Corporate Governance

Based on OUR PHILOSOPHY (TIS INTEC Group Philosophy) and Group Vision, we have formulated basic corporate governance policies aimed at improving the Group’s corporate value over the medium and long terms. We are working constantly to enhance corporate governance.

• Basic Policies on Corporate Governance (as of December 24, 2021)

Basic Policy

TIS will constantly strive to achieve the highest level of corporate governance and will work to maintain and further enhance its approaches to corporate governance.
Management believes that the key to good corporate governance is to ensure transparency and fairness in decision-making processes, make full and effective use of management resources, and raise the integrity of management practices through swift and accurate assessment of situations, from the viewpoint of promoting sustainable corporate growth and boosting medium- and long-term corporate value. Accordingly, management at the Company is committed to upholding good corporate governance in line with the following basic principles.

1. To respect the rights of shareholders and to ensure equality.
2. To consider the interests of stakeholders, including shareholders, and work with stakeholders in an appropriate manner to achieve stated goals.
3. To disclose corporate information appropriately and ensure transparency.
4. To engage in constructive dialogue with shareholders based on a medium- to long-term investment perspective.

Compliance with the Corporate Governance Code

TIS complies with all principles of the Corporate Governance Code.
The status of the Company’s responses to each principle of the Corporate Governance Code is described in the Corporate Governance Report.

• Corporate Governance Report (as of December 9, 2022)

Corporate Governance Structure

Reason for Selection of Current Corporate Governance Organization

TIS is a Company with an Audit & Supervisory Board, a model chosen for its double-check function through which the Board of Directors oversees the execution of business activities and the Audit & Supervisory Board audits activities to ensure operations are legal and appropriate. In addition, the Company aims to strengthen the supervisory function of the Board of Directors by appointing outside directors with industry- and corporate management-related experience and insight and drawing on advice and recommendations from an independent standpoint to ensure the validity and appropriateness of decision-making by the Board of Directors.

Organizational Chart

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• Articles of Incorporation (as of June 24, 2022)

Executive Officer System

The Company has adopted an executive officer system to accelerate management decision-making and supervisory functions of the Board of Directors. Directors delegate business execution to Executive Officers, and these Executive Officers provide specific direction, orders, and supervision to each business unit head.

Viewpoint regarding Composition of Board of Directors

The Board of Directors shall be composed of no more than 15 directors, at least one-third of whom shall be independent external directors. The Board of Directors recognizes its fiduciary responsibility toward shareholders, supervises management strategy, management plans and other important decision-making and business execution of the Company, as prescribed by laws and regulations, the Articles of Incorporation and Company regulations, and bears a responsibility to ensure sustainable growth and enhance medium- to long-term corporate value. In the case of directors that constitute the Board of Directors, after engaging in discussion at meetings of the Board of Directors, the Company shall nominate persons who have extensive experience, strong insights and a high level of specialization that is appropriate for these obligations based on the election criteria prescribed by the Company.

Summary of Results of Analysis and Evaluation of Effectiveness of Entire Board of Directors

Since fiscal 2016, ended March 31, 2016, the Company has evaluated the effectiveness of the Board of Directors each fiscal year. This process reveals issues and points for improvement and leads to initiatives that will raise the effectiveness of the Board of Directors to a higher level. For the fiscal 2022 evaluation, all directors and members of the Audit & Supervisory Board were given a questionnaire to be submitted anonymously. The questionnaire asked them to conduct a comprehensive self-evaluation and self-analysis of the composition and operation of the Board of Directors, and then the Board of Directors pursued discussions based on the results. The method and results of the evaluation, as well as future issues brought to light through this process and measures to address such issues are described below.

1. Method of evaluation

TIS distributed a questionnaire regarding the effectiveness of the Board of Directors to all directors and members of the Audit & Supervisory Board and obtained responses. In addition, personnel of its administrative office conducted an interview to all directors and members of the Audit & Supervisory Board. The Company’s Board of Directors then used these results to analyze and evaluate the effectiveness of the Board of Directors.
Note that TIS conducted this effectiveness evaluation based on advice and verification by an external attorney.

2. Results of analysis and evaluation of effectiveness of the Board of Directors

The Company’s Board of Directors concluded that a certain degree of effectiveness had been ensured to appropriately supervise the approval of important management matters and business execution, such as the execution status of business activities and investments at the Company and Group companies, through deliberation based on Company regulations. In addition, the Board of Directors concluded that the level of effectiveness continues to trend upward, reflecting improvement measures based on the results of the effectiveness evaluation conducted in the previous fiscal year.
However, management acknowledged the importance of promoting discussions to further improve the functions of the Board of Directors in order to promote more sophisticated management of the Company.

3. Future issues and associated responses, based on analysis and evaluation

In light of the analysis and evaluation previously mentioned, TIS will focus particular efforts on the following issues.

1. (1) Further improve the functions of the Board of Directors
   Aiming at promoting more sophisticated management, the Company will sort out issues, such as the Board of Directors’ supervisory function for the medium- to long-term growth and sharing roles of executive officers, to create the management structure for the future.
2. (2) Promote discussions to improve medium- to long-term corporate value
   The Board of Directors will plan and discuss themes for improved corporate value, such as medium- to long-term strategies, and carry out proactive activities to enhance corporate value.

Policy and Procedures for Election, dismissal, and Nomination of Directors, etc.

In nominating candidates for directors, audit & supervisory board members and executive officers, the Board of Directors will nominate persons with abundant experience, a high level of insight and advanced specialization based on the following election criteria that make them suitable as directors or audit & supervisory board members in order to realize effective corporate governance and contribute to the sustainable growth of the Company as well as the enhancement of its medium- to long-term corporate value while also considering aspects of diversity such as gender, internationality, career and age.
If a situation arises where a management executive should be dismissed, the Board of Directors shall determine a dismissal proposal. However, the dismissal of a director shall be conducted in accordance with the Companies Act and other relevant provisions.

Reason for Election of Directors and Audit & Supervisory Board Members

• Directors

• Board of Directors Skills Matrix

• Audit & Supervisory Board Members

Profiles of our corporate officers are available here .

Training Policy for Directors and Auditors

For directors and auditors, including external directors and external auditors, the Company will provide and arrange training opportunities that are appropriate for individual directors and auditors and support the cost of such training. The objective of such training is to provide an opportunity to acquire necessary knowledge regarding the Group's businesses, financial affairs and organization and to understand the duties and responsibilities required of directors and auditors when assuming office, as well as to continuously update these attributes during the term of office.

External Directors and External Auditors

The Company has three external directors and three external auditors. The determination of the independence of external directors and external auditors is prescribed by the requirements of the Companies Act as well as judgement criteria to ensure the independence of external directors and external auditors (referred to as "external officers" hereafter) as described below, with reference to the rules and regulations of the Tokyo Stock Exchange.

For reference: Criteria Concerning Independence of External Officers (revised December 21, 2016)

The determination of the independence of external directors and external auditors is prescribed by the requirements of the Companies Act as well as judgement criteria to ensure the independence of external directors and external auditors (referred to as "external officers" hereafter) as described below, with reference to the rules and regulations of the Tokyo Stock Exchange.

1. External directors (including candidates) are defined by Article 2, Paragraph 15 of the Companies Act (Requirements of External Directors) and have never served as an executive director, manager or other employee of the TIS INTEC Group (Note 1) even in the past.
2. External auditors (including candidates) are defined by Article 2, Paragraph 16 of the Companies Act (Requirements of External Company Auditors) and have never served as a director, manager or other employee of the TIS INTEC Group even in the past.
3. In the current fiscal year and during the past three fiscal years, none of each of the following items shall apply to external officers.
   1. A counterparty which has transactions principally with the Company (Note 2) or a person who executes that counterparty's business
   2. A counterparty which has transactions principally with the TIS INTEC Group (Note 3) or a person who executes that counterparty's business
   3. A consultant, accounting professional or legal professional who has received a large amount of money or other assets (Note 4) other than remuneration of officers from the Company. In addition, when these are received by an organization such as a corporation or partnership, this includes persons who belong to the applicable organization.
   4. A major shareholder of the Company (Note 5). In addition, when the major shareholder is a corporation, this includes a person who executes the business of the corporation.
   5. A person other than those in (Ⅰ), (Ⅱ) and (Ⅲ) above who executes the business of a counterparty of the Company (Note 6)
   6. A person who was formerly a member of a counterparty which is in a situation of cross-assumption of offices of external officers
   7. A counterparty or former member of the counterparty that receives donations from the Company
4. External officers must not be a relative within the second degree of a person who falls under each of the following items.
   1. A person mentioned in (Ⅰ) to (Ⅲ) of the previous clause
   2. A person who executes the business of a subsidiary of the Company
   3. A non-executive director of a subsidiary of the Company (limited to external auditors)
   4. A person who fell under (Ⅱ) or (Ⅲ) above or a person who executes the business of the Company (including a non-executive director in the case of an external auditor) recently (in the current business year and during the past four business years)
5. In addition to the above, there exist no circumstances in which duties imposed on an independent external officer are reasonably deemed not to be achieved.

• Note 1: The "TIS INTEC Group" means the Company and its subsidiaries.
• Note 2: A "counterparty which has transactions principally with the Company" means a counterparty which provides products or services to the Company and whose payments from the Company constitute at least 2% of the sales of such counterpart in one fiscal year. The main bank (MUFG Bank, Ltd.) and the lead managing underwriters (Nomura Securities Co., Ltd., Mitsubishi UFJ Morgan Stanley Securities Co, Ltd., and SMBC Nikko Securities Inc.) of the Company shall also each be a "counterpart which has transactions principally with the Company," regardless of the transaction amount.
• Note 3: A "counterparty which has transactions principally with the TIS INTEC Group" means a counterparty with sales exceeding 2% of the total consolidated sales of the TIS INTEC Group.
• Note 4: "A large amount of money or other assets" means the total value exceeds 10 million yen per fiscal year. This shall apply also to a consultant, accounting professional or legal professional that enters a consulting agreement or similar arrangement and periodically pays an amount of money or other assets, regardless of the amount.
• Note 5: A "major shareholder" means a person or company, and the like, that directly or indirectly holds 10% or more of total voting rights. However, the Company's leading shareholders (the top 10 approximately) shall be treated as "major shareholders."
• Note 6: A "counterparty which has transactions with the Company" means the case when transactions with the Company per fiscal year constitute at least 2% of non-consolidated sales of the Company.

Primary Activities of External Directors and External Auditors (Year ended March 31, 2022)

Summary of Content of Liability Agreements

In accordance with Article 427, Paragraph 1 of the Companies Act, each of Audit & Supervisory Board enters into an agreement with the Company that limits legal responsibility for liability compensation as set forth under Article 423, Paragraph 1 of the same law.
The limit of liability compensation, based on these agreements, is an amount provided for in Article 425, Paragraph 1, of the same law.

Outline of Policy on Officers' Remuneration

1. Policy on determining officers’ compensation

The Company established the Compensation Committee, comprising mainly independent external directors, as an advisory body to the Board of Directors to ensure objectivity and transparency in the process for determining officers’ compensation and to strengthen the corporate governance structure.
The basic policy on officers’ compensation is to provide greater incentive to improve business results through a system of compensation linked to measures of Company performance. Appropriate amounts are determined by the Board of Directors, based on discussion with and suggestions from the Compensation Committee.

2. Structure of officers’ compensation

Compensation to Company directors consists of a basic component, a performance-linked component and a performance-linked stock incentive. When measures of Company performance are fully achieved, compensation comprises the basic component, the performance-linked component and the performance-linked stock incentive in a ratio of 6:3:1.
*TIS introduced this performance-linked stock compensation system in fiscal 2019 for directors, executive officers and executive fellows (excluding external directors and those resident outside Japan) to increase eligible directors’ awareness of their contribution to enhanced business performance and improved corporate value over the medium to long term, and to better align their interests with those of shareholders. 

3. Structure of compensation for external directors and Audit & Supervisory Board members

Compensation paid to external directors is limited to basic compensation only, with no performance-linked component.
Compensation for Audit & Supervisory Board members is decided through discussions among corporate auditors. In order to maintain a high degree of independence, compensation is not linked to business performance and consists solely of basic compensation. 

4. Other

1. Upon the introduction of the performance-linked stock incentive plan, the Board of Directors decided to stipulate a provision for illegal acts in the Stock Delivery Regulations. The provision allows the Company to reclaim the amount equivalent to the shares delivered to violators and cancel any points accrued under the performance-linked stock incentive scheme explained below.
2. To boost medium- to long-term business performance, directors (excluding outside directors) are asked to contribute a certain portion of their basic compensation toward the purchase of treasury stock through the Company’s share ownership plan for directors and officers, and they are expected to retain such stock in full for the duration of their time in office so that the acquired stock shares value with all shareholders.

5. Process for determining executive compensation

1. Attainment of business goals and achievement of business plans formulated at the beginning of the fiscal year in accordance with the mid-term management plan are evaluated at the Performance Evaluation Meeting held in late May.
2. The President and Representative Director evaluates the directors and Audit & Supervisory Board members at the meeting referred to in (a) above.
3. The Compensation Committee meets in the middle of June to consult on the results of the evaluation in (b) above and on the appropriate amounts of compensation based on the results of evaluation.
4. The Board of Directors votes on whether to approve the amounts of executive compensation proposed by the Compensation Committee in (c) above.
5. Monthly payments of the annual compensation amount determined by the Board of Directors in (d) above start in July.
6. A third-party agency is contracted to research the executive compensation level of other companies for comparison in July.
7. The Compensation Committee meets in November to consider the results of the research in (f) above and modifications to executive compensation, as appropriate.

The amount of performance-linked stock compensation is calculated in accordance with the Stock Delivery Regulations. The Board of Directors and the Compensation Committee have no room for discretion.

6. Status of activities by the advisory committee regarding determination of officers’ compensation

In the fiscal year ended March 31, 2022, the Compensation Committee met five times in total and provided advice on the appropriateness of officers’ compensation of the Company by comparison and analysis of the compensation amounts of peer companies conducted by the research agency. The Board of Directors presented proposals on officers’ compensation based on the advice given by the Committee.

7. Calculation of compensation amount

1) Basic compensation

Basic compensation is paid according to the size of the role and scope of responsibilities of each position.

2) Calculation of performance-linked compensation

Performance-linked compensation is determined by the degree to which measures of corporate performance have been achieved, on the basis of the management plan for each fiscal year, and shall fall within 0% and 50% of a performance evaluation coefficient, which is determined based on the basic compensation for each position.
For every officer, organizational performance and individual performance are each evaluated on a five-point scale to determine the amount of performance-linked compensation based on the amount determined by corporate performance evaluation. 
(organizational performance component: individual performance component = 3:7)
When the corporate performance evaluation coefficient is 30% in the standard model, 33% is applied to AA of organizational performance evaluation/individual performance evaluation, 27% to BB, 20% to CC, 13% to DD, and 7% to EE. 

3) Performance-linked stock incentive

When the performance-linked stock incentive was introduced, the Board of Directors established the Stock Delivery Regulations. Points are granted to directors on a scale between 0% and 15% of basic compensation, set for each position according to the level of achievement made toward reaching performance targets stated in the management plan and as provided for in the Regulations. The number of shares delivered will correspond to the number of points accumulated.
The following indicators were adopted to measure corporate performance: Consolidated Operating Income, Earnings Per Share (EPS) and Service Business Gross Profit (as financial indicators) to encourage pursuit of business growth for the attainment of enhanced corporate value as expected by the shareholders, and Job Satisfaction, Customer and Service Satisfaction, and Business Partner Satisfaction (as nonfinancial indicators) to encourage pursuit of higher satisfaction with the Company among stakeholders.

Remuneration for Directors and Audit & Supervisory Board Members (Year ended March 31, 2022)

Notes

1. For the fiscal year ended March 31, 2022, compensation for directors does not include the employee portion for directors who serve concurrently as employees. The Company has not introduced a retirement benefit system for directors, and does not pay any directors’ bonuses.
2. As of March 31, 2022, the Company has nine directors, including three external directors, and the Company's Audit & Supervisory Board comprises five members, three of whom are external.
3. Limits on compensation (basic compensation and performance-linked compensation) for directors and members of the Audit & Supervisory Board were approved at the First Annual General Meeting of Shareholders on June 25, 2009, with the limit on compensation for directors set at ¥400 million per year (of which, external directors receive no more than ¥50 million) and that for members of the Audit & Supervisory Board set at ¥85 million. At the conclusion of the annual general meeting of shareholders, the number of directors was eight (including two outside directors) and the number of members of the Audit & Supervisory Board was four (including three outside members of the Audit & Supervisory Board).
4. The figures for performance-linked stock compensation represent the amounts recognized as expenses for four directors (excluding outside directors and non-full-time directors). Note that this performance-linked stock incentive was approved by shareholders at the 10th Annual General Meeting of Shareholders on June 26, 2018, wherein eligible persons are directors (four directors excluding external directors and non-full-time directors), executive officers and executive fellows, and that its partial amendments and continuation were approved by shareholders at the 13th Annual General Meeting of Shareholders on June 24, 2021, wherein directors (excluding outside directors and non-full-time directors) and executive officers of INTEC Inc., a subsidiary of the Company, were added to the eligible persons, and the upper limit on the number of shares is 132,100 (including 99,000 for the Company) per business year, to be delivered through a trust into which the Company contributes up to ¥700 million (including ¥520 million for the Company) in each specified period (three business years) for the eligible persons.

Constructive Dialogue with Shareholders

TIS will actively engage in constructive dialogue with shareholders based on the IR Policy in order to contribute to the Company's sustainable growth and the enhancement of its medium- to long-term corporate value. In addition, the Company will strive to develop a system to promote constructive dialogue with shareholders.
The director of the IR Department will supervise dialogue with shareholders, consider response methods with the President and Representative Director, executive officers in charge, and the IR Department and respond appropriately.
The IR Department will share information and exchange opinions in a timely manner based on respective specialist standpoints with relevant departments and support dialogue with shareholders through organic collaboration.
In relation to shareholders, TIS will strive to enhance means of dialogue such as individual interviews as well as responses by telephone and the holding of business results briefings and small meetings, etc. Furthermore, in addition to actively conducting information disclosure, which will be the premise for dialogue, the Company will strive to expand the contents of the Integrated Report, which will be positioned as an effective tool for dialogue.
TIS will share opinions, etc. put forward in constructive dialogue with capital market participants such as shareholders, investors and securities analysts within the Company through reports, etc. to the Board of Directors, and use them in reviewing the Company's management strategy, and for other purposes.
In the case of dialogue with shareholders, TIS will pay sufficient attention to the fairness of information disclosure and manage internal information appropriately in accordance with the Rules for Prevention of Insider Trading
TIS will conduct a substantial shareholder survey twice a year, in principle, and as necessary and endeavor to gain an understanding of the shareholder structure.

* With some exceptions, meetings were held online.

Cross-shareholdings and basic policy on exercise of voting rights on cross-shareholdings

1. Policy on cross-shareholdings

While TIS has made reduction of domestically listed shares a priority issue and adheres to this as much as possible in accordance with Company-defined basic policy on corporate governance, the Company holds shares in other companies, including start-ups and venture companies, only when management believes that it will contribute to the sustainable growth and higher medium- to long-term corporate value of the Company and the Group. Specifically, when cooperation, co-creation and stable partnerships with such companies are deemed essential to continuous creation of business opportunities and utilization of technologies to actively promote business development particularly in the areas of financial inclusion, urban concentration and regional decline, low-carbon/decarbonization and health concerns, which are all social issues where the TIS INTEC Group can help to realize a more sustainable society, then such cross-shareholdings are considered investments consistent with the Group’s growth strategy and defined as strategic shareholdings.
In verifying the rationale behind retaining these holdings, management has divided them into the three categories described below and considered their value to TIS and the TIS INTEC Group using the method assigned to each category:

• Capital alliance partners
• Customers
• Others

The details of the examination methods are as follows:

Capital alliance partners

After an acquisition, shares are held for a predetermined period of time to establish a foundation for the strategic alliance. After that period, the capital alliance is qualitatively reviewed to determine status and ongoing viability as a collaborative business venture. When it is deemed that the significance of the shareholding is diminished, any listed shares are sold based on market conditions and other factors. For any privately held shares, measures are discussed with the issuer and sold as soon as a buyer is found. 

Customers

A percentage of total business-related revenue and dividend income from the issuer and companies affiliated with the issuer is calculated on a balance sheet basis to determine whether the respective shareholding exceeds 10%. Based on the result and other qualitative evaluation, such as any expected future transactions, when the significance is deemed diminished, any listed shares are sold based on market conditions and other factors. For any privately held shares, measures are discussed with the issuer and sold as soon as a buyer is found.

Others

A process is undertaken to determine whether or not business transaction volume with the issuer in the last fiscal year increased by 5% or more compared with the average of the past three fiscal years. When the significance of shareholding is deemed diminished based on the result – except when difficulties in securing personnel or technology necessary for the operation are anticipated – any listed shares are sold based on market conditions and other factors. For any privately held shares, measures are discussed with the issuer and sold as soon as a buyer is found.

In addition, as TIS pursues reduction of cross-shareholdings in line with the aforementioned policy and corporate stance, management seeks to push the cross-shareholdings on a balance sheet basis as a percentage of consolidated net assets below the 10% benchmark. Toward this end, the balance sheet amount of cross-shareholdings as of March 31, 2022, dropped by ¥8,294 million, to ¥54,359 million, mainly through reduction in nine issues (¥7,538 million), of which eight were completely sold off, and changes in market value due to stock market conditions. Consequently, the aforementioned ratio declined 4.5 points to 17.9% as of March 31, 2022, but if strategic shareholdings are excluded from the calculation, the ratio falls to 11.7%.

2. Criteria for exercising voting rights for cross-shareholdings

TIS appropriately exercises voting rights for the listed shares in its possession after comprehensively determining whether such action will contribute to the sustainable corporate growth and higher medium- to long-term corporate value of the TIS INTEC Group and investee company, taking into consideration policy advice from proxy advisory firms.

3. Number of issues held by the Company for purposes other than portfolio investment and total amounts recorded on the balance sheet

Note: In the consolidated fiscal year ended March 31, 2022, TIS acquired five new issues (¥646 million), mostly venture companies with which it has formed capital alliances, seeking to build strategic partnerships aimed at promoting open innovation.

4. Relationships with strategic shareholders

If strategic shareholders of TIS indicate an intention regarding the sale, etc. of TIS shares, we will respond appropriately without preventing such a sale. Moreover, we will not conduct transactions that lack economic rationality with strategic shareholders.

Takeover Defense Measures

TIS has not introduced takeover defense measures.