The Companies Act defines an outside director by exclusion. The person must not be an executive director, executive officer or employee of the company or its subsidiaries, and must not have been one in the ten years before appointment. They also cannot be an executive or employee of the parent company, or of a sister company in the same group, and cannot be a close relative of the company's directors or senior staff. The Tokyo Stock Exchange layers its own "independent director" test on top, which also screens out major business partners, advisers paid large fees and major shareholders.
Since March 2021, large public companies with a statutory auditor board that file securities reports must have at least one. The real driver is the Corporate Governance Code. In the exchange's July 2025 survey, 98.8% of Prime Market companies had independent directors making up at least a third of the board, and 26.2% had a majority.
Many of these directors sit on several boards at once. Former chief executives, lawyers, accountants and academics dominate the pool, and the push for women on boards has drawn in a newer group of executives from finance, consulting and foreign companies. The government's target is for women to hold 30% of officer posts at Prime companies by 2030, with an interim goal of 19% by 2025. The Cabinet Office put the figure at 17.7% on 31 July 2025, counting directors, statutory auditors, statutory executive officers and those executive officers appointed by the board with significant delegated authority, as reported in securities reports.
What it means for a foreign employer
- A parent-company executive cannot be one. If your Japan subsidiary ever needs outside directors, perhaps for a joint venture or a listing, regional executives from the group do not qualify.
- Your senior people are in demand. Bilingual executives at foreign companies, especially women, are approached for outside director seats at listed Japanese companies. Decide your policy on outside board roles before someone asks.
- Treat it like any outside role. A board seat at a listed company brings time commitments around the June shareholders' meeting season, potential conflicts and personal liability. Your work rules on side jobs and conflicts should cover it.
- A good sign in a candidate's CV. An outside directorship tells you a senior candidate has standing in the Japanese business community, not only inside one company.
Sources
- Companies Act, Article 2(xv) (definition) and Article 327-2 (mandatory outside director, in force March 2021).
- Tokyo Stock Exchange, survey of independent director appointments at listed companies, July 2025.
- Gender Equality Bureau, Cabinet Office, and Tokyo Stock Exchange, 2030 target for women officers at Prime Market companies (2023).
- Gender Equality Bureau, Cabinet Office, women officers information site (share of women officers at Prime Market companies, 31 July 2025).