Corporate governance represents the relationship among various corporate stakeholders that determines the strategic direction of a company. Practically, corporate governance adjudicates the balance among key stakeholder interests within the firm. Japan is unveiling a new corporate governance code for companies, in addition to the recently released ‘stewardship’ code for institutional investors, as it seeks to recover from decades of low economic growth. This effort to bring transparency and accountability to corporate structures will provide an interesting case study in understanding how governance issues affect financial performance of companies and their valuations.

Corporate governance in Japan has undergone significant changes since the post-war structure where firms managed their own affairs, supervised by boards usually composed of insiders promoted from the managerial ranks. The only outsiders allowed were statutory auditors (Kansayaku) who provided information to stakeholders, including financiers and shareholders. Following the economic boom in the 1980-90s, a number of corporate governance reforms were undertaken including liberalized stock option plans, changes to merger law, limits placed on director liability, and reformed bankruptcy laws. Finally, in 2002, a set of reforms enabled Japanese companies to enact Anglo-American style governance structures that emphasize external accountability, including committees comprised of independent directors. Further reforms were undertaken in 2005 to improve the Kansayaku system.

However, Japanese companies have not embraced all elements of corporate governance even in the face of increasing global ownership and competition. By 2012, only 2.2% of the TSE-listed companies had adopted an Anglo-American style structure and 45.3% of companies listed on the Tokyo Stock Exchange (TSE) lacked any independent directors. Boards of companies listed on the TSE had an average size of eight directors, but an average of only one independent director.


Sebastian Vanderzeil is a Research Intern at Cornerstone Capital Group and a Dean’s Scholar at NYU’s Stern School of Business currently completing an MBA. Previously, Sebastian worked as an economic consultant with global technical services group, AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia.


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