How is corporate governance in Japan changing?: Developments in listed companies and roles of institutional investors

This research analyses the improvements to corporate governance within Japanese listed companies and the influence of institutional shareholders. Firstly, in order to analyse the external factors that have promoted the recent corporate governance reform, the report starts with an overview of the changes in the Japanese market post 1970s. The main players before the 1990s were the banks, who provided credit to companies as well as being shareholders. Corporate governance in Japan was characterised by the “main bank” system. However, after the “bubble economy” burst in the early 1990s, institutional investors, including domestic pension funds and foreign asset managers, started to have a greater presence. Secondly, the report analyses the recent developments in corporate governance within listed companies. Developments were influenced considerably by institutional shareholders through proxy voting. Further, the report reviews the legislation and relevant rules on corporate governance including the reform of the Companies Act and the Cabinet Office Ordinance on Disclosure of Corporate Information. Thirdly, the report examines the influence of institutional shareholders and their activities towards good corporate governance. In 2009, the “Report by the Financial System Council’s Study Group on the Internationalization of Japanese Financial and Capital Markets” was published and asset managers, such as investment trusts and investment advisory companies, started to disclose policy and results of proxy voting. In February 2014, pursuant to the recommendation of the “Japan Revitalization Strategy 2013”, Japan’s Stewardship Code was published and it is now expected that institutional shareholders play a significant role to engage with investee companies and improve corporate governance within them. The report also analyses the historical changes to practices within shareholder meetings along with examination of the role that institutional shareholders have played in the improvement of corporate governance within Japanese listed companies.