In April 2026, two distinct pieces of news concerning corporate governance emerged simultaneously. One was the introduction of a “rotating CEO system” by Foxconn (Hon Hai), the world’s largest electronics manufacturing services company. The other was the simultaneous disclosure of “Corporate Governance Reports” by multiple listed companies in the Japanese market.
At first glance, these two developments seem unrelated. However, for you, a manager of a small or medium-sized enterprise (SME), this “coincidence” carries extremely important implications. It reveals the reality that a significant disconnect can sometimes arise between the “Implementation” and the “Reporting” of governance. This article provides perspectives on overcoming this disconnect and incorporating effective governance as a “higher-level management design.”
The Surface and Depth of the News: Foxconn’s “Design” and Japan’s “Reports”
First, let’s break down the news.
Foxconn announced the appointment of Mr. Michael Chang as its new Rotating CEO, aiming to strengthen leadership and governance (Source: PlusWeb3). A “rotating system” is a mechanism where multiple executives take turns serving as CEO for set periods. This is not merely a personnel change. It is the “structural design of governance” itself, intended to decentralize the risk of centralized decision-making, institutionalize the development of next-generation leaders, and enhance organizational resilience.
On the same day, multiple Japanese listed companies (Shanon, KADOKAWA, Kioxia HD, etc.) disclosed their “Corporate Governance Reports” (Source: Nikkei). Additionally, Simplex announced it had received a “SOC1/SOC2 Type 2 Report,” a third-party assessment report on internal controls (Source: Asahi Shimbun). These are acts of “explanation (reporting) to external parties” that the company’s governance framework meets certain standards.
The underlying question is clear: Does the governance framework beautifully documented in the “report” function as a living “design” directly linked to strategy, like Foxconn’s “rotating CEO system”? Or is it merely “paperwork” to meet the requirements of being a listed company? SME managers must discern this very difference.
The Moment “Governance for Reporting” Halts Business
In many organizations, especially companies at a growth stage where governance is imposed as an “obligation,” the order of judgment is reversed. The proper order should be:
- What is our company’s “desired business”? (Growth strategy, crisis response)
- How do we design the “mechanism for decision-making and execution” to achieve it? (Governance design)
- How do we make that design compliant with “legal and accounting rules”? (Legal/accounting implementation)
- Finally, how do we “explain it externally”? (Reporting)
However, in reality, the following reverse-order thinking often takes precedence:
- “Listed companies must issue governance reports.” (Reporting obligation)
- “Should we be a company with a board of auditors or a company with committees?” (Legal form)
- “The board of directors’ operating regulations should be like this.” (Rule establishment)
This is “governance for reporting.” In this state, governance is merely a cost and a constraint. When new business opportunities or rapid decision-making are needed, brakes are applied with reasons like “due to governance procedures…” This completes the very structure where governance halts business.
Foxconn’s rotating CEO system avoids this reversal. They likely had their own specific “desired business/risks to avoid,” such as “intensifying global competition,” “increasing supply chain complexity,” and “succession planning challenges,” and chose the “rotating system” governance design as one solution. Reporting is merely the outcome.
The First Step for SMEs to Start “Design-First” Today
So, how can SME managers aiming for an IPO or who have already reached a certain scale transition to this “design-first” governance? You don’t need to suddenly introduce a rotating CEO. Start with the following three concrete actions.
1. Create a “Decision-Making Map”
List 5 to 10 of the most important decisions in your company (e.g., investment of over ~$65,000 in a new business, key personnel changes, response to major compliance incidents). Then, visualize the actual current decision process for each using a flowchart. Even if “the board of directors is stipulated,” the reality might be the president’s sole decision. Honestly depicting this “reality” is the starting point. This is your company’s governance “As-Is” model.
2. Derive the “To-Be” (Ideal State) from Business Goals
Next, review your “desired business” goals, such as those in a mid-term management plan. For example, if there is a goal to “increase overseas sales ratio to 30% in 3 years,” what decisions are necessary? Examples might include “decision to establish a local subsidiary,” “authority to appoint the responsible person for local hiring,” and “approval for small-scale local procurement.” Is your current “decision-making map” structured to make these decisions swiftly and appropriately? Derive from your business goals and sketch the ideal decision process (To-Be model).
3. Present Options A/B/C to Fill the “Gaps”
You will inevitably find “gaps” or “contradictions” between “As-Is” and “To-Be.” For example, suppose there is a problem: “Decisions on overseas expansion are effectively made solely by the president, limiting both speed and perspective.” Ending with “then let’s decide at the board of directors” is the traditional approach.
Design thinking involves presenting multiple options:
Option A: Appoint a dedicated executive officer (full-time) for overseas business, delegating decisions up to a certain amount. The president and board only approve strategic direction.
Option B: Add one external director with rich international experience to enhance the board’s own decision-making capability.
Option C: Establish a joint venture with a trusted local partner, delegating part of the decision-making locally.
Compare the pros (speed, quality, cost) and cons (risk, management cost, human resources) of each, and choose based on your company’s “acceptable risk level.” This process itself is higher-level governance design. Legal matters (whether articles of incorporation need amendment) and accounting (budget control mechanisms) are merely “tools” to implement this design.
Reports Must Be “Manuals for the Design”
SOC reports and governance reports should be “manuals” for such designed, living mechanisms. The task of creating a report is a valuable opportunity to inspect your company’s governance design from a third-party perspective and articulate it. Incorporate the tough question, “Does what is written here match the actual decision-making flow?” into the report creation process.
The SOC2 Type 2 report obtained by Simplex is a third-party verification that internal controls related to information security and availability are “operating as designed.” This can be seen not merely as obtaining a “seal of approval,” but as an act of verifying the effectiveness of their own “design” for IT governance.
A Common Failure: Delegating to Experts Stops Design Thinking
The biggest failure pattern is completely outsourcing governance by telling experts like lawyers or certified public accountants to “set up our governance.” The role of experts is to support the “translation” and “implementation” that makes the “To-Be” blueprint you have drawn legally and accountingly viable. If you delegate the design of “what should be done” to them, it inevitably results in risk-averse, uniform “governance for reporting.”
When engaging with experts, ask, “This is what our company wants to achieve. To realize this design, what are the legal/accounting constraints and what options exist?” If the expert answers, “That’s not possible,” it’s a signal to avoid stopping your thinking. The next question should be, “Then, within the bounds of the law, what is the closest possible form to achieve our business objectives?”
Summary: Governance is a Dynamic Blueprint, Not a Static Document
Foxconn’s rotating CEO and numerous governance reports. Contrasting these two reveals that the essence of governance lies not in “maintaining static documents,” but in “dynamic management design.”
The strength of SMEs is agility. To avoid losing that agility due to scaling up or increasing environmental complexity, governance design integrated with business strategy is essential. Start by creating a “decision-making map” and honestly face your company’s “As-Is.” Then, draw a “To-Be” model derived from your future business goals, and compare multiple options to achieve it within your risk tolerance. When you place this series of thought processes at the core of management, governance finally transforms from a “brake that halts business” into a “strategic framework that supports growth.”
A report is merely evidence that such a design is appropriate. It is in the design itself where the creativity and responsibility of management are truly tested.
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