Hostile Takeover Bids In Japan? Understanding Convergence Using The Layered Approach

Hostile takeover bids arrived in Japan in 2005 and U.S. legal scholars announced that their arrival offered strong evidence in support of corporate governance convergence to the U.S. shareholder-oriented model. Now, four years later, there has still not been a successful hostile takeover bid and the practice has seemingly fallen out of favor. The Japanese experience with hostile takeover bids suggests a much more complicated process is occurring than the one suggested by the traditional convergence theories. This article uses the arrival of hostile takeover bids in Japan to explore a number of convergence theories, including: traditional theories, the economic version of selective adaptation, other theories of selective adaptation, and a new theory—the “Layered Approach.” The Layered Approach is based on previous selective adaptation theories of Pitman Potter and Tom Ginsburg combined with insights from institutional analysis from sociology. It argues corporate governance convergence happens in the following way: 1) economic events trigger convergence, 2) corporate governance convergence is more likely to occur among firms that operate in the same field (i.e. global companies listed on public exchanges), 3) the speed and direction of convergence is affected by local social institutions, and 4) government and market participants play a significant and active role in “selecting” which foreign corporate governance rules will be “adapted” into the local corporate governance regime. The conclusion of the article is that the Layered Approach better explains the arrival and effect of hostile takeover bids in Japan because it acknowledges that both economic and social factors had roles to play. In particular, the evidence shows local social institutions, with local market participants, play an active role in determin* The author is a Ph.D. student at the University of British Columbia in Vancouver, Canada. This article was presented at the Pan-Pacific Business Law Conference in Vancouver, BC, September 29–30, 2006. Special thanks to Masafumi Nakahigashi, Yosihiro Yamada, Julian Dierkes, Christie Ford, Liljiana Buckovic and Maclean Brodie for their insightful comments on previous drafts of this paper. Extra special thanks to Yosihiro Yamada for providing me with translations of some sources. Any errors or omissions in the paper remain my own.