DAIKEN

Corporate Governance

  1. Basic Approacharrow
  2. Key Initiatives for the Reinforcement of Corporate Governancearrow
  3. Quick Reference of Corporate Governance Organizationarrow
  4. Corporate Governance Frameworkarrow
  5. Criteria for the Independence of Outside Directorsarrow
  6. Reasons for Selection of Outside Directors and Audit & Supervisory Board Membersarrow
  7. The Effectiveness Evaluation of The Boardarrow
  8. Executive Remunerationarrow
  9. Policy on Cross-Shareholdingsarrow
  10. Policy for Promoting Constructive Dialogs with Shareholdersarrow

1:Basic Approach

In pursuit of optimal corporate governance that will result in sustainable improvements in our corporate value

Under the group corporate philosophy, the Daiken Group is committed to sustainable improvements in corporate value for all shareholders and stakeholders. In order to achieve efficient, sound, and transparent management, we enrich the management system, the organizational system, and the internal control system, and take the ba- sic approach that always seeks to optimize corporate governance, and we constantly work to improve it. Based on the basic policy on corporate governance established in 2015, we are making constant improvements to re- spond to the ever-changing business environment surrounding the group in the ceaseless pursuit of the optimal corporate governance system.

2:Key Initiatives for the Enhancement of Corporate Governance

2002 Made the shift to the chief executive officer system.
2003 The Compliance Committee was established.
2008 Reorganized to the Risk & Compliance Management Committee for reinforcement.
2010 Reduced the number of directors from 11 to 9.
2011 Outside directors are selected.
2012 The term for directors was reduced from two years to one year.
2015 Outside directors increased from 1 to 2.
The Basic Policy on Corporate Governance was established.
The Nomination and Remuneration Committee and the Corporate Governance Committee were established.
2016 The effectiveness evaluation of the Board was started.
2018 A female outside Audit & Supervisory Board member was selected.
Introduced the transfer restricted stock-based compensation system.
2019 Reduced the number of directors from 9 to 7.
2020 Outside directors increased from 2 to 3 (3/8)
2021
  • Enhanced the Board’s supervisory function and made a shift to the Company with Audit and Supervisory Committee for the purpose of acceleration and efficiency of business execution
  • Clarified the Executive Officer system’s management responsibilities and roles and introduced the Operating Officer
  • Revised the executive remuneration system and improved the remuneration system for the directors who are the Audit and Supervisory Committee Members
  • Integrated the Nomination and Remuneration Committee and the Corporate Governance Committee and reorganized to the Governance Committee

3:Quick Reference of Corporate Governance Organization

Main Items Details
Design of the organization Company with Audit and Supervisory Committee
Nomber of Directors(non-Director, Audit and Supervisory Committee Member)(outside director) 4 (0)
Nomber of Director, Audit and Supervisory Committee Member(outside director)  2year 5 (3)
Number of board meetings convened (fiscal 2021) 12 times
(Average attendance rate of outside directors) (100%)
(Average attendance rate of outside Audit & supervisory board members) (94%)
Number of Audit & supervisory board meetings convened (fiscal 2021) 13 times
(Average attendance rate of outside Audit & supervisory board members) (96%)
The term for Directors(non-Director, Audit and Supervisory Committee Member) 1 year
The term for Director, Audit and Supervisory Committee Member 2 year
The executive officer system Adopted
Voluntary committee of the Board
  • As the advisory organization for the Board, the Governance Committee has been established that deliberates particularly important items, such as the nomination of and remuneration for directors and executive officers, improvement of the effectiveness of the entire Board, and building of the governance structure, etc.
  • The Governance Committee has the structure that the committee chairperson and a majority of the members are independent outside directors.
Auditors Gyosei & Co.

4:Corporate Governance Framework

Corporate Governance Framework

5:Criteria for the Independence of Outside Directors

The Company has established the following criteria to determine the independence of outside directors.

The Company considers an outside director independent if the person meets the requirements of category 1, has met them at any time in the past, currently meets the requirements of categories 2–6, and has met them for the past five years.

1. Persons affiliated with the Daiken Group

A person shall not be a director (excluding an outside director), an Audit and Supervisory Committee member (excluding an outside Audit and Supervisory Committee member), an accounting advisor, a corporate officer, an executive officer, or an employee (hereinafter collectively called “Directors”) of the Company or any of its subsidiaries and affiliates (hereinafter collectively called the “Daiken Group”).

2. Holder of voting rights of the Company

  • A person shall not be a shareholder who owns 10% or more of the Company’s voting shares nor a Director of such shareholder entity.
  • A person shall not be a Director of a company wherein 10% or more of the voting shares are owned by the Daiken Group

3. Person affiliated with a business partner entity

  • A person shall not be a Director of a business partner entity that has business transactions with the Company worth 2% or more of its consolidated annual sales or annual purchase amount as appropriate, or with which the Daiken Group has business transactions worth 2% or more of its consolidated annual sales or annual purchase amount as appropriate.
  • A person shall not be a Director of a financial institution that is a major lender of the Daiken Group (which lends an amount equivalent to 2% or more of the Daiken Group's consolidated total assets).
  • A person shall not be a Director of the Daiken Group’s lead managing underwriter.

4. Professional (attorney, certified public account, consultant, or others)

  • A person shall not be a certified public accountant who serves as the Daiken Group’s accounting auditor, or an employee, partner or associate of an auditing firm that is the Daiken Group’s accounting auditor.
  • A person shall not receive compensation of 10 million yen or more from the Daiken Group as a public certified accountant, certified tax accountant, attorney, or consultant, in addition to compensation as a director or auditor of the Daiken Group.

5. Recipient of donations

A person shall not receive donations that exceed 10 million yen annually from the Company nor shall the person serve in an executive role in an organization that receives donations that exceed 10 million yen annually from the Company.

6. Other

  • A person shall not be a relative within two degrees of kinship of a person who fails to meet the requirements of the above categories 1 to 5 (excluding an unimportant person).
  • A person shall not be a Director of a company between which the Daiken Group directors are mutually appointed.

6:Reasons for Selection of Outside Directors and Audit & Supervisory Board Members

Reasons for Appointment of Outside Directors as Audit and Supervisory Committee Members

Name Reasons for appointment and expected roles (overview)
Shingo Ishizaki Engaged in investment bank operations at securities companies for many years and possesses financial expertise acquired through his experience. Expected to play supervisory and advisory roles in the execution of duties by directors from a specialized perspective based on the stated expertise, especially in finance and accounting.
Yuko Asami
(family register name:
Yuko Katsuo)
A professor at the Faculty of Economics, Gakushuin University and served as a committee member for the Ministry of Finance and the Financial Services Agency, demonstrating adequate expertise in finance and accounting. Expected to play supervisory and advisory roles in the execution of duties by directors from a specialized perspective based on the stated expertise, especially in corporate accounting. No experience in the engagement in corporate management other than serving as an outside director, but is considered capable of properly executing the duties of an outside director (Audit and Supervisory Committee Member) for the reasons stated above.
Kiyoshi Mukohara Engaged in the management of financial institutions for many years and possesses abundant financial and managerial expertise acquired through experience. Expected to play supervisory and advisory roles in the execution of duties by directors from a specialized perspective based on the stated expertise, especially in corporate management. History of working at Sumitomo Mitsui Trust Bank, Limited, a major lender of DAIKEN CORPORATION, but resigned as a director of the lender for six years.
Name Shingo Ishizaki
Reasons for appointment and expected roles (overview) Engaged in investment bank operations at securities companies for many years and possesses financial expertise acquired through his experience. Expected to play supervisory and advisory roles in the execution of duties by directors from a specialized perspective based on the stated expertise, especially in finance and accounting.
Name Yuko Asami
(family register name:
Yuko Katsuo)
Reasons for appointment and expected roles (overview) A professor at the Faculty of Economics, Gakushuin University and served as a committee member for the Ministry of Finance and the Financial Services Agency, demonstrating adequate expertise in finance and accounting. Expected to play supervisory and advisory roles in the execution of duties by directors from a specialized perspective based on the stated expertise, especially in corporate accounting. No experience in the engagement in corporate management other than serving as an outside director, but is considered capable of properly executing the duties of an outside director (Audit and Supervisory Committee Member) for the reasons stated above.
Name Shingo Ishizaki
Reasons for appointment and expected roles (overview) Engaged in the management of financial institutions for many years and possesses abundant financial and managerial expertise acquired through experience. Expected to play supervisory and advisory roles in the execution of duties by directors from a specialized perspective based on the stated expertise, especially in corporate management. History of working at Sumitomo Mitsui Trust Bank, Limited, a major lender of DAIKEN CORPORATION, but resigned as a director of the lender for six years.

*1: The three directors above satisfy the criteria for independence assessment specified by the company and have been registered in compliance with the regulations of the Tokyo Stock Exchange.
*2: The three directors above are members of the Governance Committee and are engaged, from an objective and neutral standpoint, in the selection of directors for the company and the determination of executive remuneration and governance structure.

7:The effectiveness evaluation of the Board

To increase the effectiveness of the Board and to improve corporate value, the Daiken Group has implemented the effectiveness evaluation of the Board once a year since the end of fiscal 2016. Based on the self-assessment by all directors and Audit & Supervisory Board members and deliberations at the Corporate Governance Committee in which the chairperson and majority of the members are independent outside directors, the effectiveness of important decision-making in management and proper business execution has been confirmed to be sufficiently secured. The issues to work on for more effective Board operations have been extracted, and they have been continuously putting effort into the improvement of responses.

Key Issues and Responses

Key Issues and Responses

Results of the Evaluation in Fiscal 2021 and Response to Future Issues

The Board’s effectiveness evaluation implemented in fiscal 2021 reported that opinions are being represented and deliberated actively by each director and Audit & Supervisory Board Member while ensuring the fairness and transparency with diverse perspectives and five independent outside directors (director and Audit & Supervisory Board Member). The Board sufficiently maintains the effectiveness of important decision-making in management and supervision of proper business execution. In particular, we have been improving support for outside directors, such as provision of information on the management meeting, opportunities to have an interview with management executives and department heads, which are evaluated to contribute to active discussions toward the medium- to long-term growth. In considering the shift to the company with an Audit and Supervisory Committee and reviewing the executive remuneration system associated with the introduction of Operating Officers, the Advisory Committee in which the majority of the members are outside directors are evaluated to contribute to the fairness and transparency of the Board and contributed to the improvement of discussions toward the improvement of our corporate governance by their recommendations from diverse perspectives. To further improve the effectiveness of the Board, we will proceed with the responses to the following issues.

① Improvement of Discussions on the Succession Plan ② Focused Discussions on Management Strategies (1-3 below)
Checking the Board’s strengths and weaknesses using the skills matrix and further improvement of discussions on the succession plan based on the checking results
  1. Reconfirmation of risks and opportunities, as well as important management issues (materiality) based on the rapid environmental change, such as the COVID-19 crisis, etc.
  2. Updating of the long-term vision (from fiscal 2017 to fiscal 2026)
  3. Formulation of the medium-term management plan for the next term (from fiscal 2023 to fiscal 2026)

8:Executive Remuneration

Policy of Executive Remuneration

Procedure

The Board has the authority to make decisions on the policy concerning the amounts and the method of calculating executive remuneration, and the authority is delegated to the Board of Representative Directors by a Board resolution. The reason for delegation was because we judged that the Board of Representative Directors would be suited to evaluate each director’s responsible division while taking into consideration the entire company’s business performance, etc. In determining remuneration, to secure transparency, fairness, and objectivity, remuneration is determined by the Board of Representative Directors after deliberations and recommendations by the Nomination and Remuneration Committee (Governance Committee after the General Meeting of Shareholders on June 25, 2021) in which the chairperson and majority of the members are independent outside directors.

Composition

Executive remuneration is composed of mission remuneration as fixed remuneration, performance remuneration as the performance-based remuneration, and stock-based compensation. The proportion of the performance-based remuneration in the remuneration for the directors (except for the director who is an Audit and Supervisory Committee Member and outside director) is around 40% and is designed to fluctuate according to performance.

Composition
Stock-based compensation
To reflect medium- to long-term performance and corporate value improvement, the transfer restricted stock-based compensation system has been introduced. (Except for directors who are Audit and Supervisory Committee Members and outside directors)
Performance remuneration
Performance-based remuneration based on the accomplishments/results in company performance
Mission remuneration
Fixed remuneration to be determined based on one’s duty. To ensure the background of the money amount, the breakdown (Audit and Supervisory Committee Member compensation in addition to representative compensation, supervisor compensation, and executive compensation) is organized and determined.

Executive Remuneration for the Fiscal Year Ended March 2021

The total amount of remuneration to each executive classification, the total amount of remuneration by type, and number of target executives are as follows.

Executive Classification Total Amount of Remunerations, etc. (1 million yen) Total Amount of Remunerations, etc. by Type (1 million yen) Number of Target Executives
Mission remuneration Performance remuneration Stock-based compensation Retirement Benefits
Director*1 232 115 108 9 5
Audit & supervisory board members*2 40 40 - - 2
Outside Directors and Audit & supervisory board members 30 30 - - 6

*1: Except for outside directors
*2: Except for outside Audit & supervisory board members
*3: The total amount of remunerations, etc. above is based on the standards before revision by the resolution by the 105th General Meeting of Shareholders held on June 25, 2021.

9:Policy on Cross-Shareholdings

The Company’s basic policy for holding shares for purposes other than pure investments (cross shareholdings) is to focus on the shares of companies that are expected to enable the Company to generate appropriate synergy by maintaining and strengthening business ties and relationships with other companies. Nevertheless, the Company will sell the cross-held shares if such shares are deemed no longer sufficiently meaningful as cross-shareholdings.

To ensure that the effects and reasonableness of cross-shareholdings are in line with their purposes, the Company shall closely and specifically examine, both from the qualitative and quantitative aspects, whether the benefits and risks associated with cross-shareholdings justify the cost of capital and report the results of such an examination to the Board of Directors annually to review all cross shareholdings.

With regard to the exercise of voting rights, the Company shall exercise voting rights to ensure that such rights contribute to the enhancement of corporate value. In exercising voting rights, the Company shall not make cookie-cutter decisions based on quantitative criteria alone. Decision on how to exercise voting rights shall be made on the basis of a comprehensive assessment of whether such decisions will contribute to improvement of medium- to long-term corporate value of both the Company and the investee companies.

For further explanation of the purpose and rationality of holding shares in each individual company as cross shareholdings, please refer to the Company’s annual securities report.

Composition

10:Policy for Promoting Constructive Dialogs with Shareholders

To build a medium- to long-term relationships of trust with shareholders and investors and to ensure that investor relations (IR) activities contribute to the sustainable enhancement of the Company’s corporate value, the Company has established the following policy for active and constructive dialogs with shareholders and investors:

1. Top management’s engagement and appointment of a director for dialogs with shareholders
Because the Company positions IR as one of the top priorities of corporate management, top management actively engages in IR activities as the persons ultimately responsible. In addition, the Company appoints an executive officer in charge of IR to ensure consistency and continuity by centrally managing the deployment of IR activities.
2. Measures to ensure organic coordination among departments
The Company specifies the department in charge of IR in its segregation of duties policy and ensures that the necessary management resources (such as skilled human resources) and authority are provided to that department for the execution of IR duties. In order to promote constructive dialogs with shareholders and investors, the Company supports management’s dialogs with shareholders and investors through a framework that ensures coordination with the departments in charge of corporate planning, finance, accounting, general affairs, legal affairs, corporate communications, and ESG (environment, social, and governance) at all times.
3. Initiatives to enrich dialogs with shareholders and investors
The Company holds earnings briefings for shareholders and investors semiannually and publishes its financial results briefing materials on the Company’s website. In addition, the Company visit individual investors or shareholders to explain the status of the Company where appropriate. To promote a better understanding of the Company among shareholders and investors, the Company strive to provide easy-to-understand information about the state of the Company by providing financial and nonfinancial information, such as the Daiken Group’s mission statements, medium- to long-term management strategy, and ESG initiatives. When developing and publishing the Group’s management strategies and management plans, the Company clearly specify the earnings plan, investment plan, and capital policy, among other matters, based on a full understanding of the overall cost of capital.
4. Measures to provide feedback to management and the Board of Directors
The opinions and concerns of shareholders and investors identified through dialogs are reported quarterly by the executive officer in charge of IR to the Board of Directors and the Executive Committee, which is the decision-making body for the execution of business. At the same time, the Company shall ensure that the thought-provoking opinions and concerns all shareholders and investors are reflected in corporate management to help enhance corporate value on a sustainable basis.
5. Measure to control insider information in conducting dialogs with shareholders and investors
With regard to the control of insider information in conducting dialogs with shareholders and investors, the Company set a certain period of time before the Company makes any earnings announcements as a quiet time when the content of any dialogs is restricted. In order to prevent the risk of insider information leaks in interviews with shareholders and investors, the Company shall ensure that only those directors, executive officers, and other authorized persons who are fully educated about fundamental information management are allowed to conduct interviews with shareholders and investors.