The Reality of “Resistance Forces” in Governance Code Revisions
In 2024, investors are on edge over revisions to Japan’s Corporate Governance Code. According to Bloomberg, the pushback stems from “resistance forces” within companies. Investors fear that if firms resist governance reform, it could negatively impact the entire Japanese stock market.
At first glance, this seems like a big-company issue. But SME owners have much to learn from this dynamic. Why? Because in small and medium businesses, “forces resisting governance reform” exist in a much more raw and tangible form. Founders, founding families, long-tenured employees, and trusted advisors—they all cling to “the way things have always worked.”
This article explains how to understand these “resistance forces” and integrate them into your governance design with concrete, actionable steps.
Who Are the Resistance Forces in SMEs?
The biggest reason governance reform stalls in SMEs is that the owner-manager is often one of the resistors themselves. Or, the leader sees resistors as “enemies” and takes a confrontational stance, causing reform to collapse.
In one manufacturing company I advised, the president championed “governance strengthening” and overhauled internal rules. But department heads pushed back, saying, “We’ve never had a problem before.” The rules became a dead letter, and the president lamented, “My employees just won’t change.”
The key here is not to label resistors as “villains.” Their resistance always has a reason. Often, it’s “status quo bias” or “fear of change.” Or it might be “fear of losing their discretionary power.”
Corporate resistance to governance code revisions is essentially the same. At its core lies anxiety like, “We won’t be able to run the business as before” or “Explaining things to shareholders will be a hassle.”
Three Principles for Governance Design That Accounts for Resistance
So how can you turn resistance forces into allies? Based on my experience, here are three principles.
Principle 1: Treat the Reasons for Resistance as Design Requirements
Instead of seeing resistors’ opinions as “noise to ignore,” treat them as “constraints” in your governance design. For example, if an accounting clerk resists a new system, listen to their reasons. “It’s too much work to input data” or “The old way works fine”—feed these voices into the system design.
In one service company, employees resisted digitizing expense reports. The accounting manager worried about “a more complex approval process.” So we added a feature to simplify the approval flow. The rollout went smoothly.
By treating resistance as a design requirement, resistors shift from being “obstacles to reform” to “partners in reform.”
Principle 2: Clearly Separate What to Keep from What to Change
Governance reform doesn’t have to change everything at once. In fact, by clearly stating what won’t change, you can ease resistors’ anxiety.
For example, when revising internal rules, explicitly say, “We’re only changing the expense reporting rules this time. Travel allowance rules stay the same.” Or, “We’re adjusting some approval authority, but the final decision remains with the president.”
This “what we keep” clarity applies to governance code revisions for investors too. When companies clearly state, “We don’t want to change this part,” it makes dialogue with investors more constructive.
Principle 3: Build Small Successes
The resistors’ strongest weapon is “maintaining the status quo.” To break this, accumulate small wins. Don’t aim for company-wide reform overnight. Pilot it in a specific department or project.
In one IT company, we first introduced a new CRM system only in the sales department. When the sales manager praised it for “making sales management easier,” other departments became open to adoption.
This “small start” approach applies to governance code revisions too. Instead of revising all items at once, prioritize and implement them step by step. Investors will appreciate the steady progress.
Three Actions You Can Take Today
Here are three actions you can start implementing in your company right now.
Action 1: Create a Resistance Map
First, list everyone who might resist your governance reform—both inside and outside the company, including suppliers and advisors. Next, infer each person’s “reason for resistance.” Base this on past words and actions, not just guesses. Finally, rate the intensity of their resistance as “strong,” “moderate,” or “weak.”
Action 2: Make a “What We Won’t Change” List
Before starting reform, have management agree on items that “absolutely will not change.” For example, “The founder’s decision-making authority remains” or “Employee jobs are protected.” Publicize this list to employees to reduce anxiety about the reform.
Action 3: Choose One Pilot Project
Before launching company-wide reform, pick one project with low impact and high chance of success. For example, standardize report formats in one department, or introduce a weekly progress meeting. Once this project succeeds, share the results internally and move to the next step.
Seeing Resistance as a Management Resource
In governance reform, resistance forces are not “enemies to eliminate.” They embody the “reality” of your organization. Governance built by ignoring their voices will remain a pipe dream.
As the Bloomberg article shows, corporate resistance is seen by investors as a “risk to the entire Japanese stock market.” But flip that around: companies that manage resistance well can earn high marks from investors.
SMEs should seize this opportunity. Without the complex organizational structures of large firms, a leader’s vision can accelerate reform. Listen to resistors’ voices and reflect them in your design. That process is what truly strengthens governance.
Who are the “resistance forces” in your company? And how will you use their voices?
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