Corporate Governance

Directors and Directors' Skills Matrix

Our company regards corporate governance as a crucial aspect of business management, believing that maintaining proper relationships with a diverse range of stakeholders, including shareholders, and conducting business activities while fulfilling societal responsibilities is one of the most important tasks for achieving long-term performance improvement and sustainable growth. Enhancing the function of corporate governance and establishing highly transparent and fair management are essential fundamental responsibilities for our company.

Following approval at the 128th ordinary shareholders' meeting held on June 29, 2016, we transitioned to a "company with an audit and supervisory committee," implementing an executive officer system and establishing an audit and supervisory committee composed of a majority of outside directors. As a result of transitioning to a company with an audit and supervisory committee and introducing the executive officer system, not only has the supervisory function of the board of directors been further strengthened, but it is also believed that speedy business execution has been achieved through management meetings with executive officers as members, thus enhancing corporate governance.

We will continue to strive for the long-term and stable improvement of our corporate value and the benefits for our stakeholders, including shareholders.

Our company has established itself as a company with audit and supervisory committee, aiming to enhance the soundness and efficiency of management through swift decision-making and business execution by delegating authority. This is achieved by leveraging the functions of our outside directors and strengthening the supervisory function of the board of directors and our corporate governance system. An overview of each organization is as follows.

The board of directors meets monthly and as needed, having the authority to make decisions on important management matters in addition to statutory and bylaw-specified matters. It consists of four directors (excluding directors who are audit and supervisory committee members, with one being an external director) and five directors who are audit and supervisory committee members (all being external directors). The board reviews all significant issues by reporting on operational issues and results, and determining execution policies.

We discussed important management-related matters including the new medium-term management plan 2028 "Sustainable + Spiral (Sustainable Positive Spiral)," the progress of the medium-term management plan "Sustainability V (Value)," and the execution of M&A projects.

The Audit and Supervisory Committee is chaired by a full-time Outside Director and consists of five members, including four part-time Outside Directors. The skills matrix of the committee ensures sufficient diversity, with members having backgrounds as a former financial institution professional (with overseas experience), a certified public accountant, a lawyer (female), and a person with management experience at another company.

The committee generally meets once a month to report the regular audit results and receives dual reporting as one line from the Internal Audit Supervisory Department regarding the status of internal audits and internal controls.

As an organization to assist the execution of duties of the Audit and Supervisory Committee, an Audit and Supervisory Committee Office is established with the General Manager of Internal Audit as the Director of the office, and three staff members (concurrent positions) possessing appropriate knowledge, skills, and experience are assigned.

Regarding personnel evaluations and transfers of these office members, the consent of full-time Audit and Supervisory Committee members is obtained to enhance independence from executive officers and ensure the effectiveness of the committee's instructions.

For FY2025, we managed the progress by requesting appropriate reports from the business execution side, such as the Business Integration Headquarters, on the three additional key audit items set for the year along with regular audit items: "Confirmation of effective management practices for enhancing corporate value and governance," "Understanding of risk situations and confirmation of PMI progress for newly acquired group companies through M&A, etc.," and "Follow-up on the state of business flow and control system construction as it should be after organizational integration and reorganization in each headquarters."

From the external auditors, we received explanations of the audit plans, results of half-year reviews, and results of year-end audits, held exchanges of opinions, and ensured proper audits through collaboration.

Furthermore, to enhance the quality and effectiveness of discussions on important agenda items in the directors' meetings, a pre-review was conducted in the committee. The main contents are as follows:

Deliberation (discussion) items: Audit report, annual audit policy and audit plan, reappointment of external auditors, agreement on external auditors' remuneration, approval of non-assurance services by external auditors, etc.

Report items: Monthly regular audit report, full-time audit committee member report, monthly performance report, discussion on important agenda items in directors' meetings, effectiveness evaluation of directors' meetings, Internal Audit Department monthly report, etc.

In addition, the full-time Audit and Supervisory Committee members actively strive to improve the audit environment and gather internal information on a daily basis. Within the Audit and Supervisory Committee, they share information and communicate with other committee members, including the status of their routine audit activities.

The nominating committee consists of six Outside Directors and two Inside Directors, and is chaired by a full-time Outside Director, ensuring a fair and objective deliberation system. The committee evaluates the suitability of appointments and dismissals of directors and executive officers through written documents and interviews, and reports the results to the board of directors.

We deliberated on the appropriateness of the appointment and dismissal of director candidates and executive officers for FY2026, based on documents such as 360-degree valuation results and individual 10-year plans. We also discussed the selection policy for the president's successor, as well as future methods for developing management talent, taking into account the functions and roles of the directors' meetings and the management committee.

The Remuneration Committee is composed of six Outside Directors and two Inside Directors, with a full-time Outside Director serving as the chairperson, ensuring fair and objective deliberations. The committee discusses the executive remuneration system, determines the performance-based remuneration amounts based on achievement status and contributions, and reports the results to the Board of Directors.

The Remuneration Committee for FY2025 is held five times, but Ms. Junko Kawai was newly appointed at the shareholders' meeting in June 2025, and there have been four meetings since her appointment.

Regarding FY2025, we reviewed the performance results and their contributions for FY2024, determined the performance remuneration amounts for each director, and submitted this to the board of directors. Additionally, we discussed the ideal direction and revision proposals for the executive compensation system, taking into account efforts toward the Prime Market Compliance Plan and the Medium-term Management Plan "Sustainability V (Value)."

The Management Committee convenes at least once a month to disseminate and enforce decisions made by the board of directors, and to discuss key issues in business execution. It is comprised of all executive officers, and relevant parties are invited to attend discussions and provide input as necessary. Additionally, audit and other committee members attend and speak when required.

The Compliance Committee, as an umbrella organization to promote compliance, is chaired by the President, vice-chaired by the Cheif of Business Management Divison, and consists of members appointed by the President. In principle, the committee meets once a year to deliberate on overall compliance issues and determine basic policies.

The Risk Management Committee is chaired by the Chief of Business Management Division and consists of members appointed the Chief of Business Management Division. The committee meets at least twice a year to identify and investigate risks stipulated in the regulations, and to consider measures to avoid risks before they occur, as well as measures to deal with risks that have materialized.

The Sustainability Committee, as an organization to promote sustainability, consists of the Chief Executive Officer and those who appointed by the President and Chief Executive Officer as its members. In principle, the committee meets at least twice a year to discuss issues related to sustainability set by the Chief Executive Officer and make recommendations to the Chief Executive Officer.

At the beginning of the period, based on the "Basic Policy for Audits by the Audit Committee", "Basic Audit Plan", and key audit items approved and resolved by the Audit Committee, daily audits and financial results audits are conducted throughout the year. For the auditors of group companies, a liaison meeting is held once per quarter to ensure coordination. At the end of the period, an audit report is submitted to the representative director, president, and the accounting auditor. 

The Internal Audit Department is composed of a general manager and four staff members, operating under a dual reporting line system with the president and the Audit Committee. It closely coordinates according to the instructions and orders of the president, audit committee members, and the Audit Committee.

The Internal Audit Department conducts operational audits for our company and group subsidiaries based on the "Internal Audit Regulations" and the "Annual Audit Plan" formulated at the beginning of the period. Audit reports are submitted to the president, Audit Committee, and the person responsible for the audited business operation organization. It requests that the audited organization respond to the pointed-out issues and correct problems, and it monitors the progress of improvements.

An annual comprehensive report is presented to the board of directors, and the internal audit results are shared with the accounting auditor on a quarterly basis.

In addition, based on the "Basic Regulations on Internal Control," evaluations of the internal control system related to finance reports stipulated by the Financial Instruments and Exchange Act, as well as the valuation results, are reported to the board of directors. Our company has appointed Azusa Audit Corporation as the accounting auditor.

Collaboration Status of the Audit Committee, Accounting Auditor, and Internal Audit Department

The Audit Committee, composed of five outside directors who are audit committee members, receives reports on internal audit results, progress of improvement measures, and the status of internal controls from the Internal Audit Department at the Audit Committee meetings, which are generally held once a month as one line of dual reporting.

With the accounting auditor, the audit system and audit plans are confirmed at the beginning of the period, and opinions are exchanged from time to time on quarterly review reports and audit execution status, with the audit report being received at the fiscal year-end.

Moreover, monthly audit results are reported by the full-time director who is an audit committee member, and information sharing is promoted by providing opinions from an outside perspective when appropriate.

◎ indicates the chairperson or committee chairperson.

Our outside directors are outside directors as provided for in the Companies Act and the Enforcement Regulations of the Companies Act, and are elected on the condition that they do not fall under any of the following criteria.
(1) An executive director, executive officer, or employee (hereinafter referred to as "executive") of the Company or its affiliates, or a person who has been an executive of the Company or its affiliates in the 10 years prior to their appointment
(2) A major shareholder holding 5% or more of the total voting rights of the Company, or an executive of the Company or its affiliates if the shareholder is a corporation or organization
(3) A person who is an executive of a company that has a significant business relationship (including major business partners) with the Company or its affiliates, or of its parent company or its important subsidiaries
(4) A person who has received remuneration or other financial benefits of 10 million yen or more on average over the past three years, in addition to the remuneration for directors of the Company, as a lawyer, consultant, etc. of the Company or its affiliates. Or, if it is a corporation or organization, a person who is an executive officer of a corporation or organization whose consolidated sales revenue from the Company or its affiliates accounts for 2% or more of the said corporation or organization's consolidated sales.
(5) A person who is an accounting auditor of the Company or its affiliates, or an employee of the accounting auditor.
(6) A person who is an executive officer of a corporation or organization that has received donations, etc. from the Company or its affiliates in an average of 10 million yen per year for the past three years or more than 30% of the total annual expenses of the said corporation or organization, whichever is greater.
(7) A person who falls under any of (2) to (6) above in the past five years.
(8) A person whose spouse or a relative within the third degree of kinship falls under any of (1) to (6) above.
(9) A person who is an executive officer of a company that accepts a director from the Company or its affiliates, or its parent company or its subsidiaries.
(10) A person who has served as an outside director for a total of 10 years.
(11) A person who is at risk of having a constant and substantial conflict of interest with the Company's general shareholders as a whole for reasons other than those considered in (1) to (10) above.

Recognizing that selection of the Chief Executive Officer, which is the top management position, constitutes the most important of its decision-making matters, the Company accordingly has the Nominating Committee exchange opinions on an ongoing basis regarding prospective candidates for President and prospective management. The Company has accordingly established four criteria to be sought with respect to managers, as follows, in looking toward developing the next generation of management.

The Company applies the four criteria listed above to its Executive Officers and those in positions at or above Unit Manager, who is in charge of a unit, the Company’s smallest organizational entity. The Company accordingly calls for them to manage these entities under their leadership as if they were corporations. Meanwhile, those in positions at or above General Manager undergo 360-degree feedback once a year, which includes objective evaluation and feedback on the four criteria, with the aim of helping them improve their abilities in each criterion.

Regarding the evaluation of the effectiveness of the Board of Directors, in FY 2016, an assessment was conducted by a third party, and based on the results, a self-assessment was carried out. Since the following fiscal year, the Audit and Supervisory Committee has been assessing the effectiveness of the Board of Directors and discussing the valuation results at the Board of Directors. For the effectiveness evaluation in FY 2025, we conducted a self-assessment based on the valuation results by a third party for FY 2024 and subsequent discussions on future issues and countermeasures at the Board of Directors. As a result of the analysis and evaluation this fiscal year, it was determined that the Board of Directors engages in active discussions aimed at enhancing supervision over business execution, and its effectiveness is generally ensured. 

(Future Issues and Countermeasures)

The current effectiveness evaluation has identified the following main issues. By implementing countermeasures to address these issues, we will continue to work on enhancing the effectiveness of the Board of Directors.

Supervision of initiatives for realizing strategies that utilize digital technology (Board of Directors' management)
Implementation of supervision and monitoring of the internal control system for the entire group (Board of Directors' management)
Enhancement of training for directors (improving the knowledge needs of executives).

<Policy on the Payment Ratio of Remuneration>
Remuneration for directors (excluding directors who are members of the audit committee and outside directors, the same applies hereafter in this section) consists of fixed remuneration (basic remuneration), performance-linked monetary remuneration, and stock-based remuneration. The payment ratio is designed with an emphasis on long-term business performance, with a higher proportion of fixed remuneration, targeting an approximate ratio of 60% fixed remuneration, 30% performance-linked remuneration, and 10% stock-based remuneration.

<Performance-Linked Monetary Remuneration>
◆Performance-linked monetary remuneration for directors (excluding directors who are members of the audit committee and outside directors, the same applies hereafter in this section)

We have implemented a performance-linked monetary remuneration system that incorporates individual contribution evaluations to encourage management conscious of enhancing the consolidated group performance. The performance-linked monetary remuneration is calculated by multiplying a predetermined standard amount for each position by a common standard number of months, both established in advance, and a coefficient determined by the degree of achievement of the group's consolidated operating profit, to which a coefficient for individual contribution evaluation is added. Since our group uses operating profit as a performance indicator for assessing the progress of business plans, we have decided to use operating profit as the indicator for this remuneration system.

<Stock Compensation>
◆Stock Compensation for directors and external directors (excluding directors who are Audit and Supervisory Committee members, hereinafter the same in this section)
Our company has introduced a restricted stock compensation plan to provide an incentive for sustainable improvement of corporate value in the medium to long term and to clarify value sharing with shareholders. The specific timing and allocation for each individual are determined by the board of directors.

◆Stock Compensation for directors who are Audit and Supervisory Committee members
Our company has introduced a restricted stock compensation plan for directors who are Audit and Supervisory Committee members to provide an incentive to prevent damage to corporate value and maintain trust, as well as to further promote value sharing with shareholders. The specific timing and allocation for each individual are determined through consultation with the directors who are members of the Audit and Supervisory Committee.

We classify cross-shareholdings as follows: cross-shareholdings held solely for the purpose of obtaining profits from fluctuations in share value or dividends; and cross-shareholdings held for purposes other than cross-shareholdings (cross-shareholdings).

Methods for verifying holding policies and the rationality of holdings

Our policy is to hold cross-shareholdings held for purposes other than cross-shareholdings if it is determined that the continued holding of shares outside the group is strategically optimal for the operation, development, and sustainable growth of the business, and contributes to the improvement of corporate value in the medium to long term.

Contents of verification by the board of directors, etc. regarding the appropriateness of holding individual stocks
Verification of continued holdings involves verifying whether the purpose of holding each stock is appropriate, whether there is significance in continuing to hold it, and whether strategic significance is obtained by holding it. In addition, we will confirm whether the benefits derived from the shares (contribution to our profits, dividends received, etc.) exceed the capital cost as of the last day of the previous fiscal year. The above verification will be conducted once a year at a board of directors meeting and a comprehensive decision will be made on whether to continue holding the shares.

We have set a goal of reducing the net asset ratio of cross-shareholdings to less than 10.0% during the period of our medium-term management plan, SustainaV (Value).

As of the end of the FY 2025, it stands at 2.9%.