Japanese companies appear to be steadily implementing the corporate governance code introduced by the Tokyo Stock Exchange a year ago, at least in form. Of the 2,018 firms listed on the first and second sections of the TSE, 78 percent say they are now in compliance with at least 90 percent of the principles set under the code, such as having two or more outside directors on their board. But scandals that have embroiled such leading firms as Toshiba Corp. show that mere compliance in form is no proof against management irregularities and wrongdoing. The question remains whether the new rules will actually enhance transparency in management and improve profitability.

Introduction of the TSE's code was a key feature of the growth strategy of the Abe administration, which is hoping that improved governance of Japanese firms will lure more foreign investors. It sets 73 principles aimed at establishing transparent and quick decision-making mechanisms in the companies, prodding their management to prioritize shareholder interests, and thereby expanding the value and profitability of the firms. Listed companies won't be punished for not following the principles, but they are required to compile reports to explain why to investors.

According to the TSE, 11 percent of listed firms say they had complied with all of the principles by the end of March. One of the principles requires them to appoint at least two "highly independent" outside board directors to reflect the views of outsiders in their management. So far, 59 percent of all listed companies and 78 percent of the major companies listed on the first section — compared with 48 percent a year earlier — have met the requirements. More than 90 percent have complied with the principle for disclosure of their policy on cross-shareholding.