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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.)

diagram: Corporate Governance Structure and Initiatives

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, facilitating 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.

(1) Shareholders' MeetingConvened on June 12, 2015

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.

Three resolutions were brought up for discussion at this year's shareholders' meeting, all of which were approved and passed.

(2) Board of DirectorsConvened 16 Times in year ended March 31, 2015 Supervision

Management Decisions that Incorporate Outside Opinions

The Board of Directors consists of 7 members, meets regularly once a month and holds extraordinary meetings when necessary. Three of the 7 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, three external directors were appointed as independent directors to avoid any conflict of interest among general shareholders in terms of decision-making. From fiscal 2013, one additional independent director was appointed.

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

Officer Remuneration (Year ended March 31, 2015)

Category Paid Personnel Total Remuneration
Directors (External directors) 10 (3) ¥485 million (¥32 million)
Corporate auditors (External auditors) 4 (2) ¥52 million (¥24 million)
Total 14 (5) ¥537 million (¥56 million)

Notes:

1. The above includes director's bonuses of 62 million yen (external directors excluded) for business activities in the fiscal year.

2. At the 32nd General Shareholder's Meeting held on June 17, 2011, a resolution was passed limiting director's remuneration to no more than 650 million yen (or no more than 50 million yen for external directors) per year. For corporate auditors, a resolution was passed limiting remuneration to no more than 85 million yen per year at the 33rd General Shareholder's Meeting held on June 15, 2012.

(3) Board of Corporate OfficersConvened 12 Times in year ended March 31, 2015Implementation

Executing Operations Based on a Clear Management Policy

The Board of Corporate Officers is composed of 19 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, taking agile and appropriate response to rapid changes in the management environment when deemed necessary.

(4) Affiliate CompaniesImplementation

Ensuring Effective Government through Close, Group-wide Collaboration

We have developed a group-wide internal controls 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.

(5) Board of Corporate AuditorsConvened 12 Times in year ended March 31, 2015Audit

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, Internal Auditing Department and auditors mutually coordinate to exchange views and information when necessary.

(6) Internal Auditing DepartmentAudit

Ensuring and Verifying Legal Compliance and Operating Efficiencies

As an internal auditing function established to be independent from business execution, the Internal Auditing Department conducts internal audits on all divisions of Capcom, working with corporate auditors to verify and ensure the legal compliance and efficiency of the company's operations. The audit office strives to ensure internal controls work effectively in each division by recommending improvements to audited divisions based on their findings.

(7) Accounting AuditorsAudit

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 engagement partners at this firm who perform audits at Capcom.

Auditor Remuneration (Year ended March 31, 2015)

  Audit Operations Non-Audit Operations
Delivery company ¥41 million 0
Consolidated subsidiary ¥2 million
Total ¥43 million 0
Auditing Company Names of Certified Public Accountants
KPMG AZSA LLC Designated and Engagement Partner Masaaki Doi
Hiroshi Miura
Takuya Obata

Note: Assistants to certified audit operations
Certified public accountants: 10; Others: 11 (those who have passed the certified public accountant exam and persons in charge of system audits)

(8) Audit CommitteeConvened 41 Times in year ended March 31, 2015Audit

Auditing Operations from a Risk Management Perspective

The Audit Committee conducts audits from a different perspective than the auditors and the Internal Auditing Division. 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. 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.

(9) The Compliance CommitteeConvened Four Times in year ended March 31, 2015

Focusing on Compliance as an Important Management Issue

The Compliance Committee, including external directors licensed to practice law as members, meets quarterly to address various risks facing the company. The Compliance Committee receives results and internal reports on "periodic compliance checks" that investigate the business operations of each division semiannually and on the nature of inquiries made at the "Compliance Hotline", which serves as a whistle-blowing system for the company, issuing reminders and recommendations as well as providing advice as necessary.

(8) The Remuneration CommitteeConvened Two Times in the fiscal year ended March 31, 2015

Recommending 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.

External Directors and Auditors

Using External Perspectives to Ensure Effective Governance

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 Directors 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 (nine staff) and Internal Audit Office (seven staff) provide support work to ensure that our external directors and external auditors can perform their duties effectively.

Board of Directors/Board of Corporate Auditors Rate of Attendance (Year ended March 2015)

  Name Independent director Reasons for selection Board of Directors/Board of Corporate Auditors
Rate of Attendance (Year ended March 2015)
External Directors Hiroshi Yasuda Appointed with overall consideration for character, business acumen and successive appointments to important posts Board of Directors Attended 16 of 16 meetings (100%)
Makoto Matsuo A legal professional able to provide precise guidance and advice and ensure the effectiveness of corporate governance Board of Directors Attended 14 of 16 meetings (87.5%)
Takayuki Morinaga Appointed with overall consideration for management experience at other companies, professional career, track record, and personal connections in the business world Board of Directors Attended 16 of 16 meetings (100%)
External Auditors Yoshihiko Iwasaki It was determined that his professional experience in tax administration would be of benefit to the company Board of Directors Attended 16 of 16 meetings (100%)
Board of Corporate Auditors Attended 16 of 16 meetings (100%)
Akihiko Matsuzaki Appointed to leverage the wealth of experience and knowledge accumulated during many years in law enforcement administration to help the company further enhance its corporate governance Board of Directors Attended 16 of 16 meetings (100%)
Board of Corporate Auditors Attended 16 of 16 meetings (100%)

Ratio of Internal Directors to External Directors

diagram: Ratio of Internal Directors to External Directors

Corporate Governance Initiatives

diagram: Corporate Governance Initiatives

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 39th among 3,422 listed companies in Japan in the "NEEDS-Cges" 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 1 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 8.75 points, placing us in the top 1.2% of Japan's listed companies. Our score also exceeded the average for all listed companies and for the industry, at 5.43 points and 7.60 points, respectively. Compared to last fiscal year, our score increased by 0.46 points. This was mainly because of an increase from 5 to 9 points in our "Board of Directors (organization)" rating due to improved ratio of external directors and reduced number of internal directors. We continued to receive the full 10 points for "shareholder and capital composition" and "information disclosure" important for corporate governance.

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.

Going forward, we continue making improvements based on consideration of external data to earn an even stronger assessment, and further promote the external visibility of our governance by posting this and other data on our corporate website.

Comparison of the Industry Average and the Average for All Listed Companies

diagram: Comparison of the Industry Average and the Average for All Listed Companies

Details of Capcom's Corporate Governance Assessment

Total Score 8.75
Rank 39
Categories Score
Capital efficiency 6
Equity market's assessment 9
Stability 7
Shareholder and capital composition 10
Board of Directors (organization) 9
Board of Directors (actions) 9
Shareholder returns 9
Information disclosure 10

Details of Highest Rated Categories

Highest Rated Categories Score Areas that Received Particular Notice
Equity market's assessment 9 Tobin's Q-related values
PBR-related values
Shareholder and capital composition 10 Ratio of institutional investor shareholdings
Ratio of foreign investor shareholdings
Cross-shareholding ratio
Board of Directors
(organization)
9 Board of Director members
Managing Corporate Officers
External director ratio
Board of Directors
(actions)
9 Amount of director treasury stock holdings
Amount of president's treasury stock holding
Shareholder returns 9 Shareholder return ratio
Dividend payout ratio (non-consolidated)
Information disclosure 10 Changes in accounting policy
Date of general shareholders' meeting
Corporate website

* Source: NEEDS-Cges from Nikkei Digital Media Inc.

Shareholders' Meeting Resolutions

The following presents the number of votes in favor, opposed or abstained for the matters to be resolved at the year ended March 31, 2015, general shareholders' meeting, the requirements for the resolutions to be passed and the results of voting.

Resolutions Approval Votes Votes Opposed Abstained Votes Approval Rate (%) Voting Results
First proposal: Proposed Appropriation of Retained Earnings 488,992 237 1,184 99.54 Approved
Second proposal: Appointment of 7 Directors          
 Kenzo Tsujimoto 485,411 3,820 1,184 98.81 Approved
 Haruhiro Tsujimoto 482,577 6,654 1,184 98.23 Approved
 Tamio Oda 469,558 19,672 1,184 95.58 Approved
 Yoichi Egawa 469,560 19,670 1,184 95.58 Approved
 Hiroshi Yasuda 485,744 3,487 1,184 98.88 Approved
 Makoto Matsuo 451,507 37,723 1,184 91.91 Approved
 Takayuki Morinaga 488,600 631 1,184 99.46 Approved
Third proposal:
Introduction of Countermeasures in Response to a Large-Scale Purchase of Shares of the Company (Takeover Defense)
367,305 121,925 1,184 74.77 Approved

Notes: Conditions for each proposal to be passed

  • (1) A majority of shareholders in attendance approved the first and third proposals.
  • (2) The second proposal could be approved with at least one-third of the company's shareholders with voting rights in attendance and with a majority approval of the voting rights of the applicable shareholders in attendance.
  • (3) The percentage of approval is calculated according to the following formula.
    Percentage of approval = number of voting rights for approval (votes exercised prior to the meeting + certain shareholders in attendance on the day of the meeting) ÷ number of votes (votes exercised prior to the meeting + shareholders in attendance on the day of the meeting)
  • (4) Reason why certain voting rights of shareholders in attendance were not added to the total number of voting rights
    The total confirmed number of votes in approval from the votes exercised prior to the meeting and certain shareholders in attendance on the day of the meeting fulfilled the requirements for each proposal. As a result, the number of voting rights for which confirmation was not made in terms of approval, opposition or abstention from shareholders in attendance on the day of the meeting were not counted because the proposals were legitimately approved in accordance with the Companies Act of Japan.
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