On 7 June 2024, the Financial Services Agency of Japan released the Action Programme for Corporate Governance Reform 2024: Principles into Practice. In the action programme, the Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code presented a set of recommendations aimed at promoting the practical implementation of corporate governance reform.
Takanori Ueshima
Partner
Nishimura & Asahi
Tokyo
Tel: +81 3 6250 6200/+81 70 2182 2892
Email: t.ueshima@nishimura.com
These recommendations are grounded in a reaffirmation of the fundamental objectives of corporate governance, namely, the sustainable growth of companies and the enhancement of corporate value over the medium to long term. By evaluating and sharing specific measures taken by individual companies, the Council of Experts seeks to encourage voluntary, autonomous shifts in mindset among companies and investors, and move towards an improvement in corporate governance practices.
This regulatory initiative is driven by several factors, including the growing presence of foreign investors in Japan’s capital markets, which results in increased demand for enhanced disclosure practices. At the same time, shareholder activism has intensified, with adequately funded activist investors making proposals as shareholders of companies with high market capitalisation.
These activist investors have raised issues related to corporate strategy and operational challenges, thereby exerting pressure on companies to improve
their corporate governance practices. In light of these developments, there is strong demand for the establishment of a more transparent and fair investment environment.
The following section summarises key corporate governance reform initiatives, including those within the Financial Services Agency of Japan’s action programme, which take recent trends in this sector into account.
TOB regulations
Takaomi Miyazeki
Associate
Nishimura & Asahi
Tokyo
Tel: +81 3 6250 7529/+81 90 4175 5221
Email: t.miyazeki@nishimura.com
The current version of the Financial Instruments and Exchange Act requires that certain share acquisitions of listed companies must be conducted through a takeover bid (TOB) process. These processes include:
When an acquirer purchases shares from more than 10 shareholders within a 60-day period through off-market transactions, and the acquirer’s shareholding percentage exceeds 5% as a result of the acquisition(s); or
When an acquirer’s shareholding ratio exceeds one-third as a result of either off-market or on-market (off-floor trading) transactions (one-third rule).
Under the Act Partially Amending the Financial Instruments and Exchange Act and the Act on Investment Trusts and Investment Corporations, which was promulgated on 15 May 2024, companies must adhere to the following:
The threshold for a TOB in the one-third rule will be lowered to 30%; and
This new threshold also will apply to on-market (floor trading) transactions. As a result, in principle, any acquisition resulting in a shareholding percentage in excess of 30% must be conducted via a TOB.
These amendments are intended to ensure and increase the transparency and fairness of securities transactions that may affect corporate control or related matters within a company, by referring to thresholds and other aspects of TOB regulations in other jurisdictions. The effective date of the amendment will be specified by cabinet order and will be within two years of the date of promulgation of the amendment.
Disclosures
Momoe Ikemoto
Associate
Nishimura & Asahi
Tokyo
Tel: +81 3 6250 7702/+81 80 6519 2481
Email: m.ikemoto@nishimura.com
Disclosure of listed subsidiaries. Investors have pointed out that although the protection of minority shareholders and transparency in group governance are essential elements of investment decision making, existing disclosures about listed subsidiaries and equity-method affiliates of many listed companies are not sufficient for this purpose.
In response, the Tokyo Stock Exchange (TSE) published in December 2023 guidance targeting listed companies in parent-subsidiary relationships or equity-method affiliate relationships. The guidance addresses recommended disclosure items and key points to be described in corporate governance reports to improve the comparability of corporate governance information of listed companies for investors, including:
The company’s approach to and policies on group governance;
The rationale for maintaining
listed subsidiaries;
Measures to ensure effective governance of those subsidiaries; and
Policies and initiatives to ensure the independence of those subsidiaries from the parent company for the protection of minority shareholders.
The TSE also announced that it encourages listed companies to start disclosing this information in their corporate governance reports.
In February 2025, the TSE also published The Investor’s Perspective on Such Matters as Parent-Subsidiary Listings, which reflects feedback from both Japanese and foreign investors. The TSE encourages listed companies to engage in dialogue and improve transparency on issues related to group governance and the protection of minority shareholders.
Disclosure of material agreements and cross-shareholding. The Cabinet Office Ordinance on Disclosure of Corporate Affairs and the Cabinet Office Order on Disclosure of Information on Regulated Securities were amended to require, in principle, that annual securities reports for fiscal years ending on or after 31 March 2025 include disclosures of “material agreements, etc.” and cross-shareholding.
The amendment clarifies the scope of required disclosures of “material agreements, etc.”, in response to concerns that disclosure standards in Japan are insufficient compared with those in other jurisdictions with similar frameworks. The revised rules clarify that annual securities reports and other disclosure documents should include the following three categories of “material agreements, etc.”:
Agreements between a company and its shareholders on corporate governance matters;
Agreements between a company and its shareholders on the disposal or acquisition of shares held by those shareholders; and
Financial covenants.
Listed companies are also now required to disclose detailed information about cross-shareholding (shares held not for purely investment purposes but for strategic reasons, such as maintaining business relationships or as a defence against takeovers) for which the holding purpose changed from “cross-shareholding” to “pure investment” during the past five fiscal years. This requirement reflects concerns that some companies change the purpose of holding from “cross-shareholding” to “pure investment”, even though they effectively are holding shares for cross-shareholding purposes.
Required additional disclosures include the name of the issuer, number of shares held, balance sheet valuation, fiscal year in which the change to the holding purpose occurred, reasons for the change, and the policy on whether the shares will be retained or sold thereafter. As corporate governance reports must also include the company’s cross-shareholding policy, similar disclosures are expected there as well.
Disclosure of engagement with shareholders. In recognition of the growing importance of constructive dialogue between companies and investors for improving corporate management, as of March 2023, the TSE requires all companies listed on the prime market to disclose information about their management’s shareholder engagement activities during the preceding fiscal year.
Companies listed on the prime market are expected to disclose the following information (although no specific disclosure documents are designated for this information):
Individuals primarily responsible for engagement with shareholders;
Overview of the shareholders engaged in the dialogues;
Areas of responsibility of the company staff who were in charge of the engagement;
Key topics discussed and concerns raised by shareholders;
How shareholder feedback was communicated to management and the board of directors; and
Any measures taken in response to shareholder feedback.
Sustainability and ESG
Gender diversity. Annual securities reports for fiscal years ending on or after 31 March 2023 must include a new “sustainability information” section, which mandates the disclosure of diversity indicators such as the ratio of female managers and the gender pay gap.
In line with The Intensive Policy on Gender Equality and Empowerment of Women 2023, published by the Gender Equality Bureau of the Cabinet Office on 13 June 2023, the TSE amended its listing rules in October 2023 for companies listed on the prime market and introduced the following targets:
Companies should strive to appoint at least one female officer by around 2025;
Companies should attempt to increase the percentage of female officers to 30% or more by 2030; and
A recommendation that companies formulate and disclose action plans to achieve these targets.
Climate change. In March 2025, the Sustainability Standards Board of Japan, an internal body of the Financial Accounting Standards Foundation, issued Japan’s first sustainability disclosure standards. These include:
The application of the sustainability disclosure standards;
General disclosures; and
Climate-related disclosures.
These standards are designed to be internationally consistent and were developed with reference to the IFRS Sustainability Disclosure Standards. They are intended to be implemented in stages, beginning with large companies listed on the prime market of the TSE with significant market capitalisation. This applies particularly to those that prioritise constructive dialogue with global investors for the financial years ending on or after 31 March 2026.
Corporate governance reports are also expected to develop climate-related disclosures in increasing detail.
NISHIMURA & ASAHI (GAIKOKUHO KYODO JIGYO)
Otemon Tower, 1-1-2 Otemachi, Chiyoda-ku
Tokyo 100-8124, Japan
Tel: +81 3 6250 6200
Email: t.ueshima@nishimura.com
www.nishimura.com