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Japan: Post-retirement advisory positions

It is common for Japanese companies to maintain a continuing relationship with their presidents and chief executive officers (CEOs) even after they retire, and they usually remain in the company by taking on advisory positions, commonly known as komon or sodanyaku in Japan. Such advisory positions are not prescribed in the Companies Act of Japan and their roles vary from company to company.

The Practical Guidelines for Corporate Governance Systems, which were published by the Ministry of Economy, Trade and Industry (METI) of Japan on March 31 2017 (Guidelines), state that retaining a retiring president or CEO can bring benefits to a company: for example, engaging in activities in the business community, maintaining the company's relationships with its customers, or assisting successors during the transition period using the knowledge of the company's business and history. On the other hand, the Guidelines also point out that, if a former president or CEO remains at a company as an advisor or consultant, this may result in them exerting unreasonable influence over incumbent management members, or causing confusion regarding who has management and leadership authority. According to the Guidelines, even if the advisor or consultant does not actively exert unreasonable influence, the new management team might feel discouraged from making decisions which change management plans that were initially devised or approved by the advisor or consultant during his/her tenure, such as those involving substantial changes to the company's business portfolios, for fear of upsetting or offending the advisor or consultant.

Based on such discussions, on August 2 2017, the Tokyo Stock Exchange published a revised version of the Preparation Guidelines for Corporate Governance Report. Under these revised guidelines, for corporate governance reports submitted on or after January 1 2018, a listed company may elect to include the disclosure of certain information regarding retired presidents and CEOs who hold advisory positions. Disclosure regarding these individuals may include information such as the scope of their responsibilities, employment terms and other pertinent details. Some listed companies have already begun this practice and have submitted corporate governance reports using the new form described in the guidelines. However, such disclosure is not mandatory and will depend on the willingness of each listed company to make such disclosures.

The introduction of these new guidelines is expected to improve the transparency of the corporate governance of listed companies, and it will become important to pay close attention to the disclosures made by listed companies.

Akira Obuchi

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