From 83 Principles Down to 30 — Naotaka Ikeda of the TSE on the Governance Code Revision

Contents

1. I used to treat governance as a checklist
2. The presentation that arrived a year later
3. Now I ask first whether the data exists
4. Further reading
5. One thing to take away

The way of the enlightened ruler is to let the wise exhaust their thinking, and to decide matters on that; so his own wisdom is never spent. He lets the able apply their talents and employs them accordingly; so his own capability is never spent.

—— Han Feizi, “The Way of the Ruler” (Warring States period; my own translation)

The 25 October 2026 episode of Investor’s Sunday hosts Naotaka Ikeda, general manager of the planning group in the Listing Department of the Tokyo Stock Exchange, for the second half of his appearance, and the whole hour goes to July’s revision of the Corporate Governance Code. Ikeda says the revision cut the principles from 83 down to 30, and that the new entry is the “board secretariat” — the in-house team that prepares the board’s agenda items and the information inside them. A second number comes from a TSE survey run this past summer: around 700 listed companies replied, and 75% of them said dialogue with investors is worthwhile. Two limits decide how you read all this: the Code works on comply-or-explain, so a company may skip a principle as long as it explains why its own approach is better; and those 700 companies were already the ones talking to investors regularly, a group Ikeda himself says is not large among Japan’s 3,600 listed companies.

I used to treat governance as a checklist

My first instinct on seeing the words “governance code revision” used to be to count clauses. Count the outside director seats, check whether there is a nomination committee and a remuneration committee, count the extra pages of disclosure in the annual report. Thicker rules, safer company — that was my default. So when Ikeda got to the result of this revision, I stopped: the principles went down, 83 to 30.

His explanation is that the Code was written in 2015 and amended in 2018 and 2021, making this the third revision. Over those ten years, things like the number of outside directors moved; once they have moved, they can come out of the principles, and the space goes back to the handful of questions he wants companies thinking hard about — how capital gets allocated, where growth investment goes, whether the board can actually supervise. Then he adds the line I think matters most: to discuss those fundamental things, a company needs a working platform for the discussion inside the house, and that platform was laid by the countable clauses of the past decade.

The Code also compels nothing. It runs on comply-or-explain: follow the principle, or skip it and tell investors why your own way is better. So 30 principles do not amount to 30 gates.

The episode names two of the revision’s headline themes. One is promoting growth investment, which Ikeda says is the same thing as the price-to-book reform discussed in the previous episode — a company that has taken shareholders’ capital has to spell out how it will use that capital to produce returns, and then discuss it with investors. The other is strengthening how the board functions, and that one dismantled my checklist.

The presentation that arrived a year later

Outside directors, Ikeda points out, are not in the building day to day. They hear the company out in limited time, come to the board meeting, speak, argue. So two things decide whether those people are of any use: whether the information reaches them, and what the agenda for discussion looks like. Get those wrong and the outside directors you recruited cannot be used. The “board secretariat” written into the Code this time is exactly that function — which items go to the monthly board meeting, and who assembles the information inside those items.

At that point I still heard administrative detail. Then the host told a story from his own work.

Talking with the investor relations contact at a listed company, he noticed its presentation materials had changed shape within a year. He asked how they had changed so much, and was told the board had decided a year earlier that the materials needed fixing — yet the actual disclosure came a year after that. What happened in between? The company discovered it did not have the information. Things investors want, like profitability by business segment, simply could not be pulled out of the internal systems. Listening to investors first, then going back inside to build the data, took a year. A side effect once it was built: the board’s own judgements and discussions got better too.

That reversed my ordering. I had assumed a board functions badly because the people are wrong or the will is missing. In this case the people and the will were both there, and the bottleneck was that the company could not produce its own segment profit. However good an outside director is, without that number in hand, all they can offer in the room is an impression.

The host then offered a harder test, and Ikeda nodded along: governance is effective when the outside directors can put a person into the CEO’s chair, and can keep a person out of it. That sits a long way from the picture I grew up with — the host compares it to the Tenkaichi Budokai tournament in Dragon Ball, where whoever wins their way through the internal bracket ends up in the president’s seat.

The host also described the CEO he wants: a company’s people and money are finite, so someone who can push both to their limit and then grow the company’s cash flow — invest, lift profitability, raise wages out of the profit that grows. He says he thinks about it every night before he sleeps. His image of the coolest kind of CEO is one who meets investors and then tells you, “you don’t have to say anything, I’ll deliver the returns.” The other kind he runs into says next month is impossible, three months out is busy, and how about next year. Ikeda’s reply is that once you are listed, this is a part you have to face.

The business portfolio section carries the same flavour. An old business line run for decades may be poor on profitability, and the company still cannot stop, because people work there. Both of them get to the point that carrying a loss-making business was survivable under deflation and is not under inflation, because without profit there is no wage increase. Ikeda says investors care a great deal about portfolio composition while companies’ own reviews move slowly, and closing that gap is one of this revision’s themes.

Now I ask first whether the data exists

If you hold a company that is talking up governance reform, the question in your head is probably this one: the news has run for years and the Code is on its third revision, so how do I tell which company is actually moving?

I now ask two things first, and both are supported by this episode.

First, does the company disclose profitability by business segment. I want that number for something other than valuation. The company that spent a year building its data told me what the absence means: a company that cannot pull out segment profit has a board deciding on numbers that do not exist, however pretty the governance chart looks.

Second, can the board replace the CEO. Look at who sits on the nomination committee, and look at how much stock the founder holds. Talking about the Growth market, Ikeda notes that some founders hold a majority and nobody can move them — which he is careful to say is no reflection on the person, though the company may hit a wall somewhere.

If you want examples to look at, the TSE’s summer survey helps. They asked institutional investors which companies’ efforts they rate, and put roughly 300 companies’ answers on the website. Ikeda says his first reaction on reading it was “so that’s how it works”: the list is not packed with the household names, and what gets picked out is companies that changed. Some went from 10 to 100, and some went from 0 to 1 or 2 — companies with little prior contact with the market that recently started trying at investor relations are on there as well. So what investors watch is the delta: a small company that moved from 0 to 2 gets picked out, and a large one that was already good and did nothing this year does not.

Then the parts I am unsure about. That 75% is the companies’ own answer to whether they find dialogue with investors worthwhile, which is not a measured outcome. And among the 700 who replied, Ikeda himself says the set of companies engaging regularly is not large out of 3,600, so those 700 are a high share of the companies that already engage — put another way, the survey asks the people already talking how the talking is going. He did also collect the reasons from those who found it unhelpful, in a report of around 66 pages, and I have not read that part.

The Growth market is the bigger question mark. Ikeda says it performs worse than Prime and Standard, and that its logic differs from the main board, so pushing it with the same instruments does not work. The host’s hypothetical is a company with a 4 billion yen market capitalisation and a founder holding 20%, which is 800 million to 1 billion yen in hand — and what keeps motivation up once you are rich that early. Ikeda keeps his options open: a majority-holding founder may carry on alone, or sell to a professional manager and go start another company, or be absorbed into a larger group and build the business bigger inside it. What he wants is more of that movement. He also says it is a question of balance. I came out of that stretch without a conclusion, and what I remember is that he did not reach for an official line — he said plainly that it is hard.

Further reading

• Investor’s Sunday, episode of 25 October 2026, the second half of Naotaka Ikeda’s appearance for the Tokyo Stock Exchange.
• The TSE page titled 「取り組みの進展が見られる企業」: around 300 companies and their initiatives, as picked out by institutional investors, with peers comparable side by side.
• The TSE page titled 「投資家への期待・要望等に関する企業アンケート」: the survey answered by about 700 companies, roughly 66 pages in full.

One thing to take away

Whether someone can hold you to account depends on whether they have in hand the thing you were looking at when you decided. That is what this episode says about outside directors, and it holds for whoever you ask to look over something of yours.

One thing I have tried: before asking anyone for an opinion, hand them a copy of what I was actually looking at when I made the call, untouched. Asking a friend about changing jobs, instead of just saying “I’m thinking of moving”, put the last three months of my calendar, the hours I actually worked late, and both offers’ pay and commute on one page for them. Deciding whether to renew a lease, lay out the real spending of the past year. When they are looking at what you are looking at, what they say can connect to your situation.

Raw Markdown

This article is an educational discussion of investment method. It is not advice to buy or sell any individual security, offers no target prices, and does not analyze any current holding. Investing carries risk; make your own decisions or consult a qualified professional.