Initiatives for the Corporate Governance Code
Disclosed on December 22, 2021
For sustainable growth and medium- and long-term increase of corporate value as a listed company on the Tokyo Stock Exchange, the Company has been promoting enhancement of corporate governance by compliance with each principle of the Corporate Governance Code set forth in the Securities Listing Regulations by the Tokyo Stock Exchange and disclosing the contents of our initiatives. Our initiatives are as follows.
Reasons why each principle of the Corporate Governance Code are not implemented
The following is based on the Code revised in June 2021.
Supplementary Principle 4.11.1
The board should identify the skills, etc. that it should have in light of its managing strategies, and have a view on the appropriate balance between knowledge, experience and skills of the board as a whole, and also on diversity and appropriate board size. Consistent with its view, the board should establish policies and procedures for nominating directors and disclose them along with the combination of skills, etc. that each director possesses in an appropriate form according to the business environment and business characteristics, etc., such as what is known as a "skills matrix." When doing so, independent director(s) with management experience in other companies should be included.
In order to further reinforce corporate governance as well as to practice efficient and speedy management, the Company adopts an Executive Officer system where the Board of Directors determines important matters and oversees the execution of operations, while the Executive Officers engage in the execution of operations based on decisions made by the Board of Directors. Under the system, the Board of Directors of the Company selects talented human resources with experience, knowledge, and achievements in technical/sales/administration divisions for Directors that also hold the position of Executive Officers who execute operations. Moreover, the Board also selects personnel who meet the Company's "Independence Standards for Outside Directors/ Audit & Supervisory Board Members" in addition to satisfying the standards required by laws and regulations as Independent Outside Directors with the expectation of receiving guidance and advice based on their extensive experience as corporate executives with a worldly and wide range of knowledge. The Articles of Incorporation stipulate that the number of Directors of the Company shall be 15 or less, and currently, the Company has 13 Directors including three Independent Outside Directors.
The skills matrix for the Company's Directors will be examined for disclosure in the Notice of the General Meeting of Shareholders in June 2022.
Disclosure based on Each Principle of the Corporate Governance Code
Principle 1.4 Cross-Shareholdings
When companies hold shares of other listed companies as cross-shareholdings, they should disclose their policy with respect to doing so, including their policies regarding the reduction of cross-shareholdings. In addition, the board should annually assess whether or not to hold each individual cross-shareholding, specifically examining whether the purpose is appropriate and whether the benefits and risks from each holding cover the company's cost of capital. The results of this assessment should be disclosed.
Companies should establish and disclose specific standards with respect to the voting rights as to their cross-shareholdings, and vote in accordance with the standards.
The Company owns shares of business partners as part of policy for the purpose of maintaining/strengthening business transactions and smooth business operations.
The basic policy of the Company calls for the immediate disposal/reduction of cross-shareholding when the meaning of the cross-shareholding of shares is deemed deteriorated. In comprehensively taking the investment monetary amount and interests that the Group is able to acquire through the strengthening of relationships with business partners into consideration, relevant divisions closely examine the meaning and reasonability of owning the shares of each stock in light of the appropriateness for investment and continuous ownership, and the Board of Directors carries out the final verification for the appropriateness of owning the stocks.
As a result of close examination of the listing shares that we own as cross-shareholdings as of end of March 2021, we decided to continue owning all of the shares for the purpose of maintaining/strengthening business relationships and smooth business operations.
Principle 1.7 Related Party Transactions
When a company engages in transactions with its directors or major shareholders (i.e., related party transactions), in order to ensure that such transactions do not harm the interests of the company or the common interests of its shareholders and prevent any concerns with respect to such harm, the board should establish appropriate procedures beforehand in proportion to the importance and characteristics of the transaction. In addition to their use by the board in approving and monitoring such transactions, these procedures should be disclosed.
In the Company, transactions with Directors and Executive Officers require approval from the Board of Directors, which is clearly stipulated respectively in the Board of Directors Regulations and the Executive Officer Regulations. Approval by the Board of Directors is also required for transactions with companies where Directors/Executive Officers of the Company serve as representative directors.
Kyushu Electric Power Company, Incorporated owns 22.75% of the voting rights (direct ownership: 22.58%, indirect ownership: 0.17%) of the Company, and the Company is an affiliated company accounted for by the equity method of Kyushu Electric Power and a part of the Kyuden Group centered around Kyushu Electric Power.
The Company carries out construction work for power distribution facilities, etc. for the Kyuden Group, and the Kyuden Group accounts for 13.2% of the construction contracts of the Company. The Company determines transaction conditions for orders for construction work from the Kyuden Group similarly to general transaction conditions following price negotiations that take market prices and other factors into consideration.
As mentioned above, the Company and the Kyuden Group engage in transactions for construction work and have a capital relationship. However, since the Company engages in different facility work from the business of the Kyuden Group and develops its business activities based on the Company's management policy and management decisions on its own, the Company, therefore, recognizes that a certain level of independence is secured. In addition, information regarding transactions, etc. with the Kyuden Group is appropriately disclosed in securities reports and matters regarding controlling shareholders.
Supplementary Principle 2.4.1.
Companies should present their policies and voluntary and measurable goals for ensuring diversity in the promotion to core human resources, such as the promotion of women, foreign nationals and midcareer hires to middle managerial positions, as well as disclosing their status.
In addition, in light of the importance of human resource strategies for increasing corporate value over the mid-to long-term, companies should present its policies for human resource development and internal environment development to ensure diversity, as well as the status of their implementation.
<Views on Ensuring Diversity>
In recent years, while a declining birthrate and a growing population of elderly people has progressed in Japan, the world is more globalized than ever, and the sense of values of individuals has become more diversified. The environment surrounding companies is also undergoing significant change, and an interest in diversity is increasing at a rapid speed. According to the Corporate Philosophy, the Kyudenko Charter of Behavior, and the belief that human resources are the greatest management resources, the Company established its Basic Policy on Diversity Promotion for the purpose of creating new value and increasing competitiveness by respecting and utilizing diversity as a strength of the organization. More specifically, in the basic policy, the Company shall implement measures including
- Establishment of a corporate culture that respects and utilizes diversity (awareness reform, etc.)
- Development and promotion of the career success of diversified human resources (career development and skill development support, etc.)
- Creating a fulfilling, rewarding, and appealing work environment (realization of diversified and flexible workstyles, etc.).
In order to realize the goals set forth in the said basic policy, the Company will strongly promote efforts such as identification of issues and formulation of roadmaps to ensure diversity as one of our growth strategies.
For details, please refer to the "Integrated Report Kyudenko Report 2021" scheduled to be released.
<Voluntary and Measurable Goals for Ensuring Diversity and Status of Ensuring Diversity>
| (1) | Promotion of female employees to management positions Based on the Act on the Promotion of Female Participation and Career Advancement in the Workplace, the Company formulated an action plan so female employees can fully exert their abilities by creating a better work environment for female employees. As of April 2021, female employees account for 1.8% of section manager or higher positions. The Company targets a two-fold increase, equivalent to 3.6%, by the end of FY2025, which is the final year of the current action plan. |
| (2) | Promotion of foreign nationals to management positions Currently, the Company has a very small number of foreign national employees totaling 14 people. Eight of these employees are technical intern trainees. For employment of foreign nationals other than technical intern trainees, the Company proactively participates in explanatory sessions for foreign national students hosted by universities and employment service agencies and accepts interns. However, since our hiring activity mainly focuses on engineers in charge of construction management in Japan, giving the first priority to ensuring that foreign national students correctly understand the jobs without over focusing on securing a certain number of foreign national employees hired, we carefully review the employment conditions with the students such as the job description, region of the work, and necessary level of Japanese language fluency to avoid misunderstanding. In addition, with respect to the promotion of foreign national employees to section manager or higher positions, the Company has a policy of promoting talented personnel according to internal standards regardless of nationality, etc. Currently, foreign national employees are in the middle of the development process, and we estimate a certain amount of time will be required until they are promoted to section manager or higher positions. Under these circumstances, the Company has not set any specific targets for the promotion of foreign national employees to management positions. However, we will also continue to promote the development of foreign national employees not only by developing employees in a planned manner but also using proactive and detailed hiring activities that also include midcareer employment so foreign national employees will become key human resources. |
| (3) | Promotion of midcareer hires to management positions The Company carries out midcareer hiring of industry-ready personnel with extensive job experience for engineering and sales positions to further enhance our technical and sales competence. As of October 2021, our midcareer hires account for 10.6% of section manager or higher positions, and our goal by the end of FY2025 is to at least maintain this level. |
<Human Resource Development Policy and Internal Environment Creation Policy for Ensuring Diversity and Implementation Status>
Thus far, the Company has worked on tasks including the promotion of women's active participation in the workforce and employment of persons with disabilities respectively. In order to promote diversity in the workplace where diversified human resources flourish, the Company established a Diversity Promotion Preparation Office in July 2021. The Office will clarify the Company's goals and announce the goals through President's messages, etc. using videos and in-house newsletters in addition to working on the promotion of understanding and encouraging awareness reform. In addition, the Office will identify and examine current problems and challenges faced by the Company mainly through employee surveys and implement measures.
For other specific implementation status, recognizing the promotion of women's active participation in the workforce as a task that the Company needs to work on in particular, the Company established the cross-divisional Women's Active Participation in the Workforce Promotion Team under the Diversity Promotion Preparation Office. Following identification and sorting out of challenges in women's active participation in the workforce, the team is examining specific action items to solve challenges.
In addition, for midcareer employment, since FY2020, the Company has adopted referral hiring utilizing the human network of our employees for perfect matches in various aspects including personality and aptitude.
Furthermore, for the employment of foreign nationals, the Company will step up our hiring activity for foreign nationals by utilizing universities and recruitment service agencies in addition to carrying out skill and career development through internal training of next generation executive candidates.
For details, please refer to the "Integrated Report Kyudenko Report 2021" scheduled to be released.
Principle 2.6 Roles of Corporate Pension Funds as Asset Owners
Because the management of corporate pension funds impacts stable asset formation for employees and companies' own financial standing, companies should take and disclose measures to improve human resources and operational practices, such as the recruitment or assignment of qualified persons, in order to increase the investment management expertise of corporate pension funds (including stewardship activities such as monitoring the asset managers of corporate pension funds), thus making sure that corporate pension funds perform their roles as asset owners. Companies should ensure that conflicts of interest which could arise between pension fund beneficiaries and companies are appropriately managed.
For the purpose of ensuring the provision of pensions over the coming years, the Company manages corporate pension funds with the aim of securing the necessary total profits in the long term.
With respect to specific management, by assigning human resources with experience, knowledge, and a track record in the field as well as the establishment of a Pension Management Committee, the Company promotes efficient management of corporate pension assets and sound pension financing.
In addition, through periodic monitoring of the stewardship activities of management organizations and status of the corporate pension fund, the Company aims for appropriate management and stable returns.
Principle 3.1 Full Disclosure
In addition to making information disclosure in compliance with relevant laws and regulations, companies should disclose and proactively provide the information listed below (along with the disclosures specified by the principles of the Code) in order to enhance transparency and fairness in decision-making and ensure effective corporate governance:
| i) | Company objectives (e.g., business principles), business strategies and business plans; |
| ii) | Basic views and guidelines on corporate governance based on each of the principles of the Code; |
| iii) | Board policies and procedures in determining the remuneration of the senior management and directors; |
| iv) | Board policies and procedures in the appointment/dismissal of the senior management and the nomination of directors and kansayaku candidates; and |
| v) | Explanations with respect to the individual appointments/dismissals and nominations based on iv). |
| i) | In addition to appropriate disclosure according to laws and regulations, the Company discloses its Corporate Philosophy and management plans on our company website from the perspective of ensuring transparency and fairness in decision-making and realizing effective corporate governance. |
| ii) | The Company's Board of Directors stipulated the Kyudenko Corporate Governance Guidelines, which is the Company's basic views of corporate governance. The said guidelines are disclosed on the company website. In addition, the Company discloses its "Basic Policy on Corporate Governance" in the Corporate Governance Report, "Corporate Governance, etc.," in its Securities Report, and "Corporate Governance" in the IR information page on our corporate website. |
| iii) | Please refer to "Matters Related to Remuneration for Directors" in "II.1. Matters Related to Organization Configuration/Organization Management, etc." in the Corporate Governance Report. |
| iv) | Based on discussion results of the Nomination Advisory Committee, the Board of Directors in the Company nominates talented human resources with experience, knowledge, and achievements in technical/sales/administration divisions as candidates for Directors from the Company and persons satisfying legal standards and the Company's Independence Standards for Outside Directors/ Audit & Supervisory Board Members and possessing extensive experience as corporate managers from whom valuable guidance and advice can be expected based on their vast knowledge including insight on global business matters as candidates for Independent Outside Directors. In addition, for Executives Officers as well, the Board of Directors selects equivalent human resources as Director candidates from the Company based on discussion results of the Nomination Advisory Committee. Based on discussion results of the Nomination Advisory Committee, the Board of Directors in the Company selects Audit & Supervisory Board Member candidates from the Company with deep knowledge of business details and overall operation of the Company, who are able to monitor overall management and provide valuable input in important meetings such as meetings of the Audit & Supervisory Board and the Board of Directors. Similarly, the Board of Directors selects Outside Audit & Supervisory Board Member candidates with extensive experience and vast knowledge, who satisfy standards of the Companies Act. The Board of Directors nominates these candidates after receiving consensus of the Audit & Supervisory Board. In order to ensure transparency in decision-making, and independence and objectivity of the functions of the Board of Directors, the Company established a Nomination Advisory Committee consisting of three or more Directors including Independent Outside Directors. The Nomination Advisory Committee makes decisions on matters on nomination of candidates for Directors and Audit & Supervisory Board Members and dismissal of Directors, election of the Director to whom representative authority is granted, and election and dismissal of Executive Officers according to the standards for selection and dismissal proposals of officers and submits decisions to the Board of Directors. |
| v) | Election, dismissal, and nomination of individual members of the Board of Directors and the Audit & Supervisory Board are explained in notices of the general meeting of shareholders. |
Supplementary Principle 3.1.3
Companies should appropriately disclose their initiatives on sustainability when disclosing their management strategies. They should also provide information on investments in human capital and intellectual properties in an understandable and specific manner, while being conscious of the consistency with their own management strategies and issues.
In particular, companies listed on the Prime Market should collect and analyze the necessary data on the impact of climate change-related risks and earning opportunities on their business activities and profits, and enhance the quality and quantity of disclosure based on the TCFD recommendations, which are an internationally well-established disclosure framework, or an equivalent framework.
<Initiatives for Sustainability>
Under the Corporate Philosophy that we contribute to society by creating a comfortable environment for all, the Company works on sustainability through contributions in three aspects ("solve social problems", "realize a carbon-free society", "maintain and grow local public infrastructure") set in our Long-term Vision. For solving social problems, the Company continues exploring and evolving our technical competence further to contribute to the realization of an affluent life for people.
With respect to the realization of a carbon-free society, the Company is expanding its renewable energy business and has been offering detailed services such as proper maintenance after installation and proposal of attached equipment to contribute to the realization of a carbon-free society through clean energy.
In addition, the Company established a Green Innovation Business Division in July 2021. In consideration that the realization of a carbon-free society is a growth opportunity, the Company works to receive orders for solar power generation construction work in PPA model solar power generation (third-party ownership model/power purchase contracts) and is strengthening our energy service. With respect to the maintenance and development of local public infrastructure, in order to protect and continue to grow local infrastructure through stable power supply, facility work, and urban development, the Company will expand the business range to include the development of comfortable cities to live in including smart city development, etc. and local public service provision without being limited to the construction work of life infrastructure such as electricity, water supply, and telecommunication.
For details, please refer to the "Integrated Report Kyudenko Report 2021" scheduled to be released.
<Investment in Human Capital>
Under the Corporate Philosophy of "We aim to be a company where a human-oriented corporate culture is being developed", the Company established the Human Resource Development Charter to clarify the policy on the development of human resources, which are the most important management resource, and make the policy thoroughly known to all employees. Based on the belief that employees are greatest assets, the Company offers opportunities for employees to improve their skills and demonstrate their achievements through education not only for growth of the Company but also for employees to find work more fulfilling and to achieve self- actualization. This is how we will aim for further growth of our employees and the Company.
The Company's specific measures include a review of OJT (on-the-job training) for younger employees from FY2021 and enhancement of the "elder system" where senior staff members are assigned as "elders" to young employees as mentors. From October 2021, the Company introduced a digital education support tool for the purpose of more planned skill upgrading and career development.
Furthermore, as initiatives for better engagement, the Company started to implement employee engagement surveys to improve the workplace environment in April 2021.
For details, please refer to the "Integrated Report Kyudenko Report 2021" scheduled to be released.
<Investment in Intellectual Properties, etc.>
Based on the Corporate Philosophy of "We create new values with our technology and challenging spirit of going for the future", the Company promotes further technical development and improvement of quality in the environment, energy efficiency, and renewal work fields to respond to the trust and expectations of customers. At the same time, by proactively deploying business in new fields and markets, the Company aims to increase corporate value while responding to changes in the social structure in an appropriate and timely manner.
The "Kyudenko EMS (Energy Management System)" business is one of the Company's specific measures. Output from renewable energy such as solar power and wind power is subject to extreme fluctuation. "Kyudenko EMS" backed up by our extensive experience and outstanding technologies in the renewable energy business realizes the stable use of renewable energy. The Company has worked on securing and improving technologies and know-how mainly through patent acquisition and feasibility studies in Indonesia.
In addition, to increase competitive edge utilizing digital technology, the Company established the DX Promotion Department in October 2020. In addition to increasing work efficiency by promoting remote work including construction worksites, the Company is launching initiatives to create new value such as the joint promotion of HVAC control technology using AI with other companies. In July 2021, the Company was certified as a DX-certified operator by the Ministry of Economy, Trade, and Industry. Furthermore, the Company concluded a Comprehensive Collaboration Agreement with Kyushu University in December 2021, and the Company is moving forward with the development of advanced technology in design and construction management which will lead to innovation and the realization of a carbon-free society.
In addition to the above, as activity on the research and development of advanced technologies and tools, etc., the Company develops and improves vehicles, machines, tools, and construction methods for safer, higher quality and more efficient construction and maintenance work in the power distribution line system. In the electronic technology field, the Company introduced a cloud mobile camera and laser line generator for trial to carry out initiatives to improve efficiency and save labor in the construction of building equipment utilizing ICT and IT technologies. In the HVAC and plumbing work technology field, the Company implements air flow and temperature simulations that visualize the energy-saving effects and structure analysis simulations to evaluate the strength of steel cradles for piping and equipment for use in the preliminary examination of advanced HVAC quality and optimal cradle structures.
For details, please refer to the securities report [Research and Development Activity] section.
Supplementary Principle 4.1.1
The board should clearly specify its own decisions as well as both the scope and content of the matters delegated to the management, and disclose a brief summary thereof
In the Company, the delegation of work to Executive Officers and operations that they are in charge of are subject to resolution of the Board of Directors, and the contents are disclosed in "Press Releases" on the Company's website. In addition, the scope of authority of the monetary amount, etc. of decision-making is stipulated in the regulations on administrative authority, which were decided by resolution of the Board of Directors.
Moreover, the Company separates the "decision-making and oversight function" and the "execution of operations function" of the Board of Directors, and the Company introduced an Executive Officer system that aims to practice efficient and speedy management. Through these measures, the Company ensures the establishment of an efficient management and execution system. Furthermore, the appointment of Independent Outside Directors allows us to realize highly transparent management.
Principle 4.9 Independence Standards and Qualification for Independent Directors
Boards should establish and disclose independence standards aimed at securing effective independence of independent directors, taking into consideration the independence criteria set by securities exchanges. The board should endeavor to select independent director candidates who are expected to contribute to frank, active and constructive discussions at board meetings.
The Company stipulated Independence Standards for Outside Directors/Audit & Supervisory Board Members and discloses the standards in the Corporate Governance Report.
With respect to the selection of Independent Outside Directors, the Company selects candidates satisfying the Company's Independence Standards for Outside Directors/Audit & Supervisory Board Members in addition to the standards in the Companies Act and Enforcement Rules for Securities Listing Regulations, etc. with career experience and knowledge that allows the Company to expect honest input and active and constructive contribution in Board of Directors meetings to the Company's management.
Supplementary Principle 4.11.2
Outside directors, outside kansayaku, and other directors and kansayaku should devote sufficient time and effort required to appropriately fulfill their respective roles and responsibilities. Therefore, where directors and kansayaku also serve as directors, kansayaku or the management at other companies, such positions should be limited to a reasonable number and disclosed each year.
For Directors and Audit & Supervisory Board Members of the Company, the holding of concurrent positions as officers of other listed companies is limited to the minimum extent. The system enables Directors and Audit & Supervisory Board Members to appropriately fulfill their roles and responsibilities.
Concurrent positions of Directors and Audit & Supervisory Board Members are published in the notices of the general meeting of shareholders for annual disclosure.
Supplementary Principle 4.11.3
Each year the board should analyze and evaluate its effectiveness as a whole, taking into consideration the relevant matters, including the self-evaluations of each director. A summary of the results should be disclosed.
The Company implemented self-evaluation surveys to all Directors and Audit & Supervisory Board Members including Outside Directors/Audit & Supervisory Board Members, and the scores and analysis results were reported to the Board of Directors. The Board of Directors concluded that effectiveness is secured for the overall configuration and management of the Board of Directors and support system for Directors and Audit & Supervisory Board Members. The Company will continue to work to increase the effectiveness of the Board of Directors as a whole by further improvement.
Supplementary Principle 4.14.2
Companies should disclose their training policy for directors and kansayaku.
In the Company, newly appointed Directors and newly appointed Executive Officers must take courses provided outside of the Company to obtain necessary knowledge for management executives such as corporate governance and compliance not long after their appointment. In addition, the Company holds training sessions for timely management issues based on necessity.
Audit & Supervisory Board Members participate in training sessions and seminars hosted by outside organizations such as the Japan Audit & Supervisory Board Members Association based on necessity to acquire the necessary knowledge and increase competence as Audit & Supervisory Board Members regardless of whether or not the Audit & Supervisory Board Members are newly appointed.
The Company provides education on revisions to relevant laws and regulations surrounding companies, necessary information on management decisions, internal control, and compliance by outside instructors to Directors, Audit & Supervisory Board Members, and Executive Officers.
Principle 5.1 Policy for Constructive Dialogue with Shareholders
Companies should, positively and to the extent reasonable, respond to the requests from shareholders to engage in dialogue (management meetings) so as to support sustainable growth and increase corporate value over the mid- to long-term. The board should establish, approve and disclose policies concerning the measures and organizational structures aimed at promoting constructive dialogue with shareholders.
In the Company, as the division in charge of IR, the Finance Division communicates with stakeholders starting with shareholders in cooperation with the Business Management Division, Corporate Strategic Planning Division, and General Affairs Division.
The Company discloses Financial Statements, Securities Reports, disclosure documents for stock exchanges, and important facts to shareholders and investors in a timely and appropriate manner. In addition, the Company works to improve the soundness of management by promoting IR activities including the release of a wide variety of information such as management policies, business activities, compliance activities, and social contribution activities in the Group on the Company's website and ensuring the transparency of corporate activities.
The Representative Director and President and Officer responsible for finance hold financial results briefings for analysts and institutional investors twice a year, and the Company discloses materials for the briefings on the Company's website. The Company also appropriately holds individual briefings and respond to interviews for analysts, institutional investors and individual investors.
The outcome of such financial results briefings and individual briefings are reported at the Management Meeting (including Independent Outside Directors) and the Board of Directors, and the information is shared with Directors and Audit & Supervisory Board Members.
For communication with shareholders, the Company stipulates and releases the Disclosure Policy on the Company's website.
With respect to insider information management, the Company established Regulations on Insider Trading and provides education to all officers and employees to ensure thorough information management. In addition, the Company sets several weeks until the financial statement announcement as a quiet period and limits communication with shareholders and investors during this time.
