Japan, while a major developed economy, has undergone great change in its governance regime in recent years. And for many this is long overdue.
Separate pieces of research by GMI and ACCA/KPMG in 2010 and 2014 respectively showed the country as ranking poorly in terms of the quality of its governance, with anti-inward investment and management opacity being key issues.
And now, the chairman of the French-Japanese car manufacturing partnership between Nissan and Renault, Carlos Ghosn, has been kicked out and is under arrest in Tokyo.
Reports of his demise suggest his two decades in charge saw transparency in its affairs, and management oversight, dwindle. So, is his departure a sign that Japan is improving its governance, or another example alongside that of Olympus whistleblower Michael Woodford’s sacking in 2011, that the regime still requires much improvement?
In some ways, the situation the two organisations found themselves in is a replication of that found in many organisations around the world: a powerful figurehead who overshadows everything the business does. And while it barely needs pointing out, Ghosn is Brazilian-French, not Japanese—and with 40 years’ European management experience.
“In one sense, this tells us only that corporate governance in Japan is fallible, just as it is elsewhere,” says Dr John Buchanan, research associate at the Centre for Business Research at Cambridge Judge Business School and an expert in Japanese corporate governance.
It could also be argued that the introduction of the Japanese Corporate Governance Code in 2015, followed by an update this year that looked to provide greater power for independent directors (including selection, remuneration and dismissal processes) is moving things forward.
“Implementation at larger companies seems to be progressing,” says Dr Buchanan.
However, a recent survey by Japan’s ministry for economy, trade and industry revealed that compliance with the 2015 code was, in part, a façade.
While these examples and statistics don’t necessarily mean that governance is failing to improve, for Dr Buchanan it illustrates that improving governance will face “inertia”.
“Despite Nissan’s claim that it ‘has established a corporate governance system that maintains business transparency’ it appears to have deferred to those in power and allowed its chairman to misreport earnings and arrogate resources,” says Dr Buchanan.
“Although the obvious reaction to these allegations would have been to confront the chairman and clear up matters with a minimum of public embarrassment, Nissan seems to have disowned him immediately.”
While this positioning by Nissan could be viewed as being transparent and decisive about dealing with the issues at hand, Dr Buchanan suggests that it may still represent an old-style approach to governance. Effectively, the way he has been discarded could indicate that he “did not merit protection from the group”.
“His treatment suggests that, for better or worse, internally focused corporate governance steered by group loyalties is still a force in Japan, despite the presence of independent directors.”
Perhaps, then, Western-style figureheads; weakening management controls; and ultimately an unceremonious dislodging, represent some of the worst examples of what are still two different governance regimes.