Panel discussion underway. (courtesy of Hironori Kato)
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The Core Corporate Governance Research Institute, which focuses on raising corporate value through stronger decision-making, oversight, and internal discipline, held its first public forum in Tokyo on March 27. Led by Kiyotaka Sasaki, former director-general of the Financial Services Agency's (FSA) Strategy Development and Management Bureau, the discussion centered on a critical issue in governance reform: the role of the company secretary.
Titled "Why Are Company Secretaries Necessary?", the event was held in Tokyo's Uchisaiwaicho district.
In this context, a company secretary is the key managerial officer who supports the board of directors in carrying out a corporation's affairs. They are also known by other names, such as board secretary or corporate secretary.
Governance specialists speaking at the event stressed the importance of company secretaries in ensuring corporate governance compliance. Their roles encompass guiding directors and outside directors in their duties, facilitating communications and meetings, and also raising practical questions and concerns.
What exactly is a company secretary? Can the role truly take root in Japan? And what would be needed to make that happen? The experts offered a frank discussion.
Why Company Secretaries Matter
Opening the forum, Sasaki reviewed the past decade of governance reforms by the Japanese government and corporate world aimed at restoring companies' earning power. But he also made clear the sense of urgency for additional reforms, pointing to a steady stream of scandals plaguing the private sector.
In too many cases, he said, boards of directors are not functioning properly because those charged with overseeing management and auditing decisions, including outside directors and others, have failed to act. "To improve the effectiveness of boards, we need to consider how to prioritize board support functions, including the company secretary," he said.
A panel discussion, moderated by Sasaki, featured four experts, including lawyers, institutional investors, and researchers, and sparked lively debate.
Yoshiko Takayama, vice chair of consulting firm J-Eurus IR, said that only a little over a decade ago, listed companies with outside directors were rare. Today, by contrast, more than a quarter of the companies on the Tokyo Stock Exchange's Prime Market have boards in which outside directors make up a majority, a sharp increase. She predicted that "within a few years, that will become the norm."
As outside directors take on larger roles, their decisions will carry greater weight. That, in turn, makes communication with the management side all the more important. "The company secretary is expected to serve as that point of connection," she said.
Independent From Management
George Iguchi, an executive officer at Nissay Asset Management, pointed out that the company secretary "should be independent from management." He said the role is vital and can extend to matters that management may resist, including proposals to remove a chief executive officer. "It is not a job for someone who takes pleasure in being praised by the CEO," he explained.
For the role to take root in Japan, he added, it will need to be established as a specialized profession. It must also be supported by a labor market and social framework that makes it easier for such professionals to move between companies, he said.
Ryoko Ueda, a visiting professor at Kyoto University, noted that currently the secretariats of Japanese company boards are often "little more than schedule managers." She offered several concrete proposals, including appointing an executive to lead governance discussions.
Benefits of the 'Nidec Shock'
Lawyer Shin Ushijima pointed to the "Nidec shock," saying this accounting scandal had sent a powerful jolt through corporate Japan. Against a backdrop of deepening alarm, he said, "The introduction of company secretaries will likely move ahead very rapidly, all at once."
In the Nidec case itself, crucial information never reached the outside directors. Former bureaucrats, academics, and lawyers sat on the board, and the third-party committee described them as "members with high ability and insight." Even so, it found the outside directors responsible for audit oversight had "almost no presence at all."
Ushijima drove the point home. "Do outside directors bear no responsibility? I want to know whether they do or do not. Isn't that something the courts ought to determine?" he said. Catching the audience's attention, he added: "The Nidec shock may ultimately strengthen corporate governance in Japan. I expect governance reforms to accelerate rapidly."
Nidec's investigative report also underscored the need to improve the quality of information provided to directors. It called for expanding support staff and creating a system that would allow directors to seek advice from outside experts.
The Company Conscience
Earlier, the forum heard a keynote address from Kerrie Waring, Director General of the Chartered Governance Institute | Global. Her organization is well-known for its qualification of governance professionals, including company secretaries.
Waring described the role of company secretaries as guardians of governance and, in some respects, the company's conscience. She also noted that the position is mandatory in China, Singapore, and Malaysia, where the laws give company secretaries significant authority.
Tatsufumi Shibata, a deputy director general at the FSA, described the role of company secretaries as it is addressed in the current revision of Japan's Corporate Governance Code.
Hiroyuki Samejima, director of the Corporate System Division at the Ministry of Economy, Trade and Industry, advocated for building company secretary teams by bringing together experts with diverse talents, including legal and financial expertise.
At the close of the forum, Ushijima spoke again, as chairman of the Japan Corporate Governance Network, which backed the event. Returning to Nidec's accounting scandal, he said it had "laid bare the structural weaknesses of the Japanese-style governance model" and again emphasized the need for company secretaries. Concluding, he urged Sasaki to keep pushing forward, declaring, "Today will mark a milestone in building Japanese governance."
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Author: Hironori Kato
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