Corporate Governance

To retain the trust of all of our stakeholders, KOITO recognizes the importance of ethical standards and has identified enhancing "corporate governance" as one of our materialities. We are striving to establish a sound management structure.

The Board of Directors is chaired by the President, and comprises 9 Directors (including 3 Outside Directors). In principle, the Board of Directors meets once per month.
The Company's Board of Directors discusses, reports, and makes decisions on matters stipulated in the Board of Directors' Regulations, including those stipulated by laws, regulations, and the Articles of Incorporation, and supervises the execution of director's business execution. In addition, all Audit and Supervisory Board Members attend the Board of Directors to monitor Director's business operations.
The Managing Committee comprises full-time Directors and Corporate Officers as a body to aid the Board of Directors. The committee meets, in principle, 3 times per month, determines business execution, reports on progress and follows up on business execution.
The governance is being reinforced, such as that a new activity requires the approval of the Managing Committee and then the Board of Directors before starting.

The Audit and Supervisory Board comprises 4 Audit and Supervisory Board Members (2 standing Audit and Supervisory Board Members and 2 outside Audit and Supervisory Board Members) and the meetings are held regularly.
Other than the Board of Directors, the standing Audit and Supervisory Board Members attend the Managing Committee and other important meetings or committees to express opinions as needed. This structure enables Audit and Supervisory Board Members to constantly monitor the Director's business execution. KOITO also strives to improve its auditing functions through close collaboration between Audit and Supervisory Board Members, Internal Audit Department and independent auditors, by allowing them to exchange information and opinions as needed, and to hold regular meetings.

Based on the annual audit plans, KOITO's Internal Audit Department, an independent organization, conducts audits of the operations of internal control over financial reporting, as well as audits of the legality and appropriateness of operations against company-wide departments and KOITO's subsidiaries. The departments and subsidiaries implement the necessary improvements to improve internal control. The Internal Audit Department reports the results of the audits to Directors and Audit and Supervisory Board Members, and exchanges information with the Audit and Supervisory Board Members and the independent auditors on the status of audits to facilitate mutual cooperation.
The Audit and Supervisory Board discusses and establishes the annual activity policy, the division of each Audit & Supervisory Board member, and the annual audit plan. The audit is conducted based on the plan. Other than attending and expressing opinions at the Board of Directors, Audit and Supervisory Board Members audit the execution of Directors' duties, legality and appropriateness of KOITO's decision-making based on their knowledge and experience in each specialized field. In addition to Audit and Supervisory Board Members' on-site audits and interviews with administrative divisions, Audit and Supervisory Board Members attend the audits performed by the independent auditors and the Internal Audit Department. Audit and Supervisory Board Members strive to improve the effectiveness of audit by maintaining collaboration with relevant parties, including outside Directors by exchanging information as needed. Audit and Supervisory Board Members conduct audits described above and share its outline with outside Audit and Supervisory Board Member in a timely manner. Outside Audit and Supervisory Board Members contribute to KOITO's management strategies planning and the enhancement of corporate governance. This is achieved through inquiries and comments made at liaison meetings with the Board of Directors, Audit and Supervisory Board, independent auditors and outside Directors, based on their knowledge in each specialized field as well as information from Audit and Supervisory Board Members. In addition, KOITO has established an Audit and Supervisory Board Member's Office so that independent staffs can assist Audit and Supervisory Board Members with their duties.
In fiscal 2022 (from April 1, 2021 to March 31, 2022), a total of 8 Audit and Supervisory Board were held, and all Audit and Supervisory Board Members, including outside Audit and Supervisory Board Members, have attended to all meetings. The main matters discussed in the Audit and Supervisory Board are evaluation, reappointment, and remuneration agreement with the independent auditors, legality or appropriateness of matters discussed in the Ordinary General Meeting of Shareholders, the deliberation and preparation of Audit Report, and preparation of Audit Plan.
Mr. Yukinobu Suzuki, KOITO's outside Audit and Supervisory Board Member, has long been served as an important position at National Tax Agency, is currently a certified tax accountant. He has financial and accounting knowledge at certain degree.

KOITO's accounting audit has been ARK LLC. since June 2009. The accounting audit is performed by certified public accountants, Junichi Yoshimura, Daiki Matsuura and Yoshio Hinazuru. Furthermore, certified public accountants and persons who passed the certified public accountant examination who belong to ARK LLC. assist the accounting audit.
KOITO establishes a policy on selecting audit corporations; appropriate size as an audit corporation, the expertise and independence required to accounting auditors, and a system to ensure the appropriateness of accounting audits.

KOITO's policy is to elect Director candidates who respond to the delegation of management by shareholders, possesses a wealth of experience and insight into management, and who can fulfill directors' duties and responsibilities.
Based on this policy, the Nomination Committee shall be deliberate and resolve a draft of Director candidates, and then the Director candidates are determined by the Board of Directors. To ensure objectivity and transparency of the nominations of the Director candidates, the Nomination Committee, and advisory body to the Board of Directors, consist of 2 Inside Directors and 3 Independent Outside Directors.
With regard to Audit and Supervisory Board Members, the Company's policy is to select candidates who have good personalities, insight, and high ethical standards that enable them to properly, fairly, and efficiently execute audits of the execution of director's duties. Based on this policy, Audit and Supervisory Board Member candidates are elected by the Board of Directors with the consent of the Audit and Supervisory Board.
In the event of a situation that deviates from the above-mentioned policy, the Board of Directors shall decide on dismissal after a resolution at a General Meeting of Shareholders.
Corporate Officer Regulations stipulate that the appointment and dismissal of corporate officers shall be subject to a resolution of the Board of Directors.

KOITO's policy is to appoint an outside Director with effective independence in accordance with the independence requirements set forth in the Corporation Act and the independence standards set forth in the Independent Directors/Auditors System of the Tokyo Stock Exchange.
As for Outside Director and Audit and Supervisory Board Member candidates, the Board of Directors appoints a person with extensive knowledge and experience in corporate management or with expertise in legal and financial matters. Outside Directors and Audit and Supervisory Board Member are also elected at the General Meeting of shareholders.
The reasons for the election of Directors and Audit and Supervisory Board Members are described in the reference document of the Notice of the General Meeting of Shareholders. In the event of dismissal, the reason for such dismissal shall be stated in the reference document of the Notice of the General Meeting of Shareholders.
The election and dismissal of each corporate officer has been decided by the Board of Directors.

Each Director has a thorough knowledge of the respective business management. Including outside Directors, KOITO regards Director's knowledge, experience, and capabilities as diverse and well balanced. KOITO will continue to consider the appropriate structure for the Board of Directors.
As for the election of Audit and Supervisory Board Members, KOITO expects candidates to have a good personality and a strong sense of ethics to accurately, fairly, and efficiently execute the audits of the execution of Director duties. In particular, outside Audit and Supervisory Board Members are selected from among experts with expertise in legal and financial matters.

KOITO conducts annual surveys to evaluate the effectiveness of the Board of Directors. The Board of Directors evaluates itself based on the survey findings.
 
The following is the outline of the results of analyzing and evaluating the effectiveness of the Board of Directors.

1. The Board of Directors meets monthly, in principle, and promptly and properly discusses important agenda items based on the Board of Directors Regulations. 
2. Annual meeting schedules are announced to all Directors and Audit and Supervisory Board Members, including outside ones, before the start of the fiscal year. The schedule is designed for them to attend the meetings readily. Directors and Audit and Supervisory Board Members actively participate in discussions, and business topics are thoroughly examined.
3. The Board of Directors receives advice and suggestions from Directors who have worked in the various departments, such as management, sales, technology, and production, and outside Directors who have experience and knowledge of corporate administration. Outside Audit and Supervisory Board Members with technical knowledge of laws and finance also provide their opinions. The Board of Directors thereby discusses and examines business topics from various angles by taking enough time. 

The Board of Directors also operates by reflecting the opinions of outside Directors, such as adding the results of self-evaluations, contents put on the agenda of the Managing Committee, trends in the industry, and the latest technical trends to the matters to be reported.
The Board of Directors will continue reinforcing its functions as the highest decision-making entity and improving the speed of making administrative decisions to increase its effectiveness.

KOITO provides training for Directors and Corporate Officers to promote knowledge acquisition and an understand of their roles and responsibilities as necessary.

It was approved at the 119th Ordinary General Meeting of Shareholders held on June 27, 2019 that the amount of remuneration, etc. for the Company's Directors shall be no more than ¥1.5 billion a year. In addition, it was approved at the 115th Ordinary General Meeting of Shareholders held on June 26, 2015, that, apart from the amount of remuneration, etc., for Directors described above, the amount of remuneration, etc., related to subscription rights as stock compensation-type stock options for Directors shall be no more than ¥200 million a year.
The Directors' remuneration system consists of fixed remuneration, paid monthly, and performance-linked remuneration.
Based on the Company's internal standards on Director's remuneration, the Company comprehensively determines the amount of remuneration by taking several factors into account: corporate performance, the amount of dividends to shareholders, remuneration amount of other companies, the amount of employees' salaries, as well as the Director's management capabilities, achievements, and their contributions.
The fixed remuneration amount is calculated by setting a basic amount in based on the size of the role of each Director and their position, then setting the upper and lower limit amount for each position, the status difference by position, and the difference by the number of years in the position.
Performance-linked remuneration is evaluated and decided based on the belief that it is important to comprehensively consider the goals and achievements of each fiscal year's performance (net sales, profits, etc.) and each Director's contribution.
The goal of stock compensation-type stock options is to motivate company managers to contribute to improving business performance and corporate value in the medium to long term by sharing the benefit of rising stock prices and the risk of falling stock prices with shareholders. The number of stock options granted is based on each Director's status of business execution and level of contribution, etc., and Directors are able to exercises their options once they have lost their position as Director.
The Board of Directors consults with the Remuneration Committee regarding the policy to determine the remuneration, etc., and the policy, etc. to determine the remuneration of each Director, and the policies are determined by the Board of Directors based on the deliberations and determinations of the committee.
The remuneration of each Director has been determined by consultations among the Representative Directors based on the above determination policy authorized by the Board of Directors.
As a consultative body of the Board of Directors, the Remuneration Committee consists of two independent outside directors and two inside directors, in order to ensure objectivity and transparency of the remuneration determination procedure, etc. of the directors, etc.
For Outside Directors, only fixed remuneration is paid, and no performance-linked remuneration is paid.

The Basic Policy of the Internal Control System is set as follows to improve and reinforce internal control.

1. System ensuring that Directors and employees execute their business duties in compliance with laws and regulations and the Company's Articles of Incorporation
   The Compliance Committee, the Compliance Department, the Internal Audit Department, whistle-blower internal reporting system, and other organizations and systems, as well as the Code of Corporate Ethics and other relevant regulations, will be developed and enhanced based on the KOITO Group Corporate Behavior Charter. At the same time, KOITO's Directors, Corporate Officers, and employees will receive education familiarizing them with the organizations, systems, and regulations.
2. System for the preservation and administration of information on Directors executing their business duties
   Regulations will be developed and enhanced to appropriately preserve and administer minutes of the General Meeting of Shareholders, the Board of Directors, the Managing Committee, and other information on the Directors executing their business duties.
3. Regulations and other systems for managing the risk of loss
   Risk Management Regulations and other regulations and systems for managing risk will be developed to avoid and eliminate material risks that could threaten the Company's viability, and to minimize the impact when they arise. At the same time, KOITO's Directors, Corporate Officers, and employees will receive education and training on risk management.
4. System for ensuring the efficient execution of business duties by Directors
   The Board of Directors and the Managing Committee meetings will be held regularly. Meanwhile, the Board of Directors' Regulations, the Managing Committee's Regulations, and other regulations pertaining to the execution of business duties by the Directors, as well as the Corporate Officer system and other organizations and systems, will be developed and enhanced to ensure the efficient execution of business duties by the Directors. At the same time, the business duties will be executed according to specific plans that each division develops every fiscal year based on the President's policy.
5. System for ensuring appropriate business execution by the corporate group comprising KOITO and its subsidiaries
   KOITO and its group companies will acknowledge the KOITO Group Corporate Behavior Charter and develop a system for ensuring and administering the appropriate execution of business duties as follows.
   i.KOITO clarifies matters to be reported in the Subsidiary Company Management Regulations and other regulations and improves reporting system. Also, KOITO requests regular business reports to the group companies.
   ii.KOITO comprehensively and thoroughly manages risks of the entire group based on the Subsidiary Company Management Regulation and other regulations. If actions of the group companies are insufficient, KOITO provides instructions and corrective actions.
   iii.KOITO requests its group companies to develop and improve regulations, organizations, and systems for regular meetings of the Board of Directors and the execution of duties by the Directors. Officers serve in multiple posts in important group companies.
   iv.KOITO ensures that group companies stay in compliance with laws and regulations based on the KOITO Group Corporate Behavior Charter and other regulations. Also, KOITO's Management Department and Internal Audit Department conduct audit and financial audit of group companies. KOITO also clarifies matters requiring approvals in the Subsidiary Company Management Regulations and other regulations so that the applicable business operations are to be executed upon approval by KOITO.
6. Matters pertaining to the status of certain employees, independence from Directors, and the effectiveness of instruction in the event the Audit and Supervisory Board Members request such employees to assist in the execution of their duties
   An Audit and Supervisory Board Members' Office will be established to help the Audit and Supervisory Board Members execute their duties under the instructions and orders of the Audit and Supervisory Board Members and the Audit and Supervisory Board. Moreover, assignment of personnel to the Audit and Supervisory Board Members' Office shall be decided upon approval by the Audit and Supervisory Board to ensure independence from the Directors.
7. System for Directors and employees of KOITO and its subsidiaries to report to the Audit and Supervisory Board Members and for preventing unfair treatment of the Directors and employees for reporting to the Audit and Supervisory Board Members
   Directors, Corporate Officers, and employees of KOITO and its group companies shall report to the Audit and Supervisory Board Members when they learn of matters of material impact on the Company, serious violations of laws, regulations, and the Company's Articles of Incorporation, and other issues of compliance. Moreover, each Audit and Supervisory Board Member shall exercise their own discretion in reporting the findings from such reports to the Audit and Supervisory Board. Meanwhile, the Company's organization and systems will be developed and enhanced to rigorously prevent the unfair treatment of the Directors, the Corporate Officers, and the employees for reporting to the Audit and Supervisory Board Members.
8. Policy on expenses arising when the Audit and Supervisory Board Members execute their duties and system for enabling the Audit and Supervisory Board Members to conduct effective audits
   The Company will pay all necessary expenses involved in the Audit and Supervisory Board Members' execution of their duties.
   The Audit and Supervisory Board Member will monitor and audit the execution of business duties at the Company by means that include attending the Board of Directors, the Managing Committee, the Compliance Committees and other relevant conferences and committees, and examining important documents. The Audit and Supervisory Board Members will exchange opinions periodically or as needed with Directors, Corporate Officers, financial auditors, and the Internal Audit Department, among others.