SHINSHO CORPORATIONSHINSHO CORPORATION

KOBELCO

Corporate Governance

In the management of its businesses, the Group regards the strengthening of corporate governance as an issue of the upmost importance. Our basic policy towards corporate governance is to promote business that is worthy of the trust of shareholders and clients by maintaining the integrity of management and strengthening the competitive position of the Company through swift and flexible adaption to changes in the business environment. Furthermore, the Group places great importance on compliance management for promoting business strategies and in light of this it has constructed systems for compliance with laws and regulations and risk management. These systems include the establishment of a Compliance Committee, an Investment and Loan Committee, and an Environment Committee, as well as the development of a system for security export control.
In addition, in order to ensure the integrity in business activities, in accordance with the administrative authority regulations, the Staff Department at the Head Office utilizing their specialist knowledge conducts preliminary reviews of decisions made. The Department also monitors the performance of business conducted by the Group while cooperating with the Business Planning Office placed at each sales section and if necessary makes suggestions for improvement and provides specific advice and instruction.
Moreover, the Audit & Supervisory Board Members (internal/outside) and Accounting Auditors make efforts to strengthen their partnership through regular exchange of opinions and endeavor to monitor legality and fairness in the business performed by each department. We aim to not only ensure compliance through these systems and activities, but to also enhance and maintain the integrity and transparency of our business and prevent management risk.

The Company also formulated various basic policies and standards on March 11, 2016 as described below.

Basic Policy of Nomination and Remuneration

In selecting candidates for directors and audit & supervisory board members, the Company selects human resources with quality, knowledge, and experiences as the management candidates, who are appropriate for the shareholders and other stakeholders to entrust the Company’s management, in order to achieve our management goal of being a global trading company at the core of the Kobe Steel (KOBELCO) Group.
In determining remuneration, it is important to provide the management members with incentives for active management, while having them assume appropriate levels of risk. From this viewpoint, we plan to incorporate a medium- to long-term performance linked remuneration based on stock compensation scheme into the remuneration system that is currently composed of fixed remuneration and short-term performance linked remuneration.
In resolving proposals regarding nomination and remuneration, we make decisions after the prior deliberation at the Nomination and Remuneration Advisory Committee with a majority of the members being outside directors, in order to ensure transparency and fairness of the decision-making process of the Board of Directors.

Independence Standards for Outside Directors/Outside Audit & Supervisory Board Members

(Formulated on March 11, 2016)

  Item/Standards Requirements concerning past years
Requirements concerning relatives
1 [Item]
A major business partner of the Group or an executor of business thereof
[Standard]
A business partner whose amount of transactions accounted for more than 2% of the Group’s consolidated net sales in the immediately previous fiscal year

A person who has fallen under any of the items on the left in the past three years

A relative within second degree of kinship to a person who falls under any of the items on the left

2 [Item]
A person whose major business partner is the Group or an executor of business thereof
[Standard]
A person whose amount of transactions to the Group accounted for more than 2% of the person’s consolidated net sales or total revenue in the immediately previous fiscal year
3 [Item]
A principal shareholder of the Company or an executor of business thereof in the case that such shareholder is a corporation
[Standard]
A person who, directly or indirectly, owns 10% or more of all the voting rights of the Company
4 [Item]
A consultant, accounting professional such as a certified public accountant or legal professional such as an attorney-at-law who receives money or other financial benefit from the Group excluding remuneration for director/audit & supervisory board member. (If a corporation or an association, etc. receives such financial benefit, a person who is affiliated with such organization)
[Standard]
A person who received financial benefit amounting to more than 10 million yen from the Group, excluding remuneration for director/audit & supervisory board member in the immediately previous fiscal year
5 [Item]
A person who receives a large amount of donations from the Group or an executor of business thereof
[Standard]
A person who received financial benefit amounting to more than 10 million yen from the Group in the immediately previous fiscal year
6 [Item]
An executor of business of a company of which the Group is a principal shareholder
[Standard]
A person of which 10% or more of all the voting rights is owned by the Group
7 [Item]
A financial institution that is a principal lender to the Group or an executor of business of the parent or a subsidiary of such financial institution
[Standard]
A financial institution from which borrowings at the end of the immediately previous fiscal year accounted for more than 2% of the Company’s consolidated total assets
8 [Item]
Other
[Standard]
A person with special reasons that prevent him/her from fulfilling duties as an Independent Outside Director/Audit & Supervisory Board Member, such as those that may cause conflict of interests with the Company
-

* If none of the above attributes applies to an Outside Director/Audit & Supervisory Board Member, the Company judges that such Outside Director/Audit & Supervisory Board Member is independent from the Company.

Basic Policy of Cross-shareholdings

The Company’s so-called cross-held shares are primarily those held with an aim to solidify the cooperative relationships among the Group based on its management policy, as a core trading company at the Kobe Steel Group.
In regard to the exercise of voting rights pertaining to such shares, we properly exercise them from a viewpoint of enhancing the corporate value of the companies over the medium- to long-term, upon thorough examination of the performance of the companies and contents of the proposals. In addition, the Board of Directors evaluates the significance of such holdings and performance of the companies in accordance with certain internal standards, and reviews the holdings on a periodic basis.

Basic Policy of Officers’ Training

The Company prepares a training plan for the management team including newly appointed officers, directors, and audit & supervisory board members. In order for them to acquire knowledge on businesses, finance, organizations, and other fields necessary for fulfilling their roles and responsibilities of directors and audit & supervisory board members, we provide appropriate trainings as necessary such as seminars led by external experts.

Basic Policy of Related Party Transactions

In conducting transactions with related parties, the Company preliminarily deliberates prior to the resolution as necessary, and follows appropriate procedures to prevent transactions that would impair the common interests of the Company and its shareholders. One such effort is a transaction within the range of regular market prices accepted on the basis of trading common sense. At internal monitoring, we audit the appropriateness of the decision on such transaction from the aforementioned perspective.
In addition, regarding transactions that would cause conflict of interests between the Company and a director, the Company preliminarily seeks an approval at the Board of Directors, and in principle, makes the director report the content of such transaction to the Board of Directors annually in order to examine the adequacy and appropriateness of such transaction.

Basic Policy of Diversity

Irrespective of race, nationality, creed, gender, physical impairment and others, we have acquired and appointed diverse human resources based on our policies of employment stability and equal opportunities. While responding to the social demands as represented by the enforcement of Expansion of Women’s Participation in Policy and Decision-making Processes in All Fields in Society, we aim to encourage independence and self-reliance of each employee through various trainings and internal educational opportunities. We also promote the establishment of personnel system that can respond to diverse working styles and fair treatment based on the degree of contribution to the company, in addition to our ongoing efforts to enhance the respect for humanity and secure comfortable working environment.

Basic Policy of Capital Policy

The Company’s capital policy is to make investment for sustained growth and maintain capital adequacy that can tolerate risks in order to raise shareholders’ value over a medium to long term.
In order to achieve the target level of capital adequacy while maintaining stable profit returns to shareholders, we regard the capital adequacy ratio and return on equity (ROE) as important management indices. We announce these target values, enhance capital adequacy and aim to establish an optimum capital structure.

Basic Policy of Investor Relations / Shareholder Relations

Ⅰ Basic policy

The Group positions building long-term relationships of trust with its shareholders and investors as an issue of the upmost importance. We properly provide corporate information necessary for investment decisions and carry out activities that would contribute to the enhancement of corporate value through constructive dialogue, thereby strengthening the bonds of trust with the shareholders and investors.

Ⅱ Policy of Disclosure

1. Compliance with related laws, regulations and rules
We comply with related laws and regulations, such as the Financial Instruments and Exchange Act and the Companies Act, as well as rules provided by stock exchanges.
2. Timeliness
In the event that the facts to be disclosed have been proved, the information is disclosed in a timely manner without delay.
3. Transparency
Regardless of contents, we always disclose information based on facts.
4. Accuracy
We disclose necessary and sufficient information so as not to cause misunderstanding.
5. Fairness
We disclose information to stakeholders in an equally accessible manner.
6. Continuity
We maintain the continuity of information to be disclosed.
7. Confidentiality
We do not disclose information to third parties until it is officially disclosed.

Ⅲ Matters to Be Disclosed

1. Legal disclosure
Disclosure based on the Financial Instruments and Exchange Act and the Companies
2. Timely disclosure
Disclosure based on rules of stock exchanges
3. Voluntary disclosure
Corporate PR (business topics, etc.), medium-term management plan, and others

Ⅳ Others

(1) Efforts to enhance investor relations/shareholder relations activities
In regard to dialogue with shareholders and investors, an officer in charge of the General Affairs Department takes responsibility and the General Manager of the General Affairs Department corresponds to a reasonable extent.
The officer in charge of the General Affairs Department regularly reports to the management team the opinions and concerns of shareholders and investors obtained through dialogue and report them to the Board of Directors as necessary.
We hold individual meetings and financial results briefings as necessary to promote deep understanding of our business by shareholders and investors and to respond to diverse needs. In addition, we actively create opportunities for dialogue with shareholders and investors through various means, such as enriching our corporate website and business report.

(2) Internal system related to timely disclosure
When discovering the information or facts that fall under the matters to be disclosed, a person responsible for information management (in principle, General Manager of each department) promptly communicates and reports them to the General Affairs Department.
The General Affairs Department discusses the importance of information and necessity of timely disclosure with related departments as necessary, and then reports to a person responsible for information handling.
The person responsible for information handling instructs the General Affairs Department to disclose the corporate information in a timely manner without delay, upon obtaining approval of the Board of Directors in case of the “information on decisions made by the Company” and “information on financial results,” or upon recognition of occurrence in case of the “information on occurrence of material facts.”

[Schematic diagram of timely disclosure system]

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