Corporate Governance Report
Last Updated: December 7, 2021
TSURUHA HOLDINGS INC.
Jun Tsuruha, President & Representative Director Contact: Makoto Murakami, Executive Officer
and Chief Administrative Officer Securities code: 3391 https://www.tsuruha-hd.com/
The corporate governance of TSURUHA HOLDINGS INC. (the "Company") is described below.
Basic Views on Corporate Governance, Capital Structure, Corporate Profile, and Other Basic
1. Basic Views
The Company believes that corporate governance forms the foundation upon which the Company seeks to achieve sustainable growth and improve corporate value over the medium to long term. To that aim, all officers and employees of TSURUHA Group (the "Group") understand the business philosophy and objectives, recognize the social role as a listed company, strive to maintain good relationships with each stakeholder, and seek to become a company that deepens and improves the community links and earns universal support.
[Reasons for Non-compliance with the Principles of the Corporate Governance Code]
[Supplementary Principle 3.1.3 Sustainability initiatives, etc.]
The Company discloses initiatives relating to its management policies on the Company's website. For more details, please click the following link:
The Company also collects and analyzes data required to understand how climate change affects the Company's business, and has been working to build a system to support TCFD-based disclosure.
[Principle 4.11 Preconditions for Board of Directors and Board of Corporate Auditors Effectiveness] [Supplementary Principle 4.11.1]
The Company does not currently disclose a skills matrix listing the knowledge, experience, capabilities, and other data on each Director. In the future, the Board of Directors will identify the skills that each Director should nurture in view of the Group's management strategies and develop a skills matrix in consultation with the Nomination and Remuneration Committee. The Company plans to disclose the combination of skills and other attributes that the Directors possess by the time the proposal for the election of Director is submitted to the next Ordinary General Meeting of Shareholders, along with the procedures for the election of Directors.
[Principle 5.2 Establishing and Disclosing Business Strategies and Business Plans]
The Company is uniting in its efforts to expand the sales base and enhance its corporate value through various measures in order to achieve its medium-term goals, "3,000 stores in the fiscal year ending May 15, 2024" and "net sales of ¥1 trillion." The Company intends to formulate and publish a new medium-term management plan by the time it announces the financial results for the fiscal year ending May 15, 2022. The plan will lay
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out the earnings plans and the direction of the capital strategies, present details of the earning power and capital efficiency goals, among other matters, and illustrate specific measures to achieve these goals. The Company will also pay attention to ensuring the plan's structure and content can be readily understood by the shareholders of the Company.
[Supplementary Principle 5.2.1]
The Company does not currently publish any documents to show the basic policies on the business portfolio. The Company intends to use the formulation of its new medium-term management plan as an opportunity to determine the basic policies on the business portfolio at the Board of Directors meeting and disclose the details thereof.
[Disclosure Based on the Principles of the Corporate Governance Code]
[Principle 1.2 Exercise of Shareholder Rights at General Meetings of Shareholders] [Supplementary Principle 1.2.4]
The Company has already adopted the Electronic Voting Platform for institutional investors. The Company has been drafting the Notice of the General Meeting of Shareholders in English for some time now, but from this year's Ordinary General Meeting of Shareholders, the Company has started creating Business Report, Financial Statements, and other documents in English to enable overseas institutional investors to exercise their voting rights more smoothly.
[Principle 1.4 Cross-Shareholdings] 1. View on holding
The Group will hold shares in other listed companies as cross-shareholdings only if deemed necessary for its business activities in terms of maintaining and strengthening business alliances and relationships with the business partners, among others. However, the basic policy is to gradually sell off and reduce cross- shareholdings that have become less significant.
Each year, the Board of Directors examines the suitability of the motives for each cross-shareholding, verifies whether the benefits and risks of holding those shares are worth the capital costs, and reviews whether it should continue to hold those shares and in what volume. Regarding voting rights on cross-shareholdings, the Group exercises these voting rights after a comprehensive consideration as to whether a particular proposal will help build an appropriate corporate governance system and boost the issuing company's medium-term corporate value, while also considering any potential impact on the Company, among other factors.
2. Verification methods
Qualitative aspects: Significance of the holding from a business strategy perspective.
Quantitative aspects: Comparative verification of the five-year average for total shareholder return (TSR) based on the Company's cost of capital (WACC). The Company conducts qualitative and quantitative analysis for each stock holding to facilitate a comprehensive assessment.
3. Verification results
The Company performed the comprehensive assessment based on the above-mentioned views on holding and verification methods and decided at the meeting of the Company's Board of Directors held on May 6, 2021 to continue to hold all four of its cross-shareholdings.
[Principle 1.7 Related Party Transactions]
The Company periodically checks whether there are any conflict-of-interest transactions or competitive transactions relating to the Group officers. In addition, if Company officers are conducting transactions with related parties, these transactions must be preapproved by the Board of Directors, and if they are considered to be significant, those transactions will be disclosed following due consultation with the auditing firm.
[Supplementary Principle 2.4.1 Ensuring internal diversity including the promotion of women's participation and advancement]
The Company is committed to actively ensuring diversity in its core human resources. Regarding the appointment of female employees to managerial positions, in particular, the Company is aiming to achieve 30% of managerial positions filled by female employees based on the Act on the Promotion of Female Participation and Career Advancement in the Workplace (17.5% ratio as of May 15, 2021). The Company also formulates a recruitment plan for mid-career hires each year and actively promotes and appoints mid- career employees according to their abilities and level of contribution to the Company. The Company
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formulates an annual recruitment plan as a measurable target and verifies the progress status of the plan every six months (the ratio of mid-career hires to total new hires in the fiscal year ended May 15, 2021, stood at 28.2%).
[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners]
The Group has introduced defined benefit corporate pensions at some of its subsidiaries. The Company's finance department periodically checks the status of the corporate pension management as part of the required function as the owner of the corporate pension assets.
[Principle 3.1 Full Disclosure]
(ⅰ) Company's goals (e.g., business philosophy), management strategies, and management plans
In order to build Japan's number one drug store chain, the Company is pursuing a dominant position in terms of store numbers across the country based on its business philosophy of "making life better for our customers." The Company has set its medium-term goals, "3,000 stores in the fiscal year ending May 15, 2024" and "net sales of ¥1 trillion." The Company has also made it the mission to always practice "Courtesy first" and "Credibility first" approach when interacting with customers by applying the Company's renowned customer service skills and a high level of product knowledge, and to provide products that customers need with high quality and at affordable prices, so that the Company becomes an indispensable presence to its customers and local communities.
The management strategies of the Company are posted on the Company's website. Please click the following link to refer to them:
The Company also plans to formulate and publish a new medium-term management plan by the time the Company announces the financial results for the fiscal year ending May 15, 2022.
(ⅱ) Basic views and policies on corporate governance
(1) Basic views
The Company believes that enhancing corporate governance is one of the most important management issues for achieving sustainable growth and increasing corporate value over the medium to long term. To that aim, under the business philosophy and objectives, all officers and employees of the Group recognize the social role as a listed company, strive to maintain good relationships with each stakeholder, and seek to become a company that deepens and improves the community links and earns universal support.
(2) Basic policies
The Company establishes and implements the basic policies as follows, based on the basic views:
Thorough compliance: The Company is committed to thoroughly enforcing the spirit of compliance across the entire Group.
Management of the Board of Directors based on sophisticated management decisions: The Company understands the responsibilities of each Director and operates the Board of Directors in a manner that clarifies management decisions.
Audit and Supervisory Committee Members and the Audit and Supervisory Committee recognize that they have an important role to play in establishing the Company's governance system, and supervise the management from an independent standpoint.
Officers are responsible for conducting stakeholder-conscious management as well as clarifying management plans and visions, and ensuring their disclosure and verification.
Securing shareholders' rights
In view of the Company's shareholding ratio in terms of overseas and domestic institutional investors, the Company strives to create environments that make it easier for shareholders to exercise their voting rights. In particular, the Company has adopted online voting, participated in the ICJ platform for exercising voting rights, and prepared the notice of convocation in English and in easy-to-read font styles. Regarding the results of the exercise of voting rights at the General Meeting of Shareholders, the Company is working to analyze the reasons for any large-scale opposition to a particular proposal and clearly grasp any underlying factors, and to increase opportunities for dialogue with shareholders through the holding of briefings for investors and other events where the Company can share and discuss the values of the shareholders and the Company.
When the Company submits an important proposal to the General Meeting of Shareholders, the Company checks carefully to ascertain whether such a proposal complies with the Company's governance system and, if necessary, the Company seeks advice from external experts, such as lawyers or certified public accountants.
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6) Management that values people and strives to make them happy
The Company consistently aims to become a company that respects its employees and enables them to find joy in their work upon the belief that the purpose of business is to make everyone relating to a company happy forever.
7) Policy on anti-takeover measures, etc.
The Company considers that the best form of defense against takeovers is to secure stable, high growth potential and profitability, increase stock prices, and thereby enhance corporate value. Needless to say, when introducing any new anti-takeover measures, the Company takes care to ensure that the shareholders understand the need for such measures and that the Board of Directors has thoroughly deliberated the content before proposing any new measure. In the event that the Company's shares become the subject of a takeover bid (TOB), the Company promptly clarifies and discloses its views on the matter. The Company also clarifies the intention regarding any countermeasures. However, the Company shall not take any unlawful countermeasures, and the shareholders shall have the sole discretion.
8) Sustainability initiatives such as for social and environmental issues
The Company recognizes sustainability initiatives to be one of the top management priorities in order to realize its business philosophy and fulfill its social responsibilities as a company. The Company's views on sustainability are also posted on the Company's website. Please click the following link: https://www.tsuruha-hd.com/sustainability/
9) Ensuring internal diversity, including the promotion of women's participation and advancement
The Company is committed to actively ensuring diversity in its core human resources. Regarding the appointment of female employees to managerial positions, in particular, the Company is aiming to achieve 30% of managerial positions filled by female employees based on the Act on the Promotion of Female Participation and Career Advancement in the Workplace (17.5% ratio as of May 15, 2021). The Company also formulates a recruitment plan for mid-career hires each year and actively promotes and appoints mid- career employees according to their abilities and level of contribution to the Company. The Company formulates an annual recruitment plan as a measurable target and verifies the progress status of the plan every six months (the ratio of mid-career hires to total new hires in the fiscal year ended May 15, 2021, stood at 28.2%).
10) Whistleblowing systems
The Company has established the Whistleblowing Regulations. The Company also has a system in place to report any violation of internal rules or conduct in violation of laws within the Group or any conduct in violation of corporate ethics. The Company has appointed whistleblowing personnel who operate independently from internal officers and departments, and built a system to stipulate and operate matters for which information providers should be protected in the Whistle-blowing Regulations.
(ⅲ) Board of Director's policies and procedures in determining the remuneration of the senior management and Directors
Please refer to "Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods" in II 1. [Director Remuneration] of this report.
(ⅳ) Board of Director's policies and procedures in the appointment/dismissal of the senior management and the nomination of Directors and Directors who are Audit and Supervisory Committee Members candidates When the Board of Directors adopts a resolution to submit a proposal for appointment of the candidates to the General Meeting of Shareholders, the procedure for obtaining approval involves the chairperson ascertaining that the candidates have sufficient knowledge and experience to fulfill their duties and are considered to be able to contribute to the improvement of the Company's corporate value based on the report submitted by the Nomination and Remuneration Committee, explaining why the candidates are being recommended for appointment, and asking for shareholders' approval. The Board of Directors determines to remove an executive based on the following dismissal criteria: (Dismissal Criteria) (1) an officer has committed an act that is contrary to public order and ethics, (2) it becomes difficult for an officer to continue to fulfill his/her duties due to health reasons, (3) the Company's corporate value is significantly damaged by an officer's neglect of his/her duties, or (4) an officer's qualifications as an executive are not recognized.
Explanations with respect to the individual appointments/dismissals and nominations when the Board of Directors appoints/dismisses the senior management and nominates Directors and Directors who are Audit and Supervisory Committee Members candidates
The Company strives to ensure fairness and objectively by nominating candidates based on the following concepts:
1. Basic policy on the composition of the Board of Directors
The Company shall have no more than 11 Directors in order to maximize the Group's overall corporate value and strengthen and thoroughly enforce corporate governance as a holding company. The Company seeks to appoint multiple Outside Directors and utilize their high-level capabilities in their individual specialized fields to promote the Company management. The Company also considers the need for diversity by appointing female executives and executives with different experience in the industry and strive to create an effective Board of Directors at the optimal scale.
2. Policies and procedures for nominating candidates for Directors and for dismissing Directors
In nominating candidates for Director, the Company believes that it should nominate people with the appropriate qualities to conduct general management for promoting the sustainable growth of the Company and enhancing the Company's corporate value over the medium to long term.
When selecting candidates, the Company does not focus on gender, nationality, age, or other similar factors, but instead considers the need for diverse and balanced knowledge, experience, and capabilities. The Company evaluates a candidate's personality, achievements, and insights, his/her ability to appropriately fulfill decision-making and supervisory functions on the Board of Directors, and whether he/she is able to help achieve the Company's corporate philosophy and enhance the Company's corporate value over the medium to long term. To ensure transparency in the selection process, the Company has established and launched a Nomination and Remuneration Committeeas a voluntary advisory body comprising a majority of independent Outside Directors.
[Supplementary Principle 3.1.2]
Considering that overseas institutional investors hold a considerable percentage of the Company's shares, the Company is working to establish a system that promotes the disclosure and provision of information in English.
Items that are already disclosed in English include: (1) Notice of the Ordinary General Meeting of Shareholders, (2) SR materials for overseas institutional investors, (3) Website, and (4) Consolidated Financial Results
Items the Company is currently considering for future English-language disclosure: (1) Corporate Governance Report and (2) Securities Report
[Principle 4.1 Roles and Responsibilities of the Board of Directors (1)]
[Supplementary Principle 4-1-1]
In addition to stipulations in the Articles of Incorporation and relevant laws and regulations, the Company determines the matters to be resolved by the Board of Directors in the Board of Directors Regulations. Furthermore, on August 10, 2021, the Company transitioned from a Company with a Board of Corporate Auditors to a Company with an Audit and Supervisory Committee, and delegated a portion of the important business execution decisions to the President & Representative Director.
[Principle 4.8 Effective Use of Independent Outside Directors]
The Company has appointed three independent Outside Directors. The three independent Outside Directors are asked to fulfill their advisory and supervisory functions from an objective standpoint and play a role in enhancing the Company's corporate value. The independent Outside Directors constitute a third of the Board of Directors, and, given that the Board currently engages in active discussions based on these independent standpoints, the Company believes that it has established a sufficient system to ensure the effective use of independent Directors.
[Supplementary Principle 4.8.3]
At the present time, there are no controlling shareholders in the Group.
[Principle 4.9 Independence Standards and Qualification for Independent Outside Directors]
At the Board of Directors meeting held on April 6, 2021, the Company established criteria for selecting outside officers as a specific standard designed to ensure the transparency and objectivity of the Board of Directors.
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