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  4. Corporate Governance

Management Information

Corporate Governance

Corporate Governance System

Outline of corporate governance system

The Board of Directors of SECOM CO., LTD.("the Company"), of whom three are outside directors, makes decisions pertaining to business execution and other corporate matters. Executive officers, led by the President and Representative Director, are responsible for business execution. Audit & supervisory board members, of whom three are outside audit & supervisory board members, and the Board of Directors coordinate with internal audit departments, to audit and oversee directors and executive officers in the discharge of their duties. The Company has adopted the Audit & Supervisory Board System.
Pursuant to the provisions of Article 427, paragraph 1 of the Companies Act, the Company has entered into a contract with each of its three outside directors and three outside audit & supervisory board members that limits liability for compensation for damages under Article 423, paragraph 1 of the Companies Act. The contract states that:

(1) In the event the outside director or the outside audit & supervisory board member is liable to compensate the Company for damages due to negligence in the performance of his or her duty, compensation shall be limited to the minimum amount as provided for in Article 425, paragraph 1 of the Companies Act.
(2) The limitation on compensation described in (1) shall be restricted to instances in which the outside director or the outside audit & supervisory board member has discharged his or her duties in good faith and the liability has not resulted from gross negligence.
Outline of corporate governance system

Reasons for adoption of corporate governance system

The Company has adopted an executive officer system with the aim of strengthening field divisions and enhancing customer service systems by expediting business execution and clarifying responsibilities and authority. Audit & supervisory board members including three outside members are appointed to fulfill the Company's responsibility to conduct independent oversight of management performance that take into account the interests of stakeholders. Moreover, three outside directors are appointed to ensure the accountability and objectivity of the management based on the perspectives from the outside when the Company makes a decision.

Status of internal control system

To comply with Article 362, paragraph 4, Item 6 of the Companies Act, the Board of Directors passed a resolution regarding the Company's basic policy on the establishment of an internal control system, i.e., the system under which execution of duties by directors is ensured to comply with laws and regulations and the Articles of Incorporation, and the system under which the Company and the group of enterprises consisting of the Company and its subsidiaries ensure to properly execute their businesses. In accordance with this resolution, the Company has set forth a basic policy for an internal control system (including the Company's risk management system and the system under which the subsidiaries ensure to properly execute their businesses) to be implemented by the President and Representative Director, pursuant to Article 362, paragraph 5 of the Companies Act. In line with this resolution, pertinent directors are pressing forward with efforts to establish an internal control system, subjecting the system to constant review to facilitate improvement.

Internal Audits and Audits by Audit & Supervisory Board Members

Organization of internal audits and audits by audit & supervisory board members

Audit & supervisory board members and the Audit & Supervisory Board

The Audit & Supervisory Board comprises five members, of whom two are full-time audit & supervisory board members and three are outside audit & supervisory board members. In principle, the Audit & Supervisory Board is held once every month. The Company appoints persons who are well versed in the Company's businesses and internal affairs, as well as in finance and accounting, to serve as full-time audit & supervisory board members. For outside audit & supervisory board members, the Company appoints persons who are independent of the management team, have extensive knowledge of management, legal, financial and other matters and are capable of providing appropriate oversight and supervision of management.
Audit & supervisory board members attend almost all meetings of the Board of Directors, as well as other important meetings, exchange opinions with directors and others on overall corporate management, collect reports on the discharge of duties from directors and other pertinent individuals and conduct audits focused on the possible occurrence of violations of laws, regulations, the Company's Articles of Incorporation and/or shareholders' interests. The Audit & Supervisory Board also conducts audits of the Company's general business activities, as well as those of subsidiaries and affiliates, in accordance with the annual audit plan.

Office of Audit & Supervisory Board Members

The Office of Audit & Supervisory Board Members, which is administered by the Audit & Supervisory Board, comprises a minimum of two full-time assistants who are well versed in the Company's businesses and internal affairs. These employees, who are assigned exclusively to this office, operate independent of the directors and are not subject to instructions or orders from directors, executive officers or other employees with respect to the discharge of their auditing duties. Transfers and evaluations of employees assigned to the Office of Audit & Supervisory Board Members are subject to approval by the Audit & Supervisory Board.

Internal Audit Departments

As internal audit departments, the Company established the Audit and Compliance Department and the Group Governance Division. The Audit and Compliance Department conducts cross-organizational inspections of administrative practices and the status of operations independent of day-to-day operations that aim to ensure business is conducted in an appropriate manner mainly for the Company. The Audit and Compliance Department also functions as a whistleblower program for employees who wish to report incidents or seek advice regarding compliance. The Group Governance Division endeavors to understand and improve compliance-related issues of SECOM Group by inspecting and instructing the subsidiaries, as well as exchanging information.

Organizational Culture Committee

The Company has established the Organizational Culture Committee, a standing committee chaired by the President and Representative Director that is tasked with examining key corporate culture-related issues, including compliance issues, as well as with determining important official commendations and punishments.

Cooperation among internal audits, audits by audit & supervisory board members and accounting audits and relations with internal control departments

Regular meetings between the Representative Director and the audit & supervisory board members

Audit & supervisory board members hold regular meetings (once every month) with the Representative Director, during which they report on the results of audits and other matters and exchange opinions with the President and Representative Director on important management-related tasks with the aim of ensuring common understanding.

Meetings between audit & supervisory board members and accounting auditors

Audit & supervisory board members hold regular meetings (six times annually) with the accounting auditors, as well as additional meetings if necessary, for the purpose of exchanging opinions and information. The audit & supervisory board members receive explanations from the accounting auditors regarding the annual audit plan and audit results, and exchange opinions. If necessary, audit & supervisory board members also act as witnesses during audits and closing meetings conducted by the accounting auditors.

Cooperation with internal audit departments and other departments

Audit & supervisory board members hold regular meetings (once every month) with the Audit and Compliance Department, where they receive reports on internal audit results and exchange opinions. They receive reports on the results of inspections on subsidiaries and exchange opinions and information with the Group Governance Department. If necessary, to ensure the efficiency of audits, audit & supervisory board members also request internal audit departments to conduct investigations.

Outside Directors and Outside Audit & Supervisory Board Members

Number of outside directors and outside audit & supervisory board members and relationships (personal, financial, business or otherwise) of these individuals with the Company

The Company has appointed three outside directors and three outside audit & supervisory board members. Except for transactions relating to the common services the Company provides, relationships (personal, financial, business or otherwise) of outside directors and outside audit & supervisory board members with the Company are as follows.

NameRelationships with the Company(personal, financial, business or otherwise)
Takaharu HiroseMr. Takaharu Hirose has served as a chairman and representative director of GAIN Inc. There is no special interest regarding business or otherwise relationships between GAIN and the Company, except for the Company's services in the ordinary course of business. There is no concern that independence between GAIN and the Company is suspected, or a conflict of interest with general stockholders arises. Therefore, the Company considers that Mr. Takaharu Hirose has independence of expressing his views from an objective or neutral viewpoint. Since Mr. Takaharu Hirose maintains the independence in appearance and can exert the effective function of management supervision with consideration for interests of general stockholders, the notice of outside director, Mr. Takaharu Hirose being an independent officer was submitted to Tokyo Stock Exchange, Inc.
Hirobumi KawanoMr. Hirobumi Kawano has served as a special advisor, Japan Oil, Gas and Metals National Corporation (JOGMEC). There is no special interest regarding business or otherwise relationships between JOGMEC and the Company, except for the Company's services in the ordinary course of business. There is no concern that independence between JOGMEC and the Company is suspected, or a conflict of interest with general stockholders arises. Therefore, the Company considers that Mr. Hirobumi Kawano has independence of expressing his views from an objective or neutral viewpoint. Since Mr. Hirobumi Kawano maintains the independence in appearance and can exert the effective function of management supervision with consideration for interests of general stockholders, the notice of outside director, Mr. Hirobumi Kawano being an independent officer was submitted to Tokyo Stock Exchange, Inc.
Hajime WatanabeMr. Hajime Watanabe has served as a president and representative director of Watanabe Pipe Co., Ltd.. There is no special interest regarding business or otherwise relationships between Watanabe Pipe and the Company, except for the Company's services in the ordinary course of business. There is no concern that independence between Watanabe Pipe and the Company is suspected, or a conflict of interest with general stockholders arises. Therefore, the Company considers that Mr. Hajime Watanabe has independence of expressing his views from an objective or neutral viewpoint. Since Mr. Hajime Watanabe maintains the independence in appearance and can exert the effective function of management supervision with consideration for interests of general stockholders, the notice of outside director, Mr. Hajime Watanabe being an independent officer was submitted to Tokyo Stock Exchange, Inc.
Hideki KatoMr. Hideki Kato has served as a president of Shikoku Minka Museum, a public interest incorporated foundation. There is no special interest regarding business or otherwise relationships between Shikoku Minka Museum and the Company, except for the Company's services in the ordinary course of business. The Company pays a membership fee to forums, etc. held by Japan Initiative, a think tank, the representative of which is Mr. Hideki Kato. Except for aforesaid relationship as a one of numerous members of forums, there is no relationship between Japan Initiative and the Company. According to the property of Japan Initiative as a non-profit independent policy think tank, there is no concern that independence between Japan Initiative and Mr. Hideki Kato and the Company is suspected, or a conflict of interest with general stockholders arises. Therefore, the Company considers that Mr. Hideki Kato has independence of expressing his views from an objective or neutral viewpoint. Since Mr. Hideki Kato maintains the independence in appearance and can exert the effective function of management supervision with consideration for interests of general stockholders, the notice of outside audit & supervisory board member, Mr. Hideki Kato being an independent officer was submitted to Tokyo Stock Exchange, Inc.
Kenichi SekiyaMr. Kenichi Sekiya has served as a director emeritus of DISCO Corporation. There is no special interest regarding business or otherwise relationships between DISCO and the Company, except for the Company's services in the ordinary course of business. There is no concern that independence between DISCO and the Company is suspected, or a conflict of interest with general stockholders arises. Therefore, the Company considers that Mr. Kenichi Sekiya has independence of expressing his views from an objective or neutral viewpoint. Since Mr. Kenichi Sekiya maintains the independence in appearance and can exert the effective function of management supervision with consideration for interests of general stockholders, the notice of outside audit & supervisory board member, Mr. Kenichi Sekiya being an independent officer was submitted to Tokyo Stock Exchange, Inc.
Makoto YasudaMr. Makoto Yasuda has served as a president and representative director of Yasuda Makoto & Co., Ltd. and an outside director of Sanwa Holdings Corporation. There is no special interest regarding business or otherwise relationships between these companies and the Company, except for the Company's services in the ordinary course of business. There is no concern that independence between these companies and the Company is suspected, or a conflict of interest with general stockholders arises. Therefore, the Company considers that Mr. Makoto Yasuda has independence of expressing his views from an objective or neutral viewpoint. Also, there was no special interest regarding business or otherwise relationships between the Company and some companies, of which Mr. Makoto Yasuda had served as an audit and supervisory board member or a director. Since Mr. Makoto Yasuda maintains the independence in appearance and can exert the effective function of management supervision with consideration for interests of general stockholders, the notice of outside audit & supervisory board member, Mr. Makoto Yasuda being an independent officer was submitted to Tokyo Stock Exchange, Inc.

Role of outside directors and outside audit & supervisory board members in corporate governance, standard or policy relating to independence upon the appointment of outside director and outside audit & supervisory board member, and status of the appointment of outside director and outside audit & supervisory board member

The Company establishes the governance system to ensure the accountability and objectivity of the management by appointing outside directors who have wealth of experience of business management and are expected to oversight from a wide range of views from the outside without being bound by internal affairs in the Board of Directors. Accordingly, the Company believes it fulfills its responsibility to conduct independent oversight of management performance and to ensure appropriateness of execution of operation.
The Company appoints audit & supervisory board members who have extensive knowledge of management, legal, financial and other matters (including three independent outside audit & supervisory board members.) Also, the Company has established auditing organizations (such as the Office of Audit & Supervisory Board Members) that operate independent of day-to-day operations and a process (includes periodic meetings between the Representative Director, etc. and the audit & supervisory board members) that ensures the objective and neutral opinions of audit & supervisory board members are reflected promptly in operations. As a consequence, the Company believes it fulfills its responsibility to conduct independent oversight of management performance that take into account the interests of stakeholders. The Company does not establish the specific standard or policy concerning the independence to appoint outside directors and outside audit & supervisory board members. The Company appoints outside directors and outside audit & supervisory board members on the basis of requirements pursuant to the Companies Act and the standard concerning the independence pursuant to the Financial Instruments and Exchange Act.

Cooperation among supervisions or audits by outside directors or outside audit & supervisory board members, internal audits, audits by audit & supervisory board members and accounting audits, and relations with internal control departments

Outside directors attend the board of directors held every month as a general rule, in which they receive the report regarding the basic policy and important audit items of audit plans prepared by audit & supervisory board and the status of the design and operation of internal control systems. They also understand situation and issues of the group by exchanging opinions with directors in timely manner. They expressed their view, as independent officers, with consideration for interests of general stockholders as independent officers at the board of directors as necessary.

Outside audit & supervisory board members attend the board of directors and audit & supervisory board held every month as a general rule, in which they receive the report from directors, full-time audit & supervisory board members, employees, etc. regarding internal audit, audits by audit & supervisory board members and accounting audits, and internal control audit. They ask explanation and express their view, as independent officers, with consideration for interests of general stockholders as necessary.