Collective intelligence or groupthink? Group decision making under the Japanese Companies Act

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Abstract

Japanese corporate law (the Companies Act) requires that boards have three or more directors, and thus makes group decision making obligatory within firms. But according to some observers, boards of directors are often a mere formality in Japan, especially for non-public and small-to-medium-sized firms. The literature of behavioural science shows that group decision making does not necessarily produce better outcomes than individual decisions. In fact, a model of a group decision making shows that it can cause underinvestment at firms. The three-or-more requirement was formed with path dependency dating back to the late 19th century when Japan transplanted legal systems from overseas, but it was by no means the standard. Giving managers flexibility in organizational design is desirable in that it can accommodate firms’ internal characteristics and tendencies and facilitate the establishment of start-ups, new subsidiaries and joint ventures.

Keywords: Corporate Law, Corporate Governance, Decision Making, Cognitive Science, Behavioural Finance

JEL Classification: G34, G41, K22

Received: 02.05.2018

Accepted: 04.07.2018

Published online: 20.07.2018

How to cite this paper: Asaoka, D. (2018). Collective intelligence or groupthink? Group decision making under the Japanese Companies Act. Corporate Board: Role, Duties and Composition, 14(2), 27-37. https://doi.org/10.22495/cbv14i2art3