TL;DR - Every domestic TSE-listed company files a Corporate Governance Report using a fixed four-section template: I — Basic Information, II — Business Management Organization, III — Shareholders & Stakeholders, IV — Internal Control System. - For an IR rep doing diligence on a peer, an investor, or your own filing, the practical reading order is I → III → II → IV — capital structure first, IR posture second, comply-or-explain narrative third. - The single most-read part of the document is Section II, which houses the principle-by-principle comply-or-explain narrative. The quality of those explanations is where reputational risk lives.

The document, in one diagram

flowchart TB
    CG["Corporate Governance Report<br/>TSE template, updated on material change"]
    S1["<b>Section I — Basic Information</b><br/>1. Basic policy<br/>2. Capital structure<br/>3. Corporate attributes<br/>4. Group governance / other"]
    S2["<b>Section II — Business Management Organization</b><br/>1. Board, audit, committees<br/>2. <b>Comply-or-explain narrative (principle-by-principle)</b><br/>3. Skills matrix, Prime disclosures<br/>4. Officer compensation, related-party transactions"]
    S3["<b>Section III — Shareholders & Stakeholders</b><br/>1. IR activities, dialogue policy<br/>2. AGM operations, electronic voting<br/>3. English disclosure status<br/>4. Sustainability / ESG / supply chain"]
    S4["<b>Section IV — Internal Control System</b><br/>1. J-SOX basic policy<br/>2. Anti-social forces policy<br/>3. Other material matters"]
    CG --> S1
    CG --> S2
    CG --> S3
    CG --> S4

Section I — Basic Information

Section I is the orientation. It typically runs to 4–6 pages and contains four sub-blocks:

  1. Basic policy on corporate governance — a short narrative statement of the company's governance philosophy. Usually generic, but worth scanning for any reference to the company's specific industry, controlling-shareholder situation, or special-circumstances framing.
  2. Capital structure — the most-cited part of the CG Report. It lists the company's foreign-ownership ratio, major shareholders, the presence of a controlling shareholder (and identifies them), and the parent-company relationship if any. This is also where you find the tradable-share ratio disclosure (covered in Theme 3.2).
  3. Corporate attributes — listing segment (Prime/Standard/Growth, post-April 2022), fiscal year-end, organisational form (kansayaku company, audit and supervisory committee company, or three-committee company), industry classification.
  4. Other matters — including the company's group governance arrangements where they apply.

What to look for first: the organisational form. The three structures (kansayaku, audit-supervisory-committee, three-committee) have materially different governance implications — kansayaku boards have separate statutory auditors; audit-and-supervisory-committee companies fold audit oversight into the board itself; three-committee companies have nomination, audit and remuneration committees as legally constituted board committees. The same Code principles apply, but the comply-or-explain logic in Section II reads differently depending on which structure the company uses.

Sidebar — Foreign-ownership ratio is the canary An IR rep should know the company's foreign-ownership ratio cold. It is the single most-asked metric in inbound investor calls and the field that drives a disproportionate amount of stewardship engagement intensity. The CG Report is the authoritative source — not the IR deck.

Section II — Business Management Organization (the heart)

Section II is by far the longest and most-read part of the document. It is where the principle-by-principle comply-or-explain narrative lives, and where the Prime-only disclosures (skills matrix, climate, English IR status) appear. It is organised in roughly this order:

  1. Composition of the board — number of directors, number of independent directors, term lengths, brief biographies. Increasingly, this section also includes the skills matrix (required under 2021 Code Supplementary Principle 4.11.1 for all companies, with Prime expected to map skills to strategy).
  2. Independence determinations — the company's independence criteria and how each independent director satisfies them. The TSE's standard criteria are the floor; the Code expects companies to publish their own stricter standards.
  3. Voluntary committees — composition and remit of the nomination advisory committee, remuneration advisory committee, and any sustainability or ESG committee.
  4. Audit structure — relationship with the kansayaku board / audit-supervisory committee / audit committee, internal-audit function, accounting auditor.
  5. Officer compensation — basic policy on compensation, the mix of fixed/variable/equity-based components, and the process for determining individual amounts. This is the section that maps onto the Disclosure of Compensation in the yuho.
  6. The comply-or-explain table — this is the most important block of the CG Report. For every Principle and Supplementary Principle that applies, the company records either "we comply" with a supporting narrative, or "we explain" with a reasoned non-compliance statement. The table is searchable on the TSE's Corporate Governance Information Search portal.
  7. Related-party transactions — policy and oversight process.

What "good" comply-or-explain looks like

Compare two stylised examples for the same principle — Supplementary Principle 4.11.1 (board skills matrix):

Weak comply (boilerplate)

"The Company complies with Supplementary Principle 4.11.1. The Board is composed of directors with diverse backgrounds and skills."

Strong comply (specific, dated, strategic)

"The Company complies with Supplementary Principle 4.11.1. The Board adopted a Skills Matrix at the May 2024 meeting, mapping eight skill categories (corporate management, finance/accounting, M&A, technology, global business, legal/governance, sustainability, human capital) to the three strategic priorities of our FY2025–2027 Medium-Term Plan. The matrix is reviewed by the Nomination Advisory Committee annually before AGM director nominations. The current matrix is reproduced on p.14 of this Report."

The Code does not specify the length, but the substance of the second version — concrete categories, an explicit link to a named strategic document, board-level review cadence, cross-reference to a specific page — is the hallmark the FSA's From Form to Substance Opinion Statement (April 2023) was written to encourage.

Now compare two "explain" examples for Principle 4.8 (one-third independence for Prime issuers):

Weak explain

"The Company does not currently appoint one-third independent directors. We will consider this matter going forward."

Strong explain

"The Company is a Prime Market issuer and currently has 3 independent directors out of 10 (30%). Recognising the Code expectation of at least one-third independence, the Nomination Advisory Committee has been instructed to identify one additional independent director candidate, with a target appointment at the AGM in June 2026 (raising the ratio to 36%). Search progress is reported to the Board quarterly. The Company is on track to comply with the principle from FY2026."

The strong explain is, in many investor communications, better than a generic comply. It gives the investor a date, a process, and a measurable target. Proxy advisers and engagement letters consistently reward this style.

Section III — Shareholders & Stakeholders

Section III is the IR-team section. It contains:

  1. Status of IR activities — investor briefings (frequency, audience, who presents), presentation materials, contact point for inquiries, IR policy, dialogue policy with shareholders, and the anti-takeover-measures disclosure.
  2. AGM operations — electronic-voting platform participation (the ICJ platform for Prime issuers under Supplementary Principle 1.2.4), date concentration, English-language convening notice, and any measures to facilitate participation.
  3. English-language disclosure status — important for the April 2025 mandate (Theme 5.1) and for Prime Market Supplementary Principle 3.1.2 compliance.
  4. Stakeholder and sustainability initiatives — basic policy on stakeholder cooperation, sustainability/ESG initiatives, supply-chain governance, whistleblower policy.

For an IR rep, this is the second-most-important section after II. Many of the questions an overseas investor or proxy adviser will ask about IR philosophy, AGM accessibility, and English-language disclosure are answered, in machine-readable form, here. If your IR pack and your CG Report Section III contradict each other, the CG Report wins — because it is the disclosure of record.

Section IV — Internal Control System

Section IV is the shortest. It records:

  1. The board's resolution on the basic policy on internal control under Article 362(4)(vi) of the Companies Act and the J-SOX-aligned implementation framework.
  2. The anti-social forces policy — Japanese law and listing rules require listed companies to maintain an explicit policy of refusing transactions with organised crime groups.
  3. Any other internal-control matter the company considers material.

Section IV is often read last and quickly. The exception is when the company has had a recent material weakness or compliance event, in which case investors will read Section IV with care to understand the remediation framing.

Sidebar — Where to find a company's CG Report Every CG Report is available on the TSE Corporate Governance Information Search portal — https://www.jpx.co.jp/english/listing/cg-search/ — searchable by ticker, by name, or by Principle. Companies also typically post the PDF on their own IR website. The TSE portal is the authoritative version.

How to read one in 15 minutes

Minute Action
0–3 Section I — basic policy, foreign-ownership ratio, controlling shareholder, organisational form, listing segment.
3–6 Section III — IR policy, English disclosure status, AGM operations.
6–12 Section II — read the comply-or-explain narrative for the principles that matter to your investor base: 1.4 (cross-shareholdings), 4.8 (independence), 4.11.1 (skills matrix), 5.2 (cost of capital), 2.4.1 (diversity targets), 3.1.3 (TCFD).
12–14 Section II continued — voluntary committees, officer compensation.
14–15 Section IV — scan for anything atypical; usually nothing.

That order — capital structure, IR posture, comply-or-explain, internal control — gives you the picture in roughly the same time it takes to read a 20-page sell-side initiation note.

What this means for IR

  1. Audit your own CG Report quarterly. It is your governance face to the world. Update it whenever a board composition change, a new policy, a new committee, or a material engagement event lands — not on a fixed annual cycle.
  2. Make Section II Principle-by-Principle compliance text read like investor communication, not legal boilerplate. The narrative is yours to write. Use the active voice, name your strategy documents, give dates and metrics, and link to the page numbers where supporting evidence lives.
  3. Treat the skills matrix and Prime disclosures as competitive ground. Peer benchmarking on Section II quality is one of the easiest comparative exercises a stewardship investor performs. A best-in-class skills matrix is a low-cost reputational asset.
  4. Reconcile your IR deck and your CG Report. Any numeric or policy discrepancy between the two is a flag — investors will pick it up immediately, and proxy advisers will weight the CG Report as the disclosure of record.
  5. Use the TSE Examples of Good Practice document. JPX publishes a free PDF of strong-practice examples drawn from real filings. It is the best single benchmarking resource for upgrading your own CG Report.

Sources & further reading

  • JPX — Corporate Governance Report page (template, preparation guidelines, samples): https://www.jpx.co.jp/english/equities/listing/cg/01.html
  • JPX — Examples of Good Practice in CG Reports (PDF): https://www.jpx.co.jp/english/equities/listing/cg/tvdivq0000008jdy-att/b5b4pj0000036oc5.pdf
  • JPX — Corporate Governance Information Search portal: https://www.jpx.co.jp/english/listing/cg-search/index.html
  • JPX — TSE Listed Companies White Paper on Corporate Governance (landing): https://www.jpx.co.jp/english/equities/listing/cg/02.html

Cross-references

Next in this theme: Post 2.5 — Code vs Guideline: when METI's CGS, GGS, Fair-M&A and Takeover Guidelines override the Code.

Related posts in other themes: - Post 3.2 — The Tradable-Share Ratio (the Section I capital-structure number that reshaped cross-shareholdings) - Post 4.3 — The Shame-and-Showcase List (TSE's separate monthly disclosure mechanism alongside the CG Report) - Post 5.1 — The English disclosure mandate (Section III English disclosure status, post-April 2025)