Tokyo Stock Exchange Makes Strides to Improve Corporate Governance of Listed Companies | Print |
Session II: Perspectives on Corporate Governance and M&A in Japan
  • Mr. Kazunari Tomita, Chief Representative & General Manager, New York Representative Office, Tokyo Stock Exchange, Inc.

Mr. Tomita gave an overview of the Tokyo Stock Exchange (TSE) and what it is doing to improve the corporate governance of its listed companies. TSE’s efforts are focused on enhancing the disclosure of corporate governance characteristics of its listed companies and utilizing the Internet as a means of disclosure to further improve transparency. The idea is to create an environment that will lead companies to voluntarily improve their corporate governance.

Introduction and history
Of the six stock exchanges in Japan—Tokyo, Osaka, Nagoya, Fukuoka, Sapporo, and Jasdaq—the Tokyo Stock Exchange is the largest. It hosted 94.6% of cash equity trading in 2007, and the combined market capital of its 2,400 listed companies ranks it the second largest exchange in the world, second only to NYSE Euronext. In 1985, TSE began trading Japanese government bond futures, or JGB futures, which were the first financial derivatives product in Japan after World War II. Today, JGB futures and the Tokyo Stock Price Index futures, or TOPIX futures, are the TSE’s two most liquid products. TSE also has a line of derivatives products, which include options on JGB Futures, TOPIX options, and individual stock options.

TSE’s steps toward improved corporate governance
Recently, TSE has taken significant steps to improve the corporate governance of its listed companies. In March 2006, TSE companies began preparing a public corporate governance report using a standardized format provided by TSE. This format was created to help investors better and more clearly scrutinize the state and policies of each company’s corporate governance. Items included in these reports are basic policy, capital structure, business attributes, organizational structure, number of directors and outside directors, and reason if there is no outside director, among other items. These reports are accessible through a search function provided on the TSE website. Due to the challenge of asking for English translations of these reports from all companies, the reports are currently only provided in Japanese. However, numerical values, such as the foreign shareholding ratio and the number of outside directors, are listed on TSE’s website. In addition, some companies, such as Toyota Motor Corporation, publish an English version on their own websites. By making these reports available to the public, TSE expects that company managers will work to improve corporate governance more aggressively and to more effectively utilize their outside directors.

In addition to introducing these reports and making them available to the public, TSE has developed the website search system previously mentioned that allows investors to screen for companies that match various corporate governance criteria. The searchable attributes include organization type, foreign shareholding percentage, number of directors and outside directors, and relationship with outside directors among other factors. To provide an overview of the current state of corporate governance of its listed companies, TSE has compiled a white paper using the data provided in the reports from each listed company. This report is available on the TSE website in both Japanese and English.

TSE has also established rules clarifying minimum standards for corporate activity. Some of those specified activities are duty to respect the functions of secondary markets, respect of shareholders’ rights, efforts to maintain a desirable investment unit level, internal framework improvement to facilitate the exercising of voting rights, structural development for preventing insider trading, and internal framework improvement to eliminate criminal elements. If TSE deems that a listed company does not have the proper respect for any of these items, it may be recommended that the company take appropriate measures or make a public announcement to that effect.

Another important step TSE has made is the establishment of an electronic voting platform. Due to the growing number of overseas institutional investors who have been aggressively exercising their voting rights with Japanese listed companies, TSE established a joint venture in July 2004 called Investor Communications Japan (ICJ), with Japan’s Securities Dealers Association and Broadridge Company, to operate an electronic voting platform. With more than 300 listed companies already participating in this platform, TSE believes this tool will greatly enhances the ability of shareholders, especially those from overseas to participate in the shareholder voting process.

Mr. Tomita closed with some recent developments at TSE and its plans for the future. In June 2008, TSE sought comments from the public regarding the corporate governance of companies listed on its exchange. The response was recently summarized and made public. Out of the 41 total opinions received, 30 opinions were sent by overseas institutional investors, illustrating the high concern foreign investors have of the corporate governance of Japanese companies. Taking these opinions into consideration, TSE plans to examine how to further improve the listing system and expects to undertake concrete measures, such as reviewing the code of corporate conduct and strengthening information disclosure by early next year.


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Note: The above summary is an adaptation of the speaker’s presentation. Contents and quotes may not be entirely accurate.