You might think from the title that this column is about a joyride that I had en vacances this summer despite my old age. Surprise. It is not.
It is about corporation legislation.
As many might have read in the papers, the UFJ Bank issued 700 billion yen worth of preferred shares to Mitsubishi Tokyo Financial Group in September.
Suddenly, Mitsubishi Tokyo became a huge shareholder owning more than one third of UFJ stock, with the voting right.
Furthermore, this issuance concluded that important issues could not be decided without the approval of Mitsubishi.
In 2001, those who used to be shareholders of Sanwa Bank were forced to become shareholders of UFJ Holdings Inc. by a stock transfer when UFJ Holdings was established as a holding company.
The transfer was accepted reluctantly, with the assumption that UFJ Holdings, a parent company, would be the same as it had been formerly, when the common shareholders had had 100 percent influence to make decisions that the UFJ Bank would follow.
However, from issuing preferred stock this time around, UFJ Holdings, a holding company, almost abandoned its name "Holdings" because it could not function as a holding company any longer.
Now, it cannot do anything without permission by the Mitsubishi Tokyo Financial Group.
The crucial decision of allowing preferred shareholders was made secretly by a board of directors at UFJ Bank, a 100 percent subsidiary of UFJ Holdings.
If all other Japanese companies followed suit, what would be the effect on society as a result?
It is believed, theoretically, that there are no means left to the shareholders of UFJ Holdings to correct this situation.
They cannot file a class action, demand an injunction to illegal acts, nor can they take legal action to invalidate new stock issuance, given that a shareholder of these preferred stocks is UFJ Holdings, a parent company of the UFJ Bank that issued the stocks.
If the same thing happened in the US, the shareholders of UFJ Holdings could by all means take action against this issuance.
However, a system to support this kind of action has not been set up in Japan.
In short, this bad business practice could be carried out very easily anywhere in Japan with no one to control it under the current Japanese legislation.
An action by the shareholders of UFJ Holdings against this issuance should definitely be recognized as a theory of precedent.
Our COE institute concerns itself over exactly these types of incidents in our mission named for the "Creation of Laws".
The idea of venture capital for making only investments with no involvement in the management of invested businesses was introduced at a classified stockholder's meeting with right to veto.
When it was released, some worried that serious problems might occur if it became available to every corporation.
Now we find out that their concern was true, and we question the decisions made by Ministry of Economy, Trade and Industry, the business world, and the scholars who supported an optimistic legislative theory to promote it.
The courts especially had a huge responsibility.
In the US and UK, third party allocation of shares to corporations is generally not practiced because the majority of shareholders are individuals.
It can erode the quality of civil society. It will be hostile against the people. A fall-in this summer will be engraved for many years as one of the most notorious incidents in Japan, and will remain in history.
COPYRIGHT 2004 21st century
Center
of
Excellence,
Waseda
Institute for
Corporation
Law and
Society.
Allrights Reserved.
You might think from the title that this column is about a joyride that I had en vacances this summer despite my old age. Surprise. It is not.
It is about corporation legislation.
As many might have read in the papers, the UFJ Bank issued 700 billion yen worth of preferred shares to Mitsubishi Tokyo Financial Group in September.
Suddenly, Mitsubishi Tokyo became a huge shareholder owning more than one third of UFJ stock, with the voting right.
Furthermore, this issuance concluded that important issues could not be decided without the approval of Mitsubishi.
In 2001, those who used to be shareholders of Sanwa Bank were forced to become shareholders of UFJ Holdings Inc. by a stock transfer when UFJ Holdings was established as a holding company.
The transfer was accepted reluctantly, with the assumption that UFJ Holdings, a parent company, would be the same as it had been formerly, when the common shareholders had had 100 percent influence to make decisions that the UFJ Bank would follow.
However, from issuing preferred stock this time around, UFJ Holdings, a holding company, almost abandoned its name "Holdings" because it could not function as a holding company any longer.
Now, it cannot do anything without permission by the Mitsubishi Tokyo Financial Group.
The crucial decision of allowing preferred shareholders was made secretly by a board of directors at UFJ Bank, a 100 percent subsidiary of UFJ Holdings.
If all other Japanese companies followed suit, what would be the effect on society as a result?