Corporate Growth Guidelines: Firms Should Move Beyond Shareholder Primacy to Drive Reforms

Editorial

15:00 JST, May 30, 2026

A problem in which Japanese companies have lower profitability compared to their Western counterparts is showing signs of improvement. However, this has resulted in an excessive focus on shareholder returns.

If wages fail to rise and investments do not grow while stock dividends do nothing but increase, the public will not feel the benefits. Both management and investors must drive transformation.

The Economy, Trade and Industry Ministry formulated corporate guidelines in 2014. The starting point for producing the guidelines was the recognition that Japanese companies had settled for low profitability for 20 years following the collapse of the bubble economy.

Because the guidelines were compiled primarily by Kunio Ito, then a professor at a graduate school of Hitotsubashi University, they are often called the “Ito Report.” The document has exerted significant influence over discussions regarding management reform.

At the time, key economic indicators showed that the profitability of Japanese companies was roughly half that of their European and American counterparts. It is true that subsequent reforms have improved the profitability of Japanese companies.

Ordinary profits of Japanese companies, which stood at ¥73 trillion in 2013, grew to ¥131 trillion in 2024. The Nikkei Stock Average, which had been in the mid-10,000 range, surpassed 66,000 this year.

However, growth investments in areas such as research and development, plants and equipment, and human resources have remained flat during this period. In contrast, share buybacks have surged from ¥3 trillion to ¥17 trillion, and dividends have risen sharply from ¥8 trillion to ¥25 trillion.

It has been pointed out that the lack of domestic investment is due to a focus on overseas markets in which growth can be expected. However, according to an analysis by the ministry, growth investments remain lackluster even when overseas investments are taken into account.

The ratio of growth investment to sales revenue for Japanese companies is about 18%, a significant gap compared to the nearly 30% of European and American companies. This situation cannot strengthen the Japanese economy or enrich the public.

The key indicator emphasized in the 2014 guidelines was the percentage of net income to equity capital, which is the funds raised from investors. If a company buys back its own shares and retires them, the amount of equity capital will decrease as a result, thereby raising the percentage.

The fact that companies have resorted to the easy path of share buybacks is certainly a point for reflection.

This time, the ministry has compiled updated guidelines for companies and investors to refocus the discussion on management reform.

Based on an analysis pointing to insufficient growth investment and the imbalance between investment and shareholder returns, the guidelines call for a bold expansion of growth investment.

The guidelines urge investors to avoid making superficial judgments based on a single indicator and instead to assess growth potential before making investments. The government has said it will consider tax incentives and financial support to facilitate smooth business restructuring.

Companies should face up to the issues highlighted in the guidelines, reexamine their current management practices and consider measures that will lead to genuine growth.

(From The Yomiuri Shimbun, May 30, 2026)