Basic Approach to Corporate Governance
With our vision for Rakuten as a Global Innovation Company, our commitment to corporate governance measures is of the highest priority: we recognize that ensuring effective internal control and risk management systems is also crucial to strengthening our competitiveness and maximizing our corporate value.
March 31, 2016 submission:
1.Basic Structure of Corporate Governance and Reasons for Adoption
The Company has supervised management through a Board of Company Auditors comprised exclusively of Outside Company Auditors. Additionally, in order to separate the supervisory and executive roles of management, the Company has adopted an Executive Officer System by which the Board has retained the responsibility for management decision-making and supervision, while Executive Officers have been made responsible for the executive functions.
The Company’s Board of Directors, led by the Outside Directors and Outside Company Auditors who are highly independent experts of a variety of fields, supervises the execution of duties from an objective perspective and enhances the effectiveness of corporate governance by engaging in frank and multilateral discussions on management.
(Directors, Board of Directors, Executive Officers, etc.)
While it is stipulated in the Articles of Incorporation that the number of Directors shall be not more than 16, the Board of Directors consists of eight Directors, including five Outside Directors. Resolutions to appoint Directors must be approved by a majority of voting rights at an Annual General Shareholders’ Meeting attended by shareholders holding at least one-third of voting rights.
In addition to regular meetings, the Board of Directors holds special meetings as required. At these meetings, Directors make decisions on important management matters and supervise Executive Officers’ activities. Executive Officers, upon receiving business execution orders from the CEO, carry out business execution within the administrative authority set forth by the Company. To enhance the corporate value, as to a case that requires new capital expenditure including any investment, members, including Outside Directors, of the Investment Committee preliminarily deliberate on whether the case should be proceeded or not. The result of such deliberation shall be reported to the Board of Directors. In an effort to prompt further constructive and animated discussions on management strategies, the Company plans to revise the items to be discussed, the actual discussions and the frequency of the Board of Directors’ meetings starting from April 2016.
Status of business for major segments is shared weekly at the Budget Meeting, which Executive Officers attend. To ensure appropriate and efficient conduct of business operations, activities in individual segments are supervised by management councils convened within each segment, as well as by management councils convened by each corporate function such as human resources, financial management, accounting, legal management and other management aspects across the Group Companies.
(Company Auditors and the Board of Company Auditors)
The Company has four Company Auditors, including one Full-time Auditor. All four are Outside Company Auditors.
A three-member Company Auditors’ Office assists the Company Auditors in the performance of their duties. In addition to its regular meetings, the Board of Company Auditors holds special meetings as required.
In accordance with audit policies and plans established by the Board of Company Auditors, the Company Auditors attend meetings of the Board of Directors and other important management meetings, and receive reports about the state of the Company’s operations from Directors, the Internal Audit Department and other sources. In addition, they check the operations of the Company and its subsidiaries. In addition, the Company Auditors receive audit reports from the independent auditors and peruse financial statements and business reports. They also discuss various matters with the CEO.
3.Internal Control Systems
Basic internal control policies for the Company are resolved by the Board of Directors. The Company has declared its intention to comply with all regulatory requirements, and to apply high ethical standards to its business activities.
The proper execution of duties by Directors and employees shall be ensured through operational audits carried out by the Internal Audit Department, an independent organizational unit under the direct control of the Representative Director and President, and a comprehensive approach to compliance maintained by the Group Compliance Committee. Additionally, compliance education about the knowledge and sense of ethics needed as a member of Rakuten Group shall be carried out for all the executives and employees of Rakuten Group. Rakuten Group shall appropriately create a system for internal reporting for executives and employees of Rakuten Group to consult and report about compliance issues and the status of internal reports and other matters related to compliance are appropriately reported to the Group Compliance Committee.
Directors and employees are closely supervised and audited in the performance of their duties by the Outside Directors and Outside Company Auditors. Attorneys have been appointed as Outside Company Auditors to help each of the Outside Directors and Outside Company Auditors verify compliance with the Articles of Incorporation and regulatory requirements from an objective perspective based on expert knowledge.
In order to realize unified Group management, Rakuten Group Regulations (“RGR”) dealing with company ideals, group governance etc., is stipulated as standardized regulations. Regarding the execution of the subsidiary’s significant duty, Rakuten Group creates a system for approval and reporting to Rakuten, Inc. based on the Group Regulation for Governance. The RGR will protect the independence of the subsidiaries while also creating the strong governance structure.
4.Risk Management Systems
The various risks that arise during the course of business operations shall be properly dealt with by the appropriate organizational units-in-charge based on each Group Companies’ internal regulations, detailed regulations, and operational manuals.
Regarding risk related to information management, the Governance, Risk and Compliance Department shall play a major role in thoroughly conducting risk management for the Group Companies as a whole in order to minimize exposure to anticipated risk. Moreover, the primary businesses of the Group Companies possess the accreditation of the Information Security Management System (ISMS). Regarding risk related to business activities, in order to manage risk appropriately that may arise from Directors performing their duties in each business, the Group Companies requires that all new investment proposals are discussed in the Company’s Investment Committee and obtain the approval from the Company’s Board of Directors if they exceed a certain amount. Additionally, the Group Companies aims to gather group-wide risk information through strengthening its emergency response system, risk assessments as well as thoroughly managing business risk.
As to risks pertaining to the occurrences of natural disasters, etc., the Company works to prepare emergency response measures including the formulation of business continuity plans.
Internal Audits, Company Auditor Organization, Personnel and Procedures
Internal audits are conducted by the 23-member (excluding General Manager) Internal Audit Department, which is an independent unit reporting directly to the CEO. Head office divisions, business units and group companies are all subject to internal auditing. Audits are implemented under plans approved by the Board of Directors with the aim of verifying the legality, appropriateness and efficiency of operations. The purpose of the internal audit process is to ensure that business operations are conducted in an appropriate manner by identifying any improvements that may be required, and by monitoring the implementation of those improvements. Audit results are reported to the Board of Directors, the CEO, the Group Compliance Committee responsible for areas covered by audits, and the Company Auditors. The Internal Audit Department also cooperates with the Board of Company Auditors. The Internal Audit Department is also working to enhance the effectiveness of internal audits throughout the group by working closely with audit units in the Group Companies. In addition to holding regular exchanges of opinions and conducting information sharing, the Group Companies shares the results of the internal audits with the Independent Auditors, as necessary.
Information about audits by Company Auditors can be found under “1) Corporate Governance (b) Corporate Organization (Company Auditors and the Board of Company Auditors).”
Outside Directors and Outside Company Auditors
The Company’s eight-member Board of Directors currently includes five Outside Directors, and all four Company Auditors are Outside Company Auditors. Mr. Ken Kutaragi, Outside Director, is Representative Director of Archer Holdings Ltd. with which the Company has a business relationship involving provision of services. The ratio of the amount of transactions between Archer Holdings Ltd. and the Company in fiscal 2015, was less than 1% of the combined total amount of cost of sales and selling, general and administrative expenses of the Company for the year. Ms. Youngme Moon, Outside Director, is Director of Lola Travel Company, Inc. with which the Company is in competition in the travel business in the United States. Joshua G. James, Outside Director, is Founder and CEO of Domo, Inc. with which the Company has a business relationship involving provision of services. The ratio of the amount of transactions between Domo, Inc. and the Company in fiscal 2015, was less than 1% of the combined total amount of cost of sales and selling, general and administrative expenses of the Company for the year. Mr. Katsuyuki Yamaguchi, Outside Company Auditor, is an attorney and partner of Nishimura & Asahi, a law firm with which the Company has a business relationship involving provision of services. The ratio of the amount of transactions between Nishimura & Asahi and the Company in fiscal 2015, was less than 1% of the combined total amount of cost of sales and selling, general and administrative expenses of the Company for the year. Mr. Ken Kutaragi, Outside Director, and Mr. Katsuyuki Yamaguchi, Outside Company Auditor, respectively hold the Company’s shares, and the numbers of shares held by them are as described in the respective columns of “Number of shares held” in “IV. Information on the Company Submitting Financial Reports 5. Directors.” There are no other personal, capital or business relationships or significant interests.
With the aim of ensuring a high level of transparency and strong management supervision, thereby increasing the corporate value, the Company, in selecting its Independent Directors and Independent Company Auditors, determines persons who, in principle, do not fall under any of the following criteria to be independent, and Outside Directors Ken Kutaragi, Takashi Mitachi, Jun Murai and Youngme Moon and the Outside Company Auditor Takeo Hirata are appointed to the position of Independent Director/Company Auditor specified by the regulations of the Tokyo Stock Exchange.
- Executive of the parent company or a fellow subsidiary of the Company (*1)
- A party whose major client is the Company or an executive thereof or a major client (*2) of the Company or an executive thereof
- Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as Directors or Company Auditors
- A person or party who has recently fallen under any of a) through c) above (*3)
- A close relative of a person who falls under any of a) through d) above, or a close relative of an executive of the Company or its subsidiary (including those who were executives until recently) (including a close relative of non-executive Director or accounting advisor of the Company or its subsidiary, in the case where Outside Company Auditor is appointed as an Independent Company Auditor)
*1：An executive as stipulated in Article 2, Paragraph 3, Item 6 of the Ordinance for Enforcement of the Companies Act, which includes employees in addition to executive Directors, and does not include Company Auditors.
*2：Refers to cases in which, using the transaction amount with the Company as the criterion, the sum of the Company’s total purchase amount accounts for 1% or more of the total amount of sales, general and administrative expenses.
*3：Cases which are considered, in effect, equivalent to the present condition, such as where a party or person fell under any of a) through c) at the time the contents of the proposal of the General Shareholders’ Meeting are determined for the election of such Independent Directors or Independent Company Auditors as Outside Directors or Outside Company Auditors.
There are five Outside Directors. Mr. Ken Kutaragi, has extensive knowledge of the entertainment business and technology and wide-ranging experience in business management. Mr. Takashi Mitachi has extensive experience and expertise mainly as a business consultant. Mr. Jun Murai has a distinguished background as an academic expert in Internet technology. Mr. Joshua G. James has specialized knowledge of Internet services and wealth of experience in the management of Internet service businesses in North America. And Ms. Youngme Moon has a distinguished background mainly as an academic in the field of business management. All Outside Directors have been appointed for their ability to provide management with advice and recommendations based on their experience and expert knowledge.
There are four Outside Company Auditors. Mr. Takahide Uchida has extensive knowledge and experience mainly in the fields of finance and business management. Mr. Yoshiaki Senoo has extensive knowledge and experience relating primarily to finance business, business management and compliance. Mr. Takeo Hirata brings wide-ranging expert knowledge and experience relating primarily to sport and education. Mr. Katsuyuki Yamaguchi was selected as a person who could contribute to the Company’s audit systems through his extensive knowledge and experience, especially as an attorney, and through his perspectives as an expert on corporate law. Documents for meetings of the Board of Directors are forwarded in advance to the Outside Directors and Outside Company Auditors, who, if necessary, can also seek advance briefings from and consultations with the units concerned. As noted above, the Outside Company Auditors also actively exchange views with the Internal Audit Department and the independent auditors.
The Company has signed an agreement with each of its Outside Directors and Outside Company Auditors under the provisions of Article 427, Paragraph 1 of the Companies Act. This agreement is summarized below:
Provided that duties have been carried out in good faith and without gross negligence, the total liability in situations as defined in Article 423, Paragraph 1 of the Companies Act will be limited to the sum of the amounts stipulated in the following items:
- Two times the bigger of the sum of fees, bonuses and other payments received or asset benefits received in the year that includes the date on which the event that resulted in the liability occurred, and in the preceding year, or the value of asset benefits to be received (excluding benefits stipulated under Item ii below).
- Two times the smaller of the sum of retirement bonuses or asset benefits that are in the nature of retirement bonuses, or that amount divided by the number of years during which the office of Outside Director or Outside Company Auditor was held.
- The amounts stipulated below if Share Options, as defined in Article 238, Paragraph 3 of the Companies Act, were exercised or transferred after the person was appointed as an Outside Director or an Outside Company Auditor.
- 1.If the Rights have been Exercised
- An amount calculated by subtracting the sum of the issue price of the Share Options and the paid-in value per share on the exercise date from the market price per share on the exercise date and multiplying the result by the number of shares granted through the exercise of the Share Options.
- 2.If the Rights have been Transferred
- An amount calculated by subtracting the issue price of the Share Options from the transfer price and multiplying the result by the number of Share Options.
The Status of Audit
Rakuten, Inc. has an audit contract with Ernst & Young ShinNihon LLC. The auditor conducts an audit based on the Companies Act and Financial Insruments and Exchange Act.
Please refer to the below Annual Securities Report submitted on March 30, 2016 for the details:
Basic Views on Eliminating Anti-Social Forces
1.Basic Policy on Eradicating Antisocial Forces
The “Rakuten Group Code of Ethics” calls for confronting antisocial forces with a resolute attitude and for standing staunchly on the side of social justice for the greater good if inappropriate demands are made. In addition, the Detailed Regulation for Handling Antisocial Forces establishes detailed methods for handling antisocial forces. We have fully communicated these methods internally and to Group companies and established related systems.
2. Systems for Eradicating Antisocial Forces
- 1. Establishment of a Response Unit and Appointment of Managers Responsible for Preventing Inappropriate Demands
- The Organizational Management Department has been established as the unit in charge of responding to antisocial forces, and the department manager has been given responsibility for coordinating response. In addition, corresponding managers and staff have been assigned at the business and branch office levels as required to ensure that antisocial forces are dealt with appropriately.
- 2. Coordination with Outside Specialists
- We keep in regular contact with the police, attorneys, the National Center for the Elimination of Boryokudan("violent elements") and other outside specialists, and closely coordinate with them. We are also members of the Special Violence Prevention Council and receive guidance on handling antisocial forces.
- 3. Collection and Management of Information on Antisocial Forces
- The response unit regularly collects and manages information to help in handling antisocial forces. The information is shared with managers and staff in charge of dealing with antisocial forces.
- 4. Establishment of a Response Manual
- The Detailed Regulation for Handling Antisocial Forces and response guidelines have been established. General principles and specific methods for handling antisocial forces are broadly communicated internally and to Group companies.
- 5. Training Activities
- Along with sharing information on antisocial forces internally, managers and staff in charge of dealing with antisocial forces undergo regular training on response guidelines in order to improve their response capabilities.