Corporate Governance System
In an effort to further strengthen its corporate governance system, the Daikyo Group shifted to a “Company with Committees” system in June 2005 (currently, Company with Nominating Committee), after approval was received at the Ordinary General Meeting of Shareholders held that same month.
Under this system, supervisory functions are separated from executive functions in order to reinforce the system of checks and balances and accelerate the decision-making process. Moreover, Daikyo is actively strengthening risk management by carrying out such measures as enhancing the compliance framework.
Through these measures, the Company aims to cooperate appropriately with all stakeholders, and endeavors to ensure fair treatment of shareholders and actively engage in constructive dialogue with them.
Recent Actions to Reinforce Corporate Governance
|2005||Shift to a “Company with Committees” system (currently, “Company with Nominating Committee” system)||Seeking to separate the supervisory functions from the executive functions in order to reinforce the system of checks and balances and accelerate the decision-making process, the Group established three committees: Audit Committee, Nominating Committee, and Compensation Committee. Outside directors make up the majority of each committee.|
|2006||Integration of administrative departments||Strengthened Group consolidated management by integrating the administrative departments of two companies―Daikyo Kanri Incorporated (now DAIKYO ASTAGE INCORPORATED) and Daikyo Jutaku Ryutsu Incorporated (now DAIKYO ANABUKI REAL ESTATE INCORPORATED)―into the relevant administrative departments of DAIKYO INCORPORATED (Daikyo). Under this arrangement, both companies delegate discretion regarding certain administrative matters to the relevant administrative departments of Daikyo.|
|2008||Reorganization of the Group Compliance Dept. into the Group Internal Control Promotion Dept. (now Group Legal and Compliance Dept.)||Further strengthened and upgraded internal controls, including responses to Companies Act and Financial Instruments and Exchange Act.|
1. Corporate Structure and Internal Control System
(As of June 22, 2016)
Corporate Governance Structure
Board of Directors
Daikyo’s Board of Directors, which is composed of seven directors (three of whom were appointed from outside the Group) as of June 22, 2016, makes decisions on important management issues and oversees the activities of its executive officers. Under the Companies Act, the board of directors of a Company with Nominating Committee is broadly allowed to delegate authority to management, and Daikyo’s Board of Directors does so to the utmost extent. However, the Board of Directors makes judgements on matters of high importance, such as business plans and capital policies, and matters of asset acquisition and disposal, which are likely to have an important impact on management. The Board of Directors met on eight occasions during the fiscal period under review. The director attendance rate at these meetings was 96%.
The Nominating Committee, which is composed of five directors (including three appointed from outside the Group) as of June 22, 2016, has the authority to decide on nominations for director at the Ordinary General Meeting of Shareholders and the right to deliberate the selection of important executives, such as executive officers and the representative executive officer. The Nominating Committee met on five occasions during the fiscal period under review. The director attendance rate at these meetings was 96%.
As of June 22, 2016, the Audit Committee is composed of three outside directors who evaluate the activities of executive officers and the Company’s internal control system. This evaluation is based on reports of the business and affairs of the Company presented by the representative executive officer, results of internal audits and reports relating to overall internal control presented by the executive officer in charge of the Group Audit Department, and accounting audit reports presented by the independent accounting auditor. The Audit Committee maintains a structure of cooperation that enables it to direct audits and investigations as required. The Audit Committee met on five occasions during the fiscal period under review. The director attendance rate at these meetings was 93%.
Furthermore, Audit Committee member Takahiko Inoue has experience working in a city bank and in a financial and accounting advisory firm, and therefore has considerable insight regarding finance and accounting.
The Compensation Committee, which is composed of five directors (including three appointed from outside the Group) as of June 22, 2016, has rights to set policy with regard to director and executive remuneration and to determine the individual remuneration of each director and executive officer. The Compensation Committee met on five occasions during the fiscal period under review. The director attendance rate at these meetings was 96%.
Group Management Meetings
Matters of importance to the running of the Group’s business affairs are systematically deliberated and decided upon at Group Management Meetings attended by executive and other officers and held in principle once a month. In addition, Business Division Meetings attended by executive and other officers are held in principle once a week to deliberate and determine important proposals relating to the Group’s condominium development and sales business.
A review of risk management system responses related to business and administration is carried out at the Group Management Meeting and the Business Division Meeting, where the status of each risk is analyzed and a complete picture of the current risk management status is formed.
Daikyo has established the Group Compliance Consultation System and other structures and developed a framework, namely the Compliance Help Desk for investigating, responding to, and correcting violations of laws, internal regulations, and social norms. In addition, Daikyo has established the Group Legal and Compliance Department, an organization responsible for compliance promotion that is working to establish and maintain a compliance framework.
Risk Management System
Daikyo evaluates and manages risks across a variety of categories, including real estate market risks, business risks and disaster risks. The Group Legal and Compliance Department, which coordinates risk management methods based on monitoring activities, as well as feedback and reports from each department, regularly reports on information necessary to risk management to the representative executive officer as well as to the Audit Committee, with proposals to improve the Group’s risk management system.
Internal Audit System
The Group Audit Department, which comprises nineteen members as of April 1, 2016, is responsible for internal audits. The department puts business audit plans into effect and reports on the results of the audits to the Audit Committee. In addition, the Audit Committee maintains a framework of cooperation that enables it to direct the Audit Committee Secretariat or the Group Audit Department to conduct audits, investigations and other activities, as necessary. As well as giving suggestions and guidance on areas of improvement to departments undergoing audits, the Audit Committee works to improve the effectiveness of internal controls.
Systems to Ensure the Proper Operation of the Company and its Subsidiaries
We have instituted administrative rules for Group companies, requiring them to seek prior approval for important management matters.
We constantly monitor for conflicts of interest or unusual transactions between the parent and subsidiaries, with executive offices reporting as needed to the Audit Committee.
The Group Audit Department internally audits or advises Group companies, presenting its results of audits and other activities to the Audit Committee while endeavoring to increase the effectiveness of internal controls by pointing out areas requiring improvement by providing instruction to audited business units.
The Legal and Compliance Department oversees risk management for the Group while obtaining reports from Group companies on adverse incidents and providing instructions as needed.
In accordance with the Japanese Corporate Law and Financial Instruments and Exchange Law, Daikyo has concluded an auditing contract with KPMG AZSA LLC (a member firm of the KPMG network) for the auditing of the Company’s accounts. In addition to regular audits, Daikyo strives to hold proper discussions, ensure confirmation with KPMG AZSA and to perform fair accounting procedures with regard to accounting issues.
There are no conflicts of interest between Daikyo and the independent auditing company or its employees engaged in the audits of the Company’s accounts.
Designated and Engagement Partners: Yukio Kumaki, Takaki Okano
(Composition of the team of assistants to the audit of the financial statements for the fiscal year under review)
CPAs: 19; others: 29
Relationships between Outside Directors and the Company
Outside Directors: 3
＜Relationships with the Company 1＞
Name Type Relationships with the Company* a b c d e f g h i j k Toru Hambayashi Coming from another company Tomoharu Washio Professor Takahiko Inoue Coming from another company
*Selection criteria regarding relationship with the Company.
○ is used if the individual in question is applicable to each item, current or recent, while △ is used if he/she was applicable in the past.
● is used if a relative of the individual in question is applicable to each item, current or recent, while ▲ is used if he/she was applicable in the past.
1 Type of relationship with the Company:
a. Person executing business of the listed company or its subsidiary
b. Person executing business or non-executive director of the parent of the listed company
c. Person executing business of a fellow subsidiary of the listed company
d. Person/entity dealing with the listed company as its major business partner or the person executing its business
e. Major business partner of the listed company or the person executing its business
f. Consultant, accounting expert or legal expert gaining significant amount of money or properties from the listed company, apart from officer remuneration
g. Major shareholder of the listed company (if such shareholder is a corporation, the person executing its business)
h. Person executing business (himself or herself only) of a business partner of the listed company (applicable to none of d, e or f above)
i. Person executing business (himself or herself only) of another company holding cross-directorships/cross-auditorships with the listed company
j. Person executing business (himself or herself only) of an entity to which the listed company provides donations
＜Relationships with the Company 2＞
Name Affiliation committee Independent director Supplemental explanations for applicable items Reasons for selection as independent director if applicable Nominating committee Compensation committee Audit committee Toru
○ ○ ○ ○ The Tokyo Stock Exchange was notified of Mr. Hambayashi’s independent director status, as stipulated by the Securities Listing Regulations, since he meets the Company’s independence criteria and is not at risk of creating conflicts of interest with general shareholders.
Major concurrent posts:
outside director of FAST RETAILING CO., LTD., outside director of Maeda Corporation, and outside director of Unitika Ltd.
Mr. Hambayashi was long a representative director at Nichimen Corporation and Sojitz Corporation. He has extensive international expertise, and still serves as a Senior Economic Consultant on the People’s Republic of China. We appointed Mr. Hambayashi as an independent director to leverage his international experience in monitoring the Company’s management during globalization. We also seek his opinion and advice on ways to expand the Daikyo Group and improve shareholder value. Tomoharu
○ ○ ○ ○ The Tokyo Stock Exchange was notified of Mr. Washio’s independent director status, as stipulated by the Securities Listing Regulations, since he meets the Company’s independence criteria and is not at risk of creating conflicts of interest with general shareholders.
Major concurrent posts:
Fellow, Kwansei Gakuin University, councilor at the Japan External Trade Organization (JETRO), and councilor at the Institute for International Policy Studies (IIPS)
Mr. Washio has an extensive international background, having worked for JETRO for many years and being posted abroad for a long time. The Company appointed Mr. Washio as an independent director to draw on his international expertise in overseeing and advising on the Group’s global business development. Takahiko
○ ○ ○ ○ Mr. Inoue fulfills the Company’s criteria for independence The Tokyo Stock Exchange was notified of Mr. Inoue’s independent director status, as stipulated by the Securities Listing Regulations, since he is not at risk of creating conflicts of interest with general shareholders. He is also a member of the New Japan Philharmonic, of which the Company is a sponsor. However, the contributions the Company makes to the symphony orchestra are significantly lower than 2% of the Company’s and the symphony orchestra’s consolidated operating income. He is also a former employee of PwC Advisory LLC, and although there have been some minor dealings between the Company and PwC Advisory over the past three years, the amount of the transactions was significantly lower than the Company’s and PwC Advisory’s operating income.
Major concurrent posts:
Intendant of New Japan Philharmonic
Mr. Inoue has experience working in a city bank and a financial and accounting advisory firm, thus he possesses considerable knowledge of finance and accounting. Moreover, he has developed a discerning eye for business through his involvement in project finance and advisory services for infrastructure projects in Japan and overseas. The Company has appointed him as advice on ways to expand the Daikyo Group and improve shareholder value.
Related Party Transactions
The Company has determined that when conducting transactions with officers of the Company, the transaction will be conducted under the same conditions as for an ordinary customer and that selection of business partners shall be fair, transparent, and in accordance with Group Business Partner Selection Regulations. In principle, the Company’s policy is to disclose important transactions with related parties.
Furthermore, in transactions with major shareholders, the Company examines each transaction with respect to profitability, importance, and transparency. Transactions with the Company’s officers that are considered to be self-dealing or pose a conflict of interest require the approval of the Board of Directors. Transactions with related parties other than the Company itself are also subject to approval by the Board of Directors.
Resolution Required for Election of Directors
Daikyo’s Articles of Incorporation stipulate that resolutions for the election of Directors shall be adopted by a majority vote of the shareholders present who hold one-third or more of the total of the voting rights of shareholders entitled to exercise voting rights. The Articles of Incorporation stipulate that cumulative voting shall not be used for resolutions concerning the election of Directors.
Decision-Making Body for Dividend Payments
To enable Daikyo to make flexible dividend payments, and as stipulated under Daikyo’s Articles of Incorporation, the Company may — unless otherwise provided for by laws and regulations — make decisions concerning dividend payments and any other matters set forth in Article 459, Paragraph 1, of the Japanese Corporate Law by Board of Directors’ resolution and not by resolutions made at shareholders’ meetings.
Requirements for Extraordinary Resolutions at General Shareholders' Meetings and Class Shareholders' Meetings
Shareholders’ Meetings and Class Shareholders’ Meetings As stipulated under the Articles of Incorporation, matters which shall be passed by an extraordinary resolution at General Shareholders’ Meetings, as provided for under Article 309, Paragraph 2, of the Japanese Corporate Law, and at Class Shareholders’ Meetings, as provided for under Article 324, Paragraph 2, may be approved by two-thirds or more of the voting rights of the shareholders in attendance at the meetings, at which shareholders having one-third or more of the total of the voting rights of all shareholders entitled to exercise their voting rights must be in attendance. This serves to ensure the smooth running of these meetings by alleviating the need for a quorum to be present for an extraordinary resolution to be taken.
Number of Directors
The Company’s Articles of Incorporation stipulate that the number of Directors of the Company shall be three or more
Director and Executive Exemptions from Liability
To enable Directors and executive officers to demonstrate that they are sufficiently fulfilling their duties in the roles expected of them and as stipulated under Daikyo’s Articles of Incorporation, the Company may, in accordance with Article 426, Paragraph 1, of the Japanese Corporate Law and by resolution of the Board of Directors, exempt Directors (including former directors) and executive officers (including former executive officers) from liability set forth in Article 423, Paragraph 1, of the law to the extent permitted in accordance with laws and regulations.
Shares with Restricted Voting Rights
To inhibit the dilutive effect of increasing common stock as much as possible, while at the same time strengthening its capital base, the Company issued Class 1 preferred stock, which differs from common stock in that it possesses no voting rights. Restrictions on the execution of voting rights in classified stock are defined in Article 108, Paragraph 1, 3, of Japanese Corporate Law.
However, the shareholder of Class 1 preferred stock (“Preferred Shareholder”) may exercise voting rights at a General Meeting of Shareholders where no reported item or proposal with regard to Preferred Shareholder receiving year-end preferred dividends is submitted, or from the time when this meeting of shareholders is concluded after a proposal concerning Preferred Shareholder receiving preferred dividends was dismissed, until a Board of Directors’ meeting or General Meeting of Shareholders resolves that Preferred Shareholder shall receive year-end preferred dividends.
Other Special Circumstances which May Significantly Affect the Company’s Corporate Governance
Between the Daikyo Group and the ORIX Group, there are sales transactions that include joint businesses relating to condominium and commission sales. In terms of personal relationships, one Daikyo Group director was concurrently a director of the ORIX Group, while two directors (two at the Company’s subsidiaries) were from ORIX Group. At the same time, the Company operates independently to maximize corporate value. As personal relationships with ORIX Corporation are not so close as to influence the Company’s management decisions, the Company deems that it maintains a certain degree of independence.
2. Total Amount of Compensation for Directors and Executive Officers
Policy concerning the determinvbation of officers' compensation
In order to achieve mid- to long-term increases in shareholder value, emphasis is placed not only on current performance, but also on mid- to long-term results when determining compensation for Directors and executive officers of the Company, and it is believed to effectively function as an incentive. In deciding the amount of compensation, the Company considers the balance with the employee wage levels and executive compensation levels at other companies and sets compensation at an appropriate level in accordance with the roles and responsibilities that directors should fulfill to realize the vision to which the Group aspires.
Structure of compensation
Compensation comprises three parts: fixed compensation, performance-based compensation and share price-related compensation. Performance-based compensation is determined and paid according to the performance of the Company and consolidated subsidiaries. Share price-related compensation consists of compensation paid in cash or shares of stock at the time of retirement in an amount calculated by multiplying the total of a certain number of points granted to directors each year by the share price.
Compensation paid to Directors and executive officers in the fiscal year under review
Classification For the year ended March 31, 2016 Number of persons Fixed compensation
（Millions of yen）
（Millions of yen）
share price-related compensation
（Millions of yen）
Total Amount（Millions of yen） Directors（internal） 4 9 1 0 10 Directors（Outside） 4 17 − 1 19 Executive Officers 13 157 55 46 257 Total 21 181 56 48 286
- Compensation for the three executive officers concurrently serving as Directors is segmented and stated in compensation for Directors (Internal) and executive officers, respectively. The number of executive officers concurrently serving as directors is stated as both Directors (Internal) and executive officers.
- The point-based compensation in the above share price-related compensation in the fiscal year under review is the difference between the amount calculated by multiplying the points held by incumbent directors at the end of the fiscal year under review by the average closing price of Daikyo’s common stock on the Tokyo Stock Exchange during the first 30 trading days starting from the 45th trading day preceding the last day of the fiscal year under review and the amount calculated in the same way on the last day of the previous fiscal year. Share price-related compensation for directors retiring during the year under review, is the difference between the amount calculated by multiplying the similarly calculated amount at the end of the previous fiscal year by the average closing price of Daikyo’s common stock on the Tokyo Stock Exchange during the first 30 trading days starting from the 45th trading day preceding the retirement date.
- In addition to the above, as final payment for retirement benefits, one outside director who retired in the fiscal year under review received ¥0 million, while one executive officer received ¥3 million, and one internal director who retired in fiscal 2013 received ¥0 million.
- The above amounts do not include salaries for employees who are also executive officers.
The total value of compensation of each officer of the Company
Not stated because there are no personnel with total compensation of ¥100 million or more.
3. Types of Shares Held
Investment shares held solely for the purpose of investment
For the year ended March 31, 2015 （Millions of yen） For the year ended March 31, 2016（Millons of yen） Total reported on
Total reported on non-consolidated balance sheets Total dividends received Total gain or loss on sales Total amount of valuation gain or loss Total reported on non-consolidated balance sheets Impairment accounting Unlisted shares 109 109 1 − − − Shares other than unlisted shares 1,123 1,074 16 9 582 −
4. Total Amount of Compensation for Auditors
Compensation paid to auditors in the fiscal year under review
Classification For the year ended March 31, 2015 (Millions of yen) For the year ended March 31, 2016 (Millions of yen) Compensation for audit certification services Compensation for other services Compensation for audit certification services Compensation for other services Daikyo (non-consolidated) 163 − 156 − Consolidated subsidiaries 72 − 64 − Total 235 − 220 −
Other Important Details Concerning Compensation
There are no notable matters.
5. Details of Non-audit Operations of the Company of Certified Public Accountants
There are no notable matters.
6. Policy on the Determination of Auditors’Compensation
No particular policy for the determination of compensation for the Company’s Certified Public Accountants and assistants has been specified, rather it is determined by considering the number of days reasonably deemed to be required, based on the scale of the Company’s business.