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.

2024/06/18 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. Regarding shareholdings, the Board of Directors regularly verifies them 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 3 issues of listed shares in FY2023. In addition, the Company acquired 2 issues of unlisted shares for purposes of investing in venture companies that will lead to the creation of new businesses. We will continue to reduce shares held for strategic purposes in order to further improve asset efficiency and strengthen our financial position. Sales proceeds from the reduction of shares held for strategic purposes will be used for investments in new businesses and shareholder returns to enhance our corporate value.

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

The Company has strengthened the supervisory function of the Board of Directors by including Audit & Supervisory Committee Members, who are responsible for auditing the execution of duties by Directors, among the members of the Board of Directors, thereby further enhancing corporate governance by further strengthening the monitoring system. The Board of Directors broadly delegates decision-making authority on business operations to Directors. Through these measures, the Company separates the business execution function from the supervisory function, and expedites management decision-making, in order to further enhance its corporate value.

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 six Directors (excluding Directors who are Audit & Supervisory Committee Members) and three Directors who are Audit & Supervisory Committee Members, six of whom are Outside Directors, and all six have been registered with the financial instruments exchange as Independent Officer.

Audit & Supervisory Committee

The Audit & Supervisory Committee, consisting of three Directors who are Audit & Supervisory Committee Members, discusses important matters concerning auditing. The Audit & Supervisory Committee, chaired by a Director who is a full-time Audit & Supervisory Committee Member, meets once a month in principle, and holds extraordinary meetings as necessary.

Currently, the Audit & Supervisory Committee consists of three Directors who are Audit & Supervisory Committee Members, two of whom are Outside Directors, and both have been registered with the financial instruments exchange as Independent Officer.

Management Meeting

The Management Meeting deliberates and decides on important matters concerning corporate management, including management policies and management strategies of the Group. To ensure enhanced deliberation and proper decision-making, particularly important matters are discussed thoroughly at the Management Meeting before being submitted to the Board of Directors. The Meeting shall be held once a month and shall be attended by Directors who are full-time Audit & Supervisory Committee Members.

Executive Officer System

The Company has introduced an Executive Officer System in order to divide the roles of management supervision and business execution functions.

Executive Officers is currently six, including two who concurrently serve as a Director.

Accounting Audit

The Company is audited by KPMG AZSA LLC.

Audit & Supervisory Division

The company has established an Audit & Supervisory Division and stationed Audit & Supervisory Committee staff within it to assist in the duties of the Audit & Supervisory Division.

Internal Auditing Division

The Internal Auditing Division, an independent and dedicated organization 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 Committee, 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, 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 and objectivity, and accountability of the Board of Directors’ functions.

Currently, the Nomination & Remuneration Advisory Committee consists of four members, three of whom are Outside Directors, and the majority of members are 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

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

Policies and procedures for the Board of Directors in determining remuneration of Senior Management and Directors

For the election of Directors (excluding Directors who are Audit & Supervisory Committee 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, 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 Managing Executive 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, 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 Committee prior to deliberation by the Board of Directors, which is required to obtain the consent of the Audit & Supervisory Board.

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.	20／20
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. In addition, as the Lead Independent Outside Director, he has compiled opinions from Independent Outside Directors and made recommendations to the executive side. 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 an 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. 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.	20／20
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 continue to 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 an 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. 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.	20／20
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 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 her as an 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.	15／15
Fujio Furukawa （June 2024）	〇	He served in important positions at the National Tax Agency for many years, and is familiar with finance and accounting in addition to taxation. It is expected that he 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 him as an 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. 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.	Board of Directors Meetings 20／20
Chiaki Tsuji （June 2024）	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 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 an 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.	Board of Directors Meetings 20／20

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 2024, 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 2024, 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 that there were issues in terms of the enhancement of discussions on management strategies, management resources, capital efficiency, etc., and follow-up on the progress of management plans, etc.

We therefore worked to enhance discussions on measures for corporate value improvement, engagement in management with an awareness of capital efficiency, etc. In order to achieve further results, we will continue to work on enhancing discussions on management strategies, management resources, capital efficiency, etc., and follow-up on the progress of management plans, etc.

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

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

The Company positions the remuneration system for Directors 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," and builds and operates the system based on the following principles.

Composition of Directors' remuneration

The ratio of fixed basic remuneration, bonuses and stock-based remuneration for Directors (excluding Directors who are Audit & Supervisory Committee Members and Outside Directors) shall be set at approximately 65:25:10.

Procedures for determining Directors' remuneration

The Board of Directors delegates to the Representative Director, President and CEO the authority to determine the fixed basic remuneration and bonuses for individual Directors (excluding Directors who are Audit & Supervisory Committee Members).
Such authority includes the determination of 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. The Board of Directors requests advice from the Nomination & Remuneration Advisory Committee and receives its report to ensure that the said authority is exercised appropriately by the Representative Director, President and CEO, and the Representative Director, President and CEO determines the amounts based on said report. 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 the shareholders' meeting resolution regarding the remuneration for the company's directors (excluding Directors who are Audit & Supervisory Committee Members) is June 18, 2024. The resolution specifies an annual limit of 324 million yen (with 60 million yen allocated for external directors).The date of the Shareholders’ Meeting resolution regarding stock-based compensation for directors (excluding are Audit & Supervisory Committee Members and external directors) is June 18, 2024. This is set separately from the above remuneration limit, with an annual limit of 210 million yen. The date of the shareholders' meeting resolution regarding the remuneration for Audit & Supervisory Committee Members is June 18, 2024. The resolution specifies an annual limit of 80 million yen.

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)	130	86	29	15	-	15	3
Outside Directors	29	29	-	-	-	-	4
Audit & Supervisory Board Members (excluding Outside Audit & Supervisory Board Members)	15	15	-	-	-	-	1
Outside Audit & Supervisory Board Members	11	11	-	-	-	-	2

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