Corporate Governance

In April 2023, we set “Passion in Creating Tomorrow” as our PURPOSE. At the same time, taking a backcasting perspective from our long-term vision, we formulated our mid-to-long-term business plan Beyond the OCEAN and, as a mid-term milestone,our mid-term business plan, NEXUS-26.

Furthermore, to realize these goals and achieve the SDGs(Sustainable Development Goals), we are promoting sustainability management Groupwide.As a foundation for this, we believe it is important to comply with laws and regulations as well as their spirit, and to practice fair and transparent management, and so we are working to strengthen our corporate governance to meet our stakeholders’ expectations. Specifically, we will ensure the rights and equality of shareholders, collaborate appropriately with stakeholders other than shareholders, ensure appropriate information disclosure and transparency, fulfill the roles and responsibilities of the Board of Directors appropriately, and conduct constructive dialogue with shareholders.

We believe that fulfilling our company’s social responsibility while building strong relationships with our stakeholders will increase our corporate value. To enhance the strategic nature of discussions and the mobility of decision-making, since June 2021, our management structure has been such that independent outside directors account for at least one-third of the board. We are also implementing initiatives to improve governance, such as establishing a Nomination & Remuneration Committee made up of a majority of outside board members,electing board members with greater gender awareness, and reducing cross-shareholdings. There is one female on the Board of Directors, which is 16.6% of the total number of directors.

As for our management and administrative organizations, in addition to legal bodies such as the General Meeting of Shareholders, Board of Directors, Audit & Supervisory Board, and Accounting Auditors, our Corporate Strategy Committee and Management Committee deliberate and review important management issues, management strategies, etc. We have also introduced an executive officer system, which separates management supervisory functions from business execution functions to clarify roles and responsibilities and expedite decision-making. The Board of Directors is positioned as the body that decides basic management policies and supervises the execution of business operations. It appoints two outside board members. The term of office for board members is one year and the number of board members is set at six to enable the company to respond flexibly to changes in the business environment.

For outside board members, there is a system for them to exchange information and share understanding at regular meetings of the Council of Outside Directors with the outside audit & supervisory board members, so that they can fulfill their roles and responsibilities in the management decision-making process. In particular, the appointment and remuneration of board members are determined by the Board of Directors after consulting with and receiving reports from the Nomination & Remuneration Committee, which is composed of a majority of outside board members. As Pacific Industrial Co., Ltd. is a company with the audit & supervisory board, four audit & supervisory board members, including two outside audit & supervisory board members, collaborate closely with the internal audit department and conduct an efficient audit to ensure the adequacy of our business operations.

We have conducted the following analysis and evaluation of the Board of Directors in order to improve its effectiveness.

(1) Analysis and evaluation
After conducting a questionnaire on the composition, management, agenda, etc. of the Board of Directors, we compile opinions and recommendations on the background and causes of recognized issues and the direction for improvement, and report them to the Board of Directors for discussion.
Evaluation method: Self-evaluation by questionnaire Evaluation target: Board members including outside board members

Evaluation items:
 (1) size and composition of the Board of Directors
 (2) operation of the Board of Directors
 (3) agenda of the Board of Directors, and
 (4) support system for the Board of Directors

(2) Summary of Results 
It is our assessment that the size, composition, agenda content, and other items of the Board of Directors are generally appropriate, and that its effectiveness is ensured. In the other hand, we have identified additional issues in securing sufficient time for deliberation on important topics and in providing information to outside board members.

In order to further improve the effectiveness of the Board, we will work on improvements, such as securing more time for deliberation on important themes in management strategy, and providing more information to outside board members to stimulate more effective discussions.

We have established a Nomination & Remuneration Committee to ensure fairness and transparency in the nomination of board members and the determination of their remuneration. A majority of the members of the Nomination & Remuneration Committee
are independent outside board members. The Board of Directors makes decisions on the nomination and remuneration of board members and executive officers, respecting the opinions of the Nomination & Remuneration Committee.

■ Board Member Selection Criteria and Procedures
The committee considers factors such as the previous year's performance, diversity, and necessary skills, and reports its deliberations to the Board of Directors.

■ Activity in FY2022
No. of times held : 2

■ Committee composition
Outside Board Member Osamu Motojima (Chairperson)
Outside Board Member Masako Hayashi
Chairman, Member of the Board Shinya Ogawa

■ Content of deliberations
・ Election of board member candidates
・ Review of performance-linked remuneration system
・ Evaluation of the Effectiveness of the Board of Directors

Under our remuneration system, remuneration for board members is composed of basic remuneration (fixed amount), performance-linked remuneration, and stock-based remuneration. With respect to performance-linked remuneration, we have incorporated a mid-to-long-term perspective and adopted consolidated ratio of ordinary income to sales and consolidated return on equity as indicators.

In addition, we provide remuneration to targeted board members for the grant of restricted stock, as an incentive to improve our corporate value over the medium to long term, as well as to promote further value sharing with shareholders. Outside board members and audit & supervisory board members are only paid the basic remuneration (fixed amount) because they are responsible for supervising and auditing management in an independent capacity.

The audit & supervisory board is composed of a total of four members, two full-time auditors and two outside auditors. A staffed Audit & Supervisory Board Members’ Dept. has been established to assist them.

The full-time audit & supervisory board members receive audit reports etc. from the internal audit department and give instructions to the internal audit department on audit policies,important audit items, etc. as necessary. The outside audit & supervisory board members give advice at meetings with the Board of Directors, etc. using their expertise as lawyers or certified accountants. Audit & supervisory board members regularly communicate with accounting auditors in order to confirm the appropriateness of accounting audits and share the results of operational audits. In addition, they regularly exchange opinions with representative directors, accounting auditors, and the internal audit department on issues to be addressed by the company, risks surrounding the company,important audit issues, etc., in order to ensure the effectiveness
of audits. 

The Audit & Business Process Improvement Dept., which is our internal audit department, conducts internal audits, checks how internal controls are performed by each department, finds problems and makes recommendations for improving them,takes all possible measures to ensure that internal controls under the Financial Instruments and Exchange Act are audited properly, while making internal controls more effective by expanding the internal audit range to include other business operations.

Based on our Basic Policy on Internal Control Systems, we endeavor to expand and strengthen internal control systems across the entire Group, including business entities in Japan and overseas. Specifically, we review reports submitted by all departments, subsidiaries, and other entities implementing our internal control systems or conduct on-site inspections to ensure that our internal control systems, including the system for ensuring the adequacy of financial reporting and the compliance system, are well-developed and utilized in an appropriate and efficient fashion.

As a result, we have determined that the internal control relating to financial reporting is effective, and have obtained the unqualified opinion of an audit corporation that the internal control report dated March 31, 2023 was adequate.