Formation of the Review Panel on the Stewardship Code for Japan

On August 5, 2013, the Japan Financial Services Agency announced the formation of the “Review Panel on the Stewardship Code for Japan” (the “Panel”). As part of its overall mandate to establish guiding principles by which institutional investors can properly fulfill their roles as fiduciaries from the perspective of promoting sustainable growth of Japanese companies, the Panel aims to enact a Japan version of the United Kingdom Stewardship Code. It should be noted that the formation of the Panel is part of the “third arrow” of Prime Minister Abe’s “three arrow” growth strategy called “Japan is Back,” which aims to restore the confidence of the public and businesses in Japan’s economy.

The Panel consists of eighteen individuals, including professors at prominent universities, senior management of Japanese asset managers, consultants, etc. Regrettably, there were no individuals appointed to the Panel from international financial institutions operating in Japan.

In the United Kingdom, the Stewardship Code is a set of principles or guidelines issued by the Financial Reporting Council of the United Kingdom in 2010 (and revised in 2012). The UK Stewardship Code is aimed at institutional investors who hold voting rights in United Kingdom companies. The primary goal of the Stewardship Code is to cause institutional investors to become more active in the corporate governance of public companies in order to serve the interests of beneficial owners of those companies. Under the Stewardship Code, institutional investors are expected not only to exercise voting rights but also to monitor corporate strategies, performances, risks, capital structures, and corporate governance of public companies as well as have dialogues with those companies for the purpose of promoting their long-term growth. In the United Kingdom, the Stewardship Code adopts a “comply or explain” approach such that compliance with its principles is not required by subject institutional investors; however, institutional investors that do not comply with the Stewardship Code’s principles will be required to explain why they have not done so on their websites.

It is unclear at this stage what principles the Panel will recommend be included in the version of the Stewardship Code to be adopted in Japan.

The Panel is expected to complete its examination and issue a recommendation by the end of 2013.

The Investment Management Group of Bingham McCutchen Murase, Sakai Mimura Aizawa – Foreign Law Joint Enterprise will continue to monitor the activities of the Panel and update this alert as further information becomes available.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers: