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Japan: New corporate structure

Masaki Mizukoshi
The amended Companies Act went into effect on May 1 2015. One of the major changes in the amendment was the introduction of a new corporate structure – a company with an audit committee. This was introduced to make it easier for Japanese companies to utilise outside directors and so to enhance the monitoring of executive directors of the company.

The audit committee must consist of at least three directors, the majority of which must be outside directors, and an executive director or employee of the company or one of its subsidiaries may not be a member of the audit committee. Like a statutory auditor in a company with a board of statutory auditors, which is a very common corporate structure among Japanese listed companies, the audit committee in the new structure has the power to audit the execution of duties by directors (other than members of the audit committee) and prepare an audit report. In addition, the audit committee has the unique power to state its opinion on the nomination and remuneration of directors (other than members of the audit committee) at a shareholders meeting, and through exercising this power properly, the audit committee is expected to achieve more effective monitoring of executive directors.

In order to introduce this new structure, a company must amend its articles of incorporation at its shareholders meeting. Some Japanese listed companies have already published their intent to change their corporate structure from a company with a board of statutory auditors to a company with an audit committee, and to amend their articles of incorporation at the ordinary shareholders meeting to be held in June 2015. According to the voting policy of Institutional Shareholder Services, they generally recommend that institutional investors give their affirmative votes for such changes at the relevant shareholders meeting, which might encourage Japanese-listed companies to implement the new structure.

Masaki Mizukoshi

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