Japanese Company Law Amendment Public Comments – Several Refer to the Need for Director Training

Below are some recent requests that arose in the Company Law Public Comment process, highlighting the need for board/director training in Japan.

The interesting points here are that: a) the MOJ was not asking for any comments about training (there is nothing about that topic in their proposal),…but they got comments about training; b) Keizai Doyukai, the influential Japan Association of Corporate Executives, alsomentioned the need for training; and c) Japan is one of the few markets with absolutely no rules whatever regarding director/kansayaku training (or disclosure of company policy thereof), in either hard or soft law.

At BDTI we are collecting all public comments we can here , because MOJ told us they will not make the public until at least a month from now…maybe two months —( i.e., until the cigar smoke has cleared and it is all decided so the comments are moot anyway)

We will be updating this with more submissions we find in the next few days. If you know of a submission which we have not listed, please let us know by sending an email to info@bdti.or.jp . Later on, we will put links at the bottom below to to all the submissions that are known to have English translations. These will be available to registered users of BDTI's Discussion Forum.

Keizai Doyukai (Japanese Association of Corporate Executives )

page 3, bottom of Japanese version

…..Following the TSE regulations which required each listed company to appoint at least one independent board member [a term that includes statutory auditors], the number of companies bringing on independent outside director in their boards can be expected to increase. In order for independent director to take root in Japan and truly function, while basing things on the current rules and leaving matters up to the autonomy of each company for the time being, we should aggressively proceed to fortify training and the “human resource market” for candidate independent outside directors. When the number of companies which have at least one independent director reaches a certain level, for example 70-80 percent, we should consider strengthening the [criteria for] independence outside director, in the listing rules most of all.

ACGA Public Comment on Company Law, 1/31/2012

page 4 bottom

In addition, we strongly recommentd that all board members – outside and inside directors – undergo training to ensure they understand their fiduciary duties and legal liabilities under law, the listing rules of the Tokyo Stock Exchange (TSE) and current best practices in corporate governance. Governance is an evolving, not static, process. We further recommend that the the TSE amend its rules to require detailed disclosure in the Corporate Governance Reports of the nature and extent of their director training policies and records. Most financial centres around the world, and even many emerging nations, have developed soft-law guidelines on director training. Japan is an exception in not doing so yet.

ACCJ Public Comment on Company Law, 1/31/2012

First page

Summary Recommendations:

The ACCJ recommends the following specific changes to Japanese law and regulation with respect to all listed companies in Japan:

(a) amend the Company Law to require that at least one-half of the members of the board of directors be independent outside directors;

(b) amend the Company Law, consistent with global best practices, to require that persons serving as outside directors and outside company auditors (1) not be employees or other related persons of another company that has a significant business relationship with the listed company and (2) not be employees or other related persons of a subsidiary of the listed company’s parent company;

(c) add detailed rules to the Company Law and/or the Financial Services Agency (FSA) regulations to require each listed company to: (i) identify which, if any, directors or director nominees fit the definition of independent outside director; (ii) for each director or director nominee that is identified as independent, disclose any transactions or relationships that were considered by the company’s board of directors in determining that the director is independent; and (iii) disclose the company’s policy with regard to director training, both with respect to training of executive directors before nomination, and continuing education of all directors;

(d) amend the Company Law to permit a board of directors to formally delegate decision-making authority on specific matters to a “special board” comprised entirely of independent outside directors, along the lines of Article 373 of the Company Law; and

(e) where no such “special board” consisting solely of at least three independent outside directors is utilized with regard to specified types of board resolutions where the risks of self-interest and conflicts of interest are inherently high, amend the Company Law to shift the burden of proof to the board of directors with regard to satisfaction of its duty of due care and duty of loyalty.

ACGA Submission to the Interim Proposal Concerning Revision of Commpanies Act

ACCJ Comment on the Interim Proposal Concerning Revision of the Company Law 

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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