Corporate Governance: Us Model? Japan Model?

Corporate governance is defined as the distribution of power in the company. In the 1990s, the great success of US economy let to the efforts to understand and copy American management methods.

The Anglo-American view of corporate governance derives from generating long term economic gain to enhance shareholder value. An outside board of directors is hired. The boards of US companies are made up of friends and acquaintances of the CEO. The use of ‘stock options’ is another feature introduced so that management would focus on the shareholder’s interest in a high share price by allowing managers to benefit from the share price increase as well. Compensation programs for US CEOs are elaborate and include tax reimbursements, housing allowances, access to company cars and aircraft, bonuses, huge pension benefits. All these serve to demonstrate the powers of the “imperial CEO.” One major effect of stock options on governance is a large overstatement of the actual profit level of US companies. The second effect is that stock options act as a powerful incentive for the CEO to manipulate revenues and earnings in order to increase share price and for this a number of tactics are frequently employed. Transparency in corporate accounts is a prerequisite to establishing credible and effective governance.

The Japanese management system, with inside directors, promotions from within, career employment, egalitarian compensation, enterprise unions, long-term supplier relations, etc. have made for highly competent companies. The system is not perfect but Japanese companies continue to provide the economy with a large surplus on the trade account and