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00:00Good evening. I'm Ito, Commissioner of Financial Services Agency.
00:06Thank you very much for inviting me to such a wonderful conference.
00:12Today, I would like to talk about the corporate governance reform,
00:16and mainly focusing on our efforts.
00:20So there are a lot of discussions about corporate governance reform,
00:28and with the transition to a world with interest rates and the rising geopolitical risks,
00:35the environment surrounding corporate management and finance is changing significantly.
00:45So based on these changes, we need to have a proper outlook for the future,
00:54and I think that's the theme of this forum, and I think it's quite timely.
00:58It's extremely important that we can map out
01:05Japan's growth strategy in such an environment for the new administration.
01:12In these uncertain times, there are things that we must definitely do,
01:23and there are things that are sure to be helpful to us,
01:28and that is to strengthen Japanese companies' ability to earn money.
01:34The FSA is currently undertaking a variety of initiatives to support the development of Japanese economy and financial markets.
01:48And today, I would like to talk about the corporate governance reform,
01:57which will continue to be the core of our growth strategy.
02:03As you may well know,
02:05corporate governance reform in Japan began in earnest
02:10when the Japanese revitalization strategy of June 2013 was published.
02:20And the strategy said that to ensure the shareholders and others actively support the positive initiatives of corporate managers,
02:34we will review corporate governance to make Japanese companies internationally competitive.
02:40And in 2014, the stewardship code was formulated.
02:45And to achieve proactive governance by encouraging swift and decisive decision-making by companies,
02:54the corporate governance code was formulated in 2015.
02:58After 10 years since the formulation of these codes,
03:02we recognize that the corporate governance at Japanese companies has changed significantly.
03:12On the other hand, unfortunately, there is still a mindset among companies that as long as formalities are in place, it's fine.
03:28And we believe that we must continue the reform, and it is not the time to relax yet.
03:40By making the most of companies' resources and improving their ability to earn money in a healthy manner,
03:48companies can grow, having a positive impact on the company, employees and shareholders,
03:55which eventually leads to growth of Japanese economy as a whole.
04:00That is the fundamental idea of corporate governance reform.
04:05And we need to spread that idea throughout Japan.
04:11We call it an effective implementation of corporate governance reform.
04:17To that end, the FSA has made a third revision of stewardship code in June this year,
04:26and is planning to revise corporate governance code again.
04:30And I would like to talk about these revisions.
04:33First, I would like to talk about the third revision of the stewardship code.
04:38Since its formulation in 2014, the stewardship code has been revised twice in 2017 and 2020.
04:50This year's third revision aims to further encourage effective implementation of stewardship activities by institutional investors.
05:02When engaging in dialogue with investing companies, investors need to cooperate, so the collaborative engagement can be an important option.
05:13And with a view to improving transparency of beneficial shareholders, the code now requires that institutional investors explain their shareholdings of investing companies upon request.
05:29Furthermore, in this revision, we attempted for the first time to streamline the code for the code.
05:42The code is not originally rule-based code, which prescribes in detail the actions the institutional investors should take, but rather,
05:56adopts a principle-based approach to enable them to appropriately fulfill their stewardship responsibilities in accordance with their respective circumstances.
06:07In this revision, with a view to thoroughly implementing the principle-based approach, for example, sections that have been in place for some time since their formulation and are considered to have already been fully ingrained in practice have been deleted, consolidated, or simplified, thereby streamlining the code as a whole.
06:31We say it's a principle-based approach.
06:34However, in practice, people keep asking how far we should do this, or what should we do about this.
06:43We receive questions like that.
06:46So, it is very important that our ideas need to be known more widely.
06:53And in order to do that, streamlining the code was necessary.
06:58Going forward, the revised code should lead to constructive, purposeful dialogues between companies and investors for enhanced corporate value and sustainable growth.
07:12The FSA will continue to follow-up on the revised code, including by checking the status of dialogues based on the revised code.
07:23Second, I would like to talk about the plan to revise the corporate governance code.
07:29As I have already said, the code was implemented in 2015, and the code has been revised twice in 2018 and 2021.
07:42This year, Action Programme for Corporate Governance Reform 2025 was published.
07:49And based on the direction set out in the Action Programme, we have begun considering a third revision to promote dialogue based on not easy but trusting relationship between companies and investors.
08:04Specifically, in preparation for revising the code, we have established the expert panel.
08:11And we are discussing, well, it's quite similar to strategic code, streamlining and slimming down the code to allow companies to focus on essential responses.
08:23And this part is very important.
08:25And this part is very important.
08:26To ensure optimal allocation of management resources, verification of the appropriateness of resources, allocation, and qualification of accountability needs to be included in the code.
08:40So, if they have a cash, we question what does that mean?
08:47And the management need to explain why they are keeping that much cash.
08:53So, or else, there will be no good dialogue between investors and the companies based on the trusting relationship.
09:05Well, they plan to invest in human resources or the capital, uh, PPE.
09:12So, the management need to explain.
09:15And to ensure the effectiveness of the board functions, strengthening the functions of the board of directors, secretariat is being discussed.
09:32So, first, the effective implementation of the code.
09:42The idea is the same, as I mentioned before.
09:45It's a principle-based, not rule-based.
09:50So, they should not be bound by the wording or the descriptions there, but they need to understand whether it is in line with the principles in light of intent and spirit, without being bound by formal descriptions or wrong rodings.
10:10And that current code is composed of fundamental principles, principles, and supplementary principles.
10:17And companies are required to comply or explain.
10:22On the other hand, some sections of the code are too detailed and which has been criticized as encouraging companies to adopt a superficial approach.
10:43So, therefore, we believe it is desirable that we take measures to encourage companies to effectively implement comply or explain.
10:56And I might be repeating myself, but we need to verify the appropriateness of the management resources allocation.
11:11And this is directly connected to the company's ability to earn money.
11:18So, how the companies are planned to use their resources to earn money.
11:26In March 2023, the Tokyo Stock Exchange issued a request for management awareness of capital costs and stock prices to companies listed on its prime and standard markets.
11:43This request clearly states that we expect companies to take fundamental measures to consistently achieve return on capital that exceeds their capital costs and achieve sustainable growth.
11:55It does not mean that Japanese companies should not keep capital costs.
12:02It does not mean that Japanese companies should not keep cash and deposit.
12:07However, the cash and deposit helped by Japanese companies have been increasing for a long time.
12:15In order to optimally allocate management resources to achieve sustainable growth, it is important to invest such cash and deposit to invest in PPE, research and development, growth and human capital.
12:34And I want companies to explain how they plan to use their resources.
12:41So, expert Tano is considering advising the corporate governance code to verify the appropriateness of the management resources allocation, including whether cash and deposits are being effectively utilized.
13:02And next is about the submission of the securities report prior to shareholders meeting.
13:14So, if the report is disclosed prior to shareholders meeting, very important information is provided to the investors in advance.
13:29And we understand that this certain request may have caused some inconvenience to companies, but in March of this year, the minister in charge of finance services issued a request to listed companies to consider providing appropriate information prior to shareholders meetings.
13:50Ideally, it is desirable that the securities report submitted at least three weeks prior to shareholders meeting.
13:59However, there are some challenges in practice or in business operations.
14:05So, in order to encourage such a fruitful dialogue between industries and companies, we need to continue to work on this.
14:18So, we are now considering including this in corporate governance code.
14:26And the next one is the strengthening, the function of the board of directors.
14:33So, the board of directors need to make prompt and decisive decisions, but at the same time, they need to provide the effective oversight.
14:45And there should be some discussions about the desirable board of directors.
15:00We understand that a lot of discussions are being held at the companies and implemented some measures.
15:07And as the monitoring function of the board of directors becomes increasingly important, it has been pointed out that the board of directors secretariat will become even more important as the link between oversight and execution.
15:25So, in order to strengthen the functions of the board of directors, the board of directors secretariat, play an important role by supporting the chairman and directors, including independent outside directors, rather than relying solely on the executive side.
15:43And we are now considering including this in the code as well.
15:50At today, I talked about the third revision of the stewardship code and the plan to revise the corporate governance code.
16:03Given the current global situation and the situation in the financial markets, we need to implement effective corporate governance reform and realize constructive dialogue between companies and investors.
16:19And companies need to make the best of corporate resources and enhance companies' ability to earn money in a sound manner.
16:26To enhance the effective and offensive governance, the board of directors need to support competent, decisive decision-making while overseeing the company from an independent, objective standpoint.
16:47And I would like to cite some point.
16:48And I would like to cite some words from Prime Minister Takaichi's policy speech.
16:53To accelerate our growth strategy, we need the power of finance.
16:57Based on the results of our efforts to shift from savings to investment, with the aim of becoming an asset management hub, we will formulate a strategy to unleash the potential of the national and regional economy of Japan through finance.
17:14And work on this in collaboration between the public and private sectors.
17:18In this way, we will strengthen Japan's supply structure and create economy that global investors can trust, thereby creating a virtual cycle in which global capital will follow in.
17:31So, this is the exact word of Prime Minister Takaichi.
17:34So, corporate governance reform is the core of such growth strategy.
17:38The financial services agency will continue to cooperate with related organizations to achieve sustainable corporate growth and improve corporate value over the medium to long term.
17:59To that end, we will continue to promote corporate governance reform.
18:02Thank you very much.
18:03Thank you very much.
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