The better corporation

Around the world, the corporate governance landscape is shifting, as efforts to improve business practices and policies gain support and momentum. The wave of reform has become visible everywhere – from tough new regulations in Japan to sovereign wealth funds like Norway’s Norges Bank Investment Management taking a more active approach to their investments – and it is certain to continue to rise.

Three factors are driving these developments. First, today’s deep economic uncertainty has broadened ordinary people’s awareness of the influence that companies have on politics, policy, and their own daily lives. And, as I have noted previously, people are not only paying greater attention; they also have more power than ever before to make their voices heard.

Second, there has been a burgeoning awareness among governments that economic growth requires a proactive regulatory approach. Robust and resilient economies need strong businesses, and to build strong businesses, governments must play a role in ensuring high-integrity oversight of business activity. Company stewardship and country stewardship are increasingly linked, and authorities now recognise that paying to ensure good governance now is far less costly (both financially and politically) than paying for the consequences of bad governance later.

In Japan, the Financial Services Agency enacted a Stewardship Code in 2014, with a Corporate Governance Code from the Tokyo Stock Exchange entering into force this June. By creating a more equal environment among shareholders, ensuring more disclosure and transparency, specifying the responsibilities of company boards, and requiring outside independent directors on company boards, the codes enshrine changes that make Japan more attractive for foreign investors. More generally, Prime Minister Shinzo Abe has emphasised that good corporate governance is critical to long-term economic growth and prosperity.

Toshiba’s recent accounting scandal – the company was found to have inflated its profits by JPY 151.8 bln ($1.2 bln) over several years since 2008 – presents an opportunity for Japan’s government to demonstrate its seriousness about the new regulations. Toshiba CEO Hisao Tanaka and other senior executives have had to resign; the interim CEO apologised to Abe’s office; Norio Sasaki, the company’s vice chairman and