It was decided that a listed company is effectively forced to have an outside director as a member of the Board of Directors along with the revision to Corporate Law executed on June 20,2014.
It is not regulated by the Law as the financial circles have reacted against it. However, if a corporation decides not to have an outside director, it has to explain and inform the following items:
1. Explain the reason why it is inappropriate to have an outside director
2. Report the reason why it is inappropriate to have an outside director in the Business Report
3. Report the reason why it is inappropriate to have an outside director in the Reference Documents for Shareholders Meeting when it offers agenda for electing directors excluding outside directors.
Moreover, the Rule of Stock Exchange has provided that a listed company must make efforts to have more than one outside/independent officer.
It might be striking in waves as if it was not enough already by those who would like to introduce the outside director system.
I think that if they make such many regulations, it might be simple and better to make the outside director system obligatory in Corporate Law.
By the way, I expect that almost all corporations would have outside directors in the following year. I say that because the Japanese society tends to be across-the-board. If a corporation does not follow the regulation and decides not to have an outside director, it has to explain the reason why it is inappropriate to have an outside director. The Stock Exchange would also keep an eye on the corporation.
Though 62.2% of corporations in Japan had outside directors in 2013, nearly 100% of those corporations are expected to have outside directors in the following year.
Conversely, if some corporations do not have outside directors under such a system, those corporations must have their own policies.
I wish some corporations with strong performance and well organized compliance would appear and declare as follows:
"Our corporation has a reliable Board of Company Auditors and excellent accounting auditors, so our compliance is well organized and functions effectively. We think that outside directors who do not know about our corporation would do more harm than good, so we will never have outside directors. We do not think the outside director system is useful or helpful because there are many corporations with outside directors having caused scandals in the past. Our current directors are the best members."