The Tokyo Stock Exchange is failing in its duty as a market referee, according to the chairman of a prominent Japanese investment fund.

The TSE must serve as arbiter of the regulations for companies that it started in June 2015, said Yasushi Ando of New Horizon Capital Co., who’s also an adviser to the Tokyo Metropolitan Government.

If it doesn’t, executives will assume they can ignore the rules, which aren’t legally binding, he said.

Bourse operator Japan Exchange Group Inc. says that understanding is wrong.

The TSE introduced the corporate governance code as part of Prime Minister Shinzo Abe’s revitalization strategy, seeking to promote companies’ sustainable growth by making them more responsive to shareholders. The rules are on a comply-or-explain basis: If listed firms don’t follow them, they must tell stock owners why they didn’t.

“The exchange is the judge,” Ando said. “The moment the judge doesn’t make decisions, it becomes irresponsible.”

Ando’s comments come as Japanese companies are beset by a string of scandals this year, ranging from Kobe Steel Ltd.’s data falsification to suspected bid-rigging by construction companies related to the Tokyo-Osaka maglev project.

They also come as attention focuses on Toshiba Corp., which the bourse has so far kept listed after it overstated profit to cover up massive losses in its nuclear business.

“Clamping down on infractions isn’t in keeping with the purpose of the code,” said Shoki Oyabu, a spokesman for Japan Exchange. “We want to make efforts to ensure correct understanding of the purpose.”

The stock exchange explained the objectives of the regulations in a document published in June 2015. The code seeks “growth-oriented governance” by promoting timely, transparent and fair decision-making, it wrote.

“The code does not place excessive emphasis on avoiding and limiting risk or the prevention of corporate scandals,” according to the document. “Rather, its primary purpose is to stimulate healthy corporate entrepreneurship, support sustainable corporate growth and increase corporate value over the mid to long term.”

Ando pointed to two cases where he said the TSE should have stepped in to protect minority shareholders. The first was Panasonic Corp.’s purchase of listed subsidiary PanaHome Corp. this year, which Hong Kong-based hedge fund Oasis Management Co. said was unfair to stock owners other than Panasonic. Panasonic sweetened the deal after Oasis complained.

Panasonic spokeswoman Chieko Gyobu said Panasonic and PanaHome took appropriate steps to ensure fairness and made the deal at a price that gave maximum consideration to minority shareholders’ interests.

The second involved Ando’s own company, New Horizon. In 2016, the private equity firm made a bid for kimono retailer Sagami Co. at a higher price than an existing offer from a different investment fund, Aspirant Group Inc. The target’s parent company at the time, convenience store operator FamilyMart Uny Holdings Co., continued with the sale to Aspirant. Ando said he sent a letter of complaint to the TSE but didn’t get a response.

“We gathered the necessary information and carried out sufficient deliberation of multiple candidates for the sale,” said Katsuya Honda, a spokesman for FamilyMart Uny. “We made the decision based on careful and comprehensive consideration based on the opinions of Sagami’s management as well as matters other than price.”

Still, for Ando, unless the bourse intervenes in such cases, minority shareholders will lose out.

“As long as the exchange doesn’t say anything, people will think that it’s OK not to obey the code,” Ando said. “The TSE should decide whether things are right.”

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