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Corporate governance frameworks in Japan - Coggle Diagram
Corporate governance frameworks in Japan
Shareholding in Japan is dispersed and held predominantly by financial institutions and businesses
There is a separation of ownership and control with managers running the day to day affairs of the company
Historically, the corporate governance model has been more like the European model with management giving a strong priority to the interests of employees rather than the shareholder focus of the Anglo-American corporate governance model
In recent years, it appears that Japan, with its new corporate governance regime is become more market orientated and adopting its own hybrid approach to corporate governance which contains elements of both the European and Anglo-American corporate governance models
The change to a more market orientated corporate governance regime is predominantly government driven as part of the reforms brought in as a response to Japan's long running economic problems
Principles for Responsible Institutional Investors: Japan's Stewardship Code
Aims to provide a framework for institutional investors in fulfilling their stewardship responsibilities withdrew regard both to their clients and beneficiaries and to invest companies which contributes to the growth of the economy of Japan
Adopts a comply or explain regime
Should have a clear policy on how they fulfil their stewardship responsibilities and public disclose it
Should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it
Should monitor invest companies so that they can appropriately fulfil their stewardship responsibilities with an oritenantion towards the sustainable growth of the companies
Should seek to arrive at an understanding in common with invest companies and work to solve problems through constructive engagement with invest companies
Should have a clear policy on voting and disclosure of voting activity. The policy on voting should not be comprised only of a mechanical checklist; it should be designed to contribute to the sustainable growth of invest companies
In principle should report periodically on how they fulfil their stewardship responsibilities, including their voting responsibilities to their clients and beneficiaries
To contribute positively to the sustainable growth of invest companies, institutional investors should have in-depth knowledge of the invest companies and their business environment and skills and resources needed to appropriately engage with the companies and make proper judgements in fulfilling their stewardship activities
Japans corporate governance code
Defines CG as a structure for transparent, fair, timely and decisive decision making by companies with due attention to the needs and perspectives of shareholders and also customers, employees and local communitities
Principle based approach and comply and explain approach
Applies to all companies listed on the Tokyo Stock Exchange
Securing the rights and equal treatment of shareholders
Companies should take appropriate measures to fully secure shareholder rights and develop an environment in which shareholders can exercise their rights appropriately and effectively
Companies should secure effective equal treatment of shareholders
Adequate consideration should be given to the issues and concerns of minority shareholders and foreign shareholders for the effective exercise of shareholder rights and effective equal treatment of shareholders
Appropriate co-operation with stakeholders other than shareholders
Companies should fully recognise that their sustainable growth and the creation of mid-to-long term corproate value are brought as a result of the provision of resources and contributions made by a range of stakeholders, including employees, customers, business partners, creditors and local communitities
Companies should endeavour to appropriately cooperate with these tskaheolders
The board and management should exercise their leadership in establishing a corporate culture where the rights and positions of stakeholders are respected and sound business ethics are ensured
Ensuring appropriate information disclosure and transparency
Companies should appropriately make information disclosure in compliance with the relevant laws and regulations but should also strive to actively provide information beyond that required by law
This includes both financial information such as financial standing and operating results and non-financial information such as business strategies and business issues, risk and governance
The board should recognise that disclosed information will serve as the basis for constructive dialogue with shareholders and therefore ensure that such information particularly non-financial information is accurate, clear and useful
Responsibilities of the board
Given its fiduciary responsibility and accountability to shareholders, in order to promote sustainable corporate growth and the increase of corporate value over the mid-to-long term and enhance earnings power and capital efficiency, the board should appropriately fulfil its roles and responsibilities including (1) setting the broad direction of corporate strategy, (2) establishing an environment where appropriate risk taking by the senior management is supported and (3) carrying out effective oversight of directors and the management from an independent and objective standpoint
Such roles and responsibilities should be equally and appropriately fulfilled regardless of the form of corporate organisation
Dialogue with shareholders
In order to contribute to sustainable growth and the increase of corproate value over the mid to long term companies should engage in constructive dialogue with shareholders even outside the general shareholder meeting
During such dialogue senior management and directors including outside directors should listen to the views of shareholders and pay due attention to their interests and concerns, clearly explain business policies in an understandable manner as to gain their support and work to develop a balanced understanding of the positions of shareholders and other stakeholders and acting accordingly