After Olympus, Japanese government rethinks company law

The Japanese government is planning to revamp company law in response to the ongoing controversy of mysterious payments made by Olympus Corp., exposing by the abrupt firing of its newly appointed, non-Japanese CEO last month. The ruling Democratic Party of Japan is holding one inquiry, and the Legislative Council, which advises the justice minister, is conducting a second review, according the Yomiuri Shimbun, a major Japanese newspaper. Current company law provides two options: a board of directors with a separate board of internal auditors, or a US- or UK-style board with an audit committee, as well as other committees where outside members dominate discussions of remuneration and nomination. Despite the greater transparency and accountability of the second type, only 63 of the country's 4,000-odd listed companies use it. Moreover, Yomiuri reports that only about half the listed companies have any outside directors on their boards.

Last month, the Japan Association of Corporate Directors released a corporate governance survey showing that only 61 per cent of the outside directors on Japanese listed companies were independent of management, and only 35 per cent of the 577 companies listed in the first-tier of the Tokyo Stock Exchange had appointed any. Among larger listed companies, those in the Nikkei 100, more than two in five lacked any independent directors.

Source documents: The Yomiuri news story gives an overview. The JACD report is a seven-page pdf file.