It will be necessary for companies to build corporate governance that places even more importance on shareholder value. For this purpose, it will be important to (1) improve the speed and strategy of management; (2) ensure the transparency of corporate behavior; and (3) enhance disclosure and accountability.

Capital market reforms in recent years have led to an unwinding of cross-shareholding and have changed the composition of shareholders.

• Increase in the number of foreign investors, who have greater voice.
• Increase in the number of individual investors, who are less enthusiastic about exercising their voting rights.
• New moves can be seen among domestic institutional investors, such as the formulation of guidelines for the exercise of voting rights.

As a result of these developments, it has become necessary to reconsider the shareholders' meeting, the board of directors, and the disclosure system.

The problems with the shareholders' meetings of public companies are the difficulty of ensuring a quorum and the straying from legal functions. Although companies have been making independent efforts in this regard, there are limits here. It is therefore necessary to review the system.

Independent efforts:

Efforts to produce attractive meeting documents; to disperse the days on which meetings are held; to stage-manage meetings.

System review:

Lowering of the quorum for companies with more than a certain number of shareholders; consideration of nonexercised voting rights as "yes" votes; provisional resolutions; shortening of the agenda; review of the base-date system; utilization of information technology.

In order to strengthen the decision-making functions and executive setup of management and to establish a monitoring system in response, companies have been making independent efforts, but still the following issues can be cited:

1. Utilization of (board of) auditors: Improve degree of recognition, which is low among overseas investors, and strengthen links with accounting auditors.
2. Introduction of outside directors: Review of inadequate expertness and supply and excessive liability.
3. Corporate officer system: problem of the duplication of decision-making and execution; concern about discord between uniform legislation and independent efforts.

Corporate organization should be left to the independent judgment and discretion of each company. With disclosure, evaluation should be left to the market.

Also, in order to support dynamic management, the following measures are required:

• Review of the shareholders' representative action system.
• Review of the liability of directors (strict liability, unlimited liability, joint and several liability) and improvement of director's and officer's liability insurance.
• Improvement of the compensation system, such as stock options.

Desirably public companies should be judged by market principles rather than legal regulations. Also, it is desirable that public companies should emphasize the market and should enhance their independent investor relations.

Regarding large-scale public companies, it is desirable that deregulation of the commercial code should be advanced, the discretionary rights of company management should be expanded so as to ensure the flexibility of management, and the management process and results should be clarified in the direction of gaining evaluation on the capital market.

It is necessary to consider the establishment of a Public Company Law (provisional name) so that companies can utilize the market mechanism to the maximum degree.

Regarding the corporate governance of public companies, it is necessary to make continued studies in conjunction with capital market trends and other factors.