[Corporate Value Enhancement] Revision of the Corporate Governance Code for the First Time in 5 Years—What is the "Corporate Value Management" Required of Japanese Companies?
Introduction
On July 21, 2026, the Financial Services Agency and the Tokyo Stock Exchange revised the Corporate Governance Code (CG Code) for the first time in about five years.
Since the Tokyo Stock Exchange's 2023 request for "management conscious of cost of capital and stock price," many companies have proceeded with share buybacks, dividend increases, and the reduction of cross-shareholdings.
However, this revision is not a mere extension of that trend.
Rather, it poses the following question to companies:
"Have you incorporated corporate value enhancement into your management structure, rather than treating it as a one-off measure?"
This article organizes the contents of this revision from the perspective of corporate value enhancement.
When analyzing listed companies, it may be useful to have at least a rough understanding of this, as it could serve as a yardstick for measuring corporate efforts and whether they are complying with the revised governance code.
[Overview]
⸻
What is the Corporate Governance Code in the first place?
The CG Code is not a law.
It is a mechanism known as
soft law.
Companies are required to
"Comply or Explain"
in other words,
either comply or explain why they do not.
What is important is not
following the rules,
but building the optimal governance for enhancing corporate value.
⸻
Background of this revisionWhat the Financial Services Agency viewed as a problem was
corporate value enhancement measures
being biased toward short-term measures.
For example,
* Share buybacks
* Dividend increases
* Cash compression
alone
do not improve essential competitiveness.
Corporate value is the present value of future cash flows.
In other words,
a management foundation that allows a company to generate sustainable profits is what is truly important.
⸻
Revision Point 1
From "Supervision" to "Value Creation" for the Board of DirectorsUntil now, the Board of Directors
had a strong character as
compliance,
risk management,
and an approval body.
However, with this revision,
the Board of Directors
is expected to make strategic decisions for corporate value enhancement.
For example,
* Reviewing business portfolios
* Capital allocation
* M&A
* DX investment
* Human capital investment
It is expected that these will be
discussed sufficiently.
⸻
Revision Point 2
Transparency of Capital Allocation
This is likely where the most practical impact will be felt.Companies need to explain
where they allocate the cash they have earned.
For example,
if operating cash flow is 10 billion yen,
* Growth investment
* M&A
* Shareholder returns
* Financial soundness
it becomes important to explain
the philosophy behind how capital is allocated.
We are entering an era where investors look not just at the numbers, but at the management team's capital allocation philosophy.
⸻
Revision Point 3
Business Portfolio Management
Business portfolios were considered quite important this time.Companies do not need to hold all businesses forever.
Rather,
* Growth businesses
* Mature businesses
* Exit candidates
they are required to organize these and
improve capital efficiency.
As a result,
recent increases in
* Carve-outs
* MBOs
* TOBs
* Partnerships with PE funds
are also positioned as one of the measures for corporate value enhancement.
⸻
Revision Point 4
Human Capital and Succession Planning
Human capital is also a key theme in this revision.
Specifically,
* CEO succession
* Management development
* Diversity
* Skill matrices
* Human capital investment
etc.
The idea is that investment in management talent, not just capital investment, is essential for corporate value enhancement.
⸻
Revision Point 5
Dialogue with Shareholders
IR activities will also change significantly.From now on,
not just financial results briefings,
but reflecting dialogue with investors in management
is also required.
In other words,
it is no longer just the job of the IR department, but the role of the entire Board of Directors.
⸻
Revision Point 6
Effectiveness Evaluation
What is important this time is effectiveness.For example,
it is not about having three outside directors,
but whether those three are truly contributing to the discussion.
The trend is moving toward looking at
quality, not form.
⸻
Points investors will look at in the future
I think we are entering an era where integrated reports and CG reports will be looked at more than financial statements.The points to look at are
* Capital allocation
* ROIC targets
* WACC awareness
* Skill matrices
* CEO succession
* Business portfolios
* Cross-shareholdings
* Dialogue with investors
How these connect to corporate value enhancement
is the key.
⸻
[Corporate Value Enhancement Cycle]
My thoughts
I believe this revision is less about "strengthening governance"
and more about an evolution toward corporate value management.
In 2015, it was "Let's set up governance."
In 2023, it was "Let's be conscious of the cost of capital."
In 2026, we have moved to the stage of "Please explain the process of how you create corporate value."
In other words,
governance is no longer a defensive mechanism, but its positioning is changing into a management infrastructure for creating corporate value.