Amendment to Commercial Code

Tetsuya Katada Vice Chairman, Keidanren Counselor and Member of the Board, KOMATSU Ltd.

It is said that in these days we have seen series of major legislative changes the scale of which matches those in the Meiji Revolution and post-World War II eras. Fundamental amendment to Commercial Code (Corporations Law) now in process is one of those legislative changes. In this respect, the Ministry of Justice released this April a tentative interim proposal ("Proposal") for public comments. Having reformed and reinforced the Legislative Council to the Ministry of Justice and its own internal section in charge, the Ministry of Justice has been vigorously working on the said fundamental amendment to the Commercial Code, and drew up the Proposal expeditiously. Their efforts in this regard should definitely deserve special admiration.

Preceding to the Proposal, the Federation of Economic Organizations (Keidanren) announced in October 2000, its opinion for the prospective amendments to the Commercial Code. Titled "Recommendations Concerning Commercial Law Reform", it was one of those proposals and requests that Keidanren has from time to time submitted to both the legislative and executive authorities, in addressing to the rapidly changing circumstances. Since many of our suggestion in the Recommendation are reflected. The Proposal should be positively regarded as a whole.

Nevertheless, we still see some problems in the Proposal. Some clauses related to corporate governance are placing the additional burdens that are inconsistent with the current practices of companies. For example, the Proposal mandates all of large-scaled corporations to appoint external directors, proposing at the same to shorten the term of office of directors from "2 years or less" to "one year". It should be also noted that such clauses lack consistency with the bill which was proposed by House members with the view to strengthening auditor's functions as well as rationalization of shareholder's derivative suits. Thus, the said clauses in the Proposal should be reconsidered.

Further to that, there is the clause according to which a corporation may selectively not appoint any statutory auditors, but only in case it has set up all of the three committees, i.e., the nomination committee, the compensation committee and the audit committee. Such requirement makes the system too rigid. From the point of view that corporate governance should be improved, it might be proper to seek renovation of the system. But, it also should be noted the importance of the flexibility in that each company can able to decide or select its own governance.

In response to the call for the public comment, Keidanren referred the Proposal to its Business and Economic Law Committee where comments from member companies were thoroughly reviewed. The Committee, thereafter, worked out the response that Keidanren recently submitted to the Ministry of Justice. Accordingly, it is highly desired that our opinion in that response will be well respected in the further discussion at the Legislative Council, and that the Commercial Code amended, reflecting our opinion, will fit more properly and flexibly to the need of its users.