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Principal Discussions at
Board of Directors Meetings Held in Fiscal 2015

Board of Directors

At Capcom Board of Directors Meetings, three external directors take the lead in offering aggressive opinions and advice to ensure management transparency and corporate health. (As of March 31, 2016) In addition, they focus on promoting growth strategies utilizing corporate governance, vigorously discuss the ideal state of the Company's organizational design related to corporate governance and their accountability to shareholders and investors. The heated discussion with external directors produced numerous suggestions, two of which are presented in this section.

Note:Light blue highlights indicate external director comments.Mr. Iechika was appointed to the board as an external director for five years beginning in 2002. Legally, he was not an external corporate auditor, but in practice, he conducted audits in the same capacity as an external corporate auditor.

Item 1

Discussion on Corporate Governance Codes (Hereinafter, "Codes")

Oda
The Code, which went into effect as of June 2015 in Japan, consists of 73 principles. To ensure continuity within the organization and its mechanisms and promote growth strategies, in addition to providing more substantial content for the 26 items that we must focus more of our efforts on, which include expanded business execution functions and the establishment of a nominating committee, Capcom plans to disclose in total all 73 items.
Matsuo
Allow me to ask: what is the reason for publishing all items?
Oda
For example, even if we were to only disclose the compulsory 11 items, the Code does not define each of the terms but rather the Company interprets them; thus, in the case that we comply (and thus are not required to explain ourselves), there is the possibility of a difference in interpretations arising. For this reason, we will record items that clearly require an explanation (due to non-compliance) under "explain," while at the same time disclosing Capcom's view on all 73 items.
Matsuo

Going forward, each company must disclose their response to the Code. I think some companies will disclose only the bare minimum, while others will take the opportunity to carefully disclose their point of view. Considering the risk of mistakenly assuming a company is in compliance, from the perspective accountability, Capcom believes it appropriate to disclose descriptions of all items.

Iechika

I don't object to Capcom adopting this stance, but it appears there are several incomplete descriptions. For example, in supplementary principle 4.11.3 "Analysis and Evaluation of Board of Director Effectiveness," there is a description of internal control systems, but there is no description regarding Board of Director deliberations, thus from a self-evaluation perspective this response is insufficient. I would like to see disclosure pertaining to analysis and evaluation packed with concrete details, including preparations for Board of Director meetings, the provision of materials, explanation of items for deliberation as well as agenda selection policies and board discussions aimed at improving efficacy. Furthermore, operations after the Code is submitted are critical, thus I would like Capcom to continue making improvements in areas where there are deficiencies going forward.

Oda
As you point out, self-evaluation of these principles is important. To execute growth strategies, we need to compare the current and ideal states of the Board and of course make improvements in areas where there are differences. Moreover, in item (4) of the explanation of this supplementary principle, details regarding Board of Director meeting discussions and small meetings with external director Morinaga among other initiatives are disclosed in the integrated report. Our adoption of proxy advisor opinions has been well received outside the Company.
Matsuo
This particular code is for institutional investors in the U.S. and Europe, so we can consider externally entrusting supplementary principle 4.11.3. I personally think of takeover defense measures up to now and the introduction of this code as opportunities, and that the Company, which has utilized the transition to a company with audit and supervisory committee as a contributor to its growth strategies, is more keenly aware of governance compared to other companies.
Iechika

Rather than an end in itself, governance is a means to an end. To achieve results, we need to use the code appropriately rather than wave it around.

Kenzo Tsujimoto

Management entails taking on risk. Use of the code is the means by which to control risk. We must constantly review our governance structure and control risks to develop a future vision and move forward.

Item 2

Discussion on the Transition to a Company with Audit and Supervisory Committee

Morinaga
(In response to an explanation) If organizational design is for promoting growth strategy, I think the company with a board of corporate auditors we have operated under up to now functions sufficiently. At the present time, is there something we are lacking?
Oda
The global video game software market is undergoing significant changes and growth, so we must promote an aggressive growth strategy to enhance Capcom's corporate value. To promote these growth strategies, speedy and accurate decision-making are a necessity. Under certain conditions, in a company with audit and supervisory committee, some of the important business execution can be delegated to the president and other executive directors. Comprehensive audit and supervisory functions are necessary for ensuring appropriate delegation. As the monitoring of legality in a company with audit and supervisory committee is conducted as a matter of course, the monitoring is also verified. For this reason, auditing and supervisory committee members have Board of Director voting rights as corporate directors. For Capcom to grow, I think this transition is a good idea.
Matsuo

In addition to auditing focused on legality up to now and internal auditing of execution, there is merit in this transition as it will strengthen the monitoring function by enabling validity monitoring. As a result, as we execute growth strategies, we will be able to ensure a system for monitoring deviations in budgetary and financial management.

Iechika
Governance configuration is a means not an end. For example, when considering and executing policies aimed at enhancing corporate value, the degree to which we are able to make effective judgements is an issue of governance. Furthermore, the audit and supervisory committee is hybrid governance, so we must sufficiently consider the relationship between execution and supervision. By absorbing auditors into the Board of Directors, auditor and supervisory committee member independence will be lost, resulting in the issue of how to distribute authority. Finally, with respect to agenda criteria at Board of Director meetings, after considering Capcom's present situation, I'd like you to consider what agenda items would be narrowed down and delegated to the president, etc., to enable the Board of Directors to make the most of its traditional function.
Kenzo Tsujimoto
There are many agenda items brought up as resolutions with content sufficient for reporting items, such as management system and partial personnel reshuffling. In terms of forward-looking policies, audit and supervisory committee members make decisions from a stance different from business execution, and we will create an organizational structure able to narrow down important issues for discussion at Board of Director meetings.
Matsuo
A company with audit and supervisory committee is a good institutional design in terms of governance strength from the perspective of overseas institutional investors. In addition, we can expect effective governance due to director, audit and supervisory committee member terms of office. Furthermore, governance is not over once mechanisms are created, because the way in which perations are conducted is also important. Transitioning from a company with a board of corporate auditors with a complete auditing function to a company with audit and supervisory committee with a new auditing function requires a considerable amount of investigative work, including external directors, thus I would like you to respond after careful consideration.
Iwasaki
As a mechanism of internal control and internal audit, until now it was under the Board of Directors, which itself had been audited by the Board of Corporate Auditors. Transitioning to an audit and supervisory committee, audit and supervisory committee members will be part of the Board of Directors, with internal controls and internal auditing directly under the audit and supervisory committee, enabling the efficient execution of business. However, as the audit function in each department up to now will be dissolved, you need to consider how you are going to respond.
Oda
Understood.
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