Corporate governance

Basic approach to corporate governance

Our Management Philosophy is “Moriroku Group will create high value with its future-oriented creativity and advanced technologies, while contributing to the global society.” By practicing this, the Moriroku Group's basic approach to corporate governance is to ensure transparency, fairness, and timeliness in management decision-making. The aim is to continuously increase its corporate value over the medium and long term, as well as to fulfill the Group's social responsibilities by maintaining close relations with all types of stakeholders, including customers, business partners, employees, local communities, and shareholders, in order to earn their trust.

Compliance with corporate governance code

The status of the Company's compliance with the Corporate Governance Code is shown in the attachment.

2023/6/23 Corporate Governance Report PDF file open.

Strategic shareholding policy

The Company examines whether shares for strategic purposes will be able to help maintain and reinforce business relationships and realize sustainable growth and a medium- to long-term increase in corporate value and whether the holdings may cause risks, etc. Only in the case that rationality can be recognized does the Company decides to acquire and hold such shares. In the case of holding, the Board of Directors regularly verifies shareholdings based on quantitative evaluation such as transaction amounts and profit margin, and does a qualitative assessment on aspects such as future prospects, and then makes decisions on whether to continue holding. Based on the verification results, the Company sold 28 issues of shares held for strategic purposes in FY2022.

The Company shall, when exercising voting rights for listed shares held, consider whether to approve or disapprove each proposal, while comprehensively taking into account the impact of the proposal on the medium- to long-term corporate value of the investee companies.

The number of stocks held and the cumulative sale amount of strategically held stocks.

Compared to the net assets of strategically held stocks.

Corporate governance structure

As a company with an Audit & Supervisory Board, we have established a Board of Directors, an Audit & Supervisory Board, and an independent auditor. The Company ensures sound management through supervision by the Board of Directors, which includes Outside Directors, as well as by the Audit & Supervisory Board, more than half of which are composed of Outside Corporate Auditors.

Board of Directors

In accordance with the Board of Directors Regulations, the Board of Directors holds regular meetings once a month and extraordinary meetings as necessary to make decisions on important management matters and supervise business execution. Currently, there are seven Directors, four of whom are Outside Directors, and all four have been registered with the financial instruments exchange as Independent Officer.

Audit & Supervisory Board

The Audit & Supervisory Board Members attend meetings of the Board of Directors and state their opinions as well as monitor the legality and soundness of management in the execution of duties by Directors based on audits by the Audit & Supervisory Board.
Currently, there are three Audit & Supervisory Board Members, two of whom are Outside Audit & Supervisory Board Members, both of whom have been reported to the financial instruments exchange as Independent Officers.

Executive Officer System

The Company has introduced an Executive Officer System in order to divide the roles of management supervision and business execution functions. The number of Executive Officers is currently five, including one who concurrently serve as Director.

Accounting Audit

The Company is audited by KPMG AZSA LLC.

Internal Audit

The Internal Auditing Division, an independent and dedicated organization consisting of three members, provides guidance and advice to improve management efficiency as a corporate group and establish a system to fulfill our social responsibilities.

The three audit functions, including the Audit & Supervisory Board, the Internal Auditing Division, and the accounting audit by the auditing firm, meet as needed to share information and conduct effective and efficient audits.

Nomination & Remuneration Advisory Committee

With regard to the nomination and remuneration of Directors and Audit & Supervisory Board Members, the Company has established a voluntary Nomination & Remuneration Advisory Committee, chaired by an independent Outside Director, as an advisory body to the Board of Directors, as it is necessary to strengthen the independence, objectivity and accountability of the Board of Directors' functions.

The Nomination & Remuneration Advisory Committee consists of two Outside Directors and one inside Director, and the majority of members are independent Outside Directors to enhance the independence and objectivity of the committee.

Corporate governance structure

It is a corporate governance system diagram of Moriroku Holdings Co., Ltd.

Composition of Directors and Audit & Supervisory Board Members

Composition ratio of directors and corporate auditors (independence)

Composition ratio of directors and corporate auditors (term of office)

Composition ratio of directors and corporate auditors (female ratio)

Skill matrix of Directors and Audit & Supervisory Board Members

Policies and procedures for the Board of Directors’ election and dismissal of senior management and nomination of candidates for Directors and Audit & Supervisory Board Members

For the election of Directors and Audit & Supervisory Board Members, the Company elects talented persons who have a high sense of ethics and a strong law-abiding spirit with knowledge, experience, expertise, etc. considered to be necessary for the Board of Directors in light of the skill matrix, while paying attention to the balance and diversity of the Board of Directors as a whole. This process is intended to enable the Board of Directors to make decisions on execution of important business operations through full discussion between themselves and perform the appropriate functions of supervising and auditing execution of business operations at high levels. In respect of Outside Directors and Outside Audit & Supervisory Board Members, the Company elects persons with abundant experience in business management and advanced expertise, broad knowledge and experience in finance, accounting, legal affairs, etc. To elect a President and Representative Director, the Nomination & Remuneration Advisory Committee, a majority of whose members are independent Outside Directors, engages in repeated deliberations to clarify the election process and ensure objectivity, timeliness and transparency, thereby electing an appropriate talented person with a view in part to bringing the management philosophy and business strategy of the Company into reality.

In the case that any of the following events apply to any Director or Executive Officer, the Board of Directors will lose no time and deliberate on the dismissal of the Director or Executive Officer after receiving advice from the Nomination & Remuneration Advisory Committee.

Cases where violations of laws and regulations, the Articles of Incorporation, etc. or other forms of malpractice are found
Cases where a substantial hindrance occurs to the execution of duties
Cases where there is an objective and reasonable reason for not fully fulfilling the role required for the job

With regard to the procedure for nominating candidates for Director and Audit & Supervisory Board Member, the Company establishes the Nomination & Remuneration Advisory Committee, chaired by an independent Outside Director, as an advisory body to the Board of Directors in order to ensure objectivity, timeliness and transparency in the functions concerning the nomination of Directors and Audit & Supervisory Board Members. The Nomination & Remuneration Advisory Committee provides advice on matters related to draft agenda for the General Meeting of Shareholders concerning the election and dismissal of Directors and Audit & Supervisory Board Members, the election and dismissal of Executive Directors, and their positions. Candidates for Audit & Supervisory Board Members are deliberated on by the Audit & Supervisory Board prior to deliberation by the Board of Directors, which is required to obtain the consent of the Audit & Supervisory Board.

Outside Directors and Audit & Supervisory Board Members

Outside Directors

Name （Date of inauguration）	Independent	Reason for Appointment	Attendance at the Board of Directors meetings, etc.
Koichiro Shibata （October 2017）	〇	He has abundant experience and extensive knowledge as a lawyer. He is particularly well versed in the fields of legal affairs and risk management, and has led the Nominating and Compensation Advisory Committee as a member from an objective and professional standpoint. It is expected that he will continue to supervise the execution of the duties by Directors, etc. from an independent position, thereby reinforcing the function of the Company’s Board of Directors. The Company therefore elected him as a candidate for Outside Director again. There are no personal or business relationships, etc., that fall under the items described in the independence criteria established by the financial instruments exchanges. He has been designated as Independent Officer based on the judgment that he can ensure sufficient independence to perform his duties as Outside Director from the Company's management.	17／17
Kenichi Hirai （June 2020）	〇	He has been involved in corporate management in the automotive and chemical industries and is well versed also in the industries of the Company. He has extensive knowledge and experience particularly in the fields of accounting and finance, and has provided appropriate advice and suggestions to the Nominating and Compensation Advisory Committee as a member from an objective and professional standpoint. It is expected that he will continue to supervise the execution of the duties by Directors, etc. from an independent position, thereby reinforcing the function of the Company’s Board of Directors. The Company therefore elected him as a candidate for Outside Director again. There are no personal or business relationships, etc., that fall under the items described in the independence criteria established by the financial instruments exchanges. He has been designated as Independent Officer based on the judgment that he can ensure sufficient independence to perform his duties as Outside Director from the Company's management.	17／17
Ryo Otsuka （June 2020）	〇	He has been serving as Representative Director in a manufacturing company for many years and is also well versed in the industries of the Company. The Company expects that he will supervise the execution of the duties by Directors, etc. from an independent position by utilizing his abundant experience and extensive knowledge that he has accumulated to date in management in general, thereby reinforcing the function of the Company’s Board of Directors. The Company therefore elected him as a candidate for Outside Director again. There are no personal or business relationships, etc., that fall under the items described in the independence criteria established by the financial instruments exchanges. He has been designated as Independent Officer based on the judgment that he can ensure sufficient independence to perform his duties as Outside Director from the Company's management.	17／17
Hitomi Yokote （June 2023）	〇	She has abundant international experience including in negotiations with foreign governments and organizations, as well as experience and knowledge in a wide range of fields including management, as the executive director of NPOs, and human resource development. It is expected that she will supervise the execution of the duties by Directors, etc., from an independent position, thereby reinforcing the function of the Company’s Board of Directors. The Company therefore elected her as a candidate for Outside Director. There are no personal or business relationships, etc., that fall under the items described in the independence criteria established by the financial instruments exchanges. She has been designated as Independent Officer based on the judgment that she can ensure sufficient independence to perform her duties as Outside Director from the Company’s management.	－

Outside Audit & Supervisory Board Members

Name （Date of inauguration）	Independent	Reason for Appointment	Attendance at the Board of Directors meetings, etc.
Fujio Furukawa （June 2020）	〇	He served in important positions at the National Tax Agency for many years, is familiar with finance and accounting in addition to taxation, and has sufficient insight to supervise overall management. The Company has evaluated that he is capable of performing audits of management and execution of duties from an independent and fair position and has elected her as a candidate for Outside Audit & Supervisory Board Member. He has been designated as Independent Officer because he has no personal or business relationships with the Company that fall under the items described in the independence criteria established by the financial instruments exchanges, nor does he have any other special interests.	Board of Directors Meetings 17／17 Audit & Supervisory Board Meetings 19／19
Chiaki Tsuji （June 2022）	〇	She has a wealth of experience and a high level of expertise gained as a lawyer in Germany as well as Japan. She has international experience and adequate insights to supervise the management in general. The Company has evaluated that she is capable of performing audits of management and execution of duties from an independent and fair position and has elected her as a candidate for Outside Audit & Supervisory Board Member. She has been designated as Independent Officer because she has no personal or business relationships with the Company that fall under the items described in the independence criteria established by the financial instruments exchanges, nor does she have any other special interests.	Board of Directors Meetings 14／14 Audit & Supervisory Board Meetings 13／13

Ensuring the effectiveness of the Board of Directors

The Company conducts self-evaluation and analysis of the effectiveness of the Board of Directors with the aim of improving the functions of the Board of Directors and enhancing its corporate value. Self-evaluation and analysis were conducted in the following ways while receiving advice from external organizations.

In January 2023, the Company conducted a questionnaire survey about all Directors and Audit & Supervisory Board Members, who are members of the Board of Directors. The Company secured anonymity by having respondents directly send their answers to an external organization. Based on reports of aggregate results from the external organization, the outcome of the questionnaire was reported at the Board of Directors meeting held in March 2023, and it has been confirmed that the effectiveness of the Board of Directors of the Company has remained generally secured.

In the previous effectiveness assessment, we recognized issues such as securing enough time for constructive discussion and the exchange of opinions. We worked on improvements such as ensuring distribution of materials in advance, and we have seen some results.

We recognize future issues, including the enhancement of discussions on management strategies, management resources, capital efficiency, etc., and follow-up on the progress of management plans. These are ongoing issues from the previous year, and we will work to further enhance our discussion.

Going forward, the Company will continue to make an effort to enhance the functions of the Board of Directors by resolving issues detected in evaluating the effectiveness of the Board of Directors and push forward with management aimed at sustainable enhancement of corporate value.

Remuneration for Directors and Audit & Supervisory Board Members

Basic policy on remuneration for Directors and Audit & Supervisory Board Members

The Company positions the remuneration system for its officers as "a mechanism to secure, maintain, and motivate human resources essential for sustainable growth, based on the Company's Basic Approach to Corporate Governance, in order to achieve sustainable enhancement of corporate value.” In addition, the level of officers’ remuneration is verified by comparison with that of major companies of the same size as the Company and other indicators, while considering the Company's business operations and environment.

Composition of Directors' remuneration

The Company's remuneration for Directors (excluding Outside Directors) consists of fixed basic remuneration, bonuses, and stock-based remuneration, with the ratio of "fixed basic remuneration," "bonuses," and "stock-based remuneration" set at approximately 65:25:10. In addition, Outside Directors are compensated only with fixed monetary remuneration, in order to further strengthen their independence from management.

Procedures for determining Directors' remuneration

The President and Representative Director has been delegated the authority to determine the fixed basic remuneration and bonuses for individual Directors. The President and Representative Director determines the amount of fixed basic remuneration for each Director and the amount of bonus based on the performance of each Director for the relevant fiscal year, in line with the report of the Nomination & Remuneration Advisory Committee. For stock-based remuneration, the Board of Directors will resolve the number of shares to be allocated to each Director based on the report of the Nomination & Remuneration Advisory Committee.

The date of resolution of the General Shareholders’ Meeting regarding remuneration for directors of the Company is June 28, 2006, and the amount of remuneration is determined to be within 324 million yen per year. The date of resolution of the General Shareholders’ Meeting regarding stock-based remuneration is June 27, 2019, and in addition to the above remuneration amount, the Company has resolved that the amount of remuneration for directors will be no more than 210 million yen per year (It is assumed that an amount equivalent to the remuneration for the execution of duties over three fiscal years will be paid in a lump sum in the first year of the three fiscal years covered by the medium-term management plan).

Remuneration of Audit & Supervisory Board Members

Basic remuneration for Audit & Supervisory Board Members is determined by consultation among the Audit & Supervisory Board Members within the maximum amount resolved at the General Meeting of Shareholders. From the viewpoint of independence of the position, only fixed remuneration, which is not affected by performance, is paid.

Total remuneration by officer classification and remuneration type, and number of recipients

Officer classification	Total remuneration	Total remuneration by type (millions of yen)					Number of recipients
Officer classification	Total remuneration	Basic remuneration	Bonuses	Stock-based remuneration	Others	Non-monetary remuneration, etc. in the left	Number of recipients
Directors (excluding Outside Directors)	94	73	11	8	-	8	3
Outside Directors	23	23	-	-	-	-	3
Audit & Supervisory Board Members (excluding Outside Audit & Supervisory Board Members)	20	20	-	-	-	-	2
Outside Audit & Supervisory Board Members	10	10	-	-	-	-	3

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