Initiatives to Comply with the Code
- Reasons for not implementing certain Corporate Governance Code principles
- Disclosures pursuant to Corporate Governance Code principles
Reasons for not implementing certain Corporate Governance Code principles
Supplementary Principle 3-1-3:
[Sustainability initiatives]
The Company recognises the importance of contributing to solving issues aimed at realizing a sustainable society through the Group’s business activities.
In May 2023, we established a Sustainability Committee and put in place a system to promote and strengthen sustainability initiatives across the Company. Furthermore, in July of the same year, we formulated a Basic Sustainability Policy and identified and announced the important issues that should be prioritized for the sustainable development of the Group and society in four categories: environment, society, governance, and business.
Since then, we have gradually rolled out a system for aggregating KPIs for each category to our major subsidiaries, and have expanded the disclosure of KPIs in our securities report for the fiscal year ending June 2024.
Going forward, we will continue to further systematize our initiatives, and will continue to consider further expanding our sustainability disclosures, including the establishment of medium- to long-term target values.
[Investment in human capital and intellectual property]
We recognise that human resources are the most important management resource in the Group’s business activities. We believe it is important to bring together diverse and highly specialised human resources from all over the world, create an environment where they can be nurtured, and provide them with a place to flourish, in order to meet the diversifying demands of our corporate clients. Details of our strategy, development of our internal environment, and initiatives related to enriching human capital are described in “Sustainability Policy and Measures” in the securities report for the fiscal year ending June 2024.
In the future, we will continue to consider the formulation of basic policies on sustainability, identification of key issues in relation to our business activities, and appropriate disclosure of systematised initiatives and KPIs.
[Impact of climate change-related risks and profit opportunities on the Group's business activities, earnings, etc.]
The Group recognises that, due to the nature of its business, its dependence on natural capital is relatively low. Nevertheless, the Group views the response to climate change as an important management issue, and we aim to reduce our own energy consumption and contribute to solving a wide range of environmental problems as well as supporting the innovation of consumers and corporate clients toward preserving the global environment through our business activities.
In July 2023, we expressed our support for the TCFD recommendations and participated in the TCFD consortium. Since then, we have examined the risks and profit opportunities associated with climate change for the Group in line with the TCFD framework, and have disclosed the results of the examination together with the results of GHG emissions at major subsidiaries for the past two fiscal periods, in our securities reports for the fiscal year ending June 2024.
Going forward, we will continue to consider augmenting the disclosure of information in line with the TCFD framework, including examining the target indicator levels for the Group over the medium to long term.
Disclosures pursuant to Corporate Governance Code principles
Principle 1-4:
The policy of the Company in relation to cross-shareholdings and its standards for the exercise of voting rights are as follows.
- Policy in relation to cross-shareholdings:
The Company will not hold cross-shareholdings unless it is necessary for a business relationship or collaboration with the Company that involves a capital alliance or stock holding from the viewpoint of avoiding share price fluctuation risks and improving asset efficiency.
- Standards for the exercise of voting rights for cross-shareholding stock
The exercise of voting rights for cross-shareholding stock is decided case-by-case, and we decide how to vote after confirming whether it is reasonable as to whether it impedes the realization of the purposes of the shareholding, whether it may harm the enterprise value of the subject company, etc.
Principle 1-7:
The Company will decide whether to implement a material transaction with a related party with a resolution of the Board of Directors as required pursuant to laws, regulations, and internal regulations. The terms and conditions of transactions with related parties are similar to those of ordinary transactions taking market prices into consideration and based upon the opinions of external advisors. Overviews of material transactions with related parties are disclosed in the securities reports, etc.
Supplementary Principle2-4-1
We do not classify employees on the basis of age, gender, history with the Company, etc. when promoting employees to management positions. Instead, we have developed an HR assessment system in which employees with the motivation and skills receive equal opportunities. Therefore, there is no particular bias in age, gender, history with the Company, etc. among our core human resources who can contribute to our operations.
As for the appointment of women, foreign nationals, and mid-career hires to management positions, about 47% of the Group’s employees are women at present, and women make up about 25% of managers (these figures are for the entire Group, including overseas). In addition, the Group has expanded to 10 countries, including Japan, through its subsidiaries, and about 30% of the Group’s overall employees are located overseas and have foreign nationalities. We are working to acquire highly specialized human resources who can work with us as the business of entire Group expands, and we promoted approximately 20% of mid-career hires to management positions in the fiscal year ending June 2024.
Details of our strategy, development of our internal environment, and initiatives related to enriching human capital are described in “Sustainability Policy and Measures” in the securities report for the fiscal year ending June 2024.
Principle 2-6:
Some Group companies offered defined-benefit corporate pension plans through 2014, but at present, a defined-contribution pension plan has been adopted. The administration and management of the defined-contribution pensions is entirely entrusted to an outside asset management company, etc. We do not systematically hire and appoint personnel with appropriate qualities for administration, but the HR general affairs division appropriately monitors the performance of the investments and others managed by this outside company.
Principle 3-1:
(i) Our corporate philosophy, management plans, etc. are published on the Company website, in the financial results briefing materials, etc.
(ii) Our basic corporate governance policy is stated on the Company website, in corporate governance-related reports, and in securities reports.
(iii) The compensation of directors who are not Audit Committee Members is determined by delegation to the Nomination and Compensation Committee by resolution of the Board of Directors pursuant to the “Policy Relating to Determination of Individual Compensation and Other Terms for Directors” resolved by the Board of Directors after deliberation by the voluntary Nomination and Compensation Committee, of which a majority of members and the Chairman are independent outside directors, within the total compensation limits resolved by the General Meeting of Shareholders, taking into consideration company performance, details of management, economic conditions, etc. The compensation of directors who are Audit Committee Members is determined through discussion by the Audit Committee within the total compensation limits resolved by the General Meeting of Shareholders, taking into consideration company performance, details of management, economic conditions, etc.
(iv) The policies and procedures for the appointment of the executive team and nomination of director candidates are debated by the Board of Directors following deliberation by the voluntary Nomination and Compensation Committee, of which a majority of members and the Chairman are independent outside directors, with a comprehensive determination as to their ability to grasp the issues of their responsible divisions and cooperate with other officers and employees to resolve issues, their knowledge to ensure compliance with laws, regulations, corporate ethics, etc., considering the current scale and stage of the business of the Company and based on the corporate philosophy of the Company, and a resolution of the Board of Directors is obtained as a proposal for the election of the directors at a General Meeting of Shareholders.
In relation to the independence of outside directors, we believe that they are independent in that they do not have any special personal relationships, capital relationships, or other conflicts of interest with the Company in accordance with the independence requirements provided by the Tokyo Stock Exchange.
With regard to removal, if it has become clear that an officer does not conform to the standards for election or nomination, etc., such as by becoming unable to supervise or manage their areas of responsibility or damaging the enterprise value of the Company through acts in violation of laws, regulations, the Articles of Incorporation, the corporate philosophy of the Company, etc., the Board of Directors debates whether removal is appropriate following deliberation by the Nomination and Compensation Committee, and a resolution of the Board of Directors is obtained as a proposal for the removal of the director at a General Meeting of Shareholders.
(v) In the election and removal of directors, the Board of Directors makes a comprehensive determination of their knowledge to ensure compliance with laws, regulations, and corporate ethics, etc., in addition to their abilities and experience corresponding to their role, and makes a decision based upon their suitability, etc. from the perspective of increasing the social value of the company and improving corporate governance. To determine whether directors (including outside directors) meet the foregoing criteria, we disclose their principal career experience forming the basis for their election in notices of general meetings of shareholders and securities reports.
Supplementary Principle 4-1-1:
The Board of Directors of the Company has clearly provided the material matters for the Company and its group companies to be determined by the Board of Directors in the “Board of Directors Regulations,” “Affiliated Company Management Regulations,” and “Authority Regulations,” in addition to the matters that the Board of Directors is required to decide pursuant to laws, regulations, and the Articles of Incorporation. In addition, aside from the Board of Directors, the matters to be decided by the Representative Director, President and CEO, Director and CFO, directors responsible for business, executive officers, division managers, etc. are clearly provided in the “Authority Regulations.”
Principle 4-9:
The Company determines the independence of officers based upon the requirements provided by the Tokyo Stock Exchange. Three outside directors have been elected as independent officers, and each independent officer maintains their independence without bias toward the interests of management or specific interested parties. Candidates who are able to supervise management independently from an objective standpoint and who have broad insights are elected as outside directors, and their election is debated by the Board of Directors following deliberation by the voluntary Nomination and Compensation Committee, of which a majority of members and the Chairman are independent outside directors, and a resolution of the Board of Directors is obtained as a proposal for the election of the directors at a General Meeting of Shareholders.
Supplementary Principle 4-10-1:
Three of the Company’s five directors are independent outside directors, and independent outside directors make up the majority of the Board of Directors.
The Company has also established a voluntary Nomination and Compensation Committee, of which a majority of members and the Chairman are independent outside directors and requires deliberation by the Nomination and Compensation Committee before obtaining a resolution of the Board of Directors as a proposal for the election of directors at a General Meeting of Shareholders. Also, the Nomination and Compensation Committee is entrusted by resolution of the Board of Directors to make decisions on compensation for directors (other than Audit Committee members) pursuant to the “Policy Relating to Determination of Individual Compensation and Other Terms for Directors” resolved by the Board of Directors after deliberation by the voluntary Nomination and Compensation Committee.
Supplementary Principle 4-11-1:
The approach of the Company relating to balance, diversity, etc. of knowledge, experience, and abilities in the Board of Directors as a whole is as provided in 3-1(iv) above.
The Company has provided for a maximum of 12 directors (no more than 8 of whom are not Audit Committee members and no more than 4 of whom are Audit Committee members) in its Articles of Incorporation, and considering the current scale of the business, scope of responsibilities, etc., has elected 5 directors (including 3 of whom are currently Audit Committee members).
Supplementary Principle 4-11-2:
Other positions concurrently held by Company directors are disclosed in securities reports, notices of general meetings of shareholders, corporate governance-related reports, etc. The internal regulations of the Company require the approval of the Board of Directors if a director (other than an outside director) concurrently serves as an officer of another company. The Company bases this upon not only the formal number of concurrent appointments, but also whether they can appropriately fulfill the roles and responsibilities expected of them as a director in practice. The Company has also established a voluntary Nomination and Compensation Committee, of which a majority of members and the Chairman are independent outside directors and requires deliberation by the Nomination and Compensation Committee before obtaining a resolution of the Board of Directors as a proposal for the election of directors at a General Meeting of Shareholders, and debates whether they are appropriate, including their number of concurrent appointments at other companies. The Representative Director, President and CEO, CFO and two of the three outside directors who are Audit Committee members concurrently serve as outside directors of other listed companies, however this has no effect on the performance of their duties as directors. The other directors do not concurrently serve as officers outside the Company group. This structure ensures adequate time for them to fulfill the roles and responsibilities to the Company that are expected by the Company.
Supplementary Principle 4-11-3:
The Company’s Board of Directors analyses and assesses the effectiveness of the Board of Directors each business year, considers measures based on the results, and strives to improve functions.
A summary of the results of the evaluation for the year ending 30 June 2024 is provided below.
1. Method of analysis and evaluation
Period of implementation: August 2024
Evaluators: Five directors of Cross Marketing Group Inc.
Method: Secret questionnaire (20 questions in total)
2. Summary of results
(1) Questions that received particularly high marks (4 points or more out of 5)
(i) The frequency of Board of Directors meetings is appropriate.
(ii) During Board of Directors meetings, there is an atmosphere in which any director can speak freely.
(iii) The Board of Directors meetings have an environment in which discussions can be held that support appropriate risk-taking and quick, decisive decision-making by the management team.
(2) Questions that received particularly low marks (less than 3 points out of 5)
Not applicable.
(3) Questions that do not fall under either (1) or (2) above, but for which the score has decreased since the previous survey (questions that scored 3 or more but less than 4 out of 5)
“Directors are given sufficient time to review the materials submitted to the Board of Directors in advance.” (4.0 in the previous survey, 3.6 in this survey)
3. Initiatives based on the evaluation results
We will work to make improvements while respecting the opinions expressed in response to each question.
In particular, we will take the following measures in response to the questions in (3) of 2 above (questions that do not fall under either (1) or (2) above, but for which the score has decreased since the previous survey).
“Directors are given sufficient time to review the materials submitted to the Board of Directors in advance.”
Response: In principle, the agenda and materials for the Board of Directors meetings are provided to all directors at least two working days before the meeting, but depending on the content of the deliberations, the agenda and materials may be substantial, and there may not be sufficient time to review them before the Board of Directors meeting. Going forward, we will continue to work to provide the agenda and materials as early as possible, and we will also take steps such as clarifying the content to be discussed and creating materials that are easy for directors to understand.
An overview of the results is posted on our website.
Supplementary Principle 4-14-2:
We provide newly elected officers with relevant company materials, provide an overview of the Company and its issues, among other information, and also make use of external seminars as necessary to ensure that they acquire the knowledge required of officers. In addition, the company will bear the costs of lectures, social gatherings, and other functions that each director voluntarily participates in as necessary.
Principle 5-1:
The IR Office serves as the contact point for actual dialogue (meetings) with shareholders, and the representative director and IR Office respond to requests from shareholders and investors.
(1) Recognition and analysis/considerations regarding financial condition and operating results
The Group positions ROE, which can aim for profitability while maintaining an appropriate capital structure, as the most important management indicator in order to make the most efficient use of the capital entrusted to management. At the same time, we are working on business management prioritizing sales growth rate and operating profit margin in order to meet shareholders’ expectations for profit growth with the recognition that we are in a growth stage.
[Sales growth rate]
The sales growth rate for the current consolidated fiscal year was 4.3% (0.8% for the previous consolidated fiscal year). The main reasons for the YoY increase in sales growth rate was that the sales of the digital marketing business increased by 18.0% YoY due to the revenue increase effect of the rise in the unit price of orders and the effect of the expansion of scale due to the new consolidation of companies such as Tokyo Gets, among other factors. This compensated for the negative factors affecting the data marketing business, which saw sluggish growth, with a 9.6% YoY decrease in sales.
In addition, the overseas business, which was the main cause of the sluggish growth in the data marketing business, is recovering, with revenue increasing YoY in the fourth quarter of the current consolidated fiscal year. In this environment, the Company will continue to make appropriate growth investments, including M&A, in the digital marketing business, which has been designated as a growth driver, and will also continue to work to sustain the recovery trend in the data marketing business. These and other measures will enable the Company to ensure a consolidated sales growth rate of 10% or more over the medium term.
[Operating profit margin]
The operating profit margin for the current consolidated fiscal year was 7.0% (7.8% for the previous consolidated fiscal year). The main factors behind the YoY decline in the operating profit margin were the increase in the sales composition ratio of the digital marketing business, which has a relatively low segment profit margin (up 4.7 points YoY), and the decline in the segment profit margin of the data marketing business due to the decrease in gross profit margin accompanying the fall in revenue. Going forward, we will work on measures to improve profitability, including improving the segment profit margin of the digital marketing business and restoring the gross profit margin of the data marketing business, with the aim of improving the consolidated operating profit margin.
[ROE]
ROE for the current consolidated fiscal year was 18.2% (17.1% for the previous consolidated fiscal year). The factors behind the 1.1ppt YoY increase in ROE were that (1) net profit margin on sales increased, (2) which covered the slight decrease in the total asset turnover, and (3) financial leverage was maintained at approximately the same level as the previous year. The following is an explanation of each of the factors.
1) Net profit margin on sales (net income ÷ sales) was 4.6%, up 0.5 points from 4.0% in the previous fiscal year. This was mainly due to an increase in subsidies and other received in connection with the establishment of new regional bases in Japan, as well as a reduction in the tax rate due to tax benefits associated with the integration of subsidiaries, despite the aforementioned slight YoY decline in the operating profit margin.
2) Total asset turnover (sales ÷ simple average of beginning and ending total assets) was 1.8×, down from 2.0× in the previous fiscal year. This was mainly due to the sluggish growth in total sales due to a decrease in sales in the digital marketing business, as mentioned above.
3) Financial leverage (ending total assets ÷ ending equity capital) was 2.4×, a slight increase from 2.3× at the end of the previous consolidated fiscal year. This was the result of appropriate financing for business operations through borrowings while the accumulation of equity capital was suppressed through treasury stock acquisition.