Japan’s Ambivalent Pursuit of Shareholder Capitalism

• Author: Steven K. Vogel
• Published date: 01 March 2019
• Date: 01 March 2019
• DOI: http://doi.org/10.1177/0032329218825160
• Subject Matter: Articles

https://doi.org/10.1177/0032329218825160

Politics & Society

2019, Vol. 47(1) 117 –144

© The Author(s) 2019

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DOI: 10.1177/0032329218825160

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Article

Japan’s Ambivalent Pursuit

of Shareholder Capitalism

Steven K. Vogel

University of California, Berkeley

Abstract

Could international financial capital impose shareholder sovereignty on Japan, the

ultimate bastion of stakeholder capitalism? As the Japanese economy descended

from boom to bust in the early 1990s, government and industry leaders called for

a decisive move toward US-style shareholder capitalism, and increasing foreign

share ownership exerted strong pressure to adapt corporate governance practices

to Anglo-American norms. In practice, however, the government gave firms more

options for restructuring but did not make them more beholden to shareholders.

Firms on their part favored superficial adjustments to prop up share prices rather

than fundamental changes, because they sought to preserve the strengths of their

traditional business models. This article explains how marketplace developments,

domestic political dynamics, and corporate strategies combined to produce the

distinctive pattern of Japanese corporate governance reforms since the 1990s. It

concludes with an assessment of the consequences of these reforms for managers,

workers, shareholders, and the general public.

Keywords

Japan, capitalism, corporate governance, shareholders, stakeholders

Corresponding Author:

Steven K. Vogel, Department of Political Science, University of California, Berkeley, 210 Barrows Hall,

Berkeley, CA 94720, USA.

Email: svogel@berkeley.edu

825160PASXXX10.1177/0032329218825160Politics & SocietyVogel

research-article2019

118 Politics & Society 47(1)

In August 2018, Senator Elizabeth Warren introduced the Accountable Capitalism Act,

which aspires to do no less than transform the way the US economy operates. It aims

to reverse a decades-long trend toward the shareholder model of corporate governance

and to require large corporations to serve a broader array of stakeholders, especially

workers, and to promote the public interest. In fact, as discussed further in the conclu-

sion of this article, there is little evidence that the core features of the shareholder

model—such as stock options, share buybacks, mergers and acquisitions, and outside

directors—improve long-term corporate performance, and there is substantial evi-

dence that they undermine economic dynamism and exacerbate inequality. Warren

framed her proposal as a return to a more equitable era in US history, but it could just

as easily be viewed as a move toward the stakeholder model of Japan. Yet even as

American reformers such as Warren decry shareholder capitalism, government and

industry leaders in Japan have been pressing for reforms in the other direction.

Japan’s ambivalent pursuit of the shareholder model vividly illustrates core features

of contemporary capitalism: how even the most entrenched stakeholder systems con-

front pressure to appease foreign shareholders and how, at the same time, national

governments and business communities retain considerable leeway in crafting their

responses to this pressure. In practice, Japanese businesses have favored tactical

adjustments to facilitate restructuring rather than fundamental reforms that might

jeopardize valued institutions, such as strong collaborative relationships with workers,

banks, and business partners.

Japan has now been engaged in this pursuit long enough to permit an initial assess-

ment of the consequences of reforms. At the aggregate level, Japanese corporate prof-

its have been rising over the past decade while investment is flat and the labor share of

income has been declining. Even so, some managers have leveraged the reform

moment to enhance transparency, accountability, and diversity and to improve deci-

sion-making procedures, as described in detail in the conclusion.

Why, then, would the Japanese want to pursue shareholder sovereignty in the first

place? The most obvious answer is that the dramatic failure of the Japanese economy

in the 1990s motivated Japanese leaders to question the core institutions of Japanese

capitalism, including those associated with the stakeholder model such as the corpo-

rate community, patient capital, interlocking business groups, insider corporate boards,

and lifetime employment.1 Further, just as the Japanese economy was faltering, the US

economy was resurging. Those facts led various government and industry panels to

recommend that Japan should learn from American success.

Although the financial crisis of the 1990s provided the initial impetus, the core

motivation for corporate governance reforms has evolved over time. In the first major

thrust of reform, roughly from 1995 to 2005, the government aimed to reshape the

nation’s market infrastructure to help Japanese firms restructure. It did not simply

want to make it easier to sell assets and reduce labor costs—although those were cer-

tainly elements of the policy—but also sought to empower companies to reduce costs

in ways that would preserve and possibly even enhance their institutional strengths. In

the more recent round of reforms since 2012, the government has pursued corporate

governance as a growth strategy. Administration officials hoped to boost the stock