EXCLUSIVE: Japan Governance Code Aims to Spur Growth Investment

Tokyo, Feb. 14 (Jiji Press)–Japan’s revised corporate governance code is expected to encourage listed companies to redirect accumulated cash and deposits to growth investment, informed sources told Jiji Press on Saturday. The board of directors “should constantly check whether cash and deposits are effectively used for investment,” according to a draft of the revised governance code. The Financial Services Agency and the Tokyo Stock Exchange are currently working on revising the code. The draft is set to be presented at a meeting of experts to be held by the end of this month. This would be the first revision of the corporate governance code in five years. It will be officially endorsed by this summer following a public comment period. The timing of its implementation will be decided after taking into account a transition phase. The draft thoroughly adopts the approach of presenting “principles” to encourage corporate action, rather than prescribing detailed rules for required corporate behavior. Companies are required to either implement the principles or, if not implementing them, carefully explain the reasons to investors and others. The draft emphasizes that, in principle, the board of directors should constantly monitor whether the allocation of management resources is appropriate, calling for effective supervision to ensure companies’ sustainable growth. This is apparently aimed at curbing excessive returns to shareholders through dividends and other measures. In addition to capital expenditures and spending to finance research and development costs, human capital, intellectual property, and mergers and acquisitions will be cited as examples of growth investment. The revised governance code will urge companies to disclose their investment policies in an easy-to-understand and specific manner in line with their management strategies and business plans. Prime Minister Sanae Takaichi has expressed eagerness to promote corporate governance reform. At a parliamentary meeting last year, she said that there has been an excessive tendency for companies to focus too much on shareholders. She also said, “We will encourage companies to appropriately allocate management resources not only for shareholder returns but also for workers.” END [Copyright The Jiji Press, Ltd.]