|No.48 May 1, 2002Companies|
|Commercial Code Revisions:Promoting the Evolution of Japanese|
Perhaps the most controversial and time-consuming issue in the Commercial Code revisions of 1990s was the deregulation of the share repurchasing system. Because corporations had issued a large volume of new shares during the heady days in later half of the 1980s, they wanted to buy back outstanding shares to improve their balance sheets. However, the government pursued a cautious approach in this regard in the interest of maintaining creditor protection.
At the same time, the disclosures of consolidated or market-price accounts were subjecting companies to severe market appraisals on the basis of actual balance sheet results. As a consequence, the Commercial Code was amended to support companies in improving their profitability and effectiveness by defining new business reorganization measures, including share exchanges and spin-offs.
Three steps were taken to revise the Commercial Code in 2001. These included lifting the ban on treasury stock (i.e., shares repurchased and held by the issuing corporation), creating a new stock option called shinkabu-yoyaku-ken and expanding the classes of shares, and increasing the authority of statutory auditors. All of these measures were aimed at encouraging management strategies that emphasized increasing shareholder value.
The Commercial Code is to be amended again in the spring of 2002 to introduce new types of corporate governance systems. This will require that management select one of the prescribed systems.