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JAPAN’S CORPORATE GOVERNANCE CODE

Corporate Governance” means a structure for transparent, fair, timely and decisive decision-making by companies, with due attention to the needs and perspectives of shareholders and also customers, employees, stakeholders and local communities. OBJECTIVES OF THE CODE:
  • To establish fundamental principles for effective corporate governance.
  • To seek “growth-oriented governance” by promoting timely and decisive decision-making based upon transparent and fair decision-making through the fulfillment of companies’ accountability in relation to responsibilities to shareholders and stakeholders.
  • To stimulate healthy corporate entrepreneurship, support sustainable corporate growth and increase corporate value over the mid- to long-term.
  • To have the management free from such restrictions and establish an environment where healthy entrepreneurship can flourish and where the management’s capabilities can be given full force.
IMPLEMENTATION OF THE CODE:
  • The Code is applicable to all companies listed on securities exchanges in Japan.
  • Companies in Japan may choose one of the following three forms of corporate organization :
    1. Company with Kansayaku Board.
    2. Company with Three Committees (Nomination, Audit and Remuneration), or
    3. Company with Supervisory Committee.
  • Most Japanese companies are Companies with Kansayaku Board, a number of principles specified in the Code are drafted under the assumption that the form of Company with Kansayaku Board is chosen.
GENERAL PRINCIPLES General Principle 1:  Securing the Rights and Equal Treatment of Shareholders Companies should take appropriate measures to fully secure shareholder rights and develop an environment in which shareholders can exercise their rights appropriately and effectively. In addition, companies should secure effective equal treatment of shareholders. Given their particular sensitivities, adequate consideration should be given to the issues and concerns of minority shareholders and foreign shareholders for the effective exercise of shareholder rights and effective equal treatment of shareholders. Supplementary principles are as follows:
  1. Securing the Rights of Shareholders
  2. Exercise of Shareholder Rights at General Shareholder Meetings
  3. Basic Strategy for Capital Policy
  4. Cross-Shareholdings
  5. Anti-Takeover Measures
  6. Capital Policy that May Harm Shareholder Interests
  7. Related Party Transactions
General Principle 2: Appropriate Cooperation with Stakeholders Other Than Shareholders Companies should fully recognize that their sustainable growth and the creation of mid- to long-term corporate value are brought as a result of the provision of resources and contributions made by a range of stakeholders, including employees, customers, business partners, creditors and local communities. As such, companies should endeavor to appropriately cooperate with these stakeholders. The board and the management should exercise their leadership in establishing a corporate culture where the rights and positions of stakeholders are respected and sound business ethics are ensured. Supplementary principles are as follows:
  1. Business Principles as the Foundation of Corporate Value Creation Over the Mid- to Long-Term
  2. Code of Conduct
  3. Sustainability Issues, Including Social and Environmental Matters
  4. Ensuring Diversity, Including Active Participation of Women
  5. Whistle blowing
General Principle 3: Ensuring Appropriate Information Disclosure and Transparency Companies should appropriately make information disclosure in compliance with the relevant laws and regulations, but should also strive to actively provide information beyond that required by law. This includes both financial information, such as financial standing and operating results, and non-financial information, such as business strategies and business issues, risk, and governance. The board should recognize that disclosed information will serve as the basis for constructive dialogue with shareholders, and therefore ensure that such information, particularly non-financial information, is accurate, clear and useful. Supplementary principles are as follows:
  1. Full Disclosure
  2. External Auditors
General Principle 4: Responsibilities of the Board Given its fiduciary responsibility and accountability to shareholders, in order to promote sustainable corporate growth and the increase of corporate value over the mid- to long-term and enhance earnings power and capital efficiency, the board should appropriately fulfill its roles and responsibilities, including: (1) Setting the broad direction of corporate strategy; (2) Establishing an environment where appropriate risk-taking by the senior management is supported; and (3) Carrying out effective oversight of directors and the management (including shikkoyaku and so-called shikkoyakuin) from an independent and objective standpoint. Such roles and responsibilities should be equally and appropriately fulfilled regardless of the form of corporate organization – i.e., Company with Kansayaku Board (where a part of these roles and responsibilities are performed by kansayaku and the kansayaku board), Company with Three Committees (Nomination, Audit and Remuneration), or Company with Supervisory Committee. Supplementary principles are as follows:
  1. Roles and Responsibilities of the Board
  2. Roles and Responsibilities of Kansayaku and the Kansayaku Board
  3. Fiduciary Responsibilities of Directors and Kansayaku
  4. Business Execution and Oversight of the Management
  5. Roles and Responsibilities of Independent Directors
  6. Effective Use of Independent Directors
  7. Independence Standards and Qualification for Independent Directors
  8. Use of Optional Approach
  9. Preconditions for Board and Kansayaku Board Effectiveness
  10. Active Board Deliberations
  11. Information Gathering and Support Structure
  12. Director and Kansayaku Training
General Principle 4: Dialogue with Shareholders In order to contribute to sustainable growth and the increase of corporate value over the mid- to long-term, companies should engage in constructive dialogue with shareholders even outside the general shareholder meeting. During such dialogue, senior management and directors, including outside directors, should listen to the views of shareholders and pay due attention to their interests and concerns, clearly explain business policies to shareholders in an understandable manner so as to gain their support, and work for developing a balanced understanding of the positions of shareholders and other stakeholders and acting accordingly. Supplementary principles are as follows:
  1. Policy for Constructive Dialogue with Shareholders
  2. Establishing and Disclosing Business Strategy and Business Plan
CONCLUSION: This Corporate Governance Code establishes fundamental principles for effective corporate governance at listed companies in Japan. It is expected that the Code’s appropriate implementation will contribute to the development and success of companies, investors and the Japanese economy as a whole through individual companies’ self-motivated actions so as to achieve sustainable growth and increase corporate value over the mid- to long-term  
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