Reforms of corporate governance in East Asia: December 2022

At the heart of corporate governance reforms in East Asia is board re-composition legislation aiming to alleviate the prevalent agency conflicts. The principal-principal agency conflicts associated with controlling shareholders are prevalent in China, Korea and Taiwan while the managerial entrenchment along the declining role of (main) bank is a concern in Japan. Countries such as Korea have actively initiated reform in contrast to Japan, which has adopted a conservative approach. Taiwan and China take a more moderate approach that lies between active reform and conservatism. While the reforms have shifted the governance system from the traditional relationship-based insider model towards the outsider model, empirical research evaluating the effectiveness of the reforms has been indecisive. The remaining challenges the region faces, regardless of the approach to board re-composition reforms, are ensuring effective implementation of these reforms to enable the independence of the board so that it may execute its monitoring function.