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Business trends

Corporate Japan lags in succession planning

Only 11% of surveyed companies have written procedures for choosing leaders

Failing to formulate corporate succession plans could force many smaller businesses to shut down when their leaders retire.

TOKYO -- Nearly half of publicly traded Japanese companies have no established plan for replacing their top executives, pointing to a disconnect between a generally successful push for governance reform and leaders' traditional power to choose their successors.

Among companies on the Tokyo Stock Exchange's first and second sections, 48% say they have no written succession plan in place for chief executives and other top officers, according to a survey by the Ministry of Economy, Trade and Industry. Another 29% are unsure whether such plans exist.

Only 11% said with certainty that they had a succession plan, with fewer than half of such companies sharing the plans with their board members. Around 60% of companies with succession plans had shared them with their nomination committees.

Japan's corporate governance code, in force since June 2015, calls on boards to "engage in the appropriate oversight of succession planning for the CEO and other top executives." Yet while other provisions of the code, such as forming committees to advise on nominations, have caught on quickly, putting succession plans into writing has been a far slower process.

Often, executives appear to keep to themselves many of the specifics surrounding succession. Written plans most commonly -- about three-quarters of the time -- involve the skills, experience and attributes a future leader should possess.

Around half of the companies surveyed have a process in place for choosing new senior executives, while 41% have established criteria for screening potential successors. This is partly because many companies make choosing successors the prerogative of current leaders, according to the economy ministry.

When companies that lack succession plans were asked why, a full half responded that they respected the opinions of current leadership on future appointments. Others have simply put off talk of succession, as current leaders have a fair amount of time left until they reach retirement age or their set terms expire.

The question of whether boards are devoting enough time and resources to succession planning has figured prominently in the Financial Services Agency's discussions on how to follow up on the governance code, suggesting that more steps to prod companies to comply could be coming.

The economy ministry reached out to 2,569 publicly traded companies in December and January for its survey and received replies from 941.

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