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Online Annual Report 2012

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IR Top Page > IR Presentation Materials > Annual Report2012 > Online Annual Report 2012 > Corporate Governance > Corporate Governance Structure and Initiatives

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Corporate Governance
Corporate Governance Structure and Initiatives

Shareholders and investors have made the practical and effective functioning of internal control into a key issue amidst an epidemic of corporate misconduct in Japan and overseas. In this section, Capcom will explain the corporate governance structure and mechanisms that it has initiated so far based on the key concepts of effectiveness and visibility in terms of the results of third party assessment.
(Assessment areas are highlighted in yellow)

コーポレートガバナンス体制

Corporate Governance Structure
Enhancing Management Health and Transparency while Responding to Changes in the Environment

Capcom is aware that comprehensive corporate governance ranks among management's most important priorities. We make the utmost effort to enhance management health and transparency and maintain an organization that is responsive to changes in the business environment while focusing efforts on improving the satisfaction of shareholders, customers, employees and all our stakeholders. The introduction of a Corporate Officer System, part of our management system reforms, established a clear separation between the responsibilities of the Board of Directors and the corporate officers and facilitates faster decision-making and more flexible execution of operations while heightening management efficiency. In addition, we make an effort to ensure fairness and improve reliability by raising the level of our Board of Directors monitoring function with three external directors and two external auditors.

①Shareholders' Meeting
Avoiding the Same Meeting Date as Other Companies and Encouraging Shareholders to Exercise Their Voting Rights

Capcom's general shareholders' meeting serves as its highest decision-making body and determines important matters as well as reports audit results of consolidated financial statements.

We have scheduled the meeting to take place around 10 days prior to the date on which most other companies in Japan hold their general shareholders' meetings to ensure as many shareholders as possible can be in attendance. We have also made it possible for shareholders to exercise their voting rights over the Internet using a computer or smartphone. In addition, we participate in an electronic voting rights exercise platform for institutional investors.

A total of six resolutions were proposed at this year's shareholders' meeting, including on the issues of the "Proposed Appropriation of Retained Earnings" and the "Election of Four Corporate Auditors". Each of the six resolutions were approved and passed.

Shareholders' Meeting Resolutions

The following presents the number of votes in favor, opposed or abstained for the matters to be resolved at the fiscal 2011 general shareholders' meeting, the requirements for the resolutions to be passed and the results of voting.

Shareholders' Meeting Resolutions

② Board of Directors
Management Decisions that Incorporate Outside Opinions

Officer Remuneration (Fiscal 2011)

Officer Remuneration (Fiscal 2011)

The Board of Directors consists of 11 members, meets regularly once a month and holds extraordinary meetings when necessary.Three of the 11 members are external directors, whose opinions, advice and feedback invigorate and improve the transparency and reliability of the Board of Directors while strengthening the management monitoring function. During the period under review, the Board of Directors met 16 times, engaging in lively discussions concerning reported items and matters for resolution. Moreover, we established a Remuneration Committee chaired by an external director to determine fair and appropriate compensation for directors. Also, two external directors appointed independent directors to avoid any conflict of interest among general shareholders in terms of decision-making.

Capcom has established a database of information on the company's business conditions, including at its overseas subsidiaries, so that its directors can correct monitor the status of the entire company.

③Board of Corporate Auditors
Accounting Auditors Partner with Internal Auditing Department to Monitor Management

Capcom has adopted a corporate auditor system consisting of four members, two of whom are external auditors. In addition to formulating auditing policies and providing consultation regarding audit results, members of the Board of Corporate Auditors submit items identified in the audit to the president and exchange opinions and information with accounting auditors when appropriate.

Capcom adopted the corporate auditor system over a company with committees because, in addition to the introduction of a Corporate Officer System, we had already introduced the company with committees concept of separating the monitoring and business operation functions through the appointment of three external directors and the establishment of a Remuneration Committee.

Moreover, to improve the effectiveness and efficiency of the auditing function, the Audit Committee, Audit Office and auditors mutually.

④Board of Corporate Auditors
Executing Operations Based on a Clear Management Policy

The Board of Corporate Officers is composed of 15 members selected by the Board of Directors.Under the supervision of the Board of Directors, corporate officers promptly and precisely execute business activities based on management policy determined by the Board of Directors and take agile and appropriate response to rapid changes in the management environment when deemed necessary.

⑤Office of Internal Auditing
Ensuring and Verifying Legal Compliance and Operating Efficiencies

The audit office conducts internal audits on all divisions of Capcom and works with corporate auditors to verify and ensure the legal compliance and efficiency of the company's operations. The audit office makes an effort to ensure that internal controls work effectively in every division and recommends improvements to audited divisions based on their findings.

⑥Accounting Auditors
Ensuring and Verifying Accounting Transparency

Capcom has engaged KPMG AZSA LLC for financial audits as prescribed by the Companies Act and financial audits as prescribed by the Financial Instruments and Exchange Law. There is no relationship involving financial or other interests between Capcom and this audit corporation or the individuals at this firm who perform audits at Capcom.

Auditor Remuneration (Fiscal 2011)

Auditor Remuneration (Fiscal 2011)

⑦The Compliance Committee
Focusing on Compliance as an Important Management Issue

The Compliance Committee, chaired by an external director licensed to practice law, meets quarterly to address various risks facing the company. The Compliance Committee receives reports on "period compliance checks" that investigate the business operations of each department semiannually and on the nature of inquiries made at the "Compliance Hotline", which serves as a whistle-blowing system for the company. These reports are also presented to the board of directors through the Compliance Committee, and when necessary, it will issue reminders and recommendations as well as provide advice.

⑧The Remuneration Committee
Reporting Details of Director Compensation

Based on the amount agreed upon at the general shareholder's meeting, the Remuneration Committee recommends remuneration for each board member to the Board of Directors that is befitting and determined with consideration for each board member's title, duties, tenure, full/part-time service, etc., as well as Capcom's earnings and individual job performance. To ensure fairness and transparency, the committee chairman is an external director.

⑨Audit Committee
Auditing Operations from a Risk Management Perspective

The Audit Committee conducts audits from a different perspective than the auditors in the Audit Office. They focus on risk management in all businesses and regularly monitor execution of business duties in Group companies. They also collect and compile information through individual business auditor investigations, providing analysis and reports to the Board of Directors. Based on these reports, the board works to prevent risks and executes business reforms while accurately ascertaining business inefficiencies and business risks inherent in the Group from the perspectives of compliance, validity and efficiency. And, in the event of an unforeseen situation, the Audit Committee contributes to the formulation of appropriate management decisions by quickly providing the Board of Directors with a report examining and analyzing the causal factors in an attempt to minimize losses to the company.

⑩Affiliate Companies
Ensuring Effective Government through Close, Group-wide Collaboration

We have developed a group-wide compliance framework through close communication and collaboration between parent company and subsidiaries based on monthly subsidiary board meetings and the "Management Regulations for Subsidiaries". Through this framework, we ensure that our operations are being undertaken properly so that corporate governance functions effectively.

External Director/External Auditor
Using External Perspectives to Ensure Effective Governance

Board of Directors/Board of Corporate Auditors Rate of
Attendance (Fiscal 2011)

Board of Directors/Board of Corporate Auditors Rate of Attendance (Fiscal 2011)

External directors ensure the effectiveness of the corporate governance function by playing key roles in the Compliance and Remuneration Committees. They also focus efforts on compliance and the prevention of corrupt or illegal activities, and openly exchange opinions and provide counsel at Board of Director meetings in an effort to strengthen the management audit function.

External auditors participate in Board of Directors and other important meetings, evaluating the directors' execution of their duties with an opinion of objectivity and fairness from the perspective of compliance and appropriateness.

In addition, the Executive Secretariat Office (7 staff) and Audit Office (4 staff) provide support work to ensure that our external directors and external auditors can perform their duties effectively.

Reason for the Selection of External Directors (June 2012)

Hiroshi Yasuda: Mr. Yasuda was selected as external director based his personality, acumen and previous appointments to important positions during his career. Mr. Yasuda serves as a member of the independent committee on takeover defense measures in his capacity as an external director independent from the executive management team. We have also determined none of the criteria inhibiting director independence as stipulated by the Tokyo Stock Exchange applies to him. Consequently, we have determined there is no potential conflict of interest with general shareholders in terms of his decision making.

Makoto Matsuo: Mr. Matsuo was selected as external director in order to ensure the effectiveness of corporate governance through the appointment of a legal professional that can provide apt guidance and advice on the company's legal compliance.

Takayuki Morinaga: Mr. Morinaga was selected as external director based on his management experience at other companies, professional career, track record, and personal connections in the business world. Mr. Morinaga serves as a member of the independent committee on takeover defense measures in his capacity as an external director independent from the executive management team. We have also determined none of the criteria inhibiting director independence as stipulated by the Tokyo Stock Exchange applies to him. Consequently, we have determined there is no potential conflict of interest with general shareholders in terms of his decision making.

Reason for the Selection of External Auditors (June 2012)

Yoshihiko Iwasaki: Mr. Iwasaki was selected as external auditor because it was determined that his professional experience in tax administration will be of benefit to the company.

Yoshihiko Matsuzaki: Mr. Matsuzaki was selected as external auditor so that he can leverage his wealth of experience and knowledge from his many years in law enforcement administration to help the company further enhance its corporate governance.

Comments from External Director

Makoto Matsuo Director
I will work to fulfill my duty to ensure effective internal control and legal compliance

The recent rash of scandals that has hit Japanese and foreign companies alike has caused investors to demand companies strengthen their internal control. Furthermore, the Companies Act and Financial Instruments and Exchange Act require the establishment of a "basic policy on internal control systems" to ensure the accuracy of financial reporting, legal compliance and management efficiency as well as the submission of an "internal control report" on the company's financial reporting. On top of this, Capcom is proactively expanding overseas and working to ensure management transparency by making "clearer quantitative management targets" for all of its group companies, in conjunction with their business growth. I am also aware of the importance found in building an optimum governance framework that encompasses global risk management and information management systems.

I will leverage my many years of professional experience and expertise as an attorney to strengthen Capcom's operational audits so as to enhance internal control and legal compliance based on objective and fair communication. I will also work to promote the enhancement of Capcom's compliance and risk management frameworks in order to respond smoothly and appropriately to unforeseen incidents should they occur.

Comments from Auditor

Kazushi Hirao Corporate Auditor (Full-time)
I will rigorously audit the performance of the company in conjunction with its diversifying business operations

Capcom's team of corporate auditors consists of four individuals, including two external auditors.
Daily audit operations are implemented in accordance with the audit policy and segregation of duties determined by the Board of Corporate Auditors. To perform our duties, we communicate with the board of directors, Auditors Office and other persons within the company, and work to ensure a suitable audit environment is in place. In addition, collaborating with the Audit Committee newly established in the previous fiscal year, we constantly share information and views in order to reinforce operational audits. We also audit and verify frameworks that ensure director duties conform to laws and the company's articles of incorporate as well as frameworks for ensuring the appropriate operations of the company (internal control system).

Corporate auditors attend board of directors and other important company meetings, and based on reports from directors on their duties, when necessary, we request further explanations and browse important decision-making documents to investigate the status of Capcom's operations and assets.

With Capcom set to accelerate its global expansion going forward, I would like to strengthen our communication and information exchange with directors at our overseas subsidiaries and perform rigorous audits that incorporate external perspectives.

Third-Party Assessment
Promoting More "Visible" Governance

An analysis of an assessment performed by a third-party organization into the validity and effectiveness of Capcom's corporate governance shows that the company ranked 58th among listed companies in Japan in the "NEEDS-Cges" quantitative corporate governance assessment developed by Nikkei Digital Media, Inc..

"NEEDS-Cges" has an established reputation as a system that quantitatively assesses corporate governance using scores on a scale of 0 to 10 for eight categories, including "capital efficiency", "information disclosure", and "shareholder and capital composition", among others, assigned based on some 130 indicators calculated from data of publicly released company documents, such as financial reports.

Capcom's total score was 8.54 points, placing it in the top 1.7% of Japan's 3,412 listed companies. Our score also greatly exceeded the average for all listed companies and for the industry, at 5.44 points and 7.34 points, respectively.

Capcom achieved a perfect score of 10 for four of the eight categories, including "capital efficiency", "shareholder and capital composition", "shareholder returns" and "information disclosure".

The main reasons for each of these perfect scores are given in the chart provided below, but in particular areas highlighted in yellow indicate measures that received particular notice.

Moving forward, we will strive to continuously improve upon our results using such external data to achieve even more positive assessments. In addition, we will also promote more "visible" governance by publishing the details of this data on our corporate website.

Third-Party Assessment Results of Capcom's Corporate Governance

Third-Party Assessment Results of Capcom's Corporate Governance

Internal Control System Status
Strengthening Risk Management through the Development of Our Internal Control System

As part of directors' due diligence, Capcom developed the following internal control system based on the Companies Act and its enforcement regulations to ensure that all Group company practices comply with regulations and are executed in an efficient manner.

1. Creation of a Structure to Ensure Directors Perform their Duties in Accordance with Laws and Regulations
To strengthen the management monitoring function and enhance corporate value, Capcom strives to prevent illegal activities and ensure compliance through regular Compliance Committee checks while attempting to invigorate and heighten the monitoring function of the Board of Directors in accordance with advice and recommendations from the three external directors.
2. Internal Control over Financial Reporting
Based on our internal control rules, Capcom has developed and continues to operate the necessary systems in order to guarantee reliable financial reporting and ensure proper internal control over financial reporting, in accordance with the Financial Instruments and Exchange Act. Our internal control system over consolidated financial reporting at the end of the period under review has been determined as effective and the results of this assessment have been reported to the Director-General of the Kanto Regional Finance Bureau in the form of an internal control report. The results have also been disclosed through EDINET and our corporate website.
3. Develop a System to Maintain Appropriate Business Practices

(1)Information Management and Storage
The management and storage of documents and information such as the minutes from board meetings is conducted in accordance with "document management regulations".

(2)Risk Management
A risk management structure and "crisis management regulations" were created to proactively prevent crises and execute the appropriate actions if one occurs.

(3)Efficient Execution of Business Operations
Capcom introduced a Corporate Officer System under which the duties of the Board of Directors and corporate officers are separated to enable smooth and flexible business operations and enhance management efficiency.

(4)Legal Compliance System
The "Capcom Code of Conduct" is our guideline for legal compliance. We seek to prevent illegal activities and misconduct through employee training and monitoring programs.

(5)Operational Audit Structure
In accordance with auditing policies, the execution of operations by corporate officers are audited, with recommendations for improvements indicated in auditor reports as necessary to ensure internal controls function effectively. To enable auditors to perform their duties smoothly and appropriately, an employee is selected with the consent of auditors to provide assistance.

4.Basic Policy and Framework for the Eradication of Antisocial Forces
Capcom takes a firm stand against antisocial forces that threaten social order and the safety of citizens, and strictly prohibits any association with such groups at the organizational, employee and individual levels. If we are contacted by such groups, in addition to swift organizational measures, we will cooperate with the police and other relevant authorities to firmly refuse unlawful demands.
While Capcom attempts to remain aware of information related to these groups in order to avoid contact or involvement, if we discover that we have unknowingly become involved with them, we will immediately terminate the association with the help of the police and other relevant authorities.

Initiatives to Strengthen Compliance
Focusing on the Viability and Effectiveness of Our Compliance System

As noted on page 48, Capcom has established a Compliance Committee chaired by an external director that periodically reports to the board of directors and issues reminders and recommendations as well as provides advice based on reports from local compliance committees. The Internal Auditing Department, which has been established as the committee's secretariat, works to enhance the viability of the entire Capcom Group's compliance system by planning and operating the internal compliance system and functioning as the department that provides consultations and receives notifications to prevent legal violations before they occur.

Furthermore, the "Capcom Code of Conduct" was formulated to strengthen our compliance system. Capcom is dedicated to proactively preventing illegal acts and misconduct, and ensuring legal compliance through the promulgation of corporate ethics and principles.

During the period under review, the Compliance Committee met four times and conducted compliance training sessions for new employees. Also, "e-learning sessions on legal compliance and personal information protection rules" were given to all employees.

Compliance is the foundation of corporate governance and the basis for the fulfillment of corporate social responsibility. Capcom will continue to instill this understanding in all its officers and employees.

Status of Training and Other Programs (Fiscal 2011)

Status of Training and Other Programs (Fiscal 2011)

Compliance Structure

Compliance Structure

Periodic Compliance Checks
Compliance Status Checked Regularly

Capcom conducts "periodic compliance checks" to regularly monitor the operational status of each of its departments. Every six months more than 30 items, including fair business practices, workplace health and safety, and information asset management, are checked using a paper questionnaire, while more than 40 compliance officers covering each department are also interviewed individually to confirm the effectiveness of our overall compliance system.

In response to feedback received from interviews and questions during the "periodic compliance check", such as on protocol for issuing documents to business partners and proper document management practices, clear-cut answers are provided to related persons and when necessary, all employees are notified and made aware using the intranet.

Compliance Hotline
Special Hotline Set Up for Compliance Issues

Capcom established the "Compliance Hotline" and "Corporate Ethics Hotline Rules" in accordance with the Whistle-Blower Protection Act of Japan and as a means to prevent and uncover risks in order for the company to thoroughly practice compliance-focused management.

This hotline enables the company to smoothly address whistle-blowing complaints from employees and have in place an environment to prevent legal violations or illegal behaviors as well as take corrective action.

Information Security Initiatives
Building Mechanisms for the Appropriate Protection of Information Assets

As a company primarily engaged in the planning and development of software, Capcom is an environment where the latest information technology is always in use. Compared to companies in other lines of business, we face relatively high information security risks.

Capcom protects its information assets from theft, loss, accident and threat of damage, and has formulated an information security policy appropriate for a corporation trusted by society.

We also provide employees with a self-learning environment via the company intranet, and publish internal information regulation collections including "Basic Security Policies", "System Usage Policies" and "Basic Disclosure Policies".

We use a firewall to protect us from external attacks via the Internet, and our internal system requires each user to have a unique ID, password and PIN to access the system, thereby reducing the risk of unwelcome intruders.

Furthermore, we are in the process of patching known security holes. Furthermore, over the next few years we will implement measures to prevent information leaks, which will include (1) identification of information leak risks, (2) creation of an early response structure to respond to information leaks and (3) establish response process to minimize damage in event information is leaked.

We will require the help of an outside investigative company to conduct the inspection and diagnosis of our information management system involved in (1) to clearly identify the critical risks we face, while (3) will involve a system capable of quickly auditing the information log to find the cause and prevent the reoccurrence of problems. In this manner, we are focusing our efforts on using our expertise to enhance our internal response capabilities.

To improve security literacy among all our employees, we are implementing internal training to raise awareness and educate on the topic of information leak risks.
Through these and other initiatives, Capcom is striving to create a structure for making an appropriate first response in the event information is leaked or an accident occurs.

Business Continuity Plan (BCP) Initiatives
Strengthening Our Crisis Management System

Capcom is working to strengthen its crisis management system in order to minimize damages, losses and disrepute, and ensure the company continues to function, based on an appropriate and smooth response, in the event of an emergency, such as a natural disaster or accident. If an emergency occurs, under our crisis management rules, a task force consisting of top management will be set up to assess the extent of damage to the company. In addition, we have established action criteria and an emergency contact route in our crisis management manual in order to ensure an appropriate response and convey information to one another in a prompt manner.

In the wake of the Great East Japan Earthquake, we are striving to build a crisis management system that will ensure our business continuity in the event of an unforeseen incident or natural disaster. This will be made possible by strengthening our risk management through the stockpiling of disaster-relief supplies, implementation of a safety confirmation system, and storage of Health Kits for flu, to ensure that we can properly and quickly respond to these emergencies.

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