Corporate Governance

Basic Approach to Corporate Governance

The basic approach to corporate governance of the Company and its corporate group is to enhance the soundness, transparency, efficiency, and promptness of management and fulfill our corporate social responsibilities by establishing and reinforcing internal control systems and operating them effectively with the aim of achieving coexistence and mutual benefit with shareholders, customers, suppliers, employees, local communities, and other stakeholders and working to achieve sustainable growth and increase corporate value over the medium to long term as a trusted business enterprise.

　The following is an overview. For detailed information, please refer to corporate governance reports, securities reports, and other documents disclosed pursuant to statute.

Corporate Governance Systems

□ Overview of corporate governance systems and reasons for adopting those systems

　The Company and its corporate group made the transition to a holding company structure on April 1, 2007 for the purposes of pursuing group-wide efficiency, ensuring soundness and transparency, and improving internal control systems and compliance systems. Under the holding company structure, the Company and its corporate group strive to optimally and efficiently use group management resources and seek to reinforce corporate governance. Separating decision-making and oversight functions from business execution functions is essential for reinforcing management structures, and achieving such separation increases both the pace and transparency of management.
　In addition, the Company also made the transition to an audit and supervisory committee system company pursuant to a June 26, 2015 resolution of the general shareholders meeting with the aim of reinforcing management oversight functions and improving transparency from the perspective of further reinforcing corporate governance.
　The Company’s Board of Directors engages in swift and effective management decision-making based on thorough discussions by directors with specialized knowledge in various industries. By holding meetings of the Management Conference from time to time as necessary, the Company seeks to reinforce management functions and ensure effectiveness so that it can engage in highly detailed business operations. The Audit and Supervisory Committee comprises one in-house director and two outside directors who attend meetings of the Board of Directors as well as the Management Conference and other important meetings to oversee the execution of duties by directors and company management from a neutral perspective.
　The members of the Audit and Supervisory Committee provide advice and make proposals as necessary to ensure the propriety of management decisions and contribute to management determinations from an objective perspective. They enhance the oversight functions of the Board of Directors from a perspective that is independent of the Company’s chain of command and play a role in maintaining appropriate corporate management.【Diagram of Corporate Governance Systems】
　Based on the above, we believe that the Company’s governance systems function adequately as management oversight systems with objectivity and neutrality, and for this reason we have selected the current corporate governance systems.

□ Status of decision-making, execution of business, and oversight

　In order to make swift decisions concerning group management and efficiently and dynamically carry out management strategies, the Company discloses information and is reinforcing management oversight systems with the aim of maintaining sound and transparent group management under the holding company structure. To address legal risks, the Company has entered into an advisory agreement with an attorney, seeks periodic advice concerning major legal issues and execution of agreements, and strives to make appropriate responses.
　Management decisions are made by the Board of Directors (the Board meets in principle once each month and at other times when necessary), which comprises a total of 10 directors, and by the Management Conference. Management Conference meetings are convened from time to time as necessary by directors as well as the presidents and other executives of group companies with regard to specific topics, executives, and others.
　Furthermore, the term of office of the Company’s directors (excluding members of the Audit and Supervisory Committee) is one year and that of members of the Audit and Supervisory Committee is two years with the aim of clarifying management responsibilities and responding rapidly to changes in the management environment. The members of the Audit and Supervisory Committee are selected based on comprehensive determinations regarding knowledge of legal matters, financing, accounting, management, and so on, having a high degree of independence, and other factors. Two of the three members are nonexecutive, outside directors.

□ Overview of the content of liability limiting agreements

　Pursuant to Article 427, Paragraph 1 of the Companies Act, the Company has entered into agreements with its outside directors limiting their liability for damage specified in Article 423, Paragraph 1 of that act. The maximum amount of liability for damage pursuant to those agreements is the minimum amount specified in laws and regulations.
　The liability is limited to instances where the conduct of the outside director in question that is the basis for such liability is free of intentional misconduct or gross negligence.

Status of audits and internal audits by the Audit and Supervisory Committee and of financial audits

　Audits by the members of the Audit and Supervisory Committee adopt an auditing system comprising one in-house director and two outside directors. Members of the Audit and Supervisory Committee attend meetings of the Board of Directors as well as the Management Conference and other important meetings to provide advice and make proposals as necessary to ensure the propriety of management decisions and enhance management oversight functions from a neutral perspective. This system enables the members of the Audit and Supervisory Committee to adequately monitor the performance of duties by managing directors.
　In addition, the Internal Audit Office works in collaboration with Audit and Supervisory Committee members to enhance audit operations and systems group-wide, including those at individual business sites and group companies.
With regard to financial audits, the Company has entered into an audit agreement with Ernst & Young ShinNihon LLC. In addition to undergoing ordinary financial audits, the Company seeks periodic advice on key accounting matters and strives to maintain legal compliance.

Matters relating to other corporate governance systems

　The Company sees the reinforcement of internal control systems required for financial reporting pursuant to applicable laws and regulations as an important management issue. The Company’s directors and senior management employees serve as directors and corporate auditors of major domestic and overseas group companies and take other measures to enhance corporate governance.

□ Internal systems relating to timely disclosure

　Systems are in place for the reporting of information relating to material decisions, incidents, and accounting of the Company and its corporate group to the Head Office Corporate Management Division and the collection of such information by that division.
　Timely disclosure of information is made pursuant to internal procedures under the supervision of the Information Handling Officer after analysis and investigation of the relevant information. Disclosures comply with applicable laws and regulations and the Company’s rules on disclosure.

□ Internal rules and procedures relating to information disclosure

　Management information such as information relating to material decisions, incidents, and accounting of the Company and its corporate group is disclosed in accordance with the Mutoh Group Code of Conduct. With regard to internal procedures, information relating to facts specified by statute, incidents, and accounting is disclosed in a timely manner by the Information Handling Officer after approval has been obtained from the Board of Directors.
　The Information Handling Officer orders and carries out the timely disclosure of information requiring urgent attention based on approval from the director responsible for management, and reports on the disclosure and explains its content at the Board of Directors meeting held following the disclosure.
【Diagram of Timely Disclosure Systems】