Japan Stewardship Code – What Investors Think

Once a month, the Ipreo Blog reaches back into the archives of our Better IR newsletter to spotlight a particularly compelling piece.

In the past we’ve discussed IR’s role in the IPO process, the impact of changes in portfolio management, and high-frequency trading.

This month, we dive into a piece from June’s issue, and take a look at Japan’s (voluntary) Stewardship Code, which was enacted in 2014 and is meant to ensure that institutional investors fulfill their stewardship responsibilities towards investee companies in Japan. Is it working? What do the investors think? We found out.

From the June 2015 Better IR: “Japan Stewardship Code – What Investors Think (so far)”

In February 2014, Japan’s Financial Services Agency (FSA) finalized the Japan Stewardship Code, a formal ‘call to action’ for institutional investors to fulfill their stewardship responsibilities by regularly and proactively engaging with investee companies in Japan. The Code closely mirrors the UK Stewardship Code (enacted in 2010), as its key objectives are to foster sustainable corporate growth and improve corporate governance through a principles-based, “comply or explain” approach.

Adherence to the Japan Stewardship Code is voluntary, yet it has seen notable success since its inception, as over 180 institutions (including trust banks, investment managers, pension funds, insurance companies, and proxy voting advisors) have adopted the Code as of February 2015 according to the FSA. Japanese institutions, which are generally not as active in engaging companies as their nonJapanese counterparts, account for a large percentage of the initial adopters (approximately over 80%). Given the high level Japanese equity ownership by this group, the ultimate success of the Stewardship Code rests in how seriously they adhere to its principles.

Unlocking value in the Japanese market, however, will come from increased demand from institutional investors outside of Japan. To gauge the early sentiment of global investors regarding the Stewardship Code, Ipreo’s Perception Analytics reached out to a group of global investment managers to determine if they believe potential changes in investor and corporate culture will influence the attractiveness of investing in Japan.

For the full piece, and all of the feedback Ipreo gathered in conversations with 17 investors who actively invest in Japanese equities, visit Ipreo Ink.