1. SETTING THE LEGAL LANDSCAPE
Japanese corporate law is mainly governed by the Company Act, which became effective in 2006. Human rights are mostly protected by specific provisions of the Japanese Constitution, as well as by many other domestic laws. Human rights enforcement is also fostered by Japan’s ratification of international human rights instruments as well as promotion of human rights through private initiatives, like the Keidanren’s Charter of Corporate Behavior.
2. REGULATORY FRAMEWORK
The Japanese jurisdiction belongs to a civil law tradition, and corporate law, like any other in Japan, is regulated at the national level. The main corporate/securities regulators are the Financial Services Agency (control of financial stability, liquidity of financial markets and corporate auditing), the Bank of Japan (monetary issues) and the Tokyo Stock Exchange (power of supervision of transactions on the market).
3. INCORPORATION AND LISTING
Despite the existence of the concepts of “limited liability” and “separate legal personality”, especially in the Joint Stock Corporations (the most frequent form of company in Japan), such corporations are not required to recognize any duty to society, except for the respect of legality in their activities. Yet, they are allowed to consider such duties, which are essential criteria in the companies’ assessment by the two Japanese responsible investment indexes. The participation of corporations to these indexes is mostly non voluntary, as most listed companies are screening based primarily on public information on websites and annual reports. However, a company may submit additional information which will be incorporated in the decision making process.
4. DIRECTORS’ DUTIES
Directors’ duties are mainly owed to the corporation itself, although directors may be, to a certain extent, liable to third parties. Their legal duties clearly provide that directors shall avoid legal risk and damage to the company’s reputation. Failing to uphold such duties may have consequences regarding civil or even criminal liability. Directors are not specifically required to consider the impact of the company’s (or its subsidiaries’) activity on non-shareholders, whether it is inside or outside the Japanese jurisdiction. However, directors may be required to consider such impact as a result of their duties to avoid legal risk and damage to the company, of certain health and safety laws, or certain environmental laws, and when the corporation is in insolvency proceedings.
Reporting and disclosure requirements of Japanese companies do not include any obligation to disclose the impacts of their operation (or of the action of subsidiaries, suppliers, and other business partners) on non-shareholders, whether occurring inside or outside the jurisdiction (especially human rights impacts), as long as such impacts are not significant for the company. Should such be the case however, it would become mandatory to disclose such information for the public interest or the protection of investors. In addition, many Japanese corporations boast voluntary publication of Corporate Social Responsibility reports.
6. STAKEHOLDER ENGAGEMENT
There is no particular restriction on circulating shareholders proposals dealing with impacts on non-shareholders and the possibility for non-shareholders to address companies’ general meetings is subject to the articles of incorporation. Many Japanese institutional investors consider the impact of the company on human rights in their investment strategies.
7. OTHER ISSUES OF CORPORATE GOVERNANCE
Keidanren), as well as individual charters adopted voluntarily by many Japanese corporations, has a key impact on promoting good corporate governance practices In addition, based on the general prohibition of discrimination because of race, creed, sex, social status or family origin in the Japanese Constitution, there can be no discrimination between members of the board for any gender, racial or ethnic reason. Cotty Vivant Marchisio & Lauzeral, Corporate Law Tools Project--Japan (Sept. 2009) (Executive Summary).
The initiative of Nippon Keidanren, the Japanese Business Federation, which adopted the Charter of Corporate Behavior in 1991, is the most important example of “industry-driven” Corporate Social Responsibility policies in Japan . . . . The last version of this Charter dates back to May 18, 2004 and asserts that companies should “take social responsibility flexibly and voluntarily”. Agreeing that corporations need to “enhance their social significance and value”, the Keidanren has written ten principles in its Charter, some of them being directly related to human rights. Although this Charter is a voluntary initiative of the Nippon Keidanren15 and is not legally binding, the Charter has had significant results in terms of influencing company behavior. Cotty Vivant Marchisio & Lauzeral, Corporate Law Tools Project--Japan (Sept. 2009) (Paragraph 22.1).
Japanese thought on Corporate Social Responsibility
Shing Kit Wong
Master of International Affairs CandidateIntroduction
The history of corporate social responsibility (企業の社会的責任) in Japan can be traced back to the Edo period, which main idea was honesty in operation, and contribution to the society. It also structuralized the morality and harmony among merchant, customer and the society. Corporate social responsibility was brought to attention in 1970s due to a large amount of corporate scandals, such as corruptions and environmental pollutions, as a “byproduct” of the rapid economic growth in the 1960s. The public lost confidence in corporations. As a result, corporate social responsibility was widely promoted in order to retrieve public confidence to corporations. Thus, corporate social responsibility in Japan is strongly related to corporate philanthropy (社会貢献) and sustainable development (持続的発展. In the Corporate Social Responsibility (CSR) Advisory Committee interim report by the Japanese Ministry of Economy, Trade and Industry in 2004, it summarized six basis points of corporate social responsibility:
1. CSR is fulfilled through interaction with stakeholders.
2. CSR is not only remained in the outside communication of corporate, but also include the organizational system inside the corporate.
3. Observance of the law is the foundation of all business activity. Including environmental protection, respect human right, social contribution, etc.
4. CSR includes national and regional sense of value, culture, economy, and social matter.
5. Since the content of CSR is extensive and closely related to business, the effort of voluntary and tact is very important.
6. The most important effort to receive trust is to disclose the information including comment from stakeholders and explain the responsibility to stakeholders.From these six basis points, Japanese corporate social responsibility can be viewed in three main areas: environmental protection (sustainable development) and corporate philanthropy, responsibility toward customer, and human right.
Japanese corporate responsibility mainly focused on the principle of national interest (国益主義), in which the national goal is strongly emphasized in the strength of the military, before World War II. After the war, the goal was not suitable upon the defeat of the war. The primary aims of government were in the social welfare and rebuild of the country, and corporate responsibility had tied up with economy reconstruction. Since the beginning of 1950s, the Japanese economy grew rapidly. However, corporate scandals such as corruptions and pollutions in the society also became the byproduct of the economic growth. The public lost confidence toward corporations, and stated that corporations were naturally inherited evil (企業性悪説). In order to enhance the images of corporations and regain the public confidence, corporate social responsibility had its first boom in the 1970s. Corporations which destroyed the environment were strongly criticized, and the benefit received from business activities should return to the society. In the 1980s, the society and life of the citizens were benefited in the economical aspect, but the quality of the citizens’ life was not an improvement because of long working hours, resulted in various social issues. Toward the end of 1980s, the period of economic bubble, corporate had extra funding for activities such as art festivals and cultural festivals fore contributing to the society. Yet, some had criticized that such corporate philanthropy was only a cover up of the real social issues. During the depression in the 1990s, corporations had an operating philosophy of symbiosis with the society ( 社会との共生), which corporate philanthropy toward the society was one of the existing purposes. Corporations with such operating philosophy and the society sought a long term perspective in recovering the economy and living standard of the citizen. In the 2000s, global environmental issue became a popular topic, and also became a significant concern in corporate social responsibility.
Environmental protection (sustainable development) and corporate philanthropy
Japanese economy started growing rapidly after the Occupational period in the 1950s. The majority of the investments were in electric power, coal, iron, steel, and chemical fertilizers. The economy not only recovered the lost resulted by the war but also surpassed the growth rates of the pre-war period. Between 1953 and 1965, Japanese GDP expanded more than 9% per year. In 1965, the nominal GDP in Japan was estimated at over $91 billion, and over 170 billion by the end of the decade. However, massive pollution was also produced during the economy growth period. Furthermore, the oil crisis in 1973 affected the industrial production and caused severe price inflation. Most corporations were severely criticized, and had a negative reputation in the society. It was realized that the morality of corporate was gone and that corporations were purely greedy and evil. In order to enhance the image of corporations and restore a harmonized society, corporations promoted numerous environmental protection projects and reimbursed to the society in the 1980 during the second growth of the economy.
The traditional philosophy in business is to from a harmonized society, in which emphasize the relations between merchant and customer, Japan and the world, and human being and nature. In 1987, Our Common Future was published from the United Nations World Commission on Environment and Development. Its targets were multilateralism and the search for a sustainable development, a pattern of resource usage that intends to meet human needs while preserving the environment, so that these needs can be met not only in the present, but also for future generations. In another word, it is a development that meets the needs of the present without compromising the ability of future generations to meet their own needs. This ideology had been engraved in the corporate social responsibility ever since.
The management principles of Mitsui Group, one of the largest conglomerates in Japan and traded companies in the world, are mainly revolved around environmental protection and corporate philanthropy. The corporate mission philosophy is contributing to the Earth, where it is filled with people’s dreams of the future (大切な地球と、そこに住む人びとの夢溢れる未来作りに貢献します) . In order to achieve this magnificent mission, Mitsui intended to increase the total value of the enterprise in economic, environmental, and management through profession and social action to achieve sustainability and a harmonized economic environment. Under this principle, Mitsui is working on a global scale, dealing with the problems of global warming, risk management systems including environmental conservation and pollution prevention, and promoting environmental friendly technology and environmental responsibility. Mitsui has deployed a variety of environment-related businesses in the world to administrate their Principles of Environmental Policy to the environmental industry including renewable energy projects, emission projects, recycling business, modal railway business, forestation, etc. For instance, Mitsui is actively involved in solar power generation, wind power generation, and biomass power generation projects. While carbon dioxide emissions are said to cause global warming, Mitsui participates in production and sales of carbon-neutral bio-energy. Through environmental protection, the greenhouse gases and industrial waste had been reduced. In addition, such activities created new markets in the society. All the establishment of companies, plant construction, and assistance to recycling partners provided a securing local employment and strengthened the economy. The corporate social responsibility principle of Mitsui Group highly reflects the traditional philosophy in business in Japan.
Responsibility toward customer
Japanese corporate social responsibility toward customer focuses on providing excellent service and product to the consumer. There are five major elements consisted in the product providing to the consumer: high quality, function, safety, environmental friendly, and cost. Japanese corporate believes that the central part of customer’s satisfaction is the performance of product and service in which consumer needs are met. This includes the functions and safety of the products and its reliability. The function of the product is a property of acting on how the product and service satisfy the consumer. It would focus on the consumer’s needs and the limitation of their usage of product and service. For instance, products would be manufactured with the consideration of the usage of people with disabilities. In addition, the usage of the product and service must avoid potential harm to the consumer and damaging of the product, as well as the harmony of the society. The product and service has to be environmentally friendly in order to reduce the impact on biological and ecological destruction for the future generations. The price of the product and service also has to be reasonable to the consumer. It is necessary supply product and service with the consideration of those factors in order to enhance business value and sustainable society. In order to fulfill such factors, the products are strictly tested to achieve the ISO 9241-11, which deals with the extent to a product that can be used by specified users to achieve specified goals with effectiveness, efficiency and satisfaction in a specified
context of usage. The products would then be examined by non-profit organization such as ISO.
Furthermore, the relationship between consumers and corporate also fall under the ideology from the Consumers International. The CI advocated eight consumers’ rights and five consumer’s responsibilities.
The eight consumer’s rights are as follow:
1. The Right to Satisfaction of Basic Needs; which emphasize the right to get the necessary product and service to ensure survival
2. The Right to Safety; which emphasize the protection from product and service that is dangerous to life and health 3. The Right to be Informed; which emphasize the right to receive honest
information and advertisement necessary for decision making
4. The Right to Choose; which emphasize the right to choose the precise product and service from quality assurance to the satisfaction offered at competitive prices
5. The Right to be Heard; which emphasize the right to represent consumer interests in the development of product and service
6. The Right to Redress; which emphasize the right to appeal for poor service, mistakes and receive compensation
7. The Right to Consumer Education; which emphasize the right to obtain knowledge and skills required to select product and service
8. The Right to a Healthy Environment; which emphasize the right to live and work in an environment without fear and danger for the current and future generationsFollowing is the five consumer’s responsibilities:
1. Critical Awareness: consumers have the responsibility of becoming a sensitive awareness and quality for the price of goods and servicesThe essence on such responsibility of providing excellent service and high quality product to customer might have been corrupted in this competitive market. In 2009 to 2010, Toyota Motor recalled approximately nine million vehicles for the pedal entrapment/floor mat problem and accelerator pedal problem worldwide, and the majority of the recall being in the United States. Such crisis resulted in an approximately 2 billion loss in sales worldwide for Toyota Motor Corporation. The president of the Toyota Motor, Mr. Aiko Toyoda, had pointed out this phenomenon in the competitive market, and affected the quality of the product at the testimony in Washington D.C. in February 2010. Mr. Toyoda stated that the corporation’s priority has traditionally been: First—Safety, Second—Quality and Third—Volume, and that those priorities became confused in this competitive market. The corporations pursued growth over developing speed of the organization, but yet, resulted in the safety issues of the vehicles. In addressing to the crisis, Mr. Toyoda shared the philosophy of Toyota’s quality control and the seriousness Toyota Motor Corporation took on quality and safety of its vehicles. He also explained that at the corporation, the key to making quality products is to develop quality people, and that each employee should thinks about what should be done in making improvements continuously, and thus, making even better vehicles. Under the philosophy of continuous improvements(改善), Toyota Motor Corporation aims to continue offering even better products for society. Mr. Toyoda had personally placed the highest priority on improving quality over quantity, and that under his leadership, he had reaffirmed Toyota’s values in such principle. In order to achieve safety and high quality products, members of the management team would actually drive the vehicles, and that they would check for themselves where the problem lies. He believed that only by examining the problems on site can ensure the management team to make decisions from the customer perspective. At the end of Mr. Toyoda’s statement, he committed to the customers with his reputation:
2. Action and Involvement: consumers have the responsibility to act and
to obtain a fair deal
3. Social Responsibility: realize the responsibility of the consumption behavior and the influence of others, especially the effect to the weak
4. Ecological Responsibility: consumers have the responsibility for understanding the environmental impact of their consumption behavior
5. Solidarity: consumers have the responsibility to defend the interests of consumers
“My name is on every car. You have my personal commitment that Toyota will work vigorously and unceasingly to restore the trust of our customers.”Although the malignant competition in the market resulted in such crisis, Mr. Toyoda, representing the Toyota Motor Corporation, reaffirmed the philosophy of the corporate social responsibility toward customer of placing safety and quality the highest on the list of priorities. Such philosophy revolves around the principle corporate social responsibility toward customer, as well as the philosophy of social contribution.
Human right in the Japanese society is highly respected. In the Constitution of Japan Article 97, it states:
“The fundamental human rights by this Constitution guaranteed to the people of Japan are fruits of the age-old struggle of man to be free; they have survived the many exacting tests for durability and are conferred upon this and future generations in trust, to be held for all time inviolate.”The Labor Law in Japan is constructed under the principle of this article. The Labor Standard Act, Trade Union Law, and the Labor Relations Adjustment Act are the three main Labor Laws (労働三法) in Japan. The purposes of the Trade Union Law and Labor Relations Adjustment Act are to improve the status of workers by promoting fairness in negotiations with employers. They are also to prevent labor disputation with employers, and thus, maintaining industrial peace. On the other hand, the Labor Standard Act ensures a safe and healthy working environment, fair wages, annual paid vacation, maternal leave, accident compensation, and prevents long working hours, child labor, discrimination of all kind, and force labor. In Mitsubishi Corporate, the corporate social responsibility toward human and labor right is very much referring to the principle of the Labor Laws. Being one of the Mitsubishi Corporate branches, the philosophy of Mitsubishi Paper Mills Limited is creating a working environment with the respecting the humanity of employees, and safety being the highest priority in workplace in order to demonstrate the full potential of each employee. Such philosophy is empowered by the guideline of respecting human right, preventing discrimination of all kind, ensuring a health and safe working environment, and compliance to the Labor Laws. Mitsubishi Paper Mills promoted employment for the disabled and the elderly, and in the consideration of work-life balance, the company introduced a time management technology to prevent long working hour and overworked.
However in this competitive market, whether the principle of the corporate social responsibility toward human right could be practice is questionable. Due to the contribution from the corporate toward the society, the issues of human right were always overlooked. In order to maximize profit, benefit of the labor always becomes the first to reduce, and that government official would sometimes be ignorant about the human right issues. Instead, diligence and loyalty toward the corporate and society became a social norm, and that employees were “willing to” work longer hours. Furthermore, for transnational corporate, whether the principle of corporate social responsibility toward human right applies on foreign soil is also remain questionable. In the summer of 2010, Chinese workers in the Honda Motor manufacturing plants throughout China went on strike because of unfair wages. The Chinese labors insisted on “same work, same pay” with the Japanese labors, yet the wage of a Japanese technical specialist (50000 yuen) in Chinese manufacturing plant was 50 times more than a female Chinese worker (1000 yuen). The incident ended with a raise of wages for the Chinese labor, but the wage difference between Chinese labor and other labor in South Asia is still large. Although there are many unanalyzed elements in the incident, corporate social responsibility in human right tend to be measured by different rulers.
The history of corporate social responsibility in Japan can be traced back in the Edo period, which main idea was honesty in operation, and contribution to the society. Corporate social responsibility became essential due to the negative image of corporations during the rapidly economy growth in the after the Occupational period. Japanese corporate social responsibility always revolve around Environmental protection, sustainable development and corporate philanthropy since the Japanese traditional philosophy in business is to from a harmonized society with the emphasis in the relations between merchant and customer, Japan and the world, and human being and nature. Japanese corporate social responsibility toward customer focuses heavily on providing excellent service and product to the consumer, and such produce has to be high quality and safe to the consumer. Japanese corporations respect human right, in which harmony is created between labor and employer in order to achieve economical efficiency. However, in the competitive market, labor’s human rights were sometimes overlooked, and that social norm was created to override such abuse. On the other hand, Japanese transnational corporations tend to have different measures of human right for labor outside of Japan.
猪口 孝「現代国際政治と日本―パールハーバー50 年の日本外交」P.122-26
United Nations, Report of the World Commission on Environment and Development, 12.1987
GDP by Country
Akio Toyoda: Testimony to House Committee on Oversight and Government Reform
The Toyota Recall Crisis
The Constitution of Japan