LEGAL UPDATE | No. 33
Legal analysis as of October 7, 2026 | Corrected October 20, 2026
SAKURA Law Office | Managing Partner Kenshiro Michishita
On July 21, 2026, the Tokyo Stock Exchange (TSE) put into effect listing-rule revisions associated with the 2026 revision of Japan’s Corporate Governance Code. The revision is not simply an addition of new governance topics. More than a decade after the Code first became applicable in 2015, the Financial Services Agency (FSA) and TSE have restructured the Code to move further away from formalistic implementation. Core governance concepts have been distilled into Principles, while a new body of “Interpretive Guidance” explains context, objectives and examples of substantive practice. The message to listed companies is clear: corporate governance is not a checklist exercise. Boards are expected to determine how their governance arrangements contribute to sustainable growth and increased corporate value over the mid- to long-term, and to explain that logic credibly to investors. [1] [3]
Growth investment sits at the center of the revision. Boards are expected to establish a path for growth toward the company’s objectives and, taking the cost of capital into account, explain what the company will actually do with its resources: capital expenditure, research and development, human capital, intellectual property and other intangible assets, and the review of its business portfolio. At the same time, boards are expected to persistently examine whether financial assets such as cash and real assets are being allocated appropriately in light of the company’s disclosed business strategy and business plan. The revised Code does not mechanically favor distributions over investment. Rather, it requires a coherent governance framework that brings together growth investment, capital efficiency, opportunity cost, financial resilience and mid- to long-term value creation. [3]
The revision also recasts board effectiveness in substantive terms. CEO succession, the roles, quality, number and independence of independent directors, nomination and remuneration committees, board-effectiveness evaluation, internal audit, enterprise risk management and the functions of the board secretariat are treated as interconnected parts of the board’s oversight architecture. Cybersecurity risk, supply-chain disruption arising from geopolitical factors and leakage of technology and other information are expressly identified in the Interpretive Guidance as matters that may need to be considered when establishing enterprise risk-management systems. The revised Code also emphasizes that independent directors may need to assume a particularly active decision-making role in situations involving management conflicts, corporate acquisitions, misconduct and other corporate crises. [3]
Shareholder dialogue has likewise been elevated. Constructive dialogue with shareholders is now embedded more clearly in the architecture of General Principle 1, and the submission of the annual securities report before the general shareholder meeting is expressly identified as an important measure for enabling informed exercise of shareholder rights. The Interpretive Guidance states that submission at least three weeks before the meeting is best practice, while the FSA simultaneously acknowledges that this remains difficult for many companies under current legal and market practice. This Update examines the legal and regulatory status of the 2026 revision and then connects growth investment, capital allocation, board effectiveness, independent directors, shareholder engagement, cross-shareholdings and pre-AGM disclosure into a single practical governance framework for listed companies. [3] [7]
Executive Summary
The first significance of the 2026 revision is that the Code seeks to return corporate governance from a catalogue of items to be “complied with” to a principles-based framework for improving the quality of corporate decision-making. The revised Preamble re-emphasizes both the principles-based approach and comply or explain. Former Supplementary Principles have been reorganized: core matters have been elevated into Principles, while more detailed background, examples and best practices are set out in Interpretive Guidance. The Guidance itself is not subject to comply or explain, but the revised Code expressly cautions that provisions moved to the Guidance, or removed in the streamlining process, have not thereby lost their importance. The revision should therefore not be read as reducing substantive governance expectations merely because the number and structure of provisions have changed. [3]
Second, growth investment and allocation of business resources have become explicit board-level priorities. The board should articulate a path for growth, set out earnings plans and capital-policy fundamentals with regard to the company’s cost of capital, and explain concrete measures involving growth investment and business-portfolio review. Holding substantial cash is not prohibited; what matters is whether the board can explain the necessity and rationality of the level of assets held against investment opportunities, financial resilience and the opportunity cost of capital. Cross-shareholdings are placed in the same capital-allocation discipline: boards should disclose reduction policies, assess each holding annually against purpose, benefits, risks and cost of capital, establish voting standards, and avoid obstructing a shareholder that wishes to unwind a cross-shareholding. [3]
Third, board effectiveness is increasingly assessed by the quality of strategy, CEO appointments and succession, oversight, risk management and decision-making processes rather than by formal board composition alone. Prime Market companies continue to be expected to appoint at least one-third of their directors as independent directors, while a Prime Market company with a controlling shareholder is expected to appoint at least a majority of directors who are independent of that controlling shareholder. The Interpretive Guidance also recognizes, where appropriate, an independent special committee for material transactions or actions involving conflicts between a controlling shareholder and minority shareholders. The revision therefore addresses not only the number of independent directors, but also expertise, substantive independence, shareholder dialogue, active participation in nomination and remuneration, information access and the quality of support provided by the board secretariat. [3]
Fourth, listed companies must translate the revised Code into their Corporate Governance Reports by the TSE’s transition deadline. TSE guidance requires Corporate Governance Reports reflecting the revised Code to be updated by the end of July 2027. The practical task is broader than revising disclosure language. Companies should review board and committee regulations, CEO succession, capital-allocation policies, cross-shareholdings, shareholder-engagement policies, enterprise risk management, internal audit and board-effectiveness evaluation as an integrated governance system. The objective should not be to “finish the report” in July 2027; it should be to create substantive board practices and decision-making records that can be explained credibly by that time. [4]
1. The 2026 revision: moving from formal compliance to substantive corporate decision-making
Japan’s Corporate Governance Code is not mandatory legislation in the same sense as the Companies Act or the Financial Instruments and Exchange Act. The Principles are not, by themselves, legally binding rules. Nevertheless, the Code is embedded in the TSE listing framework. A company listed on the Prime or Standard Market is required to explain any non-compliance with any Principle of the Code, while a Growth Market company is required to explain non-compliance with any General Principle. It is therefore equally inaccurate to say that the Code is merely voluntary because it is not a statute, or that every listed company must mechanically implement every stated practice. The legal and practical framework depends on the interaction between listing obligations, the market segment, comply or explain, and the company’s own governance circumstances. [3]
The 2026 revision makes that distinction more explicit. The revised Preamble states that the Code follows a principles-based approach: companies should judge whether their activities are consistent with the aim and spirit of each Principle, rather than treating the literal wording as a detailed rulebook. The revised text likewise emphasizes that comply or explain is not an invitation to produce boilerplate explanations. Depending on a company’s circumstances, proactively choosing to explain may be more faithful to the Code than formally adopting a structure that does not fit the company. When a company explains, the explanation should be carefully tailored so that shareholders and other stakeholders can understand the reasoning. Even where a company complies, explaining the concrete measures taken and the rational basis for considering those measures sufficient can improve constructive dialogue. [3]
The restructuring of the Code is important for the same reason. Existing Supplementary Principles were reclassified, with core governance matters elevated into Principles and more detailed examples, purposes and implementation guidance moved into the new Interpretive Guidance. The Interpretive Guidance is not itself subject to comply or explain; it supports the effective implementation of the Principles and includes examples of best and good practice. The revised Preamble expressly rejects the notion that an item has ceased to matter merely because it was moved into the Guidance or removed during streamlining. In practical terms, the revision is not a deregulatory exercise. It is an attempt to make boards and management identify which questions are genuinely material to value creation, rather than treating governance as a large set of equally weighted boxes. [3]
That change has direct implications for implementation. Existing Corporate Governance Reports cannot simply be updated by replacing references to old paragraph numbers. As the Principles become more conceptual, each company needs to explain why its governance architecture is appropriate for its industry, size, business model, growth stage, capital structure, ownership profile, risk exposure and organizational form. This is not a disclosure project that can be owned by legal or corporate affairs alone. Strategy, finance, investor relations, human resources, risk, internal audit and the board secretariat all need to be connected to the board’s governance narrative. The quality of the disclosure ultimately depends on the quality of the underlying decision-making process.
2. Growth investment and capital allocation: the board must be able to explain where capital is being deployed and why
A central message of the 2026 revision is that the board should establish a path for growth toward the company’s objectives and oversee the allocation of the resources needed to execute that path. Principle 4.1 treats the establishment of corporate goals and strategic direction, including a path for growth, as a major board responsibility. When formulating and disclosing business strategies and plans, the board should take the cost of capital into account, articulate earnings plans and the basic approach to capital policy, identify targets for earnings power and capital efficiency, and explain specific measures relating to capital expenditure, R&D, human capital, intellectual property and other intangible assets, as well as review of the business portfolio. In other words, governance is expected to connect strategy to capital rather than leaving capital allocation as an after-the-fact finance exercise. [3]
The revision should not be read as a mechanical instruction to reduce cash balances and increase dividends or share buybacks. The FSA and TSE materials acknowledge that holding financial assets such as cash and real assets may be entirely rational where the company can explain the business need and the level of assets held. The harder question is whether statements such as “maintaining financial soundness” or “reserving funds for future investment” are supported by a disciplined comparison of growth opportunities, M&A capacity, downside resilience, financing flexibility, the cost of capital and the opportunity cost of idle resources. Boards should be able to explain not merely why assets are held, but why the chosen allocation is superior to realistic alternatives for sustainable value creation. [1] [3]
Cross-shareholdings should be analyzed through the same capital-allocation lens. Principle 1.4 requires companies that hold shares of other listed companies as cross-shareholdings to disclose their policy, including their policy on reducing such holdings, and to assess each holding annually. The board should examine whether the purpose remains appropriate and whether the benefits and risks justify the company’s cost of capital. Companies should also establish and disclose standards for exercising voting rights. If a cross-shareholder indicates an intention to sell, the company should not obstruct the sale by implying a reduction in business transactions, and transactions with cross-shareholders should not be continued without examining their economic rationale. Cross-shareholdings therefore need to be justified as assets competing for capital, not preserved merely as inherited commercial convention. [3]
The same discipline matters in M&A and divestitures. A board should distinguish businesses that are necessary to the company’s path for growth from businesses that continue to absorb capital without generating an adequate strategic or financial return. Acquisitions, disposals, carve-outs, joint ventures, R&D and human-capital investment should be considered as parts of one portfolio strategy. Board and investment-committee papers should therefore do more than present transaction-level IRR or synergy estimates. They should locate the transaction within the company’s overall capital-allocation framework and explain why the transaction advances the chosen path for growth. That record can later become critical when the company faces shareholder engagement, an unsolicited proposal or scrutiny of past capital decisions.
3. Board effectiveness: strategy, CEO succession and risk-taking must operate as one oversight system
The revised Code moves the board further away from the image of a body that simply approves major transactions. General Principle 4 describes the board as responsible for setting the broad direction of corporate strategy, establishing an environment that supports appropriate risk-taking by management, and overseeing directors and management from an independent and objective standpoint. Principle 4.2 adds that the board should persistently review whether the allocation of business resources is appropriate in light of the disclosed business strategy and business plan. The objective is not to eliminate risk. It is to create controls and information flows that allow management to take informed and decisive risks consistent with the company’s strategy while preserving accountability. [3]
CEO appointment and removal are treated as among the most important strategic decisions a board makes. Principle 4.3 expects the board to engage proactively in the establishment and implementation of a CEO succession plan based on the company’s objectives and business strategy, and to oversee the development of succession candidates and the planned appointment of a qualified CEO using sufficient time and resources. The board should also establish objective, timely and transparent procedures for removal where a CEO is not adequately fulfilling the role. Succession planning should therefore not be reduced to identifying a name shortly before retirement. It is an ongoing process of defining the leadership capabilities required by the company’s next strategic phase, developing and assessing candidates, preparing for emergency succession, and revisiting the CEO profile as the portfolio and external environment change. [3]
Enterprise risk management is treated with similar breadth. The Interpretive Guidance to Principle 4.4 states that effective internal control and proactive enterprise risk management can support decisive risk-taking as well as mitigate downside risk. It expressly identifies cybersecurity risks, supply-chain disruption and leakage of technology or other information arising from geopolitical factors, including changes in the international economic-security environment. These are not simply matters for IT, compliance or the legal department. They can affect business continuity, M&A, sourcing, technology strategy, market access and growth opportunities. Boards should therefore connect risk appetite to strategy: which risks the company is prepared to assume in order to pursue growth, which risks require mitigation, and which risks the company will not accept. [3]
Sustainability is similarly positioned as a board responsibility rather than a separate ESG disclosure project. Principle 4.5 expects the board to address sustainability matters positively and proactively from the perspective of increasing corporate value over the mid- to long-term, establish a basic policy and take appropriate measures. The Guidance refers to climate and other environmental issues, human rights, workforce health and working conditions, natural disasters and diversity as management issues that may create earnings opportunities as well as risks. For boards, the practical task is to connect those issues to business strategy, sourcing, investment, human capital, brand, regulatory exposure and M&A diligence, and to explain the corporate-value consequences in governance terms. [3]
4. Independent directors, nomination and remuneration committees, and the board secretariat: effectiveness matters more than headcount
The revised Code separates the role, quality, number, independence and effective functioning of independent directors. Principle 4.8 expects independent directors to monitor management through important decisions including appointment and dismissal, oversee conflicts involving management or controlling shareholders, bring the perspectives of minority shareholders and other stakeholders into the boardroom from an independent position, and provide advice on management policies and improvement. The Interpretive Guidance goes further: independent directors may need to engage directly with shareholders, express opposing views when they cannot support management’s explanation, and, in situations such as deteriorating performance, misconduct or a corporate acquisition, take a particularly active role where management itself has a conflict. [3]
The numerical expectations remain important but must be read together with those functions. Prime Market companies should appoint at least one-third of their directors as independent directors with sufficient expertise; companies listed on other markets are expected to appoint at least two. A Prime Market company with a controlling shareholder should appoint at least a majority of directors who are independent of the controlling shareholder, while a company on another market with a controlling shareholder should appoint at least one-third. The Interpretive Guidance recognizes that, where appropriate, a company may instead establish a special committee composed of independent persons, including independent directors, to deliberate and review material transactions or actions involving conflicts between the controlling shareholder and minority shareholders. The practical issue is not simply whether a percentage has been reached, but whether independent judgment will actually control the decision in a conflict situation. [3]
Nomination and remuneration committees are likewise positioned as tools for substantive oversight of CEO succession and executive incentives. Where a company is a Company with Kansayaku Board or a Company with Supervisory Committee and independent directors do not comprise a majority of the board, Principle 4.7 calls for independent nomination and remuneration committees under the board, comprised primarily of independent directors, from which the board should seek appropriate involvement and advice. For Prime Market companies, the majority of members of each committee should basically be independent directors. A committee’s existence is not enough: its mandate, information rights, agenda, relationship with management and the treatment of its recommendations need to be designed so that independence is real rather than nominal. [3]
The expanded treatment of the board secretariat, including the corporate secretary function, is particularly significant. The Interpretive Guidance to Principle 4.14 does not treat the secretariat merely as an administrative unit that schedules meetings and circulates papers. It emphasizes advance distribution of materials, sufficient information, an annual schedule and anticipated agenda, an appropriate number of agenda items, adequate deliberation time, direct reporting by internal audit to the board and kansayaku board, and stronger coordination for outside directors and outside kansayaku. The secretariat is expected to help set agendas in light of the board’s and committees’ responsibilities and coordinate internally so that outside directors receive the information they need. Increasing the number of independent directors without improving the information architecture around them will not produce an effective board. [3]
5. Shareholder dialogue, cross-shareholdings and pre-AGM disclosure: accountability extends well beyond the annual meeting
The 2026 revision gives shareholder dialogue a more prominent position within General Principle 1 and reorganizes constructive dialogue as Principle 1.1. Listed companies should respond positively, to the extent reasonable, to requests for dialogue that can support sustainable growth and mid- to long-term corporate value. The board should approve and disclose policies governing the organizational arrangements for such dialogue. Taking shareholder requests and the principal topics into account, management, directors including outside directors, and kansayaku should, to the extent reasonable, be available for dialogue. The company should also have a process for relaying shareholder views and concerns learned through engagement back to management and the board. [3]
This is not limited to defensive engagement with activist investors. Regular dialogue about capital allocation, business portfolio, cross-shareholdings, executive remuneration, CEO succession, M&A and sustainability can help a board understand the market’s concerns before those concerns become contested proposals. It also allows the company to develop a consistent explanation of its strategy and governance before it receives an unsolicited offer or shareholder proposal. At the same time, dialogue must be conducted within a framework for managing insider information and material information subject to Japan’s fair disclosure regime. Investor relations cannot operate in isolation; legal, finance, strategy, human resources and other functions need to be aligned on what may be communicated and how shareholder feedback is escalated.
The treatment of the annual securities report is one of the most visible changes in the revised Code. Principle 1.2 identifies submission of the annual securities report before the general shareholder meeting as an important example of measures that enable shareholders to make informed decisions and exercise their rights. The Interpretive Guidance states that, because the report contains reliable information relevant to governance, including director remuneration and cross-shareholdings, it is best to submit the report at least three weeks before the meeting and suggests considering later meeting dates or record dates to make that possible. This is not, however, a newly created statutory rule requiring every listed company to file exactly three weeks before its AGM. The FSA expressly recognizes the operational difficulty under current law and practice and is separately considering legal and disclosure reforms, including greater integration of annual securities reports and Companies Act business reports and related audit processes. [3] [7]
The Code also retains the expectation that, when a company proposal is approved but receives a considerable number of opposing votes, the board should analyze the reasons and respond appropriately. Going forward, that analysis should not stop at the vote count. Boards should consider the policies of major institutional investors, relevant proxy-adviser guidelines, concerns raised in engagement and whether the company’s own explanation was persuasive. The relationship with the 2025 third revision of Japan’s Stewardship Code is important here. The Corporate Governance Code and Stewardship Code are described as “the two wheels of a cart”: companies are expected to explain and engage, while institutional investors are expected to conduct purposeful, informed dialogue rather than rely on short-term or purely formal assessment. [6]
6. Cross-shareholdings, sustainability and whistleblowing should not be treated as disconnected compliance topics
When implementing the 2026 revision, companies should resist the temptation to allocate cross-shareholdings, human capital, diversity, whistleblowing and sustainability to separate disclosure owners without a common governance logic. The Interpretive Guidance to General Principle 2 treats investment in human capital, appropriate distribution of value, fair and reasonable transactions with suppliers, and appropriate price pass-through within the supply chain as part of cooperation with stakeholders that supports corporate value creation. Principle 2.2 also expects companies to disclose voluntary and measurable diversity objectives for core human resources together with human-resource development and internal-environment policies and their implementation status. These matters need to be connected to strategy and board oversight rather than reported as stand-alone ESG indicators. [3]
Internal whistleblowing is another example. The Code expects listed companies to establish an appropriate whistleblowing framework and the board to oversee its operation. The Interpretive Guidance addresses matters such as independent reporting channels, confidentiality of information providers and protection from disadvantageous treatment. These governance expectations are conceptually distinct from statutory duties under Japan’s Whistleblower Protection Act. From a board perspective, the critical questions are whether a matter involving senior management can bypass management-controlled channels, whether internal audit, kansayaku and independent directors receive the right information, and whether serious allegations are escalated promptly enough for the board to make independent decisions. [3]
Sustainability should similarly be integrated into business judgment and enterprise risk management. Climate change, human rights, supply-chain resilience, workforce matters, natural disasters, cybersecurity, data and technology leakage can affect growth, cost, access to markets, M&A valuation and business continuity. A company may use sustainability, risk, executive or other committees, but the governance design should make clear which body owns which decisions, what information reaches the board, how frequently, and what indicators are used to evaluate performance and risk. A committee structure that produces reports without affecting capital allocation or business decisions would not satisfy the substantive direction of the revision.
The unifying concept is mid- to long-term corporate value. Reducing cross-shareholdings, increasing human-capital expenditure, establishing a sustainability committee or changing a board structure is not an end in itself. The board should be able to explain why the measure is needed for the company’s chosen path for growth, what return or risk reduction is expected, what trade-offs were considered and how effectiveness will be evaluated. Without that decision-making logic, a company can comply with a large number of visible governance practices while still falling back into the formalism that the 2026 revision was designed to move beyond.
7. Preparing for July 2027: change board practice before rewriting the Corporate Governance Report
TSE guidance requires listed companies to update their Corporate Governance Reports to reflect the revised Code by the end of July 2027. A company may continue to make periodic updates based on the 2021 Code before that deadline, provided it makes the required notation and subsequently submits an update under the revised Code by the deadline. The transition period may appear generous, but substantive implementation takes time. If a company needs to redesign board and committee processes, change its annual agenda, improve information supplied to independent directors or create a record of board deliberation on capital allocation and succession, one full annual board cycle may be needed before the disclosure can truthfully describe an operating practice. [4] [5]
The first step should therefore be a governance gap assessment focused on actual practice rather than a redline comparison of the old and new Code. Does the board spend sufficient time on the path for growth and capital allocation? Is CEO succession tied to strategy rather than maintained as a static list of candidates? Do nomination and remuneration committees materially influence decisions? Can independent directors access the information they need? Does the cross-shareholding review genuinely incorporate the cost of capital? Can internal audit report directly to the board? Does shareholder feedback reach directors? The answers should be tested against regulations, minutes, annual agendas, committee materials, IR records and actual escalation practices.
The next step is to design practice and disclosure together. If the Corporate Governance Report states that the board reviews growth investment, the annual board agenda should in fact include the cost of capital, portfolio strategy, growth investment, cash levels and cross-shareholdings, supported by materials that permit meaningful debate. If the report describes active independent directors, there should be evidence of information access, executive sessions or meetings among outside directors where appropriate, engagement with shareholders, committee participation and an effective board secretariat. Conversely, if a company concludes that a particular Principle should not be implemented in the conventional way, the revised Code encourages a carefully tailored explanation of why the company’s alternative governance arrangement better fits its circumstances.
Finally, companies should not confine the 2026 revision to business-as-usual disclosure. A management buyout, controlling-shareholder transaction, activist campaign, unsolicited acquisition proposal, major misconduct, CEO transition, cyber incident or geopolitical disruption will test the independence, information access, capital-allocation logic and shareholder relationships created in ordinary times. Governance cannot be completed by establishing a special committee only after a crisis has begun. The quality of an exceptional decision is often determined by the credibility of the board process that existed beforehand.
The 2026 revision should therefore be treated not as a project to “update the report by July 2027,” but as an opportunity to redesign how the board integrates corporate strategy, capital allocation, CEO leadership, risk and shareholder dialogue. Legal, corporate planning, finance, IR, human resources, internal audit and the board secretariat cannot remain separate silos if the company is to operate a genuinely principles-based governance system. The central task is for each company to design governance appropriate to its circumstances, test whether that governance works in practice, and explain the resulting decision-making framework to investors.
Frequently Asked Questions
Q1. Is Japan’s 2026 Corporate Governance Code a law?
No. The Principles of the Corporate Governance Code are not statutes and are not legally binding rules by themselves. The Code operates on a principles-based, comply-or-explain basis through the TSE listing framework. Listed companies are therefore expected to address the Code according to their market segment and explain relevant non-compliance in their Corporate Governance Reports, but the Code should be distinguished from statutory obligations under the Companies Act, Financial Instruments and Exchange Act and other laws. [3]
Q2. Does the Code apply in the same way to Prime, Standard and Growth Market companies?
No. Prime and Standard Market companies are required to explain non-compliance with any Principle of the Code, whereas Growth Market companies are required to explain non-compliance with the General Principles. Growth companies may nevertheless use the other Principles and Interpretive Guidance as a framework for voluntary governance improvement. [3]
Q3. When must listed companies update their Corporate Governance Reports for the 2026 revision?
TSE guidance requires an update reflecting the revised Code by the end of July 2027. Companies may make interim periodic updates under the 2021 Code, subject to the prescribed notation, but must separately update the report under the revised Code by the transition deadline. [4]
Q4. Is filing the annual securities report at least three weeks before the AGM now a statutory requirement?
No. The revised Code identifies pre-AGM submission as an important measure for supporting shareholder decision-making, and the Interpretive Guidance states that submission at least three weeks before the meeting is best practice. It does not create a uniform statutory requirement that every listed company file three weeks before its AGM. The FSA has acknowledged practical constraints under the current legal framework and is continuing to consider related legal and disclosure reforms. [3] [7]
Q5. Must every Prime Market company now have a majority of independent directors?
No. A Prime Market company is generally expected to appoint at least one-third of its directors as independent directors. A Prime Market company with a controlling shareholder is expected to appoint at least a majority of directors who are independent of the controlling shareholder. The Interpretive Guidance also recognizes an independent special committee as an alternative approach in certain controlling-shareholder conflict situations. [3]
Q6. Are independent directors expected to speak directly with shareholders?
Where appropriate. The revised Code states that, taking shareholder requests and the principal topics into account, management, directors including outside directors, and kansayaku should engage in dialogue to the extent reasonable. The Interpretive Guidance also recognizes that independent directors may need to engage directly with shareholders and bring minority-shareholder views into the boardroom. This does not mean that outside directors must attend every investor meeting. [3]
Q7. Does holding a large cash balance breach the revised Code?
No. The Code does not prohibit holding cash or other financial assets. The board should be able to explain why the level of assets held is necessary and rational in light of the cost of capital, investment opportunities, financial resilience, the company’s growth stage and the opportunity cost of capital, and should persistently review whether resources are being deployed appropriately in light of the company’s strategy and business plan. [3]
Q8. Does the revised Code require listed companies to dispose of all cross-shareholdings?
No. There is no blanket disposal requirement. A company that holds listed shares as cross-shareholdings should disclose its holding and reduction policy, assess each individual holding annually, examine whether the benefits and risks justify the cost of capital, and disclose the assessment results. If it continues to hold the shares, the board should be able to explain the economic and strategic rationale. Where a cross-shareholder indicates an intention to sell, the company should not obstruct that sale by suggesting a reduction in its business relationship or by similar pressure. [3]
Q9. What should a listed company have in place for CEO succession?
The board should define the leadership capabilities required by the company’s objectives and business strategy, develop and assess candidates, plan for emergency succession, supervise the appointment process and establish objective, timely and transparent removal procedures. A succession plan should evolve with changes in the company’s strategy and portfolio rather than operate as a static list of names.
Q10. Are cybersecurity and economic-security risks within the scope of the Corporate Governance Code?
Yes. The Interpretive Guidance to Principle 4.4 expressly identifies cybersecurity, supply-chain disruption and leakage of technology or other information arising from geopolitical and economic-security factors as matters that may need to be considered when establishing enterprise risk-management systems. The board should treat these as strategic business risks, not merely IT or legal issues. [3]
Q11. What should a listed company do first before the July 2027 transition deadline?
Start with an assessment of actual governance practice against the revised Principles rather than a drafting exercise. Review the board’s annual agenda, committee mandates, capital-allocation process, CEO succession, cross-shareholdings, shareholder engagement, risk-management systems, internal audit reporting lines and information supplied to independent directors. Then align the company’s operating practices, records and disclosure so that the Corporate Governance Report describes governance that actually exists.
About the Legal Update Series
SAKURA Law Office and Managing Partner Kenshiro Michishita publish the Legal Update series on corporate law, M&A and private equity, corporate governance, financial regulation and capital markets, cross-border transactions, international disputes, AI and technology, data protection, Web3, corporate crisis management and other legal topics that materially affect corporate decision-making. Each Update is based on statutes, court decisions, regulatory materials, exchange rules and other primary sources and is designed to connect legal analysis with board, management and transaction practice.
For further information, please see the profile of Managing Partner Kenshiro Michishita and the SAKURA Law Office official website.
How SAKURA Law Office Can Assist
SAKURA Law Office advises listed companies and corporate groups on corporate governance, including implementation of the 2026 Corporate Governance Code revision, preparation and review of Corporate Governance Reports, design of boards and nomination, remuneration and special committees, the role and independence of independent directors, CEO succession, board-effectiveness evaluation, shareholder-engagement policies, cross-shareholdings, related-party transactions, internal whistleblowing, internal audit and enterprise risk management. Advice can be structured across the Companies Act, Financial Instruments and Exchange Act, TSE listing framework and relevant regulatory guidance rather than treating the Code as a stand-alone disclosure document.
In transactions and corporate events where ordinary-time governance is tested directly, including MBOs, controlling-shareholder transactions, unsolicited acquisition proposals, activist engagement, shareholder proposals, control contests, major misconduct and CEO changes, the quality of the board’s decision-making process can become outcome-determinative. Independent directors, special committees, conflicts management, use of external advisers, board minutes and disclosure, and shareholder dialogue should be designed as one coherent process rather than addressed independently after a dispute has begun.
For the July 2027 transition, companies should consider a cross-functional review of board and committee regulations, annual board agendas, capital-allocation policy, cross-shareholding reviews, CEO succession, information flows to outside directors, shareholder engagement and risk-management systems. The objective should be to align actual practice with public disclosure. SAKURA Law Office can assist in structuring that review with in-house legal, corporate planning, finance, IR, human resources, internal audit and other relevant functions as appropriate.
Contact
SAKURA Law Office
Ark Hills South Tower 4F, 1-4-5 Roppongi, Minato-ku, Tokyo 106-0032, Japan
Managing Partner Kenshiro Michishita
Official website | Kenshiro Michishita — Profile | Contact form
Principal References
The numbered references in the text correspond to the materials below. Statutes, exchange rules, judgments, administrative guidance and practical recommendations have different legal status.
2. FSA / TSE | Corporate Governance Code, 2026 revision (Japanese original PDF)
4. TSE FAQ | Deadline for updating Corporate Governance Reports for the 2026 revision (Japanese)
5. FSA | Message to personnel responsible at listed companies (July 2026; Japanese PDF)
8. e-Gov Laws | Companies Act, Act No. 86 of 2005 (Japanese statutory text)
9. e-Gov Laws | Financial Instruments and Exchange Act, Act No. 25 of 1948 (Japanese statutory text)
Disclaimer
This publication is intended to provide general information on corporate governance of Japanese listed companies based on Japan’s Corporate Governance Code, materials published by the Financial Services Agency and Tokyo Stock Exchange, the Companies Act, the Financial Instruments and Exchange Act and other public information available as of October 7, 2026. It does not constitute legal advice or a legal opinion on any specific company, transaction, shareholder matter or governance arrangement. Appropriate action will depend on the market segment, corporate form, ownership structure, presence or absence of a controlling shareholder, company size, business characteristics, strategy, capital structure and other individual circumstances.
The Principles of the Corporate Governance Code differ from statutory rules: they are not legally binding norms in themselves, but TSE-listed companies are required, according to their market segment, to address the Code through the listing framework and the comply-or-explain approach. References in this publication to matters that a company “should” do under the Code must therefore be read with care and distinguished from legal obligations under the Companies Act, disclosure requirements under the Financial Instruments and Exchange Act, mandatory requirements under TSE rules, and non-binding Interpretive Guidance.
The legal and disclosure framework surrounding pre-AGM annual securities reports, sustainability disclosure and other related matters may continue to evolve. Before implementing any specific measure, companies should confirm the latest statutes, regulations, TSE rules, FAQs and other materials published by the FSA, TSE, Ministry of Justice and other relevant authorities and obtain transaction- or company-specific advice where appropriate.