In Japan, many companies, including listed entities, have a senior officer known as a statutory auditor (kansayaku). While some listed companies adopting alternative structures, such as a “company with nomination committees” or a “company with audit committees,” do not include statutory auditors, the traditional Japanese corporate structure—still widely used—retains this role.
Main Role of Statutory Auditors
The primary responsibility of statutory auditors is to monitor and oversee the actions of company management and the board of directors (BOD). In this sense, their role is somewhat similar to that of a non-executive director or outside director. However, there are significant differences:
1. Non-Membership in the Board of Directors
– Statutory auditors are not members of the BOD and do not have voting rights in board meetings.
– Consequently, they lack the authority to elect or remove executive officers (e.g., the representative director).
2. Primary Focus on Legal Compliance
– The statutory auditor’s primary role is to ensure the legality of management decisions and actions, rather than their propriety.
– Matters of propriety are the responsibility of the BOD, which has the power to elect and remove executives.
Historical Context of Statutory Auditors in Japan
The dual supervisory roles of directors and statutory auditors in Japanese corporations are rooted in history:
1. Pre-WWII Era
– Before the end of World War II, Japanese corporate governance was heavily influenced by German company law, with statutory auditors playing the primary supervisory role.
2. Post-WWII Changes
– After WWII, directors and boards of directors were introduced, inspired by U.S. corporate governance practices.
– Initially, the statutory auditor role was slated for elimination.
3. Revival in the 1960s
– Following several corporate scandals in the 1960s, the statutory auditor’s powers were enhanced to strengthen oversight.
– At that time, outside directors were uncommon, and board oversight was less effective than in today’s corporate environment.
Differences Between Directors and Statutory Auditors
The existence of statutory auditors alongside directors reflects this historical evolution. Unlike directors, statutory auditors focus primarily on monitoring legal compliance. While directors (particularly outside directors) may address issues of propriety, the statutory auditor’s monitoring is primarily concerned with ensuring that management actions comply with the law.
Disclaimer: This column intends to provide a high-level summary of the subject matter, and it does not aim to provide exhaustive information. Also, this column is for informational purposes only and does not constitute legal advice. For specific issues, we recommend consulting an expert. If you have any query, please contact us via inquiry form in this homepage.