Corporate Governance

(1) Status of Corporate Governance

[1] Corporate Governance Structure

The Company adopts a governance “structure type of having a Board of Corporate Auditors in place.” As of the end of the current consolidated fiscal year (March 31, 2015), the Company provides in its articles of incorporation to have less than five (5) Corporate Auditors.
As of the submission date, the Company has put in place the Board of Directors consisting of 12 Directors as the body of the Management Meeting to execute the business of the Company based on the basic policy resolved by the Board of Directors. In addition to the Board of Directors meeting, the “Management Meeting” is held twice a month, while the “Group Management Conference” is held once a month. The Board of Directors meeting is regularly held once a month, as well as whenever necessary. The Board of Directors meetings were held 17 times in fiscal 2014 (including twice where resolutions were made in writing). The Corporate Auditors meeting including the Outside Corporate Auditors attend the Board of Directors meeting held regularly once a month, as well as whenever necessary, in addition to attending the Management Meeting and Group Management Conference to supervise the management of the company. The Corporate Auditors meeting is held at a frequency of once or more a month.
The company’s risk management structure is comprised of the Risk Management Committee and Compliance Committee.
In order to manage the risk of losses, the Risk Management Committee headed by the President is organized to take stock and evaluate possible risks once every six (6) months. The Company then shares such information and strives to discover risks at an early time to avoid and/or curb them. The Corporate Auditors attend said Committee.
To ascertain the thorough practice of compliance, the Compliance Committee headed by the President is put in place, holding a regular committee meeting once every six (6) months as well as whenever necessary to ensure the observation of compliance and take action to deal with risk compliance information. The Corporate Auditors attend said Committee. In order to complement such practice, the Company operates the “Dynic Hotline” (the whistle-blowing system) to comprehend affairs that may run counter to compliance as early as possible. The use of the “Dynic Hotline” is entirely reported to the Compliance Committee. At the same time, said hotline is designed to be accepted by the in-house corporate legal advisers as a method to protect informants.
Contents discussed at the Risk Management Committee and Compliance Committee are kept reported to the Board of Director’ Meeting.
To further ensure the practicing and/or operation of internal control, the Company sets in place the Operating Audit Office charged with internal control by directly reporting to the President. To warrant the effectiveness of internal control, the Operating Audit Office evaluates company-wide internal control and internal control relating to business operating processes. It also makes independent evaluation of internal control, etc., relating to the use of IT and gives instructions for responses and to correct inadequacies, while drafting the Internal Control Report as provided for in the Financial Instruments and Exchange Act. In cases where material inadequacies to be disclosed are discovered, they are reported to the Board of Directors’ Meeting, Management Meeting attended by the Corporate Auditors and Accounting Auditors as well.
As of the submission date, the Company and its four (4) Corporate Auditors and Directors (excluding the persons who are Executive Directors, etc.) have entered into the liability limitation agreement prescribed in Article 425, paragraph 1 of the Companies Act.

The Company made a resolution at the Board of Directors’ Meeting held on June 26, 2015 with respect to the building of the Internal Control System as follows:

  1. A structure to ensure that the execution of duties by the Company’s and its subsidiaries’ Directors, as well as employees, complies with laws and ordinances, and the articles of incorporation:
    In order to ensure the compliance with corporate ethics, laws and ordinances and internal regulations in business activities, the Company has established the “Compliance Declaration,” appointing the Director in charge of compliance. Said Director promotes and conducts overall control, having assistance from the compliance promoting divisions and consultation, etc., from the Compliance Committee.
    Pursuant to the behavioral guidelines relating to compliance being put into action by the Company’s Group, the Company will take a firm attitude toward anti-social forces and groups as a whole organization of the Company by eliminating any business relationships, etc., with such anti-social groups or forces.
  2. Structure to restore and administrate information relating to the execution of Directors’ duties:
    Information relating to the execution of Directors’ duties shall be recorded in writing and important documents shall be retained for ten (10) years. The period to keep documents in storage and the structure to administer them shall follow laws and regulations and be prescribed in the Company’s regulations.
    The “Information Security Standard Procedures” shall be enacted to clarify the structure of responsibility and implement proper protective measures to prevent information from being leaked or falsified, and to protect computer networks from being destroyed and/or illegally accessed.
  3. Regulations and other systems regarding the Management of the Risks of Loss of the Company and its subsidiaries:
    Setting up the Risk Management Committee with the President acting as the chairperson, the group’s overall risks are comprehensively managed across the board. The Risk Management Steering Committee led by the Senior Executive Director is put in place to conduct company-wide coordination for education and response about risks and share risk information by the group. At the same time, the Risk Management Steering Committee receives risk reports from each division every six months and makes a periodic review on such risks, reporting on the review to the Risk Management Committee.
    A backup structure relying on outsourcing is built into the main IT system, which is used by the Company and some of the domestic group companies, thereby lessening losses in times of emergency.
  4. A structure to ensure that the duties of the Directors of the Company and its subsidiaries shall be performed efficiently:
    Studies and evaluations are made from the perspective of legal compliance and rationality relating to the overall management/operation system of business activities, as well as execution. To safeguard the Company’s properties and to improve operational efficiency, the “Operating Audit Department” has been established. In addition to the Board of Directors meeting regularly held once a month and whenever necessary, the “Management Meeting” is held twice a month consisting of the Director and President, Directors in charge and General Managers of each division, and the “Group Management Meeting” consisting of the Director and President, Directors in charge and management members of each domestic group companies is held once a month.
  5. A structure to ensure the proper execution of business operations in the corporate group consisting of the Company and its subsidiaries:
    With regard to the management of the Company’s Group companies, the “Group Management Conference is held once a month in Japan and once a year overseas, respecting their self-initiatives to make regular reports on business activities and to have discussions on significant matters. Through these opportunities, group companies make cooperative relationships stronger.
    While making it certain to practice compliance as the Company’s Group, the “Dynic Hotline” (whistle-blowing system) shall be put into operation to complement this system pursuant to the Whistle-Blower Protection Act so as to quickly take corrective action. The Director in charge of compliance or employees keep the Corporate Auditor Meeting regularly informed of the states of their performance.
  6. A structure for the Directors and employees of the Company and its subsidiaries to make reports to the Corporate Auditors and other Auditors, and such structure to ensure that the persons will not receive disadvantageous treatment on the grounds that they made such reports:
    (a) Outline of the matters referred to and/or reported to the Management Meeting;
    (b) Outline of the activities of the departments involving the internal control;
    (c) Significant accounting policies and/or accounting standards and their changes;
    (d) Contents to be released about the earnings and earnings outlook, and the contents of material documents to be released;
    (e) Operation of the whistle-blowing system and the contents of whistle-blowing;
    (f) Matters the Corporate Auditors ask of the Directors or employees of the Company and its subsidiaries, as they consider it necessary for the Board of Corporate Auditors in the performance of their duties.
    The Board of Corporate Auditors shall pay attention that the persons having made reports will not be given disadvantageous treatment.
    At the same time, the Board of Corporate Auditors has decided by a resolution the Corporate Auditors who will receive reports from the Directors and employees.
  7. Other structures to ensure the effective execution of audits conducted by the Corporate Auditors:
    The Corporate Auditors shall hold their meetings with the Accounting Auditors, Director and President, and the Head Office Management Department to have opportunities to exchange their opinions on a regular basis and/or as may be necessary. The Corporate Auditors also attend important meetings such as the “Management Meeting,” “Group Management Conference” and other material meetings.
    In cases where the Corporate Auditors ask for the advanced payment of or the reimbursement of expenses that may arise in the performance of their duties, such expenses shall be paid pursuant to the required procedures of the Company, except where such expenses are clearly recognized as unnecessary.
  8. Structure relating to the employees who will assist the Corporate Auditors:
    Full time employees to assist the Corporate Auditors have yet to be assigned at present. The relevant departments of the Head Office Administration Department, etc., are handling the issue
  9. Structure to ensure the reliability of financial reporting:
    To ensure the proper execution of the “Evaluation of the structure to ascertain appropriateness relating to the documents and other information concerning the financial calculation which is provided in Article 24-4-4 of the Financial Instruments and Exchange Act,” the Operating Audit Office reporting directly to the President shall audit the preparation/operation of internal control activities by keeping the President informed of such activities.”

The installed status of the Company’s internal control system is as indicated on the organizational chart that follows:

[2] Internal Audit and Audit by Corporate Auditors

When the Company conducts the internal and Corporate Auditors’ Audit, the Board of Corporate Auditors is comprised of two (2) Outside Auditors and two (2) (full-time) Corporate Auditors. The Outside Corporate Auditors have extensive experience in working for financial institutions, and have sufficient insight on financial affairs, etc. The (full-time) Corporate Auditors have adequate career experience in the development and technical sectors. In addition, the internal auditing department has staff members experienced in specialized sectors including finance, accounting, sales, manufacturing, etc.
The Corporate Auditors have meetings with the Accounting Auditors regularly as well as whenever necessary and have opportunities to exchange opinions on financial information, etc. They also regularly exchange financial information with the Accounting Division in charge of preparing financial information. Information that is related to Compliance is regularly reported to them from the Director in charge and they maintain coordination with the Operating Audit Office regularly and whenever necessary.
At the same time, the Operating Audit Office holds meetings with the Accounting Auditors and the Board of Corporate Auditors, regularly and whenever necessary, and has opportunities to exchange opinions and make reports. The Operating Audit Office consists of nine (9) personnel.

[3] Outside Directors and Outside Corporate Auditors

The Company has one (1) Director appointed from outside the Company. Relative to the Board of Directors that makes decisions, and manages and supervises the execution of business, two (2) Outside Corporate Auditors are appointed of the four (4) Corporate Auditors, and one (1) Outside Director is appointed. The Company adopts a current structure that involves the outside officers in all of the Board of Directors meetings so that objective/neutral management monitoring functions can be sufficiently exercised.
One (1) Outside Director and one (1) of the remaining Outside Corporate Auditors are independent corporate officers, who are judged to cause no conflict of interests with general shareholders.
The Company has established no particular rules relating to the neutrality of appointing Outside Directors and Outside Corporate Auditors. Upon their appointment, however, the Company takes the following into consideration, that there shall be no matters applicable to family relationships to the Company or the executing person(s) of any of the particular relevant business operators of the Company, and there shall be no personal, capital, transactional or other interests in relation to the submission company. It is the basic idea of the Company that appointed personnel are expected to conduct audits of the Company on neutral and impartial grounds by capitalizing on their long careers, experience, knowledge and views in other companies, and there is no likelihood of creating a conflict of interest with general shareholders.
Masatsugu Tsuji, Professor of the Graduate School of Applied Informatics at the University of Hyogo, and concurrently Professor Emeritus of Osaka University, is among the Outside Directors of the Company. It is judged that there are no special relationships between the Company and the foregoing Universities. Judging that it is unlikely to result in a conflict of interest between said Outside Director and general shareholders of the Company, the Company, therefore, has appointed this person as an independent Outside Officer.
Masahiro Oba, Outside Corporate Auditor, held 5,000 shares of the Company as of the end of March 2015, which is considered not to be especially significant.
Outside Corporate Auditor Masahiro Oba has no matters applicable to the important job he concurrently holds. Said person has been in the position of: Executive Managing Director and concurrently Managing Executive Officer in Sumitomo Mitsui Banking Corporation (formerly Japan Mutual Financing Bank), Representative Director of Sakura Finance Service Co., Ltd., DM Center. Inc., Part-time Auditor of Oriental Motor Co., Ltd., and Part-time Director of Tokyo Small and Medium Business Investment and Consultation Co., Ltd. However, it is believed that said person has no special interest between the individual companies and the Company’s Group. Said Outside Corporate Auditor, who hails from the financial institution with which the Company conducts its business transactions, has already seen ten (10) years or more elapse since retiring. He is not in such a position that will be influenced by the disposition of the former employers. As it is believed that said person will not cause any conflict of interest in relation to the general shareholders of the Company, the Company has appointed the person as an independent officer.
Eiji Sumikura, Outside Corporate Auditor has held the office of Executive Director of Mizuho Trust & Banking Co., Ltd. (formerly Yasuda Trust & Banking Co., Ltd.). There are borrowing transactions of funds between the Company and Mizuho Trust & Banking Co., Ltd. It is judged that there are no other noteworthy interests between the Company and said Outside Corporate Auditor. This person doubles as the Representative Director of Japan Stockholders Data Service Company, Limited. However, it is considered that there are no special relationships involved between the Company and said Company.
From the above, said person who maintains his independence is appointed by the Company as an Outside Corporate Auditor and Independent Officer.
The Outside Corporate Auditors work closely with the Corporate Auditors (full-time) by keeping good communication, and conduct audits in light of sufficient discussion exchanged at the Board of Corporate Auditors’ meetings. In addition to audits conducted by the Corporate Auditors including the two Outside Corporate Auditors, the Corporate Auditors attend the “Management Meeting” and “Group Management Conference” other than the Board of Directors’ Meeting in structures with sufficient surveillance functions.
The Outside Corporate Auditors hold meetings, regularly or whenever necessary, with the Accounting Auditors to have opportunities for exchanging opinions and with the Accounting Division in charge of preparing the financial information regularly including affiliated companies. They regularly receive information relating to compliance from the Director in charge, and also, regularly and whenever necessary, maintain contact with the Operating Audit Office taking charge of assessing internal control.

[4] Officers’ Remuneration, etc.

a. Total amount of remuneration for every position of officer dispatched from group companies and total amount of remuneration by type and number of applicable officers.

Current fiscal year (from April 1, 2014 to March 31, 2015)
Position of officer Total remuneration, etc.
(thousand yen)
Total amount of remuneration by type (thousand yen) Number of applicable officers (Persons)
Basic pay Stock
option
Bonus
Director 311,530 268,500 43,030 13
Corporate Auditor
(Excl: Outside Corporate Auditors)
22,100 20,400 1,700 3
Outside Corporate Auditors 7,800 7,200 600 2

b. Total amount of consolidated remuneration, etc., for every officer dispatched by companies:
As there is no consolidated remuneration exceeding one hundred (100) million yen or more, no descriptions are made.

c. Policies relating to the decision on the amount of remuneration for officers and such calculation method:
The Company provides in its articles of incorporation that property benefits including remuneration, bonus, etc., received from the Company in consideration for the execution of duties (hereinafter referred to as remuneration, etc.) shall be prescribed by a resolution of the General Meeting of Shareholders. It was resolved at the 143rd Ordinary General Meeting of Shareholders held June 29, 2006 that the limit of Directors’ annual remuneration shall not exceed 350 million yen (excluding the wages paid for employees), while the limit of remuneration for the Corporate Auditors shall not exceed 52 million yen a year.

[5] State of Shareholding:

a. Share investment with shareholding purpose other than net investment
Number of issues: 59
Total amount booked on the balance sheet: 8,268,404 thousand yen

b. Share investment issues, division of shareholding, number of shares, amount booked on the balance sheet and shareholding purpose with shareholding purpose other than net investment

(Prior fiscal year)
Specified Investment Stock
Issue Number of stocks
(shares)
Amount on the balance sheet
(thousand yen)
Purpose of shareholding
YAKULT HONSHA Co., Ltd. 326,258 1,690,018 Business relation maintained
KOKUYO Co., Ltd. 774,046 584,405 Ditto
Ryohin Keikaku Co., Ltd. 40,900 406,546 Ditto
KING JIM Co., Ltd. 518,400 370,656 Ditto
Sumitomo Realty & Development Co.,Ltd. 90,000 363,780 Ditto
THE SHIGA BANK,Ltd. 502,000 281,120 Fund-raising facilitated
Mizuho Financial Group,Inc. 1,281,280 261,381 Ditto
The Musashino Bank,Ltd. 61,500 210,330 Ditto
Carlit Holdings Co., Ltd. 387,600 183,335 Business relation maintained
Suminoe Textile Co.,Ltd. 467,000 149,440 Ditto
Sangetsu Co., Ltd. 52,900 143,306 Ditto
Japan Pulp and Paper Company Limited. 409,000 143,150 Ditto
NISSIN CORPORATION 408,000 119,952 Ditto
Tokyo Printing Ink Mfg.Co.,Ltd. 590,000 112,690 Ditto
Sumitomo Mitsui Financial Group, Inc. 24,600 108,461 Fund-raising facilitated
MIURA Co.,Ltd. 36,400 103,412 Business relation maintained
KADOKAWA CORPORATION 31,000 102,455 Ditto
MUSASHI Co.,Ltd. 91,500 99,918 Ditto
DAINICHISEIKA COLOR & CHEMICALS MFG.Co.,Ltd. 171,000 81,909 Ditto
TEIKOKU SEN-I Co.,Ltd. 50,000 78,800 Ditto
The Gunma Bank,Ltd. 138,000 77,556 Fund-raising facilitated
MEIWA INDUSTRY Co.,Ltd. 428,000 56,924 Business relation maintained
ADEKA CORPORATION 41,000 48,790 Ditto
TOPPAN PRINTING Co.,Ltd. 43,474 32,128 Ditto
TACHIKAWA CORPORATION 56,100 27,601 Ditto
MS & AD Insurance Group Holdings,Inc. 10,300 24,349 Ditto
DAIWA HOUSE INDUSTRY Co.,Ltd. 10,000 17,510 Ditto
Oji Holdings Corporation 31,000 14,322 Ditto
The Dai-ichi Life Insurance Company,Limited. 8,200 12,300 Ditto
Dai Nippon Printing Co.,Ltd. 12,000 11,868 Ditto
(Current Fiscal Year)
Specified Stock Investment
Issue Number of stocks
(shares)
Amount on the balance sheet
(thousand yen)
Purpose of shareholding
YAKULT HONSHA Co.,Ltd. 327,685 2,742,725 Business relation maintained
KOKUYO Co.,Ltd. 779,324 875,180 Ditto
Ryohin Keikaku Co.,Ltd. 40,900 714,114 Ditto
KING JIM Co.,Ltd. 518,400 421,459 Ditto
Sumitomo Realty & Development Co.,Ltd. 90,000 389,205 Ditto
THE SHIGA BANK,Ltd. 502,000 301,200 Fund-raising facilitated
Mizuho Financial Group,Inc. 1,281,280 270,478 Ditto
The Musashino Bank,Ltd. 61,500 248,153 Ditto
Carlit Holdings Co.,Ltd. 387,600 244,576 Business relation maintained
Sangetsu Co.,Ltd. 105,800 192,239 Ditto
MIURA Co.,Ltd. 109,200 147,857 Ditto
Suminoe Textile Co.,Ltd. 467,000 143,369 Ditto
Japan Pulp and Paper Company Limited 409,000 132,925 Ditto
MUSASHI Co.,Ltd. 91,500 132,584 Ditto
NISSIN CORPORATION 408,000 124,848 Ditto
Tokyo Printing Ink Mfg.Co.,Ltd. 590,000 119,770 Ditto
Sumitomo Mitsui Financial Group,Inc. 24,600 113,197 Fund-raising facilitated
The Gunma Bank,Ltd. 138,000 112,056 Ditto
DAINICHISEIKA COLOR & CHEMICALS MFG.Co.,Ltd. 171,000 105,678 Business relation maintained
TEIKOKU SEN-I Co.,Ltd. 50,000 87,100 Ditto
KADOKAWA DWANGO CORPORATION 36,200 68,201 Ditto
MEIWA INDUSTRY Co.,Ltd. 428,000 65,912 Ditto
ADEKA CORPORATION 41,000 63,714 Ditto
TOPPAN PRINTING Co.,Ltd. 47,446 43,935 Ditto
TACHIKAWA CORPORATION 56,100 40,112 Ditto
MS & AD Insurance Group Holdings,Inc. 10,300 34,711 Ditto
DAIWA HOUSE INDUSTRY Co.,Ltd. 10,000 23,710 Ditto
Oji Holdings Corporation 31,000 15,252 Ditto
The Dai-ichi Life Insurance Company. 8,200 14,313 Ditto
Dai Nippon Printing Co.,Ltd. 12,000 14,016 Ditto

c. Stock investment with the purpose of net investment Not applicable

[6] Status of Accounting Audit

The certified public accountants who have conducted accounting audits of the Company are Hisaki Nakajima and Ichiro Suruga. Both of them belong to KPMG AZSA LLC.
The number of assistants engaged in accounting audits of the Company includes eight (8) Certified Public Accountants and twelve (12) other employees.

[7] Matters to be resolved at the General Meeting of Shareholders

By a resolution made at the Board of Directors Meeting, the Company prescribes in its articles of incorporation to the effect that it may pay interim dividends with September 30th every year as the record date.
To enable the Company to acquire its own shares to flexibly implement its managerial policies and programs in response to the changing economic environment, the Company prescribes in the articles of incorporation to the effect that the Company may acquire its own shares through open market transactions by a resolution of the Board of Directors, which is based on paragraph 2 of Article 165 of the Companies Act.
The Company prescribes in its article of incorporation to the effect that for the corporate officers to sufficiently play their expected roles in executing their duties, the Company may exempt the Directors (including former Directors) from the liability for damages which may result from negligence in performing their duties to the extent as required by laws and regulations by a resolution of the Board of Directors, which is based on paragraph 1 of Article 426 of the Companies Act.

[8] Quorum of Directors

The Company’s articles of incorporation prescribe to the extent that the quorum of Directors shall not exceed fifteen (15).

[9] Requirement for Resolution relating to Election of Directors:

The Company prescribes in its article of incorporation that a resolution for the election of Directors shall be made by a majority of the voting rights in the presence of shareholders holding at least one-third (1/3) of the voting rights entitled to exercise their voting rights. It is also prescribed in the articles of incorporation that no accumulative voting shall be used for the election requirement.

[10] Requirement for Special Resolution relating to General Meeting of Shareholders:

The special resolution prescribed in paragraph 2 of Article 309 of the Companies Act that aims to conduct the smooth administration of the General Meeting of Shareholders shall be made by two-thirds (2/3) of the voting rights in the presence of shareholders holding at least one-third (1/3) of the voting rights entitled to exercise their voting rights.

(2) Contents of Remuneration for Corporate Auditors:

[1] Contents of remuneration for the Certified Public Audit Accountants:
Division Prior consolidated fiscal year Current consolidated fiscal year
Remuneration based on Audit Certification Work
(thousand yen)
Remuneration based on Non-Audit Certification Work(thousand yen) Remuneration based on Audit Certification Work(thousand yen) Remuneration based on Non-Audit based Work(thousand yen)
Dispatching companies 41,000 1,000 41,000 1,000
Consolidated subsidiaries - - - -
Total 41,000 1,000 41,000 1,000
[2] Contents of other material remuneration

Prior consolidated fiscal year
Not applicable
Current consolidated fiscal year
Not applicable

[3] Contents of non-audit service done by the Certified Public Audit Accountants for dispatched companies:

Prior consolidated fiscal year
The Company pays compensation to the Accounting Auditor to whom the Company entrusts the receipt of guidance and advice relating to the internal control of other businesses than those (as non-audit work) specified in Article 2, paragraph 1 of the Certified Public Accountant Act.
Current consolidated fiscal year
The Company pays a consideration to the Accounting Auditors consigned to provide the guidance and assistance service relating to the internal control other than the works (non-audit work) set forth in paragraph 1 of Article 2 of the Public Certified Accounts Act.

[4] Policy to determine audit fee

The Company makes its decision on the audit fee in consideration of the contents of audit plans, (scheduled) number of audit days, (scheduled) number of employees for audits, other factors such as the Company’s business-size and/or operating features, etc., suggested by the Auditing Firm.