These days several Japanese companies adopted the American style corporate governance, i.e. management under the committee system. But most Japanese companies still don't adopt it but keep Japanese style top management without the committee system. Why do they decide to maintain Japanese style? Regarding this question, the chief of a law firm wrote an essay for Nikkei web site on July 2, 2003. Here I would like to introduce his argument.

He points out two main reasons Japanese companies don't adopt American style management with the committee system. One reason is that Japanese companies put more stress upon the appropriateness of decision making than the speed of decision making. The other reason is that they consider compliance much more important than the management efficiency.

He argues the benefits of the management with the committee system is the speedy decision making and the performance improvement by the external auditors check. So the Japanese companies which didn't choose American style put more stress upon the appropriateness of decision making than the speed of it. For speeding up the decision making, many Japanese companies think it is enough to reduce the number of board members and to create the executive officer positions.

Thus Japanese corporate governance emphasizes the appropriateness of decision making. Most of Japanese companies think that people who don't know much about the company will not be able to make an appropriate decision. They consider the balance between the speed and the appropriateness of decision making as the most important thing for the top management.

On the background of this tendency of Japanese companies, this chef of a law firm identifies the desire not to clearly define the responsibility of each person of the top management. Traditionally in Japanese companies it is not the case that the only one management makes decisions. Decisions are made based on the group consensus.

For auditing, Japanese companies also think it is enough to strengthen the functions of internal auditors and that it is not necessary to invite the external board members. In Japan it is very difficult to find an appropriate person for the external board members who can check the management from the share holders' point of view because of shortage of skilled experts.

This tendency of choosing the internal auditors rather than inviting external auditors shows that Japanese companies put more stress upon the compliance than the efficiency of management. For the purpose of compliance, the internal auditors are enough to check the management. He writes in another essay about the scandals in American companies such as Enron and World Com. He says that these scandals tell us that American companies succeeded in realizing the efficient management but failed to realize the compliance. This comes from putting too much stress upon the efficiency of top management. Persuing more efficient management sometimes leads to illegal activities of the top management itself.

On the contrary, Japanese companies think the compliance is critical. Which is fatal for Japanese companies, inefficient management or illegal management? After the food poisoning case of a Japanese milk company, the concealment of vehicle recalls of a Japanese car manufacturer and the beef mislabeling scam of a Japanese meat company, Japanese companies have become very sensitive to the compliance. Therefore it is natural for Japanese companies to prioritize the compliance rather than the efficiency.

In this argument, I could find the difference between the ethics of Japan and that of America. The point is the question about who defines the ethical criteria. Because of the intra-community ethics in Japan, all community members define the criteria based on the group consensus. In America, the criteria is defined by some external authorities. For example, Catholic ethics is defined by God, the corporate management ethics is defined by the top management. Japanese society is audited by the internal members while American society has to be audited by the external authorities.

When we accept this assumption, it is easy to understand the difference of the management style between Japan and America. In Japan the group-oriented enforcement works better than the check by the external authorities or by the third person. Pure top down management doesn't seem to work in Japanese companies. The top management in Japan practically always has to involve the middle management to make the management really work since the middle management plays the key role for forming the group consensus.

When we think about the difference of corporate governance between America and Japan, we find again the difference regarding how the criteria for decision making is defined.