Nothing New in the (North) East? Interpreting the Rhetoric and Reality of Japanese Corporate Governance

68 Pages Posted: 16 Feb 2006

See all articles by Luke R. Nottage

Luke R. Nottage

The University of Sydney Law School; The University of Sydney - Australian Network for Japanese Law

Date Written: 2006


Japan finally seems to be pulling itself out of its "lost decade" (and a half) of economic stagnation. Some grudgingly or triumphantly attribute this to micro-economic reforms, freeing up arthritic markets, although there is also evidence that macro-economic policy failures have been a major cause of poor performance since the 1990s. Many point to overlapping transformations in corporate governance, broadly defined to cover relationships among managers and employees as well as between firms and outside shareholders, creditors, and other stakeholders. These relationships are in flux, with moves arguably favouring shareholders and more market-driven control mechanisms.

It has certainly been a "found decade" for law reform in Japan, particularly in corporate law, with a plethora of legislative amendments commencing around 1993 and culminating in the enactment of a consolidated "Company Law" in 2005. This "modernisation" project, particularly since 2001, is reportedly aimed at (i) securing better corporate governance; (ii) bringing the law into line with a highly-developed information society; (iii) liberalising fundraising measures; (iv) bringing corporate law into line with the internationalization of corporate activity; and (v) modernizing terms and consolidating corporate law. Because the suite of revisions has moved away from strict mandatory rules set out originally in Japan's Commercial Code of 1899, modeled primarily on German law, another growing perception is that Japanese corporate law and practice is or will soon be converging significantly on US models.

However, assessments remain divided as to whether these moves in corporate governance and capitalism more generally in Japan amount to a new paradigm or "regime shift". Focusing primarily on quite influential commentary in English, Part I of this paper outlines two pairs of views. It concludes that the most plausible assessment is of significant but "gradual transformation" towards a more market-driven approach, evident also in other advanced political economies.

Drawing more generally from these often virulently divided views, Part II sets out five ways forward through the proliferating literature and source material on corporate governance in Japan. Particular care must be taken in: (i) selecting the temporal timeframe, (ii) selecting countries to compare, (iii) balancing black-letter law and broader socio-economic context, (iv) reflecting on and disclosing normative preferences, and (v) giving weight to processes as well as outcomes, when assessing change in Japan - and any other country's governance system.

Part III ends with a call for further research particularly on law- and policy-producing processes, rather than mainly outcomes. It also outlines the usefulness of this analytical framework for analysing the broader field of Corporate Social Responsibility, now emerging as the next major area of debate and transformation in Japan - as elsewhere.

Keywords: corporate governance, comparative law, Japan

JEL Classification: K1, K10, K22, K33

Suggested Citation

Nottage, Luke R., Nothing New in the (North) East? Interpreting the Rhetoric and Reality of Japanese Corporate Governance (2006). Sydney Law School Research Paper No. 06/2; CLPE Research Paper No. 01-1. Available at SSRN: or

Luke R. Nottage (Contact Author)

The University of Sydney Law School ( email )

New Law Building, F10
The University of Sydney
Sydney, NSW 2006

The University of Sydney - Australian Network for Japanese Law

Room 640, Building F10, Eastern Avenue
Sydney, NSW 2006

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