23 October 2018
A new corporate governance code aims to make a big change in Japan Inc. Photo: Bloomberg
A new corporate governance code aims to make a big change in Japan Inc. Photo: Bloomberg

Japan Inc looking for advice from outsiders

Japanese companies are scrambling to fill thousands of board seats after a new corporate governance code went into effect this month, calling on publicly traded firms to name at least two independent directors within half a year of their next shareholders’ meetings.

The Wall Street Journal says this marks a big change for Japan Inc., where boards have largely been composed of male executives from the companies themselves.

The corporate shake-up, a centerpiece of Prime Minister Shinzo Abe’s economic revival plan, aims to make company bosses more accountable to shareholders, whose interests have often been ignored in the past, the newspaper said.

Overseas investors have taken notice, helping to lift Tokyo share prices to the highest levels in 15 years.

Abe has also been pushing to increase the number of women in senior positions, but his plan stops short of requiring companies to have female board members.

Until a few years ago, even global companies such as Toyota Motor Corp. and Canon Inc. had no outsiders on their boards.

Japan’s top business lobby has long opposed the independent-director quota, arguing that outsiders often don’t know enough about company operations to serve effectively.

Still, Japan’s new governance code is less aggressive than US rules, which require outsiders to hold a majority of board seats.

The Japanese code is non-binding but requires companies to provide a written explanation if they don’t comply.

Most Japanese companies are willing to try out the new management structure.

“All of a sudden every company wants to find at least one woman and at least one foreigner to put on their boards,” said Nicholas Benes, head of the Board Director Training Institute of Japan, one of several groups that provide education for board members.

Japan isn’t alone in its efforts to diversify boards. More than half a dozen European countries—including Germany, where legislation was approved in March—have stipulated that a set percentage of board seats must be filled by women.

As of April 1, listed companies in India were required to have at least one female board member, a rule some companies were fulfilling by tapping wives or relatives of executives.

In Japan, about three-quarters of the roughly 1,800 companies listed on the first section of the Tokyo Stock Exchange had at least one outside director by last June, up from fewer than one-third a decade earlier, according to the Japan Association of Corporate Directors.

Fewer than 3 percent of Japanese board seats were held by women, according to Spencer Stuart, an executive-search consulting firm.

That compares with 16 percent at Standard & Poor’s 1500 companies in the United States, according to proxy advisory firm Institutional Shareholder Services.

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