By Shingo Hattori — Founder & Managing Partner, Hattori Law
Tel: +81 3 6447 5586
Focus on: Japanese law and best practice put growing emphasis on robust compliance systems and crisis readiness.
The Principle 2.5 of the Japanese Corporate Governance Code stipulates as follows.
“Companies should establish an appropriate framework for whistleblowing such that employees can report illegal or inappropriate behavior, disclosures, or any other serious concerns without fear of suffering from disadvantageous treatment. Also, the framework should allow for objective assessment and appropriate response to the reported issues, and the board should be responsible for both establishing this framework, and ensuring and monitoring its enforcement.”
The Supplementary Principle of the same code stipulates as follows.
“2.5.1 As a part of establishing a framework for whistleblowing, companies should establish a point of contact that is independent of the management (for example, a panel consisting of outside directors and outside kansayaku ”meaning “auditor””). In addition, rules should be established to secure the confidentiality of the information provider and prohibit any disadvantageous treatment.”
Even though there is no clear line for the framework for whistleblowing, there was a whistleblowing case pushing a large company with thousands of employees to squeeze owners of the company in 2024. There are various aspects of this type of case including media exposure. However, it’s clear that preparation or implementation of certain structures is necessary.
A new amendment of Whistleblower Protection Act strengthened whistleblower protections. Companies with over 300 employees infringe on the Act will be criminally punished if the companies do not comply with the government order. And the Act stipulates that the government officer may enter the companies’ office for inspection of books, documents, or other items under Article 16.1 of the Act.
Direct penalties (imprisonment for up to six months or a fine of up to 300,000 JPY, or both) shall be newly established for individuals who dismiss or discipline employees for whistleblowing. The statutory penalty for companies shall be a fine of up to 30 million JPY under Article 21, 23 of the Act.
If foreign companies are criminally punished, it will significantly impact its reputation in Japan. Moreover, it will impact its reputation in other countries as well.
This amendment of the Whistleblower Protection Act was established on June 4, 2025. It will come into effect around the end of 2026.
While Japan has no single “compliance code” law, listed companies must comply with the Corporate Governance Code (integrating ESG and ethics) and the Financial Instruments and Exchange Act (requiring internal control reports). All companies are encouraged to establish codes of conduct and whistleblower hotlines.
The amended Whistleblower Protection Act prohibits retaliation and allows employees, officers or eligible contractors to report misconduct without fear. People obstructing reports face criminal punishment.
Violations of financial regulations or corporate law (e.g., securities fraud, insider trading) can lead to administrative fines or criminal prosecution. For compliance lapses in regulated industries (e.g., environmental spills), companies can face injunctions or shutdown orders. In crisis, stock exchanges or regulators may demand voluntary corrections or even business restructuring.
Not explicitly, but the Corporate Governance Code’s Principle 2.3 connects crisis planning (including disaster preparedness and human rights issues) to long-term value.
“Corporate Governance Principle 2.3
Companies should take appropriate measures to address sustainability issues, including social and environmental matters.”
“Supplementary Principle“
The board should recognize that dealing with sustainability issues, such as taking care of climate change and other global environmental issues, respect of human rights, fair and appropriate treatment of the workforce including caring for their health and working environment, fair and reasonable transactions with suppliers, and crisis management for natural disasters, are important management issues that can lead to earning opportunities as well as risk mitigation, and should further consider addressing these matters positively and proactively in terms of increasing corporate value over the mid-to long-term.”
Increasingly, major Japanese firms have formal crisis committees and are subject to business continuity (BCP) guidelines, especially in finance and healthcare. If you are considering such a transaction, contact my office for a tailored legal support.
Shingo Hattori
Founder, Hattori Law · +81 3 6447 5586 ·
Daini Tokyo Bar Association
Disclaimer: This article provides general information only and does not constitute legal advice. Specific advice requires review of transaction documents and facts.