[paper] System to Develop Corporate Governance

Kakutaro Kitashiro: Chairman of IBM the Board of Japan

Kakutaro Kitashiro is chair of IBM the board of Japan. He is a member of the government councils, including Information and Telecommunications Council, executive director of the Japan Business Federation, and vice chairman of the Japan Association of Board Directors. He graduated from Keio University with a BS degree in engineering in 1967. He also holds an MS degree in electrical engineering and computer science from the University of California, Berkeley, in 1972.

Yoshinori Yokoyama: Former Director of McKinsey & Company

JYoshinori Yokoyama is a former director of McKinsey & Company. He now serves as a part-time instructor at Tohoku University and the graduate school of Hitotsubashi University. His published works include Seicho Soshutsu Kakumei (Growth Creation Revolution), McKinsey Gassho Renko Senryaku (McKinsey's Alliance Strategy), and many translations and reports. Mr. Yokoyama graduated from the Architectural Department at the Engineering Department of Tokyo University in 1966, worked for an archictectural firm and received a Master of Urban Design degree from the Graduate School of Harvard University in 1972 and an MBA from the Massachusetts Institute of Technology in 1975.

The Mizuho Financial Group's computer system glitch in April indicated its easy risk management, its lack of internal communications and its loss of a strict management posture, triggering debate on Japanese corporate governance. This is because the lack of governance, as seen at Mizuho, is not unique to banks or mergers. "Japanese companies have lost governance since the 1930s, " says Yokoyama.
What is required for Japanese companies to establish their corporate governance? Can present management establish corporate governance? Kitashiro says, "Companies are owned by shareholders and management is commissioned by shareholders to run their companies." In reality, however,management is seemingly owners of companies, leading us to feel that there may be limitation on reforms by present management. Present companies have effectively lost even the mechanism to fire top management for making misjudgments.

In order to develop corporate governance, "companies may have to reform their management systems themselves," instead of depending on the quality of management, says Kitashiro. He says, "Companies should have outsiders account for a majority of their board members in order to ensure a check and balance system." Yokoyama says, "Develop training programs for management." The emerging pressures on management may trigger the development of corporate governance and correct contradictions in relations between shareholders and management, or between boards of directors and management, which exsist in many of the Japanese companies.

Such prescriptions cannot be expected to immediately improve Japan's corporate management that has lacked governance over the postwar period. If even a few success stories emerge and are positively reported by the media over a long period, however, a rising number of companies will seriously consider developing corporate governance.