Toyota and the Need for Diverse Views on the Board

The Economist has at least a partial explanation for the crisis currently befalling Toyota:  Bad corporate governance.   A piece in the erudite magazine noted that companies in Japan have "a rigid system of seniority and hierarchy in which people are reluctant to pass bad news up the chain."  Indeed, doing so is viewed as disloyal and "a violation of the traditional consensual corporate culture."

More specifically, the magazine pointed to the lack of diversity on the board.  As the magazine described:  

• The lack of an outside perspective is particularly striking in the case of Toyota’s board. It is composed of 29 Japanese men—all of them Toyota insiders, none of them independent. (Toyota’s first and only non-Japanese board member, one of its American managers, who was appointed in 2007, was swiftly wooed away by an American carmaker.) Most of the rest of Japan Inc is just as lacking in diversity, apart from a couple of honourable exceptions, such as Sony and eAccess. Indeed, there is a greater percentage of women on boards in Kuwait than in Japan.

It is perhaps a fair point but Japan's system of corporate governance has always been driven less by Anglo-American attributes such as independent directors and more by oversight by its main bank.  In other words, officers and directors are kept in check by the banks, not the independent directors.

At the same time, the Economist conflates independence and diverse viewpoints.  While its true that in the US model there are more "independent" directors, there is little evidence that they provide diverse viewpoints. Thus, Exxon has an independent board but could likely benefit in its decision making process from a more pronounced environmental viewpoint inside the boardroom.  

Moreover, US boards are not particularly diverse (between 10 and 15% for women and people of color).  And, as one recent study noted, they seem to be full of people with "friendship ties" to the CEO.  Indeed, efforts to increase diverse viewpoints on the board through facilitating shareholder access to the company's proxy statement for nominees has been mired in portracted opposition, with allegations that it will result in "special interest" directors. 

Japan may need a more diverse perspective on its board, but it is a reform not limited to Japan.