Shindengen’s basic corporate governance policy is to maintain and enhance its management system to ensure that it can quickly and accurately adapt to rapid changes in the operating environment. We seek to accelerate decision making and reinforce oversight by separating management and execution, and the Audit & Supervisory Board performs audits from an independent standpoint to enhance the effectiveness of the internal control system.

• Outside directors comprise
  33.3%
  of the Board of Directors

• Outside members comprise
  66.7%
  of the Audit & Supervisory Board

Corporate Governance Initiatives

Corporate Governance System

To ensure that the Board of Directors manages the Company and operates its businesses in a way that serves to increase corporate value over the long term, Shindengen’s Articles of Incorporation specify that the Board of Directors must comprise directors with diverse professional backgrounds and insight, and that it is limited to no more than nine directors. In addition, Shindengen ensures that at least two directors, in principle, are outside directors. Furthermore, Shindengen takes steps to strengthen its management system, including limiting director terms to one year and clarifying their responsibilities. We have also introduced an officer system to separate management decision-making and business execution, thereby accelerating these functions and promoting management efficiency while strengthening the supervisory functions of the Board of Directors.

Furthermore, the effectiveness of our internal control system is increased through audits undertaken from an independent standpoint by the Audit & Supervisory Board. Shindengen’s management control structure is primarily composed of the Board of Directors, Management Committee, Audit & Supervisory Board, Technology & Quality Control Committee, General Manager Committee and Manager Committee. Through the functional operation of this structure, we seek to accelerate decision-making and promote efficient business activities and thus maintain tightly coordinated management across the entire Group. Furthermore, on November 9, 2021, we established the Nomination and Compensation Committee as an optional advisory body to the Board of Directors in order to ensure greater objectivity and transparency in processes related to the nomination and compensation of directors and thereby further enhance the Board of Directors’ supervisory functions and the corporate governance system. We have also established the Sustainability Committee, chaired by the President, with the aims of contributing to the realization of a sustainable society and improving corporate value through the implementation of our corporate mission and promotion of ESG management. We have established additional committees under the Sustainability Committee for the integrated management of sustainability-related issues. Also, the Compliance Committee and Compliance Office work to address compliance-related issues and prevent problems across the Group. With regard to information disclosure, we work to reinforce IR activities to improve management fairness and transparency.

Audit & Supervisory Board Audits

We have adopted an audit & supervisory board system primarily consisting of outside Audit & Supervisory Board members (one full-time member and two outside members) to ensure independence and verify the execution of operations in a fair manner. We maintain a full-time audit staff to support our auditing system. The Audit & Supervisory Board receives accounting audit results from the independent auditor. This maintains the latter’s independence while providing oversight and verification to ensure that the accounting audits are being implemented appropriately.

Internal Audits

Shindengen’s Internal Audit Department (comprising the department manager and 10 internal auditors) audits the condition and operation of the internal control system in order to ensure effective monitoring of the management activities of the Company and Group companies. The results of these audits are reported to the audited divisions in writing, with requests for improvement where necessary, and compiled into regular reports to the Board of Directors.

The Internal Audit Department and independent auditor have regular quarterly meetings to report on such topics as audit plans and activities, audits of internal controls over financial reporting, and risk management. Through these measures, we strive to maintain and strengthen an appropriate auditing system based on relevant laws and regulations.

The Internal Audit Department determines which sites to audit and the scope of items to evaluate through discussion with the independent auditor before executing internal audits. Based on prior discussions between the two, the independent auditor evaluates internal control over financial reporting and reports its findings to the Internal Audit Department.

In addition, the Audit & Supervisory Board members and independent auditor share information on their respective audit plans to facilitate efficient auditing. The Audit & Supervisory Board members receive information on audits, including quarterly review results and annual audit results, from the independent auditors, which they discuss together.

Accounting Audits
Ernst & Young ShinNihon LLC

Policy and Reasons for Independent Auditor Selection

Ernst & Young ShinNihon LLC was selected after the Audit & Supervisory Board found it well suited in terms of audit performance, audit systems, independence and expertise.

The Audit & Supervisory Board may, by the unanimous consent of its members, dismiss the independent auditor if any of the provisions of Article 340-1 of the Company Law of Japan are deemed to apply. In addition, if the independent auditor is deemed unable to appropriately execute its duties or when other cause warrants, the Company may propose a resolution for the general meeting of shareholders regarding the dismissal of the independent auditor or the non-extension of its audit engagement.

Outside Directors and Outside Audit & Supervisory Board Members

We have two outside directors and two outside Audit & Supervisory Board members. We select outside directors and outside Audit & Supervisory Board members who meet the Tokyo Stock Exchange’s standards of independence for their experience, insight and expert knowledge in a variety of fields.

Yoshihiro Nishiyama was selected as an outside director with the expectation that he will use his extensive experience and broad knowledge as a business manager, including serving as the president of other companies, to provide useful advice related to management.

Yaeko Kitadai was selected as an outside director with the expectation that she will use her specialist knowledge as an attorney and high level of knowledge related to management to provide guidance and advice on management.

Harusato Nihei was selected as an outside Audit & Supervisory Board member with the expectation that he will apply his many years of experience working at a financial institution, wide-ranging knowledge and wealth of experience as an enterprise manager to carry out precise auditing.

Sachie Tsuji was selected as an outside Audit & Supervisory Board member for her expert knowledge and experience as a certified public accountant with the expectation that she will apply her many years of experience in this field, including internal corporate control, internal audits and compliance, to audits of the Company.

Board of Directors and Audit & Supervisory Board Members and Expertise

Director and Audit & Supervisory Board Member Compensation

The amounts and methods of calculating the compensation of Shindengen’s directors and Audit & Supervisory Board members are decided by the Board of Directors in accordance with internal rules regarding monthly compensation amounts based on such factors as position and years of service, and are set within an upper limit decided by resolution of the general meeting of shareholders. Director compensation is a fixed monthly amount, but can be reduced if operating performance is severely poor or augmented by bonuses when performance is strong. Furthermore, a compensation system for granting Company restricted shares to directors (excluding outside directors) was approved at the June 27, 2019 General Meeting of Shareholders.

The annual compensation of directors and Audit & Supervisory Board members in fiscal 2022 was as follows.

• Basic compensation for seven directors

  (including three outside directors. Does not include the employee salaries of directors who are concurrently employees)

  ¥91 million

• Basic compensation for four Audit & Supervisory Board members

  (including three outside Audit & Supervisory Board members)

  ¥49 million

Constructive Dialog with Shareholders

To foster sustainable growth and improve corporate value over the long term, Shindengen engages in dialog with shareholders within the bounds of practicality. We do the following to facilitate appropriate and constructive dialog with shareholders.

1. The Corporate Planning Group handles investor relations (IR) under the supervision of the Board of Directors and the officer of the Corporate Planning Group.
2. The Corporate Planning Group, Administration Department, Finance Department and Internal Audit Department coordinate with one another, holding regular liaison meetings to exchange information.
3. In addition to individual meetings, means of engaging in dialog with shareholders include semiannual results briefings for institutional investors.
4. Shareholder and investor opinions gleaned from individual meetings each accounting period are reported to the relevant directors, and especially important matters are reported to the Board of Directors.
5. Shindengen has established regulations to prevent insider trading. These govern the use of non-public information. In accordance with these regulations, we enforce such measures as silent periods in our dialog with investors.

Compliance and Risk Management

We take steps to increase the effectiveness of our compliance and risk management systems. To this end, besides management undertaken by respective management units, cross-functional initiatives are conducted by the Security and Trade Control Committee, the Environment Committee and other standing committees. Moreover, we form committees to address evaluations and audits of our internal control system related to financial reporting in accordance with the Financial Instruments and Exchange Act. We also maintain a crisis management system that promptly reports information on such important risk factors as accidents and disasters to the Board of Directors.