An advisory panel to the justice minister will recommend changes in the corporate law to enable shareholders to sue board members at subsidiaries and to strengthen the independence of external board members, according to draft amendments obtained by Kyodo News.
The move comes as corporate governance is under scrutiny due to the Olympus Corp. and Daio Paper Corp. financial scandals.
The Legislative Council is scheduled to compile an interim report by mid-December and call for public comments, and the government will also consider amending the corporate law.
Olympus' coverup of investment losses and the arrest of Daio Paper's former chairman over massive personal loans from group companies highlighted how external board members and auditors failed in their role as monitors, and how subsidiaries, whose finances are hard to examine, were used for the misconduct.
To prevent such misdeeds and enhance corporate governance, the panel is pushing for expanding the scope of corporate managers against whom shareholders can sue. It would also mandate the appointment of external board members at publicly listed firms and ban relatives of executives and members of parent companies from filling those positions.
However, the draft also includes a separate proposal not to amend the existing corporate law in the face of objections from the business sector.
The current law, in force since 2006, has been shown to be insufficient to prevent misconduct or detect it at an early stage, prompting the justice minister in 2010 to ask the panel to come up with a specific outline for revision.