Corporate Governance

Along with an understanding of the importance of corporate ethics, we recognize that achieving health, transparency, efficiency, and highly agile corporate management is the key point of corporate management systems for the sustainable growth and development of a company and the increase in its long-term corporate value as it responds swiftly to rapid changes in society and the environment—that is, it is the key point of corporate governance. We are enhancing our corporate governance in line with the following basic approaches.

■Relationship with shareholders and other stakeholders

1. We will respect the rights of shareholders.
2. We will ensure the equality of shareholders.
3. We will build positive and smooth relationships with our shareholders and many other stakeholders.
4. We will properly disclose company information and ensure transparency in our corporate management.

In April 2022, we transitioned to the Prime Market as our new market segment on the Tokyo Stock Exchange.
To provide a high level of governance appropriate to a company listed on the Prime Market, we will continue working to strengthen initiatives and enhance our sustainable growth as well as our medium- to long-term corporate value by solving diverse social issues.

Organizational structure
As the organizational structure of our Company under the Companies Act, we have adopted the form of a company with an Audit and Supervisory Committee. We have an Audit and Supervisory Committee in which Outside Directors with independence and neutrality make up a majority of members, and delegate a substantial portion of the Board of Directors’ authority for business execution to Directors. Doing so allows us to separate the oversight and execution of business and engage in speedy decision-making.

Basic policy on the composition of the Board of Directors
Representative Directors, Management Executives (President & CEO, Vice President & Executive Officer, Senior Executive Officer, Senior Managing Executive Officer), and Directors who are not Audit and Supervisory Committee and its Members are appointed with comprehensive consideration of the balance of the Board of Directors overall and whether candidates possess the knowledge, experience, and capabilities required to satisfy diversity. Candidates for Directors who are Audit and Supervisory Committee Members are appointed based on comprehensive judgment of whether the candidates possess sufficient knowledge to properly perform the duties of Audit and Supervisory Committee Members.In particular, we include one or more persons who possess sufficient financial and accounting knowledge.
We also strive to appoint Outside Directors with independence and neutrality to at least one-third of Director positions.

Concepts concerning the functions of the Board of Directors and independence
Outside Directors are Directors who are personally and financially independent from the Company and who fulfill the requirements for independent officers established by the Tokyo Stock Exchange, as well as the requirements for outside directors set forth in the Companies Act. Outside Directors make efforts to achieve excellent corporate governance by providing counsel from perspectives differing from those of other Directors. As necessary, they may request submission of internal company materials or explanation and reporting of internal company information from other Directors, Executive Officers, or employees.
Audit and Supervisory Committee Members bear the role of working to establish an effective corporate governance system by overseeing and auditing the execution of duties by Directors. The Audit and Supervisory Committee composed of those members conducts verification of the content of reports received from Directors, Executive Officers, employees, Accounting Auditors, and other parties, as well as investigation of the status of the Company’s business and assets. The Committee enacts necessary measures in a timely manner, including the provision of counsel, recommendations, and other opinions to Directors and suspension of the actions of Directors.

Composition of the Board of Directors
The Board of Directors invites two Outside Directors (including two Directors who are Audit and Supervisory Committee Members) for inclusion among its six Directors (including three Directors who are Audit and Supervisory Committee Members), from whom the Board receives candid comments from an external perspective and opinions of benefit to the Company’s management based on the individuals’ abundant experience. By doing so, we are making efforts to enhance the impartiality of our management and strengthen functions for the oversight of decisionmaking and execution of duties by business executives. Delegating important decisions on business execution to the Representative Director, President & CEO in accordance with the provisions of the Articles of Incorporation and resolutions by the Board of Directors enables swift decision-making in management and agile business execution, and allows the Board of Directors to focus on the oversight of business executives.

Related Committees
The Audit and Supervisory Committee is composed of two Outside Directors and one Internal Director. The Internal Director, as Standing Audit and Supervisory Committee Member, serves as Chair of the Committee. We have also established the Audit and Supervisory Committee Office, with one dedicated staff person and one staff person concurrently holding another position. This office supports auditing work and smooth execution of duties by the Audit and Supervisory Committee.
The Company has also established a Nomination and Compensation Committee under the Board of Directors to deliberate on proposals for director appointment and compensation. This Committee is chaired by Representative Director, President & CEO Tsuyoshi Ando, with Outside Directors Nanpei Yanagawa and Takashi Nakamura as members.
As a decision-making body for execution of management by the President & CEO, we have established a Management Conference to deliberate company-wide basic management strategy and its execution. The Management Conference is composed of Standing Directors, Executive Officers, and Company Presidents. The Corporate Ethics Committee, chaired by the Chief Legal Governance Officer, is composed of corporate ethics managers in the Group. It manages corporate ethics activities across the Group, enforces corporate ethics education for directors and employees, and works to prevent violations. We have also established a whistleblowing system as a means of directly providing information on legally suspect actions, and ensure that no disadvantage befalls whistleblowers.
The Special Committee is composed of experts including one or more university professors, attorneys, and certified accountants who have no affiliations with the Company. Our Large-scale Purchase Rules (an anti-takeover defense measure), which clearly and specifically indicate procedures that takeover proposers should take prior to executing specific acts of purchase, in principle require judgment by the Special Committee on decisions regarding whether to implement specific measures, to exclude arbitrary decisions by the Company’s Board of Directors.

Moreover, to promote sustainability management by which our Group seeks to improve the sustainability of our business through consideration of the sustainability of the environment, society, and economy, we established the Sustainability Office and the Sustainability Committee in June 2021. At the center of our Group, the Sustainability Office plans and promotes measures involving sustainability management. The Sustainability Committee is chaired by the President & CEO and selects members from Internal Directors and Executive Officers. It functions as a meeting body that discusses and shares sustainability management-related policies and measures, and executes decisions without delay across the Group. It also makes proposals on key measures and issues progress reports to the Management Conference and the Board of Directors.

Implementation guidelines for evaluations of the effectiveness of the Board of Directors during the reporting period
We carry out evaluations of effectiveness on the basis of Article 31 of our Corporate Governance Guidelines, which states, “The Board of Directors will, to evaluate its effectiveness, conduct self-evaluation at the end of each fiscal year with a focus on whether the execution of duties by the Board of Directors was performed in accordance with these Guidelines, and will analyze and evaluate the results. An outline of the results of the analysis and evaluation will also be disclosed as appropriate.” We disclose the results in our Corporate Governance Report.

Initiatives to address issues raised in the 90th term
In our evaluation of our 90th term (FY 2020, ended in March 2021), as a concrete measure in the 91st term (FY 2021, ended in March 2022) to address issues in the 90th term, we established the development of an environment for members of the Board of Directors to hold deeper discussions on key items, in addition to continuing ongoing measures.
Specific measures given included isolating and clarifying the deliberation matters attached to the reported matters provided as the agenda for the Board of Directors, improving the quality and optimizing the volume of materials presented to the Board of Directors, increasing opportunities for deliberation in order to enhance disclosure of non-financial information in light of the ESG investment trend, and improving Director training opportunities.
As a result, we assessed that active discussions on every project have increased compared with the previous fiscal year, and that the Board of Directors’ awareness of its effectiveness has risen.

Results of evaluation of the 91st term
We conducted a questionnaire survey aimed at all directors, including Audit and Supervisory Committee Members, to evaluate the effectiveness of the Board of Directors in the 91st term. Preparation, distribution, tabulation, and analysis of the anonymous response sheets were conducted by the Legal Governance Affairs Office, which serves as the secretariat for evaluation of effectiveness. The answer sheet consists of 17 questions covering areas of the Board of Directors’ composition, operation, deliberation, support structure, relationships with stakeholders, and the degree of contribution of individual directors.
At the Board of Directors meeting held in May 2022, the Chief Legal Governance Officer reported on the aggregation of responses and the findings of analysis, and members discussed current circumstances and recognition of issues.
As a result, our Company’s Board of Directors has determined that the duties of the Board of Directors are being performed appropriately and that no problem exists in its effectiveness. Deliberation of management and business strategies was raised as an issue in the previous year. Our evaluation confirmed a degree of improvement in this area, recognizing that in the formulation of TOKYO KEIKI Vision 2030, the Board of Directors contributed to coordinating the direction for strategy and spent a large amount of time deliberating with management, with the end result being the disclosure of TOKYO KEIKI Vision 2030 along with our medium-term business plan in June 2021. However, we also affirmed that there was room for improvement in the areas of the setting of Board of Directors’ deliberation matters, and in the provision of information related to the same. These issues were shared with the Board of Directors. Looking ahead, we will establish a concrete action plan for these issues and reconfirm progress and results in the next effectiveness evaluation.
The Company will endeavor to further improve the effectiveness of the Board of Directors by conducting appropriate evaluations every year, through resolution of issues recognized in effectiveness evaluations and continuous review of implementation guidelines for evaluation.

Policy for appointing Internal Directors who are not Audit and Supervisory Committee Members
In accordance with guidelines outlining seven requirements, the Company appoints Internal Directors who are not Audit and Supervisory Committee Members from among Executive Officers and employees, etc. who have the strong will, abundant experience, high level of insight, and high level of expertise needed to carry out the duties of a director.

Policy for appointing Internal Directors who are Audit and Supervisory Committee Members
In accordance with guidelines outlining six requirements, the Company appoints Internal Directors who are Audit and Supervisory Committee Members from among current (or incumbent) Audit and Supervisory Committee Members, Executive Officers, and employees, etc. who have the strong will, abundant experience, high level of insight, and high level of expertise needed to carry out the duties of a director. We particularly emphasize a deep understanding of matters such as finance, accounting, and internal control, as well as sufficient experience and expert knowledge.

Policy for appointment of Outside Directors
In accordance with guidelines outlining seven requirements, the Company appoints Outside Directors from among persons who possess abundant experience, a high level of insight, and a high level of expertise; persons who possess a practical perspective as an outside company manager or other position; and persons who possess an objective and expert perspective based on a high level of knowledge of global conditions and socio-economic trends.

Skills matrix
In order to verify whether the TOKYO KEIKI Group is furnished with the management capabilities needed to resolve the Group’s challenges, we have outlined in the following table the knowledge and expertise (skills) possessed by all of our Directors in various fields based on two perspectives: items required for the management of a listed company, and matters required per our business activities. The determination of each Director’s skills took into consideration their accomplishments as Directors and Executive Officers in each field as well as their past professional experience.

Basic policies
Compensation for directors who are not Audit and Supervisory Committee Members is composed of monthly fixed compensation (basic compensation), performance-linked compensation, and transfer-restricted stock compensation, with the aim of reflecting business performance and sharing the values of shareholders. However, Outside Directors who are not Audit and Supervisory Committee Members receive only monthly fixed compensation. For all compensation amounts, proposals prepared by the Representative Director, President & CEO are submitted to the Nomination and Compensation Committee. The Representative Director, President & CEO then receives a Memorandum on Director Compensation from the Committee and, based on this, finally determines and proposes compensation amounts that are resolved by the Board of Directors.
Compensation for Audit & Supervisory Committee Members, consisting of only basic compensation in the form of monthly fixed compensation, is determined through deliberation by Audit and Supervisory Committee Members on the basis of members’ roles, duties, and categorization of standing or non-standing status, within the total amount determined at the General Meeting of Shareholders.

Monthly fixed compensation
The Representative Director, President & CEO will set a monthly fixed compensation proposal for each director who is not an Audit and Supervisory Committee Member, making reference to necessary information on director compensation allowing comparison with our Company, obtained through sources including surveys on trends in director compensation. After monthly fixed compensation is determined, amounts may be reduced in consideration of matters including the Company’s business situation.

Performance-linked compensation
The Representative Director, President & CEO will determine whether performance-linked compensation will be paid, through discussions with the Representative Director in accordance with criteria for the payment of performancelinked compensation as set forth in the Rules for Directors’ Compensation. Criteria for the payment of performance-linked compensation include positive operating profit, a given level of profit attributable to owners of parent, payment of dividends not below initial projections, and ROE that does not fall below initial projections by a given percentage.

Transfer-restricted stock compensation
The Company sets and pays monetary compensation credits in an amount equal to an individual’s monthly fixed compensation converted to a yearly amount, multiplied by a coefficient based on position. Each eligible director receives an allocation of transfer-restricted stock through the granting of all monetary compensation credits as in-kind contribution. The paid-in amount of the transfer-restricted stock is determined by the Company’s Board of Directors within an extent that is not overly advantageous to the receiving directors, based on the closing price of the Company’s common shares on the Tokyo Stock Exchange on the business day prior to resolution by the Board of Directors concerning issuance or disposal of the stock (or, if no transactions took place on said business day, the closing price on the most recent trading day).
Similar transfer-restricted stock is also allocated to the Executive Officers of the Company and Representative Directors of subsidiaries of the Company.