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Abstract：Recently， enterprises started to show interests in co-prosperity of businesses and global environments and soundness of corporate governance in line with SDGs （Sustainable Development Goals （2015））. In addition to business profits， contribution of a business to addressing a social issue will be a criterion of investment into a corporate activity. Active investment into global environments or businesses contributing to the society， which is called ESG investment， is also increasing on a global scale. ESG investment means to analyze corporate businesses in relation to environments， society， and corporate governance and to invest into highly estimated businesses. For example， enterprises that reduce CO2 emissions or maintain sound corporate governance deserve respect and become growth engines in the future.
Keywords： shareholder values；social enterprises；governance；institutional investors；outside directors
1. Introduction
SMITOMO Corporation in Japan announced 6 priorities for co-prosperity with the society in 2016 year-end briefing meeting. The core elements of these priorities were co-prosperity of businesses and global environments and soundness of corporate governance in line with SDGs （Sustainable Development Goals （2015））. In addition to business profits， contribution of a business to addressing a social issue will be a criterion of investment into a corporate activity. Active investment into global environments or businesses contributing to the society， which is called ESG investment （2）， is also increasing on a global scale. ESG investment means to analyze corporate businesses in relation to environments， society， and corporate governance and to invest into highly estimated businesses （2017） （3）. For example， enterprises that reduce CO2 emissions or maintain sound corporate governance deserve respect and become growth engines in the future. Promoting ESG investment， the U.N. proposed PRI （Social Responsibility Investment） in 2006 （4）. At present， more than 1，700 pension fund operators around the globe have signed to join， and the invested asset amounts to USD 62 trillion in total. 55 organizations including GPIF （Government Pension Investment Fund） and large-scale life insurance companies in Japan also have signed. As leaders of responsible investment groups support enterprises that are active in addressing social issues and improving social environments， investors can fulfill their social responsibilities for the nation and the next generation. 2. Importance of Shareholder Values
it is not fulfilling its responsibility to shareholders. For this reason， the issue of Japanese corporations' low-dividend payouts has aroused criticism recently. Apple's Timothy D. "Tim" Cook （CEO） did something that Steve Paul Jobs would never have done. He purchased treasury stocks， executed stock split， and increased dividends significantly. For the last 2 years， Apple has returned USD 740 billion in total to shareholders by purchasing treasury stocks and paying dividends. Profit-sharing for shareholders creates more values for the corporation. It is also effective in improving the corporate image， increasing investment values， facilitating capital procurement， and promoting investment. As to the MSCI of each country （Morgan Stanley Capital International index）， that of New Zealand is 76.1%， the highest among 45 countries. That of the U.K. is 51.6%， Germany 38.4%， the U.S. 32.3%， and Japan 27.9%. In general， the amount of dividends is large among advanced countries， but that of Japanese corporations is the smallest（Table1）.
The number of Japanese investors introducing the principle of institutional investment also is increasing. As more consideration is given to shareholders than before， the stewardship code （5） is drawing attention. The stewardship code is an action guide specifying that an institutional investor shall operate assets in pursuit of profit maximization as if it is a steward who manages trusters' assets. This is also a norm for institutional investors to pursue sustainable growth and improve corporate values in a long run. Since its beginning in the U.K. in 2012， the stewardship code has been introduced into Netherlands， Germany， Canada， Japan， Hong Kong， Australia， and so forth.
3. Transparent Business Management and Shareholder Value Creation
Japanese corporations' attitudes may be divided mainly into the following three： One is to maintain corporate governance. Corporations may be divided into the following three groups： Group 1 where 10% corporations are keenly aware of the importance of corporate governanceand run a business in a capital-efficiency manner； Group 2 where 50 to 60% corporations are aware but not certain about specifically what to do about it； and Group 3 where the rest corporations are not
interested in corporate governance at all. Among these， how Group 2 has made changes substantially counts. The focus is on predicting the course of governance reform. Particularly， corporate governance is improving gradually. About 2 years ago， corporations with at least 2 independent outside directors accounted for only 50%， but now， the ratio reaches 80%. Since the directives for corporate governance were introduced， new price indexes of stocks （JPX=nikkei stock average index400） have been introduced including ROE that seeks corporations meeting shareholder-oriented conditions only. Such new price indexes of stocks have been proved effective. According to the research of University of Toronto and Harvard Business School， ROE increased significantly among large companies previously failing to meet the standards in pursuit of obtaining the prestige of maintaining such indexes. The contribution of such movement to profit increase among Japanese corporations accounted for 16% （University of Toronto and Harvard Business School， 2017）. As part of its corporate governance reform and corporate growth strategies， Japan introduced the corporate governance code in June 2015. Accordingly， listed corporations are obligated to introduce multiple outside director system in order to secure corporate governance soundness. in May 2015. As the institute installing an audit and supervisory committee was founded， outside directors would take the audit function that was practiced in most Japanese corporations. This institution was designed specifically because the percentage of outside directors was low. In addition， the prestige of CG reports that were required among listed companies was low as well. According to the survey conducted by NOMURA stock company in January 2016 among institutional investors， corporations not referring to CG reports at all accounted for 90 % （Nomura Investor Relations，2017）. Although each corporation has to present their own explanation or assertion， but most corporations have little interest in CG reports. Although the number of outside directors is increasing among Japanese corporations， many of them are lawyers， accountants， or scholars while the percentage of individuals with a wealth of experience in business management is low. This problem is evident in a survey on perceptions among investors at home and abroad. The percentage of investors satisfying with business management of Japanese corporations was 29% in 2015 decreased to 23% in 2016. （Fig 1）
3.1 Transparent Business Management and Establishment of the Audit and Supervisory Committee
Recently， many corporations establish the audit and supervisory committee （6）. The audit and supervisory committee consists of at least 3 directors， and the majority need to be outside directors. This is an institutional instrument for corporations that was newly introduced in replacement of the existing audit committee system according to the Company Act revised in May 2015. This committee is in charge of auditing directors' performance of duties. This committee is a a transitional form between the company installing an audit committee and the audit and supervisory committee. As a form of third-party company， this system has been spread rapidly. This is a form of organization established in line with the revised Company Act. The majority of audit and supervisory committee members need to be outside directors， and there is no separate audit committee. Since a listed company is obligatory to appoint 2 outside auditors， if a company with an audit committee establishes the audit and supervisory committee， the two outside auditors can act as outside directors. The number of companies adopting this system is increasing drastically since its application is relatively simple. Vitec Holding adopted this system in 2015， and the number of companies applying this committee system was 600 in 2016， which accounted for 20% of the entire listed companies. In contrast， the number of companies adopting the nominating committee system （7）， which was regarded as an ideal form of corporate governance， has been only 69 since its initiation in 2013. Not many listed companies understand the meaning of the audit and supervisory committee correctly.
3.2 Transparent Management and the Nominating and Remuneration Committee
In many cases， the existing audit committee is often renamed to the remuneration committee， and the members are appointed arbitrarily. The members are appointed arbitrarily from inside or outside the corporation， and even it is not obligatory to initiate it immediately. Since Tokyo Stock Exchange requires companies to indicate it in corporate governance reports， statistical analysis on how many corporations have installed the committee is solely based on the corporate governance reports submitted to Since Tokyo Stock Exchange. As of 2016， the number of companies that installed it is 503， among which， only 49 have installed the audit and supervisory committee. The rest 454 are institutions installing an audit committee. A company with an audit committee ispreferred because it is easy to report only by installing the appointment and remuneration committee arbitrarily. For example， SECOM drew attention as its chairman and president were dismissed suddenly. In fact， it established the arbitrary appointment and remuneration committee （8）. Although the committee held meetings many times， it failed to make a final conclusion and thus the board of directors decided to dismiss them. However， the procedures were not disclosed externally. Only a day before the effectuation， it was made known through the notification of the general shareholder meeting that the committee would be installed in March 2015 with 5 members including 2 outside directors. 3.3 Transparent Business Management and Institutional Investors
The “Government Pension Investment Fund （GPIF） is the world largest investor that operates about 140 trillion yen of national pension reserves in Japan （9）. Once the communication between a corporation and an investor proceeds， the efficiency of the capital market is likely to be improved as the corporation acts in reflection of the investor's expectation. In view of a pension fund， it is ideal to reach β （profits in line with stock exchange indexes） rather than α （profits that exceed stock exchange indexes）. Last year， SC items were added to the evaluation of passive fiduciary consulting agencies and the weight is increasing. In most cases， once stocks of a pension fund are purchased， they continue to be held. The purchasing company becomes a strong stockholder. It is also pointed out mainly among foreign investors that GPIF shall fulfill its responsibilities as an investor to the full. However， this view is different from the general opinion in the West and Japan where shareholders tend to hold stocks for a relatively short period of time. Viewing SC as a rule to be complied with might be rather dangerous. At present， shareholders' voting right is entrusted to a fiduciary consulting agency， but the GPIF is not exercising the right directly.
4.Conclusion
In the case of the U.K.， the payout ratio exceeds 50% while that of Japan is the lowest among advanced countries. While being criticized by investors due to their indifference to shareholders， Japanese enterprises start to consider shareholders by increasing the amount of dividends and applying the stewardship code. This system aims to secure governance transparency and profit returning to shareholders.
To this end， outside director system has been introduced in various forms for better corporate governance. The basic purpose of outside director system is to organize a group of individuals not directly related to the executive management of the company and to let them supervisor and present advice on corporate management conditions. Among Japanese investors， the reliability of Japanese enterprises is as low as 23%. Recently， the number of Japanese enterprises installing the audit and supervisory committee is increasing， but they are rather passive in introducing the nominating and remuneration committee which is viewed as an ideal mechanism for corporate governance. In the future， a lot of efforts need to be put forth into improving corporate governance in order for Japanese enterprises to obtain shareholders' support and long-term growth as in the case of other advanced corporations. Note：
（1）Sustainable Development Goals were adopted by the U.N. as an agenda in 2015. They are effective until 2030 and include 17 objectives， 169 goals， and 230 indexes.
（2）This term stands for 'environment， social， and governance.' It means to evaluate the enterprise's contribution to employees， customers， shareholders， and environments and how transparent the governance is in a non-financial framework.
（3） According to'Japanese Economic Daily' on October 18， 2017， the balance of 'ESG Investment' that evaluates a corporation's 'Environment， Social， and Governance' amounted to USD 23 trillion， which corresponds to 30% of the entire global working capital.
（4） Social Responsibility Investment （PRI） means to invest into ethical， transparent， and eco-friendly enterprises and to avoid enterprises that are non-ethical and destroy environments.
（5） The role of institutional investors is not limited merely to holding stocks and exercising voting rights. Rather， it is sought to contribute to the sustainable growth of a corporation by communicating with it actively and to maximize customers' profits.
（6）Considering the industry， size， business characteristics， institutional design and environment surrounding the company collectively， it is necessary to appoint independent outside directors at least one-third at the risk of independent judgment.
（7）A 'company installing the nominating committee' indicates the internal structure of a corporation in Japan installing the nominating committee， auditing committee， or remuneration committee （Article 2-12 of the Company Act
（8） The nominating and remuneration committee is established in order to improve the transparency in such matters as nomination of directors and audits and remuneration of directors and executive officers.
（9）The GPIF is the world-largest pension fund. It is even larger than the GPFG （Government Pension Fund Global） in Norway. The foreign exchange holding of China amounts to USD 3 trillion. Large-scale private investment managers include Black Rock （about USD 5.7 trillion） and Vanguard Group （about USD 4.4 trillion）.
REFERENCES：
[1]University of Toronto and Harvard Business School. QS Global 250 Business Schools Report， 2017.
[2]Nomura Investor Relations. Institutional Investor Survey. Nomura Investor Relations Co， 2017.
[3]Japanese economy newspaper， 2017，10，18.
[4]Yanagi， R.， H. What was Japan's corporate governance reform evaluated for， Corporate accounting. Central Economic Corporation， 2016.
[5]Itou， H.， K. Overrisk-the-hour management. Japanese economy newspaper， 2016.
[6]Yanagi， R.， H. ROE Revolution's Financial Strategy. Central Economic Corporation， 2015.
[7]PRESIDENT. Outside directors should be appointed as monthly directors of Japanese companies， 2015，7，23.
[8]Choi， S.， B. Issues in the Japanese Corporate Governance Structure and the Need for Enhanced Surveillance Systems， Journal of Japanese Language and Literature， Vol 59. The Japanese Language and Literature Society of Korea， 2013. ：155-163.
[9]Bena. J.， and H. Ortiz-Molina. Pyramidal ownership and the creation of new firms. Journal of Financial Economics 108， 2013.： 798-821.
Keywords： shareholder values；social enterprises；governance；institutional investors；outside directors
1. Introduction
SMITOMO Corporation in Japan announced 6 priorities for co-prosperity with the society in 2016 year-end briefing meeting. The core elements of these priorities were co-prosperity of businesses and global environments and soundness of corporate governance in line with SDGs （Sustainable Development Goals （2015））. In addition to business profits， contribution of a business to addressing a social issue will be a criterion of investment into a corporate activity. Active investment into global environments or businesses contributing to the society， which is called ESG investment （2）， is also increasing on a global scale. ESG investment means to analyze corporate businesses in relation to environments， society， and corporate governance and to invest into highly estimated businesses （2017） （3）. For example， enterprises that reduce CO2 emissions or maintain sound corporate governance deserve respect and become growth engines in the future. Promoting ESG investment， the U.N. proposed PRI （Social Responsibility Investment） in 2006 （4）. At present， more than 1，700 pension fund operators around the globe have signed to join， and the invested asset amounts to USD 62 trillion in total. 55 organizations including GPIF （Government Pension Investment Fund） and large-scale life insurance companies in Japan also have signed. As leaders of responsible investment groups support enterprises that are active in addressing social issues and improving social environments， investors can fulfill their social responsibilities for the nation and the next generation. 2. Importance of Shareholder Values
it is not fulfilling its responsibility to shareholders. For this reason， the issue of Japanese corporations' low-dividend payouts has aroused criticism recently. Apple's Timothy D. "Tim" Cook （CEO） did something that Steve Paul Jobs would never have done. He purchased treasury stocks， executed stock split， and increased dividends significantly. For the last 2 years， Apple has returned USD 740 billion in total to shareholders by purchasing treasury stocks and paying dividends. Profit-sharing for shareholders creates more values for the corporation. It is also effective in improving the corporate image， increasing investment values， facilitating capital procurement， and promoting investment. As to the MSCI of each country （Morgan Stanley Capital International index）， that of New Zealand is 76.1%， the highest among 45 countries. That of the U.K. is 51.6%， Germany 38.4%， the U.S. 32.3%， and Japan 27.9%. In general， the amount of dividends is large among advanced countries， but that of Japanese corporations is the smallest（Table1）.
The number of Japanese investors introducing the principle of institutional investment also is increasing. As more consideration is given to shareholders than before， the stewardship code （5） is drawing attention. The stewardship code is an action guide specifying that an institutional investor shall operate assets in pursuit of profit maximization as if it is a steward who manages trusters' assets. This is also a norm for institutional investors to pursue sustainable growth and improve corporate values in a long run. Since its beginning in the U.K. in 2012， the stewardship code has been introduced into Netherlands， Germany， Canada， Japan， Hong Kong， Australia， and so forth.
3. Transparent Business Management and Shareholder Value Creation
Japanese corporations' attitudes may be divided mainly into the following three： One is to maintain corporate governance. Corporations may be divided into the following three groups： Group 1 where 10% corporations are keenly aware of the importance of corporate governanceand run a business in a capital-efficiency manner； Group 2 where 50 to 60% corporations are aware but not certain about specifically what to do about it； and Group 3 where the rest corporations are not
interested in corporate governance at all. Among these， how Group 2 has made changes substantially counts. The focus is on predicting the course of governance reform. Particularly， corporate governance is improving gradually. About 2 years ago， corporations with at least 2 independent outside directors accounted for only 50%， but now， the ratio reaches 80%. Since the directives for corporate governance were introduced， new price indexes of stocks （JPX=nikkei stock average index400） have been introduced including ROE that seeks corporations meeting shareholder-oriented conditions only. Such new price indexes of stocks have been proved effective. According to the research of University of Toronto and Harvard Business School， ROE increased significantly among large companies previously failing to meet the standards in pursuit of obtaining the prestige of maintaining such indexes. The contribution of such movement to profit increase among Japanese corporations accounted for 16% （University of Toronto and Harvard Business School， 2017）. As part of its corporate governance reform and corporate growth strategies， Japan introduced the corporate governance code in June 2015. Accordingly， listed corporations are obligated to introduce multiple outside director system in order to secure corporate governance soundness. in May 2015. As the institute installing an audit and supervisory committee was founded， outside directors would take the audit function that was practiced in most Japanese corporations. This institution was designed specifically because the percentage of outside directors was low. In addition， the prestige of CG reports that were required among listed companies was low as well. According to the survey conducted by NOMURA stock company in January 2016 among institutional investors， corporations not referring to CG reports at all accounted for 90 % （Nomura Investor Relations，2017）. Although each corporation has to present their own explanation or assertion， but most corporations have little interest in CG reports. Although the number of outside directors is increasing among Japanese corporations， many of them are lawyers， accountants， or scholars while the percentage of individuals with a wealth of experience in business management is low. This problem is evident in a survey on perceptions among investors at home and abroad. The percentage of investors satisfying with business management of Japanese corporations was 29% in 2015 decreased to 23% in 2016. （Fig 1）
3.1 Transparent Business Management and Establishment of the Audit and Supervisory Committee
Recently， many corporations establish the audit and supervisory committee （6）. The audit and supervisory committee consists of at least 3 directors， and the majority need to be outside directors. This is an institutional instrument for corporations that was newly introduced in replacement of the existing audit committee system according to the Company Act revised in May 2015. This committee is in charge of auditing directors' performance of duties. This committee is a a transitional form between the company installing an audit committee and the audit and supervisory committee. As a form of third-party company， this system has been spread rapidly. This is a form of organization established in line with the revised Company Act. The majority of audit and supervisory committee members need to be outside directors， and there is no separate audit committee. Since a listed company is obligatory to appoint 2 outside auditors， if a company with an audit committee establishes the audit and supervisory committee， the two outside auditors can act as outside directors. The number of companies adopting this system is increasing drastically since its application is relatively simple. Vitec Holding adopted this system in 2015， and the number of companies applying this committee system was 600 in 2016， which accounted for 20% of the entire listed companies. In contrast， the number of companies adopting the nominating committee system （7）， which was regarded as an ideal form of corporate governance， has been only 69 since its initiation in 2013. Not many listed companies understand the meaning of the audit and supervisory committee correctly.
3.2 Transparent Management and the Nominating and Remuneration Committee
In many cases， the existing audit committee is often renamed to the remuneration committee， and the members are appointed arbitrarily. The members are appointed arbitrarily from inside or outside the corporation， and even it is not obligatory to initiate it immediately. Since Tokyo Stock Exchange requires companies to indicate it in corporate governance reports， statistical analysis on how many corporations have installed the committee is solely based on the corporate governance reports submitted to Since Tokyo Stock Exchange. As of 2016， the number of companies that installed it is 503， among which， only 49 have installed the audit and supervisory committee. The rest 454 are institutions installing an audit committee. A company with an audit committee ispreferred because it is easy to report only by installing the appointment and remuneration committee arbitrarily. For example， SECOM drew attention as its chairman and president were dismissed suddenly. In fact， it established the arbitrary appointment and remuneration committee （8）. Although the committee held meetings many times， it failed to make a final conclusion and thus the board of directors decided to dismiss them. However， the procedures were not disclosed externally. Only a day before the effectuation， it was made known through the notification of the general shareholder meeting that the committee would be installed in March 2015 with 5 members including 2 outside directors. 3.3 Transparent Business Management and Institutional Investors
The “Government Pension Investment Fund （GPIF） is the world largest investor that operates about 140 trillion yen of national pension reserves in Japan （9）. Once the communication between a corporation and an investor proceeds， the efficiency of the capital market is likely to be improved as the corporation acts in reflection of the investor's expectation. In view of a pension fund， it is ideal to reach β （profits in line with stock exchange indexes） rather than α （profits that exceed stock exchange indexes）. Last year， SC items were added to the evaluation of passive fiduciary consulting agencies and the weight is increasing. In most cases， once stocks of a pension fund are purchased， they continue to be held. The purchasing company becomes a strong stockholder. It is also pointed out mainly among foreign investors that GPIF shall fulfill its responsibilities as an investor to the full. However， this view is different from the general opinion in the West and Japan where shareholders tend to hold stocks for a relatively short period of time. Viewing SC as a rule to be complied with might be rather dangerous. At present， shareholders' voting right is entrusted to a fiduciary consulting agency， but the GPIF is not exercising the right directly.
4.Conclusion
In the case of the U.K.， the payout ratio exceeds 50% while that of Japan is the lowest among advanced countries. While being criticized by investors due to their indifference to shareholders， Japanese enterprises start to consider shareholders by increasing the amount of dividends and applying the stewardship code. This system aims to secure governance transparency and profit returning to shareholders.
To this end， outside director system has been introduced in various forms for better corporate governance. The basic purpose of outside director system is to organize a group of individuals not directly related to the executive management of the company and to let them supervisor and present advice on corporate management conditions. Among Japanese investors， the reliability of Japanese enterprises is as low as 23%. Recently， the number of Japanese enterprises installing the audit and supervisory committee is increasing， but they are rather passive in introducing the nominating and remuneration committee which is viewed as an ideal mechanism for corporate governance. In the future， a lot of efforts need to be put forth into improving corporate governance in order for Japanese enterprises to obtain shareholders' support and long-term growth as in the case of other advanced corporations. Note：
（1）Sustainable Development Goals were adopted by the U.N. as an agenda in 2015. They are effective until 2030 and include 17 objectives， 169 goals， and 230 indexes.
（2）This term stands for 'environment， social， and governance.' It means to evaluate the enterprise's contribution to employees， customers， shareholders， and environments and how transparent the governance is in a non-financial framework.
（3） According to'Japanese Economic Daily' on October 18， 2017， the balance of 'ESG Investment' that evaluates a corporation's 'Environment， Social， and Governance' amounted to USD 23 trillion， which corresponds to 30% of the entire global working capital.
（4） Social Responsibility Investment （PRI） means to invest into ethical， transparent， and eco-friendly enterprises and to avoid enterprises that are non-ethical and destroy environments.
（5） The role of institutional investors is not limited merely to holding stocks and exercising voting rights. Rather， it is sought to contribute to the sustainable growth of a corporation by communicating with it actively and to maximize customers' profits.
（6）Considering the industry， size， business characteristics， institutional design and environment surrounding the company collectively， it is necessary to appoint independent outside directors at least one-third at the risk of independent judgment.
（7）A 'company installing the nominating committee' indicates the internal structure of a corporation in Japan installing the nominating committee， auditing committee， or remuneration committee （Article 2-12 of the Company Act
（8） The nominating and remuneration committee is established in order to improve the transparency in such matters as nomination of directors and audits and remuneration of directors and executive officers.
（9）The GPIF is the world-largest pension fund. It is even larger than the GPFG （Government Pension Fund Global） in Norway. The foreign exchange holding of China amounts to USD 3 trillion. Large-scale private investment managers include Black Rock （about USD 5.7 trillion） and Vanguard Group （about USD 4.4 trillion）.
REFERENCES：
[1]University of Toronto and Harvard Business School. QS Global 250 Business Schools Report， 2017.
[2]Nomura Investor Relations. Institutional Investor Survey. Nomura Investor Relations Co， 2017.
[3]Japanese economy newspaper， 2017，10，18.
[4]Yanagi， R.， H. What was Japan's corporate governance reform evaluated for， Corporate accounting. Central Economic Corporation， 2016.
[5]Itou， H.， K. Overrisk-the-hour management. Japanese economy newspaper， 2016.
[6]Yanagi， R.， H. ROE Revolution's Financial Strategy. Central Economic Corporation， 2015.
[7]PRESIDENT. Outside directors should be appointed as monthly directors of Japanese companies， 2015，7，23.
[8]Choi， S.， B. Issues in the Japanese Corporate Governance Structure and the Need for Enhanced Surveillance Systems， Journal of Japanese Language and Literature， Vol 59. The Japanese Language and Literature Society of Korea， 2013. ：155-163.
[9]Bena. J.， and H. Ortiz-Molina. Pyramidal ownership and the creation of new firms. Journal of Financial Economics 108， 2013.： 798-821.