Publication of Basic Concept of Japan’s Corporate Governance Code (Draft)

Japan’s Corporate Governance Code Comes into Force on June 1, 2015 after Developing Necessary Rules for the Implementation of the Code by the Tokyo Stock Exchange

Finalized after hearing public comments over a month, Japanese Corporate Governance Code is scheduled to apply to the companies listed on main markets (their first and second sections) from June 1, 2015 with required rules developed by the Tokyo Stock Exchange.

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Seminar Organized for Preparations

At the (eighth) Council of Experts Concerning the Corporate Governance Code held on December 12, 2014, Basic Concept of Japanese Corporate Governance Code (Draft) “Final Proposal of Japan’s Corporate Governance Code ~Seeking Sustainable Corporate Growth and Increased Corporate Value over the Mid- to Long-Term~” (hereinafter the “Corporate Governance Code (Draft)”) was released. Finalized after hearing public comments over a month, the Corporate Governance Code is scheduled to apply to the companies listed on main markets (their first and second sections) from June 1, 2015 with required rules developed by the Tokyo Stock Exchange. 

The Corporate Governance Code (Draft) is composed of as follows (Table 1: Download).

In the preamble, explained are the objectives of the code, “Principle Based Approach,” “Comply or Explain,” and so on. This code is not conventional rules-based regulation stipulating the detailed actions to be taken by the company, but prescribes major handling principles which contribute to realization of effective corporate governance (“Principle Based Approach”), requiring the company to determine whether each rule should be implemented or not. If not, the company must explain the reason (“Comply or Explain”). Accordingly, each company is expected to take necessary measures for compliance according to its own situation so that effective corporate governance could be realized.   

This code is composed of 5 general principles, 30 principles incidental to the general principles, and 38 supplementary principles to complement the general ones. All of these principles will be subject to Comply or Explain. Particularly, 14 principles are specified in “Section 4 Responsibilities of the Board” including the principles requiring appointment of two or more independent outside directors ([Principle 4-8. Effective Use of Independent Directors]), as well as analysis and evaluation of the effectiveness of the board of directors ([Rule 4-11. Preconditions for Board and Kansayaku Board Effectiveness]). Each company must start considering whether these rules should be accepted or not from now. There are many other items that require prompt action prior to June 2015.      

On January 22, Deloitte Touche Tohmatsu (Japan Group) organized an urgent seminar so as to explain article by article about the released Concept of Corporate Governance Code (Draft). Deloitte Japan advised attendees on the items requiring measures from the companies from now on through the comparison with the current disclosure requirements (”Status of Corporate Governance System” specified in the securities reports, “Reports on Corporate Governance” required by the Tokyo Stock Exchange, and so on). “Governance Self-Control Sheets” were also distributed to the audience of the seminar to easily check whether their systems and disclosure were compliant with the Corporate Governance Code. 

List of Services Provided for Response to the Corporate Governance Code
Deloitte Japan provides services related to measures taken for the Corporate Governance Code in order to satisfy the criteria established by the Financial Services Agency and the Tokyo Stock Exchange.

Major Relevant Services

• Support for introduction of the Corporate Governance Code
• Support to Seminars for Directors and Auditors (Available in English) 
• Support for Analysis and Evaluation of Effectiveness of the Board of Directors (Self-Evaluation, External Evaluation)
• Support for Consideration of Perspectives to Evaluate Usefulness of External Audit Firm
• Service to Prepare Integrated Reporting and Visualize the Value Creation Process
• Support for Formulation of Medium Term Management Plan
• Service to Build up Risk Assessment and Risk Management Systems
• Support for Establishment and Operation of Internal Audit System
• Service to Build up Directors’ Remuneration System
• Advice Service for Transition to Company with Audit and Other Required Committees Established

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