Corporate Governance

The Fuyo Lease Group places strong emphasis on creating and maintaining relationships with various stakeholders, including shareholders, customers, employees, and local communities. We believe that the fundamental and most important objective of corporate governance is to perform business activities with sincerity and fairness in line with the Group's mission, vision and value and to achieve the management targets outlined in the Group's Medium-Term Management Plan, Fuyo Shared Value 2026, for the years fiscal 2022 to fiscal 2026.

To achieve sustainable growth and increase corporate value over the medium to long term, we have established our own Corporate Governance Guidelines which align with the purpose and spirit of the Japan's Corporate Governance Code. These Guidelines serve as the foundation for our corporate governance framework, operating policies and other management policies, to which we adhere to everything we do.

Fuyo Lease employs the format of company with an Audit & Supervisory Board. It has two outside Audit & Supervisory Board Members, who are independent from the Company. In addition, to further improve the supervisory function of the Board of Directors, four independent outside directors are appointed to supervise and advise on the execution of business operations from an external perspective.

Furthermore, to improve management efficiency and expedite decision-making by separating the management oversight function from the execution of operations, we have adopted the executive officer system.

For further details, please refer to: Fuyo Lease Group Report on Corporate Governance (PDF)

In conformity with the purpose and spirit of the Japanese Corporate Governance Code, Fuyo Lease has established our own Corporate Governance Guidelines, which provide a foundation for corporate governance framework, operating policies, etc. The Corporate Governance Guidelines set out the framework, operating policies, roles, and responsibilities of different supervisory and executive functions, in addition to our basic approach to corporate governance. To achieve sustainable growth and increase our corporate value over the medium to long term, we adhere to these guidelines in everything we do across the Fuyo Lease Group.

For further details, please refer to: Corporate Governance Guidelines (PDF)

The Board of Directors is chaired by a nonexecutive internal Director and at least one-third of the board members are Independent Outside Directors. Additionally, non-executive Directors make up at least half of the board, ensuring a separation between execution and oversight. The Board of Directors deliberates and decides on important matters such as management plans and risk management, as well as reporting on sustainability and CSV-related policies and progress, including non-financial targets (contributions to reducing CO₂, engagement indicators improvement rates, etc.) and progress with plans in each business domain, and supervising the Directors and Executive Officers in the execution of their duties.

In fiscal 2023, the Board of Directors met 11 times. The attendance rate was 100%.

Fuyo Lease has set up the Nomination and Remuneration Advisory Committee as a voluntary advisory body of the Board of Directors to ensure objectivity and independence in the process of determining nomination of officers, remuneration, etc. The members and Chair of the Committee are non-Executive Directors. The Committee deliberates on the nomination of candidates for appointment as Directors or Audit & Supervisory Board Members or removal thereof, remuneration for Directors, succession plans for President & CEO, and the analysis and evaluation of overall effectiveness of the Board of Directors. The Committee then reports its findings to the Board of Directors. The content of such findings is determined based on the consent of all members present at the meeting, or when such consent may not be obtained, on the consent of a majority of the members present at the meeting.

In fiscal 2023, the Nomination and Remuneration Advisory Committee met 5 times. The attendance rate was 100%.

According to an audit plan prepared by the Audit & Supervisory Board, each Audit & Supervisory Board Member audits the execution of duties by Directors by attending important meetings, inspecting important documents, examining operations and assets and by hearing the audit findings of the Group Internal Audit Division. Audit & Supervisory Board Members work closely with the Group Internal Audit Division and internal control departments to enhance audit quality. At the request of an Audit & Supervisory Board Member, an employee (a staff member from the Board of Directors Operations Office) has been appointed to assist them.

In fiscal 2023, the Audit & Supervisory Board met 14 times. The attendance rate was 100%.

Attendance at Board and Committee meetings (attendance in FY 2023 by board members, as of June 21, 2024)

The Executive Committee is composed of Executive Officers with positions of Managing Executive Officer or higher, the heads of the Corporate Planning Division and Human Resources Division as well as the presidents of affiliated companies. Full-time Audit & Supervisory Board Members also attend meetings of the Committee on a regular basis.

As a general rule, the Executive Committee meets at least once a month to make decisions on operating activities and implementation of measures delegated to the President & CEO, and to discuss important issues concerning internal controls. Its aim is to improve the quality of management decisions and to speed up decision-making.

In fiscal 2023, the Executive Committee met 21 times.

Fuyo Lease has set up a Compliance Committee chaired by the Chief Compliance Officer and vice chaired by the Group Legal and Compliance Division Officer. The heads of relevant corporate departments, the heads of relevant departments of domestic and overseas subsidiaries serve as full-time committee members, and outside lawyers serve as outside members. Furthermore, the committee is also attended by observers, including the full-time Audit & Supervisory Board Members and the presidents of domestic subsidiaries. The Compliance Committee meets quarterly to deliberate and discuss matters related to compliance systems and implementing annual compliance plans. The matters deliberated and discussed by the Committee are reported to the Board of Directors and the Executive Committee, and measures are taken to develop and enhance compliance systems.

The internal audit function is administered by the Group Internal Audit Division (staffed by 11 employees). The Group Internal Audit Division conducts operational audits of all departments, offices, branch offices, and major subsidiaries, and plays a part in ensuring that internal controls are functioning in addition to examining their effectiveness. The results of these audits of operations are reported directly to the President & CEO and Audit & Supervisory Board Members by the general manager of the Group Internal Audit Division every time they are conducted and reported directly regularly twice a year to the Board of Directors, the Audit & Supervisory Board, and the Executive Committee.

Fuyo Lease has instituted an internal control system across our corporate group to ensure compliance with all relevant laws and the articles of incorporation, capability to respond to various risks in a timely and appropriate manner, and to ensure transparency and efficiency of operations, in addition to ensuring the reliability of financial reports, etc.

The Group Internal Audit Division, Audit & Supervisory Board Members, and accounting auditor share information about audit findings to monitor the status and operation of the internal control system. The status of the internal control system operation is reported to the Board of Directors during a meeting held at the end of each fiscal year, and continuous improvements are made in the light of the audit findings.

Fuyo Lease is engaged in a number of initiatives to ensure active and substantial discussions at its Board of Directors' meetings. Regarding the analysis and evaluation of the overall effectiveness of the Board of Directors, a questionnaire was administered to all directors and Audit & Supervisory Board Members and interviews were held as necessary. After deliberations and reporting by the Nomination and Remuneration Advisory Committee (with the committee's secretariat being assisted by our corporate lawyers), of which independent outside directors comprise the majority, the results of the analysis and evaluation were resolved by the Board of Directors.

Assessment Criteria

• 1.
  Composition, etc. of the Board of Directors
• 2.
  Oversight and execution by the Board of Directors
• 3.
  Operation of the Board of Directors
• 4.
  Frameworks for supporting Outside Officers
• 5.
  Summary

The effectiveness of the Board of Directors was confirmed as its size, composition, functions, roles, operation, and all other evaluation items were recognized to be appropriate. It is necessary to continue to steadily promote and further establish measures to improve the functions of the Board of Directors and to constantly review the Board of Directors in response to changes in the internal and external environment.

We recognized the following as issues that need to be addressed: continuing to advance the succession plan, enhancing deliberation further on medium- to long-term themes and CSV management, the need to better provide information to Outside Officers, further increase in the diversity of the Board of Directors, and further improvements in Group governance.

The Company provides its Outside Directors with various forms of support, including sending agendas for Board of Directors and Audit & Supervisory Board meetings in advance, offering pre-meeting briefings on items to be submitted to the Board of Directors, providing materials and minutes from Executive Committee meetings, offering opportunities to observe meetings of heads of departments, offices and branch offices, organizing onsite inspections, and facilitating opportunities to attend external seminars. Three staff members have been assigned to the Board of Directors Operations Office to manage these secretariat functions for the Outside Directors.

Fuyo Lease has implemented various initiatives aimed at strengthening corporate governance.
Initiatives from 2015 onwards are as shown below.

Our Corporate Governance Guidelines set forth procedures for nominating and removing Directors in addition to the qualifications of Audit & Supervisory Board Members and procedures for nominating Audit & Supervisory Board Member candidates. Under these guidelines, a Director or Audit & Supervisory Board Member candidate must possess an outstanding character, a wide breadth of knowledge, abilities, experience, and high ethical standards. The guidelines also specify that candidates be nominated regardless of factors such as sex, age, and nationality, with the aim of achieving greater diversity. To ensure fairness and transparency in the nomination process, the selection of candidates for Directors and Audit & Supervisory Board Members is finalized by the Board of Directors following a discussion by the Nomination and Remuneration Advisory Committee, which is comprised of majority Independent Outside Directors. Selection of Audit & Supervisory Board Member candidates is finalized by the Board of Directors upon consent of the Audit & Supervisory Board.

Independence standards for Outside Directors and Outside Audit & Supervisory Board Members are stipulated in the Corporate Governance Guidelines in line with the independence standards prescribed in the Guidelines Concerning Listing Management, etc. established by the Tokyo Stock Exchange.

The chart below shows the areas where each Director and Audit & Supervisory Board Member is particularly expected to contribute significantly. This takes into account their expertise and experience, etc., to steadily implement and achieve the goals of the MediumTerm Management Plan.

Fuyo Lease has a basic policy to link Director remuneration to corporate performance and shareholder value to boost their morale and motivate them to improve the Company's financial performance and share price, ensuring stable performance and growth, while enhancing corporate value.

Regarding determination of remuneration for individual Directors, the basic policy is to set it at an appropriate level, taking into account each Director's respective responsibilities and other factors. The Company has introduced performance-linked remuneration and stock-based remuneration (Board Benefit Trust (BBT)) as variable remuneration systems, in addition to base remuneration provided as fixed remuneration.
The amount of performance-linked remuneration is determined based on factors such as consolidated performance, degree of contribution to Company performance and efforts to address medium- to long-term management issues. Performance linked remuneration is determined according to consolidated business performance and contribution made by each officer to the performance. The stock remuneration plan is designed to further clarify the link between officers' remuneration and the value of the Company's shares and to further raise officers' awareness of contributing to improving business performance and increasing corporate value over the medium to long term.

Taking into consideration the average ratio of remuneration in listed companies and other factors, the ratio of remuneration and the breakdown of variable remuneration are as shown in the chart below.
Directors' remuneration is discussed by the Nomination and Remuneration Advisory Committee to ensure greater transparency and objectivity.

Internal Directors who do not execute operations are paid fixed remuneration and stock based remuneration, while Audit & Supervisory Board Members and Outside Directors who have supervisory functions are paid fixed remuneration only because the concept of performance based remuneration and stock remuneration is not suitable for the nature of their duties.

Fuyo Lease stipulates in its internal rules that if a Director causes significant damage to the Company or engages in inappropriate conduct, etc., the Director will be subject to a reduction or non-payment of their base remuneration or performance-based remuneration, or cancelation of their right to receive stock remuneration.