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Dialogue Between an External Director and Institutional Investors

Small Meeting

Held July 2016: Theme/ The Role Demanded of External Directors Under the New Governance Structure

Takayuki Morinaga, External Director and Chairman of the Audit and Supervisory Committee

Takayuki Morinaga
Capcom Co., Ltd. External Director,
Chairman of the Audit and Supervisory Committee

At the Shareholders' meeting in June 2016, the transition to a company with an audit and supervisory committee was approved and adopted. With consideration also for the evaluation of foreign shareholders, the transition was decided to function as a mechanism for supporting growth strategies going forward. In addition, by directly linking the Internal Audit Division to the Audit and Supervisory Committee, we will further strengthen audit and supervisory functions. This is an attempt to improve management's risk management function by making directors of auditors who traditionally had no voting power. As the Chairman of the Audit and Supervisory Committee, I feel it is important to have skills enabling me to accurately judge the appropriateness of strategies in response to a given situation.

Q&A Summary

QIn terms of game company growth strategies, how well the development structure and environment is established is an extremely important point, so what do you think your role should be as an external director?
AR&D department is Capcom's lifeline, which I am fully aware is an important asset. Thus, skill enhancement and other human resources development training is essential for improving our developers' capabilities. At the same time, we cannot ignore the efficacy of alliances and collaborations with other companies. I think it is desirable for management to skillfully utilize external resources in areas outside the Company's core competence or when it would take too much time for one company to achieve an objective alone. These are the kinds of proposals I want to make./dd>
QIn terms of your supervisory function as an external director, what do you attach the most importance to?
AThe most important evaluation criterion is whether an action leads to shareholder profits. For example, evaluations (risk control) concerning the legality and validity of executive division strategies, and decisions related to the pros and cons of executing takeover defense measures.
QIn your role as external director, in addition to that kind of risk management, aren't you also asked to correct the Company's trajectory to avoid missed opportunities? Looking at the profiles of all the current external directors, I get the impression that there is a lack of people able to provide advice on the direction of growth strategy. For example, other companies in this industry are raking in huge profits in the mobile games area. Has Capcom failed to achieve success in this area because there are few external directors with ample management experience?
ABeyond aiming to enhance corporate value, I am cognizant that course adjustments are also one of our critical roles. Risks pertaining to growth strategies involve investment risks as well as risks in not investing. The decision not to invest has the potential for a missed opportunity. In order for Capcom to break the 100 billion yen net sales barrier, , there are three issues I think need to be addressed: the aforementioned improvements to the development structure, aggressive and bold challenges in new areas such as mobile games and expanding into new, high-potential overseas markets, such as Asian. To achieve sustainable growth, we must not only manage risks, but also flexibly execute course adjustments. I will leverage my management experience up to now to fulfil this major role.
QAt an owner-run company like Capcom, to what degree are Audit and Supervisory Committee member opinions reflected in Board of Director resolutions? At various companies around the world, family feuds are becoming a problem. This isn't an issue at Capcom?
AChairman Tsujimoto possesses a unique and excellent management intuition, a skill most ordinary managers are unable to replicate. Thus, I want to respect the distinctiveness that is the positive aspect of an owner-run company. Even in the event rash actions are taken, there are at present six external directors comprising a governance structure able to provide sufficient protection. It's not at all the case that just because this is an owner-run company no one can say anything. We routinely say whatever is on our mind and fully express our opinions. Also, debates during Board of Director meetings frequently become heated, but this is not a problem. If anything, without constructive and passionate discussions, we would probably be unable to generate truly effective measures and polices.
QHow have you responded to recent requests for Board of Director evaluations?
AIn light of our transition to a new governance structure, our policy is to continue exploring the ideal state of the Board of Directors. We plan to begin examining this issue during the current fiscal year, so right now I would ask you to please wait a bit longer until we have come to a conclusion with respect to the evaluation criteria.
QI want you to discuss your thoughts regarding how to indicate objectives to investors going forward.
AWe will not only simply respond to market changes, but also want to pursue business that I hope enables us to create markets ourselves. There is no first-mover advantage in following changes. Rather than focusing on how to pursue, it is important to focus on how we can create markets on our own. To this end, we external directors will proactively propose structures and directions for the Company.

Participants

Capcom Co., Ltd. :

Takayuki Morinaga (External Director, Chairman of the Audit and Supervisory Committee)/Tamio Oda (Director, Audit and Supervisory Committee)/ Kenkichi Nomura (Director, Executive Corporate Officer and Chief Financial Officer)

Investors in Attendance :

Akitsugu Era (BlackRock Japan Co., Ltd.)/Iichiro Yamaguchi (Daiwa Asset Management Co. Ltd.)/Daisuke Oshidari (JPMorgan Asset Management (Japan) Ltd.)/ Kenji Kido (Mizuho Trust & Banking Co., Ltd.)/Tomoaki Ito (Nikko Asset Management Co., Ltd.)/ Mitsuyasu Iwao (Nissay Asset Management Corporation)/Naoki Iwata(Nomura Asset Management Co.,Ltd.)/Akio Otani (Tokio Marine Asset Management Co., Ltd.)

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