Basic Approach to Corporate Governance
Rakuten Group’s corporate mission is based on the empowerment of individuals and society through innovation and entrepreneurship. We strive for social innovation and enrichment by boosting the growth of as many people as possible, while providing services that ensure a high standard of satisfaction for both users and partner enterprises. In order to achieve this mission, the Group has been implementing various measures with rigorous corporate governance as one of our highest priorities.
Submitted Mar 27, 2020
Corporate Governance Report
1. Basic Structure of Corporate Governance and Reasons for Adoption
The Company has supervised management through an Audit & Supervisory Board comprised exclusively of Outside Audit & Supervisory Board Members. 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 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.
Furthermore, the Company holds long meetings, where debates are held about Group management strategy, etc., separately from the meetings of the Board of Directors. Participants discuss matters from a medium- to long-term perspective rather than confining themselves to short-term issues or items discussed at the meetings of the Board of Directors, thereby enhancing the effectiveness of corporate governance.
The Company introduced an internal Company System, in an effort to clarify accountability in business execution by the Group Companies and ensure agile and flexible decision-making.
2. Corporate Organization
(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 seven Directors, including four Outside Directors. Resolutions to appoint Directors must be approved by a majority at an Annual General Shareholders' Meeting attended by shareholders who collectively possess at least one-third of all voting rights.
The Board of Directors holds regular meetings to increase corporate value and shareholder value over the medium to long term, and also holds extraordinary meetings as necessary in order to supervise the activities of Executive Directors and decisions made on important management matters. Executive Officers, upon receiving business execution orders from the Representative Director, execute within the administrative authority set forth by the Company.
The current Board of Directors consists of seven members: Chairman and CEO Hiroshi Mikitani, Representative Vice Chairman Masayuki Hosaka, Director Charles B. Baxter, Outside Director Ken Kutaragi, Sarah J.M. Whitley, Takashi Mitachi and Jun Murai, and is chaired by Chairman and CEO Hiroshi Mikitani.
To enhance the corporate value, for any case that requires new capital expenditure including investments, members of the Investment Committee, including External Directors, preliminarily deliberate on whether the case shall proceed or not. The result of such deliberation shall be reported to the Board of Directors.
The Company has been holding long meetings consisting primarily of Directors and Audit & Supervisory Board Members, where we discuss Rakuten Group management strategy and other matters, separately from the Board of Directors. These meetings allow for discussions with a medium- to long-term perspective that is not dominated by short-term challenges or Board of Directors agenda.
(Audit & Supervisory Board Members and the Audit & Supervisory Board)
The Company has four Audit & Supervisory Board Members, the majority of which are Outside Audit & Supervisory Board Members (including one Full-time Audit & Supervisory Board Member).
Audit & Supervisory Board Members Office assists Audit & Supervisory Board Members in the performance of their duties. In addition to its ordinary meetings, the Audit & Supervisory Board holds extraordinary meetings as required.
The purpose of the Audit & Supervisory Board is to receive reports, discuss, or make decisions on important audit-related matters. However, it does not prevent each Audit & Supervisory Board Members from exercising individual authority.
In accordance with audit policies and plans established by the Audit & Supervisory Board, the Audit & Supervisory Board Members 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 and employees. In addition, they check the operations of the Company and its subsidiaries. Further, the Audit & Supervisory Board Members receive audit reports from the Accounting Auditors and audit financial statements and business reports. They also discuss various matters with the CEO.
The current members are Audit & Supervisory Board Member (full-time) Yoshiaki Nishikawa, Outside Audit & Supervisory Board Member (full-time) Masahide Hiramoto, Outside Audit & Supervisory Board Members Takeo Hirata and Katsuyuki Yamaguchi. It is chaired by Audit & Supervisory Board Member (full-time) Yoshiaki Nishikawa.
3. Basic Views on Internal Control System and the Progress of System Development
The Board of Directors of the Company has made the following resolutions concerning systems to ensure that the performance of business operations of Directors comply with laws, regulations and the “Articles of Incorporation,” and that business operations are conducted in an appropriate manner.
- System for Ensuring Directors and Employees Comply with Laws, Regulations and the “Articles of Incorporation”
Rakuten, Inc. has stipulated the "Rakuten Group Code of Ethics" and Rakuten, Inc. as well as its subsidiaries (“Rakuten Group”), shall accordingly comply with all laws and regulations and undertake business actions with a high commitment to ethics. The proper execution of duties by Directors and employees of Rakuten Group shall be absolutely ensured through: operational audits carried out by the Internal Audit Department (an independent organizational unit under the direct control of the Representative Director, President and CEO); initiatives promoting Group-wide compliance under the leadership of the Chief Operating Officer (COO), a Function Chief Compliance Officer (“Function CCO”) who, under the leadership of the COO, oversees the integration of Group-wide compliance management, and Company Compliance Officer appointed according to Rakuten, Inc.’s internal Company System structure; and by reporting the status of compliance initiatives to the Group Risk and Compliance Committee and the Board of Directors.
Moreover, Outside Directors and Outside Audit & Supervisory Board Members shall also thoroughly supervise and audit the execution of duties by Directors. To technically and objectively verify compliance with laws, regulations and the “Articles of Incorporation”, lawyers shall also be appointed for those positions.
Additionally, compliance education about the knowledge and sense of ethics needed as a member of Rakuten Group is carried out for all officers and employees of Rakuten Group. Rakuten Group shall appropriately administer a system for internal whistleblower system that prevents retribution against those who report and consult through establishing a point of contact for executives, current and former employees of Rakuten Group to consult and report about legal violations and other compliance issues. Rakuten Group will also collect information widely from outside the Company.
- System for Managing and Protecting Information Related to the Execution of Duties by Directors
Any information, including written documents and digital records, regarding the execution of duties by Directors of Rakuten, Inc. shall be legally and properly preserved and managed in accordance with the Rakuten Group Regulations and other internal regulations. Additionally, Directors and Audit & Supervisory Board Members shall have full-time access to all information regarding the execution of duties by Directors of Rakuten, Inc.
- System for Risk Management
Under Rakuten, Inc.'s internal Company System structure, Company Presidents will be responsible for appropriately dealing with risks that arise during the course of each individual internal Companies' business operations in accordance with the Rakuten Group Regulations and other internal regulations. The CFO, CISO, COO and Function CCO will liaise with each Company President to manage Company-specific risks in relation to their respective fields of finance, information security, and compliance, etc., as well as deal with important Group-wide risks relating to their respective fields.
For risks relating to information security, including Information Security Management System (ISMS) certification for major businesses in Rakuten Group, the CISO conducts thorough risk management at a Group-wide level.
In order to appropriately manage risks arising from business investments or related activities, all investment proposals are required to be discussed at the Rakuten, Inc. Investment Committee, and approved by the Rakuten, Inc. Board of Directors if exceed a certain amount.
The Internal Audit Department of Rakuten, Inc. will, from an independent standpoint, carry out audits of Rakuten, Inc. and the Group Companies’ status of compliance with laws and related Rakuten Group Regulations, and regularly report to the Rakuten, Inc. Board of Directors.
- System Allowing Directors to Efficiently Carry Out their Duties
An appropriate and efficient decision making system to allow Directors of Rakuten Group to execute their duties shall be formulated based on the Rakuten Group Regulations, and other internal regulations. Moreover, transparency and speed in decision making shall be sought by promoting online internal procedures.
Prompt and flexible decision-making and execution of duties shall be promoted by having Executive Officers, who were appointed by Board of Directors, perform duties under the control of Directors.
- System to Report Financial Information Appropriately
A system shall be developed to ensure appropriate operations for financial reporting related to the disclosure of management information, financial information, etc. In addition, generally accepted accounting practices, and timely disclosure based on “Financial Instruments and Exchange Act” and other applicable domestic and foreign laws and regulations shall be conducted and effectiveness of these shall be evaluated accordingly.
- System for Rakuten Group to Only Engage in Appropriate Business Practices
In order to realize unified Group management, Rakuten, Inc. stipulates the Rakuten Group Regulations and other internal regulations dealing with company ideals, group governance, company management, risk management, compliance, etc. Regarding the execution of the subsidiaries’ significant duties, Rakuten Group shall administer a system for approval and reporting to Rakuten, Inc. based on the “Rakuten Group Authority Table” and “Rakuten Group Guidelines”.
The Rakuten Group Regulations protect the independence of the subsidiaries while also creating the needed framework for business operations which will be followed by the entire Rakuten Group.
In addition, the Internal Audit Department, which is an independent organization under the Representative Director and President ensures the appropriateness of operations by having a strong relationship with the organization of internal audit of each subsidiary and by conducting internal audits on Rakuten Group as a whole.
- Requests from Audit & Supervisory Board Members for Employees’ Assistance and Employees’ Independence from Directors
To assist the duties of Audit & Supervisory Board Members, the Audit & Supervisory Board Members Office is established under the Board of Audit & Supervisory Board, and the Audit & Supervisory Board Members may give orders to the employees belonging to the Audit & Supervisory Board Members Office as the need. Additionally, when the employees assist Audit & Supervisory Board Members, the effectiveness of the orders from Audit & Supervisory Board Members shall be ensured by employees of the Audit & Supervisory Board Members Office not receiving orders from Directors and the requiring approval from the Audit & Supervisory Board Members for such employees’ transfer and performance assessments.
- System for Directors and Employees to Report to Audit & Supervisory Board Members and for Audit & Supervisory Board Members to Carry Out Effective Audits
Directors and employees of Rakuten Group shall give all legally required reports to Audit & Supervisory Board Members and provide additional necessary reports and information if the Audit & Supervisory Board Members requests Rakuten, Inc. will ensure the effectiveness of audits through prohibiting retribution for reporting against those who report to the Audit & Supervisory Board Members.
Additionally, if Rakuten, Inc. receives a request for prepayment of expenses or repayment from Audit & Supervisory Board Members, Rakuten, Inc. shall pay the expense or debt promptly unless the expenses are proved not to be necessary for the execution of the Audit & Supervisory Board Members’ duty.
Cooperation among Audit & Supervisory Board Members, Accounting Auditors and Internal Audit Departments
Internal audits are conducted by the 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.
Audit results are reported to the CEO and Audit & Supervisory Board Members, and the results of particularly important internal audits are reported to the Board of Directors.
The Internal Audit Department also shares the results of internal audits at regular meetings to the Audit & Supervisory Board Members, and also shares results and exchange opinions with the Accounting Auditors on a regular basis.
In addition, a three-way audit meeting is held as necessary to exchange opinions. Furthermore, the Internal Audit Department is working to enhance the effectiveness of internal audits throughout the group by strengthening cooperation with the internal audit departments of Group Companies.
Outside Directors and Outside Audit & Supervisory Board Members
The Company’s seven-member Board of Directors currently includes four Outside Directors, and majority of Audit & Supervisory Board Members are Outside Audit & Supervisory Board Members. Director Takashi Mitachi is Adjunct Professor of Graduate School of Management of Kyoto University, and the Company makes donations, etc. to Kyoto University. The ratio of the amount of donations in fiscal 2019 was less than 1% of the combined total amount of the cost of sales and selling, general and administrative expenses of the Company for the year. He is also Chief Executive Director of Ronald McDonald House Charities Japan, and the Company makes donations to the organization. The ratio of the amount of donations in fiscal 2019 was less than 1% of the combined total amount of the cost of sales and selling, general and administrative expenses of the Company for the year. Director Jun Murai is Professor of the Faculty of Environment and Information Studies of Keio University and Dean of the Graduate School of Media and Governance of Keio University (retired in March 2020); the university shares a role in operating an international standardization body to which Company pays membership fees. The ratio of fees in fiscal 2019 is less than 1% of the combined total amount of cost of sales and selling, general and administrative expenses at the Company for the year. He is also Outside Director of BroadBand Tower, Inc. and Outside Director of LAC Co., Ltd., each of which has a business relationship with the Company. The ratio of transactions between BroadBand Tower, Inc. and LAC Co., Ltd. and the Company in fiscal 2019 was less than 1% of the combined total amount of the cost of sales and selling, general and administrative expenses of the Company for the year. Audit & Supervisory Board Member Takeo Hirata is Professor of Waseda University Graduate School of Sport Sciences and Dean of Waseda University Research Institute for Strategy of Natural Resources, and the Company pays research expenses to Waseda University. The ratio of the amount of expenses in fiscal 2019 is less than 1% of the combined total amount of cost of sales and selling, general and administrative expenses at the Company for the year. He is also Chairman of the Japan Society of Sports Industry, to which the Company pays membership fees. The ratio of the amount of fees in fiscal 2019 is less than 1% of the combined total amount of cost of sales and selling, general and administrative expenses at the Company for the year. Audit & Supervisory Board Member Katsuyuki Yamaguchi is Managing Partner of Nishimura & Asahi NY LLP, which has a business relationship including provision of services with the Company. The ratio of the amount of transactions between Nishimura & Asahi NY LLP and the Company in fiscal 2019 is less than 1% of the combined total amount of cost of sales and selling, general and administrative expenses at the Company for the year.
Ken Kutaragi and Jun Murai, Outside Directors, and Takeo Hirata and Katsuyuki Yamaguchi, Outside Audit & Supervisory Board Members, 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 (2). Directors.” There are no other personal, capital or business relationships or significant interests.
With the aim of ensuring a high transparency and strong management supervision, thereby increasing the corporate value, while selecting Independent Directors and Independent Audit & Supervisory Board Members, the Company appoints persons who, in principle, do not fall under any of the following criteria, and Outside Directors Ken Kutaragi, Sarah J.M. Whitley, Takashi Mitachi and Jun Murai, the Outside Audit & Supervisory Board Members Takeo Hirata, Masahide Hiramoto and Katsuyuki Yamaguchi are appointed to the position of Independent Director/Audit & Supervisory Board Member specified by the regulations of the Tokyo Stock Exchange. While selecting Independent Directors and Independent Audit & Supervisory Board Members, the Company appoints persons who, in principle, do not fall under any of the following criteria.
- Executive of the parent company or a fellow subsidiary of the Company (*1)
- A person or entity 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 (or an affiliated person of the said party if it is a legal entity, cooperative, or other organization) who receives a large amount of monetary consideration or other property from the Company besides compensation as Directors or Audit & Supervisory Board Members
- A party who effectively holds 10% or more of the Company’s entire voting rights or an executive thereof
- A person or party who has recently fallen under any of a) through d) above (*3)
- A close relative of a person who falls under any of a) through e) 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 Audit & Supervisory Board Member is appointed as an Independent Audit & Supervisory Board Member)
- *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.
- *2：Refers to cases in which, using the transactions with the Company exceed 1% the combined total of cost of goods sold and selling, general and administrative expenses.
- *3：Cases which are considered, effectively equivalent to the present condition, such as when a party or person falls under any of a) through d) at the time the contents of the proposal of the General Shareholders’ Meeting are determined for the election of such Independent Directors or Independent Audit & Supervisory Board Members as Outside Directors or Outside Audit & Supervisory Board Members.
There are four Outside Directors. Ken Kutaragi, has extensive knowledge of the entertainment business and technology and wide-ranging experience in business management. Sarah J. M. Whitley has a distinguished background mainly as an investor who has many years of experience in observing the Company and other Japanese companies. Takashi Mitachi has extensive experience and expertise mainly as a business consultant. Jun Murai has a distinguished background as an academic expert in Internet technology. All Outside Directors have been appointed for their ability to provide management with advice and recommendations to enhance the Company’s corporate value based on their experience and expert knowledge.
There are three Outside Audit & Supervisory Board Members. Masahide Hiramoto has extensive knowledge and experience mainly in the fields of finance and business management. Takeo Hirata brings wide-ranging expert knowledge and experience relating primarily to sport and education. Katsuyuki Yamaguchi was selected as a person who could contribute to the Company’s audit systems through his extensive knowledge and experience, especially as a legal attorney on corporate legal affairs. Documents for meetings of the Board of Directors are forwarded in advance to the Outside Directors and Outside Audit & Supervisory Board Members, who, if necessary, can also seek advance briefings from and consultations with the units concerned. As noted above, the Outside Audit & Supervisory Board Members also actively exchange views and collaborate with the Internal Audit Department and the accounting auditors.
The Company has signed an agreement with each of its Directors (excluding Executive Directors, etc.) and Audit & Supervisory Board Members 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 greater 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 lesser of: the sum of retirement bonuses and asset benefits of a similar nature; or that amount divided by the number of years during which the office of Director (excluding Executive Directors, etc.) or Audit & Supervisory Board Member 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 a Director (excluding Executive Directors, etc.) or an Audit & Supervisory Board Member.
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.
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 Instruments and Exchange Act.
Please refer to the below Annual Securities Report submitted on March 27, 2020 for the details:
Annual Securities Report
Basic Views on Eliminating Anti-Social Forces
<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. In addition, the Rakuten Group Regulations and other internal regulations establish detailed methods for handling antisocial forces. We have fully communicated these methods and established related systems internally with Group Companies.
<Systems for Eradicating Antisocial Forces>
- Establishment of a Response Unit and Appointment of Managers Responsible for Preventing Inappropriate Demands
The General Affairs and Facilities Management Department has been determined as the department in charge of responding to antisocial forces, and its General Manager has been given responsibility for coordinating response. In addition, person in charge of responding to antisocial forces have been assigned at each business and branch offices appropriately.
- Coordination with Outside Specialists
We keep in regular contact with the police, attorneys, the National Center for the Elimination of Boryokudan (violent gangs) 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.
- Collection and Management of Information on Antisocial Forces
The response department regularly collects and manages information to help in handling antisocial forces. The information is shared with the person in charge of responding to antisocial forces.
- Establishment of a Response Manual
The Rakuten Group Regulations and other internal regulations have been established. General principles and specific methods for handling antisocial forces are broadly communicated internally coordinate closely to Group companies.
- 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.