If you are ever in the situation I described in “Outside Director Lessons #8” (see link below), here is what you can do. To begin with, in that situation, you might begin before the AGM, by quietly asking the person that investors supposedly want as the replacement CEO, if he or she really wants the position and why, and what leadership approach he plans to take. Being a CEO is always a lot of work, especially if you have other activities. The person may respond without a lot of clarity, or even signal a sort of reluctance. That is vital information.
Next, consider that immediately after an AGM in Japan, the board almost always meets in order to appoint (or re-appoint) the CEO, and to decide other matters that need to be resolved immediately. We can change the CEO at any point in time later on, but if the former Representative Director has just been re-elected for a new term, we have to decide whether we want to re-appoint him or her as CEO, or appoint someone else, or even (perhaps) give additional persons the “representative director” title. Otherwise, legally the company will not have a Representative Director to lead it.
Therefore, you know the topic is going to come up immediately after the AGM, and you will need to prepare your lines in advance. (Therefore, consult with your personal lawyer if you need to.) The chair of the board, or another director, will propose (as a resolution) that one of the new directors (Mr. X) be appointed as the Representative Director and CEO, leading to the result that the former CEO will have been effectively terminated because his former term expired and he was not re-appointed. At that point, if you really do not have enough information to form the basis of a decision either way, simply respond that you cannot agree with the resolution because of that. In fact, you wonder how others could have formed an opinion so quickly given that this is an entirely new board. This being the case, “it would make more sense to keep the current CEO on for the time being”.
Then, counter-propose that you would be willing to consider a possible change in the CEO two months later. During that time it should be possible to form an opinion on the subject. You might say, “Let’s postpone this decision for a while. We have many other pressing matters to deal with immediately. Moreover, we just stated in our proxy materials that Mr. X would be serving as an ‘outside director’, which means ‘not as an executive. To immediately turn around and appoint him as Chief Executive Officer five minutes after the AGM would at minimum make that appear to be misleading disclosure by the company, and might even be considered to be a misrepresentation under securities law.”
Since most boards in Japan – and indeed, in any country – vastly prefer all of their decisions to be unanimous, this will almost certainly stop the termination plan for the time being, and give you time to figure out what is best for the company. If it does not, at the board meeting specifically request that your reasons for opposition be included in the board meeting minutes. If doing that doesn’t tilt the balance, you probably should consider resigning. Most likely just saying that you will consider resigning, will tilt the balance, but even so you would probably want to resign anyway at that point.
Nicholas Benes
(writing in his personal capacity and not representing any organization).
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If you thought this post was helpful, here are many other posts in this series, which will continue! Please come back for more.
Outside Director Lessons #11: Committees Need Rules(click)
Outside Director Lessons #10: Directors Set Direction(click)
Outside Director Lessons #9: Appointing the CEO(click)
Outside Director Lessons #8: The Role of the Board(click)
Outside Director Lessons #7: If No D&O…Get It Yourself(click)
Outside Director Lessons #6: Insist on Total Independence!(click)
Outside Director Lessons #5: Being a Whistleblower Hotline(click)
Outside Director Lessons #4: What is Worse Than the Company Going Under?(click)
Outside Director Lessons #3: How Suddenly Companies Can Collapse! (click)
Outside Director Lessons #2: My First Experience as an Outside Director (click)
Also, kindly please read the post below, consider making a donation(click) to BDTI so we can keep contributing to good governance, Japan’s future, and sustainability… and share these posts widely!
Outside Director Lessons #1: Genesis of Director Training Nonprofit BDTI(below)
On 4/16/2023 I became 67 years old. On this “occasion” I would like to ask you to consider donating to The Board Director Training Institute of Japan (BDTI), which I have led in offering director training in Japan for almost 14 years now, training about 3,000 persons in our programs, and many more via e-Learning. At the same time, going forward, I also will attempt to make a series of posts (on this discussion forum) giving a perspective or story related to corporate governance, based on recent events and/or my own 15 years of experience sitting on boards here (or the experiences of people I know), that will be light, easy reading but hopefully also be thought-provoking.
BDTI’s work is “missionary work” that requires passion and commitment. Perhaps these stories will be of interest in terms of revealing why I do what I do, the challenges that face Japan and its companies and investors, and how they can be overcome.
Because Japan does not have a customary or mandatory requirement for serious director training, BDTI’s courses need to be “subsidized” in some way so that we can offer high-quality programs at a price point that is low enough to attract our (overly frugal) customers, –that is to say, at prices that on a per-person-per-hour basis are one-third of less than in other developed markets. (Even paying low salaries and donating a lot myself, this is the market reality). Moreover, “G” is the foundation on which the “house of ESG” is built, but that fact is not as widely recognized as it should be.
We “subsidize” and lower our prices in three ways: 1) first, by skimping on all expenses at a small office in the suburbs of Tokyo; 2) second, by receiving donations from individuals and institutional investors who think it is important to improve the effectiveness and trustworthiness of corporate governance in Japan; and 3) third, by collecting and normalizing a long-term “big data” structured database of information (including text), and selling access to it to large fund managers, including large quantitative funds.
At long last, Japanese institutional investors are now considering to support us, but this will take a bit more time…so we need your help, even if it is just a few thousand Yen.
BDTI’s Update and Plans for FY2023: https://blog.bdti.or.jp/en/2023/03/27/fy2023/ – This contains the most recent information, concisely.
BDTI’s Training Programs: Best to look at: https://bdti.or.jp/director-training/ using Google Translate.
To Donate:
https://bdti.or.jp/en/about/make-a-donation/
Please share this post widely !!!
Thank you,
Nicholas Benes
Representative Director, The Board Director Training Institute of Japan
What happens after legally the company will not have a Representative Director leading it?
A company must always have a Representative Director, or it cannot act.