Amendments to Japan’s Foreign Direct Investment Law—Heightened Review of Inbound Investments

(Summary by Stephen Bohrer of Nishimura & Asahi)

“From June 7, 2020, overseas investors may no longer be able to purchase shares of certain Japanese companies. The Japanese government passed amendments to its foreign direct investment laws that lower the government approval threshold from 10% to a mere 1% for share acquisitions of publicly traded companies that engage in a broad range of business activities deemed critical to national security, public safety, public infrastructure, or Japan’s economy (the “FDI Amendments”). The Japanese government claimed that its foreign direct investment laws required a major overhaul because it lacked legislation to effectively screen foreign direct investment to the same recent extent as other developed countries. In particular, Japan’s Ministry of Finance noted the 2018 passage of the Foreign Investment Risk Review Modernization Act in the United States and European Union regulations adopted in 2019 establishing a framework for monitoring foreign direct investments as examples of how Japan’s foreign direct investment regime lagged behind international standards. As a result, practically every share acquisition by an overseas investor of a publicly traded company now deemed critical to Japan will require government approval, unless an exemption applies.

This edition of the Corporate Counselor outlines the broad reach of the FDI Amendments and the exemptions that curtail its application, and then proceeds to highlight issues that prospective overseas investors should consider through a question and answer format. Given the complexity of the FDI Amendments, decision tree diagrams are included in annexes to provide a visual flow of how the FDI Amendments apply to a transaction.

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

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.

01/29 (Tue) Seminar “Jamie Allen, Secretary General of ACGA: Next-Stage Governance Policies for Japan, and What Companies Need to Do”

In early December, the Asian Corporate Governance Association (ACGA) released the ninth edition of the highly anticipated CG Watch 2018 report, published in collaboration with CLSA. Titled “Hard Decisions: Asia faces tough choices in CG reform”, this biennial regional survey of corporate governance compares and ranks 12 markets in Asia Pacific. Unfortunately, Japan was downgraded from the third position to the seventh position in the report. In this seminar, Jamie Allen, ACGA’s Secretary General will explain the ranking process. He will also talk about how Japan’s fall in ranking in the survey does not mean Japan is “going backwards” on corporate governance. On the contrary, the report recognizes the progress that’s being made in many areas. However, Jamie will clarify how Japan’s regulatory reform needs to focus more on “hard law” (e.g., takeover rules, third-party allotments, collective engagement rules) and not just principles-based “soft law” (CG Code, Stewardship Code). Jamie will carve out a roadmap for the future to bring about cultural or behavioural change on the part of companies, investors and other stakeholders, and will focus on timely issues as the protection of minority shareholders.