Ever since Japan brought in codes of conduct for companies and shareholders, three words have echoed around the corporate landscape — “engagement”, “taiwa” (discussion) and “stewardship.”

Japan set forth its first stewardship code for investors in 2014, and its first corporate governance code in 2015. At the time, I argued that a code for companies was needed because the two policies would function as “two wheels of a cart”. The corporate governance code would provide disclosure so that the investor engagement encouraged by the stewardship guidelines could be effective.

Shareholders would receive the information they needed to assess companies. However, the fine print of Japan’s stewardship framework still leaves much to be desired, compared with the UK model that Japan’s Financial Services Agency originally sought to emulate. When most foreign institutional investors think of “engagement”, they envisage a two-way dialogue in which they can make suggestions about matters such as capital structure, dividend policy, governance practices, composition of the board and so forth.

A crucial change is needed to improve corporate governance in Japan | Financial Times