After the high-profile scandal in Toshiba, the head of the Tokyo Stock Exchange defended Japan’s progress in corporate governance and denied the allegations that market reforms due next year were widely watered down.
Hiromi Sanji, who was appointed chief executive of the Tokyo Stock Exchange in April, told the Financial Times that investors should not judge Japan based on Japan’s economic conditions. Toshiba’s board of directors collapsed, Calling the situation a “special case.”
His comment was prepared in TSE Reorganization This will simplify the “first” and “second” sections of major exchanges, as well as the Jasdaq and Mothers markets for small companies and start-ups.
“Our goal is to carry out a reform that will benefit everyone involved in the market,” Sanji said. “We are not doing this for foreign investors, but we hope to improve the convenience of the Topix Index as an investment indicator and reorganize market segments based on more precise concepts.”
The new market segments were named “Prime”, “Standard” and “Growth”.
Yamaji’s comments coincided with Japanese companies’ reaffirmation of their apparent opposition to reforms, and since Suga Yoshihide became prime minister in September, foreign investors have become increasingly skeptical of Japan’s promise to improve governance.
In a speech at the American Chamber of Commerce in Japan in June, Satoshi Ikeda, Chief Sustainable Finance Officer of the Financial Services Agency, described this governance reform as “a very annoying corporate executives.”
A major focus of investor suspicion is the complete reorganization of the classification of listed stocks in Tokyo. Early versions of the plan proposed clear incentives to encourage companies to abandon cross-shareholding and strengthen board independence to meet primacy, which means they are considered to have higher governance standards and growth potential. Membership will depend on the free float market value excluding cross-shareholdings.
Analysts said the reality is that these reforms have been watered down so that they will not force small changes in company behavior.
Masatoshi Kikuchi, chief equity strategist at Mizuho, said that although some companies may try to meet Prime market inclusion criteria, the overall impression is that the TSE restructuring will not encourage the extensive governance reforms that many investors deem necessary.
“Due to opposition from small or regional companies, the Prime market standard has been lowered from the original plan,” Kikuchi said.
Sanji defended the reforms, saying that the reforms should be consistent with the country’s recently revised Corporate Governance Code“Of course, Japanese corporate governance is making progress, but it is clearly not perfect,” he said. “More and more companies are ready to talk to investors.”
Nonetheless, analysts warned that after an independent investigation found that Toshiba had colluded with the Japanese government to suppress activist investors before last year’s annual shareholder meeting, governance progress over the past six years could be severely disrupted.
“I think Toshiba’s situation is very special,” Sanji said. “I think that this is evidence of lack of progress in Japanese corporate governance, but it is actually inaccurate.”
Yamaji stated that corporate scandals such as Wirecard have occurred on a global scale, but he emphasized that the situation around Toshiba is particularly unusual due to the frequency of its governance errors.
The troubles of the industrial group began when accounting fraud was discovered in 2015, and two years later Toshiba was on the verge of bankruptcy due to the collapse of the US nuclear business. The emergency issuance of US$5.4 billion in equity in 2017, and its shareholder roster was crowded with foreign rights activists, sparked conflicts with investors and led to the recent removal of the chairman of its board of directors.