[paper] Is a Holding Company a System to Conceal Legal Responsibility?

Tatsuo Uemura: Professor of Waseda University

Tatsuo Uemura has been a professor at the School of Law of Waseda University since 1997. His area of expertise is the Corporation Law and the Securities Reguration. Previously, he was a professor at Senshu University and Rikkyo University. His major published works include Insider Torihiki Kisei No Naiki Jirei (Cases of Bylaw for Insider Trading Regulations) and Kinyu Big Bang Kaikei to Hou (The Financial Big Bang - Accounting and Law) (co-written).

The investigative report submitted by Genron-NPO, pointed out that the governing function is weakening with the dispersion of authority and responsibility by the integration of the three former banks Dai-Ichi Kangyo, Fuji and the Industrial Bank of Japan. This report can be highly evaluated that it did not lightly attribute the problem to the responsibility of top management but rather gained a precise understanding of the nature of the problem. However, as a premise of discussion, distinction between governance of the single company and of a holding company is unclear. It is essential to discuss this point separately in order to develop discussion on corporate governance.
Roughly speaking, there are two merits to holding companies. One is that it becomes possible to decentralize decision-making by generating autonomy and independence among subsidiaries. The other is that it is possible to develop strategically sophisticated management through share holding. As set forth in the purpose clause of the Articles of Incorporation of Mizuho Holdings as "business management of the subsidiary companies," of the responsibility of the business of the bank apparently lies with the president of Mizuho Bank. Nevertheless, the responsibility of the president of Mizuho Bank is not questioned outright.

This fact suggests implicitly but clearly the fundamental legal problem among Japanese holding companies, which is that the responsible body for legal and social responsibilities is not one and the same." In Japan, parent companies routinely control their subsidiary companies and absorb their profits, but the directors of the parent companies do not hold themselves responsible to the creditors of subsidiary companies, under the Commercial Code. Also, the directors of the subsidiary company almost never take responsibility directly to the creditors. So, is it possible for the directors of the subsidiary to bear responsibility indirectly through derivative action by shareholders? No, because tauhe parent company is the 100% shareholder. Furthermore, the shareho a holding company is merely a system to conceal legal responsibility.

If we look at the situation overseas, holding companies are usually used only as an emergency measure to overcome administrative disadvantage and the responsibility of the parent and subsidiary companies are unified in most cases. In order to exploit the considerable merits of holding companies, it is an urgent matter to establish business combination legislation with equivalent standards as that of the Europe and the United States.