Lecture Summary Stefano Casertano, MBA ‘08 On November 9, 2007, the Center on Japanese Economy and Business and the Japan Business Association of Columbia Business School had the honor to host Professor Katsuhito Iwai from the University of Tokyo for a lecture titled "What Will Become of the Japanese Corporation? –A Comparative Perspective." An interested audience of about 60 people greeted the renowned academic while he presented his deep intellectual speculation about the legal, economic and ethical issues of the different approaches that Japanese and Americans leverage to organize large workforces and compete in the global marketplace. The starting point of the academic quest was defining how American and Japanese corporate systems, with all the differences we may assume, can coexist in a common global economic environment. It is eventually expectable that one structure may push the other out of the economy. American corporations see the manager as an “agency of shareholders,” whereas for Japanese companies a manager is the “leader of an organization.” From the legal point of view, American corporations are “a name for an association of individuals” and in Japan they are “an entity independent of individual members.” As for the economic side, in the United States private corporations are simply “legal fictions which serve as a nexus for a set of contracting relationships among individuals,” while in Japan they are “organizations that know how to do things, while individual members come and go." How can two such different entities coexist?Starting from the basics, Professor Iwai gave the example of a family owned grocery store, in which case the owners of the assets are the family members that own the store. If we substitute the small grocery store with a large supermarket chain, the real owner of the assets is not represented by individuals, but by the legal entity of the corporation. A corporation plays the role of a “person” in having property of the assets. Shareholders are thus direct owners only of the corporation, and not of the assets. This exact duality of corporations, as “things” and “persons owning assets,” explains why the American and the Japanese systems can coexist. In the United States, there is a stronger stress on the “thing” aspect; in Japan the other feature prevails. Both approaches then converge in the direct relationship between the corporation and the assets. Moreover, American corporations take a nominalistic approach that places priority on maximizing returns to shareholders, while the Japanese corporations take a more realistic approach that emphasizes survival and growth of the corporate organization. In the past, the Japanese realistic approach was exemplified by the extensive cross-shareholding. The mere possibility of hostile takeovers will make a corporate system more nominalistic, as we are now seeing in Japan.The question could now be that of assessing whether either of the two aspects will prevail over the other in the long run. Both approaches seem to have some hidden inefficiencies. In the United States, employees may tend to pursue their interests at the expense of shareholders. In Japan, employees may fear being exploited by shareholders. Faced with contemporary challenges, Professor Iwai argues that the long-term trend is neither nomonalistic nor convergence with the American system. Rather a counter-trend is developing that can be characterized as a transition from industrial capitalism to postindustrial capitalism. In the former, the most important feature of a successful strategy was physical capital driven primarily by scale economy and, at least in Asia, the inflow of cheap labor from the countryside. Nowadays, postindustrial capitalism requires “continuous creation of difference,” and only knowledge-based human capital can drive it. Any system posing a disadvantage with respect to the management of people will not survive. In the future, the power of finance will recede in favor of human resources. Focusing on the “personal” aspect of corporations, the Japanese system seems to be in an advantageous position for delivering the change needed by internationalization. It is not money buying brains; it is a whole culture that grows them.