EDITORIAL: Here's Hoping outside Board Directors Will Invigorate Japan's Corporations

The Daily Yomiuri (Toyko, Japan), March 19, 2015 | Go to article overview

EDITORIAL: Here's Hoping outside Board Directors Will Invigorate Japan's Corporations


Will the newly drafted corporate governance code serve as a trigger for Japanese corporations to grow out of their inward-looking tendencies and, instead, adopt aggressive business tactics?

The set of guidelines, recently laid out by the Financial Services Agency and the Tokyo Stock Exchange, demands the board of directors at each corporation listed in the TSE's First and Second sections include two or more managing directors recruited from outside the company, granting them a high degree of independence within the company.

This guiding principle is not only aimed at using the scrutiny of such outside directors at each corporation to prevent corporate scandals. It is also intended to take advantage of the fresh perspectives and ideas they can bring to the company and the way they can support the corporation in conducting proactive business operations.

The TSE is set to put the new code into effect in June after revising its listing rules. If any listed corporation refuses to include more than one outside director in its executive board, the company will be required to submit a written explanation.

In May, the revised Companies Law will be enforced to urge each corporation to select at least one outside director.

Board members chosen from the ranks of long-serving employees may even find it impossible to close unprofitable divisions at their companies. Their ties to these sections, personal or otherwise, can serve as a hindrance in this respect. They may also hesitate to make new investments for fear of ending up in failure. Outside directors at each corporation, whose presence may breathe new life into long-term employees, will help increase its vitality.

If corporations regard the effective use of outside directors as an established business practice aimed at increasing their earning power, it would do much to improve the growth potential of the Japanese economy.

No guarantees

Undoubtedly, the good use of outside directors does not offer a magic wand that will guarantee an improvement in a corporation's internal governance and business performance.

In fact, Sony Corp., a pioneer in the use of outside directors, is experiencing a slump in its business performance today. Another case in point is Olympus Corp. …

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