Approach and System

Basic Approach to Corporate Governance

As a holding company that oversees the business of the Group, the Company believes that it is important to be constantly aware of the soundness, lawfulness and speed of management, to maintain growth and enhance corporate value in the long term through the effective utilization of management resources and appropriate risk management, and to build relationships of trust with all stakeholders including shareholders, based on the Management Philosophy.
Accordingly, the Company is developing and strengthening the organizational structure and endeavoring to ensure the transparency of corporate activities to develop the environment for a framework governing corporate activities (corporate governance) and to ensure that this framework functions effectively.
As measures to ensure that internal control mechanisms maintain the soundness of business, the Company has enacted Conduct Guidelines and is developing a compliance structure and risk management structure.
By engaging in such business activities, the Company intends to fulfil its corporate responsibilities to all Stakeholders including customers and shareholders and contribute to the development of society.

Outline of the Corporate Governance Structure

1. Business execution and oversight functions

Directors and Board of Directors

The Board of Directors is composed of 10 Directors (including four Independent Outside Directors), and the Company holds monthly ordinary Board of Directors' meetings for the purpose of approving material matters, monthly Management Strategy Council meetings for the purpose of speeding up material decision-making, and monthly Executive Officer meetings mainly for the purpose of reporting and exchanging information, thereby adopting a structure which enables strengthening of the oversight function, expansion of matters deliberated and reported, and flexible decision-making.

Management Strategy Council

The Company has established the Management Strategy Council under the Board of Directors, which is convened once a month, in principle, and whenever necessary, thereby adopting a structure for the proposal of company management strategies and discussion of the direction of business prior to resolutions by the Board of Directors.

Executive Officer System

The Company has adopted the Executive Officer System to separate the business execution function from the management decision-making and oversight function, speed up decision-making and clarify responsibility for business execution, and increase management efficiency, and also to strengthen corporate governance.
The Company holds Executive Officer meetings mainly for the purpose of reporting and exchanging information once a month, in principle, thereby adopting a structure which enables strengthening of the oversight function, expansion of matters deliberated and reported, and flexible decision-making.

Committees

The Company has established a Compliance Promotion Committee and a Risk Management Committee and Sustainability Committee to deal with material management issues, thereby building a structure for increasing expertise and flexibility.
Each committee is convened regularly once a quarter, in principle, and whenever necessary, and they report and make proposals to the Board of Directors and also provide guidance to each division.

Criteria for Judging Independence of Outside Officers

The Company believes that it can further strengthen its management structure by giving officers who meet the independence criteria stipulated by the Tokyo Stock Exchange a full understanding of the Group's business and management environment and corporate philosophy and receiving from them impartial, fair and appropriate guidance and advice on the Company's management based on their honest character and broad insight and experience and it judges an officer who does not fall under any of the following as independent.

An executive of a major business partner* of the Group or an executive of a company for which the Group is a major business partner
An executive of a lender of the Group whose loan amount to the Company exceeds 2% of the Company' s consolidated total assets as of the end of the most recent fiscal year
A major shareholder of the Company who holds a stake in the Company of 10% or more or an executive of a major shareholder or investor (ranked in the top 10), either currently or at any point in the most recent three fiscal years
A consultant, accounting specialist or legal specialist who during the most recent three fiscal years received from the Company average annual compensation exceeding 100 million yen
Any person who has fallen under any of the categories 1. to 4. above in the last five years
A spouse or relative within two degrees of kinship of a director, etc. of the Company or a consolidated subsidiary
A person whose total period of employment at the Company exceeds eight years

The term 'major business partner' refers to a business partner of the Group whereby the annual transactions between such business partner and the Group during the most recent three fiscal years amount to more than 2% of the consolidated net sales of the Company or the consolidated net sales of the business partner.

2. Auditing and oversight functions

Audit & Supervisory Committee Members and Audit & Supervisory Committee

The Audit & Supervisory Committee is composed of three Audit & Supervisory Board Members (including two Independent Outside Directors) and the Company holds Audit & Supervisory Committee meetings and meetings of Audit & Supervisory Committee Members and seeks to strengthen their independence and functions, thereby adopting an audit structure in accordance with the Audit & Supervisory Committee Rules, the Audit & Supervisory Committee Audit Standards, and the Audit & Supervisory Committee Auditing Standards for Internal Control System.
The Company also adopts a structure which allows Audit & Supervisory Committee Members to adequately monitor Directors' performance of duties through attendance at Board of Directors' meetings and other important meetings, individual interviews with Directors, division managers and other relevant persons, and business audits and reports of business sites in Japan and overseas.

Nomination Committee and Remuneration Committee

The Company has established a voluntary Nomination Committee and Remuneration Committee comprised of a majority of Independent Outside Directors, to enhance objectiveness and transparency in the process of making decisions on the personnel matters of senior managers who play a role in the company's sustainable growth and building trust and directors' remuneration, etc. and to further enhance and strengthen the management and governance structure.

Internal audits

Group operational audit office is in charge of conducting internal audits, and inspects and assesses whether organizational operations and business across all divisions is being conducted appropriately and efficiently in accordance with company policies, standards and procedures.
Such inspections are onsite inspections, in principle, and relevant departments are also asked for their opinions where necessary.
Group operational audit office also conducts follow-up activities to confirm whether improvements have been made to address any issues identified and endeavors to conduct proper internal audits.

Accounting audits

KPMG AZSA LLC conducts accounting audits for the Company.