Japan - In Progress

The recommendations from our inaugural Progress Group report “Return on Engagement – How to Increase Your ROE” continues to be referenced globally. Most recently, the report and its recommendations were featured in Japan’s Commercial/Legal Business Review (published by Shoji Homu – Issue No. 415). You can access the report here.

After two decades of economic struggles, Japan’s economy is finally picking up some steam. It appears that Japanese Prime Minister Shinzo Abe’s three-pronged approach (fiscal expansion, monetary easing, and structural reform) to revitalize the economy is working.

On the structural reform front, the most recent updates to the Corporate Governance Code aim to bring corporate Japan’s practices closer to those of European and American companies. For example, the Code has put emphasis on “capital cost” to encourage capital efficiency whilst calling on companies to disclose plans to reduce strategic shareholdings. The Code also introduces new  guidelines that prohibit companies from threatening to stop business relations if cross shareholdings are sold, and requires that all transactions be conducted on an arms-length basis.

Whilst there is still much progress to be made on the governance issues, investors’ increased focus on Environmental & Social issues presents an opportunity for Japanese companies to capitalize on their already strong approach to managing such risks when engaging with their investors, especially on the Environmental front.