The sub-committee on company law of the Legislative Advisory Council, which is an advisory body to the Minister of Justice, decided to start a thorough review of company law, namely the system of joint-stock companies. At the first meeting held on 12 April, representatives of the industry as well as the officials of the MITI strongly urged that fundamental changes be made to the existing law. It is expected that the basic contents of the amendment will be determined by July. The Ministry of Justice intends to introduce changes within two years.

Joint-Stock Company Law, which is part of the Commercial Code, has undergone a series of amendments, particularly in the 1990s. The latest changes involve the facilitation of setting up holding companies by share transfer and exchange. Shortly, the system of dividing the company will be introduced. However, the proposed changes this time exceed the scale of such piecemeal reforms; this is intended to be the first major amendment to company law since 1950.

Although the specific contents of the changes are yet to be decided, it has been reported that corporate governance will be the core of the amendment. Firstly, the division of power between the board of directors and the general shareholders meeting will be reviewed. The industry strongly supports the idea of broadening the power of the board. This is to be compensated for by providing for the liability of external directors and an increase in the number of external auditors. The quorum for the general shareholders meeting will also be reviewed. Secondly, the system of executive officers which some listed companies have introduced in the past couple of years will be given a legal basis. At present, there is no provision concerning executive officers and their liability is undetermined. Thirdly, the system of derivative action is to be reviewed. The system underwent a reform in 1993, and since then, the number of such actions has increased. There are views that the current law allows derivative action to be abused, for instance, by allowing those who were not shareholders at the time of the wrongdoing by the director to sue. Also provisions concerning the discharge of the liability of directors require a review.

Changes are also expected in accounting and disclosure. The Japanese system of accounting has become closer to the international standard since April this year, including the introduction of a fully consolidated accounting system and valuation by