Clifford Chance

Companies Act Reform: Supervisory Function of the Board of Directors

14 July 2014

An amendment to the Companies Act was enacted on 20 June 2014 ("Amendment").  This is the first major amendment since the enactment of the Companies Act in 2006 and addresses many of the practical issues that have arisen since its enactment.  The Amendment is expected to come into effect on 1 April 2015.

This Briefing explains (i) the introduction of a new corporate governance structure for large public companies in Japan by way of an audit/supervisory committee, and (ii) new rules on outside directors, which had been a point of protracted debate.  The new audit/supervisory committee governance structure will be introduced to facilitate appointments of outside directors and provides a corporate governance system that is more familiar to foreign investors.  It is expected to be an important alternative to the existing corporate governance structures.  With respect to the new rules on outside directors, although companies are currently not obliged to appoint outside directors, the directors of listed companies that do not have outside directors will, following the Amendment, be required to explain why outside directors have not been appointed.

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