Developing high-performing boards in Japanese companies

This article was submitted to the Journal of the Japanese Association of Corporate Directors in April 2024, whose members include Japanese company directors, institutional investors, academics and other professionals.

Following the Tokyo Stock Exchange’s 2023 directive on corporate governance, a wave of change has swept the Japanese market, with stock prices surpassing bubble-era highs. Boards of directors are at the helm of this corporate transformation.

To create and maintain high-performing boards that generate long-term value, Japanese companies must move away from merely responding to external pressures for ideal governance formalities. Instead, they should proactively recognise the significance of change and move forward with purpose.

As a contentious issue, with the common understanding that no one trusts self-assessment, executive nomination and compensation have been at the forefront of governance reform. Companies have made slow progress over years.

As a result, this theme has led the way in establishing boundaries between supervision and execution within the traditional Japanese board model. However, the process has often been perceived as an “invasion by independent outside directors and defense by the top executives” by those involved, creating an adversarial dynamic.

If companies proceed with overall board reforms half-heartedly, simply to comply with external pressures, there may be a mismatch between stakeholder expectations and the reality of a high-performing board.

In this article, the author outlines his personal thoughts on where a drastic shift in corporate mindset and reexamination is necessary for the implementation of high-performing boards.

To read the complete article, please click on the link below.