Governance

Our Basic Approach to Corporate Governance

Recognizing the importance of the interests of the various stakeholders who support our corporate activities, the Group regards the strengthening of corporate governance as a key management issue. Based on our mission of maximizing shareholder value through the pursuit of efficiency and the assurance of soundness, we are fully aware of the importance of corporate governance, and we are working to continuously improve and strengthen measures and organizational systems to maintain and improve management transparency, fairness, and timely decision-making.

Corporate Governance System

The Company's corporate governance system is outlined below.

1. Board of Directors

   The Company’s Board of Directors consists of three directors. In addition to holding regular meetings on a monthly basis, the Board of Directors also holds extraordinary meetings whenever necessary to ensure a system that allows for prompt management decision-making. As well as handling matters stipulated in laws and regulations and the Company’s Articles of Incorporation, the Board of Directors decides on important management matters and supervises the execution of duties by each director.

2. Board of Auditors

   The Company is a company with board of company auditors. The Board of Auditors consists of three auditors. In accordance with the Audit Rules for Corporate Auditors, the auditors attend meetings of the Board of Directors, express their opinions as necessary, and audit the execution of duties by the directors. In addition to holding regular meetings on a monthly basis, the Board of Auditors also holds extraordinary meetings as necessary, and works to share information between auditors, including the formulation of audit plans, confirmation of the status of audits being carried out, and confirmation of audit results. Furthermore, at the same time as maintaining close cooperation with internal auditors and accounting auditors if and when necessary, the auditors also plan regular quarterly meetings in order to improve the effectiveness and efficiency of audits.

3. Accounting Auditor

   The Company has appointed KPMG AZSA LLC as its accounting auditor. There are no conflicts of interest between Alinamin Pharmaceutical Co., Ltd. and KPMG AZSA LLC or the persons at KPMG AZSA LLC who conduct audits of Alinamin Pharmaceutical Co., Ltd. During the accounting audit, the Company provides management information and works to create an environment in which the audit is conducted from a fair and unbiased standpoint, while also working to enhance the effectiveness of the accounting audit by cooperating with the Board of Auditors and internal auditors.

4. Internal Audit Office

   The Internal Audit Office consists of three members. In accordance with the Internal Audit Regulations, it conducts audits of the operational status, effectiveness and accuracy of business execution, etc. of each department’s business activities based on an annual plan. The office reports the audit results and the status of corrective action to our President on an as-needed basis and also works in cooperation with the Board of Auditors and the accounting auditor.

5. Management Strategy Committee

   The Management Strategy Committee provides advance explanations to directors and auditors on matters that have already been discussed at the Executive Officers' Committee and will be discussed at Board of Directors meetings. It also deliberates on projects that are important for management strategy and monitors the progress of KPIs, etc. The committee meets once a month to discuss important management matters, with attendees including our President, directors, executive officers and the general manager of Corporate Strategy.

6. Executive Officers’ Committee

   The Company has introduced an executive officer system to improve management efficiency, speed up decision-making, and clearly delineate the decision-making and supervisory functions from the business execution functions. The Executive Officers' Committee meets every other week and is made up of the Company's President and executive officers. It deliberates on matters to be submitted to the Board of Directors regarding matters other than those under the purview of the Product Strategy Committee and the Risk, Compliance and Sustainability Committee. The Executive Officers' Committee also approves matters that are important but not sufficiently important to be submitted to the Board of Directors. In addition, the committee reports on each department's annual plan and the status of its implementation, follow-up on important matters decided by the Executive Officers' Committee, matters delegated to members of the Executive Officers' Committee according to their monetary value and importance, matters to be reported to the Board of Directors, and, as necessary, reports from the Patent Policy Review Committee.

7. Product Strategy Committee

   The Product Strategy Committee meets once a month to make decisions on important matters concerning the overall strategy for the Group's products sold in Japan and overseas. The Product Strategy Committee is made up of the Company's President, executive officers and general managers, and is responsible for reporting on the follow-up status for important matters decided by the Product Strategy Committee, etc.

8. Risk, Compliance and Sustainability Committee

   The Company has established a Risk, Compliance and Sustainability Committee to promote compliance, enhance risk management and promote sustainability in order to ensure the stable continuation of its business. The Risk, Compliance and Sustainability Committee meets once every quarter in principle, and consists of the Company's President (who also serves as the committee chair) and the heads of the first-tier departments, including executive officers. Important matters related to risk, compliance and sustainability are escalated and reported to the Board of Directors.

9. Nomination and Compensation Committee

   In order to increase the transparency and objectivity of the deliberation process for executive appointments and compensation schemes, the Company has established a Nomination and Compensation Committee to serve as an advisory body to the Board of Directors. The committee consists of at least three members selected from the Company's directors, with an outside director serving as chair.

Evaluation of the Effectiveness of the Board of Directors

We regularly evaluate the effectiveness of the Board of Directors to improve its functionality. The evaluation method and evaluation results for FY2023, as well as future initiatives, are as follows.

1. Evaluation method

   We surveyed all directors and auditors on the effectiveness of the Board of Directors, and held a discussion at the Board of Directors meeting based on the results of the survey.
   The main evaluation items in the questionnaire were as follows (5-point quantitative evaluation and free-entry section).

   Evaluation items

   • The composition and operation of the Board of Directors
   • The management strategy and business strategy
   • Corporate ethics and risk/crisis management
   • Monitoring business performance and evaluating senior management
   • Dialogue with shareholders, etc.

2. Evaluation results

   Opinions were exchanged at the Board of Directors meeting held in October 2023 based on the results of the questionnaire and the analysis of the results. It was confirmed that no significant issues needed to be raised regarding the operation of the Board of Directors in FY2023 (up to that point), and that its effectiveness was generally being maintained.

3. Future initiatives

   As a result of the evaluation of the effectiveness of the Board of Directors in FY2023, the following were identified as issues to be addressed in the future. The Company’s Board of Directors will address these issues while working to further improve how they function.

   • Composition of the Board of Directors (ensuring diversity, improving the ratio of independent outside directors)
   • Communication with stakeholders
   • Sustainability-conscious management

Policy on the Determination of the Amount of Compensation, etc., for Directors or the Method of Calculation Thereof

The Articles of Incorporation stipulate that the total amount of remuneration, bonuses and other financial benefits received from the Company in compensation for the execution of duties by directors and auditors (hereinafter referred to as “remuneration, etc.”) shall be determined by resolutions passed at general meetings of shareholders. The remuneration, etc. of each director is determined by the Board of Directors within the limit of the total amount of remuneration, etc. as determined at the general meeting of shareholders, and the remuneration, etc. of each auditor is determined by the Board of Auditors within the limit of the total amount of remuneration, etc. as determined at the general meeting of shareholders. In addition, the Company has established a Nomination and Compensation Committee, which serves as a voluntary advisory body to the Board of Directors and is chaired by an outside director. The Nomination and Compensation Committee consists of three members: our President and two outside directors. The Committee's purpose is to enhance the fairness, transparency and objectivity of the procedures for determining individual compensation, and to improve the corporate governance system.

1. Basic policy

   The purpose of remuneration and the overall policy concerning it

   • (All employees) Provide remuneration at a level that enables the Company to secure and retain excellent human resources
   • (Executive directors) Further increase motivation and morale to contribute to sustainable growth and the improvement of corporate value over the medium to long term
   • (Executive directors) With a view to providing incentives for improved performance, the overall remuneration package comprises a base salary together with performance-linked remuneration such as bonuses
   • (Outside directors) Composed of a base salary only, with the aim of promoting the effective exercise of management oversight functions

   Our approach to remuneration levels

   • We offer competitive levels of remuneration so that we can secure excellent human resources, including global talent
   • We set appropriate levels based on job responsibilities, having taken into account the remuneration levels of competitors and other companies

2. Base salaries

   • We set a fixed cash compensation amount that is competitive in the market where we compete to secure human resources

3. Performance-linked remuneration (bonuses, etc.)

   • Granted as incentives for achieving annual plans and for medium- to long-term business growth

Transactions with Related Parties

As a general rule, the Group does not engage in transactions with related parties unless there is a business need to do so When conducting related party transactions, etc., our policy is to pay particular attention to whether the transaction is undermining the soundness of the management of our group, whether the transaction is reasonable and valid in light of rational judgment, and whether the transaction terms are appropriate compared to other external transactions. In accordance with the provisions of the Board of Directors Regulations and the Related Party Transaction Management Regulations, transactions with controlling shareholders and other related parties require prior approval of the Board of Directors, while the Board of Directors is to be provided with an annual report on the rationality (business necessity) of continuing the transactions and the appropriateness of the terms of the transactions. In addition, in order to better understand transactions with related parties, we conduct an annual survey of transactions with related parties for corporate officers and others, to verify the reasonableness of the transactions and the appropriateness of the procedures.