Initiatives for Corporate Governance Code

When companieshold shares of other listed companies as cross-shareholdings, they should disclose their policy with respect to doing so,including their policies regarding the reduction of cross-shareholdings. In addition, the board should annually assess whether or not to hold each individual cross-shareholding, specifically examining whether the purpose is appropriate and whether the benefits and risks from each holding cover the company's cost of capital. The results of this assessment should be disclosed.
Companies should establish and disclose specific standards with respect to the voting rights as to their cross-shareholdings, and vote in accordance with the standards.

The Company defines cross-shareholdings as referring “not to the shares of subsidiaries and associates, but to those acquired for purposes other than pure investment (shares acquired for purposes other than pure investment among shares acquired by the Company other than the shares of subsidiaries and associates),” and, as a rule, does not hold cross-shareholdings. However, in the case of listed stocks of customers or business partners for which cross-shareholdings are expected to result in sustainable growth for both the CRESCO Group and the cross-shareholding counterparties, because such holdings will likely “maintain and develop the relationship with such parties as strategic partners in business activities including a business alliance and joint R&D,” the Company shall make a decision based on comprehensive consideration of the situation.
When the significance or rationale for holding such stocks is no longer recognized, the Company shall initiate negotiations to sell the positions, while taking into account the impact on the market, and other factors.
With regard to the voting rights associated with cross-shareholdings, the basic approach is to exercise them after investigating carefully each individual proposal and evaluating its reasonableness by taking into account the business direction, business strategy, business plans of the cross-shareholding counterparty, as well as social conditions.
In particular, in the event that doubts arise from the following perspectives, we make a decision on whether to approve or reject based on dialogue with the cross-shareholding counterparty:

1. Whether the content of each proposal would lead to an increase in the corporate value of the crossshareholding counterparty over the medium to long term
2. Whether it would impair the corporate value of the Company or any of the Group companies

If the organizational structure of a company is either Company with Kansayaku Board or Company with Supervisory Committee and independent directors do not compose a majority of the board, in order to strengthen the independence, objectivity and accountability of board functions on the matters of nomination (including succession plan) and remuneration of the senior management and directors, the company should seek appropriate involvement and advice from the committees, including from the perspective of gender and other diversity and skills, in the examination of such important matters as nominations and remuneration by establishing an independent nomination committee and remuneration committee under the board, to which such committees make significant contributions.
In particular, companies listed on the Prime Market should basically have the majority of the members of each committee be independent directors, and should disclose the mandates and roles of the committees, as well as the policy regarding the independence of the composition.

The number of Independent Outside Directors is currently five (5) among ten (10) Directors in total, and do not constitute a majority in the Board of Directors. However, each Independent Outside Director states opinions at Board of Directors’ meetings and to individual directors and provides advice as necessary, drawing on his/her strong expertise and ample experience. For these reasons, the Company believes that proper management and supervision are in place through checks, etc. conducted by five (5) Independent Outside Directors.
In addition, in June 2021, the Company has established the Remuneration Committee chaired by an Independent Outside Director. The Committee is composed of three (3) or more Directors elected by a resolution of the Board of Directors, with the majority composed of Independent Outside Directors. The Committee deliberates on a policy for determining remuneration, etc. in officer remuneration for Directors (excluding Audit and Supervisory Committee Members), to determine the basic remuneration and bonuses in officer remuneration for Directors (excluding Audit and Supervisory Committee Members), etc. Since all Outside Directors currently fall under Independent Outside Directors, the Remuneration Committee is considered to fall under an “independent remuneration committee.”
The Company includes Executive Officers who do not concurrently serve as Director in the scope of evaluation by the Remuneration Committee. As the Company believes that opinions of Independent Outside Directors can be reflected in the nomination of candidates for Directors through the discussion on such evaluation, it has not established a Nominating Committee.

When establishing and disclosing business strategies and business plans, companies should articulate their earnings plans and apital policies, and present targets for profitability and capital efficiency after accurately identifying the company’s cost of capital. Also, companies should provide explanations that are clear and logical to shareholders with respect to the allocation of management resources, such as reviewing their business portfolio and investments in fixed assets, R&D, and human capital, and specific measures that will be taken in order to achieve their plans and targets.

In order to enhance corporate value over the medium to long term, the Company not only discloses its basic policy of revenue and expenditure plans (net sales, earnings, etc.) and capital strategy but also publishes specific numerical targets concerning financial results as well as visions and medium-term management plans concerning its management and businesses to promote the understanding of shareholders and investors.
When publishing such information, the Company includes the status of the review of the business portfolio (by customer, organization, segment, etc.) for sustainable growth and various investment plans (new businesses, M&A, facilities, human resources and their development, research and development, etc.), which are organized as issues to be addressed, specific strategies (basic and key strategies), and risk of businesses.
At the general meeting of shareholders and at the financial results meeting, etc., the Company provides specific explanations about published information and posts the materials used for these occasions on the Company’s website to fully inform its shareholders and other stakeholders.

[Actions to Implement Management That Is Conscious of Cost of Capital and Stock Price] 
The Company discloses its key performance indicators (KPIs) for revenue and capital efficiency (ROE exceeding the cost of equity) in the “Medium-Term Management Plan 2023.” formulated in April 2021. The target for measures to promote management with an awareness of cost of capital and stock price is ROE of 15% or greater in the final fiscal year (fiscal year ending March 31, 2024) of the “Medium-Term Management Plan 2023.”
For a recent status report on the progress toward achieving this KPI target, please see the “Summary of Quarterly Financial Results Briefing for Fiscal Year Ended March 31, 2023.(1,354KB)”

In formulating and announcing business strategies, etc., companies should clearly present the basic policy regarding the business portfolio decided by the board and the status of the review of such portfolio.

The Company formulates medium-term management plans by taking into consideration the cost of capital and the allocation of management resources, and discloses not only information on management and business strategy but also numerical targets of net sales and operating profit to secure the understanding of its stakeholders. The Company shows specific measures to achieve goals as well as targets such as ROE, and explains them at the general meeting of shareholders and at the financial results meetings, etc.

Companies should appropriately disclose their initiatives on sustainability when disclosing their management strategies. They should also provide information on investments in human capital and intellectual properties in an understandable and specific manner, while being conscious of the consistency with their own management strategies and issues.
In particular, companies listed on the Prime Market should collect and analyze the necessary data on the impact of climate change-related risks and earning opportunities on their business activities and profits, and enhance the quality and quantity of disclosure based on the TCFD recommendations, which are an internationally well-established disclosure framework, or an equivalent framework.

[Initiatives on Sustainability]
Recognizing that sustainability including ESG elements is an important management issue, the Company has established the basic policy on sustainability. For the details of the policy, please refer to “Principle 2.3.”
Based on the understanding that ESG represents “expectations of the society for companies” that each company should recognize, the Company believes that it needs to always keep in mind “what the CRESCO Group can do for the society” and to continue to act accordingly to achieve sustainable growth as an enterprise and enhance its corporate value. The Company’s view on ESG and the status of its ESG initiatives are posted on the Company’s website.

“CRESCO Group Ambition 2030,” the Company's long-term vision for the next ten years, and the “Medium-Term Management Plan 2023” formulated in April 2021 for the realization of this vision, both of which take sustainability into consideration, are posted on the Company's websitePDF.
The Company also recognizes that responses to sustainability issues are important risk of businesses.

As a company operating in the information services industry, the Company contributes to the realization of a sustainable society by helping its customers in achieving higher efficiency and labor saving in their business operations and also in promoting work-style reform and improvements in work environment through IT services and digital solutions that we provide to our customers.
As a company operating in the information services industry, the Company implements the following measures with regards to the environmental load arising from our daily business activities:

Climate change presents a material risk to the realization of a rich lifestyle and culture by current and future generations. The CRESCO Group recognizes the necessity to respond to climate change to contribute to the realization of a sustainable society. At present, the Company has not endorsed the TCFD (Task Force on Climate-Related Financial Disclosures) due to internal systems not being established, but is engaged in initiatives to address climate change to the greatest extent possible, and conducting the following activities to reduce environmental load and improve the efficiency of business activities.

1. Global environmental conservation activities through IT
   The CRESCO Group operates an IT services business (system development) and a digital solutions business (cloud, AI, robotics, IoT, etc.) through IT for customers in a variety of industries and business categories. Through its business activities, the Company will realize the reduction of environmental load by introducing and updating customers’ information systems, thereby contributing to the reduction of the environmental load of society.
    
2. Activities to reduce environmental load
   Due to the rise in the average temperature caused by climate change having an enormous impact on the environment and society, execution of “activities to reduce environmental load” is recognized as being important. Because the greatest negative impact (on CO2 reductions and environment) of the CRESCO Group’s operations is found with power consumption and paper consumption due to photocopying and other activities, the Group is working day-to-day to save power and electricity and promote paperless operations. These efforts also lead to more efficient energy use and cost reduction in system development.
    
3. Greenhouse gas emissions
   In the building where the Company’s head office is located, efforts are being made to reduce environmental load through initiatives to reduce greenhouse gases by purchasing renewable energy (electric power). In future, the Company will consider specific targets and initiatives aimed at further CO2 reductions to contribute to “net zero greenhouse gas emissions by 2050.”
   The Company’s CO2 emissions (t-CO2) by Scope in the fiscal year ended March 31, 2021 and the fiscal year ended March 31, 2022 are as follows.
   
   [Scope 1: Direct greenhouse gas emissions by a business operator (fuel combustion and industrial processes)]
   　・FY 2021: 0
   　・FY 2022: 0
   [Scope 2: Indirect emissions associated with the use of electricity, heat or steam supplied by other companies]
   　・FY 2021: 176.96
   　・FY 2022: 194.97 (Increased year on year due to an increase in power usage resulting from an increase in regional location floor space)
   [Scope 3: Other indirect emissions related to business]
   The Company will proceed to consider future disclosures.

[Investments in Human Capital]
The source of the Company’s competitiveness is “human resources.” Therefore, based on the recognition that human resources are an important asset, the Company will formulate a human resource strategy tied to management strategy, effectively link the acquisition of talented and diverse human resources, autonomous human resource development and strategic assignment, with the aim of realizing the Company’s management vision. Furthermore, to maximize the performance of individuals and teams, the Company will promote health management, work-style reform and diversity & inclusion centered on the personnel system based on the concepts of “pursuing specialty,” “multi-track career paths” and “merit-based compensation” to build an appealing workplace environment.
Alongside these initiatives, strengthening engagement between employees and the Company and also visualizing, analyzing and improving human resource data will create a virtuous cycle, leading to the sustained enhancement of corporate value.
Our latest initiatives with regard to human capital are disclosed on the Company’s website.

[Investments in Intellectual Property]
Investments in intellectual property are indispensable for the Company to strengthen its digital solution business and to enhance technologies, which are among the goals of the “Medium-Term Management Plan 2023” formulated in April 2021. We strive to secure intellectual property rights through technological research, system development, and customer proposal activities. The Company promotes the registration of trademarks such as service names, as well as “joint R&D” among companies and “industry-academia collaboration” with research institutions including universities to strengthen its “intellectual property” through patent applications for these results. Our latest initiatives are disclosed as appropriate on the Company’s website.

The board should clearly specify its own decisions as well as both the scope and content of the matters delegated to the management, and disclose a brief summary thereof.

The Board of Directors of the Company resolves on the matters stipulated in laws and regulations as well as the matters defined in the Regulations for the Board of Directors established by the Board of Directors. The decision to execute other business operations is delegated to Directors with executive authority over operation, Executive Officers, and Division Managers based on the Executive Officer Regulations, the Regulations for Management of Organization and Duties, the Notification on Organization, and the Notification on Segregation of Duties established by the Board of Directors.

Boards should establish and disclose independence standards aimed at securing effective independence of independent directors, taking into consideration the independence criteria set by securities exchanges. The board should endeavor to select independent director candidates who are expected to contribute to frank, active and constructive discussions at board meetings.

In appointing Outside Directors, the Company focuses on each candidate's abundant experience and high-level expertise in corporate management, etc., in addition to the independence requirements set forth under the Companies Act. The Company also makes it a standard that Independent Outside Directors elected satisfy requirements for independent directors set forth by Tokyo Stock Exchange and do not impose a risk of any conflict of interest to arise with general shareholders.

If the organizational structure of a company is either Company with Kansayaku Board or Company with Supervisory Committee and independent directors do not compose a majority of the board, in order to strengthen the independence, objectivity and accountability of board functions on the matters of nomination (including succession plan) and remuneration of the senior management and directors, the company should seek appropriate involvement and advice from the committees, including from the perspective of gender and other diversity and skills, in the examination of such important matters as nominations and remuneration by establishing an independent nomination committee and remuneration committee under the board, to which such committees make significant contributions.
In particular, companies listed on the Prime Market should basically have the majority of the members of each committee be independent directors, and should disclose the mandates and roles of the committees, as well as the policy regarding the independence of the composition.

Please refer to “Reasons for Non-compliance with the Principles of the Japan's Corporate Governance Code” above.

The board should identify the skills, etc. that it should have in light of its managing strategies, and have a view on the appropriate balance between knowledge, experience and skills of the board as a whole, and also on diversity and appropriate board size. Consistent with its view, the board should establish policies and procedures for nominating directors and disclose them along with the combination of skills, etc. that each director possesses in an appropriate form according to the business environment and business characteristics, etc., such as what is known as a "skills matrix.” When doing so, independent director(s) with management experience in other companies should be included.

Although no policy or procedure on diversity and size has been defined at the present, the Company’s Board of Directors works to comprehensively taking into account factors in appointing Directors to achieve an appropriate balance of members to cover each function and business unit of the Company and to ensure accurate, speedy decision-making while also giving considerations to diversity.
The Board of Directors consists of seven (7) Directors (excluding Audit and Supervisory Committee Members) (including three (3) Independent Outside Directors) and three (3) Directors who are Audit and Supervisory Committee Members (including two (2) Independent Outside Directors), including five (5) Independent Outside Directors. The Company believes that this is an appropriate size for ensuring accurate, speedy decision-making.
The Company has prepared a skills matrix listing the technical expertise, experience, etc., of each Director and discloses it in the Corporate Governance Report and its website.

Outside directors, outside kansayaku, and other directors and kansayaku should devote sufficient time and effort required to appropriately fulfill their respective roles and responsibilities. Therefore, where directors and kansayaku also serve as directors, kansayaku or the management at other companies, such positions should be limited to a reasonable number and disclosed each year.

The Company has a system in place where all Directors (excluding Audit and Supervisory Committee Members) are Directors who do not concurrently serve as outside directors of other listed firms, thereby allowing them to concentrate on business operations as Directors of the Company. Three (3) Directors (Directors not serving on the Audit and Supervisory Committee) and two (2) Directors serving on the Audit and Supervisory Committee (five (5) in total) are those who the Company judges can secure sufficient time and effort to serve as Independent Outside Directors of the Company. The important concurrent position of each Director is disclosed in the Business Report and the Reference Documents for the General Meeting of Shareholders.

Each year the board should analyze and evaluate its effectiveness as a whole, taking into consideration the relevant matters, including the self-evaluations of each director. A summary of the results should be disclosed.

At the end of each fiscal year, the effectiveness of the Board of Directors is evaluated based on the result of the analysis and evaluation of all Directors performed by the Directors using a Director's Business Execution Confirmation Sheet and other documents. As a result, a positive evaluation was given by and large regarding the composition and operation of the Board of Directors. The effectiveness of the Board of Directors as a whole is thus judged to be ensured.