Corporate Governance Essay Research Paper As W

Corporate Governance Essay, Research Paper

As W. Carl Kester points out in, “American and Japanese Corporate Governance: Convergence to Best Practice,” the Japanese, American (which he calls “Anglo-American”) and even German models of corporate governance are all reasonable ways of dealing with the problems arising in governing corporations. Japanese firms, for instance, work to reduce transaction costs, while U.S. firms work to reduce agency costs. Neither form is perfect, however, and as Kester states, “neither can be easily judged to be strictly superior to the other in the long run,” (Kester, 108.) But, there is no advantage to not adapting to new or better ideas. As a nation, we must realize that our system is not foolproof, and continually attempt to shape it into a better form of corporate governance. In order for U.S. corporations to be on equal footing with it’s Japanese and German counter parts, the U.S. must adopt some of the Japanese and German ideas of corporate governance.There are three main aspects that would make it easier on U.S. corporations to compete with their Japanese and German counterparts. By adopting some or all of the policies, the U.S. could greatly increase the competitiveness of the American corporate governance. These three aspects consist of the following: + Reduce the priority given to shareholders and increase that given to stakeholders.+ Improve managerial interaction.+ Allow for stakeholder intervention, even if for a short period of time.These three changes, while seemingly simple on paper, would in reality be very hard to implement. But these changes are crucial for the U.S. to stay as competitive as its’ Japanese and German competition.The first aspect, reducing the priority given to shareholders would, in itself, be quite a challenging task. Most of the shareholders in the U.S. wouldn’t be very interested in voluntarily handing over their control, or their ability to generate revenue through the stocks they own. But if one looks at the German and Japanese systems, it is a change in which the benefits far outweigh the drawbacks. There are several inherent flaws with the shareholder centered system we see within the U.S. Chiefly, shareholders look for quarterly profit. In the Japanese and German systems, where less priority is given to the shareholders, there is no need for a large quarterly profit. Rather, German and Japanese firms are allowed to take a long-term approach to the market. In sharp contrast with the short-term mentality within the U.S.; forced by the shareholders desire to increase the value of their shares.Another inherent drawback is an information disadvantage. As Margaret Blair points out in her book “Corporate Governance,” the shareholders, with their short-term interest, have no motivation to influence the managers. And even if it was within their power, the shareholders have very large collective action problems. With a hundred thousand shareholders, is it really possible to have a discussion over what course the corporation should take. True, the shareholders are allowed to vote for the board of directors, but many never vote, and of those who do, I doubt they truly know who is receiving their vote. Many against decreasing the priority given to shareholders would point out that small changes could be made to fix the before mentioned problems. Simply increase the amount of information that is given to the shareholders, they would argue. Unfortunately though, it is hard to keep the information given to shareholders from reaching the competition. And even if there were no leaks, there is still the inability of the shareholders to act quickly on any information they do receive.The next change that should be pursued within the U.S. corporate governance model is to increase managerial interaction. In Japan, most managers are hired directly out of colleges and universities, after which they are put through an extensive training program. Moving throughout the company, they soon see first-hand all the inside and outside details of the company. Sometimes, managers are even loaned to other firms to work on joint projects together. The end result: managers create a string of contacts, not only within the corporation but on the outside as well. This is the foundation which Japan’s concept of “implicit contracting,” as Kester calls it, rests on. This idea of implicit contracting, (the idea that a formal contract is just a label for life long relationship both corporations agree too,) accounts for the reduced transaction costs we see in Japan as compared to the U.S.

Another unseen aspect of the Japanese system is that this increased managerial interaction leads to is, greater accountability for managers. In Japan, where there is lifetime employment, the managers have to be careful to keep up their reputations. It is obviously quite undesirable to be known as untrustworthy or negligent. A top Japanese business executive stated to the same effect: “It’s especially important in Japan for both sides [in a business relationship] to be forthcoming. The reason is that we have lifetime employment. If you treat someone badly, wither inside or outside the company by taking advantage of them to profit for the moment, it will not soon be forgotten. This is because people remain with the same company throughout their entire careers,” (Kester, 112.)A downfall to managerial interaction is that most will be hesitant to make risky decisions or a