitsu 36 (7) Mitsubishi Electric 37 (3) Mitsubishi Motors 43 (4) Mitsubishi Heavy Industries 43 (3) Nippon Steel 53 (1) Mazda 45 (8) Nippon Oil 22 (0)

Figure in Parentheses: UA: Outside Director UK: Non Executive (Outside Director) Japan -Outside Director including Cross Directorship

Figure 1.

Figure 2: Whose Company is it?

Number of firms surveyed: Japan 68, US 82, UK 78, Germany 100, France 50

Figure 3. Job Security or Dividends?

Number of firms surveyed: Japan 68, US 82, UK 78, Germany 100, France 50

Conclusions

The Anglo American model provided by the US and UK are based on the narrow view of the corporation in the economy. It is concerned with maximizing the wealth of shareholders. For countries as china that are reforming their corporate governance systems, the AngloAmerican model provides by US and UK provides one possible direction to go in. In Japan and other countries Broader view of study is taken

Conclusions

In Japan a border view of corporate governance is taken than that of narrow view as US and UK. It is concerned with the efficient allocation of resources by taking into accounts the range of interest of both of the stakeholders and the shareholders. If markets are well developed, this system leads to efficient allocation of resources.

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