Corporate Governance System

Corporate Governance System

Corporate Governance System

Board of Directors

In order to further ensure its effectiveness and to improve its functions, the Company's board of directors analyzes and evaluates the effectiveness of the board of directors every year. With the support of an independent organization, the Company's board of directors has been carrying out evaluations of the effectiveness of the board of directors continuously once each year since 2018.

A summary of the method and results of the evaluation of the effectiveness of the Company's board of directors for FY2021 are as follows.

Evaluation method

  1. (1)
    Subjects of evaluation: Five internal directors, six external directors, and four audit & supervisory board members
  2. (2)
    Method of evaluation: Questionnaire-based survey (in a signed form) and interview
  3. (3)
    Evaluation period: From December 2021 to June 2022
  4. (4)
    Evaluation process
    The effectiveness evaluation for FY2021 was carried out as follows.
    • -
      December 2021: Review of the key points of the evaluation and the items to be included in the questionnaire, based on advice from the independent organization
    • -
      January 2022: Distribution and collection of the questionnaire (compiled and analyzed by the independent organization)
    • -
      February 2022: Individual interviews based on the results of the analysis of the questionnaire (conducted by the independent organization)
    • -
      March to May 2022: Discussions with the directors and the auditors of the Company on the issues to be addressed and the strategic direction for improvement, based on an identification of such issues and associated recommendations presented by the independent organization
    • -
      June 2022: Decision at the board of directors on the issues to be addressed and the strategic direction for improvement identified as a result of the evaluation of the effectiveness of the board of directors for FY2021

Question items

The major question items in the questionnaire for FY2021 are as follows. Each question is rated on a 5-point scale, with a free comment box provided for each item.

  1. 1.
    Strategies and implementation thereof
  2. 2.
    Risk and crisis management
  3. 3.
    Corporate ethics
  4. 4.
    Business restructuring (mergers, acquisitions, divestitures or business alliances)
  5. 5.
    Group governance
  6. 6.
    Management evaluation, remuneration, and succession planning
  7. 7.
    Dialogue with stakeholders
  8. 8.
    Structure and operation of the board of directors

Initiatives undertaken during FY2021 in response to the effectiveness evaluation for FY2020

The following initiatives were undertaken in FY2021 based on the issues identified in the effectiveness evaluation of FY2020.

  • -
    Activation of strategy discussions

    Based on the opinion that there was not enough time for discussion on strategies, the allocation of time to agenda at the board of directors meetings was reviewed, and regular meetings were held between external directors and the chairman and the CEO to make opportunities to frankly exchange the opinions on such as the themes which should be discussed at the board of directors.

    In the effectiveness evaluation for FY2021, while there was an opinion that the time for strategy discussions increased and discussions, with external directors attended, were active and improved, there was also an opinion that not only discussion on short-term strategies but also discussions from a medium- to long-term perspective are necessary.

  • -
    Strengthening group risk management

    Based on the opinion that it is necessary to consider strengthening risk management for Group companies in line with the expansion of the Group, the Company has established a system that requires timely reporting of major incidents, in addition to regular quarterly status reports, to enable continuous monitoring by the board of directors.

    In the effectiveness evaluation for FY2021, while there was an opinion that significant improvement was made as the board of directors could grasp the status of Group companies in a timely manner, there was also an opinion that there was room for further improvement in the establishment and operation of a system to share information in a timely manner, given the deep hierarchy of Group companies.

Overview of the results of the evaluation of the effectiveness of the board of directors for FY2021

Based on the results of the questionnaire and interviews, the Company's board of directors confirmed that the vision of corporate governance envisaged by the Company has largely been materialized, with its effectiveness adequately ensured. On the other hand, the board of directors confirmed that the following items should be prioritized to further ensure the effectiveness and to improve the functions of the board of directors.

  1. 1.
    Deepen discussion on medium- to long-term strategies

    The board of directors needs to engage in discussions on medium- to long-term growth strategies incorporating the sustainability strategy and the human capital strategy, from Group-wide cross-sectional perspectives without being constrained by the framework of existing business segments.

  2. 2.
    Strengthen group governance and risk management

    While the Company should have deep understanding of each Group company's business characteristics and respect its independence, it is necessary to consider a system that enables the board of directors to supervise information on risks of the entire Group so that material risks specific to each of the Group companies are noticed and recognized across the Group and the board of directors is able to discuss responses to such material risks as necessary.

  3. 3.
    Response to parent-subsidiary listings (ensuring independence with respect to conflict of interest transactions)

    In light of the fact that the supervision of conflict of interest transactions associated with parent-subsidiary listings is a corporate governance issue that the Company should structurally and continuously address, the special committee consisting solely of independent external directors has been established from FY2022 to deliberate and examine important transactions that may cause conflicts of interest between the controlling shareholder and minority shareholders, and make a report to the board of directors. From the perspective of protecting the interests of minority shareholders and ensuring independence, the special committee needs to function effectively.

The Company's board of directors will remain engaged in initiatives to enhance its effectiveness, in view of the aforementioned issues, the strategic direction of the Company and the business environment it faces.

  • The nominating committee, the remuneration committee, the special committee and the SDGs promotion committee are established voluntarily as advisory bodies to the board of directors. The nominating committee and the remuneration committee comprise the CEO and four independent external directors (elected by a resolution of the board of directors) to ensure independence of the committees. The special committee comprises five independent external directors (elected by a resolution of the board of directors) and deliberates and examines important transactions and actions that may cause conflicts of interest between the controlling shareholder and minority shareholders. The SDGs promotion committee is headed by the representative director, president & CEO, who is the chief SDGs promotion officer. In addition, the risk management committee, the information security committee, the human rights committee, the environment committee and the advancement of women promotion committee are established as internal committees.
  • The board of directors makes decisions on matters stipulated by the Board of Directors Rules and the Articles of Incorporation In addition, the Company has introduced the executive officer system to clarify the management supervisory function and further strengthen the business execution function of the board of directors while ensuring speedier management.

The Company stipulates the maximum number of directors at 15 in the Articles of Incorporation. The board of directors elects director candidates who are considered the most suitable for the position, with their nationality, ethnicity, gender, or age also taken into consideration, based on discussions by the nominating committee. At present, there are 13 directors serving, all of whom have a wealth of knowledge and experience regarding business management. Five independent external directors have been elected, and they hold constructive and lively discussions at the board of directors meetings from diverse perspectives, including outside perspectives.

Audit & Supervisory Board Members
and the Audit & Supervisory Board

The Audit & Supervisory Board consists of four members, two of whom are external members (two full-time members and two part-time members).
The Internal Audit & Supervisory Board members consist of one full-time member and one part-time member. The full-time Internal Audit & Supervisory Board member has extensive knowledge and experience in the fields of corporate governance and compliance accumulated through serving as an executive officer, CCO, and head of the General Affairs Division of the Company, as well as in corporate management accumulated through serving as the president of a Group company. The part-time Internal Audit & Supervisory Board member is a certified public accountant and has extensive knowledge and experience in accounting, including many years in charge of the accounting unit of SoftBank Group Corp. The external Audit & Supervisory Board members consist of one full-time member and one part-time member, both of which are fully independent. The full-time external Audit & Supervisory Board member has extensive experience in heading compliance and risk management divisions of a financial institution. The part-time external Audit & Supervisory Board member has extensive knowledge and experience as a certified public accountant.

The Audit & Supervisory Board members, including the external Audit & Supervisory Board members, attend Board of Directors meetings to monitor and verify the status of decision-making by the Board of Directors and the fulfillment of its supervisory duties over each director. They also audit the execution of duties by the directors, etc., as well as the directors and the Audit & Supervisory Board members of major subsidiaries, through regular interviews and other means.

The Audit & Supervisory Board establishes an audit policy, audit plan and priority audit items for each fiscal year. It meets once a month in principle, receives regular reports from each department related to the internal control system to confirm the status of the execution of duties by directors based on the priority audit items, and confirms the appropriateness of business execution. In addition, the Audit & Supervisory Board receives quarterly reports on the progress and results, etc. of audits from the Independent Auditor, and exchanges information and opinions with them. It also receives explanations of individual matters from directors, etc. as necessary.

The Audit & Supervisory Board office has been established to support the duties of all the Audit & Supervisory Board Members, including the external members. The office comprises dedicated personnel who act under the directions of the Audit & Supervisory Board Members to gather information, investigate matters, and give other assistance.

Internal audits

The Internal Audit Department conducts internal audits of the overall duties of the Company as an organization directly under the CEO, and also conducts audits mainly of subsidiaries as a parent company. The Internal Audit Department mainly evaluates business compliance with laws and regulations and effectiveness of internal control, and reports the results of internal audits to the CEO and the Board of Directors of the Company while explaining them to the Audit & Supervisory Board Members.

Supporting System for External Directors and/or External Audit & Supervisory Board Members

Briefing session of the Board of Directors meetings

The Company seeks to ensure that all officers, including the external Audit & Supervisory Board members, can participate fully in the Board of Directors meetings having fully grasped the specific details of the agenda for discussion. The secretariat to the Board of Directors therefore provides them with materials for the Board of Directors meetings beforehand, including supplemental briefings and other information as required.
Prior to each Board of Directors meeting, a briefing session is held for the external directors and Audit & Supervisory Board members. With the CFO and/or other appropriate officers attending all these meetings, the departments in charge provide detailed explanation of the agenda items, followed by a question-and-answer session to ensure a clear understanding from the external directors and Audit & Supervisory Board members. In addition, in cases where issues are raised by external directors at such briefings, the department in charge clarifies such issues before the Board of Directors meeting.

Cooperation between the external directors
and the Audit & Supervisory Board

Approximately once every half year, the external directors and the Audit & Supervisory Board members hold informal meetings. The Audit & Supervisory Board members share opinions on the management interview results and the recent management issues, so that external directors can further deepen their understanding of the Company.

Cooperation between the external directors
and the Independent Auditor

The external directors and the Independent Auditor hold information sharing meetings once a year. They exchange opinions on topics including the business environment, the status of internal controls, and governance issues, in the presence of the CFO and/or other appropriate officers.

Transactions with controlling shareholder

The Company recognizes that related party transactions including transactions with the parent company group are transactions that may have an impact on the financial position or the results of operations by using the advantageous position of the related party. As such, in implementing related party transactions, the Company carries out especially important transactions upon approval of the board of directors each time after consultation with and report from the special committee, which consists solely of independent external directors, by paying particular attention to whether such transactions are rational from a managerial standpoint of the Group and whether the terms and conditions of the transactions are appropriate compared to external transactions, in accordance with the Related Party Regulations and Related Party Transactions Management Manual.
Even with regard to related party transactions that do not fall under especially important transactions, the Finance and Accounting Division monitors the aggregate amount and details of such transactions once a year in principle.
In addition, the Board of Directors Rules stipulate that the board of directors must approve transactions conducted by directors if these may compete or cause conflicts with the Company's interests. Each transaction is subject to approval by the board of directors and the transaction results are reported to the board of directors.

Cooperation among Audit & Supervisory Board Members, Independent Auditors and Internal Audit Departments

Cooperation between the Audit & Supervisory Board Members
and the Independent Auditor

The Audit & Supervisory Board Members receive briefings from the Independent Auditor (Deloitte Touche Tohmatsu LLC) on the audit policy and audit plan, and exchange opinions. The Audit & Supervisory Board Members receive reports on the main items to be audited and the method and results of audit, regarding the audit during and at the end of the fiscal year (including quarterly review). Full-time Audit & Supervisory Board Members cooperate with the Independent Auditor mainly by exchanging information and opinions with the Independent Auditor on a monthly basis, as well as attending the accounting audits conducted by the Independent Auditor.

Cooperation between the Audit & Supervisory Board Members
and the Internal Audit Department

The Audit & Supervisory Board Members regularly provide opportunities to exchange information with the Company's Internal Audit Department and Internal Control Division, cooperating organically with them including requesting them to conduct an investigation as necessary.
In particular, the Audit & Supervisory Board Members confirm the progress of the internal audit plan and exchange opinions with the Internal Audit Department every month such as by holding regular meetings attended by full-time Audit & Supervisory Board Members. In addition, the general manager of the Internal Audit Department reports the internal audit plan and results, among other matters, to the Audit & Supervisory Board Members semi-annually, and provides explanation regarding the report of audit results to representative directors as appropriate, through sharing of materials each time.

Cooperation between the Independent Auditor
and the Internal Audit Department

The Independent Auditor receives briefings from the Internal Audit Department on the audit plan and, when necessary, on the results of internal audits and other matters. The Internal Audit Department receives regular briefings from the Independent Auditor regarding audit results and other matters. Moreover, both parties cooperate with each other as necessary by exchanging information and opinions, among other measures.

Status of audit by the Independent Auditor

(a) Name of the independent auditor

Deloitte Touche Tohmatsu LLC.

(b) Consecutive auditing period

21 years

(c) Certified public accountants who executed the audit duties of the Company

Designated engagement partners: Mr. Tomoyasu Maruyama, Mr. Takafumi Shimodaira, Mr. Yusuke Masuda

(d) Composition of assistants for the audit duties of the Company

29 certified public accountants and 65 others

Reasons for Adoption of
Current Corporate Governance System

The Company has established the Board of Directors as a decision-making body for important matters and an oversight body for the status of business execution. The Board of Directors also plays a role of steering management to improve the long-term enterprise value. At present, the Board of Directors consists of 11 directors, including four external directors, and makes management decisions following “appropriate investigation” and “thorough consideration.”
In addition, the Company has established the Audit & Supervisory Board to conduct efficient and effective audits regarding the status of execution of duties by directors. The Audit & Supervisory Board consists of four Audit & Supervisory Board Members, including two external Audit & Supervisory Board Members, and formulates the “audit policy,” “audit plan” and “audit method.” Audit & Supervisory Board Members carry out audit activities in accordance with this policy and plan.
Moreover, the Company has introduced the executive officer system to ensure clarification of the management supervisory function, strengthening the business execution function of the Board of Directors, and expediting management.
The current system is thus selected because the Company judges that its corporate governance is functioning effectively.

Responses to the Corporate Governance Code

The Company has implemented all principles of the Corporate Governance Code except “Supplementary principle 4.1.(2) Medium- to long-term management plan” and “Principle 4.8 Effective use of independent external directors” listed in the Corporate Governance Report.