Corporate Governance

The Gunze Group recognizes that legal and regulatory compliance is essential for meeting our basic management policy of sustainably boosting corporate value. Furthermore, we consider improvement of shareholder value to be one of our most important management objectives. Accordingly, we strive for swift decision-making and timely and appropriate disclosure of corporate information, so as to improve transparency of management. To achieve this, the Gunze Group strives to build sound relationships with our stakeholders and strengthen and upgrade its internal control functions as a way to enhance our corporate governance. In accordance with this stance, the Gunze Group established the Gunze Corporate Governance Guidelines that stipulate our basic policy for corporate governance on December 18, 2015, and its revision is made on April 1, 2017.

Gunze Corporate Governance Guidelines

Established: December 18, 2015
Revised: April 1, 2017

Preface

In conformance with its “quality first” policy and its commitment to “technology-oriented management,” the Gunze Group (hereinafter referred to as “the Group”) proactively strives to fulfill corporate social responsibility (CSR). In doing so, the Group lives up to its founding philosophy that underscores a “people-oriented approach,” a “commitment to quality,” and “harmonious coexistence.” With a strong determination to provide customers with a “Feeling of Comfort” through the products and services offered by each business line, the Group also aims to become “a corporate group that fulfills the needs of society” and “a corporate group that grows sustainably alongside society.” To this end, it is vital that the Group attain sustained growth and enhance corporate value on a long-term basis, so as to offer our shareholders a sense of assurance and motivate them to hold the Company’s stock for a long period of time. As such, Gunze established these guidelines based on the resolution of a meeting of the Board of Directors for the purpose of realizing the best possible corporate governance practices. Any revisions to the Guidelines will be released in an appropriate and timely manner once they are made.

Chapter 1 General Provisions

Basic Stance for Corporate Governance

Article 1
In pursuit of the best possible corporate governance practices, the Group continuously strives to enhance its corporate governance system.
2
The Group recognizes that legal and regulatory compliance is essential for continuously boosting its corporate value. Furthermore, efforts are concentrated on swift decision-making in response to social and economic environments, and timely disclosure of appropriate information so as to improve transparency of management. The Group considers that one of its most important management objectives is to enhance shareholder value by taking these measures. To make this possible, the Group strives to upgrade and strengthen its internal control functions, while also building sound relationships with all its stakeholders. In accordance with its basic stance discussed below, the Group works on enhancing its corporate governance system.
  • (1) We value the rights of all shareholders and ensure equal treatment among them.
  • (2) We endeavor to appropriately cooperate with our stakeholders including shareholders by taking their interests into consideration.
  • (3) We ensure appropriate information disclosure and transparency.
  • (4) We establish an organizational structure that makes proactive use of independent outside directors, so as to facilitate effective oversight of business execution by the Board of Directors.
  • (5) We engage in constructive dialogue with shareholders with a policy of investment that focuses on medium- to long-term shareholder interests.

Chapter 2 Securing the Rights and Equal Treatment of Shareholders

General Shareholders Meeting

Article 2
To ensure that shareholders are provided with sufficient time to carefully consider the agenda for a general shareholders meeting to exercise their rights, the Company sends a notice of convocation at least three (3) weeks before the date of a general shareholders meeting. Also the Company promptly discloses the information included in the notice of convocation on the Company’s website.
2
The Company strives to maintain an environment in which all shareholders including those who do not attend the meeting can properly exercise their rights, by using the Tokyo Stock Exchange’s (TSE) Electronic Voting Platform and other measures. To this end, the Company arranges the annual general shareholders meeting to be days apart from the so-called “date of the highest concentration of general shareholders meetings” whenever possible.

Securing Equal Treatment of Shareholders

Article 3
The Company equally treats shareholders based on the number of shares they hold, and discloses information in a timely and appropriate manner so as to avoid creating a difference in the amount of information received among shareholders.

Basic Policy for Cross-shareholdings and Voting Rights Thereto

Article 4
Based on its principle of “harmonious coexistence” as stated in its Founding Philosophy, the Company aims to build relationships of trust with customers and business partners and facilitate smooth business transactions. To this end, the Company may occasionally hold shares of other listed companies as cross-shareholdings. As for shares of major customers/partners, the Board of Directors will regularly examine the objectives and rationale behind cross-shareholdings.
2
With respect to the voting rights attached to the shares it holds, the Company exercises the rights by respecting the other company’s management policy and making comprehensive judgment from the perspective of that company’s medium- to long-term improvement of corporate value and impact on the Company’s business, etc.

Chapter 3 Considering Stakeholder Interests

Ethical Standards and Conflict of Interest

Article 5
The Company ensures that all its employees are fully informed of the Gunze Activity Guidelines, established to provide a guide for actions and behaviors they should take to put Gunze’s management philosophy into practice. These guidelines are also released externally.
2
Should any issue arise regarding conflict of interest with the company or shareholders with respect to transactions with a director, such a director must report to the Board of Directors in accordance with the Companies Act and get approval from the Board.

Relationships with Stakeholders

Article 6
Aiming to improve corporate value over the long term, the Group lives up to its corporate philosophy, corporate motto, and Gunze Activity Guidelines, which are woven as the “warp” threads of the corporate fabric. While doing so, the Group remains sensitive to the demands and expectations of all stakeholders in order to flexibly and sincerely meet these demands. The Group also promotes fair and honorable corporate activities as it seeks to fulfill its social responsibilities, attaining sustainable development together with society and the global environment.
2
The Company has a whistleblower system in place to allow employees to seek advice and report on compliance-related issues. Should an employee discover a serious violation of laws or regulations or an important incident regarding compliance, the employee should promptly report directly to the President or the director/corporate officer in charge of compliance. Especially important issues will be reported to the Audit & Supervisory Board members without delay. The necessity of taking measures to protect whistleblowers from any detrimental treatment is clearly stipulated in the working regulations and other related in-house rules.

Chapter 4 Ensuring Appropriate Information Disclosure and Transparency

Disclosure of the Company’s Policies for Risk Management, Internal Control Systems, etc.

Article 7
In compliance with the Companies Act and other applicable laws and regulations, the Board of Directors determines the Company’s policies for risk management, internal control system, and legal and regulatory compliance of the Company and the corporate group including the Company, and discloses them in a timely and appropriate manner.
2
The Board of Directors releases financial and business information in a fair, detailed and easy-to-understand manner in compliance with the Companies Act, Financial Instruments and Exchange Act, and other applicable laws and regulations, as well as financial instruments exchange rules.

Chapter 5 Roles and Responsibilities of the Board of Directors, etc.

Clause 1 Responsibilities of the Board of Directors as a Supervising Body

Roles of the Board of Directors

Article 8
As entrusted by the Company’s shareholders, the Board of Directors assumes the responsibility of implementing efficient and effective corporate governance for the sake of all shareholders who seek to promote their interests through maximization of the Company’s corporate value on a long-term basis. Through this governance, the Board is responsible for ensuring that the Company achieves sustained growth and strives to maximize corporate value in the long term.
2
To fulfill its responsibilities set forth in the preceding paragraph, the Board of Directors executes oversight functions over overall management practices in order to ensure fairness and transparency. The Board also nominates, evaluates, and determines remuneration for the President and other executives, while assessing important risks facing the Company and drawing up counteractions. The Board also makes important operational decisions to ensure the best possible decision-making for the Company.

Roles of Independent Outside Directors

Article 9
The main tasks of the Company’s independent outside directors include verification and evaluation of the results of the Company’s management and performance of the management team as necessary in light of the management strategy or plan determined by the Board of Directors. From the perspective of collective interests of all shareholders, the outside directors are also tasked with judging and determining whether it is appropriate to put the Company’s management into the hands of the present management team and expressing their opinions.

Chair of the Board of Directors

Article 10
The Chairman of the Company will take on the position of the chair of the Board of Directors. Should the post of the Chairman be vacant, the President shall take over the position of the chair of the Board.
2
The chair of the Board of Directors strives to raise the quality of discussions and facilitate efficient and effective operation of the Board. To fulfill this responsibility, the chair of the Board must make arrangements to ensure that a sufficient amount of time is available for discussions on all items on the agenda, and that each director is provided with appropriate information on a timely basis.

Clause 2 Effectiveness of the Board of Directors

Composition of the Board

Article 11
The Company’s Board of Directors shall consist of a maximum of 15 members, including at least two (2) independent outside directors, who conform to the applicable provisions of the Companies Act and satisfy the independence criteria of the Tokyo Stock Exchange’s rules, and who do not have the possibility of conflicts of interest with the Company’s general shareholders.
2
The Company adopts a Corporate Officers System to clearly separate decision-making regarding business practices and management oversight functions from execution of business operations, and to augment the Board’s monitoring functions. It is also intended to vitalize the Board and facilitate quicker decision-making.
3
To enhance the Board’s functions and improve management efficiency, the Company holds an executive officers meeting attended by representative directors, senior managing and managing directors, directors and corporate officers assigned with specific functions, and others to deliberate upon important matters regarding the Group’s business operations.

Qualifications for Directors and Nomination Procedures

Article 12
The Company’s directors must have an excellent personality, good insight, high skill, abundant experience, as well as a strong sense of ethics.
2
Upon selecting candidates for directors, the Company’s basic policy is to create a well-balanced Board that is constituted in a manner to achieve diversity in order to ensure swift and proper decision-making and effective oversight of the Group’s business activities. To do so, the Company selects directors with knowledge, experience, and skill regarding various business fields, human resources management, finance and accounting, as well as R&D of technologies from the Company’s human resources. The Company also selects a number of outside directors who are capable of actively providing advice and suggestions from a fair and objective standpoint based on their expert knowledge and experience.
3
All directors of the Company shall be elected subject to approval at the general shareholders meeting of each year.
4
Candidates for new directors (including substitute directors) shall be determined at a meeting of the Board of Directors based on the provision of this Article.
This will be done after undergoing deliberation by the representative directors and outside directors regarding the balance of the Board composition in terms of knowledge, experience, skill, diversity, and scale.

Qualifications for Audit & Supervisory Board Members and Nomination Procedures

Article 13
The Audit & Supervisory Board members of the Company must have excellent personality, good insight, high skill, abundant experience, as well as a strong sense of ethics. At least one (1) member of the Audit & Supervisory Board must have sufficient knowledge and expertise on finance and accounting.
2
Candidates for new Audit & Supervisory Board members (including substitute members) shall be determined at a meeting of the Board of Directors based on the provision of this Article after undergoing deliberation by the representative directors and outside directors, and after receiving the consent of the Audit & Supervisory Board.

Term of Office of Independent Outside Directors and Limitations to Concurrent Posts

Article 14
The Board of Directors stipulates in its independence criteria that outside directors and outside Audit & Supervisory Board members, who have held their office for a term exceeding eight (8) years since they first assumed their office, do not satisfy eligibility criteria for independent outside directors and independent outside Audit & Supervisory Board members, respectively.
2
The outside directors and outside Audit & Supervisory Board members of the Company must not concurrently assume posts of director or Audit & Supervisory Board member at more than three (3) listed companies besides Gunze Limited.

Business Performance Indicators

Article 15
The Board of Directors specifies management indicators and target values used by the Board to assess the performance of the President and other directors in a medium-term management plan, etc. as necessary, and discloses them in a timely and appropriate manner.

Succession Planning

Article 16
The Company has established a directors’ retirement system in order to promote appropriate circulation and succession of directors and Audit & Supervisory Board members.
2
The President shall be aware that the development of a successor is one of the important responsibilities of the President, and should formulate a succession plan that specifies qualifications for the President and a development policy, by reflecting the opinions of independent outside directors as well.
3
The Board of Directors shall share the president succession plan set forth in the preceding paragraph among all members of the Board and determine a candidate for succeeding the presidency in accordance with the succession plan when the current President steps down from this post.

Responsibilities of Directors

Article 17
Directors must collect a sufficient amount of information necessary for performing their duties and engage in exhaustive discussions by proactively expressing views and opinions.
2
Directors shall demonstrate their capabilities as expected and spend enough time for the Company in order to perform directors’ duties.
3
Upon assumption of their offices, the directors of the Company must fully understand related laws and regulations, the Articles of Incorporation of the Company, Rules of the Board of Directors, and other in-house rules, and be fully aware of their duties.

Self-improvement and Training of Directors and Audit & Supervisory Board Members

Article 18
Immediately after taking on their posts, the newly appointed directors of the Company (including independent outside directors) shall participate in training programs offered by the director in charge of legal affairs and compliance or external attorneys at law. They should also be informed about the Company’s management strategies, financial positions, and other important matters by the President or director(s) in charge of executing business operations or other executives named by the President.
2
To fulfill their respective roles, the directors and Audit & Supervisory Board members of the Company shall proactively collect information regarding the Company’s financial positions, legal and regulatory compliance, corporate governance, and other matters. They should continuously strive to improve their knowledge and skills.
3
Expenses required for participating in external training/seminars shall be borne by the Company as claimed.

Setting the Agenda for Board of Directors Meetings, etc.

Article 19
At the Board meeting to be held at the end of each fiscal year, the chairperson of the Company’s Board of Directors shall decide on the main items for the agenda of the following fiscal year’s Board meetings regarding the Company’s business strategies, risks, and internal controls, taking each director's suggestion and opinion into account.
2
Information materials for the agenda and proposals for the Company’s Board of Directors meetings must be distributed to all directors, including outside directors, far in advance of the date of the meeting so that constructive discussions can be conducted at each Board of Directors meeting. Particularly for outside directors, the director/corporate officer in charge of finance or other executives shall explain the information materials in advance.

Access of Outside Directors and Audit & Supervisory Board Members to In-house Information

Article 20
The outside directors and Audit & Supervisory Board members of the Company may request that inside directors, corporate officers, and/or employees give briefings or make reports whenever necessary or deemed appropriate, and seek submission of in-house information.
2
The Company sets up the Audit & Supervisory Board Secretariat by providing it with sufficient staff and budget to support the Board of Audit & Supervisory Board and its members in appropriately performing their duties.

Outside Directors Meeting

Article 21
Independent outside directors of the Company shall periodically meet to deliberate on matters regarding the Company’s business and corporate governance, while also receiving reports from inside directors or other executives such as corporate officers. Audit & Supervisory Board members will also attend these meetings as necessary.

Self-assessment

Article 22
Directors shall conduct self-assessment of their own performance of directors’ duties as well as the effectiveness of the Board of Directors every year and submit the results of the assessment to the Board. Based on each director’s self-assessment, the Board will analyze and evaluate the effectiveness of the Board as a whole, and disclose the outline of the results of evaluation in a timely and appropriate manner.

Clause 3 Remuneration System

Remuneration, etc. for Directors and Other Executives

Article 23
Remuneration, etc. for directors in charge of business execution shall be linked to the long-term interests of the Company’s shareholders. At the same time, they must be set appropriately and in a fair and well-balanced manner so as to fully motivate the directors to maximize the value of the Company.
2
The total amount of remuneration, etc. for directors shall be specified through deliberation by the representative directors and outside directors based on the remuneration limit for directors resolved at a general shareholders meeting, and decided on at a meeting of the Board of Directors.
3
The amounts of remunerations, etc. for individual directors shall be decided by referring to the levels of remunerations, etc. of other companies that are appropriate gauges of comparison, and by considering the balance against remuneration of employees. The amount of bonuses shall be determined by taking into consideration the status of business execution and business results. Directors excluding outside directors will be granted compensation-based stock options as incentives for improvement of medium- to long-term performance and corporate value.
4
Remuneration, etc. for outside directors must reflect the time during which each director is involved with the Company’s business and each director’s duties, and must not include any proportions linked to the Company’s business results, such as stock compensation.

Chapter 6 Dialogue with Shareholders

Dialogue with Shareholders

Article 24
The Company strives to ensure that the views of shareholders are thoroughly considered by all members of the Board of Directors.
2
The Company shall engage in dialogue regarding corporate governance and other important management policies as necessary, with main shareholders with investment policies focusing on medium- to long-term shareholder interests. When engaging in such dialogue, the Company shall be careful not to create any information gap between shareholders.
3
The Company shall set forth and disclose basic policies for the establishment of a system and initiatives intended to promote constructive dialogue with shareholders.

(Attachment)

Basic Policy for Constructive Dialogue with Shareholders

In order to contribute to sustainable enhancement of corporate value over the medium- to long-term, Gunze Limited (hereinafter referred to as “the Company”) has specified the basic policy for constructive dialogue with shareholders as follows:

1
The Public & Investors Relations Section, under the direct control of the President, is mainly in charge of maintaining a dialogue (meetings) with shareholders or institutional investors in collaboration with other related departments. Directors and other senior executives including the director/corporate officer in charge of finance will engage in these meetings as necessary.
2
The Company arranges presentations for analysts and institutional investors twice a year, in which the President, the director/corporate officer in charge of finance and other senior executives provide explanations about financial results and other matters. Small meetings are also organized as necessary. For individual investors, the Company sets up explanatory sessions at IR events organized by security firms.
3
Views and other input from shareholders and investors obtained through dialogue are compiled by the Public & Investors Relations Section, and fed back to directors and other executives, in order to incorporate suggestive input in its medium- to long-term management policies.
4
When conducting dialogue with shareholders and investors, the Company ensures compliance with its Information Disclosure Rules, Rules regarding Insider Trading Regulations and Internal Information Management, and Information Disclosure Policy, paying due attention to fair disclosure and control of insider information.