Governance in Japanese Medical Corporations: What are the Mandated Management Structures and Officer Responsibilities?

Japanese Medical Corporations, or "Iryo Hojin" (医療法人), operate within a sphere of significant public interest, making robust governance not just a matter of good practice but a legal necessity. The Japanese Medical Care Act (医療法 - Iryou Hou) meticulously prescribes the management structures and the roles of key decision-making bodies and officers for these entities. Whether an Iryo Hojin is established as a "Shadan" (社団 - association type) or a "Zaidan" (財団 - foundation type), it must adhere to specific governance frameworks designed to ensure accountability, transparency, and the fulfillment of its healthcare mission. This article dissects these mandated structures, the functions of pivotal organs, and the responsibilities and qualifications of the officers who steer these corporations.

The Dual Structure: Tailored Governance for Shadan and Zaidan Iryo Hojin

As explored previously, Iryo Hojin are primarily categorized into Shadan (association-based, formed by members) and Zaidan (foundation-based, formed around an endowment of assets). Recognizing their different foundational natures, the Medical Care Act mandates distinct, yet parallel, governance frameworks for each.

The mandatory governing organs that must be established are:

• For Shadan Iryo Hojin:
  • The Members' General Meeting (社員総会 - shain soukai)
  • Directors (理事 - riji)
  • A Board of Directors (理事会 - rijikai)
  • Auditors (監事 - kanji)
• For Zaidan Iryo Hojin:
  • Councilors (評議員 - hyougiin)
  • A Council (評議員会 - hyougiinkai)
  • Directors (理事 - riji)
  • A Board of Directors (理事会 - rijikai)
  • Auditors (監事 - kanji)

The existence and operational rules of these organs must be clearly stipulated in the corporation's foundational documents—the Articles of Incorporation (定款 - teikan) for a Shadan, or the Act of Endowment (寄附行為 - kifukukoui) for a Zaidan. This ensures that the governance structure is formally established from the outset.

The Pinnacle of Shadan Governance: The Members' General Meeting (社員総会 - Shain Soukai)

For a Shadan Iryo Hojin, the Members' General Meeting stands as the highest decision-making authority. It embodies the collective will of its members (shain).

• Composition and Role: It comprises all individuals who hold membership status in the corporation as defined by its Articles of Incorporation. The Shadan must maintain an up-to-date register of its members (社員名簿 - shain meibo).
• Key Powers: The General Meeting has the ultimate say on fundamental matters affecting the corporation. Its powers typically include:
  • Amending the Articles of Incorporation.
  • Approving annual budgets and financial statements.
  • Appointing and dismissing Directors and Auditors. (Dismissal of an auditor often requires a higher threshold, such as a two-thirds majority of votes cast by attending members ).
  • Decisions regarding dissolution, mergers, or divisions of the corporation.
  • Other critical matters as stipulated by the Medical Care Act or the Articles of Incorporation themselves. Matters requiring a General Meeting resolution cannot be delegated to other organs like the Board of Directors.
• Operational Aspects:
  • Convening: The Representative Director (Rijicho) is responsible for convening regular General Meetings, at least once annually. Extraordinary meetings can also be called by the Rijicho when deemed necessary, or upon the demand of a certain proportion of members (e.g., one-fifth, unless the Articles specify a lower threshold).
  • Notice: Members must be notified at least five days in advance of a meeting, with the notification clearly stating the meeting's purpose and agenda items. Generally, only matters included in the advance notice can be resolved, unless the Articles provide otherwise.
  • Quorum and Resolution: Unless the Articles state differently, a quorum typically requires the presence of a majority of all members. Resolutions are usually passed by a majority vote of the members present. In the event of a tie, the chairperson often has the casting vote. The chairperson of the meeting does not participate in the vote as a regular member.
  • Voting Rights: Each member is generally entitled to one vote. Written voting or voting by proxy is usually permissible if allowed by the Articles of Incorporation.
  • Conflicts of Interest: A member who has a special personal interest in a particular resolution is barred from voting on that matter.
• Transparency and Accountability: Detailed minutes of the General Meeting must be prepared and kept. Directors and Auditors are obliged to provide necessary explanations to members on matters raised during the meeting, unless there are justifiable reasons for refusal (e.g., the matter is unrelated to the agenda, or disclosure would significantly harm the collective interests of the members).

The Oversight Powerhouse of Zaidan Governance: The Council (評議員会 - Hyougiinkai)

In a Zaidan Iryo Hojin, which is founded upon an endowment of assets rather than a membership base, the Council serves as the primary organ for oversight and approval of fundamental matters, ensuring the Zaidan adheres to its founding purpose.

• Composition and Role: The Council is composed of individuals known as Councilors (hyougiin). These Councilors are selected based on provisions in the Act of Endowment, often chosen for their knowledge and experience in medicine, law, finance, or public service, or as representatives of the community. A crucial aspect of their role is independence; Councilors cannot concurrently serve as Directors or employees of the same Zaidan Iryo Hojin. Furthermore, the number of Councilors must exceed the number of Directors (with a minimum of three Councilors if the Zaidan has special approval to operate with only one or two Directors).
• Key Powers: The Council holds significant sway over the Zaidan’s direction and integrity. Its powers generally include:
  • Appointing and dismissing Directors and Auditors. (Dismissal of an auditor may require a heightened resolution, such as a two-thirds majority of attending councilors ).
  • Approving amendments to the Act of Endowment.
  • Approving annual budgets and financial statements.
  • Making decisions or providing opinions on significant financial matters such as major asset disposals, incurring substantial debt, and business planning. The Act of Endowment may specify whether these actions require a formal resolution by the Council or merely its opinion beforehand.
  • Approving mergers, divisions, or dissolution of the Zaidan.
  • Matters requiring a Council resolution cannot be delegated to other organs.
• Operational Aspects: Similar to the Members' General Meeting in a Shadan, the Medical Care Act prescribes rules for convening Council meetings (at least annually by the Rijicho, or by Councilor demand), advance notification of agenda items, quorum requirements (typically a majority of all Councilors), and resolution thresholds (usually a majority vote of attending Councilors, with the chairperson often having a casting vote but not voting as a regular councilor). Councilors with a special personal interest in a resolution are excluded from voting on it.
• Advisory and Monitoring Functions: The Council is empowered to request reports from Directors or Auditors concerning the Zaidan’s operational status, financial health, or the conduct of its officers. It can also offer opinions and advice to the executive management. Detailed minutes of Council meetings are mandatory.

The Executive Engine: Directors (理事 - Riji) and the Board of Directors (理事会 - Rijikai)

Both Shadan and Zaidan Iryo Hojin are managed by Directors, who collectively form the Board of Directors. Recent amendments to the Medical Care Act have made the establishment of a Board of Directors mandatory for nearly all Iryo Hojin. Corporations existing before the September 1, 2016, amendment that did not have a board were given a two-year grace period to amend their foundational documents accordingly.

• Number and Appointment of Directors: An Iryo Hojin must have at least three Directors. However, with special approval from the prefectural governor, an entity may operate with only one or two Directors. Directors are appointed by the Members' General Meeting in a Shadan, and by the Council in a Zaidan.
• The Board of Directors (Rijikai):
  • Composition: The Board consists of all the Directors of the Iryo Hojin.
  • Core Functions (Medical Care Act Art. 46-7):
    1. Deciding on the execution of the Iryo Hojin’s business and operational affairs.
    2. Supervising the performance of duties by each individual Director.
    3. Electing and dismissing the Representative Director (Rijicho) from among the Directors who are physicians or dentists (unless special approval is obtained from the governor to appoint a non-physician/dentist Rijicho).
  • Operational Rules: The Board convenes as needed. Any Director can generally call a meeting, unless the Articles of Incorporation or a prior Board resolution designates a specific convener (usually the Rijicho). Notice must typically be sent to all Directors and Auditors at least one week before the meeting, though this period can be shortened by the Articles, and the notice requirement can be waived with the unanimous consent of all Directors and Auditors. Resolutions generally require the presence of a majority of Directors eligible to vote, and are passed by a majority vote of those present (these thresholds can be increased by the Articles). Detailed minutes must be kept and signed or sealed by the attending Directors (and Auditors, or specifically the Rijicho if the Articles so require). A written resolution procedure (みなし決議 - minashi ketsugi), where a resolution is deemed passed if all eligible Directors consent in writing or electronically, is also possible, provided no Auditor objects.
  • Non-Delegable Duties: The Board cannot delegate its decision-making authority on important matters concerning business execution to individual Directors.
• The Representative Director (Rijicho - 理事長): This individual, elected by the Board, serves as the chief executive officer of the Iryo Hojin and has the legal authority to represent the corporation in all its external dealings.
• Duties of Directors: Directors operate under a fiduciary duty to the corporation, which includes the duty of care of a prudent manager (善管注意義務 - zenkan chuui gimu) and a duty of loyalty (忠実義務 - chuujitsu gimu). They must act in the best interests of the Iryo Hojin and its mission.

The Watchdogs: Auditors (監事 - Kanji)

Auditors play a critical role in the governance of Iryo Hojin by providing independent oversight of the corporation’s financial affairs and the conduct of its Directors.

• Mandatory Appointment and Number: Both Shadan and Zaidan Iryo Hojin must appoint at least one Auditor.
• Appointment: Auditors are appointed by the Members' General Meeting in a Shadan, and by the Council in a Zaidan.
• Independence: To ensure impartiality, Auditors cannot concurrently hold positions as Directors or employees of the Iryo Hojin or any of its subsidiary entities.
• Core Functions (Medical Care Act Art. 46-8-2 and related regulations):
  1. Auditing Financial Status: Examining the Iryo Hojin’s assets, liabilities, and overall financial condition.
  2. Auditing Business Operations: Overseeing the manner in which Directors are executing their duties and managing the corporation's business. This can extend beyond purely financial matters to include operational conduct. For Social Medical Corporations, in particular, auditors possess explicitly strengthened powers which include conducting operational audits.
  3. Reporting: If Auditors discover any irregularities, acts of misconduct by Directors, or significant violations of laws or the foundational documents, they must report these findings to the Members' General Meeting (for Shadan) or the Council (for Zaidan). Depending on the severity, they may also have an obligation to report to the competent supervisory authorities (e.g., the prefectural governor).
  4. Audit Reports: Auditors are required to prepare and submit audit reports, typically in conjunction with the annual financial statements.

Officers: Qualifications, Tenure, and General Responsibilities

The term "Officers" (役員 - yakuin) in the context of Iryo Hojin primarily refers to its Directors and Auditors.

• General Qualifications and Disqualifications (Medical Care Act Art. 46-4(2), applied via Art. 46-5(5)):
  • A corporation cannot serve as an officer.
  • Individuals who are adult wards (成年被後見人 - seinen hikoukenin) or persons under curatorship (被保佐人 - hosa nin) are disqualified.
  • Persons who have been sentenced to a fine or a more severe penalty under the Medical Care Act, the Physicians Act, the Dentists Act, or other specified medical laws, and for whom two years have not elapsed since the completion or waiver of the execution of the sentence, are disqualified.
  • Individuals who have been sentenced to imprisonment or a graver penalty for any crime (other than those mentioned above) and are still serving their sentence or have not had its execution waived are also disqualified.
• Kinship Restrictions: While the strictest "one-third or less" rules for family members in officer roles are explicitly mandated for Specialized Medical Corporations (Tokutei/Shakai Iryo Hojin), for general Iryo Hojin, the primary concern is the overarching principle of maintaining public trust and avoiding conflicts of interest. Prudent practice generally discourages excessive concentration of related individuals in key governance positions, even if not explicitly barred by a strict numerical quota for all general types.
• Term of Office: The term of office for both Directors and Auditors is capped at a maximum of two years. However, they are eligible for re-appointment.
• Requirement for Facility Administrators to be Directors: As a general rule, the appointed administrator (管理者 - kanrisha) of each hospital, clinic, or LTCF operated by the Iryo Hojin must also be one of its Directors. Exceptions to this rule are possible but require special approval from the prefectural governor. If an administrator-director ceases to be the administrator, they also lose their position as director under this provision.
• Vacancies: If the number of Directors or Auditors falls below the statutory minimum or the number prescribed in the foundational documents, the outgoing officers whose terms have expired or who have resigned must continue to perform their duties until their successors are appointed. If a significant number of officer positions become vacant (e.g., more than one-fifth of the prescribed number), the vacancies must be filled within one month. In situations where operations might be hindered due to officer vacancies, the prefectural governor has the authority to appoint temporary officers.

Implications for Foreign Entities

A clear understanding of the governance framework of Japanese Medical Corporations is vital for foreign entities engaging with them:

• Identifying Key Decision-Makers: When negotiating significant agreements or collaborations, it's crucial to know whether final approval rests with the Board of Directors, or requires further ratification by a Members' General Meeting (for Shadan) or a Council (for Zaidan). This impacts timelines and engagement strategies.
• Assessing Governance Quality: The composition of the board, the independence and diligence of auditors, and (for Zaidan) the active involvement of the Council are important indicators of an Iryo Hojin's governance strength and reliability as a partner.
• Due Diligence on Officers: Standard due diligence should include verifying the qualifications of key officers (especially the Rijicho and other Directors) and being aware of any potential conflicts of interest or disqualifying conditions.
• Ensuring Proper Contractual Authority: The Representative Director (Rijicho) is typically the individual with the legal authority to bind the corporation. Foreign entities must ensure that contracts are executed by a person with verified representative authority.
• Compliance and Accountability: The governance requirements under the Medical Care Act are substantive and aim to ensure that Iryo Hojin operate accountably and maintain public trust. Foreign partners should appreciate this regulatory environment.

Conclusion

The governance of Japanese Medical Corporations is characterized by a legally mandated structure of specific organs, each with defined roles and responsibilities, tailored to whether the entity is an association-based Shadan or a foundation-based Zaidan. The Members' General Meeting (for Shadan) and the Council (for Zaidan) serve as ultimate approval and oversight bodies, while the Board of Directors, led by the Representative Director, manages executive functions. Independent Auditors provide a crucial check on financial and operational integrity. These frameworks, coupled with specific qualifications and term limits for officers, are designed to ensure that Iryo Hojin fulfill their critical healthcare mission with accountability and in the public interest. For any foreign entity interacting with or analyzing these unique Japanese corporations, a solid grasp of their governance is fundamental to effective engagement.