Sustainability - Corporate Governance
Under our Corporate Mission of “illuminating a more affluent tomorrow” and our Corporate Philosophy of providing value“ for customer peace of mind and satisfaction,” our group has set forth our Ideal State of Being/Vision for 2030 as “Work to build a new society through integrity to the earth, society, and people, and through the power of co-creation – Sustainability Partner –.” Our group takes the basic stance that we maintain fair and steady business activities with respect for people and the global environment, operate businesses focusing on profit while constantly pursuing new technology and high quality, and endeavor to give back to society.
In order to implement this basic stance, we formulated the “Basic Policy to Improve the Governance to Secure Fair Business Practices” at the regular Board of Directors meeting held in May 2006. In addition, we revised this basic policy at the regular Board of Directors meeting held in July 2022, as a result of a revision of the officer system to further clarify the division of roles between executive functions (executive officers) and so-called supervisory functions (directors and the Board of Directors).
We will work to further improve the fairness, efficiency, and transparency of management by promoting initiatives to enhance corporate governance in accordance with the Corporate Governance Code.
Meidensha will work to further improve the fairness, efficiency, and transparency of management by promoting initiatives to enhance corporate governance in accordance with the Corporate Governance Code.
We will work to establish an environment where shareholders can exercise their rights appropriately and we will actively disclose information to this end, thereby ensuring shareholder rights and equality.
In order to achieve our Group’s sustainable growth and enhance its corporate value over the medium to long term, we will disclose appropriate information and engage in dialogue with our various stakeholders, including customers, suppliers, and members of the local community.
We will make timely disclosures of information in accordance with laws and regulations and will also disclose information on the status of our company, including non-financial information, in a timely and appropriate manner through media that are widely accessible to stakeholders (our websites, integrated reports, and other publications).
Based on the Meidensha Group Corporate Philosophy, the Board of Directors will formulate medium- to long-term management plans and strive to enhance the medium- to long-term corporate value of our Group by making decisions and supervising business execution in the implementation of these plans.
As a company with an Audit & Supervisory Committee, we strive to improve the supervisory function of the Board of Directors. In addition, we will further promote separation of supervisory and executive functions by utilizing the executive officer system, which was introduced in June 2003 and revised to enhance its legitimacy in June 2022 to state that the Board of Directors makes appointments grounded in the Articles of Incorporation.
Our policy is to ensure that senior management respond within reason, when engaging in dialogue with shareholders who wish to create that dialogue to help enhance our corporate value over the medium to long term.
In addition, as a prerequisite for this dialogue, we will endeavor to provide more opportunities for various briefings and IR/SR interviews and offer enhanced information disclosure through our websites, integrated reports, and other publications.
We are a company with an Audit & Supervisory Committee, and we aim to further strengthen corporate governance in the following areas.
In principle, the Board of Directors convenes on a regular monthly basis and holds ad-hoc meetings as necessary, to discuss major executive matters, business issues, and management issues related to the our business execution. In FY2022, the Board of Directors held 13 meetings, and the attendance rate was 100% for all directors.
The specific composition of the Board of Directors and meeting attendance in FY2022 are described below in “Composition of the Board of Directors, Nomination & Compensation Committee, and Audit & Supervisory Committee and Attendance in FY2022” below.
Our Board of Directors consists of 11 directors, including 4 who are Audit & Supervisory Committee members. The 11 directors also include 6 outside directors (of which 3 are members of the Audit & Supervisory Committee). The 6 all satisfy the requirements for independent directors as defined by the Tokyo Stock Exchange and our Criteria for Determining the Independence of Outside Directors. This means that independent outside directors make up a majority of the Board of Directors, ensures the effectiveness of the supervisory function of the Board of Directors, and ensures that objective and independent opinions are fully incorporated into the company’s management.
It is the basic policy to ensure the diversity of the Board of Directors as a whole based on the abilities, insight, and experience of individual directors and to assign appropriate human resources that contribute to the enhancement of our corporate value. It is also our policy to ensure the diversity and balance of the Audit & Supervisory Committee as a whole based on the knowledge and experience of accounting, financial, and legal matters etc., of directors who are members of the Audit & Supervisory Committee. The balance of expertise, knowledge, experience, etc., is as described in the Board of Directors’ Skill Matrix below.
The Board of Directors considers “matters for discussion” in addition to matters to be resolved and reported. ”Matters for discussion” includes following the progress of and tracing matters related to basic management policies such as the Medium-term Management Plan and important management themes. At their meetings, directors actively exchange opinions on our management issues and strategies and on corporate governance, while drawing on the knowledge of the outside directors. The Board of Directors use the meeting as a forum to reach consensus on the direction of us in the conceptual and planning stages prior to making a board resolution.
Major topics discussed by the Board of Directors in FY2022 included the following.
The Board of Directors discussed this issue with the aim of further strengthening its supervisory function, as found in the FY2021 board effectiveness evaluation. In addition, an outside attorney gave a training on the role of the Board of Directors and outside directors and the exercise of their functions. Directors also met several times outside of formal Board of Directors’ Meetings to trade opinions.
The following measures have been taken as a result of the Board’s discussions and deliberations.
The Board of Directors discussed several topics intended to monitor the progress of Medium-term Management Plan 2024 and supervise strategies to achieve its objectives. The Board of Directors discussed the situation and strategies in each business, especially measures to cope with rising component prices, collaboration between businesses (especially between the product sales and maintenance service businesses), and growth strategies beyond Medium-term Management Plan 2024.
The Board of Directors’ Meeting discusses the progress of the meeting of the Sustainability Management Strategy Committee (chaired by the President & Executive Officer) as part of supervision of sustainability management, which is a basic policy of Medium-term Management Plan 2024. It also discusses the status of human capital initiatives.
Our outside directors have diverse management experience and areas of specialization, understand the content of the proposals put before the Board of Director’s Meeting from a variety of perspectives when said matters are explained in advance, and attend Board of Directors’ Meetings having checked any unclear points in advance.
At Board of Directors’ Meetings, multifaceted discussion occurs, based on the broad perspective of managers, the knowledge of technicians, and the high-level specialization of experts, etc. The outside directors participate in deliberations by actively making statements, etc., in particular concerning policies and measures to deal with risks, and cautions when monitoring, etc.
We create opportunities to explain our business and structures, primarily to aid the understanding of newly appointed outside directors. The responsible officers or managers in charge of the business group explain their business, group-wide themes, and our governance system to the outside directors, answer their questions, and exchange opinions with them.
Meidensha has a mechanism in place to conduct an analysis and evaluation of the effectiveness of the Board of Directors in order to strengthen the supervisory function of the Board of Directors.
With regard to the activities of the Board of Directors in FY2022, all members of the Board of Directors, including outside directors, conducted self-evaluations of the effectiveness of the Board of Directors, and the following discussions took place at the meeting of the Board of Directors, in order to revitalize deliberations by the Board of Directors.
An overview of the analysis, evaluation, and discussions is as follows.
Based on the above, we will continue working to increase the effectiveness of the Board of Directors.
Meidensha has established a voluntary Nomination & Compensation Committee as an advisory body to the Board of Directors. Its purpose is to ensure management transparency and strengthen accountability regarding nominations (appointments and dismissals) and compensation of directors.
The specific composition of the Nomination & Compensation Committee and meeting attendance in FY2022 are described in “Composition of the Board of Directors, Nomination & Compensation Committee, and Audit & Supervisory Committee and Attendance in FY2022” above.
The number of directors is set at no more than 15 to allow sufficient discussion of management issues.
(10 Directors who are not Audit & Supervisory Committee members and five who are)
Based on the basic policy for ensuring a balance between the diversity of the Board of Directors as a whole and its expertise and experience, as described in (1) ① Composition of Board of Directors above, we select individuals who will help strengthen the decision-making and supervisory functions of the Board of Directors. The Board of Directors consults with the Nomination & Compensation Committee (a voluntary committee), with independent outside directors as the main members and chair, then the Board of Directors nominates candidates by resolution. Finally, nominations are submitted to the General Meeting of Shareholders.
In the event that a director is found to be in violation of laws and regulations or the Articles of Incorporation, or to have significantly deviated from the policy for the appointment of directors, the Board of Directors will take the necessary procedures for dismissal after consulting with the Nomination & Compensation Committee.
Meidensha believes that members of the Board of Directors should have such skills and experiences by the reasons below.
Meidensha selects several candidates to succeed the top executive from among those appointed as directors or executive officers with titles who have undergone education and training and who meet certain requirements and contribute to enhancing our corporate value.
In replacing the top executive, it is identified which of the candidates should be the successor after consulting with the Nomination & Compensation Committee. The Executive Officers’ Meeting and the Board of Directors scrutinize the requirements and eligibility, identify a candidate, and finally decide who will be the top executive.
Meidensha introduced an executive officer system in June 2003 in order to streamline the Board of Directors, as well as to accelerate management decision-making and to enhance supervisory functions. At the same time, we sought to reinforce the functions of the Board of Directors by promoting the separation of the decision-making authority and supervisory function from the business performance function held by the Board of Directors.
Based on the Articles of Incorporation, executive officers selected by the Board of Director’s Meeting assume responsibility for the execution of specified tasks within the scope of authority transferred by the Executive Officers’ Meeting and the President and Executive Officer, and nimbly perform executive functions under the supervision of the Board of Directors, in accordance with the Meidensha Group’s management policies determined by the Board of Directors.
The Executive Officers’ Meeting, which comprises Executive Officers with Titles, is created for executive decision-making, and decides matters based on the rules of internal approval, as well as matters for which consultation from a full-company perspective is required.
Furthermore, apart from the meeting body to make decisions, we established advisory and internal bodies such as review and strategy meetings, and with regard to important management matters, we created a system wherein thorough discussion and deliberation are conducted prior to decision-making, and follow-up strategy and planning and improvement initiatives are conducted following decision-making.
Summaries and key points of proceedings at the Executive Officers’ Meeting and other internal bodies are reported at the regular meeting of the Board of Directors for the month as a report on business execution. This helps to ensure and improve the effectiveness and supervisory functions of the Board of Directors.
In executing business, resolutions and decisions are made by executive officers who have authority over business execution and strive to execute operations proactively and flexibly.
In addition, when the Board of Directors delegates part of its business execution authority to executive officers via the directors, the executive officers are required to submit a report on the status of business execution to the Board of Directors at least once every three months. This helps ensure that the Board of Directors can supervise effectively.
Meidensha transitioned from the prior institutional structure of a company having an Audit & Supervisory Board to a company having an Audit & Supervisory Committee at the General Meeting of Shareholders held on June 26, 2020.
Our Audit & Supervisory Committee consists of four directors who are Audit & Supervisory Committee members (three outside directors and one standing inside director).
In principle, the Audit & Supervisory Committee is held once a month before the Board of Director’s Meeting. The purpose is to enable the Audit & Supervisory Committee to form its own intentions on matters to be discussed at Board of Director’s Meetings prior to the Audit & Supervisory Committee. In case there is a quarterly audit report from the accounting auditor, Audit & Supervisory Committee is held on the same day as the Board of Director’s Meeting. In that case, the Audit & Supervisory Committee is held twice in a month. Each Audit & Supervisory Committee lasts about two hours.
In addition, we established the Support and Advisory Division for Audit & Supervisory Committee exclusively to aid the Audit & Supervisory Committee. It has four members with legal, financial, accounting, sales, factory, quality control, R&D, overseas business, and internal auditing experience.
Meidensha has established the Internal Auditing Division (16members as of March 31, 2023).
As an organization under the direct control of the President and Executive Officer, the Internal Auditing Division is independent from other executive lines. It conducts internal audits to check the effectiveness and efficiency of business operations, the reliability of financial reporting, the status of compliance with laws and regulations, and the maintenance of assets, covering Meidensha and all of Meidensha Group companies including in abroad.
With regard to internal control, the Internal Control Promotion Division is the specialized division that establishes risk management systems that integrate the entire Meidensha Group, promotes enhancement of internal control systems, and ensures complete internal control functions through joint monitoring of internal control systems by the Audit & Supervisory Committee and the Internal Auditing Division.
In FY2022, the internal audits were mainly conducted by two methods.
We conducted risk-based audits in 10 divisions based on the major Company-wide risks identified by the Risk Management Committee. We covered those risks comprehensively while prioritizing high-risk areas. In FY2023, we will reevaluate the major Company-wide risks from the perspective of the Internal Auditing Division and will audit units selected in consideration of risk factors of particular importance to management and other risks.
To improve the coverage of risks in audits of subsidiaries, we conduct standardized audits with audit standardization tools. We plan to conduct standardized audits of all subsidiaries between FY2021 and FY2024. In FY2022, we audited 4 domestic subsidiaries and 12 overseas subsidiaries.
The Internal Audit Regulations stipulate that internal audit results are to be reported to the President & Executive Officer, the Board of Directors, the Executive Officers’ Meeting, and the Audit & Supervisory Committee.
In FY2022, reports were presented monthly to the President & Executive Officer, semiannually to the Board of Directors and the Executive Officers’ Meeting, and 10 times to the Audit & Supervisory Committee. Internal audit reports are also sent to the members of the Executive Officers’ Meeting and standing Audit & Supervisory Committee members each time one is issued.
The Meidensha Group is working to continuously strengthen group governance by developing basic policies based on the “Basic Policy regarding Establishment of a System to Ensure the Appropriateness of Business Activities” at each Meidensha Group company, establishing a regulatory framework, and implementing the PDCA cycle.
1. Major Initiatives in FY2022
Our purpose to hold cross-shareholdings is to maintain and expand transactions for the medium -to long-term and secure and strengthen medium- to long-term cooperative relationships with partners and allies, taking account of market conditions and other factors. Based on the purpose, our basic policy is to hold cross-shareholdings that help enhance corporate value and to consider selling cross-shareholdings that no longer seem significant or rational.
Under this policy, we decide to keep or reduce its current holdings of listed stocks based on a comprehensive assessment of whether the ratio of each stock’s return (dividends, related trading profits, etc.) to market value meets the target cost of capital, policy factors, and so on.
we sold 10 listed and unlisted stocks for ¥1,03 billion out of its 102 listed and unlisted stocks (balance sheet amount: ¥16.406 billion) as of March 31, 2022, reducing the number of stocks to 96 (balance sheet amount: ¥16,418 billion) as of March 31, 2023. This represents 14.8% of consolidated net assets as of March 31, 2023.
The level of compensation of Meidensha’s directors is determined based on external objective compensation market data, economic conditions, industry trends, and Meidensha’s business circumstances, etc. Giving consideration to this level, the content of the director’s compensation system is determined in the form of internal regulations on director’s compensation after consultation and confirmation by the aforementioned voluntary Nomination & Compensation Committee, chaired by an outside director.
Compensation of directors (excluding Audit & Supervisory Committee members and outside directors) is based on an annual salary system with performance-linked compensation and comprises basic compensation (a) and incentive compensation according to position. Of these, incentive compensation comprises performance-linked compensation (b) as a short-term incentive and compensation for stock acquisition (c) and TSR (total shareholder return)-linked compensation (d) as medium- to long-term incentives.
Directors and outside directors who are Audit & Supervisory Committee members only receive basic compensation on annual salary system basis.
The performance indicator for calculating performance-linked compensation as a short-term incentive is decided after the annual general meeting of shareholders for the relevant fiscal year. It is decided based on the operating income of the previous fiscal year to raise awareness of the need to improve performance, especially profitability, each fiscal year. The performance-linked compensation indicator varies from 0 to 140 depending on the degree to which targets were achieved, with perfect achievement counting as 100.
Operating income for FY2021 was ¥9.468 billion, compared to a target of ¥10 billion, which represents an achievement rate of 94.6%.
Meidensha provides compensation for stock acquisition and TSR-linked compensation as medium- to long-term incentives to sustainably increase corporate value and ensure that directors (excluding Audit & Supervisory Committee members and outside directors) have some shared value with shareholders.
Details of the compensation system and the amount of compensation (including the rules that it is calculated in accordance with the standards of the compensation system and is within the compensation limits decided at the General Meeting of Shareholders) are confirmed and deliberated from an objective point of view by the voluntary Nomination & Compensation Committee.
Specific details of the amount of compensation for each individual director (excluding members of the Audit & Supervisory Committee) are delegated to the President & Executive Officer (“President”), who is a director, based on a resolution of the Board of Directors. To ensure that the President exercises this authority properly, the Board of Directors establishes procedures for the President to consult and obtain confirmation of the draft in advance from the voluntary Nomination & Compensation Committee. Moreover, the President’s decision must consider the details of such confirmation or report. In FY2022, the Board of Directors resolved at its June 23, 2022, meeting to delegate President Takeshi Miida to determine the specific details of the amount of compensation for directors. The reason for delegating this authority is that the President, as the chief officer of the Company, is best suited to evaluate each director while looking at Meidensha’s overall performance.
Compensation for directors who are members of the Audit & Supervisory Committee is determined by the same committee within the compensation limit decided at the General Meeting of Shareholders. An appropriate amount is set to reward the services of committee members, taking into consideration whether they are standing or non-standing and the nature of their respective auditing duties.
