"What Did Corporate Executives, Outside Directors, and Large Shareholders Really Do? Corporate Governance of Tokyo Marine Insurance and Taisho Marine and Fire Insurance"

Okazaki, Tetsuji

July 2015

This paper addresses a fundamental question of corporate governance, "What do corporate executives, outside directors, and large shareholders really do?" from a historical perspective. Although this question is essential, it has not been fully addressed in the literature because of the constraints of relevant information and materials. This paper overcomes this problem by using a detailed diary written by Hachisaburo Hirao, who worked for many large companies in prewar Japan, including Tokyo Marine Insurance and Taisho Marine and Fire Insurance. In this diary, he described in detail how corporate executives, outside directors, and large shareholders thought and acted. This diary and other related materials reveal that the planning and implementation of managerial policies at Tokyo Marine Insurance and Taisho Marine and Fire Insurance was entrusted to corporate executives. This means that management was separate from control, but there were agency relationships between shareholders and corporate executives. The agency problem was resolved by a "voice" mechanism of outside directors representing large shareholders and corporate executives. Outside directors indeed gave advice, applied pressure, and ratified managerial policies at the directors’ meetings and on other occasions. These findings imply that these companies were governed by the typical Anglo-Saxon type or the "market-oriented" type of corporate governance.