Tokyo Stock Exchange chief defends Japan’s progress in corporate governance


Tokyo Stock Exchange chairman defended Japan’s progress on corporate governance following a high-profile scandal at Toshiba, dismissing accusations that the market overhaul scheduled for next year has been largely watered down .

Hiromi Yamaji, who was appointed chief executive of TSE in April, told the Financial Times that investors should not judge Japan over Toshiba’s board collapse, saying the situation was a “case special”.

His comments came as the TSE prepares for a reorganization that will streamline the “first” and “second” sections of the main exchange, as well as the Jasdaq and Mothers marketplaces for small businesses and start-ups.

“We were aiming for a reform that would be good for everyone involved in the markets,” Yamaji said. “We are not doing this for foreign investors, but we wanted to improve the convenience of the Topix index as an investment measure and rearrange market segments based on more specific concepts.”

The new market segments are called “Prime”, “Standard” and “Growth”.

Yamaji’s comments coincide with an apparent decision by Japanese companies to reaffirm themselves against reform and as foreign investors have grown more skeptical of the country’s commitment to improving governance since Yoshihide Suga became prime minister in September.

In a June speech to the American Chamber of Commerce in Japan, Satoshi Ikeda, director of sustainable finance at the Financial Services Agency, described such governance reform as “really hated by business leaders.”

One of the main doubts among investors has been what was supposed to be a radical overhaul of how Tokyo-listed stocks are categorized. Earlier versions of the plan suggested clear incentives for companies to move away from cross-shareholdings and strengthen board independence to qualify for premier status, meaning they are seen as having standards. higher governance levels and potential for growth. Membership would depend on free float market capitalization excluding cross-owned stocks.

The reality, analysts say, is that the reforms have been watered down so much that they will result in very little change in corporate behavior.

Masatoshi Kikuchi, chief equities strategist at Mizuho, ​​said that while some companies might try to meet the criteria for inclusion in the Prime market, the general impression was that the TSX reshuffle would not encourage the widespread reform of governance that many investors deem necessary.

“Prime market criteria have been lowered from the original plans due to opposition from small businesses or regional businesses,” Kikuchi said.

Yamaji defended the reforms, saying the overhaul should be considered in conjunction with the country’s recent review of its corporate governance code. “Yes, Japanese corporate governance is progressing, but it is clearly not yet perfect,” he said. “More and more companies are well prepared for dialogue with investors.

Still, analysts have warned that governance progress over the past six years could be seriously compromised after an independent investigation found Toshiba had agreed with the Japanese government to remove activist investors ahead of the annual meeting. of shareholders from last year.

“I think Toshiba’s case is special,” Yamaji said. “I think it is factually incorrect to say that this is proof of the lack of progress in corporate governance in Japan.”

Corporate scandals like Wirecard are happening around the world, Yamaji said, but he pointed out that the situation around Toshiba was particularly unusual for the frequency of its governance failures.

The industrial conglomerate’s unrest began in 2015 with the discovery of an accounting fraud, and Toshiba nearly collapsed two years later with the bankruptcy of its US nuclear business. A $ 5.4 billion emergency equity issue in 2017 filled its shareholder register with foreign activists, sparking clashes with investors that led to the recent removal of its chairman from the board.


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