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In Japan, although many people are interested in corporate governance and business ethics, there is little consensus on what good corporate governance entails. The Japanese Commercial Code (revised in 2003) enables Japanese companies to introduce a board committee system and abolish the company auditor system. After the recent exposure of various corporate malpractices, many Japanese companies have started institutionalizing business ethics in their organizations. Nevertheless, ethical issues such as death from overwork (karoshi), harassment at work, illegal collusion (dangou), and defrauding consumers and governments still remain prominent.
Keywords: board of auditors; board committee system; business ethics program; Charter of Corporate Behavior; principles of corporate governance
Since the 1990s, many company executives, lawyers, and scholars have been debating the issue of corporate governance in Japan.1 However, differences in opinion on the appropriate approach to corporate governance prevented them from coming to a unified conclusion. Given the lack of consensus, some companies took the initiative and started reforming their corporate governance structures voluntarily. They focused mainly on the compilation and functions of their boards of directors.
The recent exposure of corporate malpractice fueled interest in the ethical aspect of corporate governance. There is a growing conviction that business ethics should be institutionalized in companies. This further stimulated the corporate governance reform agenda. It also received support by the government, which recognized these problems and enacted legislation to deal with and prevent corporate malpractice.
DIFFERENT MODELS OF CORPORATE GOVERNANCE IN JAPAN
Japanese companies use a one-tier board system. All directors are elected at the shareholders' meeting, and the elected directors make up the board. Many directors in Japanese companies are former employees of the companies on whose boards they serve. The majority of members on the board tend to come from the ranks of the executive managers in the company.
Many large companies have a board of company auditors.2 The auditors are elected at the shareholders' meeting and at least one of them must be from outside the company. According to Japanese Commercial Code, the board of auditors must monitor the management and report on their performance to the shareholders. A large number of outside directors and auditors are executives of other companies in the same group as the one on whose board they serve (Learmount, 2002)....