The revision of the Corporate Governance Code published in late July featured further streamlining and a principles-based approach. Over 80 supplementary principles which had accumulated over time have been abolished and replaced by guidelines. The revision also clearly emphasizes the “explain” aspect of the so-called “comply or explain” principle, encouraging companies to explain in their own words instead of simply focusing on compliance.
As a member of the expert panel responsible for the revision, I support this direction. The more detailed rules that are added, the more companies are preoccupied with responding, resulting in accumulated formalistic compliance which paradoxically strips corporate governance of meaning.
Streamlining and the principles-based approach represent a major shift from “a code to comply with” to “a code to think through for oneself.” But once the detailed rules are gone, what are companies to rely on? In the expert panel I suggested reviving “fiduciary duty”—a concept written into the original code from the outset, yet one that has never taken root.
After extensive discussion, the revised explanatory document opens with a statement describing executives as “fiduciaries who must answer to the shareholders who have placed their trust in the executives.”
Fiduciary duty is not a phrase to be taken lightly. It is the heaviest duty the law imposes, requiring those entrusted with capital to pursue the interests of those who provide it, even at the expense of their own interests.
The revised code has also introduced new themes, such as explaining the level of cash and deposits and capital allocation toward growth investments. Ultimately, however, these are merely derivatives of fiduciary duty. If executives recognize this responsibility, they should be able to approach both compliance and explanation based on their own judgment and articulate their reasoning in their own words.
When executives and boards of directors fully understand the significance of the term “fiduciary duty,” the Corporate Governance Code will begin to transition from a “code to comply with” to “a code to think through for oneself.” The question to ask is not how many boxes have been ticked. There are only two relevant questions: “Whose trust are we here to answer to?” and “Who put us in this chair?”
>> Original text in Japanese
* Translated by RIETI.
August 6, 2026 - Published in Nihon Keizai Shimbun's "Crossroads"
