A Socio-Economic Approach To The JapaneseCorporate Governance Structure

International competition is causing a fundamental transition in the workplace that highlights the need for corporate law scholars to rethink the standard assumption that the objective of the firm is shareholder wealth maximization.(1) Under the traditional method of work organization, firms reduce their dependence upon labor cooperation, supposing that workers will shirk when the opportunity arises.(2) This system also assumes that productive efficiency requires that managers formulate strategies concerning technology, work processes, and plant locations because workers are not competent to evaluate such matters. Seeking to gain a competitive edge in the global marketplace, many U.S. managers are changing their industrial relations policies by building effective work teams that encourage employee voice in shopfloor decisionmaking.(3) These programs, however, provide only a limited form of worker participation, preserving unilateral managerial control over firm policies.As international competition intensifies, corporate law scholars have adopted a comparative approach to search for alternative governance structures. For the most part, however, the focus of this analysis is too narrow. Assuming that the essential nature of the enterprise centers around the shareholder-management relationship,(4) recent research has concentrated most of its efforts on examining how financial intermediaries in Germany and Japan monitor management.(5) I believe that a broader viewpoint is necessary because two aspects of the German and Japanese systems indicate that managers may be pursuing more complex objectives than shareholder wealth maximization.(6) First, employees are given a voice in strategic decisionmaking--legally in Germany and implicitly in Japan. This feature symbolizes that German and Japanese enterprises encompass workers and shareholders as partners who have common interests in increasing the internal efficiency of the firm. Accordingly, corporate scholars are considering only part of the story when they discuss the role of institutional investors in these codetermined firms. A second and related feature is that German and Japanese firms use less hierarchical forms of work organization than the United States. German and Japanese shopfloor practices develop the workers' capacity to communicate information about production processes and adapt to flexible work assignments. The nature of the employees' firm-specific investments indicate that they share in the residual risk of the firm. These two features of the German and Japanese systems are interconnected; employee voice in corporate governance safeguards firm-specific investments from expropriation and facilitates employee commitment to the firm.The point is that the German-Japanese experience indicates that corporate scholars need to make an in-depth examination of how the corporate governance systems of other countries complement their labor laws and industrial relations practices. Such inquiry will enable us to view corporate governance as a socio-cultural infrastructure which influences the employees' access to information, channels of communication, and intrinsic value of work. In turn, this more complex perspective will allow us to devise corporate governance structures that will promote changing shopfloor practices in the United States.In Part I of this Article, I stress that the development of corporate law scholarship along these lines depends upon the way we portray human actors and implicit employment agreements. In my view, corporate scholars need to recharacterize the firm as encompassing not just conflict and exchange, but also cooperation and consensus. Developing this new view requires us to shift away from the established conception of isolated economic actors entering into contracts and toward picturing persons in an enterprise joining in a network of social relationships to pursue common goals. Specifically, we need to decommodify our image of the employment relationship to embrace notions of morality and commitment. …