Companies listed on the NYSE must comply with certain standards regarding corporate governance under Section 303A of the NYSE Listed Company Manual. However, listed companies that are foreign private issuers, such as the Company, are permitted to follow home country practice in lieu of certain provisions of Section 303A.
The following table shows the significant differences between the corporate governance practices followed by U.S. listed companies under Section 303A of the NYSE Listed Company Manual and those followed by the Company.
| Corporate Governance Practices Followed by NYSE-listed U.S. Companies | Corporate Governance Practices Followed by the Company |
|---|---|
| A NYSE-listed U.S. company must have a majority of directors meeting the independence requirements under Section 303A of the NYSE Listed Company Manual. | Under the Corporate Law of Japan and relevant laws and ordinances (collectively, the "Corporate Law of Japan"), Japanese joint stock corporations (kabushiki kaisha) with the board of directors and the accounting auditor (kaikei-kansanin) may elect to structure their corporate governance system to be either that of a company with corporate auditors (kansayaku secchigaisha) or that of a company with specified committees (iinkai secchigaisha). The Company is currently a company with corporate auditors, and does not have specified committees. As a company with corporate auditors, the Company is not required under the Corporate Law of Japan to have outside directors who meet any independence requirements under the Corporate Law of Japan on its board of directors. However, the Company has two Outside Directors. An "outside director" is defined as a director of the company who does not engage or has not engaged in the execution of business of the company or its subsidiaries as a director of any of these corporations, and who does not serve or has not served as an executive officer, manager or in any other capacity as an employee of the company or its subsidiaries. The tasks of supervising the administration of the Company's affairs by the Directors are assigned not only to the Board of Directors but also to the Company's Corporate Auditors, who are separate from the Company's management, under the Corporate Law of Japan. The tasks of examining the Company's financial statements are also assigned to the Company's Corporate Auditors under the Corporate Law of Japan. All Corporate Auditors must meet certain independence requirements under the Corporate Law of Japan. At least half of the Company's Corporate Auditors are required to be "outside" Corporate Auditors who must meet additional independence requirements under the Corporate Law of Japan. An outside corporate auditor is defined as a corporate auditor who has not served as a director, accounting counselor, executive officer, manager or any other employee of the company or any of its subsidiaries prior to the appointment. Currently, the Company has five Corporate Auditors, three of whom are Outside Corporate Auditors. In addition, pursuant to the regulations of the Japanese stock exchanges, the Company is required to have one or more "independent director(s)/corporate auditor(s)" which terms are defined under the relevant regulations of the Japanese stock exchanges as "outside directors" or "outside corporate auditors" (each of which terms is defined under the Corporate Law) who are unlikely to have any conflicts of interests with shareholders of the Company. Each of the Outside Directors and Outside Corporate Auditors of the Company satisfies the requirements for the "independent director/corporate auditor" under the regulations of the Japanese stock exchanges respectively. The definition of "independent director/corporate auditor" is different from that of the independent directors under the corporate governance standards of the New York Stock Exchange or under Rule 10A-3 under the U.S. Securities Exchange Act of 1934, as amended. |
| A NYSE-listed U.S. company must have an audit committee with responsibilities described under Section 303A of the NYSE Listed Company Manual, including those imposed by Rule 10A-3 under the U.S. Securities Exchange Act of 1934, as amended. The audit committee must be composed entirely of independent directors, and the audit committee must have at least three members. | Under the corporate auditor system that the Company employs in Japan, the board of corporate auditors is a legally separate and independent body from the board of directors. The function of the board of corporate auditors is similar to that of independent directors, including those who are members of the audit committee, of a U.S. company: to monitor the performance of the directors, and review and express opinion on the method of auditing by the company's accounting auditor and on such accounting auditor's audit reports, for the protection of the Company's shareholders. Under the Corporate Law of Japan, the Company is required to have at least three corporate auditors. The Articles of Incorporation of the Company provide for no more than six corporate auditors. Currently, the Company has five corporate auditors. Each corporate auditor has a four-year term. In contrast, the term of each director of the Company is one year. With respect to the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934 relating to listed company audit committees, the Company relies on an exemption under paragraph (c) (3) of that rule which is available to foreign private issuers with boards of corporate auditors meeting certain criteria. |
| A NYSE-listed U.S. company must have a nominating/corporate governance committee with responsibilities described under Section 303A of the NYSE Listed Company Manual. The nominating/corporate governance committee must be composed entirely of independent directors. | Under the Corporate Law of Japan, the Company's Directors must be elected at a general meeting of shareholders. Its Board of Directors does not have the power to fill its vacancies. The Company's Corporate Auditors must also be elected and dismissed at a general meeting of shareholders. The Company's Board of Directors must obtain the consent of its Board of Corporate Auditors in order to submit a proposal for election of a Corporate Auditor to a general meeting of shareholders. The Board of Corporate Auditors is also empowered to adopt a resolution requesting that the Company's Directors submit a proposal for election of a Corporate Auditor to a general meeting of shareholders. All Corporate Auditors have the right to state their opinion concerning the election, dismissal and resignation of a Corporate Auditor at the general meeting of shareholders. |
| A NYSE-listed U.S. company must have a compensation committee with responsibilities described under Section 303A of the NYSE Listed Company Manual. The compensation committee must be composed entirely of independent directors. | Under the Corporate Law of Japan, the maximum aggregate amounts of remunerations, for the Company's Directors and those of the Company's Corporate Auditors must be approved at a general meeting of shareholders, respectively. The Company must also obtain the approval at a general meeting of shareholders if the Company desires to change such maximum amount of remunerations. The remunerations for Directors are determined at the meeting of the Board of Directors based on the report of the Compensation Council within the range of the maximum aggregate amounts of remunerations approved at a general meeting of shareholders, in consideration of operating results, compensation levels of other companies, wage level of employees. The Compensation Council is composed of Representative Directors excluding the President and executive officers in charge of indirect departments. The report of the Compensation Council is submitted to the meeting of the Board of Directors after the approval of the President. The remunerations for Corporate Auditors are determined upon consultation among Corporate Auditors within the range of the maximum aggregate amounts of remunerations approved at a general meeting of shareholders, in consideration of the roles of the respective Corporate Auditors. |
| A NYSE-listed U.S. company must generally obtain shareholder approval with respect to any equity compensation plan or any material revision to an existing equity compensation plan. | Pursuant to the Corporate Law of Japan, if the Company desires to adopt an equity compensation plan under which stock acquisition rights are granted on specially favorable conditions (except where such rights are granted to all of its shareholders on a pro rata basis), the Company must approve the plan by a "special resolution" of a general meeting of shareholders, where the quorum is one-third of the total number of voting rights and the approval of at least two-thirds of the voting rights represented at the meeting is required. |