Hello, this is Hamamoto from TIMEWELL.
On 26 February 2026, Japan's Financial Services Agency (FSA) and the Tokyo Stock Exchange (TSE) published a draft revision of the Corporate Governance Code (CG Code). A public comment period opened on 10 April, and formal application is now coming into view[^1][^2].
It has been just over a decade since the code first took effect in 2015. Listed companies in Japan have steadily put in place the outward structures of good governance — appointing independent outside directors, establishing nomination and compensation committees, and so on. At the same time, many have been criticised for treating disclosure as a box-ticking exercise: "just report whatever they asked for, and we're done."
This revision takes that criticism head-on. It returns to the original spirit of a principles-based code and pushes governance "from form to substance (Code 2.0)." That is the message running through the entire revision. In this article I focus on four key points every listed company should be checking.
The big picture: slimming down from 83 items to 30
Before getting into the four points, it helps to understand the overall structure of the revised code[^1][^3].
| Current code (2021 revision) | Revised code (2026) | |
|---|---|---|
| Basic principles | 5 | 4 |
| Principles | 31 | 26 |
| Supplementary principles | 47 | 0 |
| Total | 83 | 30 |
All 47 of today's supplementary principles disappear, with most of their content moved into a newly created "interpretive guidance." The interpretive guidance itself is not subject to comply-or-explain, but in practice it becomes a critical reference for how the code is applied.
The idea is a two-layer design: keep the code itself simple, and back it up with interpretive guidance. That way each company can focus on the substantive debate rather than on formatting checklists.
Point 1: Making cash, financial assets and real assets work for growth
The single most watched change in this revision is the stronger accountability expected around how companies allocate their management resources.
Japanese listed companies have spent years piling up cash. According to data compiled by Sustainable Lab, a non-financial data analytics firm, the ratio of cash and deposits to total assets has hovered at 16–18% — well above the levels seen in the US or Europe. While 73% of investors say they see "reviewing the optimal balance sheet structure" as an issue, only around 20% of companies have actually carried out such a review. That gap is now front and centre[^4].
The draft revision states, in relation to the role of the board:
The board should continually examine whether management resources, including cash, financial assets and real assets, are being put to effective use in growth investment.
The important nuance here is that this is not a demand for aggressive short-term shareholder returns. Beyond buybacks and dividend hikes, the board is expected to consider:
- Capital expenditure
- R&D
- Investment in human capital
- Building intangibles such as IP and brand
In other words, this is about active, offensive governance that strengthens a company's long-term earning power. "Why do we hold cash at this level?" and "How are we allocating it to growth?" are questions that, from now on, the board will be expected to wrestle with continuously and be able to answer to investors.
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Point 2: Disclosing the securities report before the AGM
The second major point is a significant shift in the timing of the securities report.
To create the conditions for constructive dialogue with investors, "disclosure of the securities report before the annual general meeting" has been elevated to the level of a principle[^5].
The newly created interpretive guidance goes further and sets out a concrete benchmark:
So that investors can adequately examine useful and reliable information needed for exercising voting rights, it is most desirable to submit the report at least three weeks before the AGM.
This is a meaningful departure from the long-standing Japanese practice of filing the securities report after the AGM.
Within the Nikkei 225, 81.2% of companies already disclose ahead of the AGM, and the practice is spreading rapidly[^4]. For mid-cap and smaller listed companies, however, the financial reporting, audit and disclosure workload makes this far from trivial.
The draft revision therefore encourages companies to "also consider moving the AGM date back" where necessary. In effect, it is an invitation to redesign the annual cycle of earnings release, audit, disclosure and AGM from the perspective of investor dialogue.
Point 3: Strengthening the board and formalising the "board secretariat"
The third point concerns making the board's oversight function truly substantive.
Governance reform in Japan has largely been driven by external metrics such as the ratio of independent outside directors. The revision now places renewed emphasis on the quality and independence of those directors.
What stands out is that the board secretariat (corporate secretary) function is, for the first time, explicitly written into the code[^4][^6].
The board secretariat is not simply a meeting administrator. Its real role is to:
- Provide information to outside directors
- Coordinate across internal departments
- Pre-brief directors on agenda items
- Liaise with audit and supervisory committees
In other words, act as the bridge between oversight and execution. The revision makes this bridging role much more explicit.
In practice, we hear plenty of stories where boards added outside directors but the discussion became a ritual. Strengthening the secretariat so that outside directors have timely access to the right information is positioned as the minimum condition for substantive debate and oversight.
The Japan Association of Corporate Directors (JACD) and Keidanren are also actively debating how to define, develop and pay the corporate secretary function. Over the next few years, this area should gain recognition as a serious management profession.
Point 4: Slimming down the code and introducing interpretive guidance
The fourth point is the overall streamlining of the code noted earlier[^1][^7].
Areas that overlap with law or with other disclosure regimes have been tidied up, and the number of principles subject to comply-or-explain drops from 83 to 30. The specifics, intent and background that used to live in supplementary principles are moved into the newly created interpretive guidance.
The big change for companies is that "we just followed the template" no longer works.
From here on, what matters is a thoughtful "explain" that reflects:
- The company's own operating environment (industry, size, growth phase, international footprint)
- The company's value creation story
- How the company interprets and responds to the intent of each principle
We are entering an era where it is not the volume of disclosure but the internal consistency and persuasiveness of the narrative that is judged.
For companies that have been comfortable with formalistic disclosure, this shift is tough. For companies that have been serious about governance reform, it is a genuine opportunity for their work to finally be recognised on its merits.
The stage where companies tell their "value creation story"
The 2026 CG Code revision pushes companies away from a passive "we follow it because it's a rule" posture and toward actively using governance as a tool for value creation.
Companies now need to articulate, in their own words, a value creation story that covers their growth strategy and the rationale for how management resources are allocated, then engage investors in a constructive dialogue. The preparation work cannot wait.
AI as an enabler of the shift to substance
Let me briefly bring in our work at TIMEWELL.
"Governance substance" is easy to say, but on the ground it usually means more work, not less. Specifically:
- Drafting and proofreading securities reports and integrated reports
- Structuring and summarising board materials
- Benchmarking governance disclosure against peers
- Checking consistency with the interpretive guidance
All of this documentation work piles up in the name of "substance."
This is exactly where AI earns its keep. Through our enterprise AI platform "ZEROCK" and our AI consulting service "WARP," we are helping clients generate and review disclosure documents and streamline the board secretariat workload. We are also seeing more projects explicitly framed as "how should we use AI for CG Code compliance." If that resonates, feel free to reach out.
Summary: four points to check in 2026
| Point | Overview | Top-priority action |
|---|---|---|
| 1. Resource allocation | Verify growth-investment use of cash and financial assets | Make cost of capital / ROIC a standing board topic |
| 2. Pre-AGM securities report | Three weeks before the AGM is most desirable | Redesign the annual earnings-to-AGM schedule |
| 3. Board secretariat | Corporate secretary function explicitly written in | Design the secretariat's structure, authority and talent plan |
| 4. Slim code + interpretive guidance | 83 → 30 principles, interpretive guidance created | Build the internal style for "thoughtful explain" |
This revision marks a turning point at which Japanese corporate governance enters its next phase. Rather than treating it as a checklist exercise, companies should look at it alongside their mid-term plan, IR strategy and board operations and review all three together.
References
[^1]: Publication of the draft revision of the Corporate Governance Code — FSA (2026-04-10) [^2]: Publication of the draft revision of the Corporate Governance Code — Japan Exchange Group [^3]: Can the CG Code revision truly become "Code 2.0"? — Dai-ichi Life Research Institute [^4]: 2026 CG Code draft revision: what companies should do — Sustainable Lab [^5]: Expert council on the revision of the Corporate Governance Code — FSA [^6]: CG Code revision makes human-capital investment a board responsibility — MVV Insights [^7]: Draft CG Code revision: board dialogue will decide how companies are judged — Nikkei Business