Debunking the Myth: "Director Training Isn't Necessary"

1. Current Challenges in Advancing Director Training

What is the purpose of director training? What should director training include to enable “proactive governance”? Many corporate board secretariats struggle with implementing director training. The Corporate Governance Code (CGC) stipulates that listed companies should provide or introduce training opportunities, support the associated costs, and confirm whether such measures are in place.

Principle 4-14: Training for Directors and Auditors

Directors and Audit & Supervisory Board Members, including newly appointed ones, are expected to appropriately fulfill their roles and responsibilities as part of a key governance body of a listed company. To do so, they should deepen their understanding of such roles and responsibilities, acquire the necessary knowledge, and continuously update and refine their skills. Accordingly, listed companies should provide or arrange suitable training opportunities for each Director and Audit & Supervisory Board Member, as well as support the related costs. The Board of Directors should confirm whether such measures are being appropriately implemented.

2. Director Training for Effective Corporate Governance

However, even if a listed company states that it will “provide director training,” many do not know what exactly should be done. Similarly, when it comes to “introducing” training opportunities, some companies are not aware of training providers, or even if they are, they struggle to evaluate the quality and suitability of such programs.

According to a survey conducted by the Ministry of Economy, Trade and Industry’s Corporate Governance System Study Group , more than half of outside directors have not been provided with opportunities for training on corporate governance.

Only 33% of outside directors have been provided with training opportunities on corporate governance by their companies. Including those who were introduced to such training, the figure rises to 47%. This means that more than half of outside directors have not been offered governance-related training opportunities by their companies. In addition, 27% of outside directors have independently participated in corporate governance training.

On the other hand, 23.7% of outside directors reported that their companies conducted in-house training, 16.7% said their companies outsourced training to third parties, and 19.3% stated they were introduced by their companies to training programs conducted by external providers. In total, this accounts for 46.6%.

For reference, a 2020 survey in the United States found that directors of publicly listed companies—about 80% of whom were outside directors—spent an average of 33 hours on director education over the past year.

One common reason cited for the slow progress of training for inside and outside directors is that it “has not advanced because some say it is unnecessary.” However, might such opinions arise from misunderstandings about what director training actually entails? How much do corporate officers and potential board members really know about corporate governance?

First, it is important to note that the CGS Study Group explicitly labels this as director training “related to corporate governance.” Introducing internal organizations or products to outside directors does not constitute the type of director training required by the CGC.

Corporate governance began to rapidly take root in Japanese society with the establishment of the CGC in 2015. At that time, the draft CGC in the “Background and Context” section highlighted the acceleration of corporate governance, the formulation of the Stewardship Code, and the emphasis on management perspectives focused on efficient use of capital and investor awareness.

The CGC was established out of a recognized need from a perspective different from the past, and since corporate governance is still a relatively new concept, it is essential to understand it—which is precisely why Principle 4-14 was established. The gap between the CGC’s intended goals and the current reality may also contribute to the argument that director training is “unnecessary.” Let’s examine this in more detail.

3. The Orientation of a Monitoring Board

Traditionally, in Japan—where the management board model prevailed—boards of directors were composed of internal company members, and managerial knowledge and experience were considered the qualifications for directors. For those promoted to director precisely because they possess such knowledge and experience, training in management knowledge was unnecessary, and experience itself cannot be gained through training. This is why the concept of “director training” did not even exist in the past.

However, with the recent acceleration of corporate governance, the emphasis has shifted toward monitoring boards, and it is now generally recognized that management and oversight, while closely related, are distinct functions—this being a key point of corporate governance. Both the CGC and investors are calling on companies to strengthen governance in this manner.

The perspectives and knowledge required for management and for oversight/supervision are different.

According to Professor Bob Garratt from the UK, “managing” involves practically engaging with the actual management and control systems, carried out from the perspective of departments and organizations, and focuses on day-to-day activities on the ground.

In contrast, what the board of directors does is set the company’s direction—providing oversight and supervision of management. Their role is to determine long-term strategy, guide the entire company while monitoring changes in the market and environment, and address various challenges at the board level.

Directors must set aside any departmental or functional biases and make dispassionate judgments about which areas of the company to prioritize from a company-wide perspective. They need to be thoughtful yet capable of making bold, entrepreneurial decisions. A board member must have a bird’s-eye view of the company’s purpose and strategy, taking stakeholders into account. While paying attention to short-term results, they must also maintain a long-term perspective. Even if someone has succeeded internally as an excellent business unit head, fulfilling their responsibilities as a board member requires an entirely different set of attitudes, knowledge, skills, and ways of thinking.

Moreover, a lack of knowledge in finance and financial management is, unfortunately, commonly observed among management in Japanese companies. This gap appears to hinder the promotion of objective corporate management using financial metrics, such as setting KPIs and transitioning to ROIC-based management.

4. Low training implementation rate

The Keieihouyu-kai report, “A nalysis of Survey Results on Director Training and Future Challenges – Under the Application of the CG Code, ” includes the following statement:

According to the survey, for 50% of companies, the total duration of director training is less than three hours.

“The implementation rate of director training is 53.9% for inside directors and 28.9% for outside directors… giving the clear impression that the overall implementation rate remains low.”

Only 26.7% of executive officers, who form the pool of future directors, have received training.

This Keieihou-kai article points out the need for director training, particularly for inside directors, noting that “the responsibilities differ from the business operations and executive experience previously acquired, and it is rare for newly appointed directors to possess sufficient knowledge at the time of their appointment. Therefore, not providing director training may be somewhat unfair to newly appointed directors.”

In fact, the observations above apply equally to outside directors and auditors. Many outside directors come from backgrounds such as former executives, university professors, lawyers, certified public accountants, or government officials. Even former executives face similar needs as inside directors. University professors or lawyers familiar with corporate law only have knowledge of the minimum standards for corporate governance, which is far from sufficient. And even if they are well-versed in the CGC, what about their finance and accounting knowledge? Considering this, it becomes clear that there are very few, if any, individuals for whom director training is truly “unnecessary.”

From the Form to the Substance of Corporate Governance

Nowadays, many companies have multiple outside directors, have established nomination and remuneration (advisory) committees, and can be said to have built a corporate governance system. The next phase is to operate this system so that corporate governance functions substantively. For this operation, “executive training” is indispensable.

In fact, executive training focused on corporate governance also brings significant benefits to overall corporate management. Below are some examples of what management can gain from corporate governance training.

It enables the clarification of long-term strategies and vision, which tend to become ambiguous.
It fosters confidence in approaching strategy and new investment decisions.
By sharing awareness of challenges and improving the efficiency of addressing them, business performance can be enhanced.
Decisions and approvals become faster, enhancing competitiveness.
Management burdens and wasted time are reduced.
The liability risks for both the company and its executives are reduced.
Executives gain an understanding of the social responsibilities expected of companies in the modern era and can act as leading companies.
It enables the realization of genuine “ESG management” and “human capital management,” not just in form.
It sets a good example for executive officers regarding sound governance and compliance.
A positive corporate culture permeates the entire company, helping to prevent misconduct.

6. It is difficult to secure time from busy executives.

Let’s also take a closer look at the “lack of time” issue. Executives often have schedules planned by the minute, so it is easy to imagine that fitting in an executive training program, which can take several hours, is a high hurdle. Similarly, it is understandable that outside directors, who serve on a part-time basis, may have limited availability, making it difficult to request their participation in the first place.

However, in light of the fact that executive training is intended to make corporate governance function effectively, it can be said that it is well worth dedicating a few precious hours of executives’ time. Moreover, looking at survey results on corporate governance systems regarding the time spent on outside director duties (excluding board meeting attendance), 32.2% reported spending five hours or less per month, meaning that most spend more time than that. The notion that outside directors only need to attend board meetings is now outdated; many experienced and conscientious outside directors point out that substantial commitment is also required outside of board meetings.

The phrase “lack of time” actually means that there is no time to spend on unnecessary matters, which can give the impression of an argument against the need for executive training. However, as noted above, the idea that such training is unnecessary is based on a misunderstanding.

Executive training is indispensable for effective corporate governance, and it also brings benefits to the management team. By now, it should be clear that the argument against executive training is based on a misunderstanding.

7. The Style of “Training”

The following styles can be identified for training programs.

Large-group format and small-group format
Lecture format, in which the instructor speaks unilaterally, and discussion format, in which the instructor and participants, as well as participants among themselves, interactively exchange ideas.
Knowledge-based, which focuses on acquiring knowledge, and skill-based, which focuses on developing skills.
Those aimed at fostering mutual understanding among participants and team building, and those that are not.
E-learning format and in-person event format.

Some may argue that rote learning is ineffective or that e-learning is unsuitable for executive training, but it is not a matter of one being inherently better or worse than the other. As soon as you start designing a curriculum, it becomes clear that knowledge supplementation is actually quite necessary. However, it is not feasible to spend long hours on knowledge review during the training itself, so using e-learning before and after the session can be an effective way to utilize time.

However, acquiring knowledge alone is still somewhat insufficient. Corporate decision-making is primarily conducted in the board of directors or related meetings. A board or committee is a unique decision-making body that must obtain accurate information within a limited time, deliberate thoroughly among its members, and reach conclusions whose validity may later be tested. There are specific skills required for effective participation in such meetings, so an interactive, skill-based training program is highly desirable.

Moreover, according to the survey conducted by the CGS Study Group mentioned above, “the roles and expectations held by the company are not necessarily communicated to outside directors.” It is easy to imagine that in board meetings, and similarly in other committees, participants are busy discussing and deciding on individual agenda items, leaving little time to pause and engage in conversations for mutual understanding. Executive training can serve as that dedicated time, helping to foster mutual understanding and team building.
If these objectives are prioritized, knowledge acquisition should take a backseat, and the training should focus on drawing out extensive dialogue among participants, for example, through case studies. Participants’ statements during these discussions often reveal their thinking and fundamental stances as directors, which greatly contributes to mutual understanding.

8. Participants in “Executive Training”

When considering who should participate in “executive training,” the following options can be considered.

Training that includes only directors, executive officers, and auditors, and training that also includes other executive officers as participants.
Training conducted with only internal executives, and training that also includes outside directors (particularly outside board members).
Closed-format training conducted exclusively for the executives of a particular company, and open-format training attended by executives from various companies.

Although executive officers are not legally defined as directors, they play a crucial role in corporate governance. Without their understanding as the heads of the executive team, effective corporate governance cannot be achieved. Moreover, if they are later promoted to director positions, including them in executive training allows them to acquire management thinking early on, which also contributes to the development of future leaders.

Closed-format and open-format training each have their pros and cons. In a closed format, the curriculum can be customized specifically for the company, increasing the likelihood of obtaining exactly what is needed. On the other hand, participating in an open-format “cross-company” setting allows executives to meet people with experience across various industries. Different industries and positions bring different perspectives, and encounters with investors can provide significant insights. It also serves as an excellent opportunity for networking.

9. Instructors (Facilitators)

Shall we move on to the next section?

Training led by internal personnel (for example, the head of the legal department) and training led by an external third-party vendor.

Relying on internal instructors may lead to being too bound by company customs, while external instructors may be too disconnected from the company’s actual circumstances—each approach has its pros and cons. However, considering the participants, even outside directors have diverse expertise and backgrounds, with few commonalities, and the same applies between them and executive directors. In such a heterogeneous group, having an instructor (facilitator) who is equally neutral to all parties may actually make it easier for the directors to connect and engage with one another.

10. Content of Executive Training

As for the crucial question of “what” to include, deciding which subjects should be part of executive training is a very challenging issue. The subjects most often cited as essential are likely the following:

1. Companies Act
2. Financial Instruments and Exchange Act, J-SOX
3. Insider trading regulations
4. Antitrust law

The legal subjects have been covered, but the next topic is also extremely important.

5. Financial accounting
6. Risk management and crisis management
7. Data security

The next subject is even more challenging.

8. Roles and mindset of directors in corporate governance
9. ESG management

For many of the subjects from 1 to 7, there are “experts” such as lawyers and accountants, so designing a curriculum is relatively straightforward, regardless of quality. However, the Companies Act, which grants the company limited liability, represents the minimum foundation for corporate governance and ESG management. Just because a director’s actions meet the requirements under the Companies Act does not mean they are sufficient from the perspective of corporate governance or ESG management. Similarly, understanding finance theory does not automatically translate into enhancing corporate value. In this sense, instructors who can speak from experience in a way that allows directors to truly grasp the roles and mindset required by corporate governance are currently very rare.

Even if such an instructor cannot be found, there is no need to give up. If experienced outside directors participate in the training, their insights can be shared, and other participants can form their own understanding of what it means to be a director.

In short, it all comes down to the design of the executive training. That is the key. Identifying what executive training your company truly needs—specifically, what content, who delivers it, to whom, and in what format—serves as both the starting point and the goal. Once this is clear, the choice of a suitable training provider will naturally follow.