Shishido, Zenichi; Osaki, Sadakazu --- "Reverse engineering SOX versus J-SOX: a lesson in legislative policy" [2014] ELECD 596; in Shishido, Zenichi (ed), "Enterprise Law" (Edward Elgar Publishing, 2014) 349

Book Title: Enterprise Law

Editor(s): Shishido, Zenichi

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781781004449

Section: Chapter 20

Section Title: Reverse engineering SOX versus J-SOX: a lesson in legislative policy

Author(s): Shishido, Zenichi; Osaki, Sadakazu

Number of pages: 18

Abstract/Description:

Although both the US and Japan recently introduced similar corporate governance regulations, respectively the Sarbanes–Oxley Act of 2002 (SOX) and the Financial Instruments and Exchange Act of 2006, known as “J-SOX” because of its similarity to SOX, there is an interesting discrepancy between the first-year reports in regard to the discovery of “material weakness” of internal controls by US companies (16.9 percent) and Japanese companies (2.1 percent). What does this discrepancy mean and why does it exist? In order to answer these questions, this chapter attempts to reverse engineer SOX and J-SOX by focusing on how these regulations affect the incentive bargain among the key players complimentarily with the pre-existing laws, practices, markets, and social norms in both jurisdictions. SOX and J-SOX have similar origins, purposes, and substance. They were both enacted after major fraudulent disclosure scandals by legislatures that were forced to react to increasing social criticism. Both the US Congress and the Japanese Diet intended to remedy what was perceived to be defective corporate governance regulations through active intervention in the internal controls of publicly traded companies. Four years after the enactment of SOX, the Japanese Diet transplanted SOX into the corporate governance regulatory system of Japan after making some modifications to its provisions. Although these two regulations were nearly identical upon implementation, each has evolved differently due mainly to the distinctions between the relevant environments in the US and Japan.