Currently, Japan’s Financial Services Agency (FSA) and the Tokyo Stock Exchange (TSE) are working on a revision to the Corporate Governance Code (hereinafter referred to as the “CG Code”). This revision, the first in approximately five years since 2021, contains important updates aimed at promoting the substantive implementation of corporate governance among listed companies. This article introduces the major key points of the currently published draft revision.
1. Overview and Background of the Revision of the CG Code
The CG Code aims to strengthen companies’ “earning power” and “proactive governance.” Targeted at listed companies, it compiles key principles that contribute to achieving effective corporate governance (for an overview of the CG Code, please also refer to the previous article in this column, “Overview of the Corporate Governance Code in Japan”).
Introduced in 2015, the Code has undergone two revisions to date, in 2018 and 2021. Ten years after its introduction, amid persistent criticisms regarding an excessive number of principles and cases where companies’ responses remain merely formalistic, work on the third revision is currently underway.
2. Major Key Points of the Draft Revision
(1) Principle-based and Streamlined Structure through Restructuring
The current CG Code (2021 revised version) consists of a three-tier structure comprising “General Principles,” “Principles,” and “Supplementary Principles,” totaling 83 items. In this draft revision, the structure is streamlined into a two-tier framework of “General Principles” and “Principles” with 30 items, and a newly established “Interpretation Guidelines” section is added to describe specific details, purposes, and backgrounds.
The background of this streamlining is a return to the original intent of the CG Code, namely the “principle-based approach” and “comply or explain.” The goal is not merely to reduce the number of items, but to encourage each listed company to take substantive actions tailored to its specific situation.
(2) Promotion of Growth Investment
In this draft revision, as part of the roles and responsibilities of the board of directors, it is stipulated that the board should continuously verify the appropriateness of management resource allocation against management strategies and plans, including whether management resources—such as cash, deposits, and real estate—are being effectively utilized for growth investments.
With this revision, shareholders, including activist shareholders, are likely to pay even closer attention to how companies utilize their holdings of cash, deposits, and real estate in the future.
(3) Strengthening Board Functions
The draft revision emphasizes that initiatives aimed at strengthening the functions of the boards of listed companies remain crucial. Specifically, regarding independent outside directors (outside directors with no risk of conflict of interest with general shareholders), although their introduction has progressed, ensuring their roles and responsibilities, quality and quantity, and independence is deemed vital to further enhance effectiveness. Furthermore, a clause has been added stating that the functions of the secretariat, which plays a critical role in supporting directors, should be strengthened.
(4) Disclosure of Securities Reports Prior to the Annual General Meeting of Shareholders
In this draft revision, submitting the Securities Report prior to the Annual General Meeting of Shareholders (if possible, three weeks or more before the date of the meeting) is cited as an important example of developing an appropriate environment for the exercise of voting rights at shareholders’ meetings. In addition, the government has stated that, while considering the burden on corporations, it will concurrently pursue institutional reviews such as integrating the Securities Report with the Business Report and streamlining disclosure items.
3. Future Schedule
The revision is scheduled to be implemented around July 2026, and listed companies are expected to be required to submit a Corporate Governance Report containing matters related to the revised Code by July 2027 at the latest. The specific timing for submission will be deliberated by the Tokyo Stock Exchange.
4. Conclusion
As outlined above, this revision can be seen as a shift encouraging companies to move away from a formalistic approach to the CG Code toward a substantive implementation of corporate governance. Going forward, in addition to the appropriateness of board decisions regarding management resource allocation and growth investments, information disclosure and accountability regarding these matters are expected to be scrutinized more rigorously than ever before.
(References)
Financial Services Agency, “Corporate Governance Code ~ To Achieve Sustainable Growth and Increase Corporate Value over the Medium to Long Term ~ (Draft Revision)” (Retrieved on June 11, 2026, https://www.fsa.go.jp/news/r7/singi/20260410/01.pdf)
Financial Services Agency, “Concerning the Revision of the Corporate Governance Code to Promote Growth Investment” (Retrieved on June 11, 2026, https://www.fsa.go.jp/news/r7/singi/20260410/03.pdf)
