Has Japan’s corporate governance reform reached a turning point? Some cautionary notes

Japan has identified corporate governance as an important element in its attempt to reform its economic system. A combination of political will and sustained implementation by civil servants has produced a corporate governance code and associated mechanisms to sustain and refine the changes that have been introduced in order to raise corporate profitability and stimulate the whole national economy. Meanwhile, the direction of reform has shifted from an initially principles-based approach towards an increasingly proscriptive, rules-based one, favouring the interests of investors over those of other stakeholders. Whether this will achieve the desired results is increasingly being questioned within Japan and runs counter to experience from markets where shareholder primacy already prevails. Japan’s own prior experience of trying to transplant laws and institutions from these markets suggests a need for caution.