Summary
- Shinzo Abe became Prime Minister on December 26, 2012, and established the Japan Economic Revitalization Headquarters and the Industrial Competitiveness Council to consider growth strategies.
- The “third arrow” of Abenomics was materialized as “Japan Revitalization Strategy - JAPAN is BACK” on June 14, 2013. The strategy incorporated corporate governance reform into policies to increase the competitiveness and productivity of Japanese companies.
- Starting from this policy, the 2014 Stewardship Code and Ito Report, the revision of the Companies Act, and the 2015 Corporate Governance Code were successively implemented.
Political situation in December 2012
The Liberal Democratic Party returned to power in the December 2012 general election, and Shinzo Abe became Prime Minister for the second time. The administration had a stable seat in the House of Representatives, a Bank of Japan that was turning to aggressive monetary easing, and a clear awareness that Japan's economy could not be revived with conventional gradual policy measures.
This economic policy was later called Abenomics. Monetary policy, fiscal policy, and growth strategy are illustrated as “three arrows,” likened to the story of Motonari Mori.
timeline
title アベノミクスとガバナンス改革の主な動き（2012～2015年）
2012年12月 : 自民党勝利・安倍政権発足(26日)
: 日本経済再生本部設置
: 産業競争力会議設置
2013年3月 : 黒田東彦・日銀総裁就任
: 2%物価目標を採択
2013年6月 : 『日本再興戦略 ― JAPAN is BACK』閣議決定(14日)
: 成長戦略=第三の矢
: 年内のスチュワードシップ・コード策定を指示
: 会社法改正を指示
2013年8月 : 金融庁・有識者検討会発足
: 座長は神作裕之氏(東京大学法学部)
2014年2月 : 日本版スチュワードシップ・コード確定(26日)
2014年5月 : GPIFがコードを受け入れ(30日)
2014年8月 : 伊藤レポート最終報告書公表(6日)
: 最低ROE8%基準を提示
2015年6月 : コーポレートガバナンス・コード適用開始(1日)
: 二つのコード体制が完成
The roles of the three arrows can be summarized as follows.
| arrow | Content | Supervising agency |
|---|---|---|
| First: Bold monetary policy | 2% price target; quantitative and qualitative monetary easing; expansion of asset purchases | Bank of Japan (Kuroda) |
| Second: Flexible fiscal policy | supplementary budget; emergency economic measures | Ministry of Finance |
| Third: Growth strategy (structural reform) | Labor market deregulation; special zones; corporate governance; agricultural reform; TPP participation | Cabinet Office/Japan Economic Revitalization Headquarters |
While the first and second arrows were mainly policies to support demand, the third arrow is structural reform to increase supply capacity and productivity. With corporate governance clearly specified in this document, corporate governance has become a policy issue related to the growth potential of the Japanese economy, rather than just legal matters and preventing scandals.
June 14, 2013 “Japan Revitalization Strategy”
“Japan Revitalization Strategy - JAPAN is BACK” was approved by the Cabinet on June 14, 2013. In addition to the main text, materials showing outcome indicators and processes were prepared, and deadlines were set for each policy with the responsible ministries and agencies. The substantive study was carried out by the Industrial Competitiveness Council, chaired by the prime minister and attended by cabinet ministers and members of the private sector.
Regarding governance reform, the strategy outlines the following four main points.
- Compile the Japanese version of the Stewardship Code within 2013. The Financial Services Agency was in charge, and a short deadline of about six months was set after the Cabinet decision.
- Revise the Companies Act and require listed companies that do not appoint outside directors to explain their reasons. The idea is to expose the decision not to appoint outside directors to market scrutiny due to the legal "obligation to explain."
- Considering the desired relationship between companies and investors. Proceeded as a project of the Ministry of Economy, Trade and Industry and led to the Ito report in August 2014.
- Establish a corporate governance code. The specific policies and deadlines were clarified in the revised version of the Japan Revitalization Strategy in June 2014.
British experience was consulted in the system design. In the UK, the Stewardship Code was introduced in 2010, and the 2012 Kay Review recommended that institutional investors should take responsibility for the long-term value creation of companies. Japan adopted this principle-based and "comply-or-explain" concept to suit its own market structure.
“Principles for institutional investors to fulfill their fiduciary responsibilities by promoting medium- to long-term growth of companies through dialogue, etc.”
- Description of the Japanese version of the Stewardship Code in the “Japan Revitalization Strategy”
Why was governance positioned as growth policy?
Until then, corporate governance was thought to be primarily the domain of the Ministry of Justice, which has jurisdiction over the Companies Act, and the Financial Services Agency, which has jurisdiction over the Financial Instruments and Exchange Act. The Abe administration treated this as part of its growth strategy, along with monetary and fiscal policies. There were two ideas behind this.
First, the idea is that improving capital efficiency increases the productivity of the economy as a whole. If Japanese companies hold large amounts of capital at lower rates of return than foreign companies, there is ample scope for improving capital allocation. McKinsey's comparison of ROIC of approximately 8% in Japan, approximately 21% in the United States, and approximately 15% in Europe clearly demonstrates that improvements in corporate governance and capital allocation can lead to economic growth.
Secondly, the idea is that not only companies but also investors' behavior needs to change. Even if laws are amended, corporate behavior is unlikely to change unless shareholders engage in dialogue with management and continue to question capital allocation and the effectiveness of boards of directors. The UK's Stewardship Code provided an example of a system that positioned institutional investor dialogue as part of their fiduciary responsibility.
By combining the two, governance reform becomes not just a technical theory of corporate law, but a policy that increases corporate productivity and competitiveness. That is why the matter was not left solely to the relevant ministries, but instead was handled as a matter with the Prime Minister's Office setting a deadline and direction.
Column - Why did the Industrial Competitiveness Council play a central role? In addition to ministers, business executives and experts participated in the Industrial Competitiveness Council. It is important that this was a forum where governance reform could be discussed not as an area of financial regulation, but as a policy to increase industrial competitiveness. The direction was set here, and the Financial Services Agency, Ministry of Economy, Trade and Industry, Ministry of Justice, and TSE incorporated it into their respective systems.
Short-term battle of 6 to 18 months
The deadline set forth in the Japan Revitalization Strategy was extremely short for Japan's institutional reforms. The main movements are as follows.
- August 2013 --- The Financial Services Agency establishes the "Expert Study Group on the Japanese Stewardship Code." The chairperson was Hiroyuki Kamisaku. The 17 members included stakeholders such as asset management companies, asset owners, voting advisory companies, relevant ministries and agencies, and the Tokyo Stock Exchange.
- August 2013 to February 2014 --- Study meetings held 6 times. Public comments received 26 in Japanese and 19 in English.
- February 26, 2014 -- The Japanese version of the Stewardship Code has been finalized.
- May 30, 2014 -- GPIF announced acceptance of the code.
- June 2014 -- The revised Companies Act was enacted, introducing a system that requires certain companies that do not have outside directors to explain the reasons for doing so.
- June 24, 2014 -- The revised "Japan Revitalization Strategy" was approved by the Cabinet, and the policy to formulate the corporate governance code on a "comply or explain" basis was clearly stated.
- August 6, 2014 -- The Ministry of Economy, Trade and Industry releases the Ito Report, suggesting "ROE of above 8% or more."
- March 2015 -- The Financial Services Agency and Tokyo Stock Exchange's expert meeting published the draft Corporate Governance Code.
- June 1, 2015 - Started applying the Corporate Governance Code.
In about 18 months, the principles of conduct for investors, the principles of conduct for listed companies, and the accountability obligations under the Companies Act regarding outside directors were completed. This is exceptionally fast, even compared to the 2001 corporate auditor system reform and the 2002 introduction of a company with committees, which required several years of consideration. This speed was supported by the cabinet decision specifying the responsible agency and deadline.
Issues not included in the 2013 strategy
Although the “Japan Revitalization Strategy” set out a direction for reform, it did not include all of the current systems. The main unfinished matters that will lead to later reforms are as follows.
- Standards for number of independent outside directors. What we requested at the time was an explanation of the reasons for not appointing outside directors. Specific standards for independence and multiple appointment were strengthened in the 2015 Code and the 2018 and 2021 amendments.
- tradable-share ratio. Reforms linking market segments and shareholder structure will wait until the Prime Standard Growth restructuring in 2022.
- Cost of capital disclosure. The Ito Report showed awareness of the issue, the 2018 code revision clarified the cost of capital, and the March 2023 TSE request materialized continuous analysis, disclosure, and implementation.
- Disclosure in English. Simultaneous disclosure of important information on the prime market in Japanese and English became mandatory in April 2025.
- Sustainability disclosure. The revised Stewardship Code in 2020, the Corporate Governance Code in 2021, and the SSBJ Standards were developed in stages.
Although the later systems were established as separate documents, the basic idea of treating corporate governance as a growth policy continues from the 2013 Japan Revitalization Strategy.
What the “Japan Revitalization Strategy” has left behind
The Japan Revitalization Strategy itself did not write the provisions of the code, nor did it decide on the numerical standards for ROE. Its role was to position corporate governance as a growth issue for Japan's economy, request relevant organizations to take concrete action, and set deadlines.
Increasing the productivity and competitiveness of Japanese companies will require changes in capital allocation and corporate governance. The Financial Services Agency, TSE, Ministry of Economy, Trade and Industry, and Ministry of Justice will promote reform through their respective systems. Once this policy was announced as a cabinet decision, subsequent codes, guidelines, and disclosure systems began to move forward.
Implications that IR personnel should keep in mind
- When explaining the starting point of the reform, remember June 14, 2013. When foreign investors ask, "Why did Japan's reforms accelerate from around 2014?", the most concise answer is "Japan Revitalization Strategy."
- Explain governance as a growth strategy. Enhancing the composition of the board of directors and disclosure is not a formal system response, but is positioned as an initiative that will lead to improvements in capital allocation, productivity, and corporate value.
- Accurately understand the responsible agency. The Stewardship Code is handled by the Financial Services Agency, the Corporate Governance Code is handled by the Financial Services Agency and the Tokyo Stock Exchange, the Ito Report and Corporate Governance Practical Guidelines are handled by the Ministry of Economy, Trade and Industry, the Companies Act is handled by the Ministry of Justice, the Listing Regulations are handled by the Tokyo Stock Exchange, and the Sustainability Disclosure Standards are handled by the SSBJ.
- Overlap your company's response in chronological order of system revisions. If you organize what changes your company made and when, such as the first appointment of an independent outside director, the start of cost of capital disclosure, and the publication of a skills matrix, it will be easier to explain the progress of reforms in dialogue with investors.
- Read councils and government policies as leading indicators. The trend of broad directions being expressed in government documents, concreted in codes and guidelines, and established through disclosure is being repeated in current reforms.
Source/reference materials
- Cabinet Secretariat "Japan Revitalization Strategy - JAPAN is BACK" (June 14, 2013, documents, Japanese): https://www.cas.go.jp/jp/seisaku/seicho/kettei.html
- Cabinet Secretariat (Prime Minister's Office) "Three Arrows of Abenomics" Summary PDF (English version): https://japan.kantei.go.jp/letters/message/abenomics/TheThreeArrowsOfAbenomics_EN.pdf
- Cabinet Secretariat “About growth strategies to date” (Japanese): https://www.cas.go.jp/jp/seisaku/seicho/kettei.html
- Cabinet Office Economic and Fiscal Policy Council Reform Working Group: https://www5.cao.go.jp/keizai-shimon/kaigi/special/reform/wg1/index.html
- Financial Services Agency “Expert Study Group on Stewardship Code” (List of study groups): https://www.fsa.go.jp/singi/stewardship/index.html
- Financial Services Agency “Japanese Stewardship Code” 2014 edition main text: https://www.fsa.go.jp/news/25/singi/20140227-2/04.pdf
- Ministry of Economy, Trade and Industry “Ito Report” (August 2014, Japanese version portal): https://www.meti.go.jp/policy/economy/keiei_innovation/kigyoukaikei/itoreport.html
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