Letter from ICGN to the FSA Regarding Japan’s Corporate Governance Code

The International Corporate Governance(ICGN) has sent this letter tothe FSA regarding the corporate governance code:

(Excerpt ) –

The proportions of executive officers, non-executive directors and independent nonexecutive directors should be determined within national legal, cultural and regulatory frameworks. In the case of Japan, the ICGN supports the position of the Asian Corporate Governance Association which recommends that the minimum number ofindependent directors should be three or one-third of the board. This is broadly commensurate with the ICGN Global Governance Principles which recommends thatthe board should comprise a majority of non-executive directors, the majority ofwhom are independent.

In terms of how the concept of independence is defined the ICGN GlobalGovernance Principles recommends: “The board should identify in the annual reportthe names of the directors considered by the board to be independent and who are able to exercise independent judgment free from any external influence. The boardshould state its reasons if it determines that a director is independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination.” (Principle 2.5)

Importance of board committees

We note reference to the ‘utilization of voluntary other arrangements’ in Principles 4-10, and we would like to emphasise the importance of independent decision-making, particularly as a safe-guard to mitigate managerial self-interest or lack of objectivity in areas such as audit, remuneration and board nomination. In this regard we would refer you to the ICGN Global Governance Principles as follows: “The board should establish committees to deliberate on issues such as audit, remuneration and nomination. Where the board chooses not to establish such committees, the board should disclose the fact and the procedures it employs to discharge its duties and responsibilities effectively.” (Principle 1.7)

In the context of our comments on board independence made in point 2 above, we would also like to stress the importance of committee independence.

Read the full letter:

The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.

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