The Financial Services Agency (FSA) of Japan has introduced a draft revision to the Corporate Governance Code during a meeting on the 26th, aiming to promote the effective use of cash reserves by companies for investments in areas such as facilities and human capital. This measure is in response to criticisms regarding excessive cash accumulation by companies, urging them to focus more on sustainable growth through strategic investments instead of merely satisfying shareholder demands. The guidelines emphasize the importance of long-term investment strategies over short-term shareholder returns, which have led to tendencies towards high dividends and stock buybacks at the expense of growth funding.

Since its inception in 2015, the Corporate Governance Code has gone through three revisions, each aimed at enhancing corporate governance standards in Japan. While the previous iterations focused on improving dialogue with shareholders and increasing the appointment of independent external directors, they have also faced criticism for fostering an overly shareholder-centric approach. The newly proposed revisions are intended to reaffirm the necessity for companies to prioritize sustainable growth and long-term investment strategies, countering tendencies to prioritize immediate returns to shareholders, which could undermine overall corporate health.

The FSA's draft highlights the need for continual assessment of directors' roles and the necessity for boards to stabilize their decision-making processes in light of the evolving corporate landscape. It suggests that companies should align their investment strategies more closely with their long-term growth objectives rather than succumbing to pressure for immediate shareholder returns. This revision, therefore, marks a significant shift in Japan's approach to corporate governance, steering firms towards more responsible capital management and sustainable business practices that could contribute to Japan's economic resilience.