Finalization of the Revised Guidelines for Investor and Company Engagement

The Council of Experts Concerning the Follow-up of Japan's Stewardship Code and Japan's Corporate Governance Code (Chairperson: Hideki Kanda, Professor of Gakushuin University Law School) (hereafter, the "Council") published the proposal "Revisions of Japan's Corporate Governance Code and Guidelines for Investor and Company Engagement" this April. The Council propoed to revise the Corporate Governance Code and the Guidelines for Investor and Company Engagement (hereafter, the "Engagement Guidelines") that provide agenda items for engagement between investors and companies.

In accordance with the proposal stating that the Tokyo Stock Exchange (TSE) would promptly revise the Corporate Governance Code and the Financial Services Agency (FSA) would promptly revise the Engagement Guidelines, the FSA called for public comments on the Engagement Guidelines from April 7 through May 7.
 
As a result, the FSA received comments from 34 individuals/organizations (10 of them are from abroad). We express our gratitude to those who submitted comments.
 
Based on the received comments, the FSA finalized the Revised Engagement Guidelines as Appendix 1. The Revised Engagement Guidelines with track changes from the previous version of the Engagement Guidelines is provided in Appendix 2.

The summary of comments received and the FSA's view on them has been published as Appendix 3.(Updated on October 29, 2021)

The summary of public consulation is provided in Appendix 4. 

The revised version of the Corporate Governance Code is finalized as Appendix 5. The Revised Code with track changes from the previous version is provided in Appendix 6. And the summary of comments and the TSE’s view on them are here. (TSE website) 

The main points of the Revised Code and Engagement Guidelines are as follows.

1. Enhancing Board Independence

• Increase in the number of independent directors from at least two to at least one-third of the board for Prime Market listed companies (where necessary, a majority of the board members should be elected as independent directors)
• Establish a nomination committee and a remuneration committee (appointment of independent directors enough to have them form a majority of the committee members for Prime Market listed companies)
• Disclose a skill matrix of board members conforming to the company's business strategy
• Appoint independent directors having managerial experiences at other companies

2. Promoting Diversity

• Disclose a policy and voluntary measurable targets in respect of promoting diversity in senior management by appointing females, non-Japanese and mid-career professionals**
• Disclose human resource development policies ensuring diversity, including the status of implementation

** With respect to board diversity, the current version of the Code already requires companies to ensure the diversity in terms of gender and internationality.

3. Attention to Sustainability and ESG

• Develop a basic policy and disclose initiatives on the company's sustainability
• Enhance the quality and quantity of climate-related disclosure based on TCFD recommendations or equivalent international frameworks at Prime Market listed companies

4. Other Major Points

• Appoint independent directors enough to have them form a majority of the board or establish an independent special committee at Prime Market listed subsidiaries so as to cope with conflicts of interest between their parent company and minority shareholders
• Promote the use of electronic voting platforms and disclosure in English at Prime Market listed companies

(Appendix 1) The Revision of Guidelines for Investor and Company Engagement
(Appendix 2) The Revision of Guidelines for Investor and Company Engagement with track changes from the previous version  
(Appendix 3) Summary of comments to Guidelines and the FSA's view on them
(Appendix 4) Summary of Public Consultation on Revision to the Engagement Guidelines
(Appendix 5) Japan's Corporate Governance Code (the Revised Code)(TSE announcement on June 11, 2021)
(Appendix 6) The Revised Code with track changes from the previous version (TSE announcement on June 11, 2021)
(Appendix 3 was added and Appendix 4 to 6 were renumbered on October 29, 2021)