Japanese Stewardship Code

Japanese Stewardship Code
Name	Japanese Stewardship Code
Introduced	2014
Jurisdiction	Japan
Administered by	Financial Services Agency
Related legislation	Corporate Governance Code

Japanese Stewardship Code

The Japanese Stewardship Code is a voluntary set of principles issued to promote responsible engagement by institutional investors with listed companies. It aims to improve long‑term corporate value and sustainable growth by guiding asset managers, pension funds, and other investors in stewardship activities and active ownership. The Code interacts with Japanese financial regulators, major financial institutions, and corporate governance reforms to shape investor conduct and disclosure practices.

Background and purpose

The Code was developed amid reforms driven by the Financial Services Agency (Japan), Prime Minister Shinzo Abe's economic policy initiatives, and calls from the Organisation for Economic Co-operation and Development and the International Monetary Fund for improved shareholder engagement. Influences included stewardship frameworks such as the United Kingdom Stewardship Code, corporate governance reforms in the European Union, and investor stewardship debates in the United States. Key objectives aligned with recommendations from the Council of Experts on Corporate Governance and consultations with market participants including Japan Exchange Group, Japan Pension Fund Association, Nippon Life Insurance Company, and Government Pension Investment Fund (Japan). The Code sought to address issues highlighted by incidents involving Toshiba Corporation, shareholder activism around Fast Retailing, and broader concerns raised by analysts at Nomura Securities and Goldman Sachs regarding cross‑shareholdings and board accountability.

Key principles and provisions

The Code sets out principles on engagement, conflicts of interest, voting, and disclosure, echoing practices promoted by BlackRock, Vanguard Group, and State Street Global Advisors. It emphasizes written stewardship policies, monitoring of portfolio companies such as Toyota Motor Corporation and Mitsubishi UFJ Financial Group, and constructive dialogue consistent with guidance from the Organisation for Economic Co-operation and Development and the International Corporate Governance Network. Provisions encourage collaboration among institutional investors including Pension Fund Association (Japan), activist investors like Elliott Management Corporation, and mainstream asset managers with governance teams modeled after California Public Employees' Retirement System. The Code requires reporting on voting records, stewardship activities, and approaches to engagement comparable to disclosure regimes under laws in United Kingdom, United States, and Australia.

Scope and participants

The Code targets institutional investors including asset managers, life insurance companies such as Sumitomo Life Insurance Company, trust banks like Mitsubishi UFJ Trust and Banking Corporation, corporate pension funds including those of Sony Corporation and Hitachi Ltd., and foreign investors active on the Tokyo Stock Exchange. It applies in a market shaped by major conglomerates such as Mitsubishi Heavy Industries, technology firms like Sony, and financial groups including Mizuho Financial Group. Key market infrastructures and participants involved include Japan Exchange Group, proxy advisory firms such as Institutional Shareholder Services, and trade associations like the Japan Investment Advisers Association. The Code is particularly relevant for institutional investors engaging with issuers of indices such as the TOPIX and firms listed in sectors represented by Nippon Steel and SoftBank Group.

Implementation and compliance

Implementation relies on disclosure by signatories to the Code, overseen by the Financial Services Agency (Japan) and monitored through periodic review by panels including representatives from Ministry of Economy, Trade and Industry (Japan), the Tokyo Stock Exchange, and the Japan Federation of Bar Associations. Market participants such as Nomura Holdings and Daiwa Securities Group adjusted stewardship teams, proxy voting guidelines, and reporting practices to align with Code principles. Compliance is voluntary, with public “comply or explain” style reporting similar to mechanisms used in United Kingdom corporate governance frameworks and investor stewardship initiatives championed by OECD. Enforcement relies on market pressure, disclosure audits by firms like Ernst & Young and KPMG, and reputational incentives involving institutional investors including BlackRock and Vanguard.

Impact and criticism

The Code contributed to increased engagement, more transparent voting records at companies such as Toshiba Corporation and Olympus Corporation, and reforms in board practices echoed by activists like Third Point LLC. It influenced corporate governance dialogues involving Nissan Motor Co. and prompted shifts in shareholding patterns among keiretsu linked firms like Mitsubishi Group. Critics argue the voluntary nature limits effectiveness versus mandatory rules advocated by scholars at University of Tokyo and commentators associated with Japan Center for Economic Research. Others cite reliance on proxy advisory firms such as Glass Lewis and potential conflicts cited by Government Pension Investment Fund (Japan) and international managers including BlackRock. Concerns raised include insufficient measures on cross‑shareholdings, board independence at conglomerates like Hitachi, and limited enforcement compared with statutory regimes in jurisdictions such as United States and European Union.

Revisions and history

First published in 2014, the Code was revised in 2017 and again in subsequent years following reviews by panels chaired by officials from the Financial Services Agency (Japan) and input from market participants including Japan Exchange Group and international investors like Aberdeen Standard Investments. Revisions addressed stewardship policy clarity, engagement expectations, and disclosure standards influenced by events such as governance crises at Toshiba Corporation and shareholder activism episodes involving Elliott Management Corporation. Ongoing updates have been coordinated with the Corporate Governance Code (Japan) and regulatory initiatives from the Ministry of Finance (Japan) to align stewardship with broader reforms in Japanese capital markets.

Category:Corporate governance in Japan