Corporate Governance in Japan: Best Practices

Published on October 31, 2025 and written by Cyril Jarnias

In a world where transparency and ethics have become essential pillars, corporate governance in Japan stands out through unique practices that deserve special attention. Blending tradition and modernity, Japanese companies have developed management systems that not only ensure economic stability but also strengthen stakeholder confidence.

This article explores how Japan, with its management principles centered on consensus and cooperation, manages to navigate a globalized environment while preserving its cultural identity. From establishing audit committees to risk management, and the importance given to social responsibility, every aspect of this integrated approach will be examined to draw lessons of universal relevance.

Understanding Management Standards in Japan

Japanese management standards have maintained unique characteristics for many years, deeply rooted in traditional cultural values. These characteristics have significantly influenced how Japanese companies are managed and their decision-making processes.

Respect for Hierarchy and Importance of Human Relationships

In Japanese management standards, respect for hierarchy is a very important element. This concept is closely tied to the seniority system that permeates Japanese society as a whole. In many Japanese companies, promotions and salaries are typically determined based on age or length of service.

Take Toyota Motor Corporation as an example. The company maintained a seniority-based system for many years. Under this system, employees are promoted and receive salary increases based on their tenure. This fosters loyalty to the company and enables human resource development with a long-term perspective.

On the other hand, the importance of human relationships is also a characteristic of Japanese management standards. In the decision-making process, harmony and cooperation within the team are valued, in addition to individual skills and performance.

Importance of Consensus and Decision-Making Process

In Japanese corporate decision-making processes, consensus-building is extremely important. This is clearly demonstrated in the practice called nemawashi. Nemawashi is a process of gathering opinions from all relevant parties before a formal meeting or decision and reaching an agreement.

Consider Hitachi as an example. Before making important decisions, managers from relevant departments meet individually to discuss and align their opinions. This facilitates decision-making during formal meetings and minimizes friction during implementation.

The ringi-sho system is also characteristic of Japanese corporate decision-making processes. Ringi-sho is a tool that documents proposals or plans to obtain approval from all relevant parties. This ensures transparency in decision-making and clarifies responsibility.

Concept of Continuous Improvement (Kaizen)

The concept of continuous improvement (kaizen) holds a very important position in Japanese management standards. It’s the idea of constantly improving through small enhancements to overall increase efficiency and quality.

Take Sony as an example. The company encourages all employees to propose daily improvements to operational processes. These proposals are carefully reviewed, and those deemed effective are quickly implemented. Through this initiative, Sony consistently maintains the development of innovative products and efficient production processes.

Comparison with Western Practices

Japanese management standards differ in many respects from Western ones. For example, in Western companies, evaluations and promotions are typically based on individual skills and performance, and decision-making is often relatively top-down.

Take GE (General Electric) as an example. Employee evaluation is based on a rigorous performance rating system, with the top 20% receiving high compensation and promotion opportunities, while the bottom 10% may be dismissed. This is a very different approach from the seniority system of Japanese companies.

Recent Reforms and Changes

Due to globalization and external influences, Japanese management standards are also showing signs of change. Many Japanese companies are trying to find a balance between traditional management methods and Western approaches.

Take Uniqlo as an example. The company maintains traditional Japanese management methods while adopting a global perspective. They abandoned the seniority system and introduced a merit-based system, while preserving teamwork and participatory decision-making processes. This enhances their competitiveness in the global market while leveraging Japanese strengths.

Thus, although Japanese management standards are based on traditional values, they are gradually evolving to respond to the wave of globalization. Japanese companies are expected to continue reforming to leverage their strengths and maintain international competitiveness.

Transparency in Japanese Corporate Governance

1) Historical Evolution of Transparency

The improvement of transparency in Japanese companies truly began in the 1990s, following the burst of the economic bubble. During this period, numerous scandals and economic stagnation highlighted the need for corporate governance reform.

Particularly in the 2000s, external and internal control systems were introduced, and in 2015, the establishment of the Corporate Governance Code standardized information disclosure criteria. This code promoted the protection of shareholder rights and strengthened board functions, encouraging transparency improvements across Japanese companies.

2) Current Regulations and Laws

Currently, transparency improvement in Japan is primarily guided by the Corporate Governance Code. Although this guideline is not mandatory, it requires compliance with principles or explanation for non-compliance, following the “comply or explain” principle.

Furthermore, information disclosure requirements in annual reports have expanded to include not only financial information but also ESG (environmental, social, governance) related information. Through this, investor confidence is increasing.

3) Cultural Factors and Transparency

Japan’s unique collectivist culture and lifetime employment system can incline decision-making processes toward non-transparent, consensus-based models. Additionally, the practice of valuing harmony (wa) may discourage questioning problems.

4) Success Examples

For example, Takeda Pharmaceutical Company Limited is recognized for its advanced sustainability-related information disclosures (adopting the TCFD framework) and developing reports that reflect investor needs. Similarly, Asahi Group Holdings, Ltd. receives high evaluations for systematically organizing content through collaboration between key departments.

5) Current Challenges

• Form vs Substance: Problem of lacking criteria to measure reform effects.
• SME Support Measures: Absence of measures to alleviate compliance system burden.
• Global Competitiveness: Insufficient language adaptation, including English publication capabilities.

Corporate Social Responsibility in Japan

Importance and Method of CSR Integration

Recently in Japan, CSR has evolved from a simple responsibility to a strategy aimed at increasing corporate value. Companies are increasingly turning to long-term growth by integrating social considerations such as environmental protection and human rights respect, in addition to profit-seeking.

Notable Examples

• Fujifilm: Use of renewable energy, nature conservation activities, and medical technical support in emerging countries.
• Bridgestone: Disaster recovery assistance, water quality conservation activities for Lake Biwa, and contribution to safety education programs.
• Komatsu: Development of construction machinery reducing CO2 emissions and support projects for landmine clearance.

Legal Framework and Influence

As a government-led initiative, the Ministry of Economy, Trade and Industry established an expert advisory panel in 2004, recommending a private sector-centered approach emphasizing autonomy and diversity.

Alignment Efforts with SDGs

Many Japanese companies commit to promoting the United Nations Sustainable Development Goals (SDGs). For example, Daiwa House Industry implements measures addressing multiple goals, such as providing housing services for the elderly.

Challenges and Opportunities

Challenge	Impact
Increased Costs	Short-term burden for environmental technologies
Stakeholder Coordination	Difficulty meeting varied needs
Result Measurement	Lack of clear evaluation criteria

Business Ethics in Japanese Culture

Core Values

In Japan, values such as “respect,” “honesty,” and “harmony” are highly valued in business transactions. These values form an ancient cultural foundation, influenced particularly by Confucianism and the spirit of bushido.

Historical Influence

Confucian thought also has significant impact on Japanese business ethics. The emphasis on “altruism” and “human relationships” fosters interpersonal relations and cooperation within groups.

Examples of Ethical Practices

Company	Initiative
Toyota	Development of environmental technologies
Hitachi	Social innovation projects
Uniqlo	Supply chain transparency

Ethical Issues in Globalization

During global expansion, Japanese companies face new challenges such as intercultural friction, responding to human rights issues, and strengthening fraud prevention measures.