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The Corporate Governance System Study Group Compiled an Interim Report

Last December, the Ministry of Economy, Trade and Industry (METI) established the CGS (Corporate Governance System) Study Group (2nd Term). The Study Group has followed up on the implementation of the CGS Guidelines and compiled the results as its interim report.

1. Background

In March 2017, METI formulated the Practical Guidelines for Corporate Governance Systems (CGS Guidelines), which incorporate significant matters to be reviewed by respective companies, from the perspective of encouraging Japanese companies to advance their initiatives for better corporate governance.

In light of the fact that the need to further facilitate company efforts is still an issue, METI conducted a questionnaire survey targeting listed companies and established the 2nd Term CGS Study Group last December as part of the follow-up activities concerning the CGS Guidelines. The Study Group has evaluated the current status of the corporate governance reform and discussed challenges for improving the effectiveness. As a result, it was found that the corporate governance reform is progressing from the stage of formality to the stage of substantiality while company efforts are steadily being made.


The Corporate Governance Code is scheduled to be revised by around June 2018, and there has been a demand for ideas and best practices to be referred to by companies when they make adjustments in response to the revision be compiled and presented.

Given these circumstances, the 2nd Term CGS Study Group compiled its interim report concerning the matters deemed significant in advancing the corporate governance reform from the stage of formality to the stage of substantiality, including the review of the CGS Guidelines and the future direction of other actions.

2. Outline of the interim report

The interim report makes proposals as outlined below, including the review of the CGS Guidelines as part of the future direction of actions. Additionally, discussions at the 2nd Term Study Group and the results of the questionnaire survey of companies used as reference materials are compiled.

  1. Utilization of outside directors
    Outside directors are expected to have the minimum literacy on corporate management and satisfy availability and commitment requirements. It would be effective to consider the overall outside directors in the aggregate and endeavor to ensure required quality and capabilities as a whole. The CGS Guidelines should state that companies are to consider the establishment of certain standards for the reappointment of outside directors.
  2. Utilization of a nominating committee and a compensation committee
    With regard to composition and operation methods, etc. of committees, best practices should be compiled depending on differences in agendas and circumstances surrounding respective companies. The positions of outside auditors and outside intellectuals who serve as committee members are to be reviewed and clarified.
  3. Appointment of the president and CEO, etc. and other plans concerning successors
    There is a need to compile best practices to be referred to by companies that intend to ensure the effectiveness of their plans concerning successors.
  4. Compensation and performance evaluation of the top management
    Best practices concerning the policies on compensation and composition of the top management should be compiled.
  5. Board of directors
    Circumstances where a person other than company executives should chair the board of directors are to be reviewed and compiled anew.

3.Future schedule

Based on the future direction of actions presented in the interim report, the CGS Guidelines will be revised by around the summer of 2018.

Appendix

Release date

May 18, 2018

Ministry of Economy, Trade and Industry1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8901, Japan Tel: +81-(0)3-3501-1511
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