Governance Corporate Governance

• Corporate Governance Report

• Basic Approach

• Corporate Governance System

• Succession Plan for the President and Representative Director

• Analysis and Assessment of the Effectiveness of the Board of Directors

• Executive Training

• Executives

• Executive Compensation

• Internal Control System

• Policy on Shares held
  for Policy Purposes

• Basic Policy
  on Controlling Interest

We submit reports on corporate governance to the Tokyo Stock Exchange.

Our basic policy of corporate governance is to ensure the legality, transparency, and swiftness of management and to improve management efficiency in order to earn the trust of society and increase our corporate value over the medium and long term.

We have established a Board of Directors and an Audit & Supervisory Board Member’s Office. We have also introduced an executive officer system to optimize the number of directors, clarify management decision-making and supervisory functions on one side and business execution functions on the other, and ensure prompt and responsive management.

Corporate Governance System Chart

Board of Directors

The Board of Directors presently comprises 12 members (including seven outside directors) and meets monthly, in principle, and as needed. The Board of Directors makes decisions on important matters in accordance with the rules for the Board of Directors in addition to matters stipulated by laws, regulations, and the Articles of Incorporation, and supervises the directors’ execution of duties.

Outside directors strive to fulfill their expected roles, for example by providing helpful observations and opinions at meetings of the Board of Directors and other meetings from objective, professional viewpoints independent of the execution of business operations.

The Board of Directors works to improve management efficiency and ensure the legality and adequacy of business execution by making important business decisions and supervising the directors’ execution of duties.

Audit & Supervisory Board Member’s Office

The Audit & Supervisory Board Member’s Office presently comprises four members (including three outside directors) and meets monthly, in principle, and as needed. The Audit & Supervisory Board Member’s Office supervises the directors’ execution of duties, including reporting audit results to the Board of Directors.

Management Council and Internal Control Committee

We have established a Management Council to deliberate on important management matters and expedite decisions on allocating management resources, and an Internal Control Committee to laterally promote the development and operation of internal control systems for the Company and the Group.

Governance, Nomination and Compensation Committee

We have voluntarily established a Governance, Nomination and Compensation Committee to provide consultation to the Board of Directors and deliberate on the appointment, reappointment, and dismissal of directors, Audit & Supervisory Board members, and executive officers of the Company as well as representative directors and auditors of affiliates (excluding affiliates of minor importance to the Company), provide recommendations to the Board of Directors (except on the appointment and reappointment of Company Audit & Supervisory Board members, which require the consent of the Company Audit & Supervisory Board Member’s Office), and deliberate on the compensation of directors (excluding directors who are Audit & Supervisory Board members) and executive officers of the Company and representative directors of affiliates. Independent outside directors comprise a majority of the Governance, Nomination and Compensation Committee.

Members of the Board of Directors and Committees

Title	Name	Board of Directors	Management Council	Audit & Supervisory Board Member’s Office	Governance, Nomination and Compensation Committee	Internal Control Committee	ESG Promotion Committee
President and Representative Director, COO	Kazuhito Kojima	〇	◎		〇	◎	◎
Director and Managing Executive Officer	Tadashi Kamiya	〇	〇			〇	〇
Director and Managing Executive Officer	Toshikazu Yokote	〇	〇			〇	〇
Director and Managing Executive Officer	Hiroshi Kubota	〇	〇			〇	〇
Outside director	Shuma Uchino	◎			〇
Outside director	Atsushi Takagi	〇			◎
Outside director	Yoko Seki	〇			〇
Outside director	Hideka Morimoto	〇			〇
Director (Audit & Supervisory Board member)	Masato Nakamura	〇		◎
Director (Audit & Supervisory Board member)	Kazuo Sakakibara	〇		〇
Director (Audit & Supervisory Board member)	Hiroyuki Hioka	〇		〇
Director (Audit & Supervisory Board member)	Hiroyuki Wakamatsu	〇		〇

〇: Member ◎: Chair

In addition to the above, directors who are Audit & Supervisory Board members, the Accounting Auditors, and the Internal Audit Office work together to enhance corporate governance by conducting effective audits.

Audit & Supervisory Board Member’s Office

We presently have four directors who are Audit & Supervisory Board members (including three outside directors). In accordance with the audit policy and audit plan set out by the Audit & Supervisory Board Member’s Office, directors who are Audit & Supervisory Board members monitor the status of governance, attend meetings of the Board of Directors and other important meetings, inspect important approval documents, and visit business locations in addition to collaborating with the Accounting Auditors and internal audit departments and taking other steps to conduct effective audits of directors’ execution of duties.
As for subsidiaries, we exchange information with the directors, Audit & Supervisory Board members, and other members of subsidiaries at meetings of the Group Management Council, the Group Audit & Supervisory Board, and others in an effort to promote collaboration. Outside directors who are members of the Audit & Supervisory Board—which include one attorney and one certified public accountant—all obtain and provide information from independent viewpoints and monitor circumstances from an outside perspective.
Conversely, directors who are full-time Audit & Supervisory Board members monitor circumstances from positions of expertise based on their ample experience with the Company, thereby enhancing the effectiveness of audits from their respective viewpoints.

Internal Audits

We have established an Internal Audit Office (ten staff members) under the direct control of the president to systematically audit the propriety and efficiency of business operations from an independent viewpoint based on the Internal Audit Regulations. As for subsidiaries, we exchange information and take other actions as necessary. The Internal Audit Office reports audit results to the President and Representative Director and checks the implementation status of necessary measures and improvements. The office also assesses the Company’s and major consolidated subsidiaries’ operation of internal control over financial reporting. The office works with directors who are Audit & Supervisory Board members and the Accounting Auditors to conduct effective internal audits.

Accounting Auditors

Accounting audits of the Company are performed by two certified public accountants belonging to KPMG AZSA LLC.
Employees who perform these duties are properly rotated, with none involved in audit work for more than seven consecutive accounting periods. Notably, they are assisted by seven certified public accountants and 16 others.

To ensure transparency and objectivity in passing the position of President and Representative Director to a successor, the Succession Plan for the President and Representative Director requires that policy and plans for developing the successor, the progress of the policy and plans, and the like are reported to the Governance, Nomination and Compensation Committee, which then deliberates on the matters. When it is time to pass the position to a successor, the President and Representative Director proposes the most suitable candidates to the Governance, Nomination and Compensation Committee, which then deliberates on the matters and reports the results to the Board of Directors.

To ensure the effectiveness and efficiency of the Board of Directors, an annual assessment of their effectiveness is conducted based on individual directors’ self-assessments. Each director conducts a self-assessment using the Self-Evaluation Sheet. The representative director and outside directors discuss the results, which are then analyzed and assessed by the Board of Directors.

The following is a summary of the results of the analysis and assessment for FY2022, which we believe has ensured the effectiveness and efficiency of the Board of Directors as a whole. We will use these results to strive to further enhance the supervisory and decision-making functions of the Board of Directors.

• As a result of further enhancement of deliberations by the Management Council under the Board of Directors, the Internal Control Committee, and the ESG Promotion Committee, it was confirmed that the Board of Directors continues to fulfill its responsibilities of highly effective supervision and proper risk management systems.
• The Board of Directors was found to be active, characterized by free, open-minded, broad-ranging, and constructive discussions and sufficient deliberation. The Board of Directors also indicated that authority should be further transferred to the Management Council and other bodies and that the Board of Directors should further enhance more multifaceted discussions by focusing on agenda items pertaining to the medium- and long-term course of management, succession plans, and the internal control system while strengthening its function of monitoring the status of business execution.
• Additionally, the Board of Directors indicated that outside directors’ attendance at meetings, visits to branch offices, and other activities have increased opportunities for dialogue with employees, and that opportunities to share information with inside and outside directors should be further expanded in the future to further invigorate mutual exchanges of opinions.

Policy for Training for Directors

We believe that the knowledge required of directors can be broadly separated into specific knowledge about the business, finances, organizational structure, and other aspects of the Company and general knowledge about the roles and responsibilities (including legal responsibilities) required of directors.
Each year, the executive directors strive to further their understanding of the business, finances, organizational, and other aspects of the Company through discussions at the Management Issues Review Committee. Additionally, executive directors and inside directors who are Audit & Supervisory Board members strive to understand the roles and responsibilities required of directors of their standing, for example by attending training sessions led by outside experts.
We provide explanations of the business, finances, organizational structure, and other aspects of the Company to outside directors when they are appointed and as necessary, encourage them to acquire the knowledge they need to serve in their positions, and strive to create environments in which they can fulfill the roles required of them.
We also provide and facilitate opportunities for individual directors to acquire the necessary knowledge and update accordingly, as well as support for the necessary expenses. Notably, the Board of Directors regularly checks the status of training for executive directors and inside directors who are members of the Audit & Supervisory Board.

Click the button below to view a list of executives.

• Executives

Regarding director compensation, maximums for the total amount of compensation and the like for each of the directors (excluding directors who are Audit & Supervisory Board members) and directors who are Audit & Supervisory Board members is determined by resolution at Shareholders Meetings.

To enhance the independence, objectivity, and transparency of executive compensation, we have voluntarily established a Governance, Nomination and Compensation Committee (originally called the Nomination and Remuneration Committee) to function as an advisory body, which deliberates on matters before the compensation and the like for directors (excluding directors who are Audit & Supervisory Board members) is determined by resolution of the Board of Directors.

Regarding compensation and the like of Company directors (excluding directors who are Audit & Supervisory Board members), we have adopted a policy that the compensation system shall function as a healthy incentive (motivation), taking into consideration trends in corporate governance, survey data from specialized outside organizations, competitors’ levels of compensation, and the like, with the aim of achieving medium- to long-term growth of our business and continuously and sustainably enhancing our corporate value, thereby advancing the common interests of our shareholders. The specific levels of compensation and the like are determined by resolution of the Board of Directors after deliberation by the Governance, Nomination and Compensation Committee.

Compensation for directors (excluding directors who are Audit & Supervisory Board members and independent outside directors) comprises base salaries, bonuses as short-term (annual) incentives, and a stock-based compensation plan (executive compensation BIP trust) as medium- to long-term incentives. The percentages of each are set in consideration of the Company’s policy for determining the details of compensation for each individual director.

Independent outside directors are provided with base salaries only; there are no bonuses or stock-based compensation plans (executive compensation BIP trust).
Base salaries are fixed amounts of compensation commensurate with the position, and fixed amounts are paid monthly.

Bonuses are tied to the base amount for each position based on the performance in the previous year and qualitative assessment of individual executives (degree of achievement of individual targets, development of successors, enhancement of corporate value, efforts to achieve the SDGs, invigoration of the Board of Directors, and compliance), with the aim of raising morale through the achievement of single-year performance targets and other goals.

The stock-based compensation plan (executive compensation BIP trust) is intended to further enhance the motivation to contribute to improving medium- and long-term performance, enhancing corporate value, and the like. Each year, points are awarded by position, and shares of the Company equivalent to the cumulative number of points earned are delivered upon retirement. The plan is designed such that the number of points is tied to the degree of achievement of performance indicators against target values.
Performance indicators include financial indicators—for example, consolidated net sales, consolidated ordinary profit, and consolidated ROE—as well as non-financial indicators, for example CO₂ emissions. Compensation for executive officers, like that of directors (excluding directors who are Audit & Supervisory Board members), comprises base salaries, bonuses as short-term (annual) incentives, and a stock-based compensation plan (executive compensation BIP trust) as medium- to long-term incentives. They are determined by resolution of the Board of Directors after deliberation by the Governance, Nomination and Compensation Committee.

Notably, directors (excluding directors who are Audit & Supervisory Board members and independent outside directors) and executive officers make efforts to acquire shares of the Company through voluntary contributions to the Official Shareholding Association.

Compensation and the like for directors who are Audit & Supervisory Board members is limited to base salaries, and the amount of the base salary for each is determined through discussions among them, taking into consideration the nature, volume, difficulty, level of responsibility, and other aspects of the duties of each. Given their duties and responsibilities, there are no bonuses or stock-based compensation for directors who are Audit & Supervisory Board members.

Total Amount of Compensation for Each Executive Category,
Total Amount and Number of Eligible Executives for
Each Type of Compensation

Category	Total amount of remuneration, etc. (million yen)	Total for each type of compensation			Number of eligible officers (persons)
		Base salary (million yen)	Performance-linked compensation, etc. (million yen)	Non-monetary compensation, etc. (stock-based compensation) (million yen)
Directors (except for outside directors)	306	191	56	58	6
Outside directors	70	70	–	–	7
Audit & Supervisory Board members (except for outside Audit & Supervisory Board members)	54	54	–	–	3
Outside Audit & Supervisory Board members	39	39	–	–	4
Total	471	355	56	58	20

The basic approach of our internal control system is to ensure the propriety of business operations by ensuring their effectiveness, efficiency, and reliability. We also ensure the propriety of the operations of the Company’s corporate group (including the Company, hereinafter referred to as the “Group”), taking into consideration factors such as the size and business characteristics of each constituent company, and the risks associated with them.
We have also established an Internal Control Committee to laterally promote the development of the Group’s internal control system.

• Basic Policy for
  Developing Systems to Ensure
  the Propriety of Operations

Internal Control over Financial Reporting

Our Internal Audit Office assesses the Company’s and major consolidated subsidiaries’ operation of internal control over financial reporting. The office works with the Audit & Supervisory Board and the Accounting Auditors to conduct effective internal audits.

• Basic Policy
  on Financial Reporting