Japanese corporations have evolved in patterns of corporate management to address the new challenges such as the information and communication technology (ITC), world economic crisis, and the globalization. The trend of the corporate governance tends to step toward more market oriented as the most US companies or Britain companies. Mostly the Japanese firms have the same main characteristics as the competitive strength.  Furthermore, the corporate governance in japan is also influenced by the state institutions and the economic condition such as in the bubble economy in the early 1990s.

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To sum, there are several characteristics of traditional J-type firms.

Table 1 J-type Firms

Golden age behavior

Function duringGolden Age


Function afterBubble

Early 1990sbehavior


Risk sharing


Moral hazard


Growth oriented

Mitigating pressure from myopic stock market


Less disciplineon management

Excess investment


Continuity ofmanagement


Less response to external changes Empire building

Delay in restructuring

Organizational efficiency

Increasingno. of positions


Keeping a division or asubsidiary with low performance

Delay in enteringnew business areas

Preventing from excess liquidation  Preserving firm-specific skills

Mitigating symmetricinformation



Delay in restructuring


The next sections will describe more the content of the table especially the advantages and disadvantages of the characteristics of the J-type management. To simplify the features of the traditional Japanese corporate management, it will be categorized into three board areas: corporate ownership and finance, employment and industrial relations, and the board directors.

1.      Corporate Ownership and Finance

The traditional Japanese corporate ownership is characterized by stable shareholders with reciprocally held cross-shareholdings among corporations and banks and the largest single shareholder which is often main bank does not typically exceed a 5 % stake single shareholder, which is often the main bank, does not typically exceed a 5% stake but the web of small reciprocal cross-shareholdings often account for 20% of shares and stable shareholders over 40%.

Several advantages of stable shareholders.

1.      It will form a dense and stable network of long-term relationships

2.      It protects firms from hostile takeovers and short-term stock market pressures.


Several disadvantages of stable shareholders

1.      It often overlap with and underwrite various other cooperative business relationships within corporate groups. It include the bank-centered horizontal (keiretsu) such as Mitsubishi Group and the vertically structured (keiretsu) such as buyer-supplier relationships (Japanese Automobile Industry)


In the finance sector, mostly the Japanese firms get the lending from the bank. In the high growth time, the regulations restricted markets for bonds and equity, segmented Japanese financial institutions, and limited the options for household savings. The advantage of this policy is that the main bank traditionally has long-term relationships with client firms that involve providing credit, maintaining equity stakes, offering financial services and advice, and, importantly, helping to overcome information asymmetries with client firms.

Furthermore, large firms lessened ties with banks and began financing through bonds, but smaller listed firms continued borrowing from banks. Firms with higher levels of foreign ownership are more likely to adopt ”Anglo-American” style corporate governance reforms, such as equity-based performance measures, changes in the structure and function of the board, and communication with shareholders.

The banking crisis pressures to deregulation and shifts toward a more transparent and rule-based regime of financial regulation by creating independent Financial Services Agency (FSA).



2.      Employment and Industrial Relations

In human resource management, Japanese firms applied lifetime employment. It is also well known as strong relational employment. Off course, this approach has advantages and disadvantages.

The advantages of lifetime employment,

1.      Japanese firms can invest in firm-specific skills and maintain internal flexibility of employees with regards to job functions within the firms or related firms.

2.      The long-term nature of employment, high skills, and cooperation with suppliers allowed Japanese firms to build strong organizational efficiencies.

The disadvantages of lifetime employment

1.      Lifetime employment reflects strong legal constraints on dismissals.

2.      Keeping a division or a subsidiary with low performance and delay in enteringnew business areas (after the bubble economy).

Later most firms have adopted merit-based payment systems based on individual performance evaluations (about 40%) or have moved to a more complex type of HRM scheme that integrates both seniority and merit elements (about 40%). Moreover, several companies are retaining long-term employment but they have shifted from seniority-based to merit-based wage systems.


3.      Board of Director

The president is perhaps more a ”top employee” than representative of shareholders. External recruitment of top managers and independent outside board members are uncommon. Any outsiders tend to come from banks, group companies, or government ministries. It is recognized as institutional complementarity, that is, insider-oriented boards serve to protect the firm specific investments necessary to support commitment work practices, but are also complemented by contingent governance by the main bank. They also use Institutional isomorphism refers to the attempts to gain legitimacy, reduce uncertainty or adapt to social norms that lead firms in a population to resemble other firms facing the same institutional conditions.



The advantages of one-tier insider dominated board.

1.      Long term investment

2.      Continuity of management

The disadvantages of one-tier insider dominated board.

1.      Low shareholder influence

2.      Low level of transparency

3.      Less response to external change of empire building

4.      Delay in restructuring


Large and mature firms, such as Hitachi or Matsushita, have increasingly decentralized their business decisions by introducing so-called in-house company systems which made it possible for each business unit (in-house company) to enjoy independence in decision making with clear responsibility and other firms introduce new group management through holding companies.

In brief, several Japanese corporations adopt international standards and management to win the global competition.  It is well-known as a hybrid model that combines best practices across countries into a single model based on market oriented finance and ownership characteristics, alongside relational employment and partially insider board structures. This group thus mixes market-oriented elements externally with non-market or relational internal characteristics. These firms make strong use of corporate bonds as a source of finance, and display high levels of ownership by foreigners and financial institutions. These firms have been the more likely to adopt shareholder rights and bring outsiders onto boards, but havechanged most strongly with regard to greater corporate disclosure and transparency. Notably, however, these firms combine this strong capital market orientation with a relational employment pattern based on lifetime employment norms and very high levels of unionization. Toyota Motor Corporation is a good example, having changed its finance methods from bank borrowing to bonds, attained high levels of foreign shareholders and lower levels of inter-firm shareholding, and implementing changes toward greater transparency and stock options. Notably, Toyota has resisted placing outside members on the board and strongly upholds its lifetime employment pattern. The major new phenomena in Japan are ”hybrid” forms ofcorporate governance among roughly one-fourth of Japanese listed firms. Thesehybrid groups include many of the largest Japanese firms and thus account for67% of total employment.