BDTI’s Sample “Corporate Governance Guidelines”: An Example for How to Comply-or-Explain Fully

Thanks to the leadership in the LDP, we wereso successful in suggesting a large number of new practices to the FSA that were in fact included in the Japan’s Corporate Governance Code, that I got worried that more explanation is needed.

The Code is a bitvague, partly because it has to cope with three different corporate law frameworks for corporate governance. For this reason, if a company simply states we comply with the Code, it will not mean that much in Japan’s case. As the JPX’disclosure requirementsreflect, in reality companies will have to also explain how they comply. At the same time, practices such as executive sessions, a role for a lead independent director, board evaluation, an independent committee for a wide range of matters, and policies for director training and engagement with shareholders are very new in Japan. Unless someone shows a detailed, granular example of how they work in practice, they maynot be implemented in an effective fashion.

So I drafteda Japanese-language example of the corporate governance guidelines that ahypothetical very dedicatedCompany XYZ might draft to show its shareholders. This company not only complies with the Code in all respects except one, but in 15 pages it sets forth its exact internal procedures for governance, to which it will hold itself accountable by allowing anyone to download it from the company’s home pages.I believe this is the best way for Japanese companies to comply with the spirit of the Code. On boards, if you don’t write down practices in detail, in a pinch, they may not befollowed. And if a company does not actualhave detailed practices and rules, how can it meaningfully and sincerely fill out its corporate governance disclosure report to file withJPX? Without realsubstance, the companywould just be making up supposed rules and general statements solely for purposes of filling out the report.

BDTI uses the original Japanese language version of these example guidelines (which are not a template at all, just one example) in its study sessions about the Code, and in its director training program. We also use anEnglish translation (see below) in our English language Director Boot Camp. It is particularly useful when teaching short case studies, because one can ask, how might things have gone differently if the company had had these guidelines and governance practices in place?

XYZ Company’sCorporate Governance Guidelines (Example)

The Japanese version is available on our Japanese Discussion Forum, or here. In either case, please feel free to contact us if you have any questions.

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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