JAPANESE

Corporate Governance System

Corporate Governance System

Corporate Governance System

Board of Directors

The Board of Directors of the Company holds regular meetings once a month (12 meetings in total) and extraordinary meetings (1 meeting in total for fiscal year 2023) as necessary to make decisions on important matters related to the execution of the Company's business in accordance with the Board of Directors Regulations, in addition to matters prescribed by law or the Articles of Incorporation, and to supervise the status of business execution by each director.

Specific matters discussed in fiscal year 2023 included business management and financial matters, as well as the construction of new data centers and the investment made towards constructing an AI computing platform. In addition, reports were made on the results and forecasts of business performance and business KPIs, as well as matters related to affiliated companies and risk management.

The agenda items for the Board of Directors, classified by theme, are as follows.

  • -
    Corporate governance
  • -
    Financial results and financial affairs
  • -
    Subsidiaries and affiliate companies
  • -
    Risk management, internal control and compliance
  • -
    Human resources/ESG
  • -
    Individual matters

The evaluation of the effectiveness of the Board of Directors

In order to further ensure its effectiveness and to improve its functions, the Company's board of directors analyzes and evaluates the effectiveness of the board of directors every year. With the support of an independent organization, the Company's board of directors has been carrying out evaluations of the effectiveness of the board of directors continuously once each year since 2018.

A summary of the method and results of the evaluation of the effectiveness of the Company's board of directors for FY2023 are as follows.

Evaluation method
  1. (1)
    Subjects of evaluation: Five internal directors, five external directors, and four Audit & Supervisory Board members
  2. (2)
    Method of evaluation: Questionnaire-based survey (in a signed form) and/or interview
  3. (3)
    Evaluation period: From December 2023 to June 2024
  4. (4)
    Evaluation process
    The effectiveness evaluation for FY2023 was carried out as follows.
    • -
      December 2023: Review of the key points of the evaluation and the items to be included in the questionnaire, based on advice from the independent organization
    • -
      January 2024: Individual interview with President (conducted by the independent organization)
    • -
      January 2024: Distribution of the questionnaire to target audience and their collection (compiled and analyzed by the independent organization)
    • -
      February to May 2024: Individual interviews to directors and audit & supervisory board members based on the results of the analysis of the questionnaire (conducted by the independent organization)
    • -
      March to May 2024: Discussions at the Company's board of directors on the issues to be addressed and the strategic direction for improvement, based on an identification of such issues and associated recommendations presented by the independent organization
    • -
      June 2024: Decision at the board of directors on the issues to be addressed and the strategic direction for improvement identified as a result of the evaluation of the effectiveness of the board of directors for FY2023
Question items

The major question items in the questionnaire for FY2023 are as follows. Each question is rated on a 5-point scale, with a free comment box provided for each item.

  1. 1.
    Strategies and implementation thereof
  2. 2.
    Risk and crisis management
  3. 3.
    Corporate ethics
  4. 4.
    Business restructuring (mergers, acquisitions, divestitures or business alliances)
  5. 5.
    Group governance
  6. 6.
    Management evaluation, remuneration, and succession planning
  7. 7.
    Dialogue with stakeholders
  8. 8.
    Structure and operation of the board of directors
Overview of the results of the evaluation of the effectiveness of the board of directors for FY2023

As a result of the effectiveness evaluation for the current fiscal year (FY2023), it was confirmed that the board of directors of the Company has been making improvements every year toward the corporate governance that the Company aims to achieve, and that a high level of effectiveness has been ensured as a whole.
In the course of the effectiveness evaluation for the current fiscal year, the status of the responses to the issues raised in previous fiscal years and priority issues to be addressed going forward were also confirmed.

Status of responses to the issues of previous fiscal years

In terms of the recommendation to further deepen the discussions on medium- to long-term priority issues, we were able to set the annual activity plan of the Board of Directors, improve the frequency and granularity of information sharing, and deepen our discussions on priority themes including the business portfolio and medium- to long-term financial and human capital strategies. The content of these discussions contributed to propelling the Medium-term Management Plan (announced in May 2023).
As for strengthening the monitoring of the Group's governance and risk management systems, we conducted a systemic reorganization of potential risk, after which the status of the Group subsidiaries was clearly and systematically reported, including prior explanations.
Also, to utilize the knowledge of the external directors and audit & supervisory board members, in addition to conventional “board meetings (mainly for resolutions and reporting),” “strategic discussions (mainly for discussions),” and “meetings of the external directors and audit & supervisory board members (mainly for the exchange of information),” we held “friendly get-togethers,” where relevant officers participated according to the theme being discussed, and facilitated a proactive exchange of opinions. As a result, we were able to deepen the understanding and raise awareness of the essential issues and the ever-changing business environment that are the basis for the discussions at the board meetings.

Priority issues to be addressed going forward

The board of directors confirmed the following items as priority issues to be addressed in the future to further ensure the effectiveness and strengthen the functions of the board of directors.

  1. 1.
    Medium- to long-term strategies
    1. (1)
      Overall Group strategy
      Continue the overall Group strategy that pursues medium- to long-term synergy and discuss such Group strategy relative to financial strategies on future investments
    2. (2)
      Post-evaluation of investments
      Strengthen the board's post-investment oversight by providing information required for post-investment management metrics and exit decisions in a more organized manner
  2. 2.
    Next-generation human resources strategies
    1. (1)
      Strengthen investments in human capital and deepen discussions on hiring and nurturing next-generation, core human resources and ensuring diversity, to secure talent with state-of-the-art technical expertise who will the next generation of business
    2. (2)
      Confirm the specific action plan for succession planning at the board, in order to discover and nurture appropriate talent capable of leading a broad range of businesses at an early stage
  3. 3.
    Group governance and risk management
    1. (1)
      Continue discussions on the capital relationships with alliance partners and confirm the status of responses to the problem of information leakages at the board
    2. (2)
      Have discussions at the board by sorting through information on new risks emerging as a result of the changing times, as well as geopolitical and economic security

The Company's board of directors will remain engaged in initiatives to enhance its effectiveness, in view of the aforementioned issues, the strategic direction of the Company and the business environment it faces.

  • -
    The nominating committee, the remuneration committee and the ESG committee are established voluntarily as advisory bodies to the board of directors. The nominating committee and the remuneration committee comprise the CEO and four independent external directors (elected by a resolution of the board of directors) to ensure independence of the committees. The ESG committee is headed by the representative director, president & CEO, who is the chief ESG officer. In addition, the risk management committee, the information security committee, the IT governance committee, the AI ethics committee, the human rights committee, the environment committee and the advancement of women promotion committee are established as internal committees.
  • -
    The board of directors makes decisions on matters stipulated by the Board of Directors Rules and the Articles of Incorporation In addition, the Company has introduced the executive officer system to clarify the management supervisory function and further strengthen the business execution function of the board of directors while ensuring speedier management.

The Company stipulates the maximum number of directors at 15 in the Articles of Incorporation. The board of directors elects director candidates who are considered the most suitable for the position, with their nationality, ethnicity, gender, or age also taken into consideration, based on discussions by the nominating committee. At present, there are 11 directors serving, all of whom have a wealth of knowledge and experience regarding business management. 6 independent external directors have been elected, and they hold constructive and lively discussions at the board of directors meetings from diverse perspectives, including outside perspectives.

Audit & Supervisory Board Members
and the Audit & Supervisory Board

The Audit & Supervisory Board consists of four members, two of whom are external members (two full- time members and two part-time members). The internal Audit & Supervisory Board members consist of one full-time member and one part-time member. The full-time internal Audit & Supervisory Board member has extensive knowledge and experience in the fields of governance, compliance, and risk management accumulated through serving as an executive officer, CCO, and head of the General Affairs Division of the Company, as well as in corporate management accumulated through serving as the president of a Group company. The part-time internal Audit & Supervisory Board member is a certified public accountant and has extensive knowledge and experience in accounting as an executive corporate officer and head of the accounting unit of SoftBank Group Corp. The external Audit & Supervisory Board members consist of one full-time member and one part-time member, both of which are fully independent. The full-time external Audit & Supervisory Board member has extensive knowledge and experience in human resources, compliance and risk management of a financial institution. The part-time external Audit & Supervisory Board member has extensive knowledge and experience in finance and accounting as a certified public accountant in the State of California. The Audit & Supervisory Board members, including the external Audit & Supervisory Board members, attend board of directors meetings to monitor and verify the status of decision-making by the board of directors and the fulfillment of its supervisory duties over each director. They also audit the execution of duties by the directors, etc., as well as the directors and the Audit & Supervisory Board members of major subsidiaries, through regular interviews and other means.

The Audit & Supervisory Board establishes an audit policy, audit plan and priority audit items for each fiscal year. It meets once a month in principle, receives regular reports from each department related to the internal control system to confirm the status of the execution of duties by directors based on the priority audit items, and confirms the appropriateness of business execution. In addition, the Audit & Supervisory Board receives quarterly reports on the progress and results, etc. of audits from the Independent Auditor, and exchanges information and opinions with them. It also receives explanations of individual matters from directors, etc. as necessary.

The Audit & Supervisory Board office has been established to support the duties of all the Audit & Supervisory Board Members, including the external members. The office comprises dedicated personnel who act under the directions of the Audit & Supervisory Board Members to gather information, investigate matters, and give other assistance.

Internal audits

The Internal Audit Department was established as an organization directly under the representative director, president & CEO consisting of 26 members. It develops a risk-based annual audit plan, conducts internal audits of the overall duties of the Company, and also conducts the Group's internal control audits of subsidiaries (mainly consolidated subsidiaries). The Internal Audit Department evaluates business compliance with laws and regulations and the effectiveness of internal control, and reports the results of internal audits as well as the follow-up status of past audit findings to the representative director, president & CEO of the Company, as well as to the board of directors, audit & supervisory board members, and the audit & supervisory board. The Internal Audit Department also conducts audits of subsidiaries on behalf of their parent company in an effort to strengthen the governance of the entire group in collaboration with the audit departments of group companies. Furthermore, internal and external quality evaluations are conducted as an initiative aimed at improving audit quality.

Supporting System for External Directors and/or External Audit & Supervisory Board Members

Briefing session of the Board of Directors meetings

The Company seeks to ensure that all officers, including the external Audit & Supervisory Board members, can participate fully in the Board of Directors meetings having fully grasped the specific details of the agenda for discussion. The secretariat to the Board of Directors therefore provides them with materials for the Board of Directors meetings beforehand, including supplemental briefings and other information as required.
Prior to each Board of Directors meeting, a briefing session is held for the external directors and Audit & Supervisory Board members. With the CFO and/or other appropriate officers attending all these meetings, the departments in charge provide detailed explanation of the agenda items, followed by a question-and-answer session to ensure a clear understanding from the external directors and Audit & Supervisory Board members. In addition, in cases where issues are raised by external directors at such briefings, the department in charge clarifies such issues before the Board of Directors meeting.

Cooperation between the external directors
and the Audit & Supervisory Board

Approximately once every half year, the external directors and the Audit & Supervisory Board members hold informal meetings. The Audit & Supervisory Board members share opinions on the management interview results and the recent management issues, so that external directors can further deepen their understanding of the Company.

Cooperation between the external directors
and the Independent Auditor

The external directors and the Independent Auditor hold information sharing meetings once a year. They exchange opinions on topics including the business environment, the status of internal controls, and governance issues, in the presence of the CFO and/or other appropriate officers.

Transactions with controlling shareholder

The Company recognizes that related party transactions including transactions with the parent company group are transactions that may have an impact on the financial position or the results of operations by using the advantageous position of the related party. As such, in implementing related party transactions, the Company carries out important transactions upon approval of the board of directors each time, by paying particular attention to whether such transactions are rational from a managerial standpoint of the Group and whether the terms and conditions of the transactions are appropriate compared to external transactions, in accordance with the Related Party Regulations and Related Party Transactions Management Manual.
Even with regard to related party transactions that do not fall under important transactions, the Finance and Accounting Division monitors the aggregate amount and details of such transactions once a year in principle.
In addition, the Board of Directors Rules stipulate that the board of directors must approve transactions conducted by directors if these may compete or cause conflicts with the Company's interests. Each transaction is subject to approval by the board of directors and the transaction results are reported to the board of directors.

Cooperation among Audit & Supervisory Board Members, Independent Auditors and Internal Audit Departments

Cooperation between the Audit & Supervisory Board Members
and the Independent Auditor

The audit & supervisory board members receive briefings from the independent auditor (Deloitte Touche Tohmatsu LLC) on the audit policy and audit plan, and exchange opinions. The audit & supervisory board members receive reports on the main items to be audited and the method and results of audit, regarding the audit during and at the end of the fiscal year (including quarterly review). Full-time audit & supervisory board members cooperate with the independent auditor mainly by exchanging information and opinions with the independent auditor on a monthly basis, as well as accompanying the independent auditor who conducts accounting audits and attending the audits.

Cooperation between the Audit & Supervisory Board Members
and the Internal Audit Department

The Audit & Supervisory Board Members regularly provide opportunities to exchange information with the Company's Internal Audit Department and Internal Control Division, cooperating organically with them including requesting them to conduct an investigation as necessary.
In particular, the Audit & Supervisory Board Members confirm the progress of the internal audit plan and exchange opinions with the Internal Audit Department every month such as by holding regular meetings attended by full-time Audit & Supervisory Board Members. In addition, the general manager of the Internal Audit Department reports the internal audit plan and results, among other matters, to the Audit & Supervisory Board Members semi-annually, and provides explanation regarding the report of audit results to representative directors as appropriate, through sharing of materials each time.

Cooperation between the Independent Auditor
and the Internal Audit Department

The Independent Auditor receives briefings from the Internal Audit Department on the audit plan and, when necessary, on the results of internal audits and other matters. The Internal Audit Department receives regular briefings from the Independent Auditor regarding audit results and other matters. Moreover, both parties cooperate with each other as necessary by exchanging information and opinions, among other measures.

Status of audit by the Independent Auditor

(a) Name of the independent auditor

Deloitte Touche Tohmatsu LLC.

(b) Consecutive auditing period

23 years

(c) Certified public accountants who executed the audit duties of the Company

Designated engagement partners: Mr. Satoshi Iizuka, Mr. Takafumi Shimodaira, Ms. Saori Goto

(d) Composition of assistants for the audit duties of the Company

35 certified public accountants and 67 others

Reasons for Adoption of
Current Corporate Governance System

The Company has established the Board of Directors as a decision-making body for important matters and an oversight body for the status of business execution. The Board of Directors also plays a role of steering management to improve the long-term enterprise value. At present, the Board of Directors consists of 11 directors, including four external directors, and makes management decisions following “appropriate investigation” and “thorough consideration.”
In addition, the Company has established the Audit & Supervisory Board to conduct efficient and effective audits regarding the status of execution of duties by directors. The Audit & Supervisory Board consists of four Audit & Supervisory Board Members, including two external Audit & Supervisory Board Members, and formulates the “audit policy,” “audit plan” and “audit method.” Audit & Supervisory Board Members carry out audit activities in accordance with this policy and plan.
Moreover, the Company has introduced the executive officer system to ensure clarification of the management supervisory function, strengthening the business execution function of the Board of Directors, and expediting management.
The current system is thus selected because the Company judges that its corporate governance is functioning effectively.

Responses to the Corporate Governance Code

The Company has implemented all of the principles of the Corporate Governance Code.