The Corporate Governance Code adopted by the Financial Services Agency and the Tokyo Stock Exchange, which urges listed companies to appoint at least two outside directors to their board, takes effect June 1. But just the presence of outside directors or increasing their numbers alone will not improve the firms' governance or their earnings. Merely following the new rule for its own sake will do little for the companies.

An increasing number of Japanese firms have been tapping outside directors for their boards in recent years, following a spate of scandals at major firms, including coverups of financial losses. As of last year, 74 percent of companies listed on the TSE's first section had at least one such director, up from 46 percent in 2009. But while outside directors account for a majority of the board members at many companies in the United States, their presence is still negligible at most Japanese firms. Only 34 percent of first-section firms had two or more outside directors, and the average was a mere 1.8 among companies that have at least one.

In Japan, banks have long maintained a strong influence over the management of companies for which they are main lenders, and the prevalent practice of cross-shareholding between firms is also believed to have stood in the way of moves to bring in outsiders as board members. There is also criticism that outside directors at many Japanese companies, recruited from among executives of affiliated firms or people close to the management, do not provide objective oversight.