On Corporate Governance

Nobuyuki Idei Vice Chairmen of the Board of Councillors, Nippon Keidanren Chairman and Chief Executive Officer, Sony Corporation

A comparison of the composition of boards of directors shows that there is no global standard for corporate governance. In Japan, the board is mainly comprised of members of management, while in the U.S. it is believed that the majority of the board members should be and are independent. In other countries like Germany, employee representatives sit on the supervisory board, which has the power to appoint and dismiss management board members. Closer examination reveals that corporate governance is a result of a country's economic and social systems. Thus, when discussing the corporate governance of Japanese companies, one cannot dismiss the history, law and culture of Japan.

Other factors, such as size, corporate culture, history and business domain affect the style of corporate governance a company adopts. In addition, whether the company's shares are publicly traded or whether it operates in countries other than its origin also make a difference. It is only natural that the style of corporate governance varies with the size, type of business and changes in the operating climate.

With the revision of the Japan's Commercial Code effective April 1^st, 2003, Japanese companies are required to select one of the following options for their governance system: "Make no changes," "establish a decision-making committee regarding major assets" or "adopt a 'Company with Committees' System." Revision of this magnitude has not occurred in the past fifty years, and specialists, who helped to devise the current revision, are hoping that the revision will stimulate debate on this subject so that they can continue to look for ways of improvement.

Ultimately, there is no end to the discussion on corporate governance. We must continue to examine and explore how companies can eliminate the occurrence of deplorable events, reward all their stakeholders, and enhance their corporate value through a sound corporate governance system. Additionally, corporate leaders should recognize that it is their responsibility to adopt and implement an effective governance system that best suits their company, within the realm of law. Finally, let us not forget that however effective the system may be, in the end, corporate governance is subject to the moral and ethics of management. It is therefore, a matter of the heart.