Corporate governance

As the Group contributes to society, strengthening corporate governance is one of its priorities, thus it is making Groupwide efforts to establish effective internal control systems that are appropriately composed and managed, based on the DOWA Group’s Mission, Vision, Values, and Code.

The Company employs a holding company structure that enables it to have a deeper grasp of customer needs at the ground level of the market and enables swift decisions to be made with authority. This structure also allows us to separate our core businesses into subsidiaries, which in turn facilitates more flexible and bolder management in accordance with the characteristics of each core business, and to allocate management resources to Group companies in an optimal manner, thereby working to maximize corporate value by realizing the sustainable growth of the Group. 
The Company ensures sound management through the establishment of the Audit & Supervisory Board and the appointment of outside directors. Additionally, to accelerate decision-making and improve management efficiency, we have adopted an executive officer system and a holding company structure, separating business units into subsidiaries. To enhance the supervisory function of the Board of Directors, we have set the number of directors at a maximum of 13 and limited their term to one year, thereby clarifying management accountability.

In principle, the Company holds a Board of Directors’ meeting once a month, which is attended by 10 directors (8 men and 2 women), including 4 outside directors, and 4 corporate auditors (all of whom are outside Audit & Supervisory Board members).

We believe that at meetings of the Board of Directors there is a lively exchange of opinions during the deliberation of each proposal and regarding the supervision of the execution of business and that decision-making and supervision are conducted effectively. In addition, outside directors and outside Audit & Supervisory Board members also contribute by meeting regularly to exchange opinions.

The Company conducts annual self-assessments and analyses of the effectiveness of its Board of Directors every year to improve its functioning and, ultimately, its corporate value. For self-assessment and analysis, the following methods were used with the advice of external organizations. The Board of Directors will continue to work toward enhancing its functionality by giving thorough consideration and executing a response to the issues brought forth by this evaluation of its effectiveness. This fiscal year, questions that received high scores in the previous fiscal year were excluded and updated to focus on more specific issues. In addition, by increasing the number of questions with text input, the overall quality of the evaluation was improved.

The Audit & Supervisory Board of the Company comprises four auditors (all independent external auditors), including two who have considerable knowledge of finance and accounting through their work as certified public accountants and bankers. The auditors audit the performance of the directors' duties by attending meetings of the Board of Directors and other important meetings, and by hearing from the directors about the performance of their duties, in accordance with the audit policy and audit plan for the current term set by the Board of Auditors. They also monitor the independence of the accounting auditors and cooperate with them through explanations of audit plans and reports on audit results from the accounting auditors.

[Resolutions]
Annual audit plan, reappointment of the accounting auditor, consent for the accounting auditor’s audit fees, audit report of the Audit & Supervisory Board, consent to the proposal to appoint auditors, and consent to the comprehensive pre-agreement regarding the accounting auditor’s non-guaranteed services.

[Reported Items]
Reporting of audit implementation overview, communication, and reporting to non-executive auditors (Board of Directors meeting proposals, etc.)
 

[Discussion and Deliberation Points]
Exchange of opinions on annual audit plans, Board of Directors meeting proposals (including annual securities reports, internal control reports, corporate governance reports, etc.), confirmation of the contents of the accounting auditor’s audit report, etc.

Full-time corporate auditors take the lead in conducting audits by visiting domestic and overseas subsidiaries in accordance with the audit plan formulated by the Audit & Supervisory Board. After reporting to and discussing with the Audit & Supervisory Board on matters discovered during on-site inspections of subsidiaries and the status of internal reporting, the final results are submitted to said subsidiaries and related officers. In fiscal 2023, the Audit & Supervisory Board conducted on-site inspections at a total of 42 locations.

The Company has a Nomination Committee, a voluntary committee, which provides objective advice on particularly important matters, such as the selection and dismissal of senior management. The Nomination Committee consists of six members, four independent outside directors and two internal directors. The majority of the members are independent outside directors and the committee is chaired by an independent outside director.

• Changes in directors and new management structure
• Skills matrix
• Succession planning
• Strengthening external disclosure
• Independence criteria for outside directors and outside auditors

To further enhance the transparency of our corporate governance, we have revised the Independence Standards for Independent Directors as outlined below. After two deliberations in the Nominating Committee, this revision was approved by the Board of Directors in March 2024. The Nominating Committee compared and reviewed the appropriateness of each item and level of the independence criteria with domestic and international standards, and further conducted a risk assessment related to future director appointments.

We determine that independent outside directors and outside Audit & Supervisory Board members possess independence if, in addition to meeting the requirements for outside directors stipulated by the Companies Act and the independence criteria set by the financial instruments exchange, they are reasonably determined not to fall under any of the following criteria based on our investigation.

The CEO succession plan at the Company is discussed within the Nominating Committee, an advisory committee, and is appropriately implemented based on our management philosophy and strategy. Regarding the selection of a specific CEO successor, the Company President selects candidates from among directors, executive officers, and Group company officers based on their skills, qualifications, and experience (including the items listed in the skill matrix) and consults the Nominating Committee for advice.
Based on the discussions in the Nominating Committee, the President proposes the succession plan to the Board of Directors, which deliberates and makes the final decision.

The Company has a Remuneration Committee, which is a voluntary committee. The executive remuneration system is designed on the advice of the Remuneration Committee and incorporates objective perspectives such as the Group's consolidated performance, the Company's share price and external remuneration levels. The Remuneration Committee consists of six members: four independent external directors and two internal directors. The majority of the members are independent external directors and the committee is chaired by an independent external director.

• Calculation of officer remuneration
• The appropriateness of the Company’s officer remuneration in light of general executive remuneration standards
• Disclosure policy on determination of officer remuneration

The remuneration system for directors comprises basic remuneration, which is a fixed amount; performancebased remuneration, which considers the Group’s consolidated performance; and restricted stock remuneration. This system does not apply to outside directors, however, as they take on a supervisory role from an independent and objective perspective. Therefore, they are ineligible for any remuneration based on individual performance.
As each auditor is independent from the execution of business operations, only fixed remuneration is paid to each auditor. The amount of remuneration is determined through discussions among the auditors within the total amount of remuneration approved by the General Meeting of Shareholders.

Basic remuneration for directors is fixed remuneration paid monthly according to each director’s position and results. It is determined after a comprehensive examination that accounts for Company performance remuneration levels at other companies, and employee salary levels.

Performance-based remuneration is paid at a certain time every year. The amount paid as performance-based remuneration is determined using ordinary income as a baseline, adjusted to reflect individual performance. The aim of adopting ordinary income as the index on which performance-based remuneration is calculated is to increase the motivation to contribute to business growth by linking remuneration to corporate profits.

Restricted stock remuneration shall be provided by granting monetary remuneration claims to eligible directors based on a Board of Directors’ resolution. The directors will then pay these claims to the Company as a contribution in kind to issue (or dispose of) the Company’s common stock with restrictions on the transfer of these shares until retirement or resignation. The amount of the monetary remuneration claims is determined based on the director’s position, and the per-share price is set at the closing price of the Company’s stock on the Tokyo Stock Exchange on the business day preceding the date of the Board of Directors resolution regarding the issuance (or disposal) of shares. This system aims to provide the directors with incentive to sustainably enhance the Company’s corporate value while promoting greater value-sharing with shareholders.
The Company's restricted stock remuneration are subject to a malus clause. In the event of serious fraud or violations, the remuneration for which final payment is withheld may be reduced or extinguished before payment.

The ratio of basic remuneration, performance-based remuneration, and restricted stock remuneration that each director receives is determined by the President and Representative Director concerning a report by the Remuneration Committee, which is based on a benchmark of companies in the same business size and related industries and business categories as those of the Company. The President and Representative Director determines the remuneration details for each director per the calculation process established by the Remuneration Committee, which conducts a multifaceted review, including consistency with the decisionmaking policy established by the Board of Directors.
This authority was delegated to the President and Representative Director since the Representative Director oversees the Company’s business operations, leading them to make the appropriate decisions. The Board of Directors also believes that the above involvement of the Remuneration Committee has allowed it to follow its policy of determining the remuneration details for each individual.

In accordance with the provisions of the Companies Act, the determination of remuneration for directors and audit & supervisory board members is determined by resolution of the General Meeting of Shareholders. Most recently, resolutions were passed by the General Meeting of Shareholders when revising the following remuneration schemes.

• The total amount of monetary compensation claims to be granted to directors for the grant of restricted share remuneration was resolved at the Annual General Meeting of Shareholders held on 24 June 2022 to be no more than ¥ 100 million per year and the total number of ordinary shares to be issued or disposed of to be no more than 44,000 shares per year.
• The maximum amount of remuneration to be paid to directors was resolved at the Annual General Meeting of Shareholders held on 24 June 2016 to be no more than JPY 570 million per year. The number of directors at the end of the said Annual General Meeting of Shareholders was seven (including two outside directors).
• The maximum amount of remuneration to be paid to auditors was resolved at the Annual General Meeting of Shareholders held on 28 June 2006 to be no more than ¥ 100 million per year. The number of auditors at the end of the said Annual General Meeting of Shareholders was four.

The Company is building an internal control system based on the COSO Integrated Framework for Internal Control. In this context, we are promoting company-wide risk management (ERM) with reference to COSO and JISQ 2001 in order to prevent crises that could have a significant impact on management and minimise damage if they should occur. Specifically, we are strengthening and thoroughly implementing a series of risk management processes, including the identification of apparent and potential risks in each business activity, implementation of countermeasures, monitoring and auditing.

In response, the Company has adopted a holding company structure. While this raises the level of specialization of each business group and the speed at which policies can be executed, it also carries the risk that internal control systems will become localized and overall governance will suffer. To mitigate this risk and ensure internal control as a Group, we have shared our basic policy regarding internal control with each Group company and have developed the Four Lines Model, a model of internal control that works effectively within the holding company structure. Each line within the Four Lines Model plays a specific role in internal control. Under this model, the first line focuses on business execution, the second line focuses on business administration, the third line focuses on Group management, and the fourth line focuses on evaluating the Group’s internal control as a whole. Internal control systems must continuously be revised in line with changes in business activities and the social environment, so we are working to further strengthen these systems.

The Group’s internal audits consist of general Group audits conducted by the Internal Audit Department of DOWA Holdings and specialized operational audits conducted by each DOWA Holdings audit department and Group company. The main objectives of the Group-wide audit conducted by the Internal Audit Department of DOWA Holdings are to evaluate “internal control over financial reporting” based on the Financial Instruments and Exchange Act and assess the governance and risk management status at each Group company. We made necessary evaluations, advice, and recommendations. The Internal Audit Department of DOWA Holdings holds regular meetings with corporate and accounting auditors to share information such as risk information and audit status. In addition, we report on the status of internal controls tothe Sustainability Subcommittee, which has jurisdiction over internal controls. Furthermore, audit results are regularly and directly reported to the Board of Directors and the Audit & Supervisory Board, mainly on the “evaluation of internal control over financial reporting.”
In addition to the “evaluation of internal control over financial reporting,” we focuse on auditing the operational status of Company-wide integrated risk management.

Based on our unique Four Lines Model, our Group aims to establish internal controls that are suited to the characteristics of the DOWA Group (business, region, and organization). Under the Midterm Plan 2024, we are implementing a cycle of internal control activities across the entire Group and are working to establish these practices.
To establish an activity cycle, it is essential that each employee understands it. To this end, as a continuing education and awareness program, we have incorporated internal control education into our training for new employees and newly appointed managers starting from fiscal 2023.

The Company has been under an audit contract with Deloitte Touche Tohmatsu LLC (then Tohmatsu & Co.) since FY 1968. However, the Company has an audit contract with MISUZU Audit Corporation (then Tokyo Daiichi Certified Public Accountant Office) from FY 1968 to FY 2006. Due to the dissolution of MISUZU Audit Corporation, the Company entered into an audit contract with Deloitte Touche Tohmatsu LLC (then Tohmatsu & Co.) from FY 2007. In addition, the certified public accountant who had been auditing the Company transferred to Deloitte Touche Tohmatsu LLC and continued to perform auditing services for the Company after their transfer. Since this inherently means that the same audit firm is considered to have continued to perform audit services for the Company, the audit period of the audit firm before the transfer of the certified public accountant in question is combined.

The Company positions its cross-shareholdings as those that will enhance the Company’s corporate value to maintain and strengthen relationships with business partners and other parties and form a strong relationship of trust with the issuing company. Regarding cross-shareholdings, for each stock, the Board of Directors makes a comprehensive judgment as to whether or not to continue to hold the stock based on whether or not it meets the original purpose of holding the stock and whether or not the benefits and risks associated with holding the stock are commensurate with the cost of capital.
In fiscal 2023, the Board of Directors resolved on September 11, 2023, to sell the entirety of one listed stock held by a Group company, and this was executed within the fiscal year. Additionally, as per our usual practice, the Board of Directors, on December 11, 2023, comprehensively reviewed all listed stocks held by the Group, assessing trading conditions, significance, and dividend performance to determine if they matched capital costs, and evaluated whether to continue holding them. As a result, for fiscal 2023, apart from the aforementioned stock, the decision was made to continue holding the remaining stocks.