Understanding the Functioning of Japan’s Stewardship Code

For decades, institutional investors in Japan faced criticism for their overly close relationships with corporations. Coupled with intricate networks of cross-shareholdings that locked substantial shares within corporate groups, these investors were often seen as passive participants—either voting automatically in favor of management or abstaining from voting altogether.

This passivity allowed many corporate managers to make decisions that were not aligned with shareholder interests, sometimes even causing harm, without fearing significant pushback or accountability.

Key Highlights

• Japan’s stewardship code provides regulatory guidelines to ensure institutional investors uphold fiduciary duties toward their clients.
• Introduced in 2012 following the 2008 financial crisis and officially adopted in 2013.
• The code outlines principles encouraging institutional investors to act as responsible financial stewards, balancing the interests of clients, beneficiaries, and investee companies.
• It primarily targets institutional investors involved in Japanese publicly listed equities.

What Is the Stewardship Code?

To bolster corporate governance, the Council of Experts on the Japanese Stewardship Code—under the supervision of the Financial Services Agency (FSA)—released the "Principles for Responsible Institutional Investors

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