Corporate Governance and Labour Unions

1 Dec 2025

The Corporate Governance Code (CGC) sets out the principles and guidelines that listed companies should refer to in implementing corporate governance. In Japan, it was formulated and published by the Financial Services Agency and the Tokyo Stock Exchange in March 2015, and applied to all listed companies in June of the same year.

At the Exchange of Views between Government, Labour and Management held on November 25, RENGO President Tomoko Yoshino offered the following view on the CGC, now in its tenth year: “Corporate governance that places excessive emphasis on shareholders must be reconsidered. Management resources have not been sufficiently allocated toward investment in people, resulting in Japan’s wage levels stagnating internationally. The CGC should be revised to promote investment in people, research and development, and capital investment, while enhancing disclosure related to human capital investment, in order to raise corporate value over the medium to long term.”

Similarly, reflecting on the ten years since the introduction of the Corporate Governance Code, Ryutaro Kono, Chief Economist at BNP Paribas Securities, made the following observations in the November 28 edition of the Asahi Shimbun.

He noted that between 1998 and 2024, ordinary profits of Japanese companies grew by a factor of 5.4, stock prices rose, and dividends to shareholders increased ninefold. In contrast, domestic investment rose only 38%, domestic sales 22%, and personnel expenses a mere 12%. “This is the objective assessment,” he stated.

Today, corporate managers tend to view maximizing shareholder value as their primary responsibility, with employee wages failing to rise even when profits increase. Kono has argued that the proper direction is to establish governance that maximizes the collective interests of employees, suppliers, creditors, and local economies.

What is lacking, as Kono has stated, is an understanding that capital markets function in complementarity with broader social and economic institutions. Pressure to deliver short-term profits has driven management toward excessive cost-cutting, undermining the accumulation of human capital. Adopting American-style governance without regard to Japan’s institutional differences has produced serious inconsistencies.　　　　　　　　　　　　　　　　　　　　（Quotes above)

Corporate Governance Code: Fundamental Principles 1 and 2
Principle 1: Ensuring the Rights and Equal Treatment of Shareholders
Companies should take appropriate measures to fully secure shareholder rights and develop an environment in which shareholders can exercise their rights appropriately and effectively. In addition, companies should secure effective equal treatment of shareholders. Given their particular sensitivities, adequate consideration should be given to the issues and concerns of minority shareholders and foreign shareholders for the effective exercise of shareholder rights and effective equal treatment of shareholders.

Principle 2: Appropriate Collaboration with Stakeholders Other Than Shareholders
Companies should fully recognize that their sustainable growth and the creation of mid- to long-term corporate value are brought as a result of the provision of resources and contributions made by a range of stakeholders, including employees, customers, business partners, creditors and local communities. As such, companies should endeavor to appropriately cooperate with these stakeholders. The board and the management should exercise their leadership in establishing a corporate culture where the rights and positions of stakeholders are respected and sound business ethics are ensured.

Principle 2 echoes the Three Principles of Productivity agreed upon in 1955 between the Japan Productivity Center and nine ministries, underscoring its enduring importance. The question is whether this principle is genuinely being fulfilled in practice.

Ten years after the CGC’s introduction, it has become clear—both from the tripartite dialogue and expert analysis—that a shareholder-centric governance model has contributed to stagnation in human capital investment and wage growth in Japan. Going forward, labour unions must strengthen their role within corporate governance as the “representatives of human capital.”

First, to enhance the effectiveness of Principle 2, which emphasizes collaboration with stakeholders other than shareholders, labour unions should urge companies to disclose and improve indicators of investment in people—such as expenditure on training, use of retained earnings, and the wage distribution ratio—and monitor companies to ensure that investment priorities do not tilt excessively toward shareholder returns.

Second, labour unions should provide management with perspectives that position “long-term corporate value” in relation to wages, employment, and human resource development, thereby functioning as a corrective force against decisions driven solely by short-term profits. Given Japan’s low labour mobility compared with the United States, unions play an indispensable role in ensuring the accumulation of human capital within firms.

Third, unions should promote mechanisms that expose decision-making processes related to human capital to external scrutiny. In particular, strengthening dialogue with institutional investors operating under the Stewardship Code is essential for forming a shared understanding—not only with corporate managers but also with investors—that investment in human resources is the foundation of corporate value.

In these ways, labour unions should play a more strategic and proactive role in transforming the CGC from a framework focused primarily on shareholders into one that supports sustainable growth for society as a whole.

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