Since the mid-2010s, Japanese corporate governance reform has shifted toward a soft-law, principles-based approach, with the Stewardship Code and Corporate Governance Code introduced. A proposal has also been put forward for a co-creative board of directors that advances collaboration between CEOs and independent directors.
Fifty years ago, Japanese companies relied on bank borrowing for funding, and the malfunctioning of the stock market was a major issue. It has been pointed out that shareholders' interests were not given sufficient weight, while share prices were often driven by market supply and demand and cross-shareholdings.
Since the 1990s, the market's dysfunction has improved as overseas investors gained prominence, cross-shareholdings were unwound, and technology-based analysis became more sophisticated. Against this backdrop, management's attitude toward shareholders also changed, leading to stronger audit functions and board oversight.
Reforms since the mid-2010s have been characterized by the introduction of the Stewardship Code and Corporate Governance Code as soft law. The principles-based approach and the concept of “comply or explain” have made it easier for each company to pursue reforms suited to its circumstances.
The author advocates a co-creative board of directors in which management and independent directors work together to improve board effectiveness. It is positioned as a new model aimed at creating corporate value while maintaining the board's oversight function.