1. Basic Policy of Corporate Governance
With the aim of continually improving corporate value, the company employs the following principles of corporate governance.
- Maintaining healthy profits through creating a smooth relationship with shareholders as our principal stakeholders, ensuring that shareholders are treated equally, and protecting shareholders rights and profits.
- Ensuring transparency of corporate activities through timely and appropriate information disclosure concerning important items including the company’s financial situation, performance and possessions.
- Ensuring the accountability of the board of directors and the (board) of auditors to the shareholders through full observation of the board of directors and the (board) of auditors.
2. Concerning the System of Corporate Governance
1. Concerning the administration of the board of directors.
The company’s board of directors is, at present, comprised of twelve directors (with one external director) who meet regularly once a month. All the directors attend the board meetings and, as the directors are fully aware of the activities of departments outside their responsibilities, an aggressive and active exchange of opinions takes place to provide an administrative system which allows the auditors to apply their authority as auditors in an appropriate manner.
2. Concerning management meetings.
Concerning important business performance related items, separate to the board of directors, the company has an individual management counsel comprising the likes of directors, auditors and the heads of each department which holds meetings once a month. In the meetings a factual examination of management strategies, organizational structures, financial situations and business situations is carried out contributing to swift management decision making.
3. Concerning the system of auditors.
(1) Internal auditing by the auditing unit.
The company has set up an auditing unit as the internal auditing department. There are five members of the auditing unit who carry out internal auditing business according to the direct instructions of the president.
(2)The role of the auditors.
Regardless of whether they are full-time or part time, the auditors attend board meetings, management meetings and other important internal company meetings. Further, once a month they hold an auditors’ meeting to hear from the heads of the operations department, the administration department and the management department about the status of business projects and other relevant matters, creating a system in which the business practices of the directors can be fully observed. Whenever necessary, the auditors can call a meeting with the accounts auditors or the auditing unit at any time for appropriate exchange of information to improve mutual cooperation. Further, when necessary, the auditors can request any member of the company to come to the auditing unit to assist with auditing activities.
(3) Auditing by accounting auditors.
Accounting auditors are chosen by Ernst & Young ShinNihon. Whenever possible, the company provides documents or data which needs to be inspected as well as having established an environment where correcting auditing procedures can be carried out. Further, to avoid any bias, said auditing body can carry out audits at any time during the fiscal year, not only at the end of the term. The official company executive auditors are Mr. Hideo Doi and Mr. Masakazu Wakabayashi who were appointed to the company by Ernst & Young ShinNihon. Further, in addition to the two official business executive accountants, five official accountants, six assistant accountants and one further assistant from the same official body are part of the system related to the company’s auditing activities.
3. Basic Policy of the Internal Control System and its Maintenance
The company’s basic policy of the internal control system is as follows. (This matter was decided at the board meeting held on 25th May 2006)
1. The system to ensure the duties of the directors and employees are executed in conformity with the rules, regulations and articles of corporation.
(1) The INES code of conduct is followed, the duties of the directors and employees are executed in conformity with the rules, regulations and articles of corporation, and the social responsibilities which should be respected are made public knowledge.
(2) Through the likes of the auditing unit, continual and inclusive internal auditing is carried out to ensure that the duties of the directors and the employees are executed according to the rules and regulations.
(3) Based on regulations decided by a compliance committee headed by a director, internal rules are created to conform with the rules, regulations and articles of corporation, and through thorough instruction in relation to compliance we plan to improve our directors’ and employees’ awareness of the law.
(4) According to the rules on internal reports, when an employee discovers an act which contravenes the rules, regulations and articles of corporation, there are plans for improving the maintenance of the environment for easily reporting such acts.
2. The system for storing and controlling information related to the execution of a director’s or employee’s duties.
(1) The records and documents of approval related to the decision-making of directors in regards to the execution of their duties are stored and managed as appropriate according to the company’s internal regulations or manual.
(2) The above records and documents can be easily inspected upon request by a director or auditor.
3. Other regulating systems concerning loss risks.
(1) In the likes of management meetings, when new risks arise in the scheduled reports by directors and employees concerning the execution of their business duties, when necessary, as well as instructing the entire company, the president will appoint a director to swiftly deal with the risk.
(2) As head of the committee, the president will coordinate the general risk management by the general risk management committee, and subordinate committees such as the compliance committee, the committee to protect private information, and the ISMS committee will, for the area of risk for which they are responsible, follow the regulations and manual, instruct and carry out internal observation. Further, the committee for reforming business structure will structure a system of risk management for the general business after a comprehensive review of the entire company’s internal regulation system.
(3) When risk management emergencies arise, based on the instructions of the general risk management committee, each committee or a newly formed task force will aim at dealing with the problem.
4. The system to ensure the directors execute their duties in an efficient manner.
(1)Mid-term management plans are regulated; mid-term management goals are made clear; and based on the decision for the budget for the fiscal year, the evaluation criteria for the directors’ performance targets is made clear and performance management is implemented, ensuring that the execution of the directors’ duties is carried out efficiently.
(2)So that correct decision-making concerning important items which influence the company’s management occurs, cooperation between bodies such as the management committee is carried out.
5. The system to ensure that business is carried out appropriately in the corporate group established by the company and its subsidiaries.
(1) Through the monthly information meetings for subsidiary companies the company can get to grips with the management situation for each subsidiary company and, based on the management regulations for the company in question, the necessary management of subsidiary companies is carried out.
(2)Directors or employees of the company can be deployed to the subsidiary in question to act as directors or auditors to ensure that duties are carried out according to the company’s criteria.
(2)Through the activities of an independently appointed committee member who attends all committees affiliated to the general risk management committee, the subsidiary company constructs a risk management system and ensures that business is carried out correctly.
6. Items related to employees who are required to assist the work of the auditors.
(1) When there is a request from the auditors, the employees affiliated to the auditing unit will follow the instruction and assist the auditors in their duties.
(2)The head of the auditing unit will coordinate the above assistance duties and ensure their smooth implementation.
7. Items relating to the independence from the directors of the employees assisting the auditors.
(1) Employees assisting the auditors with their duties are independent from regulation by the directors in relation to the instructions of the auditors.
(2) Employees assisting the auditors with their duties are independent from regulation by the directors in relation to the instructions of the auditors.
8. The system for reports made by directors and employees to the auditors and the system for other reports made to the auditors.
(1) The directors and employees must make reports to the auditing unit on the following matters.
- Important items related to the management situation.
- Items which could cause considerable loss to the company.
- Important items related to internal auditing or risk management.
- Important compliance items.
- The condition of activities related to the structure of the company’s internal regulations.
- Other items stipulated by the auditing unit.
(2) The auditors can decide to have directors and employees report to them directly about the situation regarding the execution of duties.
9. Other Systems for ensuring that the audits by the auditors are efficiently carried out.
(1) There is a periodic exchange of opinions by the board of auditors and the accounts auditors.
(2)When necessary the auditors may employ the likes of independent lawyers or official accountants to advise them in their auditing duties.
4. Protection from Takeover
As a measure to protect itself from a takeover, the company has introduced its [policy for responding to large-scale purchase of shares].
[Outline and aims of the measures for protection from a takeover]
To protect against purchases which would be detrimental to the interests of the mutual shareholders and the value of the corporation, the above precautionary protection against takeover policy has been introduced. In summary, rules regarding large-scale purchases have been set out, and countermeasures have been put in place according to the decision of the board of directors following the recommendations of the external committee (named “The Independent Committee”), which was set up to be independent of the management group, to deal with large-scale purchases which contravene these rules or large-scale purchases which do not contravene these rules but have the potential to harm the corporation’s value or the interests of the mutual shareholders. The countermeasures introduced for times of emergency for all shareholders, will not permit the unfair purchase of shares by a sole purchaser without the compensatory issue of new contractual rights to shares.
Further, the above protection from takeover policy was introduced at the company’s 44th Annual General Shareholders’ Meeting held on the 23rd June 2006 under the title “Concerning the basic methods for dealing with large-scale purchases of the company’s shares (Protection from Takeover Policy)” and its establishment was accepted after receiving the approval of the majority.
As stated earlier, the Group posted losses in the interim period under review, and we are not satisfied with this performance. By reinforcing our business foundation, however, we are confident of achieving a turnaround in the second half of the current fiscal term. We look forward to your renewed support for these endeavors.