TL;DR - Japan's first Corporate Governance Code was published on 5 March 2015 and took effect on 1 June 2015. It is principles-based, soft-law, and enforced through the Tokyo Stock Exchange's listing contract — not by statute. - The Code is built as 5 General Principles, 30 Principles, and 38 Supplementary Principles (73 provisions), with a binary "comply or explain" mechanic at the line-item level. - The minimum hard floor introduced in 2015 was at least two independent directors for TSE 1st/2nd Section issuers — the first numerical independence requirement ever codified into the Japanese listing rulebook.

Where it came from

The 2015 Code did not arrive from nowhere. It was the corporate-governance leg of the "third arrow" of Abenomics, formally authorised by the June 2014 revision of the Japan Revitalization Strategy. The political objective was to close Japan's chronic capital-efficiency gap with the rest of the developed world by making boards accountable to long-term shareholder value — and the chosen technical instrument was a UK-style principles-based code rather than a US-style rules-based listing requirement.

Drafting was delegated to the Council of Experts Concerning the Corporate Governance Code, a twelve-member body chaired by Kazuhito Ikeo (Professor of Economics and Finance, Keio University). The Financial Services Agency (FSA) and the Tokyo Stock Exchange acted as joint secretariats; an OECD adviser sat in. The Council's twelve seats were balanced by stakeholder constituency:

  • Four representatives from the business community
  • Four from the investment community
  • One law professor
  • One practising lawyer
  • One representative from the accounting profession
  • One from the kansayaku (statutory auditor) association

That composition — heavy on investors, light on issuer dominance — is itself worth noting, because it is unusual in the long history of Japanese listed-company self-regulation. The Council convened for the first time in August 2014, released a draft titled "Japan's Corporate Governance Code — Seeking Sustainable Corporate Growth and Increased Corporate Value over the Mid- to Long-Term" for public comment in December 2014, and finalised the text less than ten months later.

Sidebar — Why UK, not US? The 1992 Cadbury Report is the intellectual ancestor of every comply-or-explain code in the world. Japan deliberately followed Cadbury rather than the prescriptive, litigation-heavy US listing-standards model — partly to give issuers room to tailor compliance to their own situation, and partly to keep the document amendable without legislative action. The Code's preamble states explicitly that it "adopts a principles-based approach so as to achieve effective corporate governance in accordance with each company's particular situation".

The 5+30+38 architecture

The 2015 Code is layered into three tiers. The five General Principles are the constitutional layer — short, axiomatic statements of what the Code expects of a listed-company board. Underneath each General Principle sit one or more Principles that operationalise it, and underneath several Principles sit Supplementary Principles that drill into specific disclosure or process expectations.

flowchart TD
    Code["Japan's Corporate Governance Code<br/>(2015): 73 provisions"]
    GP1["General Principle 1<br/>Securing the Rights and<br/>Equal Treatment of Shareholders"]
    GP2["General Principle 2<br/>Appropriate Cooperation<br/>with Stakeholders"]
    GP3["General Principle 3<br/>Ensuring Appropriate<br/>Information Disclosure<br/>and Transparency"]
    GP4["General Principle 4<br/>Responsibilities of<br/>the Board"]
    GP5["General Principle 5<br/>Dialogue with Shareholders"]
    Code --> GP1
    Code --> GP2
    Code --> GP3
    Code --> GP4
    Code --> GP5
    GP1 --> P1["7 Principles<br/>(1.1 - 1.7)"]
    GP2 --> P2["5 Principles<br/>(2.1 - 2.5)"]
    GP3 --> P3["2 Principles<br/>(3.1 - 3.2)"]
    GP4 --> P4["14 Principles<br/>(4.1 - 4.14)"]
    GP5 --> P5["2 Principles<br/>(5.1 - 5.2)"]
    P1 --> SP["38 Supplementary Principles<br/>(operational detail)"]
    P2 --> SP
    P3 --> SP
    P4 --> SP
    P5 --> SP

The five General Principles, in one-sentence summary:

# General Principle What it requires of the board
1 Securing the Rights and Equal Treatment of Shareholders Protect shareholder rights — especially of minority and foreign shareholders — and ensure substantive equality of treatment.
2 Appropriate Cooperation with Stakeholders Other Than Shareholders Recognise stakeholders (employees, customers, business partners, creditors, local communities) and foster a corporate culture and ethics that respect their rights.
3 Ensuring Appropriate Information Disclosure and Transparency Disclose both statutory and non-statutory information accurately, comprehensibly, and on a timely basis.
4 Responsibilities of the Board Direct strategy, oversee management, ensure appropriate risk-taking, and fulfil supervisory duties — including through outside directors.
5 Dialogue with Shareholders Engage constructively with shareholders, including outside the annual general meeting.

Two features of this architecture matter for IR work. First, the Code is non-numbered at the line level only up to a point: every Principle and Supplementary Principle has a unique number (e.g. Principle 4.7, Supplementary Principle 4.11.1), and the Corporate Governance Report disclosure template tracks compliance principle-by-principle. Second, the General Principles cannot be "complied or explained" against individually by TSE 1st/2nd Section issuers — they must comply or explain against all 73 provisions. Only Mothers and JASDAQ companies were given a lighter regime, comply-or-explain against the five General Principles only.

What the Code actually says

A representative pull-quote — from General Principle 5 — captures the tone:

"Companies should engage in constructive dialogue with shareholders even outside the general shareholder meeting. During such dialogue, senior management and directors, including outside directors, should listen to the views of shareholders and pay due attention to their interests and concerns…" — Japan's Corporate Governance Code (2015), General Principle 5

That sentence does a lot of work. It establishes the IR-engagement responsibility as a board-level matter (not just an IR-team matter), it explicitly includes outside directors as engagement counterparties, and it commits the board to listening — language that, in subsequent revisions, becomes the connective tissue with the Stewardship Code.

The 2015 Code also introduced a numerical anchor that did not exist before:

"Companies should appoint at least two independent directors who sufficiently have the qualities to fulfil the role… If a company believes it needs to appoint at least one-third of the board as independent directors based on a broad consideration of factors such as the industry, company size, business characteristics, organizational structure, and circumstances surrounding the company, it should disclose a roadmap for doing so." — Japan's Corporate Governance Code (2015), Principle 4.8

That "at least two independent directors" floor is the line that, more than any other, broke the long tradition of the wholly-insider Japanese board.

Comply or explain — the mechanic

The Code is enforced not by statute but by TSE Securities Listing Regulations Rule 436-3 and the listing contract every issuer signs. The disclosure vehicle is the Corporate Governance Report — a structured TSE-template filing that every domestic listed company must submit, in machine-readable form, and update whenever material governance facts change.

For each Principle and Supplementary Principle that applies to the company, the issuer chooses one of two options at the line-item level:

  1. Comply — confirm that the company conforms to the principle, ideally with concrete supporting disclosure;
  2. Explain — provide a reasoned, publicly searchable explanation of why the company has chosen not to comply.

Both choices are equal in legal status. There is no penalty for explaining. There is also no formal regulatory review of the explanation's quality — the discipline comes from the market: proxy advisers (Glass Lewis, ISS), domestic stewardship investors, engagement letters, and AGM voting outcomes. The TSE's "Corporate Governance Information Search" portal lets any investor filter every issuer's response to any principle, which makes weak explanations very visible.

Sidebar — Code is not Companies Act An IR rep should never describe Code provisions as "legal requirements". The Code sits outside the Financial Instruments and Exchange Act and outside the Companies Act. Non-compliance with a Code principle, with no explanation provided, is a breach of the listing contract and exposes the issuer to TSE administrative action — but not to civil or criminal liability. The Companies Act (kaisha-hō) is where the legal floor sits; the Code is the soft-law ceiling above it.

Applicability: who has to do what

Issuer category (2015) Provisions subject to comply-or-explain
TSE 1st Section All 73 (5 General + 30 Principles + 38 Supplementary)
TSE 2nd Section All 73
Mothers 5 General Principles only
JASDAQ 5 General Principles only

This layered applicability was deliberate. The 1st/2nd Section regime was modelled on the LSE Premium Listing comply-or-explain expectation; the Mothers/JASDAQ regime was lighter to avoid imposing a board-composition cost on early-stage growth issuers. Both ends of that spectrum changed in the April 2022 market restructuring, which Theme 3 covers in detail.

What this means for IR

  1. Know your principle numbers. When an overseas investor asks "what does your board do about CEO succession", the answer should cite Supplementary Principle 4.1.3. Speaking the Code's own language signals fluency.
  2. Audit your CG Report against the original applicability table. Every domestic TSE issuer has one CG Report. The principle-by-principle compliance choices in Section II are the most-read part of any governance disclosure — make sure your file actually says what you mean it to say.
  3. Distinguish "comply" from "explain" deliberately. A weak comply ("we comply with Principle 4.8") is often worse than a strong explain. Where you cannot yet meet a principle, write the explanation in the active voice with a dated roadmap — that is exactly what the Code's framework rewards.
  4. Remember the legal layer beneath. When an overseas investor asks "is this a legal requirement", the honest answer is no — but the soft-law consequences (proxy voting, engagement, listing-contract status) are real and increasingly costly.
  5. Treat the CG Report as a live document. It updates on material change, not on a fixed annual cycle. The version on the JPX search portal is your governance face to the world; treat it with the same discipline as a securities-report filing.

Sources & further reading

  • FSA — Council of Experts Concerning the Corporate Governance Code (landing): https://www.fsa.go.jp/en/refer/councils/corporategovernance/index.html
  • FSA — Japan's Corporate Governance Code [Final Proposal, March 2015]: https://www.fsa.go.jp/en/laws_regulations/pc_corporate_governance.html
  • ECGI mirror of the 1 June 2015 English text: https://www.ecgi.global/sites/default/files/codes/documents/japan_cg_code_1jun15_en.pdf
  • JPX — Corporate Governance landing page: https://www.jpx.co.jp/english/equities/listing/cg/index.html
  • JPX — Corporate Governance Report preparation guidelines: https://www.jpx.co.jp/english/equities/listing/cg/01.html
  • JPX — Corporate Governance Information Search portal: https://www.jpx.co.jp/english/listing/cg-search/index.html

Cross-references

Next in this theme: Post 2.2 — The 2018 Revision: capital efficiency enters the Code.

Related posts in other themes: - Post 1.3 — Abenomics' Third Arrow (why the Code was authorised politically) - Post 1.4 — The Two Wheels of the Cart: Japan's Stewardship Code (the institutional-investor counterpart) - Post 3.1 — From Four Segments to Three (why the 2015 applicability table no longer holds)