Corporate governance reform in Japan: A behavioral view

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Daisuke Asaoka ORCID logo


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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: Corporate Law, Corporate Governance, Independent Director, Decision Making, Behavioral Finance

Authors’ individual contributions: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

Acknowledgments: The author would like to thank the anonymous reviewers for their helpful comments. This work was supported by JSPS KAKENHI Grant Number JP19K13811.

JEL Classification: G34, G41, O16, D91

Received: 25.02.2020
Accepted: 13.04.2020
Published online: 21.04.2020

How to cite this paper: Asaoka, D. (2020). Corporate governance reform in Japan: A behavioral view. Corporate Board: Role, Duties and Composition, 16(1), 47-59.