Join us in reading Chapter 2 of the book, The Only Way to Survive for Japan, subtitled "Corporate governance is sure to save our country." This book mainly focuses on corporate governance. In this chapter, the impact of the Abenomics "Japan Revitalization Strategy" takes center stage. Institutionally, Japanese corporate management is encouraged to promote "aggressive management" and thereby to increase "earning power." In case studies, the author examines its significance for stakeholders as well as the risks of going too far.
Find all published chapters at 'The Only Way to Survive for Japan'
Read Chapter 2.2, the 9th segment of the book:
Season of Corporate Governance
The ruling Liberal Democratic Party achieved a landslide victory in the general election at the end of 2014. Taking it as the voice of the citizenry yelling, "Advance Abenomics even further," Prime Minister Shinzo Abe is going to strongly proceed with his growth strategies.
The Abe regime has pronounced its growth strategies twice. They were "Nihon Saikou Senryaku" (日本再興戦略: Japan Revitalization Strategy) released in June 2013 and the revised version released the following year. What is repeatedly emphasized is the reinforcement of corporate governance.
Outside directors and institutional investors are expected through their efforts to encourage the management teams of Japanese corporations to promote "aggressive management" and thereby to increase "earning power."
Compulsory Outside Directors
In line with the amendment of the Companies Act as mentioned in "Japan Revitalization Strategy," the employment of outside directors has practically become compulsory, effective as of this year. The original plan of the Corporate Governance Code as proposed in the revised version stipulates that the minimum number of outside directors should be two or more. It took only six months from the suggestion in June 2014 to the completion of the original plan; what a feat of agility! It is due to start from the general shareholders meeting season in June 2015.
It also took only eight months to implement the Stewardship Code, which was included in "Japan Revitalization Strategy" two years ago in 2013. Institutional investors in and out of Japan expressed their approval for the encouragement to activate management teams, which was immediately set in motion.
Whatever happens to Abenomics, the reinforcement of corporate governance has been confirmed. Discussion is done, and implementation is what counts.
Why is it important for corporations to increase "earning power"? It is because if corporations make profits and accordingly the economy becomes stronger, there will be more places offered for people to work, thereby expanding employment even further.
People live happily with self-esteem only when on the payroll. In support of this theory, some people argue that corporate governance exists for the sake of employment. I would like to pay close attention to how Japanese corporations will change.
(The Asahi Shimbun dated January 2015)
Improvement of Working Conditions for Non-regular Employees
What is not fully appreciated about Abenomics is its efforts directed to employment and wages.
Prime Minister Abe directly encourages and requests corporations to raise wages. The Japan Business Federation cannot ignore but respect it. Some leading companies have decided to shelve the requests for price reductions for their subcontractors.
The labor union of Toyota Motor Corporation reportedly demanded that an increase in wages equal to the level of the regular employees be given to irregular-term employees. It is good news.
Although it is a very forward-looking trend which may favorably affect the Japanese economy, somehow the media made light of the news. I just wonder, "When a dog bites a man that is not news, but when a man bites a dog that is news." I really do not understand why the media do not squarely trumpet the efforts of the Japanese No 1 company and its labor union trying to embark on the great business of improving the working conditions for non-regular employees.
The Non-regular Employees Problem
None of top executives of Japanese-style leading companies may think that it is right to leave non-regular employment as it is now. Japanese corporations had once taken advantage of non-regular employment in order to survive hard times, but when the economy has recovered, things should be different. I do not believe that they would like to fatten their wallets even by exploiting non-regular employees with low wages.
There is a movement under way trying to make non-regular employees regular employees in one way or another. This is welcome because it leads to the interests of all the stakeholders. It can be said that in the long-run it would benefit even the shareholders.
Komatsu Ltd, which is an exemplary company sticking to Japanese-style management, says, "We employed a third of the term employees as regular employees during the time of production expansion." This reflects the very true color of Japanese-style management.
Nobody thinks that a company does not belong to the shareholders. Nor does anybody think that it is acceptable that only the shareholders can enjoy pecuniary benefits in the short term. What CEOs should focus on is how to maintain the company's continuous growth for the years to come.
(The Asahi Shimbun dated February 2015)
How About Promoting the Early-bird Shift?
Driven by great forces of storm and urge, the Abe regime has realized the Corporate Governance Code, the activity guidelines that listed companies should abide by, as well as the Stewardship Code, which is expected to help shore up the function of monitoring the corporate management. And this time the regime has embarked on a plan to promote the early-bird shift.
Mr Yasuhisa Shiozaki, then-Minister of the Ministry of Health, Labor and Welfare, requested Mr Sadayuki Sakakibara, then-Chair of the Japan Business Federation, "to promote a nation-wide movement to inculcate the citizenry with a lifestyle to start work from early in the morning and to leave work early in the evening." As Mr Shiozaki would often say, "We will drastically change the culture of Japanese corporations," and he must be really serious about it.
Some companies have already promoted the early-bird shift, as is seen in Itochu Corporation, which was the first leading general trading company to realize the birth of a female executive officer in 2013. Itochu placed a ban on the graveyard shift on a trial basis in October 2013 and started paying extra wages and providing light meals to its employees opting for the early-bird shift. And it has fully employed such a system since May 2014. The Bank of Yokohama, Ltd has gone ahead with the early-bird shift and in principle banned any engagement after 19:00 PM.
Flextime for the Government
Following these efforts in the private sector, the government is going to move forward the clock-in time of national government officials one or two hours starting from the summer of 2015 and to adopt Flextime in the spring of 2016.
In comparison to other countries, workers in Japan work longer and therefore find it difficult to juggle careers and parenting or caregiving. One of the causes is said to be late-night overtime work. The reform plan this time is intended to shorten long working hours by adopting the early-bird shift and thereby increase productivity.
Whether the early-bird shift is good or bad will be subject to future discussion. What is surprising is that the government is proceeding with it in a hasty manner. If we look back in a few years, we will possibly be convinced that the coming one or two years would see a great turning point in Japanese history. Of course, the decision rests with the citizenry.
(The Asahi Shimbun dated May 2015)
Extradition May Happen Because of Accusation of a Cartel
The former President of NGK Insulators, Ltd and some others are expected to be subject to prosecution by the United States Department of Justice on allegations of antitrust violations in the US. It is extremely unusual for a person who once was the president of a corporation listed on the First Section of the Tokyo Stock Exchange to be held criminally responsible for an international cartel.
The company was initially under suspicion of forming an international cartel in connection with the sale of diesel particulate filters for automobiles. Having agreed to a plea bargain, NGK insulators Ltd pleaded guilty to the charge and paid a fine of $65.3 million USD (about ¥7.8 billion JPY), trying to put an end to the issue. But this deal did not completely draw the curtain on the matter.
A corporation which has received an order to produce evidence is required to immediately take preservation measures to protect the relevant evidence from being destroyed. In case any cover-up or spoliation is uncovered, the corporation would be subject to prosecution on the ground of not only forming a cartel but also of perverting the course of justice through destruction of evidence. Perverting the course of justice is a felony.
What we have to take heed of is that there is a chance that even a person residing in Japan would be extradited to the United States by force.
Case Study from Italy
In April 2014, an executive of an Italian corporation was arrested in Germany on suspicion of forming an international cartel and was extradited to the United States on the grounds of violating its antitrust laws. A former Japanese chief prosecutor says that it is highly possible that the United States Department of Justice would demand the extradition of a Japanese citizen on the grounds of forming a cartel. The possibility would be even higher if the person is suspected of perverting the course of justice. Even if the person has done it purely for the good of the company, chances are that he/she would wind up paying too high a price.
These days, there is an increasing number of Japanese corporations accused of being involved in international cartels. A very discreet and prompt response is required for an international cartel incident when it occurs. What is important to note is that even a resident of Japan can be charged with perverting the course of justice. It is in emergencies that a company's compliance system is put to the test of its true value and usability.
(The Asahi Shimbun dated October 2015)
Follow the book from Chapter 1, as it is published.
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Author: Shin Ushijima
