On February 24 2016, the Japan Exchange Regulation (JPX-R)
established the Principles for Dealing with Scandals at Listed
Companies (the Principles). Note that JPX-R only published a
Japanese version of the Principles and, at the time of writing,
has not published an official English translation.
The Principles indicate the following four points, of which
the listed company involved in a scandal should take note. They
cover the time at which the company becomes aware of the
scandal involving it (including scandals involving its group
companies), to the time when it implements measures to prevent
recurrence. They are:
(i) determining the root cause of the scandal;
(ii) securing the independence, neutrality and expertise of
the third-party committee (a direct translation of the Japanese
term daisansha-iinkai) in the case where it is
(iii) deciding on effective measures to prevent recurrence
and implementing these measures promptly; and
(iv) disclosing information promptly and appropriately.
The Principles do not adopt a rules-based approach which
would require each listed company to follow the same rules.
Rather, they adopt a principles-based approach which aims at
listed companies recognising and sharing the important values
represented by the Principles and expects each listed company
to interpret the Principles according to the company's
In recent times, this principles-based approach has been
adopted on many occasions in Japan. Specific examples include:
the Principles for Responsible Institutional Investors (Japan's
Stewardship Code), established by the Council of Experts
Concerning the Japanese Version of the Stewardship Code on
February 26 2014; the Principles for Equity Financing,
established by JPX-R on October 1 2014; and, Japan's Corporate
Governance Code, established by the Tokyo Stock Exchange on
June 1 2015.
JPX-R will not take measures (including penalties and
improvement measures) against listed companies based solely on
the fact that the companies are not following the Principles;
however, the Principles will have an impact on the risk and
crisis management practices of listed companies.
It is important for listed companies facing scandals or
irregularities to comprehend the content of the Principles.
They should examine how to overcome any resulting difficulties
in view of the recent cases where well-known listed companies
have engaged in misconduct such as data manipulation and
accounting irregularities and then fallen into serious