© Ecstrat 2019

To view the dislaimer and privacy policy, please follow the following link: Terms & Conditions.

NGR : Network Governance Regime

Network based governance regimes are characterised by the horizontal networks, which often control listed companies. They have most in common with Coordinated Governance Regimes such as Germany where equity markets have also generally played a secondary role to bank finance.

Definition

Equity markets

As an outsider It is often difficult to identify the proportion of a company’s shares which are effectively controlled by members of a network, when examining the shareholders of Japanese and Taiwanese companies. Many companies may appear to have diffuse ownership and control to an extent, which does not reflect reality. In Japan, these networks are based on banking and/or supplier relationships with customers. Many networks predate the Second World War and the proportion of cross-shareholdings centred around the big banks has been steadily unwound since the late 1990s.

The relationships with labour are also similar to those prevailing in Coordinated Governance Regimes, in the form of lifetime employment and seniority-based promotion. There is also an emphasis on incremental innovation taking place within large companies, rather than the radical innovation brought about by entrepreneurs as in the US.

Broader economy

Challenges
and potential change factors

The relative inflexibility of NGRs at the company level has deterred domestic investment and resulted in falling ROEs at many companies. In the specific case of Japan, the government is attempting to rectify this by exerting pressure on companies to move closer to LGR type objectives such as higher ROEs. There is also a relative paucity of entrepreneurs, for example only $800m of venture capital deals were completed in Japan in 2015

Markets