Chapter 33 Governance and Corporate Control Around the World 873
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Also, management remuneration must be approved at general meetings of shareholders.^9 Nev-
ertheless, ordinary shareholders do not in fact have much influence. Japanese boards tradi-
tionally have 40 or 50 members, with only a handful who are potentially independent of
management.^10 The CEO effectively controls nominations to the board. As long as the finan-
cial position of a Japanese corporation is sound, the CEO and senior management control the
corporation. Outside stockholders have very little influence.
Given this control, plus the cross-holdings within industrial groups, it’s no surprise that hos-
tile takeovers are exceedingly rare in Japan. Also, Japanese corporations have been stingy with
dividends, which probably reflects the relative lack of influence of outside shareholders. On the
other hand, Japanese CEOs do not use their power to generate large sums of personal wealth.
They are not well paid, compared to CEOs in most other developed countries. (Look back to
Figure 12.1 for average top-management compensation levels for Japan and other countries.)
Cross-holdings reached a peak around 1990 when about 50% of corporations’ shares were
held by other Japanese companies and financial institutions. Starting in the mid-1990s a bank-
ing crisis began to emerge in Japan. This led firms to sell off bank shares because they viewed
them as bad investments. Banks and firms in financial distress, such as Nissan, sold off other
companies’ shares to raise funds. By 2004 the level of cross-holdings had fallen to 20%. In the
next few years, however, cross-holdings rose again as companies in the steel and other indus-
tries began to worry about hostile takeovers, which was the original motivation for acquisition
of cross-holdings in the 1950s and 1960s.^11
Ownership and Control in Germany
Traditionally banks in Germany played a significant role in corporate governance. This
involved providing loans, owning large amounts of equity directly, and the proxy voting of
shares held on behalf of customers. Over time this role has changed significantly. The rela-
tionship between the largest German bank, Deutsche Bank, and one of the largest German
companies, Daimler AG, provides a good illustration.
Panel a of Figure 33.5 shows the 1990 ownership structure of Daimler, or as it was known
then, Daimler-Benz. The immediate owners were Deutsche Bank with 28%, Mercedes
Automobil Holding with 25%, and the Kuwait Government with 14%. The remaining 32% of
the shares were widely held by about 300,000 individual and institutional investors. But this
was only the top layer. Mercedes Automobil’s holding was half owned by holding companies
“Stella” and “Stern,” for short. The rest of its shares were widely held. Stella’s shares were in
turn split four ways: between two banks; Robert Bosch, an industrial company; and another
holding company, “Komet.” Stern’s ownership was split five ways but we ran out of space.^12
Panel b shows the ownership structure in 2014. It is quite different. Deutsche Bank does
not have a direct stake anymore. The Kuwait government still owns a substantial stake of
6.8%, but considerably less than the 14% it owned in 1990. In addition, Renault and Nissan
each own about 1.5%. In stark contrast to the situation in 1990 when only 32% of the stock
was widely held, in 2014 90% was widely held. The ownership structure has moved a long
way toward the U.S. ownership pattern, where many large companies are entirely widely held.
(^9) These requirements have led to a unique feature of Japanese corporate life, the sokaiya, who are racketeers who demand payment in
exchange for not disrupting shareholders’ meetings.
(^10) In recent years some Japanese companies such as Sony have changed to U.S.-style boards with fewer members and more indepen-
dent directors.
(^11) See H. Miyajima and F. Kuroki, “The Unwinding of Cross-Shareholding in Japan: Causes, Effects and Implications,” in Corporate
Governance in Japan: Institutional Change and Organizational Diversity, ed. M. Aoki, G. Jackson, and H. Miyajima (Oxford and New
York: Oxford University Press, 2007), pp. 79–124. Also see “Criss-Crossed Capitalism,” The Economist print edition, November 6,
2008.
(^12) A five-layer ownership tree for Daimler-Benz is given in S. Prowse, “Corporate Governance in an International Perspective:
A Survey of Corporate Control Mechanisms among Large Firms in the U.S., U.K., Japan and Germany,” Financial Markets, Institu-
tions, and Instruments 4 (February 1995), Table 16.