Japan Makes Slow, Substantive Governance Moves by ProQuest


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Japan Makes Slow, Substantive Governance Moves
By Yuriko Nagano                               reaucrats.                                              to improve corporate governance at its
                                                  Bureaucrats elsewhere in Japanese                    listed firms. Chief among them will be a

T    he people of Japan placed themselves
     under new national governance last
August with the historic election of the
                                               business circles, however, still have some
                                               momentum. Atsushi Saito, president of
                                               the Tokyo Stock Exchange, says the TSE
                                                                                                       requirement that Japanese public compa-
                                                                                                       nies have outside officers on their boards.
                                                                                                       It will be implemented as a “soft rule,”
Democratic Party of Japan. Now the DPJ         will “promptly” carry out several changes               meaning the rule firmly encourages com-
and Japanese regulators seem likely to
move forward with changes to corporate
governance as well.                                    STRUCTURAL ASPECTS
   Exactly what the DPJ might propose
remains unclear. At the moment, the par-         Below is an excerpt from the Financial System Council Study Group report on the internationalization
ty is devoting much of its energy to larger      of Japanese capital markets.
priorities, such as overhauling the coun-
try’s postal system and improving Japan’s        1. The structure of board of directors.
sagging birth rate. Shizuka Kamei, the
new chief of Japan’s Financial Services          Adopting the “Company With Committees” system. At present, very few companies have ad-
Agency, said recently that corporate gov-        opted the Company with Committees system (2.3% of Tokyo Stock Exchange listed companies). For
ernance measures agreed on during the            the majority of listed companies, adopting this system looks unrealistic in the near future.
Liberal Democratic Party’s rule were yet
to be discussed. But the country’s stock         Board of directors comprised mainly of independent outside directors. For example, at least
exchanges have a raft of reforms they            one-third or half of the company’s board of directors is to be comprised of independent outside direc-
can push through themselves, and the             tors. This requirement may overlap with that of the board of statutory auditors, where, by law the
FSA seems likely to carry out regulatory         majority must be outside auditors.
changes proposed during the previous ad-
ministration’s tenure.                           Joint monitoring by independent outside directors, the board of statutory auditors and
   “I haven’t heard anything about [cor-         the officers in charge of internal audit and internal control. Elect one or more highly indepen-
porate governance] policies” specifically,       dent outside directors. Coordinate with the board of statutory auditors, officers in charge of internal
since he is new to his post, Kamei said at a     audit and internal control to strengthen the supervision of management. To gain and maintain the
press conference in October. But, he add-        confidence of shareholders and investors, present this as a preferred model for the majority of listed
ed, “I plan to make a clean break” from          companies. Based on this, listed companies are to disclose the details of their governance structure
previous policies, “which were based on          and the reasons for adopting that structure in relation to the preferred model.
radical free market principle and capital-
ism.”                                            2. Other reforms.
   Kenji Tamura, the FSA’s parliamentary
secretary, chimed in. “We may decide to          Strengthening the function of statutory auditors. Identify the following as desirable attributes
change the government’s policy [on cor-          for listed companies, and listed companies to disclose their current status: (1) to maintain adequate
porate governance],” he said. “This ap-          human resources and infrastructure to support the audit by statutory auditors, (2) to appoint highly
plies to everything that was determined          independent outside auditors, and (3) to appoint auditors with an in-depth knowledge of finance/
by the previous admi
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