“Stewardship Code: 9/2/2014 Message from the FSA – To institutional investors that have yet to accept the Code”, and others

September 2, 2014
[To institutional investors that have yet to accept the Code]

 160 institutional investors have already announced their acceptance of Japan’sStewardship Code (hereinafter referred to as the “Code”) by the end of August2014.

The Financial Services Agency (FSA) would welcome the decision to accept the
Code by those who have yet to do so. The Code allows its signatories to take intoaccount their specific conditions and situations, as far as it is in line with the “aimand spirit” of the Code.

 The acceptance of the Code by asset owners is particularly important becausethey are expected to work as a “driver” for the implementation of the Code.

An announcement of acceptance of the Code and a stewardship policy should bepublicly disclosed on a signatory’s own website, in principle. However,
institutional investors such as small private pension funds that do not have theirown websites can send the abovementioned information to the email addressdesignated by the FSA, and the FSA will publish such information on its website.The FSA would welcome the acceptance of the Code by these investors.

[To institutional investors that have accepted the Code]

 Unlike typical Japanese laws and regulations, the Code does not adopt the
rules-based approach but rather the principles-based approach.
Now that all signatories have developed and published their stewardship policies,they will begin to fully engage in stewardship activities based on these policies.Upon such activities, however, please note that the investors are advised to focusnot on the formal wording contained in the Code, but on whether their activities aretruly appropriate in light of the “aim and spirit” of the Code.

For example, a “formalism,” whereby institutional investors compete with eachother in terms of the number of meetings they have with investee companies or evaluate investee companies using only appearance-based, mechanical methods (i.e.adopting a box-ticking approach), is incompatible with the “aim and spirit” of theCode.

 In addition, the goal of the Code is not to have all institutional investors meetminimum standards uniformly, but to have each investor continuously endeavor, inlight of its specific conditions and situations, to be innovative and to differentiateitself so that activities of signatories overall will exceed the minimum standards(“beyond minimum requirements”).

Each signatory is therefore advised to make continuous revisions on its
stewardship policy in an effort to improve its stewardship activities, rather than tostick with its initial stewardship policy already published.

[To beneficiaries and clients]
 The Code does not require signatories to uniformly comply with all the contentof the Code. For example, if a signatory concludes, in light of its investmentpolicy, size and other factors, that it would not be appropriate to comply withcertain recommendations of the Code, such conclusion is acceptable provided thatthe signatory would fully explain the reasons to its beneficiaries and/or clients. Insuch a case, it is needless to say that the signatory should avoid formalistic andsuperficial explanations, or boiler-plate explanations.

When the signatories are actually providing proper explanations for their
non-compliance with some recommendations of the Code, the FSA would like torequest beneficiaries and clients (including asset owners), not to provide negativeevaluations automatically because of their non-compliance with the Code, butinstead endeavor to evaluate them righteously in light of the “aim and spirit” of theCode.


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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