One thing that can make starting a business difficult is deciding on the company’s structure.
You may make the people working with you directors, make the company one with a board of directors in preparation for listing, or appoint family members as directors in a family-run business.
There was a dispute over the removal of the president of Sailor Pen, famous for its pens, so I would like to use it as a reference point for deciding on a company structure (technically, the design of its corporate governance bodies).
First, the basics: decision-making at a stock company with a board of directors
Companies operate on the principle of separation of ownership and management. In other words, owners (shareholders) and managers (the president and directors) are separate.
Shareholders provide the funds, but that does not necessarily mean they are capable of managing the business, so it becomes possible to entrust management to people who are good at it.
“We want to consider a variety of opinions, join forces, make decisions, and run the business.” This may be a way of thinking that suits Japanese people.
Decision-making by everyone. That is a company with a board of directors.
Important matters are decided by the board of directors, by a majority vote of the directors.
However, if decisions were made by majority vote all the time, the business would lose its sense of speed and could not be managed. Therefore, for decisions in ordinary operations, a representative director is appointed and entrusted with them. The other directors support the representative director’s duties in day-to-day work and, as members of the board, supervise that person.
Shareholders choose the directors, and the board chooses the representative director from among the directors by majority vote.
This is prescribed by the Companies Act.
A stock company (excluding a company with a board of directors) may designate a representative director from among its directors through its articles of incorporation, a mutual election of directors pursuant to the articles of incorporation, or a resolution of the shareholders’ meeting (Article 349, paragraph 3 of the Companies Act).
A board of directors must select a representative director from among the directors (Article 362, paragraph 3 of the Companies Act).
In short, if a company chooses to be run through discussion and decisions by everyone (all directors), everyone chooses the president. In that case, everyone decides important matters, while the president makes ordinary management decisions.
What happened in the removal of Sailor Pen’s president
On December 12, 2015, a release suddenly announced the president’s removal.
[Contents of image material with names omitted] Notice concerning changes in representative directors and officers. At the board meeting held on December 12, 2015, the company resolved changes in representative directors and officers. (1) Reason for the changes: to renew the management structure and seek further growth in business performance. (2) Names and titles of the new and former representative directors. Successor president: new title, Representative Director, Senior Executive Officer, President and General Manager of the Writing Instruments Division; current title, Director, Senior Executive Officer and General Manager of the Administrative Division. Former president: new title, Director; current title, Representative Director, Senior Executive Officer and President.
The former president was removed. They said, “It is clearly invalid. I will promptly take legal action,” and on the 14th they filed for a provisional injunction with the Tokyo District Court, seeking confirmation that they were the president on the grounds that the resolution was invalid. They maintained that they, as president, had the authority to convene the board meeting and that they had requested a postponement in advance.
In response, the company also released the circumstances of the removal.
Newspapers dated December 13, 2015 reported, in connection with the change in our representative director, that the former representative director said, “The resolution to dismiss the president is invalid, and I will promptly take legal action.” In response to that report, we would like to explain the circumstances leading to this change in representative director.
At an internal board meeting about one year earlier, the four then-serving internal directors other than the former representative director made the following three requests of the then representative director and president.
- Refrain from private activities and devote themselves to the company’s business
- Not bring into the company products for purchase that acquaintances introduced as intermediaries
- Visit the company’s customers
At the time, although the company’s performance was not encouraging, they often devoted time to private activities such as lectures, and the request was that they put more effort into the company’s core business. They also undertook many new businesses with little relation to the core business, involving products for purchase introduced through acquaintances, but none had succeeded, so we asked them to reconsider that as well.
However, after one year had passed, no improvement was seen in them, and at the internal board meeting on December 11, 2015, the four internal directors asked them to resign as representative director for the development of the company.
They refused to resign as representative director, and the internal board decided to dismiss them from the position of representative director at the regular board meeting scheduled for the following day, the 12th.
On the morning of December 12, the day of the regular board meeting, they requested a postponement of the regular board meeting just 30 minutes before its scheduled start time and did not attend the meeting.
As the company could not accept a postponement request made by them 30 minutes before a regular board meeting whose holding had already been decided and reconfirmed at the internal board meeting the preceding day, it held the regular board meeting as scheduled. At that meeting, it resolved to dismiss them as representative director and president and appoint their successor as representative director and president.
Our board consists of six directors: five internal directors, including the representative director, and one outside director.
On that day, they and the outside director were absent, but four of the six directors attended, and all four directors present voted in favor of the proposal to dismiss them as representative director; both the quorum and the required number of affirmative votes were met.
It is rather raw, but if what is written is true, one might say the removal was entirely understandable. The former president had also overseen six consecutive fiscal years of losses since taking office.
In reality, a president can be removed from the presidency by a majority vote of the directors.
Now, let us look at the career of the person who was removed.
[Contents of image material with name and date of birth omitted] Career of the former president (in their 70s): April 1966, joined the Ministry of Finance (then Okurasho, now Zaimusho); June 1993, Deputy Director-General of the Budget Bureau, Ministry of Finance; March 2000, Senior Managing Director and Representative Director, Kyocera Mita Corporation; March 2003, General Manager, Kyocera (Tianjin) Trading Co., Ltd.; June 2005, Director, Executive Officer and Vice President, Funai Electric Co., Ltd.; March 2009, Managing Director of the company; October 2009, Representative Director and Vice President; December 2009, Representative Director and President; March 2012, Representative Director, President and Senior Executive Officer, General Manager of the Writing Instruments Division; June 2012, Outside Director, Oriental Chain Mfg. Co., Ltd. (incumbent); March 2013, Representative Director, President and Senior Executive Officer (incumbent). Number of shares held: 415 thousand.
While serving as Deputy Director-General of the former Ministry of Finance’s Budget Bureau, the former president resigned after taking responsibility for receiving cash from a failed credit union, excessive entertainment by banks, and participation in the so-called “no-panties shabu-shabu” entertainment. Later, in 1997, they were taken in by Kazuo Inamori, the founder of Kyocera, became an executive of the company, and worked in Beijing and elsewhere (source: FACTA, November 2006 issue). They then became vice president of Funai Electric Co., Ltd. and joined Sailor Pen. When the president at that time died, they became president.
When they joined Kyocera after resigning as a bureaucrat, they published “Why I Joined Kyocera (Japanese).” It is worth reading, and I recommend it. What is interesting is the former president’s writing:
“Postscript”
Various reports have been made in connection with matters in my past. However, as Minister of Finance Matsunaga stated at a press conference the other day, the tax authorities conducted a rigorous investigation of at least 100 locations over six months at that time, and all matters have been settled.
I willingly cooperated in this investigation, acknowledging wrongdoing as wrongdoing while clearing up unfounded suspicions.Among matters occasionally seen in reports,
“Money received from a ‘patron’ was deposited in an account held in someone else’s name”
“There was a ‘mistress’ who ran a curry shop”
“They repeatedly attended ‘Kyoto banquets’ and received entertainment involving prostitution”
“At the behest of a ‘patron,’ they are suspected of seeking favorable treatment from a certain city bank in handling debts”
and similar descriptions are all untrue and extremely regrettable.However, I deeply regret that, as a public servant, I lacked the basic mindset required by having repeatedly engaged in imprudent associations with a person at the center of the so-called two-credit-union scandal, having received financial support for a policy study group from the former chairman of an Osaka finance company, and having temporarily entered into a contract to invest in an import business for a Chinese health drink, even though it was immediately cancelled.
In any event, the very fact that these various reports are made is entirely due to my own lack of virtue, and, based on deep reflection, I intend to build the rest of my life in earnest.
There was no need to write such things. As stated, at the time there was the astonishing situation in which they had received more than ¥100 million in financial support from the former chairman of an Osaka finance company yet had not paid tax (tax evasion!?). An elite bureaucrat at the Ministry of Finance, which oversees national taxes, hiding income and not paying tax...
The removed president also gave an interview rebutting the claims (Japanese) to Toyo Keizai.
In matters like this, it is impossible to make a sound judgment without evaluating the views of both sides. They justified themselves by saying that the fiscal year ending December 2015 is likely to bring the first ordinary profit in nine years. It is already December, the final month, so we should see the situation in the financial statements to be released in February.
Added December 24, 2015
In the end, the removed president yielded, and the matter was settled.
[Contents of image material with name omitted] Notice concerning withdrawal of petition for a provisional injunction to determine temporarily the status of an officer. On December 14, 2015, the former representative director filed a petition for a provisional injunction to determine temporarily the status of an officer, but today they withdrew the entire petition with the Tokyo District Court. The former representative director had filed a petition asserting the invalidity of the decision at the board meeting of December 12, 2015 to dismiss them as representative director and select their successor as representative director. However, after repeated discussions between the new executive team and the former representative director, a settlement was reached. The former representative director accepted the board resolution, agreed to work with the new executive team for the company’s development, and withdrew the petition.
So, what did you think?
Whether to have a board of directors when starting a business may depend on the members involved.
As a general rule, I think that for a small company, a structure in which the leader listens to opinions, ultimately makes decisions, and assumes responsibility will allow faster growth.
However, once a company reaches a certain scale and its pool of talent deepens, a company with a board of directors may have more room for growth.
However, if you do not hold more than 50% of the shares, you may be removed as in this case, so you need to bear that in mind.
Please manage the company properly for its development.