Prime Minister Shinzo Abe has certainly tried to improve Japan's corporate governance. Last year, Tokyo introduced a stewardship code encouraging investors to pressure underperforming CEOs, and launched an index of 400 domestic companies that regulators believe use their cash stockpiles well. Next month it will release a national code of conduct for executives: Companies will be asked to include at least two outside directors on their boards or explain why they shouldn't have to. Abe is also asking companies to invite more women into the executive suite. Diversity in the boardroom, the government hopes, will enhance oversight.
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Bloomberg Intelligence analyst Gregory Elders tackled the first question in a May 12 report titled "Toshiba May Awaken Olympus Accounting Concerns in Insider Japan." As Elders points out, Toshiba's board has a number of so-called insider directors who have worked for the company for an average of 38 years. Toshiba's poor accounting, he argues, "highlights how insider boards may struggle to challenge management." Rather than asking companies to bring on more outsiders, as Abe has done, Tokyo should mandate they do so, with penalties to ensure enforcement.