Recent Evolution of Corporate Governance in Japan  Masatoshi Yasuda

September 23,2017
While we have not updated the recent evolution of corporate governance in Japan on this blog since March in this year, there have been decent progresses since then. I would like to explain them to readers of the blog.
  1. On May 10th, the CGS (Corporate Governance System) Study Group under the Ministry of Economy, Trade and Industry (METI) compiled and issued a report as “CGS Study Group Report” (“the report” , hereafter). The outline of the report is attached here. Also, following the report, METI announced Practical Guidelines for Corporate Governance Systems (CGS Guidelines) on March 31st. The CGS study Group commenced in July, 2016 and had held nine sessions until February, 2017 to discuss a wide range of issues regarding corporate governance on efforts for establishing and operating corporate governance perceived significant to fortify companies’ “earning power”. The report, in particular, explains that in the cases where companies appoint senior internal advisors or consultants (such as “sodanyaku” or “komon”) from among those who have experienced the position of president or CEO of that company, the companies should define their roles and make discussions on a treatment setting that will meet the roles. (As for this subject, please refer to my blog entry on March 15, 2017). It is inferred that the report will visibly or invisibly affect forthcoming revision of the corporate governance code as well as that of the company act.                          
  2. On March 31st, the Financial Service Agency (FSA) promulgated “Principles for Effective Management of Audit Firms (The Audit Firm Governance Code)”,of which URL is This code requests large-sized audit firms with many partners and staff to comply with principles for effective management to conduct audits of major listed companies, or otherwise to explain reasons why they do not comply with them. This code is a backwash of the Toshiba scandal where one of largest Japanese accounting firms showed up with an appalling fiasco.
  1. On May 29th, the Council of Experts on the Stewardship Code under FSA compiled and issued the revised Stewardship Code. It is on a FSA’s site of which URL is as follows:          To clarify responsibilities of asset owners including, for instance, the exercise of voting rights for which asset owners do not directly engage in stewardship activities. Major revisions are as follows:
  • To ask asset managers to pay more attention to conflicts of interest which may significantly influence the exercise of voting rights and/or dialogue with companies.
  • To ask even passive investors to take charge of engagement with a medium- to long-term perspective.
  • To make it sure that institutional investors should disclose voting records for each investee company on an individual agenda item basis.
  • To more stress stewardship responsibilities of the management of institutional investors saying, for an example, “In particular, the management of institutional investors should have appropriate capability and experience to effectively fulfill their stewardship responsibilities, and should be constituted independently and without bias, in particular from their affiliated financial groups.”
  1. On August 2nd, Tokyo Stock Exchange (TSE) announced that they would revise the form of Corporate Governance Report to accommodate information on “sodanyaku” or “komon” which listed companies are asked to disclose on voluntary basis. This measure is to comply with the CGS Guidelines explained on the top. This is also another backwash of the Toshiba scandal where three ex-CEO played major roles in the fraudulent accounting by overriding the management. (As for this subject, please refer to my blog entry on March 15, 2017).


  By Masatoshi Yasuda

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