As part of Abenomics’ third arrow of structural reform, Japan recently adopted a new corporate governance code. The new code focuses on making Japanese corporations more transparent, more responsive to shareholders — including minority shareholders — and subject to more effective oversight by boards of directors, especially outside directors. It seeks to make boards of directors not only more active and independent, but more diverse. In most respects the code moves Japan toward Western, especially United States corporate governance practices. In assessing its likely impact, it’s useful to look at what we think we know about US experience with corporate governance practices.
One single factor stands out clearly. Corporate cultures completely dominate corporate behaviour in the United States. Formal governance rules have an effect that is an order of magnitude smaller. This shows up most obviously in differences in performance across US corporate managements.