The Governance Revolution in Japan Has Global Lessons for Asia-Pacific Markets
Japan's corporate governance reforms have catalyzed a dealmaking renaissance that other Asia-Pacific markets would benefit from studying and emulating.
A Reform Story Worth Studying
Japan's corporate governance reforms have catalyzed a dealmaking renaissance that other markets across the Asia-Pacific region should study carefully. The key insight from Japan's experience is both simple and powerful: governance reform is not merely a compliance exercise or a box-ticking obligation. When implemented thoughtfully and sustained over a period of years with genuine political and regulatory commitment, it can fundamentally reshape corporate behavior and unlock enormous economic value that was previously trapped within inefficient corporate structures.
What Japan's Reforms Have Achieved
The results of Japan's governance push are now visible across multiple dimensions of corporate activity. The reforms have led directly to increased M&A volumes as companies become more willing to pursue strategic acquisitions and divestitures. Shareholder returns have improved markedly as boards face greater pressure to deploy capital efficiently or return it to shareholders. Management accountability has increased as independent directors gain genuine influence over strategic decisions. The corporate sector as a whole has become more dynamic, more responsive to market signals, and more willing to embrace change.
The Tokyo Stock Exchange's initiatives targeting companies trading below book value have been particularly effective in catalyzing action. By publicly identifying underperforming companies and creating reputational pressure for improvement, the TSE created a powerful incentive for management teams to take decisive steps -- whether through capital returns, operational improvements, or strategic transactions including M&A.
Lessons for South Korea
South Korea could apply similar approaches to address challenges that have constrained its capital markets for decades. The Korean market has long suffered from the so-called "Korea discount" -- a persistent valuation gap driven by governance concerns at the major chaebol groups, complex cross-shareholding structures, and perceived insufficient protection for minority shareholders.
Regulatory reforms modeled on Japan's approach could begin to address this discount. Requiring greater board independence, pressuring companies to unwind cross-shareholdings, encouraging more transparent capital allocation decisions, and creating mechanisms for public accountability of underperforming companies would all be constructive steps. South Korea has the institutional capacity to implement such reforms; what has been lacking is sustained political will to challenge entrenched corporate interests.
Opportunities in Southeast Asia
Southeast Asian markets, where many listed companies remain under the tight control of founding families, could also benefit substantially from governance reforms encouraging boards to prioritize the interests of all shareholders, not just controlling stakeholders, and to consider M&A when it offers superior value to the status quo.
Markets such as Thailand, the Philippines, and Indonesia have significant populations of listed companies where founding family control, related-party transactions, and limited board independence create conditions in which corporate assets are not always deployed in the interests of all shareholders. Governance reforms that increase transparency, strengthen minority shareholder protections, and create accountability mechanisms could unlock substantial value in these markets.
Balancing Reform and Long-Termism
The journey toward better governance is not without risks. Pushing companies too aggressively toward short-term shareholder returns can undermine long-term investment in research and development, capital expenditure, and human capital development. Japan has generally struck a reasonable balance on this front, encouraging improved capital discipline without forcing companies into destructive short-termism.
Other markets contemplating similar reforms should learn from this aspect of Japan's experience. The goal should be to create a governance framework that encourages efficient capital allocation and strategic dynamism while preserving the capacity for long-term investment and value creation. Reforms that tip too far toward short-term optimization risk creating different problems without solving the underlying governance deficiencies.
The Bottom Line
Japan's governance revolution has demonstrated that regulatory reform, when well-designed and persistently implemented, can be a powerful catalyst for value creation across an entire economy. The transformation of Japan's M&A market from one of the least active in the developed world to Asia's most dynamic dealmaking environment is direct evidence of what governance reform can achieve.
Markets across the Asia-Pacific region should take note. The tools are available, the evidence is clear, and the potential rewards for shareholders, companies, and economies are substantial. The question is whether political leaders and regulators in other markets will summon the ambition and persistence to follow Japan's example.
