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IR Top Page > Management Objectives > Corporate Governance Report

コーポレートガバナンス報告書

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(as of June 18, 2019)

PDF Corporate Governance Report (PDF: 852KB/69pages)

Ⅰ. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information

1. Basic Views

The Company is aware that comprehensive corporate governance ranks among management's most important priorities. Therefore, the Company aims to improve its corporate value by enhancing the soundness and transparency of corporate management and by building a relationship of trust with stakeholders including shareholders, business partners, employees and the local community.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code]

Supplementary Principle 4.2.1
The remuneration of the Company's directors (excluding external directors and directors who serve as members of the Audit and Supervisory Committee) consists of the fixed monthly remuneration and short-term performance-linked remuneration in the form of bonus payment in cash for a single fiscal year, which is determined by the Board of Directors after receiving advice from the Nomination and Remuneration Committee, a voluntary committee made up by a majority of independent external directors chaired by an independent external director. It should be noted that stock-based compensation plans using own shares such as those that are common overseas could give rise to the pursuit of short-term profit and excessive risk-taking. Therefore, the Company believes that the introduction of a stock-based compensation plan requires repeated discussions by the Board of Directors and the Nomination and Remuneration Committee, as well as thorough deliberation of the appropriateness of such a plan, and the Company has yet to introduce a stock-based compensation plan using its own shares.

Supplementary Principle 4.11.3
Each year, the Company works on improving the functions of the Board of Directors (such as making discussions active and reviewing matters to be discussed at the Board of Directors' meetings) in addition to the efforts to exchange opinions among executive directors and external directors as deemed required to discuss the role and the enhancement of the Board of Directors, and substantively takes action based on this Principle including making efforts to gain stakeholders' confidence through constructive dialogue with shareholders and institutional investors, etc. However, the Company has not conducted any analysis/evaluation in specific terms (e.g., questionnaire surveys, interviews) regarding the effectiveness of the Board of Directors as a whole, as the Company has not found to date that such analysis/evaluation would be particularly useful.

[ Disclosure Based on the Principles of the Corporate Governance Code ]

The "Corporate Governance Code Comply/Explain" of all 78 principles including General Principles, Principles and Supplementary principles is attached to this report.

2. Capital Structure

Foreign Shareholding Ratio More than 30%
[ Status of Major Shareholders ]
Name / Company Name Number of Shares Owned Percentage (%)
Crossroad Co., Ltd. 10,682,600 10.01
The Master Trust Bank of Japan, Ltd. (Trust Account) 4,301,100 4.03
Japan Trustee Services Bank, Ltd. (Trust Account) 4,089,300 3.83
Yoshiyuki Tsujimoto 4,038,900 3.78
Kenzo Tsujimoto 4,019,280 3.77
JPMC Oppenheimer Jasdec Lending Account 3,488,000 3.27
Haruhiro Tsujimoto 3,099,000 2.90
Ryozo Tsujimoto 3,091,900 2.90
BNYM as AGT/Clients 10 percent 2,248,961 2.11
State Street Bank and Trust Company 505001 2,138,669 2.00
Controlling Shareholder (except for Parent Company) ―――
Parent Company None

Supplementary Explanation

Please note that "Number of Shares Owned" in the table above is based as of March 31, 2019 and the Company excludes its treasury stock of 28,695,180 shares from the outstanding shares.

3. Corporate Attributes

Listed Stock Market and Market Section Tokyo Stock Exchange
First Section
Fiscal Year-End March
Type of Business Information & Communication
Number of Employees (consolidated) as of the End of the Previous Fiscal Year More than 1,000
Sales (consolidated) as of the End of the Previous Fiscal Year From ¥100 billion to less than ¥1 trillion
Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year From 10 to less than 50

4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder

———

5. Other Special Circumstances which may have Material Impact on Corporate Governance

Although the Company does not have a parent company or listed subsidiaries, it strives for the optimization of the Group as a whole, under strategic group management. Through efficient business allocation and information sharing by establishing an inter-company network, its business developments that unified domestic and overseas affiliates bring synergy effects and higher corporate value. As of today, the Company is not aware of any concerning matters that could significantly affect its business performance. Nonetheless, for the prevention of risks and ensuring swift and proper measures in case of an emergency, the Compliance Committee has been established. Should an unexpected situation occurred, an emergency task force will be established according to the Risk Management Rules. In addition to ensuring compliance through ongoing monitoring, the Company is improving the risk management system to be fully prepared for the unexpected.

Ⅱ. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management

1. Organizational Composition and Operation

Organization Form Company with the Audit and Supervisory Committee
[ Directors ]
Maximum Number of Directors Stipulated in Articles of Incorporation 15
Term of Office Stipulated in Articles of Incorporation 1
Chairperson of the Board Company Chairperson (except when concurrently serving President)
Number of Directors 11
Number of Outside Directors 5
Number of Independent Directors 5

Outside Directors' Relationship with the Company (1)

Name Attribute Relationship with the Company*
a b c d e f g h i j k
Masao Sato Other                      
Toru Muranaka Lawyer                    
Yutaka Mizukoshi Other                      
Yoshihiko Iwasaki Other                      
Makoto Matsuo Lawyer                    

* Categories for "Relationship with the Company"
* "○" when the director presently falls or has recently fallen under the category;
  "△" when the director fell under the category in the past
* "●" when a close relative of the director presently falls or has recently fallen under the category;
  "▲" when a close relative of the director fell under the category in the past

a. Executive of the Company or its subsidiaries
b. Non-executive director or executive of a parent company of the Company
c. Executive of a fellow subsidiary company of the Company
d. A party whose major client or supplier is the Company or an executive thereof
e. Major client or supplier of the listed company or an executive thereof
f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director/kansayaku
g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a legal entity)
h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) (the director himself/herself only)
i. Executive of a company, between which and the Company outside directors/kansayaku are mutually appointed (the director himself/herself only)
j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only)
k. Others

Outside Directors' Relationship with the Company (2)

Name Membership of the Audit and Supervisory Committee Designation as Independent Director Supplementary Explanation of the Relationship Reasons of Appointment
Masao Sato ——— ———

The Company appointed him as External Director given that, although he has never participated in the management of companies other than by serving as External Director and External Corporate Auditor, he had engaged in the administration of the National Police Agency for many years and has extensive expertise and a wealth of experience with respect to laws in general. He has been giving recommendations and counsel from an impartial and objective viewpoint, and is expected to contribute to the enhancement of audit and supervision of the Board of Directors from the viewpoint of managing risks and ensuring legitimacy, among others.

He is clear on the independence checks defined by the Tokyo Stock Exchange. Accordingly, the Company determines that he is unlikely to have a conflict of interest with the general shareholders, and files him as an independent director to the Tokyo Stock Exchange.

Toru Muranaka ———

He is a member of Legal Professional Corporation (LPC) Dai-Ichi Houritujimusho with which the Company has entered into legal counsel agreement. Since the total amount involved in transactions between the two parties on an annual basis accounts for less than one (1) % of consolidated net sales of the Company and less than ¥10 million, the Company made judgment that such agreement does not affect the independence of External Director as he meets to the criteria laid down by the Company.

The Company appointed him as External Director given that, although he has never participated in the management of companies other than by serving as External Director and External Corporate Auditor, he is a lawyer specializing in such fields as the Companies Act and the Financial Instruments and Exchange Act with a high level of expertise as well as broad insight and knowledge, and he has been giving recommendations and counsel on such matters as legitimacy and validity from an expert's perspective, and is expected to contribute to the enhancement of audit and supervision of the Board of Directors from legal and other viewpoints.

He is clear on the independence checks defined by the Tokyo Stock Exchange. Accordingly, the Company determines that he is unlikely to have a conflict of interest with the general shareholders, and files him as an independent director to the Tokyo Stock Exchange.

Yutaka Mizukoshi ——— ———

The Company appointed him as External Director given that he has expertise in management analysis, formulation of management strategy, etc. stemming from many years of experience in and knowledge of the consultancy business and has proactively been giving his opinions and making proposals from an independent standpoint based on his deep insight into economic trends and his international sensibility, and is thus expected to contribute to the enhancement of audit and supervision of the Board of Directors from an outsider's perspective. He is clear on the independence checks defined by the Tokyo Stock Exchange. Accordingly, the Company determines that he is unlikely to have a conflict of interest with the general shareholders, and files him as an independent director to the Tokyo Stock Exchange.

Yoshihiko Iwasaki ―――

The Company appointed him as External Director and a member of the Audit and Supervisory Committee given that, although he has never participated in the management of companies other than by serving as External Director and External Corporate Auditor, he has financial and accounting knowledge in addition to expertise and a wealth of experience in tax administration, and is thus expected to contribute to the enhancement of audit and supervision of the Board of Directors in the light of his expertise with giving counsel, advice, etc. from an outsider's perspective.

He is clear on the independence checks defined by the Tokyo Stock Exchange. Accordingly, the Company determines that he is unlikely to have a conflict of interest with the general shareholders, and files him as an independent director to the Tokyo Stock Exchange.

Makoto Matsuo

He is a partner lawyer of Momoo Matsuo & Nanba with which the Company has entered into legal counsel agreement. Since the total amount involved in transactions between the two parties on an annual basis accounts for less than one (1) % of consolidated net sales of the Company and less than ¥10 million, the Company made judgment that such agreement does not affect the independence of External Director as he meets to the criteria laid down by the Company.

Since he actively engages in the legal community based on a high level of professional knowledge and a wide range of insight and thought as a lawyer as well as is acquainted with the business world through abundant experience accumulated by a lot of career as external officer of numerous number of listed companies, he delivers guidance and advice from legal and other viewpoints at the Board of Directors and the like.

He is expected to reflect professional knowledge on management of the Company. Therefore, the Company appointed him as External Director and a member of the Audit and Supervisory Committee, although he has no direct management experiences for the private companies other than acting as External Directors and/or External Corporate Auditors. He is clear on the independence checks defined by the Tokyo Stock Exchange. Accordingly, the Company determines that he is unlikely to have a conflict of interest with the general shareholders, and files him as an independent director to the Tokyo Stock Exchange.

[ The Audit and Supervisory Committee ]

Committee's Composition and Attributes of Chairperson

  All Committee Members Full-time Members Inside Directors Outside Directors Chairperson
The Audit and Supervisory Committee 3 2 1 2 External (Outside) Director
Appointment of Directors and/or Staff to Support the Audit and Supervisory Committee Appointed

Matters Related to the Independence of Such Directors and/or Staff from Executive Directors

The Audit and Supervisory Committee aims to ensure the effective functioning of internal control through the auditing of business execution by directors and employees in accordance with the audit policies, as well as by submitting audit findings and giving recommendations for correction and advice thereof as necessary. Accordingly, in order to enable the Audit and Supervisory Committee to perform its duties in a smooth and appropriate manner, the Audit and Supervisory Committee directly supervises the Internal Audit Division, etc., as organizations where sixteen dedicated staff members are in charge of performing tasks as assistants under the instructions of the Committee, and the Company ensures the consent from the Audit and Supervisory Committee is obtained regarding the personnel relocation of such staff members.

Cooperation among the Audit and Supervisory Committee, Accounting Auditors and Internal Audit Departments

The Audit and Supervisory Committee primarily serve to monitor management from the perspective of operational audit. Accounting auditors perform audits from an accounting standpoint. The Audit and Supervisory Committee and accounting auditors consult one another as necessary, and exchange opinions and information, to enhance and improve both audits through interaction and cooperation.

Furthermore, the Company has established the Internal Audit Division, etc., as the internal audit department supporting the Audit and Supervisory Committee which monitors all divisions regularly, perform information gathering and analysis regarding legality, validity, efficiency, etc., including group companies, and report audit results to the Audit and Supervisory Committee. Such audit results are reported to the Board of Directors by the Audit and Supervisory Committee. In addition, if an unforeseen event occurs, the relationship of cause and effect is quickly investigated and analyzed and reported to the Board of Directors by the Audit and Supervisory Committee in order to help the adequate managerial judgment and minimize losses.

On the other hand, based on the reports provided by the Audit and Supervisory Committee, the Board of Directors accurately identifies business risks or inefficient businesses within the Company Group and strives to prevent any crisis and to improve business operations.

[ Voluntary Establishment of Nomination/Remuneration Committee ]
Voluntary Establishment of Committee(s) Corresponding to Nomination Committee or Remuneration Committee Established

Committee's Name, Composition, and Attributes of Chairperson

  Committee Corresponding to
Nomination Committee
Committee Corresponding to
Remuneration Committee
Committee's Name Nomination and Remuneration Committee Nomination and Remuneration Committee
All Committee Members 5 5
Full-time Members 0 0
Internal Director 2 2
External Directors 3 3
Outside Experts 0 0
Other

0

0
Chairperson External (Outside) Director External (Outside) Director

Supplementary Explanation

(ⅰ) The Nomination and Remuneration Committee (voluntary) consists of the following five directors (i.e., two internal directors and three external directors) including a majority of external directors. Each member of the Nomination and Remuneration Committee has been selected by the Board of Directors in consideration of his knowledge, insight, experience, etc.

Yoshihiko Iwasaki (Chairman of the Committee, Full-time Audit and Supervisory Committee Member, External Director)
Kenkichi Nomura (Internal Director)
Yutaka Mizukoshi (External Director)
Kazushi Hirao (Full-time Audit and Supervisory Committee Member, Internal Director)
Makoto Matsuo (Full-time Audit and Supervisory Committee Member, External Director)

(ⅱ) The Nomination and Remuneration Committee held three meetings in the fiscal year ended March 31, 2019, in response to the Board of Directors' request for advice on the nomination or remuneration of directors, etc. The five members of the Nomination and Remuneration Committee attended all meetings of the Committee. No secretariat has been established for the Nomination and Remuneration Committee.

(ⅲ) The following are the principal matters considered when advice is sought.

a. Nomination-related matters subject to consideration
(a) Policy for selecting candidates for directors to be proposed at the general meeting of shareholders
(b) Selection of candidates for directors to be proposed at the general meeting of shareholders
(c) Selection of corporate officers (Shikko Yakuin)
(d) Selection of corporate officers (Shikko Yakuin) with special titles
(e) Plan for successor, etc.

b. Remuneration-related matters subject to consideration
(a) Policy for directors' remuneration, etc.
(b) Fixed remuneration and performance-linked remuneration
(c) Performance evaluation related to individual remuneration
(d) Performance evaluation related to bonus, etc.

[ Independent Directors ]
Number of Independent Directors 5

Matters relating to Independent Director

The Company's three external directors and two external directors of the Audit and Supervisory Committee all meet requirements of independence, and therefore, all of them are designated and filed as independent director.

[ Incentives ]
Incentive Policies for Director None

Supplementary Explanation

The Company has introduced short-term performance-linked remuneration in the form of bonus payment in cash for a single fiscal year, which is calculated as follows by the Board of Directors based on advice in consideration of the following factors given by the Nomination and Remuneration Committee in response to the Board of Directors' request to the Committee for its advice.

(ⅰ) Monthly remuneration (fixed remuneration)
(ⅱ) Degree of attainment of consolidated operating income
(ⅲ) Performance evaluation for each director

Recipients of Stock Options ———

Supplementary Explanation

———

[ Director Remuneration ]
Disclosure of Individual Directors' Remuneration No Individual Disclosure

Supplementary Explanation

The remuneration paid to directors of the Company for the fiscal year ended March 31, 2019 was as follows:

Remuneration paid to directors (excluding members of the Audit and Supervisory Committee) 386 million yen for 9 persons (301 million yen as basic remuneration and 85 million yen as bonus)
including 29 million yen for 4 external directors (29 million yen as basic remuneration
Remuneration paid to directors who serve as members of the Audit and Supervisory Committee 56 million yen for 4 persons (56 million yen as basic remuneration)
including 35 million yen for 3 external directors (35 million yen basic remuneration)

(Note)
The above figures include remuneration for one external director who is not a member of the Audit and Supervisory Committee and one external director and member of the Audit and Supervisory Committee who both retired as at the end of the 39th Ordinary General Meeting of Shareholders held on June 11,2018.

Policy on Determining Remuneration Amounts and Calculation Methods Established

Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods

1. The remuneration of the directors other than directors who serve as members of the Audit and Supervisory Committee
The remuneration of the Company's directors (excluding directors who serve as members of the Audit and Supervisory Committee) is determined by the Board of Directors based on advice given by the Nomination and Remuneration Committee chaired by an external director about the amount deemed reasonable after taking into consideration each director's position, his/her job responsibilities, how long he/she has been in office, whether he/she is an executive director or non-executive director and other such factors and evaluating his/her performance as an individual, in response to the Board of Directors' request to the Committee for advice, for the purpose of ensuring its transparency and fairness.

(ⅰ) Monthly remuneration is fixed.

(ⅱ) The amount of bonus is determined within the reasonable range based on the monthly remuneration and the Company's performance.

2. The remuneration of the directors who serve as members of the Audit and Supervisory Committee
The remuneration of the directors who serve as members of the Audit and Supervisory Committee is not linked to the Company's earnings, but is fixed in amount from the perspective of securing their independence and thus determined through discussions, taking full-time/part-time status and other such factors into account, among the directors who serve as members of the Audit and Supervisory Committee.

[ Supporting System for Outside Directors ]

The staff members of the Executive Secretariat Office provide assistance to external directors excluding directors who serve as members of the Audit and Supervisory Committee, as do the dedicated staff members of the Internal Audit Division, etc., to external directors who serve as members of the Audit and Supervisory Committee.

[ Retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) ]

Information on retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.)

Name Job title/position Responsibilities Employment terms Date when Term
——— ——— ——— ——— ——— ———
Number of retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) 0

Others

The Company has open position for advisory functions. No ex-President and ex-Representative Director is assigned.

2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)

(1) Measures, etc. to enhance business execution, audit function, etc.

(ⅰ) The Company was changed to a company with an audit and supervisory committee in June 2016, and members of its audit organization—i.e., the Audit and Supervisory Committee—has voting rights for resolutions at the Board of Directors' meetings.

(ⅱ) In the audits of the Audit and Supervisory Committee, audit of business validation is added on top of audit of legality, enabling broad supervision of management in general and thus further enhancing the supervision function.

(ⅲ) At the Company, which partially delegates the authority for making major operational decisions to the representative director(s), etc., productive deliberations have been sought and the frequency of the Board of Directors' meetings has been reduced by narrowing down the matters to be discussed at the Board of Directors' meetings to highly important agendas.

(ⅳ) This has resulted in higher efficiency of business execution through prompt decision-making for execution of business and agile business development.

(2) Status of activities in business execution and audit/supervision process

(ⅰ) The Company has adopted the "Shikko Yakuin"(corporate officer) system, and strives to improve its management efficiency by the clarification of the roles and responsibilities of directors who concentrate on supervision and monitoring of the Company and those of corporate officers who concentrate on business execution, combined with the prompt execution of business by corporate officers based on executive directors' instructions regarding important matters, etc. decided by the Board of Directors.

(ⅱ) The status of principal activities is as follows:

a. Board of Directors
The Board of Directors is chaired by the Chairman and Representative Director and consists of 11 directors, of whom five (45%) are external directors. In the fiscal year ended March 31, 2019, the Board of Directors held 10 meetings; in addition to deliberating important matters prescribed by laws and regulations and the Board of Directors Rules, the Board of Directors strives to enhance the supervision function through external directors' suggestions, proposals, forthcoming comments, etc. The General Affairs Department serves as the secretariat for the Board of Directors, and three persons are in charge of its secretariat duties.

b. Audit and Supervisory Committee

(a) The Audit and Supervisory Committee is chaired by an external director and consists of three directors (including two full-time members of the Audit and Supervisory Committee), of whom two are external directors. In principle, the Audit and Supervisory Committee holds a meeting before the time at which the Board of Directors' meeting is convened, and held 10 meetings in the fiscal year ended March 31, 2019. The Audit and Supervisory Committee deliberates important matters, etc. prescribed by the Audit and Supervisory Committee Rules, and makes efforts to enhance audit and supervision.

(b) Members of the Audit and Supervisory Committee selected by the Audit and Supervisory Committee conduct field audits in person, and in order to improve the effectiveness of audits, conduct organized audits in a flexible manner including giving instructions as appropriate to the Internal Audit Division, etc., which is under the direct control of the Audit and Supervisory Committee.

(c) The Internal Audit Division, etc. consist of 16 employees.

(d) The Internal Audit Division, etc. make a report to the Audit and Supervisory Committee on the status of audits, improvements and deficiencies/recommendations pointed out and make other such efforts for the effective functioning of audits.

c. Corporate Management Council
The Corporate Management Council is chaired by the Chairman and Representative Director and consists of six internal directors. In principle, the Corporate Management Council not only holds a meeting a number of days before the Board of Directors' meeting but also holds a meeting whenever necessary. In the fiscal year ended March 31, 2019, the Corporate Management Council held 18 meetings. Meetings are convened for the purpose of preliminary deliberation of matters to be discussed at the Board of Directors' meetings and discussion of cases regarding other matters, etc. The Corporate Planning Department serves as the secretariat for the Corporate Management Council, and three persons are in charge of its secretariat duties.

d. Board of Corporate Officers (Shikko Yakuin)
The Board of Corporate Officers consists of 21 corporate officers (of whom four concurrently serve as directors). At the Board of Corporate Officers' meetings, corporate officers report the status of business execution, share information with each other and exchange opinions on matters regarding cases, issues to be tackled, etc.
In principle, the Board of Corporate Officers is required to hold a meeting in the last ten days of each month; 13 meetings were held in the previous fiscal year. The Corporate Planning Department serves as the secretariat for the Board of Corporate Officers, and three persons are in charge of its secretariat duties.

e. Compliance Committee
The Compliance Committee consists of 10 directors, half (i.e., five) of whom are external directors, and is chaired by an external director who is qualified as a lawyer. In principle, the Compliance Committee holds quarterly meeting and held four meetings in the fiscal year ended March 31, 2019.
Its main activities are as follows;

(a) To amass the information from the Company and its group companies, evaluate any possible internal risks related to compliance and deliberate on the countermeasures thereto.

(b) To make report on probabilities, etc. of exposure of inherent risks to the Board of Directors.

(c) To take proactive actions to prevent possible illegal conducts and tort-claims at the earlier stage. The Internal Audit Division serves as the secretariat for the Compliance Committee, and four persons are in charge of its secretariat duties.

f. Internal Audit Division, etc.
The Company has established the Internal Audit Division, etc. to conduct effective audits. The Internal Audit Division, etc. consist of 16 employees and determine such matters as the audit policy, audit plan, audit method and division of duties after the conclusion of the general meeting of shareholders.
The Internal Audit Division, etc. perform verification, evaluation, etc. of the status of business execution and the effectiveness and operating status of the internal control system, make a report to the Audit and Supervisory Committee, and as necessary, conduct field audits of offices, domestic and overseas subsidiaries, etc. by accompanying the selected members of the Audit and Supervisory Committee.

(3) Policy and procedure for determining nomination of candidates for directors (excluding directors who serve as members of the Audit and Supervisory Committee) and directors who serve as members of the Audit and Supervisory Committee and remuneration of senior management and directors

When determining the nomination of candidates for directors (excluding directors who serve as members of the Audit and Supervisory Committee) and directors who serve as members of the Audit and Supervisory Committee and the remuneration of such directors (excluding directors who serve as members of the Audit and Supervisory Committee), advice is sought from the Nomination and Remuneration Committee (voluntary) from the standpoint of objectivity, transparency and fairness, and the decision is made by the Board of Directors based on the Committee's advice.
The Nomination and Remuneration Committee works out the basic plan for the amount of remuneration of directors (excluding directors who serve as members of the Audit and Supervisory Committee) on an individual basis within the limit of remuneration of directors approved by resolution of the general meeting of shareholders and advises the Board of Directors of such plan. It should be noted that the amount of remuneration of individual directors who serve as Audit and Supervisory Committee members is determined through discussions by the directors who serve as Audit and Supervisory Committee members.

(4) Liability limitation agreement

The Company has entered into a liability limitation agreement that limits the liability for damages referred to in Article 423, paragraph (1) of the Companies Act pursuant to the provision of Article 427, paragraph (1) of said Act with all three external directors who do not serve as members of the Audit and Supervisory Committee as well as all three directors who serve as members of the Audit and Supervisory Committee.
Under such agreement, the amount of liability for damages is limited to the minimum liability amount prescribed by laws and regulations.

(5) Status of audits by members of the Audit and Supervisory Committee and internal audits

(ⅰ) The Audit and Supervisory Committee consists of three directors, with two external directors comprising a majority, and is chaired by an external director. Two directors of the Committee hold professional knowledge on finance and accounting.

(ⅱ) The Audit and Supervisory Committee performs its audit on the performance of executive directors as well as the effectiveness of the internal control system of the Company group.

(ⅲ) The Audit and Supervisory Committee performs such tasks as formulating the audit policy and audit plan after the conclusion of the general meeting of shareholders, assigning duties to members of the Committee, selecting full time members of the Committee, appointing selected members of the Committee and selecting the chairperson of the Committee.

(ⅳ) Selected members of the Audit and Supervisory Committee conduct field audits of operational divisions, offices and domestic and overseas subsidiaries, attend important meetings of the Corporate Management Council, etc., collect information and share information with other members of the Committee. The Audit and Supervisory Committee also gives the instructions about operational checks and reports and the effectiveness of the internal control system to the Internal Audit Division, etc., which is under direct control of the Committee and conducts organized audits.

(ⅴ) The Internal Audit Division, etc. consist of 16 employees and determine such matters as the audit policy, audit plan, audit method and division of duties after the conclusion of the general meeting of shareholders. Its main activities are to perform verification, evaluation, etc. of the status of business execution and the effectiveness and operating status of the internal control system, make a report to the Audit and Supervisory Committee, and as necessary, conduct field audits of offices, domestic and overseas subsidiaries, etc. by accompanying the selected members of the Audit and Supervisory Committee.

(6) KPMG AZSA LLC performed financial audit for the fiscal year ended March 31,2019.

The names of certified public accountants (CPA) and the composition of the audit team are as follows. The names of the CPAs who performed financial audit:
Designated limited liability partners: Yasuhito Kondo, Hiroshi Miura, Takuya Obata
The financial audit team was composed of 8 CPAs, candidates for CPA who passed the new CPA exam and associates in charge of system audit, etc. (total 16).

3. Reasons for Adoption of Current Corporate Governance System

The Company was changed to a company with an audit and supervisory committee from a company with a board of corporate auditors after the 37th ordinary general meeting of shareholders held on June 17, 2016, and pursues prompt decision-making and the more flexible execution of business, as well as the further enhancement of audit and supervisory functions.

Ⅲ. Implementation of Measures for Shareholders and Other Stakeholders

1. Measures to Vitalize the General Shareholder Meetings and Smooth Exercise of Voting Rights

  Supplementary Explanations
Early Notification of General Shareholder Meeting The Notices of Convocation to the ordinary general meeting of shareholders are sent out well in advance, approximately 3 weeks before the meeting date. For the fiscal year ended March 31, 2019, the ordinary general meeting of shareholders was held on June 17, 2019, and the convocation notice was mailed on May 24, 2019.
Scheduling AGMs Avoiding the Peak Day As part of the effort to invigorate shareholders' meetings, the Company holds its ordinary general meeting of shareholders about 10 days before the concentration day which most Japanese companies hold their AGMs, in an attempt to encourage the attendance of as many shareholders as possible.
Allowing Electronic Exercise of Voting Rights Shareholders can exercise their voting rights via the Internet by using PCs, smartphones and cell phones.
Participation in Electronic Voting Platform The Company participates in the ICJ electronic voting platform via Proxy Edge® of Broadrige. Institutional investors are now ensured a sufficient amount of time to consider proposals staring on the mailing date of the Notice of the Convocation and it has been facilitating the exercise of voting rights.
Providing Convocation Notice in English Notice of Convocation of the ordinary general meeting of shareholders (in Japanese and in English) are posted on the Company's website as well as on TD Net, a website of the Tokyo Stock Exchange, Inc., for the convenience of shareholders residing in Japan and overseas, to encourage the exercise of voting rights.
Other From the perspective of the early release of information, the Company posts the Notice of Convocation of the ordinary general meeting of shareholders on its website and on TD Net ahead of the mailing date. For the fiscal year ended March 31, 2019, the Notice of Convocation was uploaded on May 16, 2019.

2. IR Activities

  Supplementary Explanations
Preparation and Publication of Disclosure Policy The Company believes that it is the responsibility of a listed company, as well as a necessity in terms of corporate governance, to disclose information to shareholders and investors in a timely and appropriate manner and fulfill its accountability adequately. As such, the Company will maintain high transparency in the management of its business by taking the following basic stance in promoting IR activities: (1) establishment of a responsible IR system, (2) satisfactory information disclosure, and (3) establishment of a system for timely disclosures.
Regular Investor Briefings for Individual (Retail) Investors The Company holds explanation conference about outline of the Company once a year via internet in consideration of easy accesses regardless of location of the individual (retail) investors.
Regular Investor Briefings for Analysts and Institutional Investors Financial results briefings are held twice a year (at annual and interim closings), where the Chairman and CEO, and the President and COO present management strategies and business performance. At the briefing, the Company also shows videos and stories to effect high-impact corporate communication.
Posting of IR Materials on Website The following information is available on the Company's website
(URL) http://www.capcom.co.jp/ir/
Annual and quarterly securities reports ("Yukashoken Hokokusho"), annual and quarterly summary of financial results, outline of quarterly performance, integrated reports (annual reports), news summary, videos of financial results briefings (annual), presentation materials for financial results briefings (annual), quarterly briefing materials for conference calls, Corporate Governance Reports, game series sales, platinum titles, number of titles released, corporate information, stock and bond information and press releases, etc..
Establishment of Department and/or Manager in Charge of IR The Public Relations and Investor Relations Section has been established with 3 full-time staff members.

3. Measures to Ensure Due Respect for Stakeholders

  Supplementary Explanations
Stipulation of Internal Rules for Respecting the Position of Stakeholders Included in the "Capcom Code of Conduct" and "Personal Information Protection Rules."
Development of Policies on Information Provision to Stakeholders In order to deepen the trust relationship with Stakeholders of the Company, such as, clients, shareholders, investors, employees and local communities, the Company promotes communication through various means and the release of information. Grounded on the spirit of "Sanpo-yoshi", the spirit of the Japanese merchants in Edo era, to advocate benefits not only to the seller and to the buyer, but also to the local community, the Company hosts various events and investment seminars, and open ups its grounds to the local community, to name a few.
Other <Diversity in Employment>
The Company endeavors to employ people with diverse backgrounds from the perspective of diversity management and conducts personnel recruiting and evaluation without prejudice based on one's gender, nationality, age, etc. As part of such efforts, the Company is pushing forward with the promotion of women to management positions. At the end of March 2019, the Company appoints 24 female employees in a management position including two corporate officers (9.5% of all the employees in a management position). The Company also employs 124 foreigners (4.9% of all the employees of the Company) through the recruiting efforts from the global perspective.

Ⅳ. Matters Related to the Internal Control System

1. Basic Views on Internal Control System and the Progress of System Development

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

(1) Structure to Ensure that Directors Perform their Duties in Accordance with Laws and Regulations
To strengthen the management monitoring function and enhance corporate value, the Company strives to prevent illegal activities and ensure compliance through regular Compliance Committee checks etc., while attempting to invigorate and heighten the monitoring function of the Board of Directors in accordance with advice and recommendations from external directors.

(2) Information Management and Storage related to Directors' Execution of Duties
The management and storage of documents and information related to directors' execution of duties, such as the minutes of the meetings of the Board of Directors is conducted in accordance with the "Document Management Rules."

(3) Risk Management Regulations and Other Systems
Efforts have been made so that the cross-sectional risk management system functions in accordance with the "Risk Management Rules," to proactively prevent crises and execute the appropriate actions if an emergency occurs.

(4) Structure to Ensure that Directors Perform their Duties Efficiently
The Company introduced a "Shikko Yakuin" (Corporate Officers) System under which the duties of the Board of Directors, who determine management policy, and the corporate officers, who carry out operations, are separated to enable smooth and flexible business operations and enhance efficient management.

(5) Structure to Ensure that Employees Perform their Duties in Accordance with Laws and Regulations
The "Capcom Code of Conduct" is the fundamental guidance to comply with laws and regulations. Preventive measures, including internal training and monitoring programs, are also in place.

(6) Structure to Ensure Compliance in Business Operations of the Company Group
The meetings of the Board of Directors of the Company's subsidiaries are held monthly, and are participated in by the Company's directors. In compliance with the "Management Regulations for Subsidiaries," etc., the Company developed close communication and collaboration between the Company and its subsidiaries, requiring reports on important information, including sales updates and business forecasts. Also to comply with the "Risk Management Rules," a group-wide compliance system is being promoted to ensure appropriate operations so that corporate governance functions effectively.

(7) Structure for the Audit and Supervisory Committee Assistants, Structure for their Independence of these assistants from Directors, and Structure to Assure the Effectiveness of Instruction given to them
For effective internal control, the Audit and Supervisory Committee strives to perform audits on the work of directors and employees based on the audit policy, report audit findings and make recommendations and advice as necessary. Accordingly, in order to enable the Audit and Supervisory Committee to perform its duties in a smooth and appropriate manner, the Internal Audit Division, etc., as organizations are directly supervised by the Audit and Supervisory Committee where sixteen dedicated staff members are in charge of performing tasks as assistants under the instructions of the Committee, and the Company ensures the consent from the Audit and Supervisory Committee is obtained regarding the personnel relocation of such staff members.

(8) Structure for Directors, the Audit and Supervisory Committee, Officers and Employees of the Company Group to Report to the Audit and Supervisory Committee, Structure to Report to the Audit and Supervisory Committee Other than the First Case, and Structure to Assure No Unfavorable Treatment will Result from the Reporting
Directors, the Audit and Supervisory Committee, Officers or employees of the Company Group, if asked for necessary information about the execution of their duties by the Audit and Supervisory Committee, respond quickly and appropriately to such requests, and properly report on required issues. Directors or employees who report to the Audit and Supervisory Committee will not be treated unfavorably because of such report.

(9) Structure to Ensure Effective Audit by the Audit and Supervisory Committee and Other Issues
Expenses incurred for executing the duties of the Audit and Supervisory Committee are budgeted. Directors who serve as members of the Audit and Supervisory Committee may request a cash advance on such expenses.

(10) Summary of operating status of system to ensure proper business execution
Summary of operating status of system to ensure proper business execution as of March 31,2018 are as follows:

(ⅰ) In addition to each system mentioned above, the Company held important meetings as below to make necessary resolutions and reports as deemed required by the laws and/or regulations.
• Board Meetings  10
• Corporate Management Council  18
• Board of Corporate Officers Meetings  13
Ten (10) meetings of the Audit and Supervisory Committee were also held to discuss its audit plan as well as any audit matters relating to the board meeting and various rules.

(ⅱ) The Company holds the quarterly meeting of the Compliance Committee chaired by an external director and reports recognized inherent risks and the probability of such risks to be actualized to the Board of Directors, thereby aiming at the early detection and prevention of any violation of laws and regulations and wrongful acts.

(ⅲ) Furthermore, the Company ensures that compliance is thoroughly understood by officers and employees, including the prevention of insider trading and information leakage and the ensuring of information security, by confirming effectiveness using e-learning and the periodic compliance check sheet in order to help officers and employees obtain sufficient knowledge on compliance.

(ⅳ) With respect to affiliate companies, the Company also undertakes effective functioning of the group-wide internal control system by continuously monitoring the status of subsidiaries' businesses through measures such as communicating the Company’s management policies to the management of subsidiaries and gathering information from the Company's officers holding concurrent officer positions at subsidiaries and employees assigned from the Company.

(ⅴ) The Audit and Supervisory Committee performs stringent checks as to whether or not the internal control system is being implemented effectively through organizational audits including periodically receiving reports from the Internal Audit Division, etc. and giving instructions as necessary.

(ⅵ) As one of the steps to change in the working environments, the Company is striving to manage working hours and make supervision more stringent to reduce prolonged works. Further, the Company holds training sessions for labor management as well as supporting sessions for novices by seniorities. In addition to formulating measures to promote changes in the mindset of officers and employees and encourage them to take paid holidays, the Company holds monthly Health and Safety Committee meetings and is making other such efforts to maintain and enhance the health of employees.

2. Basic Views on Eliminating Anti-Social Forces

The Company has 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 the Company 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 help from the police and other relevant authorities.

Ⅴ. Other

1. Adoption of Anti-Takeover Measures

Adoption of Anti-Takeover Measures None (discontinued)

Supplementary Explanation

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2. Other Matters Concerning to Corporate Governance System

(1) The Company fully acknowledges its social responsibility as a listed company, and seeks the establishment of an information management system to secure legal compliance, fairness and transparency.

(2) For that reason, the Company focuses on timely and appropriate information disclosure in compliance with the Securities and Exchange Law and other regulations, namely, the Timely Disclosure Rules set by the Stock Exchange, and aims for timely disclosures for the benefit of shareholders, etc., through the establishment of the internal control system, for corporate governance to function.

(3) When there is a material event or corporate issue requiring a timely disclosure, the person in charge of the related departments (directors, officers or departmental heads) shall report for the Board of Directors, as well as to the director in charge of information management regulating insider trading.

(4) When the material event or corporate issue is determined or likely to be subject to the insider trading regulation, the director in charge of information management shall instruct the General Affairs Department, which supervise the trading of the Company's shares, to restrict trading after the time the Board of Directors determines or reports the event until the time it is publicly announced.

(5) When a person subject to restriction tries to file an "application form for trading Company's and other shares" during this period, the General Affairs Department shall urge the person to keep the application on hold for a while.

(6) When the material event or corporate issue is determined or reported at the Board of Directors' meeting, it shall be immediately reported to the Stock Exchange and the Kanto Regional Finance Bureau, and a press release shall follow.

(7) The Company endeavors to achieve proactive disclosure, including the posting of news releases on the Company's website.

[Corporate Governance Structure]

[Chart] Timely disclosure process of the Company