METI Proposes Relaxing Definition of “Independent Outside Director”

According to a Nikkei Newspaper report as of June 24, 2010, METI has issued a number of proposals to the Legal Affairs Advisory Council, which reports to the Minister of Justice, with regard to amendment of the Company Law. According to the Nikkei, these proposals include:

1) In-house executives should be able to become outside directors after several years following their retirement. Apparently, companies have complained that the inability to appoint retired executives from the same company makes it difficult to find people to serve as independent directors. (Note: Having said this, if there are sufficient persons available who have retired from one company, it is hard to understand why such persons are not available to serve as directors at other firms.)

2) Companies with a majority of outside directors should be exempted from the present requirement that shareholder approval be obtained with respect to executive compensation, and should be allowed revise their corporate charters with approval by more than half of shareholders instead of the current two-thirds.

3) Exchange offers (tender offers using newly issued shares of the acquirer) should be facilitated.

A bill to revise the Company law could be submitted as early as the ordinary Diet session in 2012.

The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.

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