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Japan to oblige large firms to have outside directors

  • October 18, 2019
  • , Jiji Press , 12:49 p.m.
  • English Press

Tokyo, Oct. 18 (Jiji Press)–The Japanese government on Friday adopted a companies law amendment aimed at obliging large firms to have outside board directors.

By making it mandatory for large firms to have external directors under law, the government is aiming to demonstrate to investors that it is enthusiastic about strengthening corporate governance, although most major companies have already appointed outside members for their boards.

Outside directors are supposed to supervise corporate management objectively from a third-party perspective.

According to the Justice Ministry, 98.4 pct of all publicly traded companies had at least one outside director as of July. The proportion came to 99.9 pct among firms listed on the first section of the Tokyo Stock Exchange.

The bill also calls for a revision to rules on executive compensation.

Currently, the total amount of remuneration of board directors is decided at general shareholders’ meetings, but companies are not required to disclose the details decided by their boards, such as the amount of each director’s pay and methods of payment.

The revised law would oblige companies to release the outlines of their remuneration policies, including whether executive compensation is paid in cash or shares, a step intended to improve the transparency of the decision-making processes.

Meanwhile, it would limit the number of proposals a shareholder can submit at a general shareholders’ meeting to 10 in order to prevent shareholders from abusing their rights.

Companies would be allowed to post documents related to general shareholders’ meetings on their websites if they notify shareholders of the addresses of the sites in writing. At present, such documents are mailed to shareholders in principle.

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