NEC ELECTRONICS Harvard Case Solution & Analysis


Question 1

a. What characteristics of NEC Corporation make it similar to a classic Japanese Kereitsu?

            The corporate governance system in Japan is known to be called as Kereitsu. However, it can also be called as set of business interrelationships and the shareholdings of a set of interlocking businesses. Basically an informal business group is an example of Japanese Kereitsu. As far as NEC Corporation is concerned, there are many characteristics of NEC which are similar to a classic Japanese Kereitsu.

            NEC is comprised of different set of interlocking business relationships and with different shareholdings of the parent company in each of these businesses. Moreover, Kereitsu is a key element of the automotive industry of Japan which is again evident from the case of NEC Corporation. There are basically two different types of classical Japanese Kereitsu which are the horizontal and the vertical Kereitsu. The case clearly depicts that NEC Corporation has its own set of vertical Kereitsus. All these characteristics make NEC Corporation similar to a classic Kereitsu.

             First of all, if we talk about the owners of the companies, then self dealing of the shareholders is not defined formally by the law of the country. The transactions between the shareholders and the company are not under the scrutiny of the courts in Japan. However, this is not the case in US where all the transactions between the shareholders and the companies are under the scrutiny of the courts.

            This means that the shareholders in Japan are not required to prove that their dealings are fair or not. As a result there might be agency problems created within the organizations. If there are agency issues, then there would be issues associated with the suppliers, employees and the financiers of these companies. The financiers would not be aware of the fact that whether the management was borrowing the required money to invest in certain projects which are in the best interests of the shareholders of the company or not.

            The banks as a result might be lending money for purposes which are not at all within the fiduciary responsibilities of the management towards their shareholders. With regard to the employees of the organization, unfair compensation plans could be devised as the shareholders are not having any hand in the board matters and the management is working on the basis of the stakeholder capitalism model.

            Finally, with regard to the suppliers, the management might not be conducting and recording transactions at arm’s length and they might also not be making the efficient use of the capital of the shareholders. Overall, the corporate governance system of Japan lacks the strength to protect the minority shareholders who are also the ultimate owners of the company. The management can easily weaken the power of the shareholders in deciding an important issue. ....................

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