Table Speech

“Management ‘true to the Sun-Road’”

October 25, 2006

Mr. Hiroyuki Itami,
Hitotsubashi University, Graduate School of Commerce and Management

 The theme, “Japanese Corporate Governance and Social Responsibility”, was discussed by the committee members at the Japan Economic Research Institute for about a year. However, we decided to use a simple title, “Management –true to the Sun-Road”.

 Our thought was, “The essence of corporate social responsibility is not compliance or ethics. Companies must conduct business activities that are beneficial to society in the proper way. Priority must be given to social benefit, even though, at times, it may be at the expense of long-term benefits”.

 The following shows the concept of the terms used in this article:
Governance means a “mechanism to keep a check on, and a monitoring of the authority of managers to prevent the abuse of their power”. Corporate social responsibility is broadly classified into three types.

1.Social benefit responsibility, in which companies must perform beneficial activities as a public institution of society.

2.Social norms responsibility, in which companies must contribute to social stability. A typical example of social norms is laws. Compliance is included in social norms responsibility.

3.Civil responsibility, in which companies must repay obligations to society as a citizen, and contribute to society through non-economic activities not related to their business. This includes philanthropy.

 Social benefit responsibility referred to in 1. above also includes hiring and tax payment, economic activities to conserve the global environment, and business operations.

 The committee defined as the most intrinsic significance of corporate social responsibility that there are times when priority must be given to social benefit, even though, at times, it may be at the expense of corporate profits. In cases where “occasionally at the expense of corporate profits”, it can be taken as a certain restriction on individual property rights, so naturally companies must be held strictly accountable in order to perform such social responsibility. Above all others, such responsibility cannot be performed unless managers have high moral standards. We intend to express the high moral standards as “true to the Sun-Road” long referred to within a merchant family in the Edo Period and thereafter. The “Sun-Road” is a symbolic expression of high moral standards.

 Let’s specifically think about the relationship between corporate social responsibility and corporate governance. There are three features for the company; “concept-focused”, “thing-focused”, and “people-focused”.

 “Concept” represents a company’s business activities. “Things” are t
he assets or money that a company collects. “People” means the workforce, including managers working together as a group in a company.

 Corporate governance often follows legal systems and practices that regard a company as a thing. They are mainly prepared for the benefit of shareholders and stocks. The question arises of whether to leave corporate governance to attain social responsibility, or to collectively attain governance in a company with “people”, to these systems.

 For the future, we can logically guess that problems will not be solved until workers, who are well aware of the aspects of the “concept” and “people” for the company, will increase and dominate the corporate governance.

 Checking if managers operate the company under the high moral standards symbolized as “true to the Sun-Road”, can only be conducted by people. So, we have reached a conclusion that people-focused governance will be the most important for companies from now on. Therefore, conducting management in a manner that is “true to the Sun-Road” means to absolutely uphold social norms, to perform social benefit responsibility, and to listen to workers’ views without the misuse of power. I think that “the Sun-Road” may be an inner voice of the workers of companies.

 The governance applied both to “things” and “people” is not easy to coexist. However, I have an optimistic forecast that Japanese companies are able to disseminate global contribution to solve the issues to the world.

 This is because Japanese companies have stuck to a traditional style of people-focused governance, which has continued since the Edo Period. I hope Japanese corporate managers will keep the legal framework representing current corporate law, and boldly devise various measures. Moreover, they are required to deeply consider and discuss structural reform from an ideological perspective by translating it into languages that will allow the world to understand the tradition that Japanese people are proud of, and have followed since the Edo period.