NRI Papers
No.48   May 1, 2002Companies
  Commercial Code Revisions:Promoting the Evolution of Japanese  
        Japan's Commercial Code has been revised nearly ten times since the beginning of the 1990s.While the code is one of the six basic laws on Japan‚fs statute books, frequent revisions have been required for various reasons over the past dozen years. In particular, as successive "bigbang" in the financial world have accelerated the deregulation of capital arkets, needs have clearly shifted to provide increased support to enterprises facing the rapid moves towards greater shareholder-oriented management.
    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.
I Characteristics of Commercial Code Revisions in the 1990s
1 Deregulating the Repurchase of Issued Shares and Efforts to Improve Balance Sheets
2 Viewpoint of Corporate Governance
3 Creation of Schemes to Encourage Business Reorganizations
II Three Successive Revisions of the Commercial Code in 2001
1 Revitalizing the Japanese Securities Market and Providing Support for Venture Businesses
2 Diversified Means of Equity Financing and the Response to Information Technology
3 Expanding the Authority of Statutory Auditors and Easing the Liability of Directors
III Prospects for Revisions of the Commercial Code in 2002
1 Legislation for New Corporate Governance
2 Selecting a Corporate Governance System


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