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The Embedded Corporation: Corporate Governance and Employment Relations in Japan and the United States Hardcover – November 28, 2004
The Amazon Book Review
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"The Embedded Corporation is thoughtful, persuasive, and contextually rich when addressing the evolution of corporate governance and employment relations in Japan and the U.S. . . . [I]t surpasses previous studies of Japanese-U.S. HR practices, contributes to recent debates over the evolution of industrial relations systems and globalization and equally pertinently, presents a significant platform for promising future research on relevant issues."--Emilio J. Castilla, Administrative Science Quarterly
"Sanford Jacoby's latest book with its richly detailed case studies is such a valuable addition to the corporate governance-employment relations literature and a must-read for anyone interested in this area."--Peter Waring, Journal of Industrial Relations
From the Inside Flap
"In a world of glib oversimplifications and theoretical models that claim to explain everything, The Embedded Corporation reminds us of the importance of national culture and history and of the diversity that exists in how companies are managed and governed even within a single country. Rich in historical perspective, institutional detail, and both survey and field data, Jacoby's book updates us on the evolution of human resource management and business strategy in Japanese and United States corporations."--Jeffrey Pfeffer, Graduate School of Business, Stanford University
"The rich historical and contemporary data contained in The Embedded Corporation will disappoint those who want to believe that the American styles of capitalism and human resource management are destined to take over the world. Instead, thanks to Sanford Jacoby we now have the nuanced understanding of how Japanese and American firms differ in these two important areas, and yet how global pressures are moving them in some similar directions. Anyone who seeks to change corporate practices in Japan or the U.S., or who writes about these issues, should stop doing so until they read and absorb the lessons of this masterpiece in comparative research."--Thomas A. Kochan, Sloan School of Management, Massachusetts Institute of Technology
"Sanford Jacoby has provided us with a persuasive and informed perspective on a truly important issue: the reform of corporate governance and employment practices. In addition to his historical analysis, he offers a remarkable comparison of the United States and Japan based on the human resource function in large firms. In recent years, both Japan and the United States have become oriented toward the market and shareholders, yet the gap between them has widened. In an impressive way, this conclusion underscores the existence of 'the embedded corporation' and the varieties of capitalism."--Takeshi Inagami, University of Tokyo
"This very clearly written book represents the first serious attempt to chart what has been happening to the way in which Japanese and American companies have reorganized internally over the last decade of so-called 'globalization.' Moreover, it is by someone widely regarded as one of the leading experts on the subject. Marvelously interesting to read, it will illumine an important and murky debate."--David Soskice, Department of Political Science, Duke University, coauthor of Varieties of Capitalism
"A splendid book, lucid, cogent, and written in a style that is a pleasure to read. The Embedded Corporation is a major contribution to several academic fields, from management studies to industrial sociology to political economy. It will also appeal to human resources people concerned for the future of their profession, those curious about where the Japanese economy is headed, and people generally interested in the distribution of power and income in American society."--Ronald Dore, London School of Economics, author of Stock Market Capitalism
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One giant in the field of comparative analysis is the British social scientist Ronald Dore. In a way, all scholars working on the Japanese corporation are indebted to him. Sanford Jacoby, now a professor of management in the Anderson School at UCLA, remembers coming across British Factory, Japanese Factory in the library of the Institute of International Relations while a graduate student at Berkeley. Then, as now, PhD candidates in economics were advised against reading articles outside the discipline, and reading books was considered a waste of time, as valid research invariably took the form of articles published in academic journals.
But Dore's book opened the author's mind "to the possibility that, along with the usual universalist factors considered by economists, market institutions were produced by contingencies of time and place." And although the author didn't become a Japan scholar (mastering the language was deemed too time consuming), that encounter with what is known today as the "varieties of capitalism" approach determined his whole research career. As he states in the preface of The Embedded Corporation, "the idea that history and society matter--that a rational, economic entity like the corporation is embedded in the particularities of time and place--informs the analyses presented in this book."
Recently, Ronald Dore has turned his research to a more militant line of thought. Building on years of observation, he argues that Japanese and American large corporations take opposite approaches on the core corporate governance question of who owns the company. Japan has a type of stakeholder welfare system that gives weight to the concerns of employees and other groups, whereas U.S. governance cedes sovereignty to shareholders alone. Welfare capitalism is on the defensive against the inroads of stockmarket capitalism, and the fascination with the US model threatens to unravel the institutions of the Japanese model.
A more nuanced picture emerges from The Embedded Corporation, which compares corporate governance and employment relations in Japan and the United States across time and across sectors. In the United States, the prevalence of shareholder-oriented governance is a rather recent phenomenon, and employees were not always considered as a cost to be minimized. For example, Jacoby argues that, by the 1950s, U.S. society was viewing a "good" employer as "one who treated employees as members of the enterprise and provided them with economic security and fair treatment". He also cites a study prepared in the 1950s, which reported that many corporate managers in the United States claimed that "stockholders have no special priority; they are entitled to a fair return on their investment, but profits above a `fair' level are an economic sin".
Reflecting this viewpoint, HR departments in many U.S. companies did not always stood at the bottom of the managerial hierarchy. The author shows that "when there are labor shortages, new laws to comply with, or threats from unions--that is, when the external environment creates uncertainty--personnel managers have found themselves in relatively powerful positions, with substantial budgets and a role in strategic decisions." But these have been rare moments: "when the external environment has been stable and predictable, personnel management has usually been low man--or low woman--on the corporate totem pole".
By contrast, in Japan "the HR function ranks relatively high in the corporate hierarchy and influences strategic decisions related to executive careers and budgetary allocations. Many senior HR executives participate on company boards, where they join others with HR backgrounds. As the majority of Japanese executives still espouse "stakeholder" rather than "shareholder" values, enterprise unions and employment security--two of the three pillars of the Japanese employment system--remain in place, at least in large companies. The relative importance of seniority, the third pillar, is declining, but that is a long-term trend--it was in 1965 that Nikkeiren first recommended the de-emphasis of seniority--and (...) the share of pay based on individual performance remain below U.S. levels."
The status and power of Japanese HR departments can be traced to four main causes: organization-oriented employment policies, focussed and centralized corporations, encompassing enterprise unions, and stakeholder corporate governance. The author sees pressure for change in those four areas, driven in part by "norm entrepreneurs" who want to lay claim to a larger part of a company's resources. But "reslicing the corporate pie in Japan is trickier than in the United States because the Japanese institutions that determine who gets what are based on norms embedded in Japanese society." And sometimes market pressures have centralizing effects that are paradoxical.
Creating spin-offs by outsourcing corporate functions provides the cover for actions that would otherwise be difficult to effect, such as wage cuts and job shrinking. Adopting the corporate-officer system might change the balance of power within the board, but executives with a background in HR management or at the company union still find access to corporate decision-making. New pay systems have the effect of widening pay differentials for employees with similar seniority and grades, but the proportion of total compensation based on performance remains comparatively small. Transfers of surplus employees to subsidiaries and suppliers (shukkô), as well as mid-career hirings (chûto saiyô), are making organization boundaries more exposed to market influences, but these developments are reinforcing the organizational functions of central HR departments, who are taking greater responsibility for managing movements across boundaries so companies can maintain internal pay and promotion norms. And even in the companies that are shrinking headquarters, central HR show a countervailing tendency to take tighter control over career planning for the company's fast trackers and high flyers, identifying the best talents and grooming them for senior management positions.
To sum up: "The reforms taking place inside large Japanese companies do not amount to a phase shift or what is fashionably called a "punctuated equilibrium". Corporate governance is changing slowly, sometimes more in form than in substance. The decline in union power has been a long, slow drift, taking place chiefly outside the large companies. And what the stronger market orientation evinced by many companies comes down to is greater choice in job assignments and some fudging with performance weights to accommodate high-flyers (...) In short, a single new hybrid is not emerging, but rather companies are finding different ways to adapt the traditional practices to pressures from markets, investors, and employees."