SUSTAINABILITY

Corporate Governance

Fundamental Approach to Corporate Governance

For details, please refer to the Corporate Governance Report (p. 1).

Corporate Governance System

The Company’s corporate governance system is as indicated in the diagram.

Corporate Governance Structure

Board of Directors

Composition of the Board of Directors

The Company’s Board of Directors consists of ten members (of whom six are outside members and two are female members). Alongside determining the Company’s basic management policies, the Board of Directors delegates authority to Executive Officers and supervises the execution of duties by said Executive Officers.

For details concerning the composition of the Board of Directors and the backgrounds of members of the Board of Directors, please refer to the Notice of the Fifth Annual General Meeting of Shareholders (pp. 16-27).

Number of Members of the Board of Directors

For information concerning the number of members of the Board of Directors, the number of independent outside members of the Board of Directors,* and the number of female members of the Board of Directors, please refer to the Corporate Governance Report (p. 4).

*Non-executive members of the Board of Directors

Diversity of the Board of Directors

For information concerning the diversity of the Board of Directors, please refer to the Corporate Governance Report (pp. 4-5).

For details regarding the professionalism of members of the Board of Directors and their career history as directors of other companies, please refer to the Securities Report for the Fiscal Year Ended December 31, 2021 (pp. 52-57).

A skill matrix of members of the Board of Directors is set forth.

Diversity of the Board of Directors

Conflicts of Interest and Related Party Transactions by the Board of Directors

For information concerning conflicts of interest and related party transactions by the Board of Directors, please refer to the Corporate Governance Report (p. 2).

Exercise of Voting Rights at the General Meetings of Shareholders

Appointment and dismissal of members of the Board of Directors are determined by resolutions adopted by the shareholders at the general meetings of shareholders.

For details, please refer to the Articles of Incorporation (p. 5).

For details regarding the determination of remuneration for members of the Board of Directors, please refer to the Securities Report for the Fiscal Year Ended December 31, 2021 (p. 60).

With regard to voting rights, the principle of one share, one vote is applied. For details, please refer to the Securities Report for the Fiscal Year Ended December 31, 2021 (p. 44).

For information concerning the results of the exercise of voting rights, please refer to the Notice of Resolutions of the Fifth Annual General Meeting of Shareholders.

If a shareholder is unable to attend the general meetings of shareholders, the shareholder may exercise voting rights through a proxy. Voting rights may be exercised at the general meetings of shareholders by attending the meeting, by mailing a voting rights exercise form to the Company, or via the Internet.

Provision of Incentives and Remuneration to Members of the Board of Directors

For information concerning the provision of incentives and remuneration to members of the Board of Directors, please refer to the Corporate Governance Report (pp. 14-15).

In addition to financial indicators such as sales and profit, we incorporate non-financial indicators including the environment, society, and governance into remuneration systems, creating incentives for the Company’s members of the Board of Directors to enhance corporate value from a social perspective. Specifically, we set quantitative targets for each fiscal year in order to achieve our long-term goals concerning employee satisfaction, the percentage of women on the Board of Directors, CO2 emissions, the percentage of female managers, and so on, score the degree of achievement for each, and reflect the scores in remuneration.

Commitment to Gender Diversity on the Board of Directors

We appoint independent outside members of the Board of Directors taking into comprehensive consideration character, knowledge, history of appointment to key positions, legal specialization, management skills at other companies, practical experience, performance, networks within economic circles, and other factors. With regard to diversity, of the ten members of the Board of Directors, two are female. We also plan to work towards achieving 30% women on the Board by the end of March 2025.

Of the ten members of the Board of Directors, five are independent outside members of the Board of Directors and based on the opinions and advice that we received from these independent outside members of the Board of Directors, we plan to enhance the transparency and reliability of the Board of Directors and reinforce management supervisory functions while revitalizing the Board.

Commitment to Gender Diversity Among the Heads of Executive Departments

We believe that supporting diversity and inclusion leads to enhancement of corporate value and further believe that achieving diversity in decision-making is crucial for this. Women account for 6.5% of the heads of executive departments, but we have set a goal of raising this to 20% by the end of December 2025.

Board of Directors Meetings and Attendance by Members

The Board of Directors met 14 times in 2021.

Information concerning the composition of the Board of Directors,* Board meetings and attendance at meetings is indicated in the figure.

*The composition and position of members of the Board of Directors are as of 2021.

Name Position in the Company Attendance at Board of Directors Meetings
Yuki Kobayashi President and CEO,
Representative Member of the Board of Directors
14/14
(100%)
Daisuke Uehara Member of the Board of Directors 14/14
(100%)
Atsushi Takashima Member of the Board of Directors 14/14
(100%)
Yoshiaki Tanaka Member of the Board of Directors
Head of HR
14/14
(100%)
Motoyoshi Doi CFO
Member of the Board of Directors
10/10
(100%)
Atsuho Ikeda Member of the Board of Directors 10/10
(100%)
Kensaku Mizutani Outside Member of the Board of Directors 14/14
(100%)
Masami Mishima Outside Member of the Board of Directors 14/14
(100%)
Tetsuichi Taniguchi Outside Member of the Board of Directors 14/14
(100%)
Toshio Miyake Fulltime Audit & Supervisory Board member
(Outside Audit & Supervisory Board member)
14/14
(100%)
Kenjiro Maeda Outside Audit & Supervisory Board member 14/14
(100%)
Dai Kiyohara Outside Audit & Supervisory Board member 14/14
(100%)

Analysis and Evaluation of the Effectiveness of the Board of Directors

For information concerning the assumptions regarding measures to ensure the effectiveness of the Board of Directors and the Audit & Supervisory Board, please refer to the Corporate Governance Report (p. 4).

With the aim of enhancing the Board of Directors overall, the Company conducts surveys of all members of the Board of Directors and analyzes the results and also interviews them to identify areas for improvement and issues, which are then discussed by the Board of Directors. With regard to evaluation of the Board of Directors, the evaluation results indicate that the Board of Directors is functioning appropriately and ensuring the effectiveness of the Board, including fulfilling its roles and responsibilities. In the future, we will continue to analyze and evaluate the effectiveness of the Board of Directors once each year.

Nominating Committee

For information on Nominating Committee, please refer to the Corporate Governance Report (p. 16).

Audit Committee

For information on Audit Committee, please refer to the Securities Report for the Fiscal Year Ended December 31, 2021 (p. 58) and the Corporate Governance Report (p. 16).

Remuneration Committee

For information on Remuneration Committee, please refer to the Corporate Governance Report (p. 16).

For information on executive remuneration amounts and the methods of setting those amounts, please refer to the Securities Report for the Fiscal Year Ended December 31, 2021 (p. 60).

Executive Officers

For information on Executive Officers, please refer to the Corporate Governance Report (p. 16).

Audit & Supervisory Board*

Audit & Supervisory Board Meetings and Attendance by Members

*The Company has transitioned from being a company with Audit & Supervisory Board to a company with Nominating and other Committees effective as of the conclusion of the 5th Annual General Meeting of Shareholders held on March 25, 2022. Since DmMiX was a company with Audit & Supervisory Board in 2021, we carry the following report on conditions in 2021.

For information on the composition of the Audit & Supervisory Board members, meetings, attendance at meetings, and so on, please refer to the Securities Report for the Fiscal Year Ended December 31, 2021 (p. 58).

Our policy for determining the audit fees paid to certified public accountants and so on is to obtain quotations in advance, comprehensively considered the number of audit days, order details, scale of the Company, and other factors, and determine the fees after obtaining consent from the Audit & Supervisory Board.

For information concerning disclosure of the fees paid to the audit firm, please refer to the Securities Report for the Fiscal Year Ended December 31, 2021 (p. 59).

Also, with regard to the number of days from the notice of the annual general meetings of shareholders to the meeting date, please refer to the Notice of the Fifth Annual General Meeting of Shareholders (p. 1).

Nomination and Remuneration Committee*

Nomination and Remuneration Committee Meetings and Attendance by Members

*The Company has transitioned from being a company with Audit & Supervisory Board to a company with Nominating and other Committees effective as of the conclusion of the 5th Annual General Meeting of Shareholders held on March 25, 2022. Since DmMiX voluntarily established a Nomination and Remuneration Committee in 2021, we carry the following report on conditions in 2021.

The Nomination and Remuneration Committee consisted of three members: Masami Mishima (Independent outside member of the Board of Directors), Tetsuichi Taniguchi (Independent outside member of the Board of Directors), and Yuki Kobayashi (President and CEO, Representative Member of the Board of Directors). Therefore, independent outside members of the Board of Directors accounted for a majority. Mishima was selected by the members to serve as chair of the committee.

The Nomination and Remuneration Committee met three times in 2021, and each meeting was attended by all three members. The remuneration of individual members of the Audit & Supervisory Board is stipulated through discussions among the members of that board. The main duties of the Nomination and Remuneration Committee are as follows:

Nomination:
・Policy for selecting member of the Board of Directors candidates
・Criteria for selecting member of the Board of Directors candidates
・Suitability of the reappointment of incumbent member of the Board of Directors candidates
・Competence of new member of the Board of Directors candidates
・Selection of titled member of the Board of Directors candidates, etc.

Remuneration:
・Policy for the remuneration of members of the Board of Directors, etc.,
  Appropriate setting of fixed remuneration, performance-linked remuneration (state of achievement of performance indicator targets), noncash remuneration (stock remuneration)
・Criteria for the remuneration of members of the Board of Directors,
  Assessment criteria, ESG indicators (increases in ratios of female members of the Board of Directors and female managers, etc.), calculation standards
・Reporting of remuneration of individual members of the Board of Directors, etc.

The Company has transitioned from being a company with Audit & Supervisory Board to a company with Nominating and other Committees effective as of the conclusion of the 5th Annual General Meeting of Shareholders held on March 25, 2022.

For information on executive remuneration amounts and the methods of setting those amounts in 2021, please refer to the Securities Report for the Fiscal Year Ended December 31, 2020 (p. 58).

Other Voluntary Committees

Risk and Compliance Committee Meetings and Attendance by Members

The Risk and Compliance Committee met 12 times in 2021. Information on the meetings and attendance by committee members is set forth in the figure.

Name Position within the Company & Area of Responsibility Attendance at Meetings
Yuki Kobayashi President and CEO,
Representative Member of the Board of Directors
12/12
(100%)
Yoshiaki Tanaka Member of the Board of Directors
Head of HR
12/12
(100%)
Motoyoshi Doi CFO
Member of the Board of Directors
12/12
(100%)
Toshio Miyake Fulltime Audit & Supervisory
Board member(Outside Audit & Supervisory Board member)
12/12
(100%)

Sustainability Committee Meetings and Attendance by Members

The Sustainability Committee was established in November 2021 and held its kickoff meeting that month. All members attended.

Responses to the Corporate Governance Code

We see contributing to society and continuously enhancing corporate value as top-priority management issues, and we strive to be a corporate group that is trusted by all stakeholders. To this end, we work to achieve management efficiency and believe that increasing management soundness, transparency, and compliance will lead to long-term increases in corporate value and maintain stakeholder confidence.

We have positioned the creation, implementation, and functioning of fair management systems for increasing the soundness and transparency of management as well as prompt decision-making and appropriate business execution as key management issues and are working to enhance corporate governance.

For further details, please refer to the Corporate Governance Report.

Compliance

Approach to Compliance

We see compliance as a broad concept that encompasses observation of laws and regulations as well as engaging in good faith and proper conduct that incorporates social norms and ethics. We believe that a lack of awareness regarding compliance on the part of an individual employee poses significant risks to the existence of the company. For this reason, we continuously undertake companywide measures by appropriately identifying risks that may have an impact on the Company’s business including compliance violations and take effective countermeasures. For details, please refer to the Securities Report for the Fiscal Year Ended December 31, 2021 (p. 50).

Compliance Implementation Systems and Frameworks

Risk and Compliance Committee

We established a Risk and Compliance Committee to formulate plans and oversee practice with regard to compliance initiatives overall. For details, please refer to the Securities Report for the Fiscal Year Ended December 31, 2021 (p. 47).

Structural Diagram of
the Risk and Compliance Committee
Board of Directors
Reports
Risk and Compliance Committee
Chairperson : President and CEO
Representative Executive Officer
Members : Responsible Member of
the Board of Directors
Responsible Executive Officer

Consultation and Reporting Desks

To prevent violations of laws and regulations, the Company established consultation and reporting desks, posts necessary information on the Company intranet, and takes various other measures to enhance the effectiveness of compliance.

We strive to respond promptly and appropriately to internal reports from employees and to prevent unlawful and inappropriate conduct. In addition, we have established consultation and reporting desks where employees can confidentially and anonymously consult and make reports in cases where conduct in violation of or potentially in violation of laws and regulations, the Code of Conduct, or ethics is discovered. If an employee makes an inquiry by telephone or email, contact is made to the Human Resources Department in the case of the internal desk, and to an attorney in the case of the external desk, and the information is shared with the Risk and Compliance Committee. The Committee investigates the details of the consultation or report and compiles information while protecting the anonymity and confidentiality of the reporting individual and ensuring that the reporting individual is not subject to retaliation. If the Committee determines that disciplinary measures are necessary, the Disciplinary Committee is convened, and the Disciplinary Committee determines the appropriate disciplinary measures.

Consultation and Reporting System
Establishment of a Consultation and Reporting Desk

Compliance Education for Employees

Raising understanding and awareness by each employee is essential for thorough compliance. The Company conducts compliance training for all employees at the time of hiring. In addition, we conduct periodic e-learning, tests, and other programs to raise employee compliance awareness. We will work to establish compliance knowledge and awareness by conducting periodic compliance education in the future.

Other Compliance Initiatives

Anti-Bribery and Corruption

The Company established a policy on the prevention of corruption including bribery, insider trading, and misappropriation of company assets within its Code of Conduct and posted the Code in Japanese and English on the company intranet to thoroughly inform all employees. For details, please refer to the Code of Conduct, section 1.3: Prevention of corruption.

In addition, we established and operate an internal whistleblowing system to quickly identify circumstances that are or may be corrupt conduct, prevent compliance violations, and quickly rectify any violations that occur. In cases where consultations or reports are made, information is provided to the Risk Compliance Committee, which takes appropriate action. The internal whistleblowing system protects anonymity and confidentiality, and individuals who make reports are not subject to any retaliation.

We also conduct training for all employees that includes content on preventing corruption. Through this training, we strive to strengthen understanding of the details of internal regulations on anticorruption, including bribery and other forms of corruptions, transactions that may be suspected of corruption, and consultation and reporting methods so that we can prevent corruption from occurring.

Data on Prevention of Bribery and Corruption
Political contributions
The Company does not make any contributions to political parties, political funding organizations, or individual politicians. In 2021, contributions totaled zero yen.
To date, the Company has not made any contributions to political funding organizations (The People's Political Association), there have been no incidents of bribery or corruption, and the Company has not been subject to investigation by the authorities for corrupt conduct.
Fines, penalties, and settlements relating to corruption
Legal measures relating to corruption including fines and penalties in 2021 were zero yen. To date, the Company has not been subject to any legal measures.
Number of employee disciplinary measures and terminations relating to anti-correction policies.
There were no incidents of employee disciplinary measures or termination resulting from compliance violations in 2021. To date, there have not been any employee disciplinary measures or terminations.

Tax Policy

The Company rigorously complies with laws and regulations by establishing and appropriately implementing internal rules in accordance with the Code of Conduct and strives to foster high level of awareness of ethics through internal training and education. With regard to tax matters, the Company complies with tax laws and properly pays taxes by performing tax procedures in accordance with internal rules.

Compliance with Tax Laws

The Company complies with the letter and spirit of the tax laws of countries around the world and international rules and properly pays taxes in all countries where it conducts business activities.

Ensuring Transparency in Tax Matters

The Company provides information to tax authorities in a timely and appropriate manner, works to build trusting relationships through good faith and cooperative responses, and avoids a lack of transparency in tax matters.

Tax Planning

The Company utilizes preferential tax treatment programs and so on to the extent that they are aligned with the Company’s business objectives and strives to enhance corporate value by achieving optimal tax burdens. In addition, the Company does not engage in tax planning or use tax havens with the intention of tax avoidance.

Tax Governance

Executive Officer and CFO has overall responsibility for tax matters within the Group. Under the supervision of the CFO, departments involved in tax-related matters make reports and perform management relating to taxes.

Management of Insider Information

The Company strives to prevent insider trading in order to ensure the fairness and soundness of stock markets and gain the trust of stakeholders. We adopted Insider Trading Management Rules that expressly prohibit securities trading using non-public information obtained in the course of work, require submission of a trading application when trading the Company’s shares, and impose other requirements. We also conduct ongoing education for executives and employees. In July 2020 and June 2021, we conducted e-learning on insider trading rules for all employees.

Exclusion of Anti-Social Forces

For information on our approach to the exclusion of anti-social forces, please refer to the Corporate Governance Report (p. 20).

Risk Management

Approach to Risk Management

As society and business environments change, the risks that companies face are becoming increasingly complex and varied. We believe that properly identifying risks and effects that could have a material adverse impact on the Company’s business activities and responding in an appropriate and timely manner are critical for achieving sustainable growth as a business enterprise.

Risk Management Implementation Systems and Frameworks

Risk and Compliance Committee

We established the Risk and Compliance Committee to identify and analyze significant management risks, investigate countermeasures, and prevent risks from materializing. For details, please refer to the Securities Report for the Fiscal Year Ended December 31, 2021 (p. 47).

Structural Diagram of
the Risk and Compliance Committee
Board of Directors
Reports
Risk and Compliance Committee
Chairperson : President and CEO
Representative Executive Officer
Members : Responsible Member of
the Board of Directors
Responsible Executive Officer

Responses When Incidents Occur

For information concerning responses when incidents occur, please refer to the Securities Report for the Fiscal Year Ended December 31, 2021 (p. 50).

Confirmation of ESG Risks at the Time of New Transactions

When commencing new transactions, the Company investigates the reasons for and details of the transaction, the reliability of the trading partner, estimated cost, and other factors and screens potential new trading partners. The screening plays an important role in the Company’s risk management.

In November 2021, we added new negative ESG screening items to the screening of new trading partners. We check for problems that have become public knowledge from an ESG perspective including the occurrence of soil contamination or water contamination or pollution, the occurrence of occupational accidents, harms to health caused by products, forced repatriation of foreign workers, encouragement or coercion of illegal employment, failure to pay wages or overtime, and collusion with public officials.

If as a result of the screening, any ESG risks are identified, we make a comprehensive determination in combination with other check items and decide whether to conduct business with the new trading partner.

Internal Controls

Operational status of systems to ensure appropriate business operations

For details, please refer to the Corporate Governance Report (p. 20).

Systems for ensuring the reliability of internal controls concerning financial reporting

President and CEO, Representative Executive Officer Yuki Kobayashi and Executive Officer and CFO Motoyoshi Doi are responsible for the establishment and operation of internal controls relating to financial reporting by the Company and its consolidated subsidiaries. We establish and operate internal controls over financial reporting in accordance with the basic framework for internal controls set forth in the Revisions of Standards for Evaluation and Audit of Internal Controls Regarding Financial Reporting and Standards for Evaluation and Audit of Internal Controls regarding Financial Reporting (Opinion) released by the Business Accounting Council.

Internal controls are intended to achieve their objectives to a reasonable degree by organically linking the basic elements of internal controls and functioning in an integrated manner. Accordingly, internal controls regarding financial reporting may not completely prevent or detect misstatements in financial reports.

Information Security

Approach to Information Security

For information concerning our approach to information security, please refer to the Code of Conduct, section 5: Thorough Information Security.

Information Security Implementation Systems and Frameworks

The Risk and Compliance Committee implementing information security measures and works to maintain and enhance information security to protect and appropriately use information assets.

Matters investigated and deliberated on by the Committee are reported to the Board of Directors, and the Board regularly supervises this process and issues instructions as necessary.

The Risk and Compliance Committee periodically checks on the operational status of ISMS and through repeated planning, implementation, inspection, and review, seeks to ensure compliance with regulations and rules and pursue spiral implementation.

Structural Diagram of
the Risk and Compliance Committee
Board of Directors
Reports
Risk and Compliance Committee
Chairperson : President and CEO
Representative Executive Officer
Members : Responsible Member of
the Board of Directors
Responsible Executive Officer

Approach to Information Management

Much of the information on the possession of the Company’s subsidiaries is important information such as the personal information of customers. We believe that protecting this key information from various risks, such as alteration and leaks, is crucial for gaining the trust of stakeholders and developing business.

Employee Education and Training on Information Security

We conduct information security training for all employees by means of e-learning every quarter. The training informs employees about the importance of information security and heightens crisis awareness regarding the Personal Information Protection Act while supporting acquisition of knowledge necessary for business operations.

Other Measures Relating to Information Security

Accounts used by employees are managed with a user management system that is linked to personnel information, and use of company systems and access to the company intranet by persons without access rights are restricted.

In addition, security cards are used to manage access at all sites and information management is reinforced by restricting access, installing security cameras, and taking other measures.

The Company is a holding company, and we recognize that information security is a high risk for our subsidiaries. Accordingly, each subsidiary has acquired ISO27001 certification, an international standard for information security management systems (ISMS), and P Mark certification, a third-party certification system for personal information protection systems. In this way, we ensure thorough information management and continuous improvement.