Corporate Governance

Basic Policy for Corporate Governance and Outline of the System

KITZ's corporate philosophy is "To contribute to global prosperity, KITZ is dedicated to continually enriching its corporate value by offering originality and quality in all products and services". We are committed to being socially responsible and operating the company in consideration of shareholders and all other stakeholders.

We are also committed to realizing company management that is prompt, efficient, sound and transparent and strengthening compliance by implementing various measures to enhance its corporate governance.

To enhance the function to appropriately supervise the Board of Directors and its execution of business, KITZ selected and appointed three outside directors (three). To reinforce the audit system, it also established Audit & Supervisory Board, more than half of which are outside auditors.

Moreover, the Nomination Committee and the Executive Compensation Committee, non-mandatory committees where outside directors constitute the majority, were established as advisory bodies to the Board of Directors to improve objectivity and transparency in the appointment of the candidates for directors/auditors and executive officers and the compensation for directors and executive officers. We believe that governance based on Audit & Supervisory Board works effectively enough.

Each organization carries out its work according to the Work Authority Rules and the Rules for the Request for Approval and Decision Making. The decisions by the Boards of Directors in KITZ and its Group companies are made according to the Rules of the Board of Directors and the Group companies' rules. In addition, a number of special committees regarding internal control, crisis management, risk control, promotion of compliance, security trade control, investment/financing screening and information security/personal information protection were established to discuss and evaluate important agendas that require appropriate decision-making about the operation of the Group companies.

Board of Director

Composition and Activities of the Board of Directors

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

The Board of Directors consists of seven members; four executive directors and three outside directors. They discuss issues prescribed in the Rules of the Board of Directors and make resolutions. They also have honest and hot debates on other important management issues. To facilitate decision-making and clarify their responsibilities for business operation, the term of office of the directors is one year.

The outside directors have extensive experience in corporate management and a broad range of knowledge. They participate in the Board of Directors' judgment on business and decision-making, provide appropriate advice on the Company's judgment on business, and supervise the execution of operations.

As a general rule, a regular meeting of the Board of Directors is held once a month, quarterly for the approval of the settlement of accounts, and as required for extraordinary meetings. They discuss issues prescribed by laws and regulations, as well as by the Rules of the Board of Directors, and make resolutions and supervise the execution of duties of Directors by receiving a regular report on the execution of business from each executive director.

Evaluation of the Effectiveness of the Board of Directors

To improve the effectiveness of corporate governance and the functions of the Board of Directors a questionnaire survey on the effectiveness of the Board of Directors is conducted among directors and auditors each year.

Based on the answers and opinions about the improvement of effectiveness in the future, the Board of Directors verifies the evaluation of current situation, shares issues, and has honest and hot debates on the measures to be implemented for improvement.

In the questionnaire survey of the effectiveness of the Board of Directors conducted in May 2019, development and implementation of management strategy, constitution of the Board of Directors, appointment of and compensation for directors, roles expected for outside directors, vitalization of discussion at Board meetings and response to shareholders and other stakeholders were asked. The result of the self-evaluation says that the effectiveness of the Board of Directors is ensured in general.

Audit & Supervisory Board

Composition and Activities of Audit & Supervisory Board

Audit & Supervisory Board of KITZ consists of five members: two full-time auditors and three outside auditors.

Full-time auditors must be selected from those at KITZ who have abundant expertise and experience. At least one of them must have a thorough knowledge of finance and accounting.

Outside auditors are selected from those who have a substantial knowledge of finance, accounting, regal and corporate management.

Auditors carry out their assigned duties, including being aware that they are especially expected to take helpful actions for making fair and equitable decision on corporate management in the phase of decision-making related to the execution of business at the meeting of the Board of Directors, taking shareholders' benefit, as well as the Company's benefit into consideration, and expressing their opinions as required.

They also verify the legitimacy and appropriateness of decision-making processes and the decision itself and express their opinion as required, in addition to overseeing the fulfillment of executive directors' duties to report and the effectiveness of the mutual-monitoring functions on corporate management among directors at the meetings of the Board of Directors.

As for auditor's audit, the Company demonstrates its investigation authority to oversee the execution of duties by directors, including attendance to important meetings and visiting audit to offices and subsidiaries, verifies the fulfilment of legal obligations that include the duty of care of a good manager and has the necessary discussions at meetings of Audit & Supervisory Board according to the standards for auditor's audit, audit plans, and the division of roles.

Measures to Improve Audit and Supervisory Functions

Audit & Supervisory Board regularly convenes the Three-Party Audit Meeting with an accounting auditor and an internal audit division, receives a report of the status of an audit, exchanges information and opinions, and has close liaison with each other. It also regularly holds the Four-Party Audit and Supervisory Meeting with an outside director, the accounting auditor and the internal audit division, exchanges information and shares recognition from an independent and objective standpoint, and endeavors to improve the audit function of auditors and the supervisory function of independent outside directors.

In addition, it holds regular meetings to exchange opinions with the president and CEO and has an opportunity to exchange information and opinions on corporate management issues with executive directors and executive officers.

Nomination Committee and Executive Compensation Committee

Based on the discussions on the evaluation of actual effectiveness of the Board of Directors, KITZ has established the Nomination Committee and the Executive Compensation Committee as advisory bodies, more than half of which are outside directors, though they are not mandatory.

The Nomination Committee discusses the nomination of the candidates for directors and auditors, as well as executive officers and the senior management, according to the Policy for the Selection and Removal of Directors. The Executive Compensation Committee discusses important issues concerning the policies and details of compensation for directors and executive officers. Both report the results to the Board of Directors.

Independent Directors

Outside directors and outside auditors at KITZ satisfies the Standards for the Judgment of Independence of Outside Directors prescribed by the Company and the standards for the judgment of independence of outside directors prescribed by the Tokyo Stock Exchange (TSE) and notifies TSE of the independent directors.

Policy for the Selection and Removal of Directors

KITZ has established the Policy for the Selection and Removal of Directors and selects candidates for directors and auditors, as well as executive officers and the senior management, from a diversified point of view including gender, internationality, personality, ability, insight, experience, expertise, achievements, fairness, and age.

Accounting Auditors

KITZ appointed Ernst & Young Shin Nihon LLC as the accounting auditor.

Liaising with related divisions, such as Audit & Supervisory Board, the accounting division, and the internal audit division, the accounting auditor endeavors to secure the schedule of an audit and assemble a staff required and carries out an appropriate audit.

To select candidates for accounting auditor; the independence, qualifications, and expertise of accounting auditors; the appropriateness, validity, and effectiveness of audit quality; and the validity of audit system, plan, and compensation are evaluated. Candidates are determined at the meeting of Audit & Supervisory Board and the agenda is submitted to a general meeting of shareholders.

Policy for Cross-Shareholdings

KITZ has established a Policy for Cross-Shareholdings. Our basic policy is not to hold shares for the purpose of forming a stable shareholder base, while it is possible to hold the shares of important business partners to establish good relationships and promote smooth business. If we have shares without significant reasons for holding them, they will be sold as required after a yearly review.

In the valve manufacturing business, which is our core business, comprehensive technical capabilities are consistently required in all phases from materials to products. In all processes of product development, manufacturing, sales and distribution, good cooperative relationships with a wide variety of companies are essential. It is possible to hold the shares of important business partners to promote smooth business.

The decision whether we should exercise voting rights in the case of cross-shareholdings is made based on the comprehensive understanding of whether it will further improve the good relationship with the company we invest in and the medium- to long-term corporate value. We will decide whether we vote for or against a bill on a case-by-case basis.

Communication with Shareholders and Investors

In order to achieve sustainable growth and medium- to long-term improvement in corporate value, KITZ recognizes the importance of being aware of its fiduciary accountability for company management, disclosing information to shareholders, investors, and other stakeholders in a timely, appropriate, and fair manner while maintaining fairness and transparency in corporate management. To help shareholders and investors understand our management strategy and plan, we have honest and constructive communications and reflect the opinions and requests obtained through communication in the improvement of corporate management. To promote such IR activities, we have established an IR division and built a system where the president and CEO and the executive officers in charge of IR play a core role in IR.

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Internal Control and Compliance

Basic Concept and Outline of Internal Control

KITZ is dedicated to continually enriching its corporate value by offering originality and quality in all products and services in the corporate philosophy of the Group and "KITZ's Statement of Corporate Mission." To make the Group's management base sound and robust for the realization of the mission, it has laid down the Basic Policy for Internal Control and built an internal control system according to the Companies Act and its enforcement regulations.

We improve and operate the internal control system over financial reporting based on the fundamental framework for internal control prescribed in the Financial Instruments and Exchange Act and the Setting of the Standards and Practice Standards for Management Assessment and Audit concerning Internal Control Over Financial Reporting (Council Opinions) published by the Business Accounting Council.

The Internal Audit Office endeavors to maintain a close liaison with auditors and accounting auditors to evaluate internal control on a -wide basis. Based on the results, operating processes are selected with an eye to the risks that may result in material misstatements relating to financial reporting. The selected operating processes are analyzed, the point in internal control that may exert a significant influence on the reliability of financial reporting is identified, and the operation status of the point is evaluated. Thus, the effectiveness of internal control is evaluated. As a result of the evaluation, it was determined that internal audit over financial reporting of the Company is effective.

Promotion of Corporate Management based on Compliance

Basic Concept of Corporate Management based on Compliance

For a company to develop on a constant basis, KITZ believes that managing the company based on compliance is a fundamental and essential condition. In the corporate philosophy "KITZ's Statement of Corporate Mission," "Do it True" is placed on the top of the Action Guide.

To raise awareness of compliance and acquire more knowledge, the Company takes a variety of approaches. It established the C&C (Crisis and Compliance) Control Committee headed by the president and CEO in all Group companies in 2002 to prevent risks in corporate management from occurring and to disseminate on a Group-wide basis crisis response and corporate management based on compliance.

Establishing a Corporate Culture for Corporate Management based on Compliance

To put corporate management based on compliance into practice on a Group-wide basis, KITZ has created a Compliance Program Guidebook, which is designed to be commonly used within the Group, where its importance, basic policy, the code of conduct on corporate ethics, a whistle-blower hotline, education, and disciplinary action for violators are described and compiled. Guidebooks are distributed to directors and employees of KITZ and the Group companies

To raise awareness of compliance and acquire more legal knowledge, the Company developed a variety of textbooks and plans and sponsors educational programs every year.

Operation of a Whistle Blower Hotline

To seek inside information that cannot be obtained through an ordinary internal control system and a compliance system, KITZ has established and operates a whistle-blower hotline. The C&C Control Committee established a Compliance Information Desk (internally referred to as "CID") as a contact point for whistle blowing. It receives information about violations of the code of conduct on compliance, including violations of laws and regulations, from directors and employees of KITZ and the Group companies.

In addition to a CID established in each Group company, KITZ and its corporate lawyer's office respectively have a CID that is designed to be commonly used by the employees of the Group. Please note that the C&C Control Committee investigates the case and implements measures promptly and appropriately, while protecting the confidentiality of a whistle-blower, after discussing and determining the policies for the obtained information.

Risk Management

KITZ believes that controlling a variety of risks associated with business activities is a significant challenge for company management. For this reason, the entire Group discusses and carries out the measures to identify and analyze the variety of risks in business activities appropriately and studies and establishes a system to prevent and control the risk from occurring. It also develops a system to respond to crisis promptly and appropriately.



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