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Japan Improving Corporate Governance

On March 15, the Council of Experts Concerning the Corporate Governance Code (joint secretariat: FSA and Tokyo Stock Exchange) finalized “Japan’s Corporate Governance Code”. The Tokyo Stock Exchange is scheduled to revise its listing rules and related regulations and formulate its corporate governance code, which is expected to have the same content as the final version of the proposal.

The Code aims to realize a “growth-oriented governance” which could contribute to the accountability of the Board of Directors in terms of clarifying its objectives, where a company aims to increase its profitability and capital efficiency, and is seeking sustainable growth of its corporate value through appropriate risk-taking.

Furthermore, “Japan’s Stewardship Code” was finalized and published in February 2014. The Code defines principles for institutional investors to behave responsibly in fulfilling their stewardship responsibilities with due regard both to their clients and beneficiaries and to investing companies. As of the end of February 2015, 184 institutional investors had signed up to such code and disclosed their policies on how they fulfill their stewardship responsibilities.

The above-mentioned two codes do not adopt a rule-based approach, as typically seen in laws and regulations, but instead adopt a principle-based approach and “comply or explain” approach (either comply with a principle or, if not, explain the reasons why not to do so) in order to ensure the effective application of these codes.

It is hoped that the two codes will work as "the two wheels of a cart" and facilitate constructive actions from both companies and investors that will contribute to sustainable corporate growth.


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