Corporate Governance

Approach

Based on our mission of “Acting with sincerity, we contribute to progress and harmony among our customers, consumers, and society by exploring the unlimited potential of technology,” DENTSU SOKEN recognizes the important role of corporate governance for the business environment in order to execute swift, fair and transparent management that realizes healthy and continuous growth. DENTSU SOKEN’s Corporate Governance Policy reflects this approach. The Board of Directors works to enhance corporate governance by reviewing policies as related laws and regulations are revised, and the social and economic business environment changes.

Structure

At the 48th Ordinary General Meeting of Shareholders held on March 24, 2023, DENTSU SOKEN resolved to partially amend its Articles of Incorporation, effective that day, and transition to a company with an Audit and Supervisory Committee.

Board of Directors and Audit and Supervisory Committee

The Board of Directors determines important matters affecting DENTSU SOKEN and supervises how business is conducted, while the Audit and Supervisory Committee and its members are responsible for auditing management.

The Board of Directors comprises nine directors, of whom six are Outside Directors. The five of Outside Directors have been appointed as independent officers as provided for by the Tokyo Stock Exchange, and more than half the Board members are independent Outside Directors.

The Audit and Supervisory Committee has three members, of whom two are independent officers.

Nomination and Remuneration Committee

This is a voluntary committee, under the aegis of the Board of Directors. The chairman and more than half the committee members are independent Outside Directors. It serves to discuss the appointment and dismissal of directors, and executive officers, etc. representative directors and others (including the CEO), as well as matters related to the remuneration of directors (including representative directors).

Executive Officers

DENTSU SOKEN introduced an executive officer system with the aim of strengthening its business execution function. Additionally, all directors involved in conducting business serve as executive officers. This is done to expedite decision-making and clarify business execution responsibilities.

Management Council, Other Committees

The Management Council was set up to help expedite management decisions and streamline operations, in order to resolve important management matters other than those resolved by the Board of Directors and, in advance, to deliberate matters to be resolved by the Board of Directors.

The President and CEO chair the council, which comprises members selected from among executive officers by a resolution of the Board of Directors and outside directors who are full-time Audit and Supervisory Committee members.

In addition, under the Sustainability Policy, we have established the Sustainability Promotion Council with the aim of comprehensively promoting initiatives related to sustainability in the Group, summarizing information on risks assumed in DENTSU SOKEN and Group's business activities and promoting responses in accordance with the level of importance of risks from a company-wide perspective.

The DENTSU SOKEN corporate governance structure is as follows.

Organizational chart

Meetings of the Board of Directors, Nomination and Remuneration Committee and their Attendance

Title Name Board of Directors Nomination and Remuneration Committee
Representative Director Hirohisa Iwamoto4

-

-
Director Shinichi Ogane

9/10 meetings
（90％）

-
Director2 Kazuo Ichijo

11/13 meetings
（85％）

3/3 meetings
（100％）
Director2 Mio Takaoka

13/13 meetings
（100％）

-
Director2 Tomoko Wada

10/10 meetings
（100％）

-
Director Chisato Matsumoto4

-

-
Director/Audit and Supervisory Committee Members3 Atsuhiro Sekiguchi

13/13 meetings
（100％）

-
Director/Audit and Supervisory Committee Members2 Yukari Murayama

12/13 meetings
（92％）

3/3 meetings
（100％）
Director/Audit and Supervisory Committee Members2 Masahiko Sasamura

13/13 meetings
（100％）

-

Notes:

  • 1
    Attendance records from January 2023 to December 2023
  • 2
    Outside & Independent
  • 3
    Outside
  • 4
    Newly elected from March 2023

Skill Matrix

Evaluating the Board of Directors

DENTSU SOKEN evaluates the effectiveness of the Board of Directors to improve its effectiveness and enhance corporate value.

Issues and initiatives identified in the previous effectiveness assessment

  • Strengthening information sharing with members of the Board of Directors regarding the nomination and remuneration determination process:
    DENTSUSOKEN has decided to disclose a summary of the materials and minutes of the Nomination and Remuneration Committee to the Board of Directors and the Audit and Supervisory Committee in a timely manner.
  • Further improvement of objectivity in the evaluation of effectiveness:
    In this effectiveness evaluation, in addition to the questionnaire survey conducted in the past, individual interviews were conducted with all directors by external experts. Based on the results, opinions on effectiveness were exchanged at the Board of Directors.

Evaluation Overview

Implementation period: October 2023 ~ February 2024
Eligibility: All directors, including Audit and Supervisory Committee members (9 persons)
Target Process: (1) Anonymous questionnaire survey (5 parts, 22 questions)
  (Main evaluation items)
・Composition and operation of the Board of Directors
・Medium-term management plan and budget, response to sustainability
 ・Observance of corporate ethics and risk management
・Nomination, remuneration and evaluation of management
 ・Dialogue with shareholders
* In addition to a five-point evaluation for each question, write a comment in the free description field provided for each part.
  (2) Individual interviews with all directors by external experts
  (3) Compilation of analysis and research reports by external experts
  (4) Exchange of opinions at meetings of the Board of Directors (with the above-mentioned external experts)
  (5) Resolution of the Board of Directors to evaluate the effectiveness of the Board of Directors in FY2023

Evaluation Results

Since all of the items subject to the evaluation are evaluated as valid or generally effective, the effectiveness of the Board of Directors as a whole is ensured. In addition, there were positive evaluations of the fact that lively discussions are held in a free and vigorous atmosphere, that diversity is ensured among outside directors in terms of attributes, areas of expertise, gender, etc., and that the system necessary for the Board of Directors to conduct deliberations from multiple perspectives is ensured.

On the other hand, we recognize the following issues as issues and will continue to work on them.

  • 1.
    Further activation of communication inside and outside the Board of Directors
    We will increase opportunities for outside directors and management and outside directors to discuss medium- to long-term management issues, including the following themes (2) and (3), at the Board of Directors and other forums.
  • 2.
    Enhance discussions on medium- to long-term strategies, especially strategic investments (M&A, etc.)
    The Board of Directors will appropriately report to the Board of Directors on the policy and status of consideration regarding strategic investment (M&A, etc.) in order to further enhance discussions. In addition, in the process of formulating the next medium-term management plan, we conduct interviews with outside directors and multiple meetings of the Board of Directors, and discuss the direction of the plan from the perspective of outside directors.
  • 3.
    Strengthening the Board of Directors' supervisory system regarding nomination and remuneration
    The Board of Directors will promote the sharing of information on issues related to nomination and remuneration and the activity plans of the Nomination and Remuneration Committee, and will improve the transparency of the nomination and remuneration determination process.

DENTSU SOKEN will continue to make improvements and address all issues indicated, in order to increase the Board’s effectiveness.

As required by Tokyo Stock Exchange regulations, matters pertaining to DENTSU SOKEN’s corporate governance can be found in the Corporate Governance Report.

Nomination Criteria, Requirements for Independence as Outside Director

  •  
    Nomination Criteria for Executive Director Candidates
    • (1)
      Ability to make decisions from the standpoint of ensuring the DENTSU SOKEN Group’s sustainable growth and maximization of medium- to long-term corporate value
    • (2)
      Possessing expertise related to the DENTSU SOKEN Group’s operations
    • (3)
      Superior imagination, decision-making ability, and leadership
    • (4)
      Possessing the dignity, character, insight, popularity, and morality appropriate for a Director
  •  
    Nomination Criteria for Outside Director Candidates
    • (1)
      Possessing abundant experience and specialized knowledge in fields including management, law, finance and accounting, information technology, corporate governance, and risk management
    • (2)
      Expert ability to understand management issues and risk, and to perform monitoring
    • (3)
      Ability to proactively provide a personal opinion from a neutral standpoint
    • (4)
      Possessing the dignity, character, insight, popularity, and morality appropriate for a Director
    • (5)
      Ability to maintain independence from the Company’s Chief Executive Officer (CEO),etc.
  •  
    Requirements for Independence as Outside Director
    The Company will deem that Outside Directors (including candidates) possess independence if they meet the requirements for independent officer as provided for by the Tokyo Stock Exchange and if they do not correspond to items (1) to (3) below.
    • (1)
      Being a major shareholder (holding 10% or more of voting rights either directly or indirectly) or person who executes operations at the Company
    • (2)
      Being the person who executes operations at a transaction partner* that exceeds the standards set by the Company
    • (3)
      Being a consultant, accounting specialist, or legal specialist that has received over 10 million yen in cash or other financial benefit outside of their officer compensation in a single fiscal year in any of the past three fiscal years (where the entity receiving these assets is a group such as a corporation or association, this refers to persons belonging to that group)
    • *
      A transaction partner that exceeds the standards set by the Company is any transaction partner whose transactions with the Company make up over 2% of the Company’s consolidated net sales in a single fiscal year in any of the past three fiscal years.

Remuneration System for Directors

  •  
    Basic Policy
    （Remuneration Levels）
    Remuneration levels are set in consideration of the Company’s performance, the responsibilities and roles of its respective directors, and a wide range of information regarding rates of directors’ compensation. Furthermore, remuneration is set at levels high enough to attract highly qualified personnel.
    （Remuneration structure）
    Remuneration of directors who concurrently serve as executive officers is comprised of a fixed salary and, as incentives for achieving financial targets, an annual bonus linked to consolidated financial results and stock compensation linked to results over the medium to long term.
    Remuneration of directors who do not concomitantly serve as executive officers (regardless of whether or not they are members of the Audit and Supervisory Committee) is a fixed salary only since their management supervision roles require a high degree of independence.
    The Company has abolished its retirement benefit plan for directors, and, therefore, will not pay such benefits in the future.
    （Process for determining remuneration amounts）
    Fixed salaries and annual bonused paid as remuneration to directors who do not concurrently serve as members of the Audit and Supervisory Committee are determined by the Board of Directors within the total amounts approved at a general meeting of shareholders, and after prior consideration has been taken by the Nomination and Remuneration Committee. A majority of this committee’s members are comprised of independent outside directors as a means to ensure objectivity and transparency. Stock compensation is paid in accordance with provisions set in stock issuance rules approved by the Board of Directors.
    Remuneration of directors who concurrently serve as members of the Audit and Supervisory Committee is determined through deliberations by these directors within the total amount approved at the general meeting of shareholders.
     
    Matters Concerning the Remuneration of Directors Approved at the General Meeting of Shareholders

    The following matters were approved at the 48th General Meeting of Shareholders held on March 24, 2023:

    （Remuneration of Directors Who Do Not Concurrently Serve as Members of the Audit and Supervisory Committee）

    • The upper limit for the total amount including annual bonuses for directors was set at 400 million yen per year (including an upper limit of 50 million yen for outside directors). The total amount does not include manager salaries paid to directors who concurrently hold other management positions.
    • In addition to the total amount above, executive officers and directors who concurrently serve as executive officers are eligible to receive stock compensation. The upper limit of the total amount of stock compensation was set at both 195,000 shares and 600 million yen over the period of a medium-term management plan. (The initial period is from fiscal 2022 to 2024, the length of the current plan.)

    （Remuneration of directors who concurrently serve as members of the Audit and Supervisory Committee）

    • The upper limit for the total amount was set at 50 million yen per year.
       
    Breakdown of Remuneration of Directors Who Concurrently Serve as Executive Officers1
    Fixed Salary Performance-linked Remuneration

    A salary is paid monthly at an amount commensurate with the director’s position and duties.

    		 【Annual Bonus】
    The total amount ranges from zero to four months of the fixed salary paid monthly to directors who concurrently serve as executive officers (including the portion for executive officer duties) depending on the achievement of financial results, specifically the result for consolidated operating profit (compared with the annual management plan prepared in the beginning of the year and the results in the previous fiscal year) and profit attributable to owners of parent (compared with the annual management plan prepared in the beginning of the year).

     

    【Stock Compensation2】
    The number of shares to be paid as compensation is calculated by multiplying a coefficient, derived from the achievement level of performance indicators at a specified time during the fiscal year following the final fiscal year of the medium-term management plan, with a number of points accumulated by a recipient over the period of the medium-term management plan. The awarded points are calculated based on the monthly salary paid to the respective recipient at a specified time each year during the period in which the shares are held in a trust established by the Company.

    Notes:

    • 1
      Of the total amount of remuneration, the proportions of the fixed salary, annual bonus, and stock compensation would roughly come to 65%, 17.5%, and 17.5%, respectively, if the upper targets for the performance indicators are achieved.
    • 2
      In the event that an eligible recipient of the stock compensation has engaged in illegal conduct, all or a portion of the recipient’s contractual rights for receiving the stock compensation may be eradicated, or reparations equivalent to the stock compensation paid may be demanded in accordance with clawback provisions.

       
    Total Amounts of Remuneration in Fiscal 2023
    Role Total Amount of Remuneration
    (millions of yen)    		 Total Amount of Remuneration by type
    (millions of yen)    		 Number of eligible directors and officers
    (person)
    Fixed Salaries Annual Bonuses Retirement benefits Stock compensation

    Directors who do not concurrently serve as members of the Audit and Supervisory Committee
    (excluding Outside Directors)

    		 113 84 16 - 13 4

    Directors who concurrently serve as members of the Audit and Supervisory Committee
    (excluding Outside Directors)

    		 - - - - - 0

    Auditors
    (excluding outside Auditors)

    		 5 5 - - - 1

    Outside Directors and Auditors

    		 53 53 - - - 6

    Notes:

    • 1
      The amounts above include one directors and one auditor who stepped down at the end of their terms in office as of the date of the 48th General Meeting of Shareholders held on March 24, 2023. The Company transitioned from a company with a Audit and Supervisory Board to a company with an Audit and Supervisory Committee On March 24, 2023.
    • 2
      The total amount of stock compensation is recorded as an expense in the relevant fiscal year.


       

    Internal Controls

    The DENTSU SOKEN Group has a Basic Policy on Internal Control Systems, according to which it strives to maintain and improve the systems so that business can be conducted appropriately.

    For more information, see Basic Policy on Internal Control Systems.

    An overview of the operational status of our internal control systems is disclosed in the Securities Report.