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Corporate Governance System

[As of July 29, 2019]

Overview of the System

The Company's corporate governance system is composed of its Board of Directors, Board of Managing Directors, Management Committees, Audit and Supervisory Committee, Internal Audit Office and Accounting Auditor. Further, in order to heighten the effectiveness of corporate governance, the Internal Control Committee, Information Security Committee and Committee of Presidents of the Group are in place as a system to exercise control across the entire CRESCO Group.

Overview of Corporate Governance System
Officers
Name Representation right Directors Executive Officers Independent Director Outside Directors Audit and Supervisory Committee Members Full-time
Toshio Iwasaki
Hiroyuki Nemoto
Takashi Yamamoto
Kazuo Sugiyama
Hiroshi Tominaga
Shuuichi Kumazawa    
Junichi Fukui  
Kurao Niwa
Yoshimasa Usui  
Haruo Sato
Atsushi Kikuchi
Masaki Fujiya
Hironori Kudou
Kazutaka Kubo
Yasumasa Shimokawa
Noriyuki Kogawa
Noriyuki Maruyama
Satoshi Takaishi

◎ : Managing Executive Officer

Reasons for selecting the system

The Company adopts a company with an audit and supervisory committee, and the three (3) Directors serving on the Audit and Supervisory Committee (two (2) of whom are Outside Directors) will hold voting rights on the Board of Directors. The Company views that this contributes to reinforcing the supervision function of the Board of Directors.
The Board of Directors is composed of all Directors including two (3) Outside Directors and meets, as a general rule, once a month. As for the executive system, the President and Operating Officer executes the overall operations of management based on the basic policy determined by the Board of Directors, while other Directors are in charge of respective business execution units based on segregation of duties and authority of duties provided in the Regulations for Management of Organization and Duties. Executive Offers execute their duties in accordance with the resolutions of the Board of Directors and based on the segregation of duties and authority of duties provided in the Regulations for Management of Organization and Duties.
In terms of internal control and risk management, the Group Business Promotion Unit and the Internal Audit Office coordinate with the Internal Control Committee (chaired by the President and Operating Officer; attended by Full-time Audit and Supervisory Committee Members) in monitoring, from an objective standpoint, as to whether the internal control system is functioning appropriately.
The Company is of the opinion that the management supervision function and the checking and supervision functions over business execution of Representative Directors, other Directors with executive authority over operations and each Executive Officer are secured and adopts the current governance system.

Board of Directors

The Board of Directors comprises seven (7) Directors other than those serving on the Audit and Supervisory Committee and three (3) Audit and Supervisory Committee Members and is chaired by the Chairman & CEO. In addition to the regular meetings of the Board of Directors held once a month, an extraordinary meeting of the Board of Directors is held as necessary.
The Board of Directors deliberates all important matters of corporate management, including the Company’s management policy, business plan and capital strategy and makes decisions on these matters as well as approves important matters of each of the group companies and supervises the status of business execution of each company.
As prescribed in the Articles of Incorporation, the Company shall have not more than twelve (12) Directors other than those serving on the Audit and Supervisory Committee and shall have not more than four (4) Directors serving on the Audit and Supervisory Committee. As of the date of submission of the Securities Report, the Company has seven (7) Directors other than those serving on the Audit and Supervisory Committee and three (3) Directors serving on the Audit and Supervisory Committee. The Company also has three (3) Outside Directors.
Two (2) of whom are Audit and Supervisory Committee Members.
In conjunction with the transition to a company with an Audit and Supervisory Committee, the term of office of Directors other than those serving on the Audit and Supervisory Committee is one (1) year while that of Audit and Supervisory Committee Members is two (2) years.

Board of Managing Directors

In order to ensure that duties of Directors are executed efficiently and appropriately, the Company has in place a Board of Managing Directors, which is composed of all Full-time Directors with executive authority over operations above Managing Executive Officer and all Full-time Audit and Supervisory Committee Members. Chaired by the President and Operating Officer, the Committee meets at least once a month. The Board of Managing Directors decides on matters to be addressed in the monthly report (including tables) and at meetings of the Board of Directors and states opinions and conducts discussions required for execution of business operations based on matters resolved by the Board of Directors.

Audit and Supervisory Committee

The Company establishes the Audit and Supervisory Committee for performing audits and exercising supervision from the perspective of ensuring lawfulness and appropriateness of the state of execution of duties by Directors and management of each of the CRESCO group companies. The Audit and Supervisory Committee comprises three (3) Audit and Supervisory Committee Members including two (2) Outside Directors. Chaired by the member selected among the Audit and Supervisory Committee Members, the Committee holds regular meetings once a month and extraordinary meetings when necessary.
Each Audit and Supervisory Committee Member possesses abundant experience and high-level expertise in each of their respective professional fields, performs audits and exercises supervision using the internal control system, complies with the policies, etc., set forth by the Audit and Supervisory Committee, expects necessary reports and research from Directors, etc., and reviews important settlement documents, etc.
The Audit and Supervisory Committee Members also attend meetings of the Board of Directors, the Internal Control Committee and other important meetings, coordinate with the Internal Audit Office and Accounting Auditors, etc., and work to reinforce the auditing and supervision functions over management. The Audit and Supervisory Committee also coordinates with the Internal Audit Office in supervising each of the group companies, periodically holds the Group Auditors' Liaison Meetings (liaison meetings including auditors of subsidiaries) and performs monitoring of the status of management of each group company as needed.
Given the amendment to the scope of directors, etc., who can enter into a limited liability agreement in the revised Companies Act, the Company has concluded a limited liability agreement, pursuant to Article 427, Paragraph 1 of the said Act, with four (4) non-executive directors (Messrs. Fukui, Niwa, Usui and Sato) so that these non-executive directors can fully demonstrate the roles expected of them. Based on this agreement, the liability of each of them is limited to the minimum liability amount as specified by laws and regulations. Based on this agreement, the liability of each of them is limited to the minimum liability amount as specified by laws and regulations.

Management Committees

Based on matters resolved by the Board of Directors and matters decided by the Board of Managing Directors, Management Committees will be established as bodies to allow the discussion of matters related to the execution of business operations, consisting of all Full-time Directors with executive authority over operations and all Executive Officers as well as Full-time Audit and Supervisory Committee Members. In addition to safeguarding the prompt execution of business, the members will receive reports regarding the state of execution of duties, thus fulfilling a supervisory function. The Management Committees will meet at least once a month and will be chaired by the President and Operating Officer.
Moreover, all members have the right to convene meetings, enabling them to engage in business activities as necessary and with agility.

Internal Audit Office

As of the date of submission of the Securities Report, the Internal Audit Office directly supervised by the Audit and Supervisory Committee comprises two (2) members. It performs audits systematically and exhaustively of all group companies, examines business operations, asset management and the state of information assets as needed and makes efforts to reinforce compliance relating to appropriate execution of business operations, ensure information security and promote efficiency.
In addition to performing audits, members of the Internal Audit Office attend meetings of the Internal Control Committee and others, conduct various researches and provide reports as necessary to the Audit and Supervisory Committee and the President and Operating Officer. The types of audits performed are as follows:

(1) Business audit

Business audit is an audit of business and system operations to determine whether the operations are carried out appropriately and rightly in accordance with various regulations, procedures and policies.

(2) Accounting audit

Accounting audit is an audit of transactions of all group companies to see whether the facts of transactions are presented on proper evidential documents and whether relevant ledgers are appropriately recorded and stored in accordance with relevant laws and regulations and rules.

(3) Information security audit

Information security audit is an audit conducted to see whether personal information and other information assets of the Company are appropriately handled in accordance with the regulations for security.

Accounting Auditor

BDO Toyo & Co. is appointed as the Accounting Auditor and performs periodical audits as well as provides consultation and confirmation on business management objectives and issues as necessary in an effort to ensure transparency and appropriateness of accounting treatment. The Accounting Auditor, in order to achieve the respective audit objectives, establishes mutually trustful relationships with the Audit and Supervisory Committee Members (auditors in the case of a subsidiary) and the Internal Audit Office and promotes proper coordination under a collaborative relationship with a positive sense of urgency. The Company and the Accounting Auditor value interactive communication, mutually provide information and exchange opinions on necessary audit matters and make efforts to ensure that appropriate coordination is maintained.
There were three (3) certified public accountants who performed the accounting audit operations in the fiscal year ended March 31, 2018 and all three have continually performed audits for seven years or less. Members who assisted the audit operations include eight (8) certified public accountants and two (2) other individuals (one (1) of whom has passed the CPA examination).

Internal Control Committee

The Internal Control Committee is composed of the President and Operating Officer, six (6) General Managers, the Manager of Internal Audit Office, Full-time Audit and Supervisory Committee Members, and Part-time Directors and held four (4) times a year chaired by the General Manager of Group Business Promotion Unit.
In order to promote the establishment and operational assessment of the internal control system, including the risk management system, and the reinforcement of the corporate governance system, the Internal Control Committee handles important issues concerning conformance with laws and regulations and the Articles of Incorporation, in accordance with “Basic Policy on the Establishment of the Internal Control System” set forth by the Board of Directors.
It also exercises supervision across the Group through establishing, reviewing, and disseminating the Basic Compliance Policy and the Code of Conduct for Compliance Management to foster corporate ethics and compliance awareness.

Information Security Committee

The Information Security Committee is composed of the General Manager of the Business Management Unit, committee members chosen by each unit, and Full-time Audit and Supervisory Committee Members and chaired by the Manager of the Digital Transformation Office.
The Information Security Committee develops plans for information security and system operation, evaluates their execution, proposes improvements, etc., as required, in order to ensure the efficient and proper operation of information security measures and systems of the CRESCO Group. It also tries to improve awareness of information security by the entire Group through various educational activities regarding the importance of information security.

Committee of Presidents of the Group

The Committee of Presidents of the Group is established to communicate the management policy of the Group and discuss management issues for each group company and other important matters. The Committee of Presidents of the Group is composed of the Chairman & CEO, all Full-time Executive Directors, Full-time Audit and Supervisory Committee Members, and presidents of group companies. Its meeting is held at least once a year chaired by the General Manager of the Group Business Promotion Unit. The Committee of Presidents of the Group promotes close coordination with group companies while respecting the independence of each company within the CRESCO Group, to ensure that the Basic Compliance Policy and the Code of Conduct for Compliance Management are widely known to members of each group company and to strive for the compliance management and the proper enforcement of the internal control system for the Group as a whole.

Independent Directors

The Company designates all qualified Outside Directors as Independent Directors.

1. The Company's Views on Independence

The Company views that with the aim of strengthening the supervision function of the Board of Directors, Independent Directors should be elected from independent specialists and individuals with experience in corporate management who have no direct special interests with the Representative Directors, etc. In addition, the Company is in the opinion that Independent Directors must be well versed in the characteristics of the industry and hold professional knowledge in order that they may demonstrate objective and strict supervision functions over the business execution status. The criteria for the election of Independent Directors include the fulfillment of requirements for outside directors provided for in the Companies Act and of the independence criteria set forth by the Tokyo Stock Exchange and the appropriateness of personal traits. The Company also takes into account the following points to ensure that appointed individuals carry out objective and strict supervision over the business execution status.

  • Invite Independent Directors from outside the CRESCO Group.
  • Do not depend on a certain firm, etc.
  • No direct interests exist between the CRESCO Group and related persons of the Group and the candidates for Independent Directors.
  • The candidates possess expertise on characteristics of the industry and professional knowledge.

2. Major Activities of Independent Directors

  • Unreservedly address questions and provide comments and opinions to the top management from an independent standpoint.
  • Clarify points of discussion or dispute and propose constructive arguments.
  • Monitor deliberations and decision-making at meetings of the Board of Directors to ensure that they are appropriate and do not contravene the concept of duty of care of a prudent manager.
  • Closely examine all proposals from a strict perspective while maintaining independence and fairness and exercise voting rights.
  • Provide comments and opinions from an objective standpoint with regard to the standards for management stance and soundness of the company.
  • Conduct objective supervision over management policy, etc., based on common sense and experience outside the company.
  • Address issues objectively in regard to the checking of the status of establishment of internal control and risk management and promote preventive audits.

Outside Directors

The Company has two (2) Outside Directors who are both Audit and Supervisory Committee Members. There are no particular matters to note in regard to the human, capital or business relationships or other interest between each Outside Director and the Company. The Company invites all Outside Directors from outside the CRESCO Group to adopt objective viewpoints in management. Considering that the current two (2) Outside Directors of the Company are highly independent and bear no risk of causing conflicts of interest with general shareholders and that they fulfill the requirements for independent directors set forth by Tokyo Stock Exchange, Inc., the Company registers the Outside Directors with the Tokyo Stock Exchange, Inc., as Independent Directors.
The Company recognizes the primary roles of Outside Directors as follows:

  • Unreservedly address questions and provide comments and opinions to the top management from an independent standpoint.
  • Clarify points of discussion or dispute and propose constructive arguments.
  • Monitor deliberations and decision-making at the meetings of the Board of Directors to ensure that they are appropriate and do not contravene the concept of duty of care of a prudent manager.
  • Closely examine all proposals from a strict perspective while maintaining independence and fairness and exercise voting rights.
  • Provide comments and opinions from an objective standpoint with regard to the standards for management stance and soundness of the company.
  • Exercise objective supervision over management policy, etc., based on common sense and experience outside the company.
  • Address issues objectively in regard to the checking of the status of establishment of internal control and risk management and promote preventive audits.

Supporting System for Outside Directors

The Legal Department, which serves as the secretariat of the Board of Directors and the Audit and Supervisory Committee is responsible for support. A system is in place to issue notifications on meetings of the Board of Directors and the Audit and Supervisory Committee and other convocation notices by email based on the Regulations for the Board of Directors and the Regulations for Audit and Supervisory Committee.
In regard to support for Outside Directors (including Audit and Supervisory Committee Members), the secretariat provides, as necessary, explanations on the contents of proposals or additional material in advance.