By Tom Redmond, Anna Kitanaka and Takashi Hirokawa Feb. 28 (Bloomberg) — Prime Minister Shinzo Abe’s ruling Liberal Democratic Party is planning a governance code for Japanese companies to boost their competitiveness and enhance investor protection, an official said.
The party is discussing details and will present a proposal to government in June, Masahiko Shibayama, an LDP lawmaker who heads a financial markets and governance reform group, said in an interview in Tokyo yesterday. Encouraging more outside directors or making them mandatory will probably be a “major theme,” along with doing more to discourage a culture where companies buy passive stakes in firms with which they have business relationships, he said.
“This is an essential reform for making Japanese companies more advanced and capable of growth,” said Shibayama. It’s also important for ensuring “the funds entrusted by investors, both institutional and individual, are properly used,” he said.
Abe said in a speech in Davos, Switzerland, in January that Japan would put forward changes to the Companies Act in the parliamentary session that runs through June, aiming to increase external directors. A text of the bill published on the Ministry of Justice website in November says firms will have to appoint an outside director or explain at their shareholders’ meeting why they didn’t.
A broader governance code would be the next step and would complement stewardship rules being introduced this year to encourage institutional investors to engage more with companies they own.
The group will discuss whether to introduce the code as mandatory requirements under law or on a “comply-or-explain”
basis, Shibayama, 48, said. A so-called hard law would have the most binding power, he said.