Alternative Corporate Structures: Japan

1
Alternative Corporate Structures Japan

• Professor Stephen BlankHEC, Summer 1999Session
  3/bc
• Saturday, May 22
• 900am - 12 noon 130-430pm

2
Japan after World War II

• Defeat the impact of the Cold War
• Restoration--see parallels with 1860s
• Institutions continuity and change
• Political, economic
• Values continuity and change
• Corporate structure zaibatsu to keiretsu

3
Japan in the post-war world

• Economic success Remarkable national and per
  capita growth
• Japans new role in the global economy
• Social stability The quest for security
• How Japanese firms have internalized functions
  performed by the state in other systems
• Japans Cold War political system

4
The structure of the Japanese industrial
corporation

• Size of Company dualism
• coexistence of very large very small firms
• Company as elementary unit
• Company narrowly specialized
• Companies graded in hierarchy
• Companies associated in some form of alliance

5
Keiretsu as a metaphor for general patterns of
interfirm organization in Japan.

• (More than half of all Japans medium and smaller
  manufacturing firms serve as subcontractors to
  larger companies.)

6
Corporate Alliances in Japan

• How to discipline corporate managers?
• Firm as democratic political system with
  shareholders as voters
• Independent capital markets
• Command and control--visible hand
• Japanese alliance system as alternative?
• Types of alliances (keiretsu) in Japan
• Vertical Toyota, Hitachi
• Intermarket Mitsui, Sumitomo

7
Alliances, cont

• Integrating mechanisms
• high level executive councils
• structure of exchange networks
• group-wide industrial public relations projects
  to affirm existence of alliance as coherent
  social unit
• Impact on corporate finance dedicated capital

8
Alliances, cont

• Defining characteristics
• affiliational ties
• long-term relationships
• multiplexity
• extended networks
• symbolic identification
• Interfirm exchange networks
• complex network of mutual obligations
  responsibilities within the group

9
Values of Alliances

• Develop long-term, stable, reliable business
  relationships, including internal labor markets
  and lifetime employment
• Improve information flows
• Promote aggressive, long-term growth policies

10
Japanese Corporate Governance

• One approach Boards of Directors
• composition? selection? function?
• Another approach The entire set of incentives,
  safeguards, and dispute-resolution processes that
  orders the activities of various corporate
  stakeholders, each seeking to improve its own
  welfare through coordinated economic activity
  with others

11
an intricate network of reciprocal relationships

• Reciprocal shareholding trading agreements
• Trust implicit contracting
• Safeguards against opportunism
• Growth the parity of stakeholder claims
• the place of labor
• Drawbacks of alliances

12
Labor

• Lifetime employment
• Roots in history and in more recent politics
• Managing to maximize the value of the firms
  capital
• The firm as a community of fate
• Learning how to bow Lessons from Feiler.
  Hammering square pegs into round holes.

13
Looking forward A system under pressure

• What developments are driving change in the
  Japanese system?
• How is the Japanese system likely to change in
  the future?