Corporate Governance

Overview of corporate governance

Basic thinking on corporate governance

The KITZ Group understands the effective functioning of corporate governance to help fulfill our corporate social responsibility and contribute to increasing management efficiency and transparency, as well as sustained increases in corporate value. For this reason, we aim to realize effective corporate governance through maintenance and continuous operation of top management and business execution systems capable of responding to changing business conditions in swift and appropriate ways while also rewarding the trust of all stakeholders and fulfilling our social missions and responsibility.

Organizational design

KITZ employs as its organizational design for corporate governance the structure of a company with an audit and supervisory board, under which authority and responsibility for decision-making on important matters concerning business administration and for oversight of business execution are centered in the board of directors and the audit and supervisory board, and its members provide highly effective oversight of the board of directors from independent and objective perspectives.

Corporate governance structure

The board of directors and directors

Based on their fiduciary responsibility and accountability to shareholders, the board of directors and directors have the mission of achieving the sustained growth of the Company and maximizing its corporate value over the medium to long term. To fulfill these responsibilities, the board of directors not only secures fairness and transparency in management by demonstrating its oversight functions over management as a whole but also engages in broad-ranging debate on important matters related to management, makes decisions on such matters as management strategies, medium-term management plans, annual management plans, and basic management policies, and deliberates on important matters as stipulated in laws, regulations, the articles of association, and the board of directors regulations as the decision-making body for Company management.

Directors also mutually oversee business execution by the directors through such means as receiving periodic reports on business execution from executive directors.

Membership of the board of directors consist of seven directors. Four of these seven members, which make up the majority of the board, are independent outside directors to enhance management oversight functions.

In principle, the board of directors meets monthly in regular board meetings, quarterly in board meetings on financial results, and at other times as necessary in extraordinary board meetings.

Ensuring diversity on the board of directors

The board of directors considers it important to ensure diversity of board membership, to enable multifaceted and appropriate deliberation in board meetings in order to increase corporate value over the medium to long term.

For this reason, we prepare and disclose a skills matrix on directors to visualize the diversity and skills balance of the board of directors, as well as maintaining a healthy balance overall in the knowledge, experience, abilities, and specialization of directors so that the board of directors can fulfill its roles and responsibilities effectively, based on the Policy on Appointment and Dismissal of Directors and Audit and Supervisory Board Members and the skills matrix on directors. This structure balances diversity in areas that include gender, cosmopolitanism, career history, and age, as well as maintains the appropriate size of the board.

In the appointment of outside directors, we choose human resources with a wealth of experience in corporate management and strong knowledge of legal matters in order to enhance the decision-making, management oversight, and advisory functions of the board of directors. To ensure diversity among directors, we have appointed one female director (outside director).

Skills matrix of directors

The main areas in which each director is expected to demonstrate specialized knowledge based on past experience are indicated with up to three marks. This does not indicate all knowledge and experience that each director possesses.

The Nomination Committee and the Executive Compensation Committee

To ensure fairness and transparency in personnel decisions concerning director candidates, audit and supervisory board member candidates, and executive officers and in the remuneration of directors and executive officers, the board of directors has established the Nomination Committee and the Executive Compensation Committee as optional advisory bodies to the board. Membership in each of these committees includes a majority of independent outside directors.

Based on the Company’s Policy on the Appointment and Dismissal of Directors and Audit and Supervisory Board Members, the Nomination Committee deliberates on such important matters as the nomination of director candidates, audit and supervisory board member candidates, and executive officers and the development of human resources to serve as candidates for future directors and audit and supervisory board members, while the Executive Compensation Committee deliberates on such important matters as policies on the remuneration, as well as any other remuneration-related issues, of directors, executive officers and other executives. Each committee recommends the results of its deliberations to the board of directors for its decision.

Membership in each of the Nomination Committee and the Executive Compensation Committee consists of three or more directors appointed by the board of directors (a majority of whom are independent outside directors). The chair of each committee is an independent outside director appointed through mutual voting among the members. The chairman of the board of directors (or the president if no chairman is appointed) is chosen as one member of each committee.

Fiscal 2023 Nomination Committee and Executive Compensation Committee

Chairperson:	Independent Outside Director Kazuyuki Matsumoto
Members:	Independent Outside Director Minoru Amoh
	Independent Outside Director Yutaka Fujiwara
	Independent Outside Director Yukino Kikuma
	Executive Chairman Yasuyuki Hotta

Basic policy on directors’ remuneration, and remuneration structure

In light of the facts that the main function of KITZ directors (not including outside directors) is to oversee management of the Group as a whole, and they serve as core management in global business execution by the Group and each of its businesses, the Policy on Decisions on the Details of Remuneration for Individual Directors has been established to ensure that the Company can secure outstanding human resources as directors, provide effective incentives toward management oversight of the Group, and improve business performance over the short, medium, and long term. Based on this policy, the structure of remuneration paid to directors consists of base remuneration in a fixed amount, performance-linked remuneration (bonuses), and performance-linked stock remuneration.

Ensuring the effectiveness of the board of directors

To increase the effectiveness of its corporate governance and improve the functions of the board of directors as a whole, KITZ evaluates board effectiveness annually by surveying all directors and audit and supervisory board members.

This survey is conducted by distributing an endorsed questionnaire on particularly important matters based on the principles of the Corporate Governance Code and collecting answers to its questions.

In addition, the board of directors discusses such matters as verification of the results of the evaluation of current conditions by the board, sharing of issues, and efforts toward future improvements based on the results of totalizing the answers to the survey and opinions expressed on future effectiveness improvements.

The survey in February 2023 included questions on the formulation and execution of management strategies, sustainability initiatives, the structure of the board of directors, appointment and remuneration of the directors and audit and supervisory board members, auditing, outside directors, stimulating deliberation in the board of directors, and engagement with shareholders and other stakeholders, Evaluation of the results showed that the Company’s board of directors generally is effective.

In addition, the Board of Directors received constructive opinions, including points for improvement, regarding the improvement of employee engagement, management of the business portfolio, and improvement of the price book-value ratio. Based on the results of the evaluation, the Board of Directors intends to share issues and consider improvement measures in order to further ensure the effectiveness of the board of directors.

The audit and supervisory board and audit and supervisory board members

The audit and supervisory board and audit and supervisory board members carry out business audits and legal audits of the performance of the duties of directors, judge the validity of the methods and results of auditing of financial statements by the accounting auditor as an independent organization entrusted by shareholders to secure sound and sustained growth of the organization, and establish a corporate governance structure worthy of society’s trust based on their fiduciary responsibility and accountability to shareholders.

In addition to overseeing the state of performance of executive directors’ duty of reporting to the board of directors and the efficacy of functions for mutual management oversight among directors, centered on outside directors, they also verify the legality and validity of decision-making processes and the details of decisions, as well as offer opinions to the board of directors as necessary.

In addition to preparing audit reports, the audit and supervisory board also conducts auditing by audit and supervisory board members based on the audit and supervisory board member auditing standards, audit plans, and division of responsibilities, and it oversees the performance of the duties of directors and verifies the performance of their legal obligations. It also checks on the quality control structure, independence, and other matters related to the accounting auditor, monitors the performance of its duties, and verifies the validity of the results of auditing. The audit and supervisory board also deliberates annually on whether or not to reappoint the accounting auditor and discusses the validity of the audit plan and the propriety of audit remuneration.

The audit and supervisory board consists of five audit and supervisory board members. Three of these five members, which make up the majority of the board, are outside audit and supervisory board members (independent audit and supervisory board members) to enhance its functions for highly effective auditing and management monitoring functions. In addition, based on the Policy on the Appointment and Dismissal of Directors and Audit and Supervisory Board Members, membership on the audit and supervisory board maintains an overall balance among the necessary knowledge, experience, abilities, and specialization for the performance of members’ roles and responsibilities and includes at least one member with a high level of financial and accounting knowledge.

To ensure the diversity of the audit and supervisory board, one female audit and supervisory board member (an outside audit and supervisory board member) has been appointed.

In principle, the audit and supervisory board meets regularly once a month and holds extraordinary audit and supervisory board meetings at other times as necessary.

In addition, the audit and supervisory board periodically holds tripartite audit meetings with the accounting auditor and the Internal Audit Office to share reports from each of the three agencies and audit information and to exchange opinions on the key points of auditing and other matters. Through this and other means, coordination is achieved among the three audits of internal audits, accounting audits, and audits by audit and supervisory board members. Also, several times a year these tripartite meetings take the form of four-party meetings on auditing and oversight with the addition of the independent outside directors, to promote cooperation through means such as sharing information and exchanging opinions.

Independent directors and independent audit and supervisory board members

KITZ has established its own Standards for Judging the Independence of Outside Directors and Outside Audit and Supervisory Board Members with even stricter requirements than those of the Tokyo Stock Exchange.

All outside directors and outside audit and supervisory board members satisfy the Company’s Standards for Judging the Independence of Outside Directors and Outside Audit and Supervisory Board Members and those of the Tokyo Stock Exchange and are reported to the Tokyo Stock Exchange as independent directors and independent audit and supervisory board members.

The executive officer system and the Management Conference

The Group employs an executive officer system as a system for cross-functional business execution responsibility regarding Group companies in Japan and around the world to focus the Group’s comprehensive strengths on corporate strategy. Thirteen executive officers, including those serving concurrently as executive directors, are appointed. In addition, the Management Conference, whose membership consists of executive officers, meets monthly for broad-ranging discussions of important management topics and decides on important matters related to business execution.

Support and training structures for directors and audit and supervisory board members

Support for directors and audit and supervisory board members includes providing them with information on resolutions and other matters, as well as related materials, prior to meetings of the board of directors and providing prior explanations as needed through a structure intended to ensure that directors and audit and supervisory board members fully understand the management topics that the Company should address and are able to make appropriate decisions regarding them. Support also includes making more detailed information available if needed by outside directors or outside audit and supervisory board members.

KITZ also maintains a training structure for directors and audit and supervisory board members. To ensure that they can learn the knowledge they need and improve their knowledge and abilities, executive directors and full-time audit and supervisory board members have opportunities to participate in training by outside educational institutions, as well as management study meetings led by instructors invited from outside the organization, after taking their office or beginning at the stage of their candidacy.

To deepen the understanding of outside directors and outside audit and supervisory board members concerning KITZ and Group companies, outside directors and outside audit and supervisory board members have opportunities to take part in such activities as site tours and interaction with core management of individual sites, meetings with Group company presidents and Group technology exchange events, and other activities, as well as briefings on necessary knowledge concerning the businesses, finances, organizations, and other aspects of KITZ and Group companies, the industries in which the Company operates, and such matters as the Company’s history, an overview of its businesses, and the Group corporate philosophy structure, the management vision, medium-term management plans, the governance structure, and the compliance structure.

To verify the appropriateness of the content of training for directors and audit and supervisory board members, opinions are collected through the surveys on the efficacy of the board of directors and necessary improvements are made in response.

Dialogue with shareholders and investors

KITZ recognizes its fiduciary accountability for sustained growth and increasing corporate value over the medium to long term, provides opportunities for constructive dialogs with shareholders and investors, and discloses timely, fair, and accurate information based on its understanding of the importance of maintaining fairness and transparency in management. Together with continually providing information on management to encourage understanding of the Company’s management strategies and management plans, we also strive to put to use the opinions and requests received through such dialogue in improving management.

For this reason, we maintain an investor relations (IR) promotion structure, the important points of which are summarized below.

• 1. Establish an IR department and appoint an executive officer in charge of IR.
• 2. In principle, briefings on financial results are held quarterly for institutional investors and analysts, and annually company information sessions for individual investors. These briefings are led by the president or the executive officer in charge of IR. As necessary, directors, including outside directors, and audit and supervisory board members also attend, to encourage dialogs with shareholders.
• 3. To prevent insider training, information is managed appropriately in dialogs with shareholders.
• 4. Matters, such as the Group management vision and medium-term management plans, are explained in clear, understandable ways.
• 5. In addition to information on financial results, such as summaries and securities reports, IR information including management information and information on stock, and information about the general meetings of shareholders are posted on the KITZ website as well.

Cross-Shareholdings

KITZ has established a “Policy on Cross-Shareholdings,” and as a general principle, we do not hold cross-shareholdings for the purpose of forming stable shareholders.

In addition, each year, the Board of Directors verifies and reviews cross-shareholdings by both the economic rationality (quantitative aspect) and the qualitative significance of holding them, based on the “Policy on Cross-Shareholdings.” We will proceed with the sale of stocks that are determined not to meet the “Policy on Cross-shareholdings.”

Furthermore, we comprehensively judge the pros and cons of exercising voting rights for cross-shareholdings held from the following perspectives.
Based on the “Policy on Cross-Shareholdings,” whether the issuing company has established the appropriate governance system and is making the appropriate decisions that will lead to increase corporate value over the long and medium term, in accordance with the perspective of improving the corporate value of our group.

Changes in the number of listed stocks held for the purposes other than the pure investment and the ratio of cross-shareholdings to net assets

Since the fiscal year ending March 2016, we have gradually reduced the number of stocks, and since the fiscal year ending March 2017, the ratio of cross-shareholdings to net assets has remained below 10%.
Furthermore, in the fiscal year ended March 31, 2020, the ratio of cross-shareholdings to net assets increased due to a capital and business alliance with Unimech.

(Note) 1. Number of shares held by parent company: Excludes stocks with a small amount (approximately 1 million yen) of which the minimum number of shares (1 unit) is held for information gathering purposes.
(Note) 2. Ratio of cross-shareholdings to net assets (%) = cross-shareholdings (balance sheet amount) ÷ consolidated net assets.

Responses to large-scale acquisitions of Company stock

Acts involving acquisition of quantities of Company stock large enough to enable control of decisions on Company financial and business policies (hereinafter “large-scale acquisitions”) are responded to as follows:

• 1.We do not employ defensive measures against takeover bids, instead leaving final decisions on whether or not to accept large-scale acquisitions to the wishes of shareholders.
• 2.We strive to provide shareholders with the time and information needed to consider whether or not to accept a large-scale acquisition by asking the party attempting a large-scale acquisition to provide the necessary and sufficient information for judging the propriety of the large-scale acquisition from the perspectives of securing and improving the Company’s corporate value and the joint interests of shareholders and announcing the views of the Company board of directors regarding the large-scale acquisition.
  We also implement the appropriate measures in accordance with the Financial Instruments and Exchange Act, the Companies Act, and other applicable laws and regulations.