Development of Corporate Governance in Japan and Germany: is the two-tiers-system obsolete?

Abstract

In this paper, the authors show the evolution of German and Japanese Corporate Governance, the impacts of codetermination in German supervisory boards on the system, and evaluate the latest movement of Japan towards a one-tier-system. Japan originally adopted the two-tiers-system from Germany. Under strong influence of the allies (i.e. America), a one-tier-system was put on top of the two-tiers-system. In the 1970s control function of the supervisory organ had been drastically reinforced, meaning the return to the two-tiers-system in practice. Then with the latest reforms, Japan introduced the possibility of choosing a real one-tier-system. Considering the specific Japanese prevailing conditions of management, it seems that the reform had not been critical enough; especially in regard to the possibility of abuse of power by the CEO constraints may occur. Therefore, as a completion of the two-tiers-system, the one-tier-system is advantageous. It is, however, pointless to introduce the new system for all Japanese companies by completely replacing the two-tiers-system with it.