Corporate Governance

Basic Policy

KITZ's corporate philosophy is pursuing the sustainable improvement of its corporate value by providing creative and high-quality products and services. As a company having social responsibility, the Company works to achieve management in consideration of its shareholders and all other stakeholders.

Moreover, the Company works to realize management that is prompt, efficient, sound and highly transparent and strives to strengthen compliance by taking various measures to enhance its corporate governance.

Board of Directors, Directors

KITZ's Board of Directors assumes fiduciary responsibility to shareholders and discusses and makes decisions on major management issues, including management policy, medium to long-term management plans and business plans for each fiscal year, aiming to achieve the sustainable growth of the KITZ Group and a medium- to long-term improvement in its corporate value. The Board of Directors supervises business execution and is responsible for building the entire Group's internal control system.

The Board of Directors consists of six members: three Executive Directors and three Outside Directors. In principle, a meeting of the Board of Directors is held every month, where the members discuss issues prescribed in the Rules of the Board of Directors and make resolutions. The members conduct vigorous discussions on other important management issues as well. To facilitate decision-making and clarify executive responsibilities, the term of office of the Directors is one year.

The Outside Directors have a great deal of experience in corporate management and a broad range of knowledge. They participate in the Board of Directors' business decisions. They provide appropriate advice for the Company's business judgments and supervise the execution of operations.

Each year, the Board of Directors conducts a survey of Directors and Audit & Supervisory Board Members on the effectiveness of the Board of Directors and is constructively discussing issues to improve the effectiveness based on the results of the survey.

Audit & Supervisory Board and Its Members

KITZ's Audit & Supervisory Board supervises the process of the Directors' decision-making and the performance of their duties in accordance with the Audit & Supervisory Board Members' auditing standards and auditing plans created by the Audit & Supervisory Board under laws and regulations, the Articles of Incorporation and internal regulations. The board receives quarterly reports from the Accounting Auditor about the results of accounting audits. To promote collaboration among the three audits consisting of the internal audit, the Accounting audit and the Audit & Supervisory Board audit, the outside accounting auditor, the Audit & Supervisory Board Members and the internal audit departments regularly convene the "Three Party Audit Meeting" and provide reports and exchange opinions for frequent and direct collaboration. Also, the "Four-Party Audit and Supervision Meeting" has been put in place, with independent Outside Directors along with the above three parties and is regularly convened to ensure collaboration.

The Audit & Supervisory Board Members attend the meetings of the Board of Directors and monitor and examine the status of the Board of Directors' decision-making and respective Director's performance of their obligation to supervise. They attend also other important meetings and visit offices and subsidiaries to carry out audits. They supervise the Directors' performance of their duties by obtaining information from the Directors, Executive Officers and employees.

The Audit & Supervisory Board consists of four Audit & Supervisory Board Members: two full-time members and two outside members. In principle, a meeting of the Audit & Supervisory Board is held every month.

The Outside Audit & Supervisory Board Members have a great deal of experience in corporate management and a broad range of knowledge. They carry out audits from a neutral and objective perspective to enhance the soundness of management. At least one Audit & Supervisory Board Member who has strong expertise about finance and accounting is to be appointed.

To support the Audit & Supervisory Board Members' performance of their duties, the Audit & Supervisory Board has established The Auditors Board Office, whose full-time staff gather information and conduct surveys in accordance with the directions of the Audit & Supervisory Board Members and cooperate with the Accounting Auditor and the Internal Audit Office.

Management Conference, Executive Officers

In principle, KITZ holds a meeting of the Management Conference consisting of Executive Officers (including Executive Directors) every month to determine policies on major management issues through strategic and multilateral discussions. KITZ is reviewing its standards for proposals to the Board of Directors and is transferring authority to the Executive Officers so that the Board of Directors can focus on the discussion of major issues relating to general management, including management policy and business plans.

Appointments of Directors, Audit & Supervisory Board Members and Executive Officers

Candidates for appointments as Directors, Audit & Supervisory Board Members and Executive Officers are selected by the Nomination Committee (advisory body to the Board of Directors), which consists of a majority of Outside Directors, from diverse perspectives that include character, ability, judgement, experience, expertise, achievements, fairness and age. Based on submitted reports, candidates are selected by the Board of Directors. If Audit & Supervisory Board Member candidates are appointed, the Audit & Supervisory Board needs to agree on them.

Independence of Outside Dicrectors

The Board of Directors has formulated the "Criteria for Determining the Independence of Outside Directors." All KITZ's Outside Directors and Outside Audit & Supervisory Board Members satisfy the criteria. Also, KITZ's Outside Directors and Outside Audit & Supervisory Board Members all satisfy the independence criteria prescribed by the Tokyo Stock Exchange. The Company registers its independent officers with the Tokyo Stock Exchange.

Compensation for Directors and Executive Officers

KITZ introduced a performance-based stock compensation plan for Directors (excluding Outside Directors) and Executive Officers. Under this plan, compensation for Directors and Executive Officers is based on so-called "stock compensation" whereby shares in the Company are granted as part of traditional monthly remuneration and bonuses in accordance with business performance. This is aimed at making the correlation between the remuneration of Directors and Executive Officers and KITZ's stock value more clear and raising awareness of contributions to an improvement in results in the medium to long term and an increase in KITZ's corporate value. Bonuses shall be paid if certain conditions prescribed in internal regulations are met and reasonable profits are earned. The source of bonuses is around 1% of net income attributable to owners of the parent. The Executive Compensation Committee (an advisory body to Representative Directors) has also been established, which consists of a majority of Outside Directors who discuss policies and details concerning executive compensation and report to the Representative Directors when necessary.

Internal Control System

Basic Policy

KITZ believes that building an appropriate internal control system is the basic condition for meeting the expectations and trust of its shareholders and all the other stakeholders and the important responsibility of the Board of Directors. Under the basic policy the entire Group works to develop and operate the internal control system.

Development and Operation of Internal Controls

To improve the transparency of fi nancial standing and management under the Financial Instruments and Exchange Act, KITZ and the Group companies have each division to make a self inspection of internal controls and conduct internal audits about the status of the building of an internal control system to establish and operate internal controls.



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