Japan's Stewardship Code 2025 — What the End of Advisory Company Dependence Means

The era of single-vector ISS defense strategy is quietly ending.

On June 26, 2025, the Financial Services Agency released the third revision of Japan's Stewardship Code. Five years since the previous revision (2020), and four versions since the original (2014). The core of the revision concentrates on three points: ① clarification of institutional investor responsibility for transparency of beneficial ownership toward capital raising institutions (new Guidance 4-2), ② elevation of collaborative engagement to a "key option," and ③ code streamlining (return to principles-based fundamentals). Of these, the revisions with most direct operational impact on corporate IR and SR are ① and ②, but one dynamic shifted quietly in the background: requirements for proxy voting advisory firms (ISS and Glass Lewis) strengthened in Guidance 8-2, and mechanical reliance on uniform standards was institutionally curtailed. The era in which companies could manage investor relations through ISS defense alone is ending—the structural target itself has changed.

Intro — Where Does Corporate "Preparation" Cross the Legal Line?

Japan's Stewardship Code is not law. It is guidance (principles) issued by the FSA and carries no direct legal binding force. Whether institutional investors accept this code is voluntary, and adoption operates through comply-or-explain structures.

By the FSA's count, 344 institutional investors adopted the third revision (as of June 30, 2025, per Mondo Visione), with the figure exceeding 350 by year-end. The code functions as the de facto standard for institutional investor behavior in Japanese markets through channels distinct from legal enforceability.

This revision signals both opportunity and risk for corporate governance teams. The question is whether the "preparation" companies undertake stays within legally permissible bounds.

This article reconstructs the core arguments from primary sources, maps out five weaponization scenarios from the activist perspective, verifies the legal tools corporations can deploy, and finally identifies the boundary where over-preparation becomes legally problematic.

01The Stewardship Code's Legal Position — No Law, But Inescapable

The Stewardship Code is a self-regulatory instrument that articulates the action principles of institutional investors. It lacks legal binding force, but in markets where a majority of institutional investors have adopted it, deviation from the code directly translates to investor assessment and reflected in voting behavior. Legal force and market pressure operate through distinct channels.

The code is paired with the Corporate Governance Code—itself a code of action for companies—forming the "two wheels of a vehicle." The CG Code is embedded in the TSE Listed Company Rules, making comply-or-explain disclosure mandatory for listed corporations. Distinguishing between the two codes is the baseline for corporate legal analysis.

The 2025 third revision means that institutional investor self-regulation expanded its functional scope while remaining "self-regulatory." It is not law, yet carries force sufficient to reshape corporate IR and SR practice. This distance is the premise for understanding this article.

02The 2025 Third Revision's Core Arguments — Three Pillars Dissected

The FSA's "Expert Committee on the Stewardship Code" (FY2024) conducted the review. Sessions: October 18, 2024; November 18, 2024; February 26, 2025. Public comment opened March 21–April 20, 2025, receiving 46 submissions (31 in Japanese, 15 in English). Final publication: June 26, 2025.

The revision's core condenses into three pillars:

2-1. Beneficial Ownership Transparency (New Guidance 4-2)

Institutional investors are explicitly required to explain share holdings to investee companies upon request during engagement. Further, investors must publicly disclose their policy for responding to such inquiries in advance.

The 2020 version used language of "may be desirable"—weak optionality. The new Guidance 4-2 elevates this to a substantive expectation. While disclosure granularity remains at each investor's discretion, the "advance policy disclosure" requirement creates a new corporate advantage: pre-engagement visibility into each investor's disclosure stance.

Parallel to code revision, Japan's Legislative Commission (Law Reform Council, Company Law Subcommittee, starting April 2025) is reviewing framework to help companies confirm beneficial owners behind nominee shareholders. Self-regulation and legislative measures are converging to structurally lower the cost of beneficial ownership mapping for companies.

As of this writing (May 2026), the timeline and content of legislation remain uncertain. The Japan Federation of Economic Organizations noted in an April 18, 2025 opinion that beneficial ownership disclosure currently involves substantial investigative costs passed to companies—signaling corporate concern about cost allocation.

2-2. Collaborative Engagement Elevated to "Key Option" (Guidance 4-6)

Collaborative engagement—coordinated action by multiple institutional investors to influence corporate behavior—is now formally recognized as a "key option." The stated rationale is framed as a means to "more effectively resolve governance and sustainability challenges."

This elevation imposes new response requirements on corporate IR and SR teams. ESG and sustainability inquiries will increasingly arrive with pre-coordinated institutional consensus rather than ad-hoc individual engagement.

The Financial Instruments and Exchange Act contains a "joint holder" concept: coordinated shareholders may be assessed as joint holders under certain aggregation rules for large-holding disclosure thresholds. Where collaborative engagement aligns with joint holder definitions remains unsettled in current statutory interpretation—creating asymmetry: companies struggle to identify the coordinated parties, yet those parties gain aggregate influence from combined holdings. First-mover advantage favors those who read investor coordination schemes early.

2-3. Strengthened Requirements for Proxy Voting Advisory Firms (Guidance 8-2)

Guidance 8-2 now explicitly requires proxy voting advisory firms to: establish "sufficiently appropriate personnel and organizational capacity" with Japan-based offices enabling effective dialogue with all stakeholders; publicly disclose specific governance processes in their voting recommendation methodology; and avoid relying solely on uniform voting standards, instead conducting substantive dialogue before issuing voting recommendations.

This shift cuts both ways for corporate IR and SR. On one hand, advisors' mandated Japan presence and dialogue obligation creates a formal channel for companies to deliver their narrative directly to recommendation-setting staff. On the other hand, "mechanical rule-following" as a defense is no longer viable—companies cannot simply memorize ISS or Glass Lewis policies and engineer compliance. Institutional investors are explicitly charged with moving beyond formula-based voting.

2-4. Code Streamlining (Return to Principles-Based Framing)

The preamble explicitly states a return to "principles-based approach fundamentals," with deletion of items already embedded in market practice, removal of "triennial review" language from the preamble, and consolidation of supplementary notes and redundant provisions.

The UK Stewardship Code's 2020 version faced criticism for over-specification; the FSA drew on UK's simplification effort (2020 Code revision proposal appeared as reference material in the November 18, 2024 committee session).

For corporations, streamlining is double-edged. Lighter guidance expands investor discretion in designing independent stewardship policies—leaving companies less certain whether investor action maps to specific guidance provisions. The code becomes a floor, not a floor-and-ceiling map.

03Five Weaponization Scenarios from the Activist Perspective

The Stewardship Code revision strengthens "institutional investor duties." Viewed from the attack side, this is something else: the domain institutional investors must exercise has expanded, creating mechanical compulsion independent of formula. This weaponizes investors as forced allies. An activist proposal backed by narrative alignment with code principles moves institutional investors toward support not as choice but as duty discharge. Each scenario below includes a corporate counter-measure.

3-1. Voting Transparency as a Targeting Weapon

As individual voting rationales (per-proposal disclosure) become standardized, institutional investors face pressure to publicly document voting logic. Activists can then build external databases mapping "this investor opposes management reelection when ROE falls below 8%" or "this investor votes against dividend payouts conflicting with net-zero targets," making proposal outcomes predictable before shareholder meeting season.

Corporate counter-measure: Build a mapping sheet before each AGM season listing major institutional investors' published voting policies and matching them line-by-line to proposed resolutions. Document alignment or misalignment in writing. "Transparent" environments reward those who read first.

3-2. Beneficial Ownership Clarification Opens Direct Routes to Decision-Makers

Guidance 4-2 clarifies which fund manager, voting committee member, or individual portfolio manager actually holds final voting authority. Activists can then engage decision-makers directly rather than proxy through IR staff.

Corporate counter-measure: Map each major shareholder's real voting authority hierarchy—committee chairs, stewardship leads, individual PMs—by name and recent public statements. Build relationships across a 12-month horizon, not 3 months pre-AGM. Attack takes time to stage; defense requires relationships already in place.

3-3. Sustainability Engagement Audit Trail as Battleground

Standardized sustainability engagement tracking pressures investors to disclose dialogue frequency, quality, and progress. Activists pre-target companies with "no prior sustainability engagement history" in public records. Once a company appears in an investor's report as "unresponsive," it lands on activist watch lists. Sustainability resolutions lack clear financial impact, making investor approval easier to secure.

Corporate counter-measure: Maintain a log of every sustainability-related inquiry by investor, response date, response owner, and content delivered. Build capability to respond within 5 business days on TCFD, TNFD, human capital, and GHG Scope 3 with standard reply templates and live dashboard access. Pre-empt "no engagement" narratives.

3-4. Passive Investor Independence and the Forced Vote

Revised guidance now asks passive fund managers to "endeavor to engage on all holdings, including those in Japan-focused passive products, considering issue materiality." Passive managers cannot exit holdings, so engagement and voting are their sole tools. This makes them structural allies for activist proposals framed around "ROE improvement," "capital efficiency," or "governance reform"—standard activist packaging.

Corporate counter-measure: Map every major passive investor's voting policy by reference to your proposed resolutions. Test each AGM motion against GPIF, Nomura AM, SMAM policies ahead of board approval. "Policy-proof" resolutions before they reach the floor.

3-5. Escalation Frameworks as Predictable Pressure Sequences

Investor policies increasingly embed escalation templates: "dialogue → written feedback → voting opposition → shareholder proposal support." Activists reverse-read escalation triggers to stage coordinated pressure. By claiming "three engagement cycles with no progress," they invoke investor escalation clauses mechanically.

Corporate counter-measure: List all major investors' escalation triggers (how many engagement cycles trigger voting opposition? what metrics?). Map your current position in each escalation sequence quarterly. Build documented progress narratives—"2024: requested ROIC improvement; 2025: implemented X, Y, Z; 2026: ROIC improved N%." Attack narratives rely on "no progress." Forestall that claim with time-stamped evidence.

04Pre- and Post-Revision Corporate Response Axes — Structural Shifts

05Corporate Legal Tools — Four Core Statutes and Their Scope

When corporations respond to Stewardship Code dynamics, legal authority derives from the Companies Act and the Financial Instruments and Exchange Act. This chapter maps four foundational statutes.

5-1. Companies Act Article 306 — Inspectorate Appointment

An inspectorate appointed by court may conduct an audit of shareholder meeting procedures and decision legality. Companies may petition (not just shareholders), and this tool applies when proxy procedures or conduct raise legal questions. (See Vol.1 No.1: "Proxy Solicitation vs. Proxy Suppression.")

Post-2025, if institutional investor holdings and voting patterns show patterns disconnected from stated policies, whether this constitutes grounds for inspectorate investigation is unsettled. Current Article 306 language permits some interpretive expansion, though not unambiguously.

5-2. Companies Act Article 314 — Board Explanation Duty

Directors must explain matters on which shareholders pose questions, covering what "shareholders need to reasonably judge an agenda item" (Tokyo District Court, 2004, Tokyo Style case). Explanation scope is set by "average shareholder" standards.

Critical boundary: Stewardship Code engagement occurs outside shareholder meetings. Code-based dialogue and Article 314 meeting-floor explanation duty are distinct. Dialogue request duty and meeting explanation duty use different legal anchors and cannot be conflated.

5-3. Companies Act Article 125 — Share Register Inspection

Shareholders may request share register inspection or copying. Refusal grounds are limited and enumerated (Article 125.3). Case law permits register inspection for proxy solicitation and voting exercise purposes.

The 2017 reform eliminated competitive shareholder as grounds for refusal. Old-style competitive-shareholder denials are no longer defensible. Distinguishing Guidance 4-2 voluntary disclosure requests (code-based, self-regulatory) from Article 125 legal inspection rights (statutory, mandatory if properly requested) is essential for response strategy.

5-4. Financial Instruments and Exchange Act Article 194-7 — Proxy Solicitation Regulation

When a company affirmatively requests institutional investors "vote for our resolutions," this triggers Financial Instruments and Exchange Act 194-7 proxy regulation. The "ten-persons-or-fewer" exemption does not apply to company-initiated solicitation; full compliance (proxy circular, reference materials, SEC filing) is mandatory. (See Vol.1 No.4: "FIEA Article 194-7.")

Dialogue and proxy solicitation are legally distinct. Keeping this boundary clear—especially as post-revision dialogue intensifies—is critical to regulatory compliance.

06The Caution on Over-Preparation — Five Lines Corporations Must Not Cross

This chapter is the article's core second half: five boundaries companies cannot cross in the name of "preparation."

6-1. Information Blackout — Selective Information Denial to Specific Shareholders

Fair Disclosure Rule (FIEA) restricts selective disclosure of unpublished material facts. Its inverse—intentional information blockade to specific shareholders—violates Companies Act shareholder equality (Article 109) and board explanation duty (Article 314). "We won't engage with that critical investor" crosses into shareholder discrimination.

6-2. Shareholder Discrimination — Arbitrary Refusal of Register Inspection

Refusing a register inspection request under Article 125 on grounds not listed in statute subjects the company to liability for breach of statutory duty. Refusing because "this shareholder is critical" is arbitrary discrimination and triggers damages liability.

6-3. Meeting Notice Defect — Procedural Illegality Triggering Decision Voidance

Omitting or altering a shareholder's notice of meeting is a decision voidance ground under Companies Act Article 831.1.1. "We didn't want that shareholder to know" voids the meeting's decisions.

6-4. Insider Trading Reverse Risk — Unpublished Material Facts in Engagement

The Stewardship Code itself states engagement dialogue should "generally be cautious" regarding unpublished material facts. If company dialogue leaks material non-public information to specific investors, Financial Instruments and Exchange Act Article 166 (insider trading) liability emerges. "Deep engagement" can create regulatory exposure.

6-5. Proxy Solicitation Boundary — Conflation with IR Activity

When investor dialogue explicitly requests voting support for corporate resolutions, Financial Instruments and Exchange Act 194-7 proxy regulation may apply depending on content intent and audience scale. Distinguishing lawful IR from regulated solicitation is essential.

07"Permitted" and "Prohibited" — Reference Chart

7-1. Permitted (Legally Appropriate)

7-2. Prohibited (High Legal Risk)

08Corporate Preparation — Five Items to Build Before Crisis

Preparation checklist

Closing — Coherence Between Self-Regulation and Legal Boundaries

The Stewardship Code's third revision has reshaped the practical route for beneficial ownership identification. Yet these routes remain self-regulatory, not legally binding. As legislative review advances and beneficial ownership rules potentially codify, corporate rights and duties will shift. In this interim—before statutory crystallization—accurate legal grounding prevents both over-reaction and undefended exposure.

Simultaneously, proxy voting advisory firm requirements reshaping how companies approach investor relations. Mechanical ISS policy memorization no longer suffices. Custom translation of corporate governance and financial performance to each investor's independent framework becomes standard IR work.

"Preparation" that discriminates against shareholders, blocks information, or bypasses procedure destroys the legitimacy it was meant to defend. Law assumes legitimacy favors those claiming it. Coherence—alignment between stated actions and what law permits—is the final defense.