Several years ago, Murakami Fund or MAC Asset Management all of a sudden started dominating headline news. Initially, Mr. Yoshiaki Murakami, head of the fund, appeared to be a rising star representing shareholder value. After the subsequent arrest of Mr. Murakami for the alleged insider trading, he fell off as a criminal. Together with his fall out, some may have thought that the corporate buyout boom has become something of the past and the traditional Japanese corporate governance remains intact. Japanese capital markets and its investors, however, have gone through substantial changes during this period.

Since early 1990s, Japan had been experiencing a gradual change in corporate governance. For most of the 1990s, corporate value was defined as stakeholders’ value rather than shareholders’. After the millennium, though, the change has accelerated; the Anglo-Saxon style corporate governance began to gather more support. Corporate value equals shareholder value and the role of the managers is to maximize shareholder value. This perception change makes a distinctive difference in a way managers manage their firms. Growing number of managers pay careful attention to stock price and shareholder’s rights. Despite the fact that there are very few successful cases of hostile takeover in Japan, managers who fail to buoy the stock price may well be forced out of the board.

Mr. Kyoji Nishikawa, Advisor and former president of Hanshin Railway Co., Ltd well represented the agony of contemporary managers of those conventional firms that have not yet adapted to the new environment. In our interview, he disconsolately complained; “We have been working very hard for our customers, employees and shareholders. Why should such a management be criticized?” On the other hand, Mr. Yoshihiko Miyauchi, Chairman and CEO of the Orix Corporation, demonstrates a totally different method of managing Japanese companies. From the early days, he has been a great advocate of American style corporate governance. Accordingly, the Orix Corporation is one of the first Japanese companies that listed on the New York Stock Exchange. It adopted international accounting standards earlier than any other competitors.

The Japanese capital market is changing rapidly. We are not sure whether this trend continues or it finds the conventional way viable. If it goes back to the traditional corporate society, managers like Mr. Miyauchi will be perceived as outsiders. If it rapidly pursues the American way, the days for the traditional managers like Mr. Nishikawa are numbered. Japanese corporate governance is now standing on the major crossroad.