Tag: Company Law

What Needs to be Added to the “Action Program for Accelerating Corporate Governance Reform: From Form to Substance”

2024-08-23 posted by

Nicholas Benes
Representative Director, The Board Director Training Institute of Japan (BDTI)
(The following is my personal opinion and not that of any organization. This is a translation of the original article.)

As sent to prospective candidates to be the next Prime Minister, in no particular order:
Chief Cabinet Secretary Yoshimasa Hayashi, Minister for Foreign Affairs Yoko Kamikawa, Minister of Economy, Trade and Industry Ken Saito, Minister for Digital Transformation Taro Kono, Minister in Charge of Economic Security Sanae Takaichi, Secretary-General of the Liberal Democratic Party Toshimitsu Motegi, House of Representatives Member Shigeru Ishiba, House of Representatives Member Shinjiro Koizumi, House of Representatives Member Takayuki Kobayashi, House of Representatives Member Seiko Noda, House of Representatives Member Katsunobu Kato.

CC: Prime Minister Fumio Kishida, Deputy Chairman of the Liberal Democratic Party’s Political Research Committee Masahiko Shibayama, Parliamentary Vice-Minister of Health, Labor and Welfare of the Liberal Democratic Party Akihisa Shiozaki, Deputy Secretary-General of the Liberal Democratic Party Seiji Kihara, House of Representatives Member Kenji Nakanishi.

Japan’s Corporate Governance Code (CGC) and the investor Stewardship Code need to function as “two wheels” of a cart. I had advocated this since 2013, and when I had the opportunity to formally propose the establishment of the CGC to the Liberal Democratic Party in 2014[1], I insisted that the most important thing was to “promote the disclosure of information that enables one to verify governance structure and substance” at firms.

“Governance and oversight are more likely to function effectively on a board that has a majority of truly independent and qualified independent directors.” As of 2014, this dynamic had been recognized in many countries around the world. At the time, I thought that if companies disclosed their actual governance practices and stewardship by investors started functioning well, Japan, as a developed country, would naturally adopt a similar stance within the next five years or so.

Ten years later, however, there is still no serious discussion of these two issues in Japan. Now that global investors are paying more attention to the Japanese stock market, I believe it is time for us to confront these core issues and take the following steps to speed up Japan’s governance transformation.

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The New Whistle-blower Protection Bill, from the Perspective of the Olympus Case

2020-04-07 posted by

The current Whistleblower Protection Act was enacted in 2004 and was enforced in 2006. It was said that the scandals of the recall cover-up by Mitsubishi Motors and the disguised beef origin by Snow Brand Foods brought the new Act. However, from the beginning, it was criticized that the range of target facts was too narrow, prevention measures for retaliation were not effective, etc. Based on the supplementary resolutions of the Diet and the supplementary provisions of the Act, the Consumer Commission Whistleblower Protection Special Research Committee was established, and discussions were underway for revision. However, the speed was very slow. The Committee finally issued the report in December 2018. Public comments were solicited for the new appendix table to the Act regarding the target laws. The amendment bill was approved by the Cabinet on March 9, 2020. It is now planned to submit to the National Assembly.

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“Japan’s Unfinished Corporate Governance Reforms”, by Nicholas Benes

2019-12-04 posted by

My article on Japan’s unfinished reforms is online now. Lest the Abe administration and regulators “declare victory” when they are only half done, I describe seven specific measures that Japan needs to adopt in order to bring its market up to a global standard for a developed nation:

  1. Detailed rules for an independent committee
  2. A clear requirement for a majority of independent directors on the board
  3. Codifying the role and responsibilities of executive officers
  4. Consolidation of overlapping disclosure reports
  5. Protection of minority shareholder rights
  6. Enhancing transparency to reduce entrenchment and enhance inclusiveness
  7. Strengthening stewardship throughout the investment chain

I stress the reality that in all of these, strong political leadership from the Prime Minister and other senior parliamentarians will be needed. “Thus, is it essential that the Tokyo Stock Exchange (JPX/TSE) and the various regulatory agencies keep up reform momentum. However, one senses a desire from these groups to ‘declare victory’, and they have a tendency to not fully coordinate with each other. If Prime Minister Abe’s cabinet did more to make the key players coordinate their efforts in key areas, meaningful governance change (and protection of investors) would accelerate….

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Some Simple Questions for Softbank

2019-11-11 posted by

For companies with Softbank Group’s corporate governance structure (a company with Board of Statutory Auditors), Article 362 of Japan’s Company Law stipulates the following:

…..(4) [the] Board of directors may not delegate the decision on the execution of important operations such as the following matters to directors: [which means: “may not delegate these matters to directors or anyone else with executive responsibilities. In other words, the board must approve the following: ]
(i) The disposal of and acceptance of transfer of important assets;
(ii) Borrowing in a significant amount;
(iii) The appointment and dismissal of an important employee including managers;
etc. “”

Because of this language in the law, companies draft up “criteria for board decisions” (“fugi kijun”) , and have them approved by the board. These criteria define numerically (and in other ways if necessary) what will be considered “important” under each of the categories set forth above and therefore will require board approval, e.g. purchases of real estate larger than 1.0 Billion Yen (about $10 million), investments or acquisitions larger than 2 Billion Yen ($20 million), etc. – a “limit amount” referred to below as “X” .

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What is the Difference Between Mr. Ghosn’s Deferred Compensation and Hiring Post-Retirement Directors as “Advisors?”

2019-08-13 posted by 1 Comment

When you squint closely at the facts, not as much as you might think. Mostly, it is the difference between individual self-dealing and collective self-dealing.

As corporate policy, many Japanese companies re-hire their executive directors as “advisors (“sodanyaku” or “komon“) immediately after they retire from the board. The re-hiring occurs automatically, and the work expected from such “advisors” in their contracts (if any) is usually vague to the point of being non-existent.

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Company Law Reform in Japan:  Losing its Mojo?

2017-08-26 posted by

by Nicholas Benes

This year, Japan’s governance reform drive will either keep going, or run out of steam. Judging from the amendment of the Company Law that is now underway by an advisory council of the Ministry of Justice (MOJ), the latter is likely.

Strikingly absent is a clear over-arching vision of the most important themes that amendment of the Company Law should address now that the country has a corporate governance code. In other words, what is missing, that can only be addressed via the Company Law?

If the government were truly intent on bringing about behavioral change on the part of all Japanese boards and executives, it would focus on harmonizing key aspects of the confusing array of three different corporate governance models which listed companies can adopt, and moving towards a more consistent version of the “monitoring model” for governance that has become internationally accepted and is now embodied in its own corporate governance code.

To do this, it would change the law to enable boards to flexibly appoint capable (and legally accountable) senior executives from a much wider range of candidates than is currently possible. It would also establish rules that require boards to fulfill the independent supervisory and oversight roles envisioned for them under the corporate governance code, unaffected by managerial self-interest, if they wish to delegate wider authority to executives and pay them incentive compensation determined solely by the board.

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