Blab Business
Japan Tightens Corporate Governance After Nidec and Chubu Electric Scandals
Japan’s board oversight system is under renewed scrutiny after scandals at Nidec Corporation and Chubu Electric Power Co. In both firms, outside directors—supposed to provide independent oversight—fell short of detecting or challenging misconduct. As a result, the Financial Services Agency and Tokyo Stock Exchange announced revisions to the Corporate Governance Code this month, highlighting the need for a robust board secretariat to aid outside directors.
The Code already mandates that listed firms on the TSE Prime Market have at least one‑third of their directors as outside members, a move intended to inject objectivity and challenge executive choices. Yet critics point out that presidents frequently handpick these directors, undermining their independence. The FSA has observed that outside directors typically convene only once a month and often lack the data required for meaningful oversight.
Nidec’s experience underscores these shortcomings. Accounting irregularities and quality lapses discovered last year triggered a shareholder‑approved board reshuffle in June. A third‑party investigative committee found that Nidec’s outside directors had not been given the information necessary to perform their oversight role. The committee cautioned that placing the burden of managerial scrutiny on directors without proper support is unreasonable.
Meanwhile, Chubu Electric Power confronted a distinct scandal involving fabricated earthquake‑resistance data for its Hamaoka nuclear plant. During a July 29 press briefing, President Kingo Hayashi emphasized that “corporate governance is the foundation of operations for companies with significant public responsibility, such as electric utilities.” The firm is reportedly weighing organizational reforms to close the governance gaps that enabled the data manipulation.
The updated Code makes it clear that firms must bolster the departments that support board operations. Although establishing a board secretariat is not compulsory, an FSA official highlighted its significance, noting that “this demonstrates the importance of the secretariat function. Companies have reached a stage where outside directors are judged by quality rather than quantity.” Corporate secretaries will be tasked with setting agendas, coordinating schedules, and ensuring directors receive the information they need.
Shin Ushijima, president of the Japan Corporate Governance Network, contends that corporate secretaries ought to be independent professionals—lawyers or certified public accountants—selected by the board instead of management. He observed that “individuals lacking the president’s approval—who often exerts overwhelming influence over personnel decisions—are unlikely to be appointed as outside directors.” Ushijima further noted that while outside directors receive generous compensation and authority, they may still hesitate to challenge a president.
These reforms arrive as part of a gradual, nationwide push for corporate governance improvement. While the new Code aims to enhance board effectiveness, its ultimate impact hinges on how firms adopt the secretariat role and whether outside directors can genuinely exercise independent judgment. As Nidec and Chubu Electric gear up for forthcoming board meetings and possible regulatory reviews, industry observers will assess whether the revised guidelines lead to stronger oversight.
The situation remains fluid. Nidec’s board has been reshuffled, and Chubu Electric is probing governance adjustments. The FSA and TSE will oversee compliance with the new Code, while investors are expected to evaluate the implications for corporate risk profiles ahead of the upcoming earnings season.
The Code already mandates that listed firms on the TSE Prime Market have at least one‑third of their directors as outside members, a move intended to inject objectivity and challenge executive choices. Yet critics point out that presidents frequently handpick these directors, undermining their independence. The FSA has observed that outside directors typically convene only once a month and often lack the data required for meaningful oversight.
Nidec’s experience underscores these shortcomings. Accounting irregularities and quality lapses discovered last year triggered a shareholder‑approved board reshuffle in June. A third‑party investigative committee found that Nidec’s outside directors had not been given the information necessary to perform their oversight role. The committee cautioned that placing the burden of managerial scrutiny on directors without proper support is unreasonable.
Meanwhile, Chubu Electric Power confronted a distinct scandal involving fabricated earthquake‑resistance data for its Hamaoka nuclear plant. During a July 29 press briefing, President Kingo Hayashi emphasized that “corporate governance is the foundation of operations for companies with significant public responsibility, such as electric utilities.” The firm is reportedly weighing organizational reforms to close the governance gaps that enabled the data manipulation.
The updated Code makes it clear that firms must bolster the departments that support board operations. Although establishing a board secretariat is not compulsory, an FSA official highlighted its significance, noting that “this demonstrates the importance of the secretariat function. Companies have reached a stage where outside directors are judged by quality rather than quantity.” Corporate secretaries will be tasked with setting agendas, coordinating schedules, and ensuring directors receive the information they need.
Shin Ushijima, president of the Japan Corporate Governance Network, contends that corporate secretaries ought to be independent professionals—lawyers or certified public accountants—selected by the board instead of management. He observed that “individuals lacking the president’s approval—who often exerts overwhelming influence over personnel decisions—are unlikely to be appointed as outside directors.” Ushijima further noted that while outside directors receive generous compensation and authority, they may still hesitate to challenge a president.
These reforms arrive as part of a gradual, nationwide push for corporate governance improvement. While the new Code aims to enhance board effectiveness, its ultimate impact hinges on how firms adopt the secretariat role and whether outside directors can genuinely exercise independent judgment. As Nidec and Chubu Electric gear up for forthcoming board meetings and possible regulatory reviews, industry observers will assess whether the revised guidelines lead to stronger oversight.
The situation remains fluid. Nidec’s board has been reshuffled, and Chubu Electric is probing governance adjustments. The FSA and TSE will oversee compliance with the new Code, while investors are expected to evaluate the implications for corporate risk profiles ahead of the upcoming earnings season.
