Kazuhiko Toyama, Chairman
Japan Association of Corporate Directors
Looking back on my third year as Chairman of the Japan Association of Corporate Directors (JACD), I am pleased to report the Association has steadily increased its membership, and the number of committee meetings and seminars has also grown. As a result, we have been able to expand our activities with even greater momentum.
In FY2024, we identified three key priority areas.
First, regarding the enhancement of director training programs, we successfully launched the second year of an extensively updated curriculum. The program received high satisfaction ratings and positive feedback, particularly from a growing number of experienced participants.
Second, the JACD took a proactive role in the discussions about reforming the governance structure of "Company with Nominating committee, etc." We established a dedicated committee composed of legal scholars, institutional investors, corporate executives, and governance experts. Meetings were held with government ministry observers in attendance. In January 2025, the committee published a formal proposal and submitted it to the Ministry of Justice. Discussions are expected to begin in the Legislative Council's Subcommittee on the Companies Act in April. Expectations are rising for a future revision of the Companies Act.
Third, the relevant committee has been steadily progressing in its deliberations on the governance of unlisted companies and is on track to publish a proposal by the end of FY2025.
In addition to these major initiatives, we held three open seminars accessible to the public and issued three statements or proposals related to corporate governance. Through these activities, we believe that the JACD has communicated its views more broadly to society and stimulated greater interest in and awareness of governance issues.
As I enter the fourth year of this leadership term, corporate governance has become a well-established concept in public discourse. Although debates continue over how best to implement it, arguments denying the importance of governance itself are rare.
The ongoing efforts of individual companies to improve governance have increased trust in and valuation of the Japanese market as a whole, contributing to inflows of capital from overseas institutional investors and sustained rises in stock prices. We recognize that a healthy, positive cycle is beginning to take shape.
In this environment, JACD will proceed with its medium-term activities based on the following overarching policy:
"JACD will work toward establishing monitoring boards with a majority of independent directors. We aim to improve management performance and strengthen corporate earning power. By doing so, we will foster an environment in which both domestic and international investors can more actively support Japanese companies, contributing further to Japan's economic growth."
In addition to continuing our committee activities and seminars in various formats, we will emphasize the following three themes to realize this vision.
JACD believes that the substantive governance hinges on its people--those responsible for corporate leadership. Enhancing the effectiveness of boards of directors requires the dual foundation of strong foundation of "execution" to create value and robust "monitoring" to prevent value destruction.
In the near future, we anticipate that many Japanese companies will become organizations in which independent directors form the majority of the board. These directors will confidently represent the interests of all shareholders, including minority shareholders. They will make bold decisions, such as appointing or removing the CEO when necessary. To support this vision, we will clarify the roles of independent directors and, through director training programs, raise the competence of all directors, thus contributing to the foundation of high-quality governance.
JACD will continue to promote the monitoring board model, in which supervision and execution are clearly separated. Of the three governance structures recognized under Japanese corporate law, JACD identifies the "Company with an Audit and Supervisory Committee" and the "Company with a Nomination Committee, etc." as consistent with the monitoring model.
JACD particularly supports the "Company with a Nomination committee, etc." which features three legally mandated committees and enables effective oversight of management through control over executive appointments. This structure is also easily understood by international institutional investors.
We will monitor the Legislative Council's deliberations regarding governance structure reform and engage with relevant ministries and the Tokyo Stock Exchange to promote improvements to soft law, such as the Corporate Governance Code. Given the growing demand for governance that strengthens earning power and the maturing independent director talent market, we believe requiring companies listed on the Prime Market of the Tokyo Stock Exchange to adopt the "Company with a Nomination Committee, etc." structure is a realistic and timely policy direction.
To build a stronger movement in society, we will encourage high-quality, influential companies that share our mission to join our association.
As of mid-FY2024, our total membership surpassed 500. Our next milestone is to reach 1,000 members. To achieve this goal, we will rely not only on traditional introductions through personal networks but also strengthen our outreach efforts by preparing new informational materials and directly approaching companies with a strong interest in governance. We also encourage institutional investors, who play a pivotal role in corporate engagement, to join the JACD so that we can explore the future of governance from various perspectives.
To provide opportunities to experience the association's activities, we will host three open seminars per year. Additionally, we will conduct an annual online survey to track awareness and understanding of JACD among our target audiences.
We will also continue our governance awards program with a new structure, recognizing exemplary companies and showcasing their practices broadly through public relations and media outreach.
Through active discussions and exchanges with our members, each of whom plays an important role in governance from their own unique standpoint, we aim to invigorate the Association's activities further.
We will continue doing our part to contribute--however modestly--to advancing governance in Japanese companies and society as a whole.