Outside directors are meant to be the guardrail of Japanese corporate governance, yet at Nidec they were kept out of the loop and at the Cool Japan Fund the board looked sturdy while responsibility for investment decisions stayed vague, JBpress reported.
The two cases have revived a question that the Tokyo Stock Exchange's listing rules were supposed to settle. Prime Market companies are asked to have outside directors make up at least a third of the board. The rule assumes those directors see what the company is doing.
ESG — environmental, social and governance factors — has become a familiar term in Japan. The governance part gets the least attention, and the outside director sits at its center.
Nidec's outsiders left outside
At Nidec, the outside directors were placed outside the tent — 蚊帳の外 (kaya no soto), shut out of the discussion. The board had the outside members the rules call for. They were not in the room where it counted.
The case undercuts the premise of the listing rule. A board can meet the numerical target and still leave its outside members without the information or the access to do the monitoring job they were appointed for.
Cool Japan Fund's impressive-looking board
The Cool Japan Fund — a public-private fund set up to back Japanese content and culture overseas — presents the opposite failure. Its governance looks impressive on paper, JBpress reported. The weakness lies in who answers for an investment once the decision is made.
Responsibility for investment decisions at the fund is ambiguous. A board can be stocked with qualified outsiders and still leave accountability for the money it commits unclear.
Why insiders alone are a risk
A board drawn only from internal promotions tends to close in on itself. The same thinking hardens into fixed ideas, and the checks on management weaken. Outside directors are meant to break both patterns.
The Tokyo Stock Exchange's guidance reflects that logic. Prime Market companies are asked to fill at least a third of their boards with outside directors, on the view that a more open board produces better management.
Nidec and the Cool Japan Fund suggest the number is the easy part. Whether an outside director is heard, and whether anyone is answerable when a decision goes wrong, are separate questions.