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control in the company – remains intact (Vitols, 2001: 347). The fact that employee rep-

resentation is safeguarded also means that the concentration of ownership rights, which

is a core feature of the Rhineland model, will also persist. This conclusion is supported by

a study from Pedersen and Thomsen (1999), in which the impact of employee board rep-

resentation on ownership structure is tested. The study found that employee

representation stimulates the creation of countervailing power (i.e. a concentration of

ownership rights) to ensure that owner interests are represented on the board.

As in Germany, and despite signs of change, share ownership is still essentially insti-

tutionalized in Japan. In this respect, Table 12.3 shows that, at the end of the 1990s, the

major shareholders were ﬁnancial institutions and industrial corporations, which serve

as stable shareholders. Moreover, while the accounting change is said to have induced the

sale of cross-shareholdings among afﬁliated ﬁrms it is hard to ﬁnd strong evidence for this

claim. In order to mitigate the impact of stock price movement on their proﬁts, many

Japanese ﬁrms and banks would have started to reduce their stockholdings in other ﬁrms

(Yoshikawa and Phan, 2001). A survey of 2426 companies in 1999, however, showed

that 42 per cent of outstanding shares were still considered stable, and 16 per cent were

believed to be cross-held (Schaede, 1999). In the late 1990s, the large horizontal keiretsu

still held, on average, some 18 per cent of all outstanding shares within their group. It

seems, then, that, as in Germany, there is continuity in the Japanese system in the midst

of change. Indeed, the importance of the pattern in the rise of foreign ownership and the

decline in cross-shareholding is that it is not evenly distributed. The impact of the change

in ownership pattern is greater in some ﬁrms than in others.

This argument is further supported by data, from the end of the 1990s, on the own-

ership structure of Japanese ﬁrms in the automobile and electronics industries (Table

12.4). These industries are most exposed to the competitive global product and capital

markets, and hence, have to respond more quickly to changes than ﬁrms in other indus-

tries. Looking at Table 12.4, it is clear that the majority of the shares of companies with

group afﬁliations, but also of independent companies (Sony and Honda Motor), is stable.

The diverse impact of foreign ownership on ownership structure in Japan is also clear

from Table 12.4. Only Sony’s ownership structure is notable for the large proportion of

shares held by foreign investors. In 1998, foreign investors held 43.6 per cent of Sony’s

shares as compared to 13.8 per cent on average of the shares of the other corporations.

GLOBALIZATION, CONVERGENCE AND SOCIETAL SPECIFICITY 531

Source: Rebérioux (2002: 114); Tokyo Stock Exchange Fact Book 1999, for Japan.

Table 12.3 Structure of ownership (% of outstanding corporate equity held by sectors, 1998)

USA UK Germany Japan

Households 49 21 15 24

Non-financial firms – 1 42 24.1

Banks 6 1 10 22

Insurance enterprises and

pension funds 28 50 12 11

Investment funds and other

financial institutions 13 17 8 2.2

Non residents 5 9 9 9.8

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532 COMPARATIVE INTERNATIONAL MANAGEMENT

In the literature, it has been argued that the biggest step that could be taken to rad-

ically change the distribution of ownership of ﬁnancial assets, or the distribution of assets

between categories, is to promote US- and UK-style pension funds and mutual funds by

creating tax incentives for employers and employees to defer compensation (Vitols, 2001:

348).

Such a proposal was made by the nascent mutual fund industry in Germany but,

due to opposition from the insurance industry, this was dropped (Vitols, 2001: 348).

Thus, although the ﬁnancial markets have been somewhat liberalized, the increase in the

relative importance of the type of institutional investor dominant in the UK and the USA

(i.e. pension funds and mutual funds) is limited. Table 12.5 conﬁrms this picture; it shows

that despite the gradual increase in ﬁnancial assets (as a percentage of GDP) of insti-

tutional investors in different countries, Germany and Japan, as well as other

Rhineland-model countries, are lagging far behind the USA and the UK. In addition, the

composition of the portfolios of institutional investors in Germany and Japan, the proto-

type countries of the Rhineland model, still shows a preference for bonds and loans, as

opposed to a preference for shares in the Anglo-Saxon countries (Table 12.6).

Pension reform in Japan includes the introduction of an Anglo-Saxon style (that is, a

401(k)-type) pension scheme, from 1 October, 2001. This reform, it is hoped, will bring

about the engagement of households in the capital markets in Japan. Participation in this

deﬁned-contribution scheme is compulsory and includes the allocation of the assets into

*Groups: Mitsui, Mitsubishi, Sumitomo, Fuyo, Sanwa, DKB. Source: Yoshikawa and Phan (2001: 193, 195).

**DKB: Dai-Ichi Kangyo Bank Group.

Table 12.4 Foreign ownership and stable shareholding positions of major group affiliated*

and independent Japanese electronics and automotive companies (1998)

Company group Foreign ownership

(%)

Stable shareholding

positions (%)

Corporate affiliation

Mitsubishi Electric 11.0 61.0 Mitsubishi

Hitachi 27.5 49.3 Fuyo, Sanwa, DKB**

Toshiba 9.4 59.1 Mitsui

Matsushita 20.3 60.9 Matsushita

Sony 43.6 43.4 Independent

Sharp 11.8 72.4 Sanwa

Fujitsu 14.5 68.0 DKB

NEC 13.7 67.2 Sumitomo

Honda Motor 17.8 74.3 Independent

Toyota Motor 8.1 85.4 Mitsui

Nissan Motor 10.6 79.4 Fuyo

Mitsubishi Motors 7.3 84.0 Mitsibishi

A large proportion of US shares is held in 401(k) pension plans. These are ﬁnanced from employee – and fre-

quently also employer – contributions. The contributions are paid from income before tax, and the accumulated

assets only become liable to tax when the capital is disbursed. The name is taken from section 401(k) of the 1978

US Internal Revenue Code.

MG9353 ch12.qxp 10/3/05 8:49 am Page 532

bonds and investment trusts, for example. Members have to select the type of investment

themselves. The Japanese government is faced with a very serious pension fund shortfall

in coming decades. In the hope of reducing the severity of this situation, the government

is expanding the investment opportunities available to the population. It is hoped that this

scheme will gradually encourage private investors to include shares in their long-term

ﬁnancial planning, thus increasing the volume of capital ﬂowing in to the stock market.

Up to now, Japanese households’ operations in the stock markets have been on a relatively

small scale. Japanese private investors are known to be risk averse, and to attach greater

importance to the safety and liquidity of their capital than to its proﬁtability. At the end of

2000, for example, Japanese households held more than half of their ﬁnancial assets in

cash and deposits with credit institutions (Deutsche Bank Research, 29 October 2001).

The extended downturn in the Japanese stock markets, combined with the risk averseness

of the population, makes it highly likely that most households will go for bonds instead of

shares to set up their pension schemes.

A law reform that is thought to enable and stimulate the unwinding of the complex

‘web’ of cross-shareholdings in Germany is the tax reform enacted in 2000, especially the

amended paragraph 8b of corporate tax law, which states that public companies’ capital

gains on the sale of shareholdings will generally be tax-free as of 1 January 2002

(Deutsche Bank Research, 7 February 2002). It has been argued that the ‘web’ of cross-

shareholdings and Konzerne had partly been maintained by a stiff tax of over 40 per cent

on the sale of shares by corporations (Schaede, 2000). However, the small number of

large listed public companies, combined with the fact that in some of the sectors in which

German companies are among the most competitive in the world, the prevailing owner-

ship structures are highly concentrated (automotives, telecoms, post and insurance),

suggest that the number of large-scale transactions as a corollary of the tax law reform is

unlikely to be high. Moreover, while companies from sectors such as utilities, steel-making

and electrical engineering are looking to divest business and subsidiaries that no longer

form part of their core activities, these divestments are sometimes part of reciprocal

activities. In addition, these companies are looking to use the proceeds from these divest-

ments to acquire shareholdings and companies in their core business, thus preserving the

pattern of concentrated ownership (Deutsche Bank Research, 7 February 2002).

GLOBALIZATION, CONVERGENCE AND SOCIETAL SPECIFICITY 533

*Insurance companies, investment companies, pension funds and other forms of institutional saving. Source: OECD (2001).

Table 12.5 Financial assets of institutional investors* (as % of GDP)

1992 1993 1994 1995 1996 1997 1998 1999 2000

Germany 34.0

38.9 41.3 45.3 50.6 58.7 66.1 76.8 79.7

Denmark 55.7

63.9 62.2 65.1 70.6 77.5 84.8 98.0 n.a.

Norway 36.4

42.0 41.4 42.4 43.5 46.6 47.7 53.9 n.a.

Sweden 88.8

105.7 97.9 102.9 118.5 136.8 123.2 137.8 n.a.

Japan 78.0

83.4 81.6 89.3 89.3 87.6 91.7 100.5 n.a.

131.3 163.0 143.8 164.0 173.4 195.5 203.6 226.7 n.a.

USA

127.2 136.3 135.9 151.9 162.9 178.4 192.0 207.3 195.2

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534 COMPARATIVE INTERNATIONAL MANAGEMENT

Similarly, the recent corporate tax reform in Japan is argued to enable companies to

reorganize around their holding companies by way of either ‘spinning off ’ or ‘spinning

in’. Holding companies are said increasingly to be used to spin off and separate unprof-

itable business units (i.e. divisions, departments and subsidiaries) from proﬁtable ones so

that not only tax advantages are gained, but also the non-competitive units can be dis-

posed of in the M&As market (Ozawa, 2003). At the same time, however, there seems to

be a ‘Japanized’, or culturally speciﬁc way, in which the new holding structure has begun

to be used, a way in which some parent companies are merely avoiding their announced

layoff plans for corporate restructuring by creating new, unlisted subsidiaries and hiving

workers off the parent’s books.

Finally, while take-overs are increasingly becoming part of economic normality in

Germany and Japan,

Anglo-Saxon style ‘hostile’ take-overs following public bids remain

rare (Deutsche Bank Research, 7 February 2002).

In fact, the history of German

industry reveals only very few cases of hostile take-overs, some of which either led to a

consensus in the ﬁnal stages of the dispute or failed outright.

Source: OECD (2001).

Table 12.6 Portfolio composition of institutional investors (as % of total financial assets)

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Germany

Bonds

Loans

Other

Japan

Bonds

Loans

Other

Bonds

Loans

Other

USA

Bonds

Loans

Other

Economist, ‘The way Enron hid debts’ (2002).

Following the Financial Holding Companies Law of 1998, in order to improve the long-term health of the bank

system, a move towards mega-mergers among the largest banks took place.

‘Hostile’ here means directed against the interests of the target company’s management.

Until the UK company Vodafone acquired Mannesmann AG in 2000, a German company had never been

acquired in a hostile take-over.

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In general, in Japan, there has been reluctance on the part of the Japanese business

community, and society as a whole, to engage in take-overs even between Japanese

companies. The Japanese business community still attaches great value to the traditional

Japanese management style of long-term perspective, stable employment and protection

against corporate raids.

The major institutional reason for the absence of hostile take-

overs in the form of public bids in both countries is the complex ownership structures of

many large companies, which put up barriers to transfers of control, thus providing

incentives for the management of the target company and bidder, as well as controlling

and inﬂuencing shareholders on both sides to seek a consensus.

To sum up, while there have been formal legal and regulatory changes in Germany

and Japan, these only had a minor impact on:

the structure of ownership

growth of the stock market, and

patterns of corporate control.

12.3 The Personnel and Industrial Relations

Systems

The previous section underlines that corporate governance is part of nationally speciﬁc

institutional conﬁgurations that help condition the coalitions between capital, labour and

management in the governance of the ﬁrm. The structure of top management institu-

tions (i.e. unitary or two-tier boards), for example, affects the management–labour nexus.

‘Patient capital’ in Germany and Japan enables a different set of coalitions between capital

and labour than is feasible in the UK and US systems. Insulation from shareholder

pressure to maximize returns, even at the expense of cutting labour costs and employ-

ment, exhibits a strong ‘institutional interlock’ with the system of lifetime and stable

employment, in-company training, seniority-based wages and promotion (in Japan),

GLOBALIZATION, CONVERGENCE AND SOCIETAL SPECIFICITY 535

Box 12.2: ‘Corporate Greed on Trial’

In April 2004, the Economist reported on the most spectacular trial in German cor-

porate history. The trial concerned extra bonuses paid to senior managers of

Mannesmann after the take-over of Mannesmann by Vodafone in February 2000. Six

former Mannesmann ofﬁcials, including Josef Ackermann, the chief executive of

Deutsche Bank, were accused of committing a breach of trust in being awarded

bonuses worth 57 million euros. Questions were raised with respect to the level of the

bonuses, the sloppy way in which the paperwork was done, the instigator(s) of, and the

reasons for, the bonuses. The German public is said to have seen this as corporate greed

on trial. The prosecutors tried to suggest that the bonuses were bribes to secure the

biggest hostile take-over in history. (Economist, 3 April 2004, Kultur clash, 63)

Nikkei Weekly, 20 September 1999: 3.

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536 COMPARATIVE INTERNATIONAL MANAGEMENT

a relatively low stratiﬁcation of rewards, and the social perception of the ﬁrm as a com-

munity (Dore, 1994). As such, the system of corporate governance is embedded in the

systems of industrial relations and human resources. The complementarity of these insti-

tutions requires us to move beyond the analysis of change in a single institutional

domain. Since each institutional complex depends for its viability on the others, serious

erosion tendencies in one complex will, in the longer run, produce erosion tendencies in

the other two. This section, therefore, analyses the dialectics of change in the systems of

industrial relations and human resources.

Germany

The German system of industrial relations has been seen as a vital part of the German

system of diversiﬁed quality production (see Chapter 7, on production management, for

an explanation of this system), both in its capacity for securing social peace and through

its impact on the quality and stability of labour (Streeck, 1991). The most important fea-

tures of the system in these respects are the relatively centralized and coordinated form of

collective bargaining, and the integration of labour at the enterprise level through code-

termination mechanisms, together with the clear separation of functions between unions

and works councils. At the enterprise level, relatively high levels of employment security,

secured through codetermination mechanisms, combined with patient capital, which

allows for long-term strategies, have provided management with the incentive to invest in

high levels of skill training and internal promotion.

Bargaining within industries has been credited with considerable advantages for both

labour and management: a high coverage rate and a relatively egalitarian wage distri-

bution, promoting solidarity and union strength; social peace and the predictability of

wage demand have enabled employers to combine the payment of relatively high wages

with constant rises in labour productivity (Lane, 2000: 212).

Box 12.3: Vital Features of the German Personnel and Industrial

Relations System

A relatively centralized and coordinated form of collective bargaining

Codetermination mechanisms

Clear separation of functions between unions and works councils

High levels of employment security

Despite the challenges in recent years, from external political and economic changes,

the most important pillars of the industrial relations system have proved their resilience.

While there has been some decentralization of bargaining, with works councils assuming

more inﬂuence over negotiations so as to better match bargaining outcomes to the econ-

omic performance of ﬁrms, centralized negotiations are still prevalent (Begin, 1997:

181). Moreover, hardship clauses, permitting an employer to avoid an industry agree-

ment, still have to be authorized centrally (Hassel and Schulten, 1998). In general, social

partnership is still valued by most employers because the social peace it creates affords the

stability, predictability and cooperation needed for the German production model. This is

MG9353 ch12.qxp 10/3/05 8:49 am Page 536

particularly true in the many ﬁrms where export activity remains more important than

foreign production (Lane, 2000), but also in the globalizing ﬁrms.

While it has been argued that the internationalization of German ﬁrms would facili-

tate the erosion of organizational regulation and interest representation (Streeck, 1997),

until now, there has been only minor evidence in support of this fear. Admittedly, in some

sectors, such as the car and electrical engineering industries, the development of transna-

tional production chains has forced works councils into concession bargaining. However,

concessions remain more the exception than the rule in industry-wide bargaining

(Jackson, 1997) and have involved mainly working time ﬂexibility (Lane, 2000).

Internationalization did result in weakened competencies of plant-level codetermination

by bringing centralization of strategic decision-making at the Konzerne level. Plant man-

agement within large internationalized German ﬁrms, which are the traditional

negotiating partners of the works councils, is losing its competencies in terms of strategic

decisions (Streeck, 1995). However, works councils can use a variety of options to coordi-

nate across enterprises and bypass negotiations with partners who lack ‘sovereignty’.

In addition, as already indicated, labour’s representation on supervisory boards

remains unquestioned, thus supporting the stakeholder ‘mentality’ and impeding the

adoption of Anglo-Saxon style hire-and-ﬁre policies. Share options are used in some

German ﬁrms as a management incentive, but because one-sided decision-making is

limited, they tend to be targeted at groups rather than individuals (Casper, 2000), or are

available to all employees, not just managerial ones, as at VW (Lane, 2000: 220). In

general, German workers continue to be among the highest paid, as well as the socially

most secure in the developed world. The realization that the viability of the German pro-

duction policy continues to depend on its core workforce is argued to still have a hold on

most German management (Lane, 2000).

Japan

Rather like Germany, Japan’s system of industrial relations plays an important role in its

production strategy. Unlike in Germany, however, and with very few exceptions (e.g. the

Seamen’s Union), Japanese unions are enterprise unions, each representing the

employees of a different ﬁrm and organizing both blue- and white-collar employees; also

dissimilar to the situation in Germany, Japanese corporate law is based on the unitary

board system. Hence, employee participation, or codetermination, is not adopted in Japan.

Despite the structural dependence on the ﬁrm, however, Japanese unions have had a con-

siderable stake in, and have fought hard to defend, two core institutions of the Japanese

human resource system: lifetime employment and seniority-based pay and promotion

(Lincoln, 1993). These institutions have been credited by both management and labour

with major advantages. Management views them as a way to secure labour peace and

retain skilled workers. For the unions they were ways to stave off management’s tendency

to lay workers off in order to adjust labour costs and to beat the threat of an inﬂated cost

of living in the early postwar period (Ornatowski, 1998).

GLOBALIZATION, CONVERGENCE AND SOCIETAL SPECIFICITY 537

See Jackson (1997) for an extended discussion of these options.

Seniority-based pay and promotion is a system or practice that emphasizes the number of years of service, or

age and educational background, in determining pay and promotion.

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538 COMPARATIVE INTERNATIONAL MANAGEMENT

More than in Germany, lifetime employment is an important part of Japanese man-

agement practice as a whole because it reduces the signiﬁcant commitment problems

associated with ﬁrm-based private-sector training. In the unitary education system of

Japan, the state focuses on the provision of general education, leaving ﬁrms to organize

and invest in their own ﬁrm-speciﬁc technical training (Nishida and Redding, 1992).

Lifetime employment provides incentives for workers to stay with the company that trains

them, which, in turn, makes it safe for the ﬁrm to invest heavily in skills without fear of

workers absconding with these skills to other ﬁrms (Thelen and Kume, 1999). As in

Germany, this practice is linked to the nature of corporate governance in Japan, which is

less subject to short-term ﬁnancial disciplines and tends to put off radical restructuring of

industrial activities and to avoid taking drastic measures if at all possible (Nohara, 1999).

Unlike in Germany, however, lifetime employment is not protected by codetermina-

tion rights in Japan, but is ﬁrmly grounded in legal precedents set by the Japanese court,

which has made it almost impossible for employers to terminate or lay off their regular-

status employees without the employees’ or their unions’ consent (Morishima, 1995).

Also dissimilar to the situation in Germany, lifetime employment has always applied to the

core full-time workers or the ‘insiders’ only in the biggest companies,

representing prob-

ably no more than one-third of the entire workforce.

Moreover, while the Japanese

lifetime employment rule means long-term stable employment, it has never excluded

massive dismissal.

The system has also always been seen as a ﬂexible one in which only

about 20 per cent of all employees serve continuously at the same company from youth

until the age of 60. Intra-group transfers, temporary and permanent – in a sense a sub-

system of the lifetime employment system – help corporate groups shift the workforce, yet

avoid laying off their core employees and are responsible for much of the system’s

inherent ﬂexibility.

Similarly, the current growth of part-time employment as a response

to the downturn and the need for ﬁrms to cut costs, is at the same time, a means of main-

taining the security and beneﬁts accorded to core workers. It is seen as a ﬂexible strategy

aimed at sustaining a relatively rigid and costly commitment to lifetime employment of

the core (Osawa and Kingston, 1996).

Rather like the case in Germany, and despite the challenges to the system in recent

years, patterns of change and resilience are closely interwoven. As a result of the ongoing

recession, there have been pressures for change in life-time employment and in the seniority

Box 12.4: Vital Features of the Japanese Personnel and Industrial

Relations System

Seniority-based wages

Lifetime employment

The group of so-called more ‘peripheral’ workers, or ‘outsiders’, usually includes women, youths and older

workers.

Japan Institute of Labor, ‘The labor situation in Japan, 2002/2003’, 22; Economist, 18 November 1999, ‘The

worm turns’; 23 August 2001, ‘An alternative to cocker spaniels’.

Japan Labor Bulletin, Mid- and long-term prospects for Japanese-style employment practices, 33(8), 1 August

1994.

Japan Labor Bulletin, ‘The labor situation in Japan 2002/2003’, 22.

MG9353 ch12.qxp 10/3/05 8:49 am Page 538

system in particular. In order to cut labour costs large Japanese companies have shed an

increasing amount of their labour force. Well-known examples are Nissan, which has

closed ﬁve car plants and shed 21,000 jobs to stave off bankruptcy; Nippon Steel, which

shed 40 per cent of its 10,000 white-collar workers between 1993 and 1997; Sony, which

got rid of 17,000 jobs; and NEC which disposed of 15,000.

Such dramatic cuts explain

the plethora of articles in the popular business press that predict the demise of lifetime

employment.

However, the fact that the Japanese lifetime employment system has always been

limited to a small proportion of the workforce, combined with the diversity of practices

that have always been used by Japanese corporations to cut labour costs in times of dis-

tress, demands caution when examining, and making bold statements about so-called

dramatic changes to the system. In general, a lot of Japanese ﬁrms still tend to rely on tra-

ditional responses to negative situations (Tanisaka and Ohtake, 2003). These include a

reduction in working hours and overtime payment for currently employed full-time core

workers; an increase in ‘service overtime’ (overtime without pay); less employment for

new graduates; and an increase in shukko (temporary transfers between ﬁrms) and tenseki

(transfers to another company, or change of long-term employment), both of which effec-

tively reallocate workers within the internal labour market (Mroczkowski and Hanaoka,

1997; Sato, 1999; Fujiki et al., 2001; Genda, 2003). Moreover, many of the current job

cuts are argued to have been designed to minimize job losses in Japan and to maximize

those elsewhere; some of them are said to be part of early-retirement programmes;

and

others affect the peripheral rather than the core workforce.

Moreover, labour shedding via dismissals and calls for voluntary retirement, which

happens increasingly during the ongoing recession, is still considered the very last resort

for Japanese ﬁrms in streamlining their structures, and to be a measure that only these

ﬁrms in critical condition would resort to (Tanisaka and Ohtake, 2003). Indeed, while

most Japanese ﬁrms have adopted a mandatory retirement system with the age of 60 as

the common retirement age, the system at the same time functions to secure employment

for full-time regular workers until the mandatory retirement age (Sato, 1999). It seems

more appropriate, then, to see the new conditions of employment as modiﬁcations of the

lifetime employment system, not a contradiction of it (Kono and Clegg, 2001). Until now,

the basic structure of the Japanese employment system has remained intact. Lifetime

employment of the core is retained – not only because it is a protected right, but also

because of the heightened dependence on stable and predictable relationships with labour

at the plant level, in the context of tightly coupled production networks and the demands

of producing at high quality on a just-in-time basis.

Similarly, while a few major Japanese employers have made the choice to modify the

rules regarding seniority-based pay and promotion,

this is far from being a modal prac-

tice. In the early 1990s, the recession and the emphasis on the creation of new

GLOBALIZATION, CONVERGENCE AND SOCIETAL SPECIFICITY 539

Economist, 9 October 1997, ‘On a roll’; 18 November 1999, ‘The worm turns’; 23 August 2001, ‘An alterna-

tive to cocker spaniels’.

Japan Labor Bulletin, September 2003, 4.

Economist, 9 October 1997, ‘On a roll’; 23 August 2001, ‘An alternative to cocker spaniels’.

In 1999, Matsushita changed its seniority-based wage system for its 11,000 managers. This behaviour was

followed by some other big companies; i.e. by Fujitsu, Fuji Xerox, Asahi Glass, Asahi Breweries, Kansai Electric and

Itochu Corporation (Economist, 20 May 1999, ‘Putting the bounce back into Matsushita’).

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540 COMPARATIVE INTERNATIONAL MANAGEMENT

technological resources in Japan induced large Japanese companies to renew their incen-

tive mechanisms, particularly their wage systems. Some ﬁrms have introduced a

lump-sum salary that is renegotiated annually and depends to a large extent on individual

performance and on the performance of the employing organization. By linking employee

compensation to both kinds of performance, employers expect that wage levels will be

more ﬂexible in response to changes in individual performance and the economic pros-

perity of the ﬁrm (Morishima, 1995). The new system is also intended to provide

incentives for employees to increase their productivity and commitment to the goals of

their employing organization, as well as to encourage autonomy and individual creativity,

particularly among white-collar workers, whose productivity is considered rather

mediocre, even if this development means sacriﬁcing some of the beneﬁts of cooperation

(Nohara, 1999). Most importantly, the reforms are seen as essential to maintaining the

stability of long-term employment.

The combined review of both employment and seniority systems could probably best

be understood in terms of the need to recover the ‘lost’ balance between jobs, ability and

wages. Technological developments in the past decade have outstripped the skills of

experienced workers, and the need to ﬁll the gap has unleashed ﬁerce competition among

ﬁrms for promising young workers because of their adaptability to new technology.

Younger employees, however, are increasingly less tolerant of the principle of equality

of results and patiently waiting for the promotion implied by the traditional seniority

system (Ornatowski, 1998). Older workers, on the other hand, are highly paid as a result

of seniority-based wage components but do not possess the skills necessary to do the new

sophisticated jobs (Sato, 1999). Reforms of the wage system have thus been motivated by

attempts to achieve advantage in competition with other ﬁrms over the most desirable

young workers, as well as by a desire to make it less costly for ﬁrms to retain older workers.

However, partly as a result of the system’s enterprise-orientated incentives, the new

human resource practices are diffusing only slowly in Japan (Jacoby, 1995).

12.4 Conclusions

This chapter has shown that the internationalization of national economies is reshaping

the characteristics of the systems of corporate governance, industrial relations and

human resources in Germany and Japan – the prototype countries of the Rhineland

model. To some extent, this reshaping involves the adoption of practices that conform

more closely to Anglo-Saxon standards (i.e. the adoption of new accounting practices in

Germany and Japan). As a consequence, the propagation of the globalization myth with

path-deviant changes in the Rhineland model has been possible and credible. In general,

the effects of the new practices on German and Japanese organization and management,

however, are less proof of path deviance or convergence towards the Anglo-Saxon model

than they are of resilience and small-step adaptation within the existing model. This

chapter has assessed the impact of globalization tendencies on organization and manage-

ment by assessing changes in three core components of the German and Japanese

production and innovation systems.

The systems of corporate governance, industrial relations and human resources have

all been affected by these tendencies, albeit to a different degree. The corporate governance

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