Choice as Regulatory Reform: The Case of Japanese Corporate Governance

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Choice as Regulatory Reform: The Case of Japanese Corporate Governance Ronald J. Gilson * and Curtis J. Milhaupt ** Corporate governance reform is everywhere these days, and it has a common focus. In many markets, including the United States, governments and stock exchanges have entered the board room, enacting mandatory rules on board composition, director independence, and other aspects of firm organization previously left to private ordering between shareholders and managers. 1 As we will explore in this Article, extensive corporate governance reforms on board structure and composition are taking place in Japan as well, but the reforms have taken a highly distinctive turn. Japanese corporate governance in the postwar period has been both insular and conservative. It is insular in that Japanese corporate governance has a unique structure – what economist Masahiko Aoki calls J-Form – that is said to reflect the special characteristics of Japan, whether cultural or industrial. 2 It is conservative in thatin the familiar account, Japanese corporate governance largely walls off company management Charles J. Meyers Professor of Law & Business, Stanford Law School and Marc & Eva Stern Professor of Law & Business, Columbia Law School. Email: rgilson@law.columbia.edu Fuyo Professor and Director, Center for Japanese Legal Studies, Columbia Law School. Email: milhaupt@law.columbia.edu Helpful comments on an earlier draft were provided by Marc Goldstein, Hideki Kanda, Hugh Patrick and Mark West, as well as participants at the University of Tokyo Center of Excellence Workshop, the University of Toronto Law School, the Vanderbilt Law and Business Workshop, and the Research Institute of Economy, Trade and Industry. Keiji Hatano, Columbia LLM 2004, provided excellent research assistance. This is the essence of the Sarbanes-Oxley reforms and New York Stock Exchange Listing standards enacted in the wake of the Enron and WorldCom scandals. In Asia, the 1997-98 financial crisis had a similar effect: Korea and Taiwan enacted mandatory board reforms, featuring independent directors, for publicly traded firms in response to problems exposed in that episode. For the original formulation, see Masahiko Aoki, Toward an Economic Model of the Japanese Firm, 28 J. Econ. Lit. 1 (1990).