The Japanese Model

PRESENTED BY NITESH

Appoint

Supervisory Board (including President) Ratifies the Pre.De.

Pro.managers,Monitors Emergencies
Provides managers

President Cons ults Executive Mngt.(primarily BOD) Man ager

own

Shareholders

Main Bank

Provides Loans Company own

Japanese Model
In Japan, there is no separation between the

monitoring system and management. In fact, the board has the function of both monitoring system and management.
Thus, the board of director cannot function as an

effective monitor of the management: In fact, this system is a self-monitoring system

The main bank system

Many Japanese companies have close ties with

their main banks.

The relationship between a company and its main

bank is not only through lending, but also through cross shareholding or receiving a person from the main bank as a member of the board of directors.

Characteristics of the main banks

Bank loans Stock holding:

The level permissible by the Anti-Monopoly Law (5% in 1994). The main banks are usually in the top 5 shareholders.
Payment settlement account Supply of management:

24% of the directors are from outside of the firm. Among the outside directors, 5% of them are from banks.

Some characteristics of the board of directors in Japan

Most of the directors are promoted from within the

company.

Large.

60% of large companies (capital greater than 500 billion yen) in 1995 had board with more than 30 directors.
Many directors are also employees of the company.

They are typically the top managers of departments within the company.

Some benefits of the Japanese board of directors system

Most of the directors are promoted from within,

there are greater chances for employees to be promoted to the position of a director.

Greater chance of promotion has positive

incentive effects. This also reduces turnover rate.

Since most of the directors are also employees of

the company, this makes it possible to utilize information from actual workplace.

Some problems of the Japanese board of directors system

It is large. Therefore, it is difficult to make speedy decision.

Many directors are also the top managers of departments within the company. They tend to place a priority to the interest of his/her department.
Conflict of interests among directors make difficult to come up with a unified decision.

Many directors are also employees of the company who report to the president. Thus, although the board if directors is required to monitor the management (president, etc), it is impossible to effectively monitor the management. Similarly, since the elected managers are also the members of the board, this system is a selfmonitoring system, which reduces the effectiveness of monitoring.

 The problems of the Japanese board of directors

system began to be recognized in the late 1990.

The first company to introduce US style a system

was Sony. Sony introduced Chief-Officer system in 1997.

At the same time, it reduces the size of the board

from 38 to 10, and increased the number of outside directors.

THANK YOU