Sanford M. Jacoby, The Embedded Corporation: Corporate Governance and Employment Relations in Japan and the United States.

Carroll, William K.

Sanford M. Jacoby, The Embedded Corporation: Corporate Governance and Employment Relations in Japan and the United States (Princeton: Princeton University Press 2004)

IN RECENT DECADES, swelling capital flows and trade have rendered advanced capitalist countries increasingly interdependent. But does globalization mean convergence of previously diverse national systems of corporate governance and employment relations? This book offers a nuanced answer, based on a well-executed comparative case study of corporate business in Japan and the United States. Along the way, we get an historical narrative on the changing shape and form of capitalism in the most recent three decades of neo-liberalization and financialization. Although Jacoby accepts that there has been a net shift from plan (or organization) to market in corporate employment and governance arrangements, the case analyses reveal a great deal of diversity within each country at the level of specific firms, and a temporal unevenness grounded in the fact that no one business system is inherently superior to another. As part of the competitive process, businesses continually scan across changing national contexts for the most profitable organizational forms.

Confirming the principle that "when a nation enjoys macroeconomic success, it will be regarded as a model for its slower-growing peers," (14) the fabulous success of Japanese stakeholder capitalism in the 1970s and 1980s, years of visible American decline, led (some) US corporations to adopt (some) Japanese approaches. With the collapse of Japan's "bubble economy" in the 1990s and the resurgence of corporate America under the sign of deregulation, the flow of emulation reversed. Most recently, as scandals and crises have beset American shareholder capitalism, the flow may be reversing yet again. Yet in each period the process of transnational emulation has been only partial--this because of the obdurate reality flagged by the book's title. Corporations, and corporate management, are socially embedded, not only in distinctive national contexts but in specific industries, and their trajectories are therefore path dependent.

Jacoby tells these comparative stories from a specific place--the Human Relations [HR] departments that in Japan have been integral to business structure and strategy but in the US have tended to occupy the lower tier of corporate organization. The traditionally centralized and paternalistic mode of organization in Japan has given HR departments broad mandates in labour relations, employee-welfare services, and the grooming of potential managers. The senior HR executive has typically sat on a company's board of directors, exercising some power in setting overall corporate strategy and even representing workers, after a fashion (indeed, many HR executives have been recruited from the upper ranks of enterprise unions). In the US, this sort of corporatism, and the accompanying stakeholder corporate governance, has been extremely rare. The employment system has been market-oriented rather than organization-oriented, with higher turnover, shorter job durations, low training expenditures, and a managerial antipathy toward unions. The corresponding regime of American corporate governance, particularly in the late 20th century, gave priority to shareholders over stakeholders and brought the market into the interior of the firm itself, as corporate divisions were granted autonomy but appraised and regulated via financial criteria. In such a system, HR departments and personnel managers occupy a subaltern status. They have little in the way of an organizational function compared to chief financial officers, whose quantitative strategic judgements inform the buying and selling of units and the comparative assessment of divisional performance. In a business culture dominated by quantitative norms, HR departments deal with qualitative problems, and they attend to employees--a "factor of production" that in the American system lacks stakeholder status.

As one might gather from this very brief synopsis of an empirically rich text, Jacoby's interpretation relies substantially on a version of structural-functional social theory, which is never made explicit. National business systems cohere around deeply seated norms and values, and functional interdependencies among institutions create organizational inertia. Change comes slowly, through selective adaptation, muting any global tendency toward convergence. In the same way that Toyotism, although widely mooted in the 1980s as the face of corporate America's future, did not become the general norm for US corporations, today "those who think that the large Japanese corporation will gradually morph into its American counterpart are mistaken." (166) Each system is stabilized by embedded societal norms, such as the Japanese obligation of employers to employees and the conception of the corporation as a community of stakeholders. While norms stabilize the system, one vector of change issues from the efforts of 'norm entrepreneurs' to create an impression of normative change strong enough to induce a self-fulfilling prophecy--a bandwagon effect that overcomes the reluctance of actors to switch norms unless they believe others are also switching. In contemporary Japan, candidates for such a role include American-based institutional shareholders in Japanese firms, now pushing US-style corporate governance reform, the local business press, which has advocated the same reform, and the Liberal Democratic Party, which has enacted a raft of business law legislation in the past decade that privileges shareholders over stakeholders. However, the culturally embedded character of the Japanese corporation makes normative change very difficult, and the fact that Japanese firms reap international competitive advantages from being distinctive in their organizational form ensures a good measure of continuity. In the US, the Enron scandal and the more general collapse of the equity bubble may have weakened the position of shareholders. Yet actual reforms to corporate governance have been mini-real, and other collective actors such as the labour movement (which has aligned itself with reform-oriented institutional investors) are at this point more "straws in the wind" than entrepreneurs as the term is normally understood. Still, in the bastion of investor capitalism, crises and falling share prices do undermine the hegemony of finance in corporate governance while they open opportunities for others with alternative approaches to "the creation of corporate value," (163) including those urging the adoption of a Japanese style of managing internal resources. Ultimately, Jacoby concludes, neither convergence nor the reproduction of divergent capitalisms furnishes a satisfactory grand narrative for the trajectories of corporate governance and employment relations in Japan and the United States. Corporations adapt to changing conditions in ways that fit preexisting institutions and social values: there is no overarching convergence process but an inertial, piece-meal hybridization--a continuity in change.

My only criticism is paradigmatic. Jacoby's study is informative and, on its own terms, reasonably persuasive. The structural-functional framework and the top-down view of corporate organization serve well for the cases and purposes at hand. However, a labour-centred standpoint, and a greater range of cases (including instances where labour movements have mobilized more effectively and/or autonomously than in the US and Japan) might yield a rather different picture of employment relations, corporate governance, and the agents and structures that bring about the creation of value. The corporation is embedded not only in culture but in class relations that run deeper than the level at which this study has been undertaken.

William K. Carroll

University of Victoria