Corporate Governance Structure

Basic Approach to Corporate Governance

ALCONIX recognizes the medium- to long-term enhancement of corporate value as its most important management issue and makes efforts to strengthen its management structure to draw the future of our dreams.
We comply with all laws, regulations and corporate ethics, operate in a highly fair and transparent manner, and strive to be an honest and reliable corporate group.

Initiatives for Strengthening Governance

With regard to governance, ALCONIX recognizes the need to enhance the Group’s internal audit system, reestablish and thoroughly enforce management regulations and other company rules, improve compliance training, and improve the ALCONIX corporate culture. To this end, we are focused on the following initiatives.

Point-01Strengthen Internal Control
Appointment of a Managing Executive in Charge of Internal Control in 2021
With the increase in companies joining the Group through M&As, we appointed a managing executive in charge of internal control (currently the CCO) in 2021 from the perspective of strengthening internal control throughout the Group. The CCO works closely with the Audit & upervisory Board and Audit Department to develop and implement the Group’s internal control systems.
Point-02Increase Board Effectivenss
Restructuring of the Board in 2022 to Include a Majority of Outside Directors
The majority of the Board of Directors is composed of independent outside directors and outside Audit & Supervisory Board members. In addition, we strive to ensure diversity by having a diverse Board of Directors with different backgrounds and abilities that align with the expertise and experience required for the Group. We are working to strengthen the Board’s supervision of business execution and improve its effectiveness.

Message from Outside Directors

I was appointed to ALCONIX's Board of Directors in June 2019, and over this time I have witnessed the hard work and dedicated support of the Board Secretariat and improvements to Board operations, and can sense an increase in the Board’s effectiveness. I attribute this to ALCONIX’s efforts to incorporate the opinions and suggestions of outside officers—who possess a wealth of knowledge and experience in compliance, sustainability, and other matters—into company management. One significant event last year was our transfer to the Tokyo Stock Exchange Prime Market. At that time, the Company faced the unprecedented task of developing and disclosing a governance report that addressed all of the principles in Japan’s Corporate Governance Code (which was revised in 2021) as well as those of the Prime Market. The efforts of the ALCONIX team impressed me greatly, and I believe they will greatly benefit management going forward. Since its establishment, ALCONIX has made a series of acquisitions and is now a group of over 50 companies, with subsidiaries in Japan and overseas. In the future, expansion of the Group through M&A will remain the core of our growth strategy. At the same time, creating synergies between these companies and enhancing Group governance will become increasingly important priorities. As an outside director, I will work to help ALCONIX put in place even better corporate governance systems and develop Group management.

Outside Director
Chairman of the Nomination and
Remuneration Advisory Committee

Masao Hisada

Composition of the Board of Directors

Ratio of outside officers

Ratio of female officers

Ratio of officers with
corporate management experience

Comprising five full-time directors and four outside directors, the Board of Directors convenes for regular meetings every month, as well as extraordinary meetings as necessary, to make management decisions through substantive discussions.

Corporate Governance Overview (As of June 30, 2023)

Institutional Design
Company with Audit & Supervisory Board
Directors
Nine (including four outside directors)
Chairperson of the Board of Directors
Chairman
Auditors
Four (including three outside auditors)
Directors' term of office under the Articles of Incorporation
One year
Adoption of Executive Officer System
Yes
Directors’ Voluntary Advisory Body
Nomination and Remuneration Advisory Committee
[External]Accounting Auditor
Ernst & Young ShinNihon LLC

Structure and Institutional Design

ALCONIX appoints multiple outside directors with extensive experience and deep, wide-ranging insight who can provide opinions that contribute to management from objective and broad perspectives. At Board of Directors’ meetings, these opinions provide management with objective perspectives independent of management team business execution. We believe these outside perspectives enable prompt, appropriate decision-making. Further, as a Company with an Audit & Supervisory Board, we appoint several highly independent outside directors with specialized knowledge in legal affairs, accounting, and business to conduct transparent and appropriate supervision and monitoring of the Board of Directors.

Organizational Design and Governance System

The Company emphasizes prompt decision-making in order to implement M&As and investments in a flexible manner. With this focus on decision-making in mind, the Board of Directors has opted for a Company with an Audit & Supervisory Board organizational design. We believe that the appointment of outside directors who can advise management from an objective and comprehensive standpoint and who have a wealth of experience and broad and deep insight enables accurate and prompt decision-making that incorporates external perspectives. In addition, to ensure the independence of its supervisory function, the Company has appointed outside Audit & Supervisory Board members with expertise in law, accounting, and business, who supervise and monitor the Board of Directors in a transparent and appropriate manner.

Board of Directors

The Board of Directors consists of nine directors (four of whom are outside directors). It makes management decisions (management policies and plans, selection and dismissal of executive officers, and other important business decisions) by conducting sufficient discussions at the ordinary meetings held once a month and extraordinary meetings held as necessary. Our Articles of Incorporation stipulate that directors designated in advance by the Board of Directors shall be the persons authorized to convene meetings of the Board of Directors and the chairperson of such meetings, unless otherwise provided for in laws and regulations.

Attendance at Board of Directors Meetings in FY2022: 100%

Moderator Masato Takei
(Representative Director, Chairman and CEO)
Composition

Nine directors (four outside directors)

Note: Four Audit & Supervisory Board members (including three outside members) attend meetings as observers.

Meetings held in fiscal 2022 13
Main Roles and Authorities
  • Formulate management policies and plans
  • Appoint and dismiss senior management
  • Make other important operational decisions while supervising execution of the management team’s duties

Note: The execution of business operations that do not require decisions by the Board of Directors is delegated to executive officers and other senior management members in accordance with internal regulations.

Audit & Supervisory Board

The Audit & Supervisory Board consists of four members, three of whom are outside Audit & Supervisory Board members. The Audit & Supervisory Board fulfills its function of monitoring management based on the audit standards and audit plan determined by the Audit & Supervisory Board itself.
Under these standards and the audit plan, the board confirms the execution of duties of directors by attending important meetings of corporate bodies such as the Board of Directors and the Management Committee and through other methods that include checking reports, gathering feedback from directors and employees, inspecting important documents for approval, and conducting on-site inspections of Group companies.
In an effort to improve audit accuracy, the Audit & Supervisory Board works with the Accounting Auditor and the Audit Department, exchanging opinions, sharing information, and coordinating activities as needed.

Audit & Supervisory Board meeting attendance in FY2023: 100%

Chairperson

Junichi Kitagaki(full-time)

* Appointed at the 42nd Ordinary General Meeting of Shareholders.

Composition Internal Audit & Supervisory Board members: One member (full-time)
Outside Audit & Supervisory Board members: Three members
Meetings held in fiscal 2022 13
Main role and authority
  • Formulates policies and audit plans for Audit & Supervisory Board members
  • Attends Board of Directors meetings and other important meetings, inspects important documents and reports from directors and employees, and conducts on-site inspections of Group companies to audit directors’ execution of duties
  • Verifies correspondence between audit results and audits performed by the Accounting Auditor

Nomination and Remuneration Advisory Committee

The Nomination and Remuneration Advisory Committee is an advisory body to the Board of Directors composed of one internal director, one outside director, and one outside Audit & Supervisory Board member, with an outside member serving as chair. The committee deliberates on matters that include succession plans for the chief executive officer; the nomination of directors, executive officers, and other management positions involving business execution; and remuneration. In fiscal 2022, the committee’s primary task was a review of the fundamental remuneration scheme for directors. In fiscal 2023, the committee plans to review the Company’s succession plans and other policies for selecting directors and officer candidates.

Nomination and Remuneration Advisory Committee meeting attendance in FY2022: 100%

Chairperson Masao Hisada (Outside Director)
Composition Internal directors: One member
(full-time)
Outside directors: Two members
Meetings held in fiscal 2022 9
Main role and authority
  • Determines policies and procedures for selecting directors and Audit & Supervisory Board members
  • Determines draft proposals for appointments and dismissals
  • Determines draft proposals for executive officer and other senior management andidates
  • Determines remuneration policies for directors and Audit & Supervisory Board members
  • Determines draft proposals for remuneration for directors and Audit & Supervisory Board members
  • Determines individual remuneration for directors and executive officers

Decision-Making Body in Business Execution

Management Committee

The Management Committee meets once a month, attended by five internal directors and one full-time Audit & Supervisory Board member as an observer, to conduct advance deliberations on important matters related to business execution, capital policy, corporate organization, strategic risks, and other matters requiring resolutions or reports by the Board of Directors.

Executive Committee

The Executive Committee consists of five internal directors who concurrently serve as executive officers, seven other executive officers (including the general manager of the Osaka branch), the general manager of the Nagoya branch, and one full-time Audit & Supervisory Board member who participates as an observer. The committee holds regular monthly meetings, and extraordinary meetings as necessary, to discuss important matters related to business execution.

Executive Division Committees (As of June 30, 2023)

Committee name Chair and frequency of meetings Specific role
Internal Control Committee Chair:
Chairman and CEO,
President and COO

Frequency of meetings: 4 times a year
  • Improves operational effectiveness and efficiency
  • Ensures compliance with accounting standards and reliability of financial reporting
  • Complies with laws, regulations and management principles, including various codes of conduct reflecting those principles
  • Complies with company rules and regulations
  • Maintains company assets

Compliance Committee

Chair:
Managing Director and CCO

Frequency of meetings: 5 times a year
  • Formulates basic compliance policies and action plans
  • Compiles the ALCONIX Group Compliance Manual
  • Develops a contingency plan for responding to compliance violations and crises with the potential of significantly impacting the Company’s business operations
  • Designs and maintains internal reporting systems

Risk Management Committee

Chair:
Managing Director and CSO

Frequency of meetings: 12 times a year
  • Manages risks related to business partners
  • Manages risks associated with country-specific credit risks where business partners are located, country risks, and risks associated with wars and civil unrest (including the formulation of plans linked to business continuity plans [BCPs])
  • Conducts analysis and management of risks associated with foreign currencies, commodity price volatility, stock and other securities’ prices (including cross-shareholdings), and market transaction price volatility* including interest rates
    * Market transaction price volatility is not the same as other risks that are included within market transaction price volatility.
  • Manages risks associated with Security Export Control as well as personal information management-related laws and regulations

Information Management
and Security Committee

Chair:
President and COO

Frequency of meetings: 4 times a year
  • Discusses matters related to information management and security
  • Discusses matters related to information system improvements
  • Discusses matters related to cybersecurity
Sustainability Committee Chair:
Managing Director and CSOO

Frequency of meetings: 4 times a year
  • Formulates Companywide sustainability policies and guidelines for each ESG topic
  • Identifies and verifies sustainability risks and opportunities
  • Develops guidelines and measures to address climate change and protect the environment
  • Develops guidelines and measures to enhance the labor environment and improve diversity within the Company
  • Conducts supply chain management and analyzes outcomes from the perspectives of human rights and the environment
  • Formulates and proposes recommendations to reflect sustainability in Group management based on the above points

Evaluation of the Effectiveness of the Board of Directors

Once a year, we conduct a survey of all directors and Audit & Supervisory Board members who are members of the Board of Directors to identify issues related to the effectiveness of the Board of Directors, which are then evaluated and analyzed. The evaluation of the effectiveness of the Board of Directors for fiscal 2021 confirms that the composition and operating procedures of the Board of Directors are appropriate. Some issues included the content of deliberations and support systems that are in place. The evaluations were generally positive and confirmed that there was active discussion and deliberation taking place at meetings. Therefore, the Board of Directors has been deemed effective in its role.

Issues identified in the fiscal 2021 Board of Directors’ effectiveness evaluation survey and progress of efforts to resolve them

(1) Supervision and monitoring of operations based on the basic policy on the establishment of Groupwide internal control systems

→ Improvements were made in fiscal 2022 by adopting a new Board resolution on the Basic Policy for the Establishment and Implementation of Internal Control Systems and by regularly sharing the results of monitoring and verification of the operational status of said policy with the Board of Directors and the Audit & Supervisory Board.

(2) Sufficient collaboration between Directors and Audit & Supervisory Board members and the Audit Department

→ Improvements were made in fiscal 2022 by increasing the number of personnel in the Audit Department and by establishing a system for reporting to the Audit & Supervisory Board, led by the officer in charge of internal control, full-time Audit & Supervisory Board members, and the Audit & Supervisory Board Member Office.

Main topics covered in the fiscal 2022 survey

  • Contents of discussions at Board meetings
  • The Board’s monitoring function
  • The provision of training opportunities for Board members and Audit & Supervisory Board members
  • Officers’ individual efforts

Issues identified based on the results of the fiscal 2022 survey to be addressed in fiscal 2023

(1) Deepening discussions of preconditions necessary for strategy and management planning sufficient for enhancing corporate value over the medium to long term
(2) Proactive involvement in the development and application of succession plans for the CEO and other officers
(3) Sufficient discussions to improve sustainability efforts
(4) Provision of training opportunities for officers

Agenda and Discussion Items for Board of Directors Meetings in Fiscal 2022

Category Main items of discussion
Overall Management
  • Formulation of Medium-Term Management Plan 2023
  • Reports pertaining to dialogue with institutional investors
  • Review of cross-shareholdings
  • Appointment of officers and executive officers
  • Approval of accounts
Matters Related to Internal
Control and Corporate
Governance
  • Establishment and application of internal control
  • Reporting on the activities of the Audit Department
  • Reporting on the activities of the Risk Management Committee
  • Evaluation of the effectiveness of the Board of Directors
  • Agenda for the Ordinary General Meeting of Shareholders
  • Company directors’ and officers’ liability insurance
Sustainability
  • Reporting on the activities of the Sustainability Promotion Office
  • Health management efforts
  • Reviews of CDP reporting
  • The Group’s ESG rating
Investment Activities
  • Approval of share transfer agreement with SOODE NAGANO CO., LTD.
  • Approval of business transfer agreement with DKSH Market Expansion Services Japan K.K.
  • Reports on CVC activities
  • Approval of the purchase of real estate for the construction of a recycling facility in Kitakyushu City, Fukuoka Prefecture
Others
  • Financial plan for the fiscal year
  • The Board of Directors’ schedule for the year
  • Monthly budget performance reports

Supporting Outside Officers to Stimulate Discussions at Board Meetings

Visits to Group Companies by Outside Officers
Since fiscal 2020, outside officers (outside directors and outside Audit & Supervisory Board members) have been conducting regular on-site visits to Group companies. The visits are aimed at stimulating discussions at Board meetings and strengthening the Board of Directors’ upervisory function by promoting operational understanding among outside officers. The officers are given a tour of the manufacturing subsidiary’s factory, after which they attend a question-and-answer session held by the president and representatives of the Group company. Social gatherings are also held with frontline employees to ensure good communication with Group personnel.
We have received comments from outside officers that these visits have made it easier to understand product details and manufacturing processes brought up at Board meetings. Since fiscal 2022, we have also held business introductions led by our Head Office’s Corporate and Sales divisions to promote a better understanding of our operations as a whole. We will continue to strengthen our support system for outside officers with a view to realizing an effective corporate governance system.

Appointment and Dismissal of Directors

In line with the selection criteria for candidates for the Board of Directors, internal candidates must have a wide range of knowledge and a wealth of experience related to ALCONIX business management, while outside candidates must meet Tokyo Stock Exchange requirements for independent officers and possess practical, objective perspectives and deep insight that meet the criteria for determining independence as defined by ALCONIX. Regarding the appointment and dismissal of directors and the nomination of director candidates, the Nomination and Remuneration Advisory Committee makes an overall evaluation of candidates with the potential for executing duties appropriately as a director who satisfy requirements in terms of the knowledge, experience, capabilities, and accomplishments required for each position, with recommendations forwarded to the Board of Directors for resolution.

Officer Remuneration System

The Company's basic policy regarding executive compensation and the amount of compensation for individual officers are determined by the resolution of the Board of Directors, after these matters have been deliberated by the Nominating and Compensation Committee established as an advisory body to the Board to ensure their objectivity and transparency. The Committee takes into consideration as much as possible the business environment outlook for the Group and the latest thinking regarding corporate governance codes in Japan in deliberating the policies and evaluation criteria below.

Basic Principles for Remuneration (Excluding Outside Directors)

Remuneration as a Means to Support Sustainable Value Creation for the Group

  • 1) Remuneration is set at a level that provides a healthy degree of motivation to promote sustainable growth and corporate value creation over the medium to long term.

  • 2) Performance-linked remuneration is granted fairly and equitably and is determined via a uantitative evaluation based on financial performance, and a qualitative evaluation based on the recipient’s efforts to address issues in accordance with the Company’s medium- to long-term strategy, the extent of decision-making regarding the appropriate allocation of management resources from a medium- to long-term perspective, and the extent of decision-making regarding investments (M&As, capital investments, etc.) based on appropriate risk-taking. This method ensures that the Group’s management is aware of their responsibility for the operating results for each fiscal year.

  • 3) Continuous long-term incentives linked to medium- to longterm performance of the Group are granted with the goal of creating sustainable corporate value.

  • 4) The Group promotes long-term stock ownership while such remuneration serves to ensure that its recipient, i.e., a director, maintains a shared interest with other shareholders.

Ensuring Objective and Transparent Remuneration Decisions

  • 1) The policy for determining remuneration, as well as amounts paid to individual directors is deliberated upon by the Nomination and Remuneration Advisory Committee, of which the majority is outside officers.

  • 2) We ensure that remuneration is set at an appropriate level by referencing survey data from external research organizations, making objective verifications, such as comparing levels with other companies in the same industry or of the same size, and taking into consideration the characteristics of the Group’s business.

Remuneration System

Remuneration for directors (excluding outside directors) comprises fixed remuneration and performance-linked remuneration, which is provided as monetary remuneration (Board Benefit Trust), performance-linked stock remuneration, in which Company stock is provided in light of sustainable creation of corporate value, and restricted stock remuneration, which is aimed at maintaining a sense of shared value with shareholders through the continued holding of Company stock.

  • 1) Composition of Fixed Remuneration

    Supervisor salary
    Fixed remuneration is granted, taking into account a director’s supervisory function (uniform for all) and the degree of responsibility placed upon representatives (representative directors only).
    Executive salary
    Fixed remuneration is granted according to a director’s position (payment for executive duties) plus fixed remuneration according to the role that C-suite executives play in business execution, when applicable.
  • 2) Composition of Performance-Linked Remuneration

    In addition to fixed remuneration, performance-linked remuneration is granted as a percentage of the executive salary granted for executive duties, ranging from 0–100%.
    The amount for each director is determined by the degree to which the Group achieved its consolidated ordinary profit and ROE targets for the fiscal year, both of which are key indicators from a management perspective, and by qualitative contributions by the individual director. This method clarifies responsibility toward operating results for each fiscal year.

  • 3) Composition of Stock-Based Remuneration

    Board Benefit Trust (BBT): 16%
    Restricted stock remuneration (RS): 8%

Remuneration Amounts for Directors and Audit & Supervisory Board Members for Fiscal 2022

Officer
classification
Total remuneration amount
(million yen)
Total remuneration amount by type
(million yen)
Number of
applicable officers
Fixed remuneration Performancelinked remuneration Non-monetary remuneration
Directors 377 201 151 24 9
(Outside directors) (34) (34) (−) (−) (4)
Audit & Supervisory
Board members
49 49 (−) (−) 4
(Outside members) (27) (27) (−) (−) (3)
Total 426 250 151 24 13
(Outside officers) (61) (61) (−) (−) (7)

Note: The amount paid to directors includes the remuneration for executive officers who also serve as directors.

Basic Policy for Determining Remuneration for Outside Directors

Remuneration for outside directors performing their supervisory function independent of business execution is limited to fixed remuneration (supervisor salary).
This amount is set after comparison with companies in the same industry or of the same size as ALCONIX. The Nomination and Remuneration Advisory Committee deliberates over the remuneration amount for outside directors and then drafts a proposal for a total amount within the limit approved at the Ordinary General Meeting of Shareholders. This proposal is submitted to the Board of Directors for approval. (As a general rule, remuneration of outside directors does not change, regardless of the number of years they have served. However, the chair of the Nomination and Remuneration Advisory Committee and its members receive a separate payment for committee membership.)

Cross-shareholding Policy

The ALCONIX cross-shareholding policy aims to facilitate business relationships and strengthen corporate alliances. Cross shareholdings account for 4.2% of total consolidated assets (4.5% including unlisted shares), the details of which are provided in the Corporate Governance Status section of the annual Securities Report. Regarding ALCONIX cross-shareholdings, we examine performance, financial conditions, and business transactions of each investee company to determine whether it is appropriate to continue holding company shares, whether the benefits of holding company shares are commensurate with the cost of capital and other important management indicators, and whether strengthening business relationships with suppliers and customers will contribute to ALCONIX sustainable growth and the medium- to long-term enhancement of corporate value. After thorough reviews are conducted by the Risk Management Committee and the Management Committee, the Board of Directors determines the rationale behind continued cross-shareholdings, and if the significance of these holdings declines, the Board’s policy is to engage the counterparty in dialogue and reduce the number of shares held or otherwise dispose of said shares. In exercising cross-shareholding voting rights, the Board of Directors examines all proposal details, scrutinizes whether they are in line with enhancing the corporate value of the investee company, and votes for or against each proposal, as appropriate.