Abe Pledge to Demand Outside Directors at Risk in Ministry Draft

Prime Minister Shinzo Abe may be backing away from his pledge to require companies to have outside directors, according to a draft document prepared by the Justice Ministry.

The new rules will only require companies to justify the lack of outside directors without forcing them to appoint any independent board members, according to the document obtained from an official of Abe’s Liberal Democratic Party. The plan will prevent executives at parent companies from being counted as outside directors of their units, the document says.

The proposal falls short of Abe’s push to require companies to have at least one outside director as stated in the government’s growth plan, which includes reforms that seek to double foreign direct investment in Japan to 35 trillion yen ($356 billion) by 2020. About 90 percent of countries in which global investors trade equities have some form of corporate governance code, but Japan has none, according to Nicholas Benes, from The Board Director Training Institute of Japan.

“It sounds like what’s being offered is not much more than what the Democratic Party of Japan came up with,” said Benes, a representative director at the institute, which trains executives in corporate governance.

Cerberus Failure

Cerberus Capital Management LP, the biggest shareholder of Seibu Holdings Inc., was unable to get its representatives appointed to the Japanese hotel and rail operator’s board earlier this year, highlighting the challenges overseas investors face in the world’s third-biggest economy.

The push by Cerberus follows previous failures to gain representation in Japan by T. Boone Pickens in the 1990s, Christopher Cooper-Hohn’s Children’s Investment Fund Management UK LLP in 2008 and Warren Lichtenstein’s Steel Partners in 2010.

Olympus Corp. (7733) executives were found guilty earlier this year for aiding in a $1.7 billion accounting fraud that “destroyed the image of Japanese companies internationally,” according to former Chairman Tsuyoshi Kikukawa.

Shares of Olympus tumbled as much as 77 percent after former President Michael Woodford revealed the fraud.

To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net; Rosalind Mathieson at rmathieson3@bloomberg.net

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