Corporate Auditors
This section summarizes the roles of corporate auditors of a Japanese company (kabushiki kaisha), as well as the processes for their appointment and removal.
Related: Governance Structures; Director Appointment and Removal; Director Liabilities
General
Japanese companies listed on the Tokyo Stock Exchange that adopt a Corporate Auditor Structure must establish a Board of Corporate Auditors consisting of at least three corporate auditors. The corporate auditor is a unique feature of Japanese corporate governance, originating in the 19th century. Their role is to ensure that directors fulfill their compliance obligations by having an independent body monitor and audit the company’s activities and financial accounts. Governance Structures)
Duties and powers
Responsibilities of corporate auditors include auditing the company’s business and financial accounts, attending meetings of the Board of Directors (although corporate auditors do not have voting rights), preparing annual audit reports, and communicating with directors, officers, and employees to gather information and improve the auditing environment.
Additionally, they have a duty to examine shareholder materials. Corporate auditors also have power to investigate the operations and financial status of the company and its subsidiaries.
Like directors, corporate auditors can be held liable to the company, shareholders, or creditors if they fail to perform their duties. Director Liabilities)
Appointment
Like directors, corporate auditors are appointed by shareholders. The required vote and quorum are the same as those for directors. Director Appointment and Removal)
To enhance the independence of corporate auditors from the Board of Directors, the Companies Act grants certain powers to corporate auditors regarding the nomination of candidates for shareholder votes. These powers include the right to veto any candidate proposed by the Board of Directors, the right to propose any candidate of their choosing, and the right to express their views on corporate auditor appointments at a shareholders’ meeting.
Eligibility
Like directors, there are no nationality or residency requirements for becoming a corporate auditor. Only natural persons can serve as corporate auditors; corporate entities are not permitted to act in this capacity.
Under the Companies Act, a corporate auditor is not permitted to hold dual roles as a director, officer, or employee of the company or its subsidiary. In addition, at least 50% of the members of the Board of Corporate Auditors must be “Outside Corporate Auditors”.
Term of Office
The term of office for corporate auditors of a public company is four years.
Removal
Like directors, a corporate auditor can be removed by shareholders at any time with or without reason. However, unlike directors, the removal of a corporate auditor requires a special resolution, which necessitates a two-thirds majority of the total votes. Any corporate auditor, including the one facing removal, has the right to express their views at the shareholders’ meeting.
Resignations
A corporate auditor may resign at any time. To safeguard corporate auditors from being compelled to resign, any corporate auditor, including the one resigning, has the right to express their views at the next shareholders’ meeting.