Japan’s Revised Corporate Governance Code Requires More Human Capital Disclosure
The Tokyo Stock Exchange published a revised Japan’s Corporate Governance Code on June 1, 2021. The Corporate Governance Code “establishes fundamental principles for effective corporate governance at listed companies in Japan.”[i] Together with the Stewardship Code that establishes the principles for institutional investors’ behavior, it is expected “to achieve sustainable growth and increase corporate value over the mid- to long-term.”[ii]
Major focuses within the revised code include:
· proactive functions expected of the board
· ensuring diversity in the core human resources
· taking appropriate measures to sustainability issues.
Many revisions align with the metrics within the ISO 30414 global standard for human capital disclosure These include:
· establishment and implementation of succession plan for critical positions
· proportion of management remuneration
· skills matrix for directors
· promotion of women, foreign nationals and mid-career hires to middle managerial positions, as well as disclosing their status.”[iii]
The word human capital itself appears for the first time in the Code. It emphasizes the “importance of investments in human capital and intellectual properties,”[iv] require companies to provide explanation to shareholders with regards to management resources allocated to them,[v] and to disclose it in an understandable and specific manner.[vi]
Taking into consideration this new Code together with the US SEC new ruling last year, it is expected that Japanese listed companies will now be obligated to disclose human capital information.
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[i] Japan’s Corporate Governance Code (Tokyo Stock Exchange, Inc., June 11th, 2021)
[ii] Ibid.
[iii] Ibid. Supplementary Principle 2.4.1
[iv] Ibid. Supplementary Principle 4.2.2
[v] Ibid. Principle 5.2: Establishing and Disclosing Business Strategies and Business Plans
[vi] Ibid. Supplementary Principle 3.1.3