Changing Japanese corporate governance

This paper examines the rhetoric and reality of corporate governance reform in post-bubble Japan. I argue that the process of corporate governance reform in Japan is neither one of convergence to a "global standard" nor one of inertia, and rather reflects the theme of permeable insulation taken up by other contributors to this volume. Japanese firms are increasingly adopting practices long associated with U.S. corporate governance: small boards, independent directors, and stock options. While these changes have attracted much publicity, they signify relatively little for corporate governance. Boards remain insider-dominated, and the authority of boards of directors vis a vis the CEO has been unchanged. Despite the spread of stock options, executive compensation is only minimally tied to the stock market, and disclosure of executive pay remains far from transparent

Does Embeddedness Reduce Innovation and Differentiation? Evidence from the Japanese Microbrewery Industry

While strategic management scholars and institutional theorists regularly debate the merits of organizational differentiation and innovation vs conformity and embeddedness, few studies have sought to empirically investigate how these seemingly opposing forces impact each other. Drawing on both qualitative and quantitative data, we contribute to closing this research gap by exploring how post-entry embeddedness impacted innovation and survival among de-novo and de-alio entrants into the Japanese microbrewery industry. Our findings indicate that post-entry embeddedness has contrasting effects, reducing overly non-conformist strategies among de-novo entrants, but enhancing non-conformity among de-alio entrants. These results indicate how institutions can serve as enablers of innovation, rather than constraints, through their dissemination of standards, norms and industry practices

Killing two birds with one stone: Board reforms in the Japanese electronics industry

This paper combines insights from A Behavioral Theory of the Firm and Neo-Institutional Theory to provide a more comprehensive understanding of how new practices are adopted and transformed. The setting is the spread of the Executive Officer System (EOS) in the Japanese electronics industry. While this system, based on the Anglo-American system of governance, was designed to separate executive and monitoring, in reality, firms that reduced the size of the board only, leaving membership heavily weighted to executive officers. Based on a combination of qualitative and quantitative studies, we argue that this is not merely decoupling or symbolic management; rather, the legitimacy of the EOS system made it readily accessible and salient to firms searching for a solution to problems in decision-making. The legitimacy of EOS as the “global standard” of corporate governance enabled top executives to frame difficult board reforms to internal actors. Through adoption of EOS, firms were able to “kill two birds with one stone” by appealing to investors as well as solving internal problems. This research contributes to our understanding of diffusion and variation, the nature of decoupling, global spread of Anglo-American corporate governance, and NIT and BTF accounts of diffusion of new practices

Framing From Afar: External Agents and the Construction of the Japanese Ji-Buru Industry

This paper explores how “framing from afar,” in other words, the construction of categories by external agents—policy makers, regulators, local governments, consulting firms and other actors—influences the establishment and subsequent evolution of a new industry. We use the case of the Japanese microbrewery industry to demonstrate how initial external category-setters shape the evolution of the industry by influencing the type of producers that enter and what they produce. We show that external agents used the pre- existing term “jibiru” – meaning regional or local beer – to define the new industry in terms of regional economic growth. This broad category framing served to legitimate entry by producers from a diverse range of backgrounds, and invited extreme experimentation around local and regional ingredients; it also made it difficult for the industry to reach a shared consensus on the taste and characteristics of the products. Our findings contribute to the literature on industry emergence by demonstrating how early category framing by external actors – whose interests may diverge from those of consumers and producers – may impact the nature of entrants, their product development choices, as well as the long-run legitimacy of the industry itself

Corporate governance reform in Japan and South Korea: Two paths of globalization

This paper examines the effect of global pressures on local institutions in a comparative study of corporate governance reform in Japan and South Korea. In the literature on business systems and institutional change, globalization often appears as a monolithic force that either overwhelms all in its path through convergence or is rejected. In this paper, we demonstrate that globalization, in the form of the spread of Anglo-American corporate governance to East Asia, resulted in neither convergence nor rejection, but rather, in two different paths of change. We argue that differences in patterns of reform stemmed from the divergent ways in which local actors-the state, shareholder activists, and large corporations-interacted with each other, and with foreign investors, to respond to external pressures. Two key factors defined these interactions: resource dependencies on global capital, and the way in which local actors framed the concept of corporate governance to fit their ideologies and advance their own interests

Downsizing and the deinstitutionalization of permanent employment in Japan

This study examines the process by which the Japanese permanent employment system was increasingly deinstitutionalized and replaced by downsizing among publicly listed companies in Japan between 1990 and 1997. We found that although economic pressure triggered downsizing, social and institutional pressures shaped the pace and process by which downsizing spread. The greater a firm's legitimacy and visibility, and the more it depended on organizations and institutions that supported the institution of permanent employment, the more hesitant it was to abandon that practice, even when it had much to lose financially. Specifically, large, old, and high-reputation firms were resistant to downsizing at first, as were firms with high levels of human capital, as reflected by high wages. In contrast, firms with high levels of foreign ownership were more likely to downsize. We found that these social and institutional pressures, however, diminished as downsizing spread across the population. We argue that this is due to a "safety in numbers" effect. As downsizing became more prominent, the actions of any single firm were less likely to be noticed and criticized

Stability and change in embedded relationships: Broken ties in Japanese automotive keiretsu

This study examines how destabilizing pressures interact with embedded exchange relationships in an analysis of broken ties between Japanese auto manufacturers and their suppliers. While functional, political and social pressures all led to broken ties, their effect differed depending on the nature of the tie. We define two types of embeddedness, relational and normative, and argue that while political and social pressures lead to breakage of normatively embedded ties, relationally embedded ties are robust to these pressures. In contrast, functional pressures, specifically, performance, lead to breakage of relationally embedded ties. Our theory and empirical findings have implications for the study of networks and embeddedness and for research on institutional change in business systems

Changing firm boundaries in Japanese auto parts supply networks

The Japanese and the US business presses are full of articles about change in Japanese business practices-in particular, changes in relationships between customers and suppliers. Are closely knit networks of customers and suppliers-the keiretsu-breaking down? We argue that while there is no sign of a dramatic, abrupt breakdown in the system, Japanese automakers are beginning to rethink the make versus buy decision. Automakers are taking firmer control over some transactions while allowing others to become more arms-length. These changes are traceable to some basic changes in the transactions themselves-increased power on the part of suppliers due to changes in technology and globalization, and decreased need for customer-specific investments due to standardization. Furthermore, a sense of economic crisis has caused Japanese firms to question the value of certain business practices, and has made it easier for automakers to rethink their contracting relationships

Japanese auto parts supply networks and the governance of interfirm exchange

This paper examines purchasing transactions and ownership ties between 11 Japanese automakers and 237 suppliers. Although automakers' equity stakes in suppliers are highly symbolic, they play an economic role as well. Automakers hold shares of suppliers that dedicate to them a large percentage of output, suppliers from which they purchase many different parts, suppliers of difficult to manufacture parts, and small suppliers, indicating that ownership stakes in suppliers are credible commitments facilitating relationship-specific investments. Consistent with a transaction cost interpretation but in contrast to predictions of resource dependence theory, the total number of suppliers and the degree of an automaker's internal production of a part are not related to ownership stakes. I conclude that embeddedness and transaction cost explanations are complementary: embedded ties can serve as a transaction-cost minimizing governance structure. I further conclude that buyer-supplier relationships in the Japanese automotive industry reflect a logic of commitment rather than a logic of control and exploitation