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Taking the boardroom composition as an example, there are a number of companies with more than twenty directors.  For high performing companies, the presence of a large number of directors does not seem to affect the quality of management.  However, if you focus on financially poor companies that underwent restructuring earlier this decade, the decline in the number of directors serving the board coincides with the recovery of corporate performance.  While I am not suggesting there to be a simple cause-effect relationship, one can infer that reducing the number of directors may lead to faster and decisive decision making by the board.

With the increase of foreign shareholders, what do you expect to see in the future of corporate governance in Japan?

Seta:  As foreign shareholders become increasingly visible and significant, companies will have to address the issue of corporate governance in a way that's understandable to foreign shareholders. 

This means Japanese companies will have to speak the corporate governance language that foreign shareholders can readily understand.  They will also need to make a greater effort in understanding where the shareholders are coming from. 

However, this does not mean that blindly copying foreign governance practice is the best way forward for companies.  Every company operates under different conditions and management principles, and therefore some of the so-called accepted practice may not be appropriate for that company’s circumstances.  It should then attempt to communicate this to the market, rather than to conform to the standard at all cost.

At present, much attention is focused on the structural, or passive, elements of corporate governance, such as the presence of independent directors, or the proportion of independent directors serving the board.  The debate often involves a comparative study of accepted practices elsewhere in the world, and the merits of various practices in isolation without attempts being made to understand how such elements fit in the overall governance framework relevant to Japanese companies.