Japan’s corporate governance and stewardship reforms move closer

Japanese corporate governance and investor stewardship reforms are moving closer after significant steps towards implementation took place this week. Prime Minister Shinzo Abe’s ruling Liberal Democratic Party (LDP) will reportedly present a proposal to the government in June for a governance code to boost competitiveness and enhance investor protection in Japanese companies, according to media reports of an interview with Masahiko Shibayama, an LDP lawmaker who heads a financial markets and governance reform group. Bloomberg reports that Shibiyama said the promotion of external directors will probably be a “major theme,” along with likely rules against cross-holdings in companies where there are business relationships. Shibayama said: “This is an essential reform for making Japanese companies more advanced and capable of growth. It’s also important for ensuring “the funds entrusted by investors, both institutional and individual, are properly used.” Shibayama said a working group is discussing whether to make the governance requirements mandatory or on a “comply-or-explain” basis. An advance text of the bill published by the Ministry of Justice in November suggested firms would have to appoint an outside director or explain at their shareholders’ annual general meeting why they didn’t, according to the reports. RI understands that the Japanese Financial Services Agency (FSA) has also beenfinalising the country’s Stewardship Code, also known as the “Principles for Responsible Institutional Investors” with publication expected in tandem with the corporate governance reforms.

The two regulatory changes are part of the Abe government’s “Revitalisation Strategy” for Japan to exit deflation into sustainable economic growth. In a speech in Davos, Switzerland, in January, Abe said Japan would put forward changes to the Companies Act in the parliamentary session that runs through June.
A broader governance code, he said, would be the next step and complement the Stewardship Code, based on the existing UK Code, to encourage institutional investors to engage more with companies they own. In January, the FSA published the draft of the “Principles for Responsible Institutional Investors”. Link to RI story

RI Asia Conference 2014: Tokyo, March 5-6
More than 300 pension funds, asset managers and investment service providers will attend the RI Asia 2014 conference in Tokyo on March 5-6 to explore the major government and industry initiatives that will come to fruition this year. The RI Asia Keynote Speech will be given by Professor John Kay, author of the original report, the “Review of UK Equity Markets and Long-Term Decision-Making”.
Look out for RI’s reporting from next week’s conference.