The Transformation of Corporate Governance Systems in Japan and Germany: The End of Rhenian Capitalism?

One of the curiosities of the Japanese banking sector for Westerners is the close connection between banks and the financial authority, the Ministry of Finance (MoF). One of its main sources is amakudari, the practice whereby retired government officials ‘descend from their heaven’ to be employed in the private sector. It has a long history in the banking sector, as well as in many other industrial sectors of Japan. This chapter looks at whether, and (if so) to what extent, the effect of the amakudari connection altered after the collapse of the bubble economy due to increased criticism of bank–MoF collusion and the relevant institutional changes. Using model analyses of 82 listed regional banks, we found that the employment of amakudari executives reduced the likelihood of banks taking risks and that the traditional pattern of amakudari appointments to originally risky banks was gradually on the decline. These results may well support the idea that the effect of employing amakudari executives is undergoing change, so that it is now less likely to be used as a means of collusion between banks and the government. In the past, the amakudari connection was considered a useful means of supervising the development of the Japanese banking sector by the financial authority. Nevertheless, this method of supervision has been questioned since the collapse of the bubble economy in the early 1990s. Seven listed regional and second-tier regional banks failed in the 1990s, and all of them had employed amakudari executives during the bubble period (see Table 3.1). According to Hartcher, the practice of amakudari ‘provided ministry policy makers with no notable insights into how bank lending was contributing to the accumulation of a large speculative bubble in land and stock prices’ (1998, 121).