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

Abstract

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