Haruyuki Yamashita, Head of Policy Engagement at the Tokyo Stock Exchange New York Office, oversees the exchange’s engagement efforts in North America, including promoting understanding of Japan’s evolving corporate governance landscape.
Corporate governance codes have become a global standard, providing frameworks for companies to operate with accountability and transparency. The United Kingdom, a pioneer in this field, established its framework following a series of high-profile financial and corporate scandals in the late 1980s and early 1990s. The 1992 Cadbury Report, which laid out crucial recommendations for board effectiveness, reporting responsibilities, and the role of auditors, marked a significant turning point. This was further solidified by the Financial Reporting Council’s (FRC) 1998 Combined Code, a benchmark for best practices. The OECD Principles of Corporate Governance, released in 1999, then provided essential guidance for policymakers worldwide.
Japan, recognizing the imperative for robust corporate oversight, embarked on its own governance reform journey. In 1999, the Tokyo Stock Exchange (TSE) urged listed companies to enhance their governance structures. This initiative paved the way for the 2004 "Principles of Corporate Governance for Listed Companies" and the 2007 "Code of Corporate Conduct." A pivotal moment arrived in 2015 with the adoption of Japan’s first Corporate Governance Code (the "CG Code"). What distinguished Japan’s approach was its explicit objective of strengthening corporate earning power, a crucial element of Prime Minister Shinzo Abe’s second administration’s strategy to revitalize the nation’s economy and escape the prolonged period of stagnation known as the "lost decades." The CG Code was thus a cornerstone of the 2014 revision of the Japan Revitalization Strategy. Subsequent revisions in 2018, which included expanded provisions on cross-shareholdings, and again in 2021, coinciding with the TSE’s market restructuring, further refined the Code. The 2021 revision, in particular, introduced more stringent requirements for companies listed on the Prime Market, a segment designed to foster constructive dialogue with global investors. These included mandates for independent outside directors to constitute at least one-third of the board, the establishment of nomination and compensation committees, and enhanced English-language disclosure.
The latest significant revision, the third for the CG Code, was enacted in 2026. This "Revised CG Code" streamlines the framework, shifting towards a more principles-based approach with a reduction in provisions from 83 to 30. The overarching theme of this revision is the "appropriate allocation of management resources for growth," aiming to elevate the original objective of strengthening corporate earning power to a new level of strategic implementation.
Overview of the Revised Corporate Governance Code
The Revised CG Code’s primary purpose is to foster the "sustainable growth of listed companies and the enhancement of corporate value over the mid- to long-term." This dual objective encompasses both "defensive governance"—focusing on risk mitigation and preventing misconduct—and "growth-oriented governance." The latter actively encourages sound entrepreneurship, bolsters companies’ earning power, and ultimately supports long-term value creation. A critical component of achieving these goals is the positioning of constructive dialogue between companies and shareholders as a vital mechanism. This aligns with Japan’s adoption of the Stewardship Code for institutional investors in 2014. The emphasis on constructive dialogue is also a defining characteristic of the Prime Market and a central pillar of Japan’s ongoing corporate governance reform.
Figure 1 visually represents the integrated framework of codes designed to enhance corporate value, illustrating how the CG Code and the Stewardship Code work in tandem.
Figure 1. Overall Framework of Codes for Enhancing Corporate Value
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