As investors brace themselves for a slew of Japanese AGM meetings (the overwhelming majority of AGMs seem set to be held between 23 and 26 June), a compromise has emerged between the Keidanren (Japan's business lobby) and the Japanese Ministry of Economy, Trade and Industry over proposals to improve corporate governance.

The Ministry is due to publish a report next m0nth on corporate governance standards, and is trying to convince the business sector to accept the need to have clear guidelines requiring independent directors, reports FT.com.

Under Japanese company law, companies are free to choose between two systems of corporate governance: a system with committees, which requires the appointment of outside directors; and a statutory auditor system, which does not call for outside directors. Only 56 of the 2,634 companies listed on the Tokyo Stock Exchange have opted for the committee system, although some 1,057 companies have outside directors.

A recent report by the Tokyo Stock Exchange noted that “Investors are rapidly losing confidence and interest in [the] Tokyo market . . . market players, including . . . listed companies, are facing an urgent need to restore investor confidence and interest.”

The Ministry's Corporate Governance Study Group published a draft report which includes a proposal to allow companies to choose whether to appoint outside directors. Those companies who decide not to do so will be required to explain why.

The watered down proposals will dis-appoint many investors. A spokesperson for Keidanran was quoted in the FT as saying that "there is no relationship between a company's performance and whether or not they have outside directors".

Further Reading:

Keidanren: Proposal: Towards Better Corporate Governance (Interim Discussion Paper on Key Issues) (Apr 2009)

Asian Corporate Governance Association:  Corporate Governance in Japan: Issues for Long-Term Investors (Mar 2009)

American Chamber of Commerce in Japan: Presentation to the Corporate Governance Study Group (Feb 2009)

Tokyo Stock Exchange: TSE Listed Companies White Paper on Corporate Governance 2009 (Jan 2009)