The “Roesler Model” Corporation

Roesler’s Draft of the Japanese Commercial Code and the Roots of Japanese Corporate Governance

Abstract

In this paper, we will uncover the roots of the unique Japanese corporate governance structure in the first draft of its Commercial Code written by Hermann Roesler at the end of the 19^th century. In the draft authored by the law professor from Germany, Japanese commercial law generally accepted European law. From a Japanese perspective, however, provisions of the draft based on an “unknown” philosophy from Europe were too unclear to interpret.

Roesler may have tried to place the board of auditors in parallel with the one-tier board of directors in order to avoid the two-tier system and to avoid the auditing organ (which did not work well in Germany at that time), or in or­der to create harmony with the role of directors and business practices in Japan. In either case, a “tradition” of Japanese corporate governance was eventually born in Japan where the board of auditors was put outside of the business execution process. Japanese corporate law requires kansa-yaku (auditors) to be present at every board meeting of directors (kansa-yaku, therefore, are sometimes called “regular members of the board of directors”). Japanese corporate law has tried not only to ensure kansa-yaku’s independence from directors but also to make kansa-yaku increasingly powerful, though paradoxically it has never given kansa-yaku any voting right on decisions of the board of directors.

The keystone, however, lies in whether Japanese corporations can overcome a traditional culture. It is not easy or almost impossible for anyone to disagree with the majority in the board of directors in Japanese companies. In this paper, we will argue that the authority of “outside directors”, rather than auditors, should be enhanced presently. Japanese corporate law should (i) ensure outside directors’ access to business information that corporate officers or managers have, (ii) allow outsider directors to participate actively in decision-making processes of the board of directors, and (iii) remove informal obstacles so as to allow outside directors to “disagree”. The corporate governance model which Roesler showed us 135 years ago is still alive in Japanese corporate law. If, however, Roesler still lived today, would he choose the same model again?