Governance Code Compliance – Better than Expected, But Still Far to Go

Below, one can download in Japanese Deloitte's summary of compliance with the Japan's Corporate Governance Code (CG Code) as of the end of December, 2015, which for most companies was the deadline to submit their Corporate Governance Reports (CG Reports) to the TSE.  

So far, many Japanese companies have made a relatively good first start at complying or explaining with regard to the CG Code, when one considers that this is Japan's very first set of formal governance best practices. As the initial proposer of the CG Code to the LDP and the FSA, I was happy to see this. I was also happy to see the actual internal progress made by the various companies for which BDTI provides (and continues to provide) consulting and director training.

I was particularly happy to see that out of the 1,845 TSE1 and TSE2 companies that have submitted CG Reports to the TSE so far, some 31% have drafted some form of corporate governance guidelines in addition to their formal CG Reports.  This was a practice that I proposed very early on to the FSA (in mid-2014) and championed thereafter in numerous seminars, study groups and BDTI's director training courses. The concept was not adopted in the Code (at least, not with sufficient clarity to be noticeable), but the fact that 31% have some form of guidelines shows that these firms recognize that it is insufficient for firms to briefly claim in their CG Reports that they have policies if the only place those policies are written down is in the CG Report itself.  

Here are some highlights:  

11% companies claim to fully comply with the CG Code, in the sense that they do not see the need to explain any variance from its provisions. (While a higher level of compliance is in general a good thing, this is positive in the sense that: a) it indicates that many companies are taking the process seriously and responding sincerely and b) in fact, it takes time to put in place the policies that are required, if done in a serious manner.  At the same time, knee-jerk unthinking compliance would not be in keeping with the spirit of the CG Code.)
26% of the JPX 400 companies claim to fully comply.  The level of full compliance is 26% for companies that have greater than 30% or more foreign shareholders; and the level is 38% for very large companies (revenues of 1 trillion Yen or more).
The three CG Code provisions that have the highest level of current non-compliance are: a) self-evaluation by the board (64% our of 1,845 companies); b) use of the internet platform for proxy voting (56%); and c) full utilization of independent directors (42%).  For the JPX 400, the equivalent figures are 59%, 21%, and 21%.  (Note, however, that this may change significantly at the next round of AGMs, when many companies state that that they plan to put independent directors or policies in place, but have not yet done so.)
31% of the 1,845 firms that have submitted CG Reports so far have some type of corporate governance guidelines in place.  This ratio is 45% for companies that have greater than 30% or more foreign shareholders; and the level is 49%% for very large companies (revenues of 1 trillion Yen or more).
About 74% of the TSE1 and TSE2 firms that must comply or explain with regard to all provisions in the CG Code have submitted them so far.
71% of companies that have submitted CG Reports so far submitted them in December. This indicates how difficult the process was for many companies — there was much to study, agree upon, policies to formalize, etc.

The report (in Japanese) can be downloaded here:

Nicholas Benes


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