Basic Approach to Corporate Governance
Our corporate mission since founding is based on the empowerment of individuals and society through innovation and entrepreneurship. We contribute to 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. To achieve this, the Group has been implementing various measures by making rigorous corporate governance its highest priority.
Mar 30, 2022 submission:
Corporate Governance Report
1. Basic Structure of Corporate Governance and Reasons for Adoption
The Company has adopted a company with an Audit & Supervisory Board structure, in which highly independent Audit & Supervisory Board Members provide auditing functions in order to improve the transparency of the Company’s management and ensure its appropriateness, efficiency, fairness, and soundness. The Company has supervised management through an Audit & Supervisory Board, where a majority of the members are 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 in which the Board retains responsibility for management decision-making and supervision, while Executive Officers are responsible for executive functions.
The Company’s Board of Directors, which includes Outside Directors who are highly independent experts from a variety of fields, supervises the execution of business from an objective perspective and engages in casual and multilateral discussions on management. Furthermore, the Company holds 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.
In addition, we have introduced an internal Company System to ensure agile business execution and clear accountability. Through such efforts, Rakuten Group will continue to build a management structure with more highly effective governance functions that enables swift management decisions.
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 nine 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.
The Board of Directors holds regular meetings, as well as special meetings as required, for the purpose of enhancing medium- to long-term corporate value and shareholder value. Within these meetings, Directors make decisions on important management matters, which are under the authority of the Board of Directors, and supervise the business execution of each Executive Officer. Executive Officers, upon receiving business execution orders from the CEO, carry out business execution within the administrative authority set forth by the Company. The current members of the Board of Directors are nine Directors, namely Hiroshi Mikitani (Representative Director, Chairman, President & CEO), Masayuki Hosaka (Representative Director & Vice Chairman), Kentaro Hyakuno (Representative Director & Group Executive Vice President), Charles B. Baxter (Director), Ken Kutaragi (Outside Director), Sarah J.M. Whitley (Outside Director), Takashi Mitachi (Outside Director), Jun Murai (Outside Director), and John V. Roos (Outside Director), with Hiroshi Mikitani (Representative Director, Chairman, President & CEO) serving as the Chairman of the Board. As to a case that requires new capital expenditure including any investment, members, including Outside Directors and external experts, 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.
(Audit & Supervisory Board Members and the Audit & Supervisory Board)
The Company has three Audit & Supervisory Board Members (including two full-time Audit & Supervisory Board Members), and the majority are outside Audit & Supervisory Board Members.
A two-member Audit & Supervisory Board Members’ Office assists the Audit & Supervisory Board Members in the performance of their duties. In addition to its regular meetings, the Audit & Supervisory Board holds special meetings as required.
The purpose of the Audit & Supervisory Board is to receive reports, hold discussions, and make decisions regarding important audit-related matters. However, it does not prevent each Audit & Supervisory Board Member from exercising their 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 to receive reports about the state of the Company’s operations from Directors and employees, and they also check the operations of the Company and its subsidiaries. In addition, the Audit & Supervisory Board Members receive audit reports from the independent auditors, audit financial statements and business reports, and discuss various matters with the CEO. The current members of the Audit & Supervisory Board are Yoshiaki Nishikawa (Audit & Supervisory Board Member, Full-time), Satoshi Fujita (Outside Audit & Supervisory Board Member, Full-time), and Katsuyuki Yamaguchi (Outside Audit & Supervisory Board Member, Part-time), with Yoshiaki Nishikawa (Audit & Supervisory Board Member, Full-time) serving as the Chairman of the Board.
3. Internal Control Systems and System to Ensure the Appropriateness of Operations of Subsidiaries of the Company Submitting Financial Reports (Including Risk Management Systems)
The Board of Directors of the Company has made the following resolutions concerning systems to ensure the performance of business operations of Directors comply with laws, regulations and the Articles of Incorporation, and that business operations of the Rakuten Group are conducted in an appropriate manner. The Company has created such systems in accordance with this resolution.
- System for Ensuring Directors and Employees Comply with Laws, Regulations and the "Articles of Incorporation"
Rakuten Group, Inc. has stipulated the "Rakuten Group Code of Ethics" and Rakuten Group, 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 and President); 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 Group, Inc.’s internal Company System structure; and by reporting the status of compliance initiatives to the Group Risk Compliance Committee and the Board of Directors. Moreover, Outside Directors and Audit & Supervisory Board Members including Outside Audit & Supervisory Board Members shall also thoroughly supervise and audit the execution of duties by Directors and employees. 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 executives and employees of Rakuten Group. Rakuten Group shall appropriately administer a system for internal reporting 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 Group, 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 relevant to this matter.
- System for Risk Management
Under Rakuten Group, Inc.'s internal Company System structure, Company Presidents will be responsible for appropriately dealing with, in accordance with Rakuten Group Regulations, risks that arise during the course of individual Companies' business operations. 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 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 in the Rakuten Group, Inc. Investment Committee and approved by the Rakuten Group, Inc. Board of Directors if exceeding a certain amount. The Internal Audit Department of Rakuten Group, Inc. will, from an independent standpoint, carry out audits of Rakuten Group, Inc. and Group Companies' status of compliance with laws and related Rakuten Group Regulations, and regularly report to the Rakuten Group, 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 the 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 Group, Inc. stipulates Rakuten Group Regulations and other internal regulations dealing with company ideals, group governance, company management, risk management, compliance, etc. Regarding the execution of subsidiaries’・significant duties, Rakuten Group shall administer a system for approval and reporting to Rakuten Group, 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 is 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 organizational unit-in-charge 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 Audit & Supervisory Board, and the Audit & Supervisory Board Members may give orders to employees belonging to the Audit & Supervisory Board Members Office as the need arises. Additionally, when 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 by 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 Member requests it. Rakuten Group, 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 Group, Inc. receives a request for prepayment of expenses or repayment from Audit & Supervisory Board Members, it shall pay the expense or debt promptly unless the expenses are proved not to be necessary for the execution of the Audit & Supervisory Board Member's duty.
Internal Audits, Supervisory Board Members, Independent Auditors,
Personnel and Procedures
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 the 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 CEO and the Audit & Supervisory Board Members, and particularly important audit results are reported to the Board of Directors. The Internal Audit Department shares the results, etc. of the internal audits at regular meetings with Audit & Supervisory Board Members, and conducts information sharing with independent auditors including regular exchange of opinions and the results of the internal audits. A Three-Party Audit Meeting is held as needed, and exchange of opinions among the three parties are conducted. In addition, the Internal Audit Department is also working to enhance the effectiveness of internal audits throughout the group by working closely with the other auditors of the Group Companies. Furthermore, the Internal Audit Department evaluates the design and operating status of internal controls over financial reporting based on guidelines by the Financial Services Agency and internal regulations, and shares such information with internal control divisions, as appropriate. Internal control divisions make efforts to improve the internal control system based on such information, as necessary.
Outside Directors and Outside Audit & Supervisory Board Members
The Company’s nine-member Board of Directors currently includes five Outside Directors, and two of three Audit & Supervisory Board Members are Outside Audit & Supervisory Board Members.
Director Takashi Mitachi is Distinguished Professor of Graduate School of Management of Kyoto University, to which the Company pays participation fees for events held by the university. The ratio of fees in fiscal 2021 was less than 1% of the combined total amount of the cost of sales and the selling, general, and administrative expenses of the Company for the year.
Director Jun Murai is Professor of Keio University; the university shares a role in operating an international standardization body to which the Company pays membership fees. The ratio of fees in fiscal 2021 was less than 1% of the combined total amount of the cost of sales and the selling, general, and administrative expenses of 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 2021 was both less than 1% of the combined total amount of the cost of sales and the selling, general, and administrative expenses of the Company for the year. In addition, he is Dean of the API Institute of Geoeconomic Studies and API Senior Fellow of Asia Pacific Initiative, to which the Company pays participation fees for events held by the organization. The ratio of fees in fiscal 2021 was less than 1% of the combined total amount of the cost of sales and the selling, general, and administrative expenses of the Company for the year. Audit & Supervisory Board Member Katsuyuki Yamaguchi is Managing Partner of Nishimura & Asahi NY LLP and Director (External/Member of the Audit and Supervisory Committee) of BrainPad Inc., each of 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 BrainPad Inc. and the Company in fiscal 2021 was both less than 1% of the combined total amount of cost of sales and the selling, general, and administrative expenses of the Company for the year.
Ken Kutaragi and Jun Murai, Outside Directors, 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 level of transparency and strong management supervision, thereby increasing the corporate value, the Company, in selecting its Independent Directors and Independent Audit & Supervisory Board Members, determines persons who, in principle, do not fall under any of the following criteria to be independent, and Outside Directors Ken Kutaragi, Sarah J.M. Whitley, Takashi Mitachi, Jun Murai and John V. Roos and the Outside Audit & Supervisory Board Members Satoshi Fujita and Katsuyuki Yamaguchi are appointed to the position of Independent Director/ Audit & Supervisory Board Member specified by the regulations of the Tokyo Stock Exchange. When nominating candidates for Outside Director, the Company considers whether the candidates fall under any of the following criteria.
- A person or entity whose major client is the Company or an executive thereof (*1) or a major client (*2) of the Company or an executive thereof
- A consultant, accountant or legal professional (or an affiliated person of the said party if it is a legal entity, partnership or other organization) who receives a large amount of monetary consideration or other property from the Company besides receiving 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 c) above (*3)
- A close relative of a person who falls under the following criteria (excluding immaterial persons)
- 1) A person who falls under any of a) through d) above
- 2) An executive of a subsidiary of the Company
- 3) A non-executive Director of a subsidiary of the Company (limited to the case where Outside Audit & Supervisory Board Member is appointed as an Independent Audit & Supervisory Board Member)
- 4) A person who has recently fallen under 2) or 3) above, or recently been an executive of the Company (including a non-executive Director 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 and executive directors.
- *2：Refers to cases in which, their transactions with the Company exceed 1% of the combined total of the cost of goods sold and selling, general, and administrative expenses.
- *3：Refers to cases which are considered effectively equivalent to the present condition, such as when a party or person falls under any of a) through c) at the time when 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 five Outside Directors. Ken Kutaragi, has extensive knowledge of the entertainment business and technologies along with his extensive corporate management. Sarah J.M. Whitley has extensive knowledge and many years of experience in observing the Company and other Japanese companies as an investor. Takashi Mitachi has expert knowledge and experience as a business consultant. Jun Murai has knowledge and experience as an academic expert in Internet technology. And John V. Roos has extensive knowledge and experience including as CEO of a leading law firm that has strengths primarily in the area of technology and U.S. Ambassador to Japan. 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 two Outside Audit & Supervisory Board Members. Satoshi Fujita has extensive knowledge and experience related primarily to finance and business management. Katsuyuki Yamaguchi has expertise and extensive experience as a legal attorney on corporate legal affairs. They have been appointed for their ability to contribute to the Company’s audit systems.
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 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 Director (excluding Executive Director) 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 Director) 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.
The Status of Accounting Audit
Rakuten Group, 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 30, 2022 for the details:
Annual Securities Report
Basic Views on Eliminating Anti-Social Forces
<Basic Policy on Eliminating 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 and coordinate closely with Group companies.
<Systems for Eliminating Antisocial Forces>
- Establishment of a Response Department 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 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.
- 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.