Corporate Japan

Before 1945, a few family-controlled holding companies, above all Mitsui, Mitsubishi, Sumitomo and Yasuda, dominated banking, trade and heavy industry. The occupation authorities dissolved them after the war. In their place emerged horizontal keiretsu: groups of independent companies linked by cross-shareholdings, a common main bank, a general trading house and regular meetings of presidents, such as the Mitsubishi, Mitsui and Sumitomo groups.

Vertical keiretsu connect a large manufacturer with tiers of suppliers, as in the automotive industry around Toyota. Long-term supply relationships, joint development and just-in-time production made these networks efficient, but they can make it hard for outsiders to break in. Cross-shareholdings have been reduced substantially since the 2000s.

In the traditional model, large companies recruit graduates once a year in April (shinsotsu ikkatsu saiyō), train them internally, rotate them through departments and promote them gradually by seniority. Lifetime employment (shūshin koyō) was never universal, applying mainly to regular male staff in large firms, but it shaped expectations across society. Job-hopping was rare, and mid-career hiring limited.

Today, a large share of the workforce is on non-regular contracts, mid-career hiring and job-based ('job-gata') employment are spreading, and labour shortages give employees more bargaining power. Annual wage negotiations in spring (shuntō) between unions and employers remain an important benchmark for pay across the economy.

Japanese companies are organised in clear ranks, from the president (shachō) through division and department heads (buchō) to section managers (kachō). Decisions typically travel through consultation and written approval (ringi), which spreads responsibility and ensures commitment, but can make companies slow to react.

Boards have traditionally been composed of insiders promoted from within. Reforms since 2015 require listed companies to appoint independent outside directors, and their share has risen steadily.

Small and medium enterprises make up the overwhelming majority of Japanese companies and employ most of the workforce. Many are highly specialised suppliers of components, tools and materials, some with world-leading market shares in niche products. Ageing owners without successors are a major challenge, and business succession has become a policy priority.

Japan also has an unusual number of very old companies (shinise), many of them family firms in sake brewing, confectionery, inns and crafts. Kongō Gumi, a builder of temples, traces its origins to 578.

The Stewardship Code for institutional investors (2014) and the Corporate Governance Code for listed companies (2015) introduced a 'comply or explain' framework to strengthen boards and dialogue with shareholders. In April 2022, the Tokyo Stock Exchange reorganised its markets into Prime, Standard and Growth, with stricter criteria for the Prime Market.

In 2023 the exchange asked listed companies to take action to implement management that is conscious of their cost of capital and share price, which prompted many to raise dividends, buy back shares and unwind cross-shareholdings. Activist investors and takeover bids, once rare, have become a regular feature of the market.