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Anglo-American model German model Japanese model

The Japanese model is characterized by a high level of stock ownership by affiliated banks and companies Boards of directors composed almost solely of insiders; and a comparatively level of input of outside shareholders FIIs currently own approximately three percent.

In both the Japanese and the German model, banks are key shareholders and develop strong relationships with corporations, due to overlapping roles and multiple services provided.

Instead of relying on a single bank, US and UK corporations obtain financing and other services from a wide range of sources, including the well-developed securities market.

The board of directors of Japanese corporations is composed almost completely of insiders, that is, executive managers, usually the heads of major divisions of the company

Japanese boards are generally larger than boards in the UK, the US and Germany. The average Japanese board contains 50 members.

German corporations are governed by a

supervisory board and a management board. The supervisory board appoints and dismisses the management board, approves major management decisions; and advises the management board.

The management board is composed solely of insiders, or executives. The supervisory board contains no insiders, it is composed of labor/employee representatives and shareholder representatives.

In small corporations (with less than 500 employees), shareholders elect the entire supervisory board. In medium-size corporations (defined by assets and number of employees) employees elect one-third of a nine member supervisory board. In larger corporations, employees elect onehalf of a 20-member supervisory board.

The members of the supervisory board elected by shareholders are usually representatives of banks and corporations which are substantial shareholders. It would be more appropriate to define some of these as affiliated outsiders.

Shareholder proposals are common in Germany. Following announcement of the agenda for the meeting, shareholders may submit in writing two types of proposals. A shareholder counterproposal opposes the proposal made by the management board and/or supervisory board in an existing agenda item and presents an alternative.

A shareholder proposal requests the addition of an issue not included on the original agenda. In fact in Germany the legal system is quite explicit that firms do not have a sole duty to pursue the interests of shareholders.

Employees are given counseling to find new jobs in the Sony group, or at another company, it said. Sony offered workers early retirement packages that are generous by American standards: in 2010, it promised severance payments equivalent to as much as 54 months of pay.

lifetime employment has long been the norm and where large-scale layoffs remain a social taboo, at least at Japans largest corporations. So what do Japanese companies do to handle this situation?

They send employees to boredom rooms or chasing-out room. Employees spend time here reading newspapers or magazines, glancing over old engineering books or talking to each other

The real point of the rooms is to make employees feel forgotten and worthless and eventually so bored and shamed that they just quit, critics say.

It discounts the possible conflict between corporate managers and owners Thus, board of directors should be primarily consisted of insiders only

Agency Theory
Managers are agents Behavior is individualistic and self serving Managers are motivated by their own objectives Role of management is to monitor and control

Stewardship Theory
They are stewards Behavior is collectivistic and trustworthy Managers motivated by Principals objective Role of management is to empower

Agency Theory

Stewardship Theory

Revolves around lower order needs Revolves around higher order needs Little attachment to the company Great attachment to the company

Power rests with institution

Power rests with personnel

Agency Theory
Time Frame is short term Large power distance

Stewardship Theory
Time Frame is long term Small power distance

Risk is oriented through control and supervision

Risk is managed via trust and empowerment

Japanese national culture favors a collectivist orientation wherein personal goals are subordinated to collective goals (Davis et al., 1997). This orientation reduces potential goal incongruity and facilitates the trust necessary for fostering a stewardship relationship.

Many Japanese firms are affiliated to business groups called keiretsus.

The members of a keiretsu often take equity stakes in other firms to strengthen kinship
ties within the group,

Under Japanese company law, it is explained that, shareholders are the owners of the corporation. But if corporations are run exclusively in the interests of shareholders, the business will be driven to pursue short term profit at the expense of employment and spending on research and development.

In Japan's case, it is not enough to serve shareholders. Only 3% of Japanese corporates thought shareholders' interests should be put first.
At the other end of the spectrum, managers in the U.S. and U.K., by majorities of 76% and 71% respectively, stated that shareholders' interests should be given priority.

Olympus corporation Japans leading and most profit making medical and surgical instrument firm Olympus controlled 70 percent of the multibillion-dollar market. Those $40,000 endoscopes cost a couple thousand dollars to make Thus, it enjoyed high profit margin

Net sales in the companys Micro-Imaging Systems unit, fell from $3.3 billion in 2008 to $1.9 billion in 2010, generating operating income of just $37 million. Partly to offset some of these declines, Olympus embarked on an acquisition spree, purchasing an English medical equipment maker, Gyrus ACMI,

, Olympus bought several noncore businesses, including a mail-order face cream business and a company that made microwave cookware. Gyrus was purchased at US$ 2 billion price
Not only was the $2 billion price exorbitantly high, but there was also an additional $687 million in Gyrus stock purchased by Olympus

That $687 million was later described as an advisory fee paid to a shadowy Cayman Islands company, making it the largest advisory fee in history. When newly appointed CEO of Olympus Mr. Woodworth (who was not native from Japan) investigated the matter, he was asked to resign

Olympus said it had found that funds related to its $2.2bn purchase of British medical equipment maker Gyrus in 2008 , were used to hide losses on the securities investments dating back to the bubble economy of 1980s

Foreign owners come from different national cultures and may not share the collectivist norms of Japanese managers. U.S. institutions have long engaged in activism to influence U.S. managers and are now adapting these techniques to pressure Japanese companies

The self- interested perspective of foreign owners results in an agency relationship with managers that highlights conflicts of interest
Foreign owners, however, are less likely to trust managers to forego their self- interest, and therefore favor explicit controls

Agency theory suggests that management principal relationship is that of control As per stewardship theory it is based on trust For agency theory cost control is important and for stewardship theory trust is important

Agents and stewards have some overlapping roles For example, some amount of trust is required even in agent-principal relationship, as control systems cannot take care of all expected fraudulent activities Thus, these two theories are good enough to describe the general running of the business and its policies

An intense emphasis on monetary success (pressure) - An intense emphasis on monetary success


in the corporate environment, which promotes productivity and innovation, also induces Fraud by corporate executives.

Monetary success, which is responsible for the impressive accomplishments of country, is also responsible for generating strong pressures to succeed by any means necessary including Fraud. Thus, monetary pressure where pushes the society for development, it also has its own dark face

Corporate executives exploit/disregard regulatory controls (opportunities) - An intense emphasis on monetary success leads to a pronounced strain toward anomie,

that is, a tendency for corporate executives to exploit/disregard regulatory controls for monetary gains.

In other words, corporate executives seek opportunities to exploit/disregard normative rules and regulations when these rules and regulation threaten to interfere with the realization of their monetary success.

Corporate executives justify/rationalize fraudulent behavior (rationalization) - corporate environment is such that only monetary success would be counted, so we have to achieve it at all cost

The most commonly cited motives for fraud included the desire to: - meet earnings expectations; - conceal the companys deteriorating financial condition; - bolster performance for pending equity or debt financing;

Control mechanisms of organizations are poor Furthermore, B-schools are mainly held responsible for the same B-schools have not provided sufficient ethics training to students and have failed to teach students about Fraud Most business school graduates would not recognize a Fraud if it hit them between the eyes

lack of Fraud content in accounting courses For example, subjects like accounting Fraud are hardly taught in B-schools B-schools counterargument: who will buy our product???