Better Governance Requires Stronger
Independent Directors and Healthy Voting
Behavior from Shareholders
Takumi Shibata
Representative Director, President & CEO,Nikko Asset Management, Co., Ltd.
Japan has introduced two pressure cookers for enhancing corporate
value, one being the recently announced Corporate Governance
Code and the other being the still new Stewardship Code.
The Corporate Governance Code will become effective only if
boards become more effective in discharging their oversight
responsibilities. Boards may choose to take a long-term approach
like Chinese medicine in order to safeguard corporate
performance or to take a quick surgical approach to dismiss
corporate executives.
On limited occasions, institutional investors may find that theyneed to get in touch with corporate boards, away from routine
investor relationship activities. Who is available for institutional
investors to contact at companies on those rare occasions? They
want to talk to non-executive independent directors at the very
least but more likely they would like to talk with a non-executive
chairman or lead independent director if those functions were toexist in the target companies.
It is becoming a standard practice at companies in the UK, and toa lesser extent in the US, for outgoing CEOs to leave their companies
and become non-executive chairmen of other companies – signaling
the age of the professional non-executive chairman. While people
complain about the shortage of talent for non-executive roles inJapan, they will be pleased to see an abundant supply of ex-CEO’s
that will seek non-executive chairman positions once this practice isintroduced and takes root in Japan.
What then should we do to make the other pressure cooker, theStewardship Code, function better in Japan? All we need to do is
to make it compulsory for institutional investors to establish
independent committees to exercise shareholder voting rights. A
shareholder voting committee, if it is independent, will have no
choice but to adhere to the principles of the newly introduced
Stewardship Code. This will create a major break away from thecurrent practice of numerous institutional investors who
automatically side with corporate executives in AGM’s, evenwhen corporate performance is in question.
There is merit in encouraging institutional investors to engage
constructively with corporate executives. One of the founding
principles of capitalism, however, is the separation of ownershipand management. Therefore, most institutional investors,
including ourselves, do not seek to interfere with corporate
executives running companies on a day-to-day basis. Institutional
investors should therefore make sure that boards properly
represent shareholder interests, and they should use their right toengage with corporate executives sparingly to help management inorder to enhance shareholder value. ■MyVision
No.8

2015.4

Japanʼs Corporate
Governance CodeA Corporate Governance Code that will define the responsibilities of Boards of Directors and otherconditions to be observed by listed companies is being formulated by the Tokyo Stock Exchange. If
this Code increases the transparency of business management, it can be expected to contribute toincreased corporate value, in addition to boosting confidence among domestic and overseas
investors. What is the significance of the introduction of the Code for Japanese companies, and what
points should companies take into consideration in relation to the Code?

Mr. Shibata has had an extensive career in global ﬁnancial business andhas been actively engaged in the development of capital markets. He is
President & CEO of Nikko Asset Management Co., Ltd. and prior to that hewas the Group COO of Nomura Holdings. He has an MBA from Harvard
Business School.
This is a translation of a paper originally published in Japanese.
NIRA bears full responsibility for the translation presented here.

About this Issue

Japanʼs Corporate Governance CodeThe average rate of return on equity for Japanesecompanies is lower than it is for companies in the U.S.
and Europe, and this lack of performance represents a
problem. This situation has led to repeated discussionof the necessity of improving corporate governancewith a view towards increasing long-term corporate
value.
Forming the background to these discussions are theprinciples delineated by the Exposure Draft of Japan’s
Corporate Governance Code, issued by the Financial
Services Agency in December 2014, which it isconsidered will contribute to the realization ofeffective corporate governance. The proposal set out
five basic principles – The guarantee of shareholder
rights and equality, appropriate cooperation withstakeholders other than shareholders, guarantee ofappropriate disclosure and transparency, responsibilityof Boards of Directors, and dialogue with shareholders– and outlined a variety of other principles in line withthese, including the necessity for appointing at least
two outside directors to ensure that the responsibilities
of Boards of Directors are fulfilled. In the event that it
failed to observe the Code, a company would be

required to offer an explanation. “Principles for
Responsible Institutional Investors” (the Japan’s
Stewardship Code), which was also announced in2014, had already demanded that investors engage inongoing dialogue with companies towards increasing
corporate value.
How will the Corporate Governance Code change
Japanese companies? And will it lead to an increase in
their corporate value?
In this issue of My Vision, we have sought boththeoretical and practical perspectives on thesequestions. In addition to discussing their expectations
for the Code, our interviewees have pointed towards
further problems standing in the way of the realizationof increased corporate value. It will be essential forcompanies and market participants to face these
problems squarely and work towards their resolution
in order to increase the earning power of Japan’s
companies.

Yuri Okina, NIRA Executive Vice President(Vice Chairman of the Japan ResearchInstitute, Limited)

National Institute for Research Advancement (NIRA)
4-20-3 Ebisu, Shibuya-ku, Tokyo 150-6034, Japan(URL: http://www.nira.or.jp/english/)(Facebook: https://www.facebook.com/nira.japan)
For more information： info@nira.or.jp
Tel +81-3-5448-1735
Fax +81-3-5448-1744
Copyright Ⓒ 2015 by National Institute for Research Advancement

C O NT E NT S
Expert Opinions

How will Japanese Companies Changewith the Introduction of the Corporate
Governance Code?
We must increase corporate
value through dialogue
Kunio Ito

Professor, Graduate School of Commerce andManagement, Hitotsubashi University

Corporate governance accords
with Japanese thinking

Atsushi Saito

Director & Representative Executive Oﬃcer,
Group CEO, Japan Exchange Group, Inc.

The CEO holds the key tosuccess or failure
Takashi Kawamura

Chairman Emeritus, Hitachi, Ltd.

About this Issue

Yuri Okina

The purpose of the OECD Principles:the economic growth, the investment
and the value creation

Mats Isaksson

Head of Corporate Aﬀairs, OECD

Better Governance Requires Stronger
Independent Directors and Healthy Voting
Behavior from Shareholders
Takumi Shibata

Representative Director, President & CEO,Nikko Asset Management, Co., Ltd.

My Vision No.8

Expert Opinions

How will Japanese Companies Changewith the Introduction of the Corporate
Governance Code?

What is the purpose of the Corporate Governance Code, and will it be an eﬀective means of increasing thecorporate value of Japanese companies?
In this issue of, we ask executives of the Japan Exchange Group, of a listed company, and of an
institutional investor, a professor of commerce and management, and the Head of Corporate Aﬀairs for theOECD to discuss these issues.

Interviewer: Masaki Wakebe, NIRA Research Coordinator Editor: Kazuyoshi Harada
Period of interviews: December 2014

Corporate Governance Codes and the idea of corporate governancehave emerged from the concept of democracy. In Japan, management
frequently fails to sufficiently consider the benefit of shareholders,
who we may consider to be the sovereigns of listed companies, and inmany cases the opinions of shareholders are not reflected inmanagement decisions. If companies fail to increase their return on
equity, their share price will not increase; negligence in this area is not
limited to managers, but extends to the operators of pension funds andinvestment trusts. The entrusters of pension funds and investment
trusts have also been negligent. Historically, in the U.S., lack ofadequate returns from the operation of pension funds andinappropriate use of the funds became a problem, and in 1974
fiduciary responsibility in the operation of the funds was made a law.
Fund operators were required to operate funds in good faith in theinterests of their entrusters. One effect of this has been that the U.S.,
with an economic scale more than twice Japan’s, achieves annual
economic growth of 3-4%. Japan should learn from this history.
Naturally, merely observing the forms of a Code will not lead toincreased rates of profit. However, based on my experience in the
Industrial Revitalization Corporation of Japan, I believe that a
Corporate Governance Code will certainly have an effect. The mostimportant thing will be the attitude of top management. Management
should listen to opinions from outside the company and give themcareful consideration rather than making unilateral decisions. I thinkthat this attitude fits well with the Japanese way of thinking. ■Since his appointment as CEO of the Tokyo Stock Exchange in 2007, Mr.
Saito has worked to improve corporate governance in Japan, and he has
been a key ﬁgure in the development of the Code which is currently
being formulated.

We must increase corporate value
through dialogue
Kunio Ito
Professor, Graduate School of Commerce and Management,
Hitotsubashi University
The essence of corporate governance is the exercise of
self-discipline by internal board members. External discipline, which
supplements this self-discipline, is provided by outside directors.
Outside directors have two functions: Monitoring, in order to control
management excesses, and advising, in order to increase corporate
value and boost the company’s earning power. In contemporary
Japan, rather than controlling management recklessness, the functionthat we need outside directors to fulfill is to encourage managements
to take the necessary risks.
Data from the U.S. indicates that various aspects of corporate
governance, including the size of board and the degree of
involvement of outside directors, influence corporate value andprofitability. It is therefore not enough to simply introduce outside
directors. Unless the outside directors who are selected are able tooffer advice from an external perspective that contributes to mediumand long-term growth scenarios, and managements are prepared togive attention to that advice and link it to actual growth, the systemcannot function.
At the same time, managements must, while maintaining both asense of tension and a sense of cooperativeness, engage in dialogue
with investors towards increasing corporate value over the mediumand long-term. Last summer, I chaired the compilation of the Ito
Review, entitled “Competitiveness and Incentives for Sustainable
Growth: Building Favorable Relationships between Companies andInvestors.” The Ito Review calls for meaningful dialogue between

companies and investors based on the perspective that managements
do not create corporate value in isolation, but should seek to create
sustainable value through “collaborative creation” with investors. As
a precondition of this dialogue, we would need to consider
mechanisms for the disclosure and reporting of medium- andlong-term company data to investors – not merely financial data, butalso non-financial data, such as information concerning intangible
assets. Such an initiative would also increase the number of mediumto long-term investors. ■Professor Ito emphasizes the concept that the key to the realization ofsustainable growth is the creation of corporate value, and has anestablished reputation for conducting research and making proposals that
directly address the problems and the realities facing Japanese companies.

Corporate governance accords withJapanese thinking

Atsushi Saito
Director & Representative Executive Officer, Group CEO,Japan Exchange Group, Inc.
Even the most excellent manager cannot continue to function in
their position forever. The essence of the Japan’s Corporate
Governance Code will be its incorporation of mechanisms to bothrein in and spur on management as necessary in order to ensure thatcompanies remain durable. The Code will not be a law, and therefore
will not possess binding power, but companies will need to explain
their reasons if they fail to observe it. If the explanation is notconvincing, shareholders and investors will demand that
improvements be made. This is based on the logic of the market.

The CEO holds the key to success or
failureTakashi Kawamura
Chairman Emeritus, Hitachi, Ltd.
The CEO is the heart of corporate governance. If the CEO is not
solidly focused on increasing corporate value, no matter how much
effort other members of the company team put in, progress will not be
made. The role of the Board of Directors is to wind up the spring if the
CEO is doing too little, and to apply the brakes if the CEO is going too
far. Taking Japan’s university entrance exams as an example, theBoard of Directors is like the home tutor, and the CEO is like theperson taking the test. Ultimately, it is the latter who will enter theuniversity, and unless they continue to make an effort, all will be in
vain. However, over the long term, even good company directors canlose their energy or become corrupt. In such cases, the Board of
Directors must go into action to correct the situation, even dismissing
the CEO if necessary.
At Hitachi, we are working to take a global perspective byintroducing board members from overseas. At Board meetings, theyargue over proposals with our outside directors, who also include
executives from overseas. If they are not convinced by a proposal,
then we know that it will not work globally, and we throw it out. In
other words, our Board is having a virtual experience of global
competition.
In addition, we are a conglomerate, and we have numerous
subsidiaries. By minimizing, as much as possible, items for decisionby our Board of Directors and delegating authority to the CEOs of our
subsidiaries, we have dramatically increased our management pace.
At the same time, the CEOs of even unlisted subsidiaries are directly

conducting IR activities. Institutional investors are also responding tothis, and are actively offering a variety of opinions. The sense of
responsibility among the CEOs of our subsidiaries has increased
significantly. Whether we are talking about the headquarters or asubsidiary, if the CEO is able to make effective use of opinions fromoutside the company, you will have excellent governance andexcellent management. ■During his tenure as Chairman & President & CEO of Hitachi, Mr. Kawamura pushedahead with improvements to corporate governance, including overseeing thecompanyʼs transition to become a “company with committees” and introducing
overseas outside directors. His eﬀorts resulted in a V-shaped recovery for the company.

The purpose of the OECD Principles:the economic growth, the investment
and the value creation

Mats Isaksson
Head of Corporate Affairs, OECD
Corporate governance is not an end in itself. The ultimate
purpose of the rules, regulations and practices that we develop is
to contribute to economic efficiency, sustainable growth andfinancial stability. In particular, we want to make sure that thathousehold savings can be channeled to corporations in the real
sector where they contribute to capital formation throughproductive corporate investments. For us, the objective ofcorporate governance policy is to create the best possible
conditions for corporations to access capital; for capital markets toallocate capital to the best possible use, and; for markets andmanagers to manage the use of this capital for productivity andgrowth in individual companies. Since their adoption in 1999, theOECD Principles have provided a leading policy tool for reforms
in both OECD and non OECD countries. The Principles is also
one of the Financial Stability Board’s key standards for soundfinancial systems. It is important to recall that the Principles are“outcome oriented”, leaving room for individual countries toadapt their implementation to their own economic, legal andhistorical context. This focus on “outcome” rather than form is
actually quite demanding, since it calls for the objective of the
Principles to be met regardless of the economic, legal andhistorical context. I am confident that a new Code in Japan will
promote the objectives and outcomes that are laid down in theOECD Principles and that it rests on their core values. The
discussion at the FSA started with the economic reality, andidentified what we want to achieve with the code.
We concluded that the quality of corporate governance rules,
regulations and practices is an increasingly important factor forinvestment decisions. Not least, because of the increasinglyinternational character of investment. International flows ofcapital enable companies to access financing from a much larger
pool of investors. If countries are to reap the full benefits of the
global capital market, and if they are to attract long-term “patient”
capital, corporate governance arrangements must be credible, wellunderstood across borders and adhere to internationally accepted
principles. The OECD Principles contributes to this.. ■Mr. Isaksson participated in the development of the OECD Principles ofCorporate Governance and was in charge of the comprehensive revision of
the Principles in 2004. He also acts as an adviser to The Council of Experts
Concerning the Corporate Governance Code of Financial Services Agency.

My Vision No.8

Expert Opinions

How will Japanese Companies Changewith the Introduction of the Corporate
Governance Code?

What is the purpose of the Corporate Governance Code, and will it be an eﬀective means of increasing thecorporate value of Japanese companies?
In this issue of, we ask executives of the Japan Exchange Group, of a listed company, and of an
institutional investor, a professor of commerce and management, and the Head of Corporate Aﬀairs for theOECD to discuss these issues.

Interviewer: Masaki Wakebe, NIRA Research Coordinator Editor: Kazuyoshi Harada
Period of interviews: December 2014

Corporate Governance Codes and the idea of corporate governancehave emerged from the concept of democracy. In Japan, management
frequently fails to sufficiently consider the benefit of shareholders,
who we may consider to be the sovereigns of listed companies, and inmany cases the opinions of shareholders are not reflected inmanagement decisions. If companies fail to increase their return on
equity, their share price will not increase; negligence in this area is not
limited to managers, but extends to the operators of pension funds andinvestment trusts. The entrusters of pension funds and investment
trusts have also been negligent. Historically, in the U.S., lack ofadequate returns from the operation of pension funds andinappropriate use of the funds became a problem, and in 1974
fiduciary responsibility in the operation of the funds was made a law.
Fund operators were required to operate funds in good faith in theinterests of their entrusters. One effect of this has been that the U.S.,
with an economic scale more than twice Japan’s, achieves annual
economic growth of 3-4%. Japan should learn from this history.
Naturally, merely observing the forms of a Code will not lead toincreased rates of profit. However, based on my experience in the
Industrial Revitalization Corporation of Japan, I believe that a
Corporate Governance Code will certainly have an effect. The mostimportant thing will be the attitude of top management. Management
should listen to opinions from outside the company and give themcareful consideration rather than making unilateral decisions. I thinkthat this attitude fits well with the Japanese way of thinking. ■Since his appointment as CEO of the Tokyo Stock Exchange in 2007, Mr.
Saito has worked to improve corporate governance in Japan, and he has
been a key ﬁgure in the development of the Code which is currently
being formulated.

We must increase corporate value
through dialogue
Kunio Ito
Professor, Graduate School of Commerce and Management,
Hitotsubashi University
The essence of corporate governance is the exercise of
self-discipline by internal board members. External discipline, which
supplements this self-discipline, is provided by outside directors.
Outside directors have two functions: Monitoring, in order to control
management excesses, and advising, in order to increase corporate
value and boost the company’s earning power. In contemporary
Japan, rather than controlling management recklessness, the functionthat we need outside directors to fulfill is to encourage managements
to take the necessary risks.
Data from the U.S. indicates that various aspects of corporate
governance, including the size of board and the degree of
involvement of outside directors, influence corporate value andprofitability. It is therefore not enough to simply introduce outside
directors. Unless the outside directors who are selected are able tooffer advice from an external perspective that contributes to mediumand long-term growth scenarios, and managements are prepared togive attention to that advice and link it to actual growth, the systemcannot function.
At the same time, managements must, while maintaining both asense of tension and a sense of cooperativeness, engage in dialogue
with investors towards increasing corporate value over the mediumand long-term. Last summer, I chaired the compilation of the Ito
Review, entitled “Competitiveness and Incentives for Sustainable
Growth: Building Favorable Relationships between Companies andInvestors.” The Ito Review calls for meaningful dialogue between

companies and investors based on the perspective that managements
do not create corporate value in isolation, but should seek to create
sustainable value through “collaborative creation” with investors. As
a precondition of this dialogue, we would need to consider
mechanisms for the disclosure and reporting of medium- andlong-term company data to investors – not merely financial data, butalso non-financial data, such as information concerning intangible
assets. Such an initiative would also increase the number of mediumto long-term investors. ■Professor Ito emphasizes the concept that the key to the realization ofsustainable growth is the creation of corporate value, and has anestablished reputation for conducting research and making proposals that
directly address the problems and the realities facing Japanese companies.

Corporate governance accords withJapanese thinking

Atsushi Saito
Director & Representative Executive Officer, Group CEO,Japan Exchange Group, Inc.
Even the most excellent manager cannot continue to function in
their position forever. The essence of the Japan’s Corporate
Governance Code will be its incorporation of mechanisms to bothrein in and spur on management as necessary in order to ensure thatcompanies remain durable. The Code will not be a law, and therefore
will not possess binding power, but companies will need to explain
their reasons if they fail to observe it. If the explanation is notconvincing, shareholders and investors will demand that
improvements be made. This is based on the logic of the market.

The CEO holds the key to success or
failureTakashi Kawamura
Chairman Emeritus, Hitachi, Ltd.
The CEO is the heart of corporate governance. If the CEO is not
solidly focused on increasing corporate value, no matter how much
effort other members of the company team put in, progress will not be
made. The role of the Board of Directors is to wind up the spring if the
CEO is doing too little, and to apply the brakes if the CEO is going too
far. Taking Japan’s university entrance exams as an example, theBoard of Directors is like the home tutor, and the CEO is like theperson taking the test. Ultimately, it is the latter who will enter theuniversity, and unless they continue to make an effort, all will be in
vain. However, over the long term, even good company directors canlose their energy or become corrupt. In such cases, the Board of
Directors must go into action to correct the situation, even dismissing
the CEO if necessary.
At Hitachi, we are working to take a global perspective byintroducing board members from overseas. At Board meetings, theyargue over proposals with our outside directors, who also include
executives from overseas. If they are not convinced by a proposal,
then we know that it will not work globally, and we throw it out. In
other words, our Board is having a virtual experience of global
competition.
In addition, we are a conglomerate, and we have numerous
subsidiaries. By minimizing, as much as possible, items for decisionby our Board of Directors and delegating authority to the CEOs of our
subsidiaries, we have dramatically increased our management pace.
At the same time, the CEOs of even unlisted subsidiaries are directly

conducting IR activities. Institutional investors are also responding tothis, and are actively offering a variety of opinions. The sense of
responsibility among the CEOs of our subsidiaries has increased
significantly. Whether we are talking about the headquarters or asubsidiary, if the CEO is able to make effective use of opinions fromoutside the company, you will have excellent governance andexcellent management. ■During his tenure as Chairman & President & CEO of Hitachi, Mr. Kawamura pushedahead with improvements to corporate governance, including overseeing thecompanyʼs transition to become a “company with committees” and introducing
overseas outside directors. His eﬀorts resulted in a V-shaped recovery for the company.

The purpose of the OECD Principles:the economic growth, the investment
and the value creation

Mats Isaksson
Head of Corporate Affairs, OECD
Corporate governance is not an end in itself. The ultimate
purpose of the rules, regulations and practices that we develop is
to contribute to economic efficiency, sustainable growth andfinancial stability. In particular, we want to make sure that thathousehold savings can be channeled to corporations in the real
sector where they contribute to capital formation throughproductive corporate investments. For us, the objective ofcorporate governance policy is to create the best possible
conditions for corporations to access capital; for capital markets toallocate capital to the best possible use, and; for markets andmanagers to manage the use of this capital for productivity andgrowth in individual companies. Since their adoption in 1999, theOECD Principles have provided a leading policy tool for reforms
in both OECD and non OECD countries. The Principles is also
one of the Financial Stability Board’s key standards for soundfinancial systems. It is important to recall that the Principles are“outcome oriented”, leaving room for individual countries toadapt their implementation to their own economic, legal andhistorical context. This focus on “outcome” rather than form is
actually quite demanding, since it calls for the objective of the
Principles to be met regardless of the economic, legal andhistorical context. I am confident that a new Code in Japan will
promote the objectives and outcomes that are laid down in theOECD Principles and that it rests on their core values. The
discussion at the FSA started with the economic reality, andidentified what we want to achieve with the code.
We concluded that the quality of corporate governance rules,
regulations and practices is an increasingly important factor forinvestment decisions. Not least, because of the increasinglyinternational character of investment. International flows ofcapital enable companies to access financing from a much larger
pool of investors. If countries are to reap the full benefits of the
global capital market, and if they are to attract long-term “patient”
capital, corporate governance arrangements must be credible, wellunderstood across borders and adhere to internationally accepted
principles. The OECD Principles contributes to this.. ■Mr. Isaksson participated in the development of the OECD Principles ofCorporate Governance and was in charge of the comprehensive revision of
the Principles in 2004. He also acts as an adviser to The Council of Experts
Concerning the Corporate Governance Code of Financial Services Agency.

Better Governance Requires Stronger
Independent Directors and Healthy Voting
Behavior from Shareholders
Takumi Shibata
Representative Director, President & CEO,Nikko Asset Management, Co., Ltd.
Japan has introduced two pressure cookers for enhancing corporate
value, one being the recently announced Corporate Governance
Code and the other being the still new Stewardship Code.
The Corporate Governance Code will become effective only if
boards become more effective in discharging their oversight
responsibilities. Boards may choose to take a long-term approach
like Chinese medicine in order to safeguard corporate
performance or to take a quick surgical approach to dismiss
corporate executives.
On limited occasions, institutional investors may find that theyneed to get in touch with corporate boards, away from routine
investor relationship activities. Who is available for institutional
investors to contact at companies on those rare occasions? They
want to talk to non-executive independent directors at the very
least but more likely they would like to talk with a non-executive
chairman or lead independent director if those functions were toexist in the target companies.
It is becoming a standard practice at companies in the UK, and toa lesser extent in the US, for outgoing CEOs to leave their companies
and become non-executive chairmen of other companies – signaling
the age of the professional non-executive chairman. While people
complain about the shortage of talent for non-executive roles inJapan, they will be pleased to see an abundant supply of ex-CEO’s
that will seek non-executive chairman positions once this practice isintroduced and takes root in Japan.
What then should we do to make the other pressure cooker, theStewardship Code, function better in Japan? All we need to do is
to make it compulsory for institutional investors to establish
independent committees to exercise shareholder voting rights. A
shareholder voting committee, if it is independent, will have no
choice but to adhere to the principles of the newly introduced
Stewardship Code. This will create a major break away from thecurrent practice of numerous institutional investors who
automatically side with corporate executives in AGM’s, evenwhen corporate performance is in question.
There is merit in encouraging institutional investors to engage
constructively with corporate executives. One of the founding
principles of capitalism, however, is the separation of ownershipand management. Therefore, most institutional investors,
including ourselves, do not seek to interfere with corporate
executives running companies on a day-to-day basis. Institutional
investors should therefore make sure that boards properly
represent shareholder interests, and they should use their right toengage with corporate executives sparingly to help management inorder to enhance shareholder value. ■MyVision
No.8

2015.4

Japanʼs Corporate
Governance CodeA Corporate Governance Code that will define the responsibilities of Boards of Directors and otherconditions to be observed by listed companies is being formulated by the Tokyo Stock Exchange. If
this Code increases the transparency of business management, it can be expected to contribute toincreased corporate value, in addition to boosting confidence among domestic and overseas
investors. What is the significance of the introduction of the Code for Japanese companies, and what
points should companies take into consideration in relation to the Code?

Mr. Shibata has had an extensive career in global ﬁnancial business andhas been actively engaged in the development of capital markets. He is
President & CEO of Nikko Asset Management Co., Ltd. and prior to that hewas the Group COO of Nomura Holdings. He has an MBA from Harvard
Business School.
This is a translation of a paper originally published in Japanese.
NIRA bears full responsibility for the translation presented here.

About this Issue

Japanʼs Corporate Governance CodeThe average rate of return on equity for Japanesecompanies is lower than it is for companies in the U.S.
and Europe, and this lack of performance represents a
problem. This situation has led to repeated discussionof the necessity of improving corporate governancewith a view towards increasing long-term corporate
value.
Forming the background to these discussions are theprinciples delineated by the Exposure Draft of Japan’s
Corporate Governance Code, issued by the Financial
Services Agency in December 2014, which it isconsidered will contribute to the realization ofeffective corporate governance. The proposal set out
five basic principles – The guarantee of shareholder
rights and equality, appropriate cooperation withstakeholders other than shareholders, guarantee ofappropriate disclosure and transparency, responsibilityof Boards of Directors, and dialogue with shareholders– and outlined a variety of other principles in line withthese, including the necessity for appointing at least
two outside directors to ensure that the responsibilities
of Boards of Directors are fulfilled. In the event that it
failed to observe the Code, a company would be

required to offer an explanation. “Principles for
Responsible Institutional Investors” (the Japan’s
Stewardship Code), which was also announced in2014, had already demanded that investors engage inongoing dialogue with companies towards increasing
corporate value.
How will the Corporate Governance Code change
Japanese companies? And will it lead to an increase in
their corporate value?
In this issue of My Vision, we have sought boththeoretical and practical perspectives on thesequestions. In addition to discussing their expectations
for the Code, our interviewees have pointed towards
further problems standing in the way of the realizationof increased corporate value. It will be essential forcompanies and market participants to face these
problems squarely and work towards their resolution
in order to increase the earning power of Japan’s
companies.

Yuri Okina, NIRA Executive Vice President(Vice Chairman of the Japan ResearchInstitute, Limited)

National Institute for Research Advancement (NIRA)
4-20-3 Ebisu, Shibuya-ku, Tokyo 150-6034, Japan(URL: http://www.nira.or.jp/english/)(Facebook: https://www.facebook.com/nira.japan)
For more information： info@nira.or.jp
Tel +81-3-5448-1735
Fax +81-3-5448-1744
Copyright Ⓒ 2015 by National Institute for Research Advancement

C O NT E NT S
Expert Opinions

How will Japanese Companies Changewith the Introduction of the Corporate
Governance Code?
We must increase corporate
value through dialogue
Kunio Ito

Professor, Graduate School of Commerce andManagement, Hitotsubashi University

Corporate governance accords
with Japanese thinking

Atsushi Saito

Director & Representative Executive Oﬃcer,
Group CEO, Japan Exchange Group, Inc.

The CEO holds the key tosuccess or failure
Takashi Kawamura

Chairman Emeritus, Hitachi, Ltd.

About this Issue

Yuri Okina

The purpose of the OECD Principles:the economic growth, the investment
and the value creation

Mats Isaksson

Head of Corporate Aﬀairs, OECD

Better Governance Requires Stronger
Independent Directors and Healthy Voting
Behavior from Shareholders
Takumi Shibata

Representative Director, President & CEO,Nikko Asset Management, Co., Ltd.