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Brash United States Corporate Law -Learn from Financial System Reform in Foreign Law-

Tatsuo Uemura
Professor, Waseda Law School, Waseda University

A Message from Waseda University to the West

At the urgentsymposium Examining President Obama's Financial Regulatory Reform Proposals-What Message Should Japan Send?, hosted by the Waseda University Global Center of Excellence COE (*)-Waseda Institute for Corporation Law and Society and held at Waseda University on August 8, 2009, a paper was distributed on the responsibilities of this writer, the Director of the Institute, entitled Financial Crisis-Proposing a Japanese Perspective to the West. with minor revisions, this message was subsequently posted on the Institute homepage as The Financial Crisis-A Message from Japan (Waseda University GCOE Declaration) The Financial Crisis-Proposing a Japanese Perspective to the West. The declaration has been translated into English, French, German, Chinese, and Korean and these translations are also posted online (links to the translations appear at the end of this paper).

The Japanese-a rare people who emerged with a unique study of law based on the Japanese language, the mother tongue-grasp the characteristic legal ways of the US and Europe based on lessons gleaned from over 100 years of studying foreign law, and I offer this unique Japanese perspective on the financial crisis through this declaration.

While it is consistently clear that the financial crisis is a legal issue, it is treated in Japan as a disaster that occurs once in a century, and as such, it is effectively understood to be a phenomenon for which no one is responsible. Judging from the diversity of the subsequent proposals for regulatory reforms in the west, it is crystal clear that this is indeed originally a legal issue.

Inescapable American Responsibility

The structure of global financial and capital markets is an inescapable phenomenon today, and the whole idea of avoiding falling behind these trends is seen as righteous, taken on faith, a singular and simple tone that holds sway on this point. Failures and the attendant damage resulting from this global market orientation are also felt on a global scale, and the daily lives of people in countries with very little voice are profoundly impacted as well. Once a financial crisis sets in, all countries are determined to protect their own interests ahead of those of other countries, and plain domestic rationalizations are dramatically argued. The essence of the matter is that financial and capital markets are inherently forms of warfare among the people of various nations through economic hegemony (Max Weber).

Speaking of hegemony, the financial products and brokers that appeared like gangbusters in financial and capital markets and wreaked havoc on a global scale, through both their successes and failures, were not created by global rules at all, but rather through US domestic rules. Viewed from a global perspective, the countless, convoluted rules in the US have a distinctive character, which is why the current financial crisis is regarded as having originated in the US. In this respect, Americans themselves are acutely aware of their responsibility, and must be regretfully reflecting on the state of their nation. The US is passionate about extraterritorial application of its own laws in other countries, so they cannot avoid responsibility for the burden of extraterritorial application-that is, responsibility for the rampant spread of inappropriate financial products, inappropriate financial transactions, and unfair trading from the US in other countries. Debate on US financial regulatory reform is by no means a US domestic issue. All countries throughout the world are entitled to weigh in on the state of these affairs in the US.

Fundamental flaws of excess-prone corporate and financial regulations

At this point, both the US and the UK treasuries continue to propose reforms, but both of them do nothing more than identify problems in oversight and risk management. Problems with oversight and management are not the issue, however, but rather the fundamental flaws in corporate legislation as well as financial and capital market legislation that are generally prone to excess. Although simply pointing out problems in oversight and risk management-without addressing the fact that the system itself encourages loose transactions-does not constitute a solution for the essential problems, it seems that those in the US and the UK themselves do not express such ideas.

Firstly, regarding the US, we should revisit thinking including corporate regulations as well as financial and capital market regulations that is based on ex-post facto revision of maximum freedom as maximum restriction, and move on to the idea of creating a stable system with a theoretical structure that addresses problems: in advance, normatively, objectively, historically, and theoretically. Fully unleashing US-style pragmatism in this field would be perilous at this point. It seems that humbly learning foreign law from a comparative law perspective is extremely weak in the US.

Secondly, in a country that is anomalous in terms of its lack of federal corporate laws, Americans themselves have an unclear concept and cannot clearly state what US corporate laws are (the system which substantially works as a federal corporate law is divided in federal securities regulations, federal stock exchange rules, and the like), so they should take this opportunity to establish European-style modest federal corporate laws. Within the body of public corporate regulations governing capital markets, there is a contrary situation wherein state corporate laws-which are traditionally extremely relaxed-assume the role of implementing federal regulations. The US must not shrink from the vital task of aggressively examining the relationship between federal and state institutions in terms of financial regulations as well.

Thirdly, regarding Europe, with preventive, modest social regulation and with the premise of a certain sense of distance from capital markets, a clear declaration is needed for a code of conduct with the strengths of traditional society, such as sound principles, best practices, and gentleman's rules, thoroughly penetrating nations outside of Europe, such as Asian nations, as well. Failing to establish such a code, Europe would have no grounds to complain if Asian nations-who do not share the collaborative normative consciousness historically formed in Europe-adopted preventative cautionary regulations toward Europe (such as regulations on splitting banks, securities firms, and the like).

Fourthly, westerners themselves seem to be losing sight of the fundamental ways underpinning western society-the commitment to valuing humanity and respecting the individual-which Japan learned from them. It seems that westerners are abandoning the idea of a corporate society centered on the individual, the society on which they prided themselves, which eschewed a situation of private funds managed with anonymity by a select few majority stockholders with controlling interest. If the west is becoming preoccupied with flaunting spectacular financial techniques at the expense of maintaining genuine respect for people, they are no role model for Japan. The roots of the American people's capitalism are in the junction between stock brokers and the stock exchange which form the ties between corporate society and civil society, and which provide a useful model to learn from as well.

The imperative for Japan

Japan has humbly learned from the systems of foreign nations over the years, but the western nations who served as models have forgotten their roots. So when I consider abandoning these systems, it occurs to me that responsibly and frankly conveying this proposal is useful for western nations as well as Asian nations. Japan must make up for its lack of historical experience and code of conduct in this field with intelligence and logic. When we view things from a comparative perspective, we become aware of the particular value placed on learning in Japan and see this as an aspect of Japan as a nation.

(*) Global Center of Excellence (GCOE)
Based on evaluations and examinations from the 21st Century COE Program launched by the Ministry of Education, Culture, Sports, Science and Technology-Japan in 2002, we are continuing with the fundamental ideas mentioned above, to more fully exploit and enhance our nation's graduate research functions and on a preeminent international research base, to vigorously support a structure with the base for preeminent international education research in order to design creative professional training that leads the world, and to promote the creation of universities that are internationally competitive. Click here to see the extent to which these points have been adopted at Waseda University.

Reference links

The Financial Crisis-A Message from Japan (Waseda University GCOE Declaration).
<<The Financial Crisis-Proposing a Japanese Perspective to the West.>>
Japanese English French German Chinese Korean * All of these are PDF files

Professor Tatsuo Uemura, Waseda Law School, Waseda University

Biographical summary

Professor Uemura was born in Tokyo in 1948. He earned both his undergraduate degree and his PhD in Legal Studies in the Department of Law at Waseda University. Professor Uemura took his current position in 1997, after working at posts including Associate Professor in the Department of Law at Kitakyushu University, Professor in the Department of Law at Senshu University, and Professor in the Department of Law at Rikkyo University. He specializes in Social Law and Capital Market Law. Professor Uemura holds a PhD in Legal Studies (Waseda University).
Professor Uemura is head of the Department of Law at Waseda University, and head of the Waseda University Global COE Waseda Institute for Corporation Law and Society.

Recent publications

Current Conditions and Issues in Corporate Law (Waseda University 21st Century COE Library) Nippon Hyoronsha Co., Ltd. (March, 2009)
The Grand Design of Financial Service Market Law (Collaboration) Toyo Keizai, Inc. (November, 2007)
Where Will Corporations Go? (Collaboration) Nikkei Publishing Inc. (August, 2007)