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Top>Opinion>Dialog-based approach towards compliance and corporate value


Tsuneo Osawa

Tsuneo Osawa【profile

Dialog-based approach towards compliance and corporate value

Tsuneo Osawa
Lawyer, Professor at Toin Law School and Visiting Professor at Chuo Law School
Areas of Specialization: Theories and Practices of Legal Dialog, ADR and Compliance

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This work was supported by JSPS KAKENHI Grant Number 15K03220. (Public Relations Office)

Corporate value and compliance

Companies are the foundation for our social lives, and accordingly their existence is essential. This form of corporate value is supported by the specific roles companies play in society and compliance (accommodation to the demands called on by society). The better these two aspects are, the higher corporate value is. Personally, I became involved with the implementation of compliance as an in-house lawyer 35 years ago. I have also fulfilled roles such as that of an outside statutory auditor after becoming independent and carried on with compliance education at a law school. I also had the honor to participate in a Grants-in-Aid for Scientific Research (JSPS research grant 15K03220) program led by Professor Shinichiro Toyama of Chuo Law School on the theme of improving corporate value from this fiscal year. Taking this opportunity, I would like to provide a simple introduction of the perspective of compliance which I have worked on until now.

The inevitability of misconducts

When looking at daily media reports, you must have the impression that society is full of misconducts as it is difficult to find a day that doesn’t feature an article on a misconduct involving some company or organization. (However, this doesn’t really mean that there has been an increase for misconducts, but rather that there has been an increase in opportunities for misconducts that lurked in the background in the past to become exposed, in other words society can be considered to have become more transparent.) It is an undeniable fact that serious misconducts have occurred even involving massive companies that were considered to be blue-chip companies. While modern offices in high-rise buildings may seem to be emblematic of unclouded, logical reason and coldly objective systems, it is actual flesh-and-blood people that work within such offices. The occurrence of misconducts is inevitable.

The issues are: a) what needs to be done to ensure that misconducts are not caused by human error, and b) what needs to be done so that companies can immediately take appropriate action in the event of a misconduct. I believe that two important things in common when considering both of these issues are the ability to think independently about the potential issues related to the matter and the bravery to overcome the issues while raising objections without buckling under the authority or pressure.

The weakness of human beings and compliance as encouragement

We are weak human beings. Following WWII, social-psychological demonstrative research including the Asch conformity experiments, the Zimbardo prison experiments, and the Milgram obedience experiments were conducted, proving that people are quite weak in terms of conforming with other people, playing the role expected by other people, and obeying with orders. The same applies for the “rule of the atmosphere.” Firstly, it is necessary to calmly recognize these facts. After that we need encouragement of the bravery to overcome such human weakness, think independently to notice unjust things in one’s daily work, and make frank objections and face and overcome problems head-on (I refer to this practice as “compliance as encouragement”), and the establishment of systems to systematically protect such objections in order to achieve true compliance.

Dialog driven by top management and satisfied agreement

Furthermore, in order to foster the bravery to speak based on independent thought within a company and make this bravery effective, it is important for the top management to always fulfill a leading role and to make ongoing efforts to improve levels of mutually satisfied agreement towards what the problems are and what should be done through dialog including all personnel. Satisfied agreement is something that arises from the blending of what you think is correct and what you feel that you have decided on by yourself, and compliance further improves corporate value by supporting this feeling of satisfied agreement towards what is right and putting decisions into practice from top management to all personnel. In fact, looking at the reports from third-party committees relating to various corporate misconducts, in almost all cases a widespread corporate culture of not being able to raise issues within the company was given as a cause for misconducts, and recommendations for members of top management to serve as the driving force by going out into the field to hold dialogs with employees as a measure to prevent recurrence can be understood given this context. There has been a case in my own experience of the occurrence of a misconduct resulting in thorough and heated discussions (dialogs) that also involved young employees and were driven by top management that led to a change in corporate culture, and fostered a climate that enabled each and every employee to fulfill their duties with the bravery to think independently to notice unjust things and make frank objections.

Narrative compliance

Another important aspect of this dialog-based approach is that fact that people (and companies supported by people) live within narratives that are composed of words. Corporate compliance regulations are an integral part of the narrative of that company’s role and aspirations in society, and it is only when employees identify with these regulations and see them as their own (rather than as something relevant to someone else) that they are carried out. A company’s narrative must also be accepted with the narrative of society that is composed of various stakeholders (including shareholders, customers, financial institutions, business partners, and the general public). Increased social acceptance naturally means an improvement in corporate value. In this sense, it is necessary for top management to tell the company’s narrative to not only its personnel, but also to a broad range of stakeholders in society and to constantly update it through dialogs (the concept of stewardship that has gained attention as of late can be considered to be part of this).

Expectations for the Grants-in-Aid for Scientific Research program

The Grants-in-Aid for Scientific Research program that was introduced at the beginning of this paper is participated by researchers involved in law and economics at Chuo University including Professor Toyama. There are also people active in the field at some of Japan’s leading companies, and accordingly there are high expectations towards this program. The research grant described above has also been received for this paper.

Tsuneo Osawa
Lawyer, Professor at Toin Law School and Visiting Professor at Chuo Law School
Areas of Specialization: Theories and Practices of Legal Dialog, ADR and Compliance
Professor Osawa was born in Shizuoka Prefecture in 1954, and graduated from the Faculty of Law, Chuo University. In 1981, he became registered as a layer and became an in-house lawyer for IBM Japan, Ltd., which is when he became involved with legal activities for corporate compliance. He became an independent lawyer in 1986. In 2004, he completed the doctoral program of Chuo University Graduate School of Law, and received a doctorate in law. His research theme was the principle and technique of dialog in law practice. During this period, he has served roles such as outside statutory auditor for Hewlett-Packard Japan, Ltd., and currently teaches courses on topics including compliance, legal ethics, corporate legal affairs (Toin Law School), and ADR (Chuo Law School).
The author participated in the Grants-in-Aid for Scientific Research program led by Professor Shinichiro Toyama of the Chuo Law School on the theme of improving corporate value to provide input from the perspective of dialog.
His books include Legal Activities Created through Dialog [Taiwa Ga Tsukuru Bengoshikatsudo] (Shinzansha 2011); Legal Dialog Theory [Hoteki Taiwaron] (Shinzansha 2004); and IT Business and Competition Law [IT Jigyo To Kyosoho] (Nippon Hyoron Sha, 2001).