A. Introduction

On June 11, 2021, Tokyo Stock Exchange, Inc. (“TSE”) released the latest revision to Japan’s Corporate Governance Code (the “Code”). The Code was put together in 2015 and first revised in 2018. It establishes the fundamental principles for effective corporate governance at listed companies in Japan.

The recent second revision of the Code aims to advance governance reforms to promote the continuous growth of companies and increase their corporate value over the mid- to long-term in light of the changing environment surrounding business firms triggered by the COVID-19 pandemic.

As a prerequisite knowledge to understanding the above revision of the Code, it is necessary to mention the upcoming restructuring of the cash equity market. TSE is planning to restructure the cash equity market from April 4, 2022 by reorganizing the current five market segments, namely, the First Section, Second Section, Mothers, and JASDAQ (Standard and Growth), into three new market segments, namely, Prime, Standard and Growth. The Code has been revised, in part, to set a higher standard for companies to be listed on the Prime Market. The Prime Market will be a market for companies whose market capitalization (liquidity) is large enough (at least JPY 10 billion) to attract investments from many institutional investors. They must have a high quality of corporate governance as well as a commitment to sustainable growth and medium-to-long term improvement of their corporate value with a focus on constructive dialogues with investors.


B. Overview of the Revision of the Code

The main points of the revisions to the Code are shown in the table below. The revision addresses issues concerning enhancing board independence, promoting diversity, and attention to sustainability and environmental, social and governance (“ESG”). In addition, it addresses the terms related to (a) group governance, (b) ensuring confidence in audits, internal control and risk management, (c) matters related to general shareholders’ meetings, and (d) business portfolio management. Notably, the use of electronic voting platforms and disclosures in English are being promoted for Prime Market listed companies....

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