CAPCOM IR

(as of December 6, 2011)

Corporate governance encompasses many activities: maintaining the transparency, soundness and legality of management; fulfilling the obligation to explain operations to all stakeholders; quickly and properly disclosing information; clearly defining the responsibilities of senior executives and managers at all levels; and establishing a system of internal controls. We position corporate governance as one of our highest management priorities and have many corporate governance activities. For this page, we will explain our corporate governance system, a corporate governance diagram, internal control and compliance system.

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.

Management Decisions that IncorporateOutside Opinions
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.

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 Business Audit Committee, Audit Office and auditors mutually cooperate and meet regularly to exchange information and opinions.

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.

The Business 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 Business 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.

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.

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.

Capcom has engaged PricewaterhouseCoopers Aarata 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.

For the fiscal year 2010, the following certified public accountants and assistants performed the financial audit at Capcom.

Certified public accountants assigned to Capcom
Designated and engagement partner: Shigeru Takahama, engagement partner: Masahiko Hagimori
Assistants for financial auditing operations
Three certified public accountants and 13 others
Note: The 13 others are individuals who have newly passed the CPA examination and individuals responsible for IT auditing systems.

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.

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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.

Name	Reasons for selection and Board of Directors / Board of Corporate Auditors Rate of Attendance
Koji Takito	Selected as an individual with the skills to help ensure legal compliance based on work experience, insight, experience and other factors. Attended 15 of 16 board meetings and all corporate auditor meetings in fiscal 2010.
Shigeru Miki	Selected based on an overall assessment including knowledge as a legal professional, wealth of experience and other factors.

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Capcom Chairman and CEO Kenzo Tsujimoto and external Director Makoto Matsuo, Attorney at Law, discuss the current status of the Company’s corporate governance and compliance functions, issues involving future growth, the vital role played by external directors and a variety of other topics.

In the fiscal year 2010, Capcom paid the following amounts to its directors and corporate auditors and for auditing services.

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.

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.

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. Groupwide management structure
   Capcom’s groupwide legal compliance framework aims to ensure sound corporate governance and the appropriate management of compliance risks by maintaining close communications with subsidiaries, monthly subsidiary board meetings and the establishment of “management regulations for subsidiaries”.
6. 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.

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.

To manage the various risks faced by the company, Capcom established a Compliance Committee that meets once every three months and is chaired by an external director who is a qualified attorney. At each of its quarterly meetings, the committee conducts a “periodic compliance check” of all divisions and departments. In accordance with the company’s internal reporting system, the results are reported via its “Compliance Hotline”. In addition, the results reported to the Board of Directors through the Compliance Committee. Warnings, recommendations and advice are given to concerned parties as circumstances demand.
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, conducted compliance training sessions for new employees and created a handbook using illustrations and easy to understand Q&A examples to facilitate a better understanding of the “Capcom Group Code of Conduct”, which was distributed to all employees. Also, “e-learning sessions on legal compliance and personal information protection rules” were conducted for all employees. Also, a seminar was held for employees who handle personal information, and a periodic compliance check was conducted, covering the proper issuance of documents and handling of company information, as well as a Q&A session and follow-up announcements and alerts on the company intranet.
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. Furthermore, in accordance with the Whistleblower Protection Act, we have established “Corporate Ethics Hotline Usage Provisions” and set up a “Compliance Hotline”. In these ways, we are striving to create an environment that will provide flexibility for internal notification by employees and help prevent illegal or inappropriate actions and take corrective actions.

In response to the “Act on the Protection of Personal Information (Personal Information Protection Regulations)”, we formulated and provided companywide notification of a “Personal Information Protection Program” and instituted “Basic Policies on Information Security” and “Personal Information Protection Rules”. We also disclose our privacy policies internally and to the public. We will continue to conduct training programs and awareness-raising activities for our employees to maintain the effective functioning of our privacy protection process.