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Corporate Governance

  • Last Update:2018/09/19
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Introduction:Basic approach to corporate governance

The Senshukai Group recognizes corporate governance as an essential element in fulfilling its social responsibility to various stakeholders including shareholders, customers, employees, business partners, and local communities. In view of the significance of building a highly transparent management system and ensuring that it functions effectively, the Group strives to clarify the oversight responsibilities of its directors, strengthen its compliance system, and make timely, accurate, and full information disclosure toward fortifying corporate governance.
Senshukai finds a "Company with Board of Company Auditors" to function more effectively than a "Company with Committees" from the perspective of corporate governance. Accordingly, it adopts the former system and establishes a Board of Directors, consisting of ten directors including three outside directors, and an Audit & Supervisory Board, consisting of four auditors including two outside auditors.

  • Corporate Governance Guideline
  • Status to the Corporate Governance Code
  • Governance System
  • Internal Control System

Corporate Governance Guideline

Chapter 1  Securing the rights and equal treatment of shareholders

Article 1Exercise of shareholder rights at general shareholders meetings
  1. 1.Senshukai develops an environment in which to fully secure shareholder rights and gives adequate consideration to securing the rights of minority shareholders and foreign shareholders.
  2. 2.Senshukai believes that accurate information should be provided to shareholders as necessary in order to facilitate appropriate decision-making at general shareholders meetings. Accordingly, it provides accurate information through convening notices for general shareholders meetings, the Senshukai website, and the Timely Disclosure network (TDnet) operated by the Tokyo Stock Exchange.
  3. 3.Senshukai sends convening notices two weeks before the date of the general shareholders meeting to give shareholders sufficient time to consider the agenda. Information included in the convening notice is translated into English and, prior to sending the convening notice, disclosed through the Senshukai website and TDnet.
  4. 4.Senshukai uses the Electronic Voting Platform to allow the exercise of voting rights by institutional investors and foreign investors.
  5. 5.Senshukai determines the date of general shareholders meetings and associated dates with consideration to facilitating sufficient constructive dialogue with shareholders and ensuring the accuracy of information necessary for such dialogue.
Article 2Cross-shareholdings
  1. 1.Senshukai holds shares of other listed companies as cross-shareholdings where it deems meaningful, comprehensively taking into consideration relevance to the business of the issuing company, inter-company collaboration and inter-business synergy, business strategy, and business alliance. Cross-shareholdings are reported each year at board of directors meetings, where a decision is made on continuing the cross-shareholdings, taking into account factors such as transaction history and current price. Shares deemed to have little meaning are sold off.
  2. 2.Senshukai makes decisions about exercising voting rights as to the cross-shareholdings referred to in the preceding paragraph on a case-by-case basis, comprehensively taking into consideration enhancement of the corporate value of the issuing company over the medium to long term and the possibility of damage to the Senshukai Group.
Article 3Related party transactions
  1. 1.When engaging in transactions with the management and major shareholders, Senshukai requires approval and reporting at board of directors meetings, where the matter is treated as an approved item based on the Board of Directors Regulations. As a rule, the relevant board meetings require the attendance of independent outside directors. Any views presented are recorded in the board meeting minutes.
  2. 2.As a measure to build a system for controlling conflicts of interest, a questionnaire survey is conducted each year targeting all officers of Senshukai (including major subsidiaries) to verify whether or not related party transactions have taken place.

Chapter 2  Appropriate cooperation with stakeholders other than shareholders

Article 4Appropriate cooperation with stakeholders Senshukai endeavors to appropriately cooperate with stakeholders, including employees. The board of directors, directors, and executive officers exercise leadership to this end.
Article 5Management philosophy, CSR, and sustainability
  1. 1.Senshukai builds its business operations on the foundation of the corporate philosophy "Contributing to society is the purpose of the company's existence. Only by staying committed to this truth can the company prosper" and the corporate vision "Women's Smiles Company" with the aim of creating value for all stakeholders and enhancing the corporate value of the Senshukai Group over the medium to long term.
  2. 2.Senshukai establishes three corporate social responsibility themes to which it endeavors consistently: support for women, environment, and compliance.
Article 6Code of conduct
  1. 1.Senshukai has in place a creed expressing its management policy and, based on this, a set of house morals (Senshukai-jin kokoroe) to be followed daily and forming the base of business activities. To promote understanding of the contents and enhance internal recognition as well as to strengthen the Senshukai compliance system, a collection of case studies (Senshukai kodo case book) lists rules to be observed by officers and employees as members of society, members of a corporation, and members of Senshukai.
  2. 2.Senshukai distributes the Senshukai-jin kokoroe and Senshukai kodo case book to its officers and employees. Officers use the titles to guide their actions on a daily basis.
Article 7Whistle-blowing
  1. 1.Senshukai establishes a whistle-blowing system, the Senshukai Group Corporate Ethics Hotline, for promptly dealing with latent risks such as violation of laws and internal regulations.
  2. 2.When a compliance issue arises, the case is handed on to internal and external contact points in accordance with the Whistle-blowing Regulations and referred to the Audit Committee in the case of an officer, or the Ethics and Compliance Committee in the case of an employee, for deliberation.
  3. 3.The Whistle-blowing Regulations prescribes a framework for protecting the whistle-blower.
Article 8Ensuring diversity through participation of global human resources and women
  1. 1.Senshukai believes that to deliver smiles to customers through products and services, and bring smiles to customers' lives, it needs to create a work environment in which employees can smile.
  2. 2.Senshukai pours its energies into being a company full of smiles, where all employees regardless of age, gender, or the presence or absence of disabilities can demonstrate their talent and continue working full of energy.
  3. 3.Senshukai endeavors to create a workplace environment that invites participation from diverse human resources in all areas, in accordance with a Diversity Promotion Policy and Women's Participation Promotion Policy.

Chapter 3  Ensuring appropriate information disclosure and transparency

Article 9Full disclosure
  1. 1.Senshukai makes active efforts to disclose financial and non-financial information beyond that required by law. It strives to ensure that non-financial information is accurate, clear, and useful.
  2. 2.Senshukai discloses in a fair, timely, and accurate manner important corporate information that affects investment decisions and, based on the Timely Disclosure Regulations, other corporate information deemed to be useful in understanding Senshukai.
  3. 3.Bearing in mind the number of foreign investors, Senshukai discloses English translations of documents such as financial results, earnings presentation materials, and convening notices for general shareholders meetings.
Article 10Accounting auditors
  1. 1.Senshukai takes steps to ensure proper audits by accounting auditors.
  2. 2.Senshukai follows its Auditor Audit Standards in determining renewal of contracts with accounting auditors. The audit & supervisory board follows the content of audits through reporting from accounting auditors and by attending on-site audits, and with consideration to items such as quality control system, audit plans, audit system, and appropriateness of issues identified through audits, evaluates accounting auditors and makes a decision on reappointment in audit & supervisory board meetings each fiscal year
  3. 3.Pursuant to the preceding paragraph, the independence and expertise of accounting auditors are verified each fiscal year.
  4. 4.Senshukai secures sufficient time for audits through advance discussion with accounting auditors and the reception of audit plans including proposed number of days. Following audits, it receives reporting on the number of days devoted to the audit and verifies that the length of time was sufficient.
  5. 5.Senshukai provides regular opportunities for communication between accounting auditors and the president and relevant director.
  6. 6.Senshukai promotes cooperation between auditors and its internal audit office through briefings of audit plans by accounting auditors, quarterly review sessions, and annual reporting sessions. At the request of accounting auditors, it provides opportunities for discussion with the president as deemed appropriate.
  7. 7.In the event outside accounting auditors request correction of misconduct, inadequacies, or concerns, the president instructs the relevant director to lead necessary investigative and corrective procedures, and submit a report of the results. As circumstances require, a third-party investigative committee is assembled to address concerns.

Chapter 4  Responsibilities of the board

Article 11Roles of the board and directors
The board of directors appropriately fulfills its roles and responsibilities, including the following.
  • 1)Setting the broad direction of corporate strategy
  • 2)Establishing an environment where appropriate risk-taking by executive directors is supported
  • 3)Carrying out effective oversight of directors concurrently serving as executive officers from an independent and objective standpoint
Article 12Policies and procedures in nomination of the management
  1. 1.As a means to ensure that the board of directors as a whole is well balanced in knowledge, experience, and skills, and that it is constituted in a manner to achieve both diversity and appropriate size, Senshukai establishes the following policies and procedures for nominating the management.
  2. 2.The board of directors selects and nominates all directors and auditors from candidates displaying excellent character and judgment, and having the ability to accurately determine, execute, and monitor matters concerning management. Selection and nomination are made by function and position based on the following standards. Procedures for auditors require the consent of the audit & supervisory board.
    • 1)Executive directors should be capable of making quick, bold, and accurate decisions from a broad standpoint
    • 2)Directors concurrently serving as executive officers should be well informed about the business of the Senshukai Group, equipped with highly specialized knowledge and skills, and capable of making quick, bold, and accurate decisions
    • 3)Non-executive directors should be well informed about the business of the Senshukai Group and capable of providing objective advice
    • 4)Outside directors should be capable of contributing to the sustainable growth of Senshukai and enhancing its corporate value over the medium to long term
    • 5)Independent outside directors should satisfy Senshukai independence standards and be capable of contributing to the sustainable growth of Senshukai and enhancing its corporate value over the medium to long term
    • 6)Standing auditors should be capable of collecting internal information from Senshukai and appropriately monitoring legal compliance
    • 7)Independent outside auditors should satisfy Senshukai independence standards and be capable of appropriately monitoring legal compliance
  3. 3.The board of directors selects or nominates individual candidates taking into account the preceding paragraph as well as specific circumstances and refers appointment to the general shareholders meeting.
Article 13Roles of auditors
  1. 1.Auditors and the audit & supervisory board exercise their rights from an independent and objective standpoint in auditing the performance of directors' duties, appointing and dismissing accounting auditors, and determining auditor remuneration.
  2. 2.Auditors and the audit & supervisory board positively and actively exercise their rights and express their views at board of directors meetings.
  3. 3.Auditors attend board of directors meetings and other important meetings, audit the performance of directors' duties through operational and accounting audits, and as necessary exchange views with outside directors.
Article 14Roles and independence standards of outside directors
  1. 1.Senshukai expects the following roles and responsibilities of independent outside directors.
    • 1)Providing advice for the enhancement of corporate value
    • 2)Monitoring the management function of executive directors
    • 3)Monitoring conflicts of interest between the company and its directors, executive officers, and controlling shareholders
    • 4)Representing the views of minority shareholders in the boardroom from an independent standpoint
  2. 2.Senshukai appoints at least two independent outside directors to represent independent and objective views in the boardroom.
  3. 3.Senshukai adopts the independence standards prescribed by the Tokyo Stock Exchange as well as the following independence standards for independent outside directors and independent outside auditors.
    <Independence standards>
    Senshukai deems outside directors and outside auditors (including candidates) independent when the respective individual does not identify with (1) to (4) below. The number of other positions served by directors and auditors, including outside directors and outside auditors, is prescribed in (5) below.
    • (1)Business partner: When payment is received from Senshukai to the company at which the individual serves as executive, and the annual transaction amount calculated from the average of the past three business years is 2% or more of the consolidated net sales of either company
    • (2)Specialist: When remuneration or payment is received from Senshukai for specialist legal, accounting, or tax services, and the annual amount calculated from the average of the past three business years is 10 million yen or more in the case of a sole proprietor, or 2% or more of net sales of an incorporated firm in the case the individual is employed
    • (3)Donee: When donations are received from Senshukai to the non-profit organization (NPO) at which the individual serves as executive, and the annual amount calculated from the average of the past three business years exceeds either 10 million yen or 30% of the annual expenditure of the NPO, whichever is greater
    • (4)Close relative of (1) to (3) above or of an executive of Senshukai or its subsidiary: When the individual is a family member up to the second degree of (1) to (3) above or of a major executive, either currently or at any time within the past five years, of Senshukai or its subsidiary
    • (5)Number of other positions served by the management: The number of positions served as the management (director, auditor, or executive officer) of listed companies other than Senshukai is limited to four.
Article 15Roles of Personnel Evaluation and Remuneration Committee
  1. 1.Senshukai establishes a Personnel Evaluation and Remuneration Committee as an advisory organ for the board of directors including outside directors.
  2. 2.Nominations and Remuneration Advisory Committee deliberates on the following matters and reports to the board of directors.
    • 1)Evaluation of the performance of directors and executive officers of Senshukai and its major business subsidiaries
    • 2)Standards for remuneration of the management of Senshukai and its major business subsidiaries
Article 16Remuneration of the management

Remuneration of Senshukai directors and executive officers is set by Nominations and Remuneration Advisory Committee. Remuneration consists of fixed base remuneration, remuneration reflecting the business results of each fiscal year, and share-based remuneration reflecting business results for the purpose of enhancing awareness about improving performance and maximizing corporate value over the medium to long term.

Article 17Active board deliberations
  1. 1.Senshukai schedules annual board of directors meetings, as a rule, on a date that allows attendance by all directors and auditors.
  2. 2.In setting the schedule referred to in the previous paragraph, when the contents of the agenda are determined in advance, sufficient time for deliberations is secured.
  3. 3.As a rule, materials are distributed in advance to promote active discussion on the day of the meeting.
  4. 4.For important matters, information is shared with directors and auditors prior to deliberations. Several sessions are arranged in accordance with the degree of importance of proposals.
Article 18Training policy
  1. 1.Senshukai policy is to conduct training as needed so that directors and auditors may adequately fulfill their respective roles.
  2. 2.The training referred to in the preceding paragraph aims to provide directors and auditors with knowledge necessary to perform their duties and with knowledge and information suited to the changing times so that directors and auditors may contribute to the growth of Senshukai.

Chapter 5  Dialogue with shareholders

Article 19Policy for promoting constructive dialogue
  1. 1.Senshukai engages in constructive dialogue with shareholders even outside the general shareholders meeting. Executive directors and directors (including outside directors) strive to develop a balanced understanding of the positions of shareholders and other stakeholders, and act accordingly.
  2. 2.Senshukai provides accurate information in a timely, fair manner and engages in constructive dialogue with shareholders and investors in active efforts to build relationships of trust over the long term. The board of directors does this according to the following policy
    • 1)Officer responsible for IR: The director overseeing the Public Relations Department, which is responsible for IR, is named officer responsible for IR. The director's responsibilities include individual meetings.
    • 2)Department responsible for IR: The Public Relations Department, which is responsible for IR, maintains close contact and shares information with relevant internal departments.
    • 3)Engagement with investors: The Public Relations Department, actively accepts requests for individual meetings and organizes earnings presentations each half-year in which the president and the director responsible for IR directly provide briefings for shareholders, investors, and analysts. Efforts are made to enhance understanding of individual investors in Senshukai through dedicated contents provided on the Senshukai website (https://www.senshukai.co.jp/main/top/ir/invest/index.html).
    • 4)Feedback to executive directors and the board of directors: Feedback on IR activities is reported as needed at board of directors meetings in efforts to share information with directors and auditors.
    • 5)Control of insider information: When engaging in dialogue with shareholders, investors, and analysts, thorough efforts are made to control insider information in accordance with the Senshukai Group Insider Trading Prohibition Regulations.

Others

Article 20Revision rights

These Guidelines may be revised with approval from the board of directors. The contents of these Guidelines are revised automatically in accordance with revisions made to the corporate governance report.

Status to the Corporate Governance Code

Status to the Corporate Governance Code

Reasons for non-compliant principles of the Corporate Governance Code

Senshukai complies with all principles set forth in the Corporate Governance Code.

Disclosure based on principles of the Corporate Governance Code

Principle 1.4Cross-shareholdings

<Policy on cross-shareholdings>
Senshukai holds shares of other listed companies as cross-shareholdings where it deems meaningful, comprehensively taking into consideration relevance to the business of the issuing company, inter-company collaboration and inter-business synergy, business strategy, and business alliance. Cross-shareholdings are reported each year at board of directors meetings, where a decision is made on continuing the cross-shareholdings, taking into account factors such as transaction history and current price. Shares deemed to have little meaning are sold off.
<Standards for exercising voting rights>
Senshukai makes decisions about exercising voting rights as to cross-shareholdings on a case-by-case basis, comprehensively taking into consideration enhancement of the corporate value of the issuing company over the medium to long term and the possibility of damage to the Senshukai Group.

Principle 1.7Related party transactions

When engaging in transactions with the management and major shareholders, Senshukai requires approval and reporting at board of directors meetings, where the matter is treated as an approved item based on the Board of Directors Regulations. As a rule, the aforementioned board meetings require the attendance of independent outside directors. Any views presented are recorded in the board meeting minutes.
As a measure to build a system for controlling conflicts of interest, a survey is conducted each year targeting all officers of Senshukai (including major subsidiaries) to verify whether or not related party transactions have taken place.

Principle 3.1Full disclosure

  1. (i)For corporate philosophy, management strategies, and management plans, refer to the Senshukai website (https://www.senshukai.co.jp/main/top/ir/policy.html).
  2. (ii)For basic views and guidelines on corporate governance, refer to I.1 of this report, the Senshukai annual securities report, and the Senshukai website (https://www.senshukai.co.jp/main/top/ir/governance/index.html).
    Policies and procedures in determining remuneration of directors
  3. (iii)Remuneration of executive directors and directors is determined by the board of directors within the range of total remuneration of directors approved at the general shareholders meeting, taking into consideration factors such as Senshukai's business results, its management content, and the economic climate as well as reporting from Nominations and Remuneration Advisory Committee.
    As an incentive, a system is in place to reflect business results in remuneration.
    Policies and procedures in nomination of the management
  4. (iv)As a means to ensure that the board of directors as a whole is well balanced in knowledge, experience, and skills, and that it is constituted in a manner to achieve both diversity and appropriate size, Senshukai establishes the following policies and procedures for nominating the management. * The board of directors selects and nominates all directors and auditors from candidates displaying excellent character and judgment, and having the ability to accurately determine, execute, and monitor matters concerning management. Selection and nomination are made by function and position based on the following standards. Procedures for auditors require the consent of the audit & supervisory board.
    • ・Executive directors should be capable of making quick, bold, and accurate decisions from a broad standpoint
    • ・Directors concurrently serving as executive officers should be well informed about the business of the Senshukai Group, equipped with highly specialized knowledge and skills, and capable of making quick, bold, and accurate decisions
    • ・Non-executive directors should be well informed about the business of the Senshukai Group and capable of providing objective advice
    • ・Outside directors should be capable of contributing to the sustainable growth of Senshukai and enhancing its corporate value over the medium to long term
    • ・Independent outside directors should satisfy Senshukai independence standards (see Principle 4.9) and be capable of contributing to the sustainable growth of Senshukai and enhancing its corporate value over the medium to long term
    • ・Standing auditors should be capable of collecting internal information from Senshukai and appropriately monitoring legal compliance
    • ・Independent outside auditors should satisfy Senshukai independence standards (see Principle 4.9) and be capable of appropriately monitoring legal compliance
  5. (v)The board of directors selects or nominates individual candidates taking into account (iv) above as well as specific circumstances and refers appointment to the general shareholders meeting.

Supplementary Principle 4.1.1Scope of matters delegated to management and summary thereof

The board of directors makes important operational decisions but may delegate part of the decision-making to directors and other individuals. The authority to discuss, approve, and determine matters held by decision-making organs at management meetings and by decision makers from the president down to division and department managers is clearly prescribed in documents such as the Board of Directors Regulations.

Principle 4.9 Independence standards and qualifications for independent directors

Senshukai adopts the independence standards prescribed by the Tokyo Stock Exchange as well as the following independence standards for independent outside directors and independent outside auditors.
<Independence standards>
Senshukai deems outside directors and outside auditors (including candidates) independent when the respective individual does not identify with i) to iv) below. The number of other positions served by directors and auditors, including outside directors and outside auditors, is prescribed in v) below.

  1. (i)Business partner
    When payment is received from Senshukai to the company at which the individual serves as executive, and the annual transaction amount calculated from the average of the past three business years is 2% or more of the consolidated net sales of either company
  2. (ii)Specialist
    When remuneration or payment is received from Senshukai for specialist legal, accounting, or tax services, and the annual amount calculated from the average of the past three business years is 10 million yen or more in the case of a sole proprietor, or 2% or more of net sales of an incorporated firm in the case the individual is employed
  3. (iii)Donee
    When donations are received from Senshukai to the non-profit organization (NPO) at which the individual serves as executive, and the annual amount calculated from the average of the past three business years exceeds either 10 million yen or 30% of the annual expenditure of the NPO, whichever is greater
  4. (iv)Close relative of i) to iii) above or of an executive of Senshukai or its subsidiary
    When the individual is a family member up to the second degree of i) to iii) above or of a major executive, either currently or at any time within the past five years, of Senshukai or its subsidiary
  5. (v)Number of other positions served by the management
    The number of positions served as the management (director, auditor, or executive officer) of listed companies other than Senshukai is limited to four.

Supplementary Principle 4.11.1View on skills of the board as a whole and procedures for nominating directors

Refer to Principle 3.1 iv).

Supplementary Principle 4.11.2Directors and auditors serving other positions

Outside directors and outside auditors, and other directors and auditors, devote sufficient time and effort required to appropriately fulfill their respective roles and responsibilities. Where directors and auditors also serve as the management of other listed companies, such positions are limited to a reasonable number pursuant to independence standards prescribed by Senshukai (see Principle 4.9 v)) and disclosed in the business and securities reports each year.

Supplementary Principle 4.11.3.Outline of analysis and evaluation results of effectiveness of the board as a whole

Senshukai strives to improve the functions of its board of directors through analysis and evaluation of the effectiveness of the board as a whole, implemented since fiscal year 2016.
Specifically, a survey was conducted targeting board members (including outside directors and outside auditors) covering general matters concerning the board, including composition, roles and responsibilities, meeting operations, and methods of deliberation. The results were discussed at board meetings. Evaluation suggested that while the board by and large secured its effectiveness, room was left to enrich the content of meetings. Challenges identified included considering the selection of new outside directors to suit the diversity of the times, further deepening discussions of medium- to long-term strategies, and improving the quality of materials used in board meetings.
Through a resolution of these challenges, in future Senshukai will seek to enhance the effectiveness and functions of the board and continue to strive for further improvement.

Supplementary Principle 4.14.2Training policy for directors and auditors

Senshukai policy is to conduct training as needed so that directors and auditors may adequately fulfill their respective roles.
The aforementioned training aims to provide directors and auditors with knowledge necessary to perform their duties and with knowledge and information suited to the changing times so that directors and auditors may contribute to the growth of Senshukai.

Principle 5.1Policy for promoting constructive dialogue with shareholders

Senshukai provides accurate information in a timely, fair manner and engages in constructive dialogue with shareholders and investors in active efforts to build relationships of trust over the long term. The board of directors does this according to the following policy.

  1. (i)Officer responsible for IR
    The director overseeing the Public Relations Department , Corporate Planning Division, which is responsible for IR, is named officer responsible for IR. The director's responsibilities include individual meetings.
  2. (ii)Department responsible for IR
    The Public Relations Department, Corporate Planning Division, which is responsible for IR, maintains close contact and shares information with relevant internal departments.
  3. (iii)Engagement with investors
    The Public Relations Department, Corporate Planning Division, actively accepts requests for individual meetings and organizes earnings presentations each half-year in which the president and the director responsible for IR directly provide briefings for shareholders, investors, and analysts. Efforts are made to enhance understanding of individual investors in Senshukai through dedicated contents provided on the Senshukai website (https://www.senshukai.co.jp/main/top/ir/invest/index.html).
  4. (iv)Feedback to executive directors and the board of directors
    Feedback on IR activities is reported as needed at board of directors meetings in efforts to share information with directors and auditors.
  5. (v)Control of insider information
    When engaging in dialogue with shareholders, investors, and analysts, thorough efforts are made to control insider information in accordance with the Senshukai Group Insider Trading Prohibition Regulations.

Governance System

Internal Control System structure

Internal Control System structure

Directors Compensation

Compensation for Senshukai’s directors and auditors in Fiscal Year 2016 was as follows. Compensation for directors and auditors

Category Number of members Compensation paid
Directors 10 137 million yen total (18 million yen to 2 outside directors)
Auditors 4 30 million yen total (10 million yen to 2 outside auditors)

Reasons for the Appointment of the External Audit & Supervisory Board Member

Name Reasons for the Appointment of the External Audit & Supervisory Board Member Major activities
Hideyuki Koizumi Highly specialized knowledge and experience as a certified public accountant , has been determined to be eligible for his duties as auditor
<Reasons for the Appointment of the Independent Auditor>
Audit & Supervisory Board Member Hideyuki Koizumi is Representative of Koizumi C.P.A. Office, and there is no special relationship between the Company and that organization. Hideyuki Koizumi concurrently serves as External Audit & Supervisory Board Member of Japan Cash Machine Co., Ltd., and there is no special relationship between the Company and that organization. So the Company's judgment is that no conflicts of
interest will arise with the Company's general shareholders.
He attended all of the 19 meetings of the Board of Directors and all of the 14 meetings of the Audit & Supervisory Board held in the fiscal year under review. He gives opinions for ensuring validity and appropriateness of decision-making of the Board of Directors at the meetings of the Board of Directors from the professional standpoint as a certified public accountant. Also, he properly offers necessary views about the accounting procedure of the Company at the meetings of the Audit & Supervisory Board.
Hiroshi Morimoto In compliance management in the future become increasingly important , he was appointed in order to have to demonstrate the knowledge and insight as a lawyer.
<Reasons for the Appointment of the Independent Auditor>
Audit & Supervisory Board Member Hiroshi Morimoto is representative member of Kitahama Partners L.P.C. and CEO of Kitahama Partners L.P.C. Group, and the Company has concluded legal advisory contracts individually with other attorneys who belong to that organization. However, the combined amount of the aforesaid advisory fee amount of the aforesaid advisory contracts and other remuneration amounts comes to less than 1% of total revenues of that organization. In addition, Hiroshi Morimoto concurrently serves as External Audit & Supervisory Board Member of Japan Cash Machine Co., Ltd. and there is no special relationship between the Company and aforementioned organization. So the Company's judgment is that no conflicts of interest will arise with the Company's general shareholders.
He attended 18 of the 19 meetings of the Board of Directors and all of the 14 meetings of the Audit & Supervisory Board held in the fiscal year under review. He gives opinions for ensuring validity and appropriateness of decision-making of the Board of Directors at the meetings of the Board of Directors from the professional standpoint as an attorney. Also, he properly offers necessary views about compliance of the Company at the meetings of the Audit & Supervisory Board.

Internal Control System

Basic concept of internal Control Systems

1. Systems for ensuring compliance by directors and employees with legal regulations and the Company’s Articles of Incorporation in the execution of operations
  1. (1)Regarding compliance, the Group has prepared its Senshukai Group Compliance Policy and established its Corporate Ethics Hotline as an internal reporting system designed to expeditiously deal with potential risks regarding noncompliance with public laws and regulations as well as internal rules and other potential noncompliance risks.
  2. (2)In the event of compliance problems related to corporate officers (directors, auditors, and executive officers) or employees, based on internal rules, problems reported via internal or external versions of the Corporate Ethics Hotline are reported to and deliberated by the Board of Corporate Auditors, in the case of problems related to officers, or by the Ethics and Compliance Committee, in the case of problems related to employees.
  3. (3)Copies of Senshukai Personal Conduct Principles and Senshukai Conduct Casebook are distributed to corporate officers and employees to serve as conduct guidelines, and appropriate measures are being taken to offer corporate officers and employees compliance education programs, including e-learning and Internet-based programs.
  4. (4)Regarding the Company’s internal controls, based on internal rules, we have established an Audit Office reporting directly to the president. In this way, a system has been created for conducting internal audits aimed at grasping and enhancing business operations and reporting on such matters to the president.
  5. (5)Regarding intellectual property, Senshukai’s Risk manegement Department prior checks of related issues. Regarding responsibility with respect to manufactured goods, the Company’s Quality Management Committee undertakes deliberations and makes decisions on merchandise items subject to marketing regulations.
2. Systems for safekeeping and management of information related to the execution of the duties of the directors
  1. (1)Information relating to the execution of the duties of the directors is preserved and managed in strict accordance with Rules on the Handling of Documents and Rules on Data Administration.
  2. (2)Regarding the Company’s important confidential items, separate Rules on the Handling of Confidential Documents have been established, and the important confidential items are managed in strict accordance with those rules.
  3. (3)The revision of important internal rules is undertaken only after the receipt of approval from the Board of Directors.
  4. (4)Information relating to the execution of the duties of the directors may be viewed by the directors and auditors through the intranet (internal network) at any time.
3. Regulations and other systems related to the management of dangers of losses
  1. (1)Risks related to fundamental elements of the Company’s operations have been classified into nine categories, and administration departments or committees have been established for each risk category. Having created this clearly defined risk management system, the Company has prepared a system for rapid responses to emerging risk-related problems, and monthly reports on the management situation with respect to each category of risk are provided to the secretariat of the Risk Management and Control Committee, which is comprised of members of the Management Council. In addition, a system has been created in which the secretariat compiles the monthly reports and presents quarterly reports to the Risk Management and Control Committee, while, at times of emergencies, the administration department or committee responsible for the relevant risk category rapidly reports to the Risk Management and Control Committee.
  2. (2)Regarding specific crisis management response measures, when required, crisis management manuals are prepared for each risk category to establish a system that provides for concrete response measures.
  3. (3)To create a system for dealing with contingencies that have not been foreseen by the directors, the Company has instituted rules and created systems that provide for the smooth shift to alternative operational units.
4. Systems for ensuring that the duties of the directors are performed efficiently
  1. (1)Senshukai has established Corporate Rules and Decision/Approval Item Request-Related Rules that clearly determine such issues as the roles of the Board of Directors, the Management Council, and the Board of Corporate Auditors as well as the job positions, work allocation, operational authority, roles, and decision-making authority of employees. These rules are designed to promote a rise in operational efficiency.
  2. (2)To increase the transparency of the Board of Directors and strengthen supervisory functions, the Company has adopted an outside director system.
  3. (3)It increases business efficiency by introducing "Executive officer system" and "Business headquarters system", and clarifying the authority and the responsibility of the decision making function and the business execution function of management.
  4. (4)In addition to the Board of Directors, the Company has established a Management Council comprised of, as a rule, standing directors and auditors. The important execution of duty entrusted them with by the Board of Directors is resolved, and the system that a prompt decision making can be done is taken.
  5. (5)To serve as an effective support framework for the creation of organizational unit performance monitoring indicators and evaluation indicators, the Company has adopted the Balanced Score Card (BSC) system and is building a system in which the Management Council reviews and provides feedback regarding the results of the indicators.
5. Systems for ensuring the appropriate execution of business by the Company’s corporate group, comprising the parent company and subsidiaries
  1. (1)To promote a rise in the Senshukai Group’s overall corporate value and ensure that the Group lives up to its corporate social responsibilities, Senshukai has prepared and is implementing Affiliated Company Management Rules. These rules stipulate that the parent company has parallel authority to handle important decisions regarding all subsidiaries in which it has a shareholding of more than 50%.
  2. (2)By giving the parent company’s directors supervisory authority over subsidiaries, the Company has provided for the promotion of close cooperation regarding the parent company’s directives and orders as well as regarding smooth two-way communications. While providing Group companies with guidance, advice, and evaluations, the parent company works to optimize overall Group operations.
  3. (3)Business subsidiaries that do not have a Board of Directors provide reports at the regular meetings held each month. Business subsidiaries share reports on sales and revenue at the monthly meetings, and reports are made directly to the Company President from the business subsidiary in question at least once a year.
  4. (4)The parent company’s directors hold regular meetings with representatives of the Company’s independent auditing firm at which the participants exchange opinions regarding the Group’s overall situation.
  5. (5)The Company has established unified rules for all Group companies regarding insider trading and confidential information, and a unified compliance education program is implemented for employees of all Group companies.
  6. (6)A Group Mid-to-Long Term Business Plan has been determined and is being carried out efficiently.
  7. (7)Executive appointments for subsidiaries are made by the Personnel Committee, while representative directors for subsidiaries are selected and appointed by the Board of Directors.
  8. (8)Group companies arrange and manage their regulations in accordance with their own degrees of risk.
  9. (9)The Company's directors, auditors, executive officers, and employees will be concurrently appointed as directors or auditors of Group companies as needed, as well as liaise with departments under the jurisdiction of Group company business based on the Affiliated Company Management Rules, and provide guidance and support for ensuring the appropriateness of business and compliance with laws and regulations in Group companies.
6. Matters related to the assignment of personnel to assist the corporate auditors in the performance of their duties, when the auditors make such requests, and related to the independence from directors of such personnel, as well as matters related to ensuring the effectiveness of instructions to such auditing personnel
  1. (1)In response to the request of corporate auditors, one dedicated staff member has been appointed to assist them.
  2. (2)In matters related to the appointment as well as transfer, personnel evaluation, and discipline of corporate auditor secretariat staff members, maximum consideration is given to the opinions of the Board of Corporate Auditors as regards these staff members. The supervisory authority of personnel assisting with the auditors’ duties shall be that pertaining to the auditors.
7. Systems for directors and employees to make reports to the corporate auditors, systems for other reports to be made to the corporate auditors, and systems to ensure the effective conduct of auditing activities by the corporate auditors
  1. (1)Standing corporate auditors attend important internal meetings as they deem necessary, and receive reports on important information relating to corporate management.
  2. (2)Corporate auditors attend Risk Management and Control Committee meetings. Moreover, when major issues are reported via the Corporate Ethics Hotline and when other situations that could have a substantial impact on the Company are discovered, risk management units and committees immediately provide related reports to the corporate auditors.
  3. (3)Corporate auditors are provided with the documents and other information they wish to examine whenever they request such materials.
  4. (4)The corporate auditors are provided with reports on the results of internal audits conducted by the Audit Department.
  5. (5)The corporate auditors are provided with reports on the results of internal audits conducted by the Audit Department.
  6. (6)By conducting audits on a regular basis, the corporate auditors obtain opportunities to conduct hearings with executive officers and important employees.
  7. (7)Arrangements are also made for the corporate auditors to obtain the advice of specialists when the corporate auditors deem such advice necessary and make related requests.
  8. (8)The chairman of the Ethics and Compliance Committee IR Contacted by the Company or a Group company will report to the Board of Corporate Auditors should there be any facts or suspicion that serious fraud is being committed by employees.
8. System to ensure that those making the reports in the previous section are not treated unfavorably for making such reports

The necessary measures shall be established to ensure that those making the reports in the previous section are not treated unfavorably for having made such reports.

9. Matters related to the policies related to processing debts or costs arising from carrying out other duties or procedures for prepayment or repayment of costs arising from carrying out the duties of auditors
  1. (1)Costs deemed necessary for carrying out the duties of the auditor shall be budgeted, and when a claim for prepayment, etc., is received, said claim shall, save in the event that it is not valid, be dealt with promptly.
  2. (2)If deemed necessary for the Company, the Company may approve extra-budget costs.
10. Systems for securing reliability of financial reports
  1. (1)The Company evaluates and externally reports the reliability of its internal controls over financial reporting in accordance with the Financial Instruments and Exchange Act and related legal regulations.
  2. (2)In evaluating the effectiveness of its internal controls over financial reporting, the Company sets forth and abides to standard procedures generally accepted as fair and appropriate.
  3. (3)To ensure the effectiveness of its internal controls over financial reporting, the Company periodically performs internal audits of the entire organization to identify and correct defects and significant flaws in an effort toward continuous improvement.
  4. (4)To prepare and operate effective internal controls as approved by the President, and to evaluate, externally report and assist internal controls over financial reporting, the Internal Audit Department conducts internal audits and reports the results of those audits to the President in accordance with Rules on the Preparation and Operation of Internal Control Over Financial Reporting.
11. Systems against antisocial forces

The Company sets forth the Senshukai Group Compliance Policy and the Senshukai Guidelines for Preventing Damage From Antisocial Forces under which it thoroughly communicates to directors and employees that we deal firmly and shall have absolutely no connection with antisocial forces that threaten order and safety in society.