Provisional translations
26 April 2023

Action Program for Accelerating Corporate Governance Reform: From Form to Substance
The Council of Experts Concerning the Follow-up of Japan’s Stewardship Codeand Japan’s Corporate Governance CodeOpinion Statement No. 6Ⅰ. Introduction
In Japan, corporate governance reform has been underway. The Stewardship Code andthe Corporate Governance Code were made in 2014 and 2015; and were revised in 2017and 2020, and in 2018 and 2021, respectively from the perspectives of both "growthoriented governance" and "defensive governance." The reform is to support the growthof listed companies and the increase of corporate value over the mid- to long-term.
Through these initiatives and constructive dialogues between companies and investors,
corporate governance reform has made progress in recent years, where the interests ofstakeholders, including shareholders, employees, customers, business partners, creditors,
and local communities, were taken into account.
Specifically, many listed companies have made progress in appointing independent
directors and establishing nomination committees and remuneration committees. Today,
companies and institutional investors are becoming more aware of sustainability issues
that are closely related to the interests of various stakeholders.
We have examined the effects of corporate governance reform in past years, taking
into account our own interim review of corporate governance reform measures after thesecond revision of the Corporate Governance Code in 2021, as well as the views ofstakeholders, including investors from outside Japan, which were obtained through theJapan Corporate Governance Forum. These examinations showed that not a lot of
empirical research on the effects of the reform measures has been conducted as yet andthe effect of corporate governance reform measures on corporate performance remains
to be seen. However, some point out that many companies have shared the view that thefunction of the board is crucial for increasing of corporate value through corporate
governance reform, and corporate governance reform is moving in a positive direction
even if it does not immediately show positive corporate performance.
On the other hand, others point out that the speed of corporate governance reform has
been slow in certain areas, and issues remain to be resolved.
Ⅱ. Current Issues
Specifically the following issues have been pointed out:(i) Management issues, such as encouraging the management with an awareness ofprofit-making and growth based on the cost of capital and promoting initiatives
1

relating to sustainability, including investment in human capital;(ii) Issues related to the effectiveness of independent directors, such as improving theeffectiveness of the board, the nomination committee and the remunerationcommittee, and improving the quality of independent directors; and(iii) Issues related to dialogues between companies and investors, such as enhancementof information disclosure as well as dealing with legal issues, and market
environment issues.
In light of the objective of corporate governance reform, namely, boosting the growthof listed companies and the increase of corporate value over the mid- to long-term, it isvital to resolve the management issues mentioned in (i) above. At the same time, fromthe perspective of promoting efforts to resolve these issues, it is also important forindependent directors to fully perform their functions so as to support the company’s
risk-taking and conduct effective oversight, as mentioned in (ii) above. In addition, it isalso useful to enhance the self-motivated efforts of companies through constructive
dialogues between companies and investors, as mentioned in (iii) above. The issues
mentioned in (i) to (iii) above must be addressed and dealt with simultaneously.
Ⅲ. Approach to Future Initiative
It is vital to move the focus of reform from form to substance in resolving the above
issues. Sufficient results cannot be expected only by satisfying form. Substance matters.
Furthermore, it has been pointed out that further detailed requirements, if introduced,
may undermine the original purpose of the "comply or explain" approach and may cause
corporate governance reform in practice to lose its substance.
Thus, it is desirable that effective solutions to individual companies’ corporate
governance problems be considered in the context of reality, by identifying individual
issues through constructive dialogues between companies and investors. It is also
important for self-motivated changes to take place in the mindsets of companies andinvestors. To this end, it is necessary to create an environment that promotes suchchanges, as well as to make the dialogues between companies and investors moreproductive and more effective.
In order to seek sustainable corporate growth and increased corporate value over themid- to long-term, it is appropriate to deal with the above issues through various
measures, such as the enhancement of information disclosure of companies and investors.
In addition, it is appropriate to examine the timing of the revision of each Code in atimely manner based on the progress status from the viewpoint of the effective
implementation of corporate governance reform, not necessarily following the review
cycle in the past years.
2

Ⅳ. Specific Measures
Based on the above, the Council recommends that the following measures andconsiderations be implemented in order to make corporate governance reform have more
substance, and the Council will review the implementation status from time to time andconsider whether additional measures are needed.

3

1. Issues for promoting sustainable corporate growth and increased corporate value over the mid- to long-term
Item

Details of measures and considerationsA) Encouraging themanagement with anawareness of profit-makingand growthEncourage the management with an awareness of profit-making and growth based on the cost of capital (suchas the proper allocation of management resources toward risk-taking, including a business portfolio review andinvestments in human capital, intellectual property and R&D). [Implementation from spring 2023]

B) Encouraging themanagement with anawareness of sustainability
issues

Encourage companies to take actions on sustainability issues through the statutory disclosure framework ofsustainability information, including human capital, intellectual property and diversity, which was newly
established in the Annual Securities Report (including the publication of companies’ good disclosure practices).
[Implementation from 2023 to 2025]



Actively participate in the international discussion for the formulation of sustainability disclosure standards,
and as a part of that, promote “human capital” to be included in the agenda priority of international sustainability
disclosure standards. [Implementation from 2023]

C) Improving the effectivenessof independent directors(improvement of theeffectiveness of the board,
nomination committee andremuneration committee)

Consider whether additional measures are needed to improve the diversity of the board and core humanresources, such as increasing the percentage of female executives (target of 30% or more by 2030), dependingon the evaluation of the achievement.

In light of the enhanced disclosure of information on the activities of the board, the nomination committee, andthe remuneration committee in Annual Securities Reports, investigate, compile and publish the actual status andexamples thereof and, through these initiatives, promote the establishment of a "PDCA" cycle based on theevaluation of the effectiveness of the board and strive to further demonstrate its functions. [Fall 2023]

Conduct educational activities, including skill development through training, to promote understanding of theroles expected of independent directors. [Spring 2023]
4

2. Issues related to dialogues between companies and investors
Item

Details of measures and considerationsA) Effective implementation ofstewardship activities



Promote the efforts of asset managers and asset owners to deal with the issues involved in the effective
implementation of stewardship activities (including allocating sufficient resources at asset managers, devisingengagement methods, providing incentives for stewardship activities, establishing governance structures ofasset owners such as pensions). [Implementation from spring 2023]

B) Enhancing the quality ofdisclosure as a basis fordialogue

Request companies listed in the Prime Market to disclose the status of dialogues with their investors and thecontent of such dialogues. [Spring 2023]

Re-emphasize the purpose of the “Comply or Explain” principle and make clear sufficient and insufficient casesof “Explain.” [Spring 2023]

Continue to consider measures to provide investors with the information they need prior to general shareholders
meetings in an effective and efficient manner, including enhancing the efficiency of disclosure of duplicate
information in Annual Securities Report required by the Financial Instruments and Exchange Act and Business
Report required by the Companies Act.

C) Promoting dialogues with
global investorsConsider measures to enhance timely disclosure of information that can serve as a basis for dialogues between
companies and investors.

Promote dialogues between companies and investors by "visualizing" companies that willingly and actively
respond to the expectations of global investors (such as the ratio of independent directors, diversity, anddisclosure in English). [Implementation from summer 2023]

In particular, expand the coverage of English disclosure practices, including making English disclosure ofrelevant documents of the companies listed in the Prime Market mandatory. [Fall 2023]
5

2. Issues related to dialogues between companies and investors
ItemD) Resolving legal issues

E) Resolving market
environment issues

Details of measures and considerations
Clarification of "act of making important suggestions" and "joint holders" under the large shareholding
reporting rule.

Consider what beneficial shareholders transparency should be.

Consider how to protect minority shareholders in the case of a partial takeover bid.

Continue to consider the disclosure and corporate governance issues with regard to quasi-controlled listedcompanies.

With regard to the reduction of cross-shareholdings, continue to follow up on the progress made in light of thestrengthening of disclosure rules in Annual Securities Reports, the change of continued listing criteria due tothe reorganization of market segments by Tokyo Stock Exchange, and transitional measures therefor, andconsider whether further measures are called for. [Implementation from 2023 to 2025](End)6