Corporate Governance in Japan: Memories of the “Japanese Miracle”


Roger Aradi, CFE 
ACFE Marketing Manager

It’s one thing to get a conservative culture to change; it’s quite another to get a successful conservative culture to change.

The Economist has been examining corporate governance in Japan in the aftermath of the Olympus scandal. In the article “Back to the Drawing Board,” they describe how Japan Inc. has resisted attempts to revise legal requirements for corporate boards and point out how Japanese requirements differ from the standards of other nations, including many of their Asian neighbors. And in “Olympian Depths,” they go on to say, “The refusal to embrace higher standards of corporate governance is a further sign of short-sightedness.”

I am certainly not going to argue in favor of a system of corporate governance that can be described as insular and opaque. Clearly any system of governance that does not include a truly independent audit committee is lacking a vital component, undermining any internal controls they may have in place. But to write off the resistance to change as mere “short-sightedness” is to overlook one key factor. Japanese leadership may be reluctant to change their system of governance in part because their current system has worked so well for them in the past.

Japan went from being a nation in ruins at the end of World War II to a global economic powerhouse in the span of a few decades, a feat often referred to as the “Japanese miracle.” While many have researched the factors that made this “miracle” possible (see, for example, “MITI and the Japanese Miracle”), the current system of tightly interlocked, opaque and insider boards governed the Japanese corporations that drove this economic growth. In fact, I’m old enough to remember a time when the Japanese model was held up as a positive example, their long-term focus praised as an alternative to the American system’s obsession with short-term numbers. So perhaps Japanese business leaders, many of whom rose through the ranks during the Japanese miracle, can be forgiven for being reluctant to overhaul a system that seems to have served them well.

Improving corporate governance is a crucial part of the fight against fraud – not just in Japan, but worldwide. As anti-fraud professionals push for systems that proactively prevent and deter fraud, it is important to keep in mind that resistance may not be a sign of greed or malice – your client or organization may, like Japanese business leaders, be held back by memories of their own past successes.