Japan governance reforms: Coordinated reform, but investor voice must not weaken

Greater coordination, but an uneven package

These reform efforts are more coordinated than in the past, particularly around shareholder engagement, capital efficiency, and disclosure. 

The package, however, appears uneven. Some proposals could strengthen governance and transparency, while others risk weakening safeguards for shareholder voice and accountability. In our view, without sufficient specificity, the reforms may do too little to raise standards, especially among companies least inclined to move on their own. As Japan deepens engagement with global investors and broadens retail participation, this matters.

Much will also depend on whether key expectations on subjects such as board independence or Yuho timing remain in the ‘comply-or-explain' part of the Code rather than being left to interpretive guidance. 

Protecting minority shareholder voice

Recent TSE-led reforms have introduced some welcome steps to support minority shareholder protections. The latest Listing Rules consultation picks up similar concerns in quasi-controlled companies, including through better disclosure. 

At the same time, we believe some elements of the Companies Act consultation could pull in the opposite direction, whether by narrowing access to shareholder proposals or reducing procedural protections for minority shareholders in cash-out transactions.

If the long-standing ‘300 voting rights’ route were removed, leaving only the ownership-threshold, it would raise the bar for filing proposals, narrowing the range of issues that reach AGMs.

Virtual-only AGMs and other procedural changes could broaden access, including for beneficial owners investing through intermediaries. However, any move toward procedural efficiency should preserve shareholders’ ability to participate meaningfully, ask questions, and challenge boards.

Independence on paper is not enough 

Some proposals take positive steps on board independence, including refining independence criteria or adjusting board-design rules in ways that could support wider adoption of Japan’s statutory three-committee structure.

In our view, independence requirements are important, but they need to be matched by board dynamics that allow genuine challenge, particularly where cross-shareholdings or structural conflicts remain. Stronger expectations around board composition, independent directors and board chairs, and Lead Independent Directors could support challenge where needed.

We welcome the Code’s continued focus on diversity, and its recognition of the connection between workforce expectations and board effectiveness. In Japan, this matters because structural constraints in the talent pipeline, such as linear career paths and limited mobility, can narrow the pool of candidates with senior decision‑making experience and limit the range of perspectives available at board level.

Disclosure, transparency, and timing

We welcome the long-awaited, coordinated regulatory push to improve disclosure, including progress toward a more streamlined reporting framework grounded in a ‘one report, one audit’ approach. Done well, this can reduce duplication and support timelier, decision-useful disclosure.

A key issue is the sequencing of annual securities reports (Yuho) and AGMs. Releasing the Yuho at or just before the AGM limits its value for stewardship and voting,  weakening board accountability. Shareholders should not be expected to vote before they have had a proper opportunity to review the annual securities report, including its fully audited financial statements.

More broadly, disclosure needs to be specific and decision-useful, especially on cross-shareholdings, controlled structures, and how boards respond to significant shareholder dissent.

From framework to outcomes

Across all three consultations, our focus is on ensuring these reforms deliver through clearer expectations and stronger accountability.

This means:

·         Keep key expectations in the main part of the Code. If something matters, it should sit in the comply-or-explain part of the Code, not pushed into optional guidance. 

·         Use the flexibility of soft law to set a higher bar. Because companies can depart and explain, the Code does not need to be confined to minimum consensus.

·         Do not leave too much to self-interpretation. Clear standards need clear thresholds and definitions. 

·         Protect meaningful shareholder rights and participation. Efficiency gains and procedural reform should not make it harder for shareholders to file proposals, question boards, or challenge transactions, where minority protections matter most.

·         Design reforms for Japan’s market context. They should address persistent features such as AGM clustering, barriers to inclusive AGM participation, cross-shareholding structures, workforce dynamics, and the position of retail and minority investors.

Ultimately, these reforms must deliver better outcomes. Recent discussion in Tokyo at the Principles for Responsible Investment (PRI) 20th anniversary, including contributions from the regulator and the GPIF President, reinforced the importance of stewardship quality, long-term outcomes, and system-level resilience.

That momentum gives these reforms added weight. A successful outcome would see Japan continue to stand out as a market where investor rights are well protected, and where boards show genuine independence, openness to challenge, and broader perspective, supported by a governance framework that remains robust as the market evolves.

 

Assumptions, opinions, and estimates are provided for illustrative purposes only. There is no guarantee that any forecast will come to pass. 
 
[1] Our input was provided through formal submissions to the public consultations, meetings and written engagement with policymakers and market participants, and contributions to investor forums including ICGN and ACGA.
[2] https://www.jpx.co.jp/english/rules-participants/public-comment/detail/d1/20260327-01.html (TSE)
[3] https://www.fsa.go.jp/en/news/2026/20260410.html (Financial Services Agency)
[4] https://www.moj.go.jp/shingi1/shingi04900001_00333.html (Ministry of Justice)