Corporate Governance

Status of Compliance with the Japan's Corporate Governance Code

The Company complies all Principles of the Corporate Governance Code. Please refer to Corporate Governance Report for details.

Board of Directors

The Company currently appoints 10 directors. Of these, six are outside directors, accounting for the majority. Moreover, two of directors are women.

The names of directors are as presented in the chart titled “Membership of the Board of Directors, the Audit and Supervisory Committee , and the Nomination and Compensation Committee and the attendance and tenure of their members”. The Board of Directors is chaired by "Representative Director and President".

Drawing on the knowledge and experience they have acquired in their respective fields, the outside directors play key roles, particularly in relation to strengthening management functions and the Board’s supervisory function over business execution. Those outside directors who are the members of the Nomination and Compensation Committee are appropriately involved in determining compensation for officers, etc., and in nominating candidates for directors by,for example, providing reports to the Board of Directors as members of the Nomination and Compensation Committee.

The Company appoints directors, including outside directors,who are familiar with the industry to which the Company belongs as well as its business content and corporate functions and who possess a reasonable level of managementrelated knowledge, experience, and capabilities. The Company believes that all our directors currently have the backgrounds required to generate sound responses to major management issues and make prompt and decisive decisions. We also believe that the composition of the Board is suitably balanced in view of the Company’s size and type of business.

Our policy for the nomination of director candidates is to comprehensively examine and then select candidates based on their knowledge, their competencies in terms of accurate decision-making and supervision, and our expectations for their contribution to enhancing the Company’s medium to long-term corporate value.

In accordance with in-house rules, the Board of Directors makes decisions on basic policies regarding its business operations, important matters related to business management and execution, and matters delegated to it upon a resolution of the General Meeting of Shareholders along with other matters specified by laws, regulations and the Company’s Articles of Incorporation. The Board of Directors also receives reports on matters specified by laws and regulations and the execution status of important business operations, etc.

Audit and Supervisory Committee

The Audit and Supervisory Committee has four members,including one female member, three of whom are outside directors. The names of directors are as presented in the chart titled “Membership of the Board of Directors, the Audit and Supervisory Committee , and the Nomination and Compensation Committee and the attendance and tenure of their members”. The Audit and Supervisory Committee is chaired by an outside director.

Outside directors each play an important role in establishing an objective and fair audit system. The Company seeks to strengthen management accountability and improve management transparency by appointing outside directors. The Company believes that it has an appropriate system in place for securing the trust of shareholders, investors, and other stakeholders.

In accordance with its audit policies and plans, the Audit and Supervisory Committee is engaged in the periodic exchange of opinions with representative directors, while its members attend important meetings, including those held by the Board of Directors and other various committees, even as they act in collaboration with accounting auditors and the Internal Audit Office and inspect the status of business operations and financial assets. Through these and other endeavors, the Audit and Supervisory Committee audits duties executed by directors.

Nomination and Compensation Committee

The Nomination and Compensation Committee has four members consisting of the Representative Director and President, and three outside directors. The Nomination and Compensation Committee is chaired by an outside director.

The Board of Directors consults with and receives reports from the Nomination and Compensation Committee on the determination of compensation for directors (excluding directors serving as members of the Audit and Supervisory Committee) and the nomination of director candidates, with outside directors playing central roles at meetings of said committee in robustly deliberating these matters.

The Board of Directors pays maximum heed to those reports when making final decisions on compensation for directors (excluding directors serving as members of the Audit and Supervisory Committee) and the nomination of director candidates.

Executive Officer System and Management Council

The Company has appointed 15 executive officers (two of whom serve concurrently as directors). This system enables us to separate the Board of Directors’ decision-making and business execution supervisory functions from the Company’s business execution functions and to establish a management system that facilitates prompt and appropriate business execution. In addition, the Company has established the Management Council to serve as an organization for the Representative Director and President to discuss policies and plans for business execution and other important matters.

Risk Management Committee

The Company has also established a Risk Management Committee, which is chaired by the Representative Director and President and consists mainly of directors and executive officers, in order to appropriately manage various risks. The Committee regularly assesses risks and strives to identify and grasp problems, formulates and promotes risk response planning, and monitors the organization for risks.

Corporate governance structure

Membership of the Board of Directors, the Audit and Supervisory Committee ,and the Nomination and Compensation Committee and the attendance and tenure of their members

*1 The above chart represents the FY2023 status of directors currently in office as of November 1, 2024 and, accordingly, does not include the status of directors who have retired.

*2 Mr. Nobuyasu Iimuro was appointed as a director who is an Audit and Supervisory Committee Member on June 22, 2023. Accordingly, his data for the number of meetings attended and attendance rate are based on the number of meetings held (11 Board of Directors meetings and eight Audit and Supervisory Committee meetings) after he assumed the office of director.

Analysis and Evaluation of Board Effectiveness

The Company has been analyzing and evaluating the effectiveness of the Board of Directors since fiscal 2018 with the aim of improving the functions of the Board and enhancing corporate value. The outline of that analysis is as follows:

• 1.

  Method of implementation
  Implementation period: November to December 2023
  
  Evaluation method: Self-evaluation by all directors,including those serving as members of the Audit and Supervisory Committee (11 directors, including 6 outside directors)

• 2.

  Initiatives based on the results of the previous year's evaluation, etc.
  The Board of Directors gathered opinions and made decisions on themes to be dealt with in "matters to be discussed",which were established for the purpose of enhancing discussions in addition to "matters to be resolved" and "matters to be reported" at the Board of Directors meetings.

• 3.

  Evaluation results
  Regarding the evaluation results, the Company has confirmed that the sound effectiveness of the Board of Directors is ensured after receiving positive evaluations from all officers, including such comments as "The agenda setting and discussion items have been implemented and are very effective" and "There are many directors with diverse business experience and two female directors, so the Board of Directors is well balanced," etc.

• 4.

  Actions based on evaluation results, etc.
  The Company has decided to promote the following initiatives to further improve the effectiveness of the Board of Directors.
  ・In the final year of the medium-term management plan, the Company will establish themes for discussion of fundamental issues for the next medium-term outlook, which will be discussed at the Board of Directors meetings.
  ・To enhance discussions at the Board of Directors meetings, the Company will consider clarification of issues in agenda materials and simplification of reporting materials.

Directors’ Compensation

The amount of compensation, etc., for directors who are not Audit and Supervisory Committee members (excluding outside directors), and the calculation method thereof, shall be determined upon the comprehensive consideration of past payment records and the Company’s performance. This compensation consists of fixed compensation, performancelinked compensation, and non-monetary compensation. On the other hand, compensation for outside directors (excluding directors who are Audit and Supervisory Committee members) shall consist of fixed compensation only.

Performance-linked compensation shall be paid as a bonus.This shall be calculated by (1) establishing a minimum criterion to be achieved for consolidated ordinary profit, (2) calculating the growth rate based on a comparison of that criterion and actual consolidated ordinary profit in the fiscal year for which the bonus is to be paid, and (3) multiplying the standard amount of performance-linked compensation by the aforementioned growth rate. Moreover, the degree of performance achievement compared with financial forecasts,and the degree of achievement of the medium-term management plan targets (financial and non-financial KPIs) shall also be taken into account when determining the amount of compensation.
However, in the event that business performance deteriorates significantly, the bonus may not be paid.

Non-monetary compensation shall be paid as stock-based compensation in the form of restricted shares and shall be calculated based on a standard amount determined in accordance with position in order to appropriately function as an incentive for the recipient to work to sustainably enhance the corporate value of the Company. The standard amount shall be determined annually, based on an assessment of corporate value (Company’s TSR compared with TOPIX growth rate), the degree of achievement of performance forecasts, and the degree of achievement of the medium-term management plan.

When determining the payment ratios for fixed compensation,performance-linked compensation and non-monetary compensation, the ratio of fixed compensation (basic compensation) shall decrease the higher the position, and the ratios of performance-linked compensation (bonuses) and non-monetary compensation (stock-based compensation) shall increase the higher the position. In cases in which operating results meet prescribed standards, the approximate payment ratios of compensation for directors who are not Audit and Supervisory Committee members of the Company (excluding outside directors) breaks down as follows: basic compensation: 62% to 71%; bonuses: 30%-23%; and stock-based compensation: 8%-6%.

The timing for payment of compensation for Directors who are not Audit and Supervisory Committee members (excluding outside directors) shall be monthly for basic compensation and once a year for bonuses and the stock-based compensation.

Fixed compensation (base compensation) for individual directors who are Audit and Supervisory Committee members is determined through discussion between the directors who are Audit and Supervisory Committee members, and performance-linked compensation (bonuses) and non-monetary compensation (stock compensation) are not paid to them.

Cross-shareholdings

Cross-shareholding policy
The Company holds shares in its customers’ and business partners’ firms for the purpose of maintaining and developing medium to long-term business relationships and also for the purpose of collecting information in anticipation of future business alliances.

Verifying the suitability of cross-shareholdings
To verify the suitability of holding these cross-shareholdings, the Company comprehensively verifies the ratio of total value of cross-shareholdings to net assets, that the benefits and risks associated with each of the holdings are worth the cost of capital, and that the purpose of holding these cross-shareholdings is consistent every year. After deliberation of these matters by the Board of Directors, we confirm that holding shares is appropriate for all of the cross-shareholdings held by the Company.

If any circumstances change in the future which lead us to determine that a cross-shareholding is no longer appropriate, we will review and reduce it.

Criteria for exercising voting rights pertaining to cross-shareholdings
We comprehensively evaluate the pros and cons of proposals involving the exercise of voting rights associated with our shareholdings considering such factors as the financial and non-financial circumstances of the share issuing company, premised on the notion that appropriately exercising voting rights will help bring about greater value over the medium- to long-term and facilitate sustainable growth with respect to the issuing company.

Policy for Constructive Dialogue with Shareholders

The Company’s policy on establishing and implementing systems to promote constructive dialogue with shareholders is as follows:

• 1.

  Dialogues with shareholders are supervised by the Director in charge of our staffing departments.

• 2.

  Dialogues with shareholders are mainly managed by the ESG Promotion Department, and also appropriately dealt with by Directors and Executive Officers in accordance with shareholders’ wishes, etc. within a reasonable range.

• 3.

  Information required for dialogues with shareholders is collected by the ESG Promotion Department from related divisions, and utilized for meaningful dialogues with shareholders within the scope in which disclosure is possible.

• 4.

  The Company strives to enhance a means of communication through measures such as attending briefings, etc. for individual investors in addition to holding quarterly financial results briefings for analysts and institutional investors, as a means of dialogue other than individual interviews.

• 5.

  The Company regularly reports opinions and requests, etc. of shareholders gained through communication with shareholders to the Board of Directors and utilize them for its management decisions.

• 6.

  In order to appropriately manage insider information, the Company establishes the Rules Relating to the Management of Insider Trading and strives to thoroughly manage all internal information.

• 7.

  The Company observes a quiet period spanning a few weeks prior to the announcement of its financial results in order to prevent any leakage of financial information and maintain impartiality. The Company refrains from providing answers to comments or questions, etc. received in relation to financial results during this period.

• 8.

  The Company conducts a survey of substantial shareholders of the Company as necessary in order to conduct dialogues with the substantial shareholders.

• 9.

  In order to improve dialogues with foreign shareholders, the Company appropriately formulates and provides the English version of documents that the Company deems useful for foreign shareholders.