Corporate governance reform in Japan: A behavioral view
Open Access
- 4 February 2020
- journal article
- Published by Virtus Interpress in Corporate Board: role, duties and composition
- Vol. 16 (1), 47-59
- https://doi.org/10.22495/cbv16i1art5
Abstract
Corporate governance reform in Japan was triggered by the introduction of a new corporate governance code in 2015. The code is notable for requiring the addition of two or more independent directors to the boards of listed firms, which previously had consisted largely of internally promoted directors enjoying lifetime employment. Applying the framework of behavioral law and economics, we analyze the change from the two aspects of “offense” and “defense” by the board of directors, meaning, respectively, enhancing the quality of group decision-making by producing collective intelligence, and preventing corporate misconduct by introducing the viewpoints of outsiders. The former is not immune to psychological biases such as groupthink and escalation of commitment, but these can be mitigated by ensuring equal consideration of all participants’ viewpoints, and, notably, the participation of women. The latter is affected by other biases, such as obedience to authority and diffusion of responsibility, but establishing an internal system for reporting misconduct, with outside directors at the top, can be effective if the outsiders’ position is perceived as credible.Keywords
Funding Information
- Japan Society for the Promotion of Science (JP19K13811)
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