The Olympus Scandal and Corporate Governance Reform:
Can Japan Find a Middle Ground between the Board Monitoring Model and Management Model?
Bruce E. Aronson∗
II. The Olympus Scandal and Corporate Governance Issues
III. Towards a Mixed Model? Considering Effective Monitoring of Management under the Japanese Corporate Governance System
Japan has been in a corporate governance dilemma for the past 15 years. The country has been open to the idea of corporate governance reform following the collapse of its economic bubble in the early 1990s and has looked to the U.S. for inspiration. However, Japan has been caught between its traditional model of a board of directors that actively manages the corporation (the “management model”) and the American model of a board that focuses on the monitoring and supervision of management (the “monitoring model”). This Article argues that it should be possible for Japan to find a middle ground between the management model and the monitoring model, which would incorporate a
Professor of Law, Graduate School of International Corporate Strategy, Hitotsubashi Univer- sity, National Center of Sciences; Professor of Law, Creighton University School of Law. I thank Mr. Sumitaka Fujita, Professor Yumiko Miwa, and Mr. Naoaki Okabe for acting as a panel of commentators following my presentation on this research at the Meiji Institute for Global Affairs Inaugural Symposium, Tokyo, Japan (21 February 2012), and participants in presentations at Nagoya University (20 April 2012), AIMA Japan Hedge Fund Forum 2012, Tokyo Stock Exchange (4 June 2012), 2012 International Conference on Law & So- ciety, Law & Society Association, Honolulu (5 June 2012), and Business Research Institute, Tokyo (3 August 2012) for comments.
I also thank members of two study groups on corporate governance in which I am cur- rently participating: the Corporate Governance Research Forum, Business Research Institute and the Corporate Governance Research Group, Meiji Institute for Global Affairs, for fruitful discussion on many topics contained herein.
I conducted a substantial number of interviews, and would like to thank the interviewees for their cooperation in this research.
A longer version of this article was originally published in: UCLA Pacific Basin Law Journal Vol. 30, No. 1, pp.93–148 (2012). We thank the editors for the kind permission to reprint an abbreviated version of the article
BRUCE E. ARONSON
ZJAPANR / J.JAPAN.L
greater element of management monitoring into Japan’s traditional corporate structure. The aftermath of the Olympus scandal provides an opportunity to make substantial progress towards that goal.
The Olympus case is particularly significant for two reasons. First, it follows on the heels of two tough years for Japanese corporate governance. In 2010, Toyota’s slow response to car recall issues raised governance concerns about Japan’s most highly- respected company.1 The Great Eastern Earthquake of 11 March 2011 cast a harsh light on Tokyo Electric Power Company’s (TEPCO’s) preparedness and decision making, as the earthquake bankrupted what was formerly Japan’s financially strongest company.2 Furthermore, in late 2011, around the same time the Olympus scandal unfolded, a former chairman (and founding family member) at Daio Paper Company personally borrowed $140 million from company subsidiaries to pay off gambling debts.3 And in 2012, Japan suffered its own version of a Bernie Madoff-type scandal, as disastrous investments and a Ponzi scheme at AIJ Investment Advisors, an asset management company, resulted in a nearly total loss of the $2.62 billion under management for its 123 corporate pension fund clients.4
Second, the Olympus case is reminiscent of the Enron scandal, not only because it occurred at a respected and innovative company, but...
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