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Corporate Structure and Status of Auditing

1. Overview of Company Structure

Utilizing the management monitoring functions under the auditing system by Audit & Supervisory Board Members including Outside Audit & Supervisory Board Members, as a Company with a Board of Company Auditors, Anritsu has established a corporate governance system with a centered on the Board of Directors and the Audit & Supervisory Board. We have also been recognizing that strengthening of corporate governance is an important issue. Therefore, in addition to appointment of 3 Independent Outside Directors and 2 Independent Outside Audit & Supervisory Board Members, we have established the Nomination Committee and the Compensation Committee, which are arbitrary advisory bodies of the Board of Directors mainly comprised of Outside Directors. With this, we have endeavored to preserve our transparency and accountability.

The Company stepped up these initiatives to reinforce the auditing and monitoring functions in 2015. Upon obtaining the approval of the 89th Ordinary General Meeting of Shareholders held on June 25, 2015, the Company made a transition to a “Company with an Audit Committee,” newly founded by the “Act for Partial Revision of the Companies Act” (Act No. 90 of 2014). The transition to become a Company with an Audit Committee was made for following main reasons; i) in light of the current condition in which the ratio of consolidated overseas sales and the foreign ownership ratio are high, we have been working on enhancement of corporate value, with an aim to establish corporate governance system which can gain more understanding from a global perspective; ii) collecting scarce independent Outside Directors and making them a member of the Board of Directors will raise the ratio of Outside Directors in the Board of Directors, allowing for attempts at further improvement of transparency and more active discussion in light of the viewpoints of shareholders; and iii) judging that establishing Audit Committee and granting voting rights in the Board of Directors to Directors elected as Audit Committee Members will lead to enhancement of auditing and monitoring. The Company will continue to enhance corporate value by further strengthening corporate governance as a Company with an Audit Committee.

As a highly specialized manufacturer, the Company also believes it is important to stay in touch with its operations sites in making decisions. For this reason, the Company adopted an executive officer system in 2000, with the aim of ensuring the timely execution of operations. Subject to the provisions of Article 399-13, paragraph 6 of the Companies Act, we have stipulated in our Articles of Incorporation that the Board of Directors may, upon its resolution, delegate all or part of the decisions on execution of important operations (excluding matters listed in items of paragraph 5 of the said Article). However, for the time being, the execution of important operations shall be considered and decided by the Board of Directors in principle, and by narrowing down the matters to be discussed by the Board of Directors through reviewing the delegation of part of the decisions on execution of important operations to Directors and standards on matters to be discussed by the Board of Directors, we will aim to enhance deliberation and strengthen monitoring function at the Board of Directors’ meetings.

The Board of Directors consists of an appropriate number of managerial personnel in and outside the Company who can contribute to the expansion of businesses and the execution of operations by taking into account the source of the Group’s corporate value, as well as the enhancement of its global management system. The aim is to achieve the Group’s sustainable growth and enhance its corporate value. Pursuant to the Company’s Articles of Incorporation, the number of Directors (excluding Directors elected as Audit Committee Members) is ten or fewer. Directors elected as Audit Committee Members are five or fewer. The number of members comprising the current management system is as follows. There are fifteen Executive Officers (including two foreign nationals) as of the date of the filing of this Report.

Classification and Number of Directors Internal and Full-Time Directors Outside Directors Total
Executive Directors Non-Executive Directors
Directors (Excluding Directors elected as Audit Committee Members) 4 - 3 7
Directors elected as Audit Committee Members - 1 2 3
Total 4 1 5 10

Anritsu's execution and supervision structure is shown in the chart below.

(As of June 28, 2016)

Corporate Governance System (At June 28,2016)
2. Company Structure

The Board of Directors system was streamlined in accordance with the adoption of an executive officer system in 2000. Discussion by the small number of people involved facilitates prompt decision-making. The Board discusses reports and matters for resolution with the aid of candid and proactive opinions received from Outside Directors. In each quarter, following the Board of Directors’ meetings, a “Free Discussion” is held with the participation of the Executive Officers as well as Directors who have attended the Board of Directors’ meetings. Based on themes presented by each Executive Officer relating to their own burden-sharing, discussions on medium to long term management issues and the like are held with the involvement of all members.

The Company separates the decision-making and monitoring functions of the Board of Directors from the business execution functions of Executive Officers. Important matters related to business execution, in addition to global management and the formulation of general strategies on group management, are deliberated on and resolved by the Management Strategy Conference, chaired by the President and comprising Executive Directors, Executive Officers and others. The Management Strategy Conference meets regularly once a month and when necessary to discuss matters, excluding ones to be resolved exclusively by the Board of Directors, before they are presented to the Board of Directors, in an effort to enhance deliberations.

The compensation for Directors and Executive Officer is deliberated by the Compensation Committee, an advisory body to the Board of Directors. Committee members deliberate on the amounts of performance-based bonuses based on the previous fiscal year’s performance evaluation, the current fiscal year’s officer compensation schemes, including the content, level and a balance of distribution. The Compensation Committee is chaired by an Outside Director and comprises a total of four members: three Outside Directors (excluding Directors elected as Audit Committee Members) and Representative Director, President, to ensure transparency in its deliberations on remuneration.

Further, the Company has established the Nomination Committee as an advisory body to the Board of Directors, with the aim of improving transparency, objectivity and fairness in the selection and removal of Director Nominees and the resignation of Representative Directors, as well as obtaining advice and recommendations concerning the development of management personnel capacity. The Nomination Committee is chaired by an Outside Director who is a different person from the chairperson of the Compensation Committee and comprises a total of four members: three Outside Directors (excluding Directors elected as Audit Committee Members) and Representative Director, President, to deliberate on the following matters, etc. before providing a recommendation to the Board of Directors.

  1. Proposals for the selection of candidates for Directors and the dismissal of Directors
  2. Proposals on the members of the Board of Directors (the ratio between Internal Directors and Outside Directors, areas of the members’ expertise, professional careers, etc.)
  3. Examination and preparation of the requirements for Directors and their selection criteria
  4. Advice and recommendations concerning the assumption of and retirement from the office of President (Group CEO) and “Succession Plan”
  5. Advice and recommendations about the management and operation of several systems (a term of office, an age limit, etc. for each position) regarding the Company’s officers (including Executive Officers) as the whole and revisions of such systems
  6. Advice and recommendations about “Training Program for Next-Generation of Executives” as well as training for Directors, Executive Officers or their successors

The two Outside Directors elected as Audit Committee Members also participate as observers in the deliberations of the Compensation and Nomination Committees.

The “Independent Committee” has been formed comprising all five Outside Directors, which is a new initiative since the transition to a Company with an Audit Committee. The chairperson of the Independent Committee is selected from among the Independent Outside Directors as a “Lead Independent Outside Director,” who undertakes the roles of summarizing the opinions of Outside Directors, communicating and coordinating with the Company’s top management. As a result, a venue for free and active discussion has been created led by robust and smooth communications among Outside Directors, resulting in facilitating an exchange of information and sharing the same problem recognition among officers from the stance of being independent and objective. The Company expects the Independent Committee to contribute to the enhancement of the Group’s corporate value through the advice provided to the management, recommendations on the evaluation of effectiveness of the Board of Directors and reports on matters for which advice was sought from the Board of Directors.

3. Status of internal audits for the current fiscal year, Audit Committee and Organizations Supporting the Committee

With regard to an internal audit, the Global Audit Department (comprising 5 members as of June 2016) conducts operational audits and provides guidance and assistance to internal audit departments of the group companies. Additionally, relevant departments and committees share functions as needed, such as daily monitoring for export control conducted by the Trade Control Department. Thereby, enhancement and improvement of company-wide audit functions are attempted.

We established Management Audit Department from April 2015 as an organization for supporting the operations of the Audit Committee to maintain and improve the audit quality of the Audit Committee. The Management Audit Department will conduct its operations in cooperation with the Audit Committee, the accounting auditor and the Global Audit Department. As we have multiple domestic and international subsidiaries in our group, and prioritize internal control of global corporate groups including such subsidiaries, Directors elected as full-time Audit Committee Members and executives of the Management Audit Department will take the positions of Audit & Supervisory Board Members (or Non-Executive Directors for companies without Audit & Supervisory Board Members) in our major domestic and international subsidiaries, sharing the burdens involved. Through this, we will enhance the functions for auditing and monitoring of subsidiaries.

The Audit Committee has established the rules on the Audit Committee and its detailed regulations and deliberates on audit policies, audit plans, audit methods, sharing of responsibilities for audit operations and other matters, in addition to the appointment of the chairperson of the Audit Committee, appointment of full-time Audit Committee Members, and other matters necessary for carrying out duties of the Audit Committee Members. Currently, Takaya Seki, an Outside Director, serves as the chairperson of the Audit Committee. Tomoyuki Kikugawa has been appointed as a full-time Audit Committee Member.

We will link this to more prompt and accurate understanding of information internally and agile auditing. Yuji Inoue, an Outside Director, worked as a General Manager of Accounting Department at his former company and experienced accounting and finance operations. Therefore, he has considerable knowledge on finance and accounting. Currently, there are total of 3 Directors elected as Audit Committee Members including 2 Outside Directors and 1 Full-Time Director who does not execute operations.

For the fiscal year ended March 31, 2016, with regard to audits conducted by the Audit Committee after the Company’s transition to a Company with an Audit Committee, the Audit Committee received the outline of audits and quarterly review plans, the summary report of quarterly review, the year-end summary report of audits, the audit report and notices issued in accordance with Article 131 of the Corporate Accounting Rules. The accounting auditor then provided the Committee with brief explanations about the information in these documents, and they exchanged opinions. In addition, Audit Committee Members conducted meetings as needed with the accounting auditor to exchange information and opinions, including the hearing of audit results.

Moreover, Audit Committee Members and the internal audit department (Global Audit Department) conducted regular and irregular meetings when necessary in order to implement effective and efficient audits. They exchanged opinions on topics such as audit policies, audit plans, and the state of audit implementation. They also undertook endeavors to strengthen collaboration through reporting of each audit.

We will utilize previous audit know-how and such from before the establishment of Audit & Supervisory Board Members and the Audit & Supervisory Board, and effective efforts which we have cultivated over the long-term will be continued and deployed. Through this, we will aim to further improve the quality and efficiency of audits.

4. Accounting Audit

The certified public accountants who have conducted our accounting audit operations are Iwao Hirano, Tatsunaga Fumikura and Atsushi Nagata. They are members of KPMG AZSA LLC. Assisting accounting audit operations for the fiscal year ending March 2016 are 6 certified public accountants and 11 other personnel. In addition, no agreement on a restriction of liability for damages has been executed between the Company and the Independent Auditor.

5. Outside Directors

Following the conclusion of the 85th Ordinary General Meeting of Shareholders held on June 28, 2011, the Company implemented a system with 3 Outside Directors and 2 Outside Audit & Supervisory Board Members. Furthermore, the Company made a transition to a Company with an Audit Committee by resolution of the 89th Ordinary General Meeting of Shareholders held on June 25, 2015 and has adopted a system with five Outside Directors (including two Audit Committee Members). Upon such transition, scarce independent Outside Directors were collected and made a member of the Board of Directors to raise the ratio of Outside Directors in the Board of Directors. This allows for attempts at further improvement of transparency and more active discussion in light of the viewpoints of shareholders.

The Company tries to appoint Outside Directors who possess extensive global business experience as corporate executives, a wealth of knowledge and excellent insight, such as attorney at law in Japan and U.S., certified public accountant or corporate governance specialists. The Company expects to draw on the Directors’ advice based on their outside perspectives in areas such as management issues. The Company also believes that this will enhance objectivity and fairness in the decision-making process at Board of Directors’ meetings and will facilitate an increase in management transparency.

Additionally, four Outside Directors who concurrently serve as professors or instructors at graduate schools gave lectures for Executive Officers and other management executives of the Company during the fiscal year ended March 31, 2016. The sessions covered corporate governance and management issues of Japanese corporations, which were their research themes and areas of expertise. This was a meaningful approach from the viewpoint of fostering managerial personnel. The Company has assigned all of its 5 Outside Directors as its Independent Officers and filed them with the Tokyo Stock Exchange. The status of the Company’s shares held by Outside Directors is as stated in the column of shares held in “5. Directors.” Outside Director Teruaki Aoki has experience as Managing Director, Senior Executive Vice President and other executive posts at Sony Corporation. Outside Director Yuji Inoue has experience as Group Executive Officer, Managing Director, other executive posts, and Standing Audit & Supervisory Board Member (full-time) at RICOH COMPANY, LTD., where he formerly worked. The Company (and its subsidiaries) has business relationships, both directly and indirectly, with the above corporations and others where its Outside Directors and Outside Audit & Supervisory Board Members concurrently serve or formerly worked, as well as their major subsidiaries, principally through the sales and maintenance of the Company’s (and its subsidiaries’) products. However, the amount of such business transactions is small (each of them accounted for less than 1 percent of the Company’s consolidated revenue for the current fiscal year). Other than the above, there are no personal, capital or trading relationships, or other conflicting interests between the Company and each of its Outside Directors. Therefore, the Company judges that there are no potential conflicting interests between them and the general shareholders, on the grounds that none of them is a person who executes business, principal shareholder or former employee of the major clients of the Company or the Company’s affiliates, and that the Company recognizes no significant matters concerning these Outside Directors that affect their independence.

In selecting Outside Directors , the Company pays close attention to definitions of judging potential conflicts of interest with general shareholders as laid down in the “Guidelines Concerning Listed Company Compliance, etc.” of the Tokyo Stock Exchange. This precludes any possibility of selecting a person who may be under significant influence of the Company’s management or exerts a significant influence on the Company’s management. In addition to this, with a view to reflecting various stakeholders’ views on the supervision and proper management of the Company Group’s operations, the Company places importance on the diversity of nominees’ professional competence, background and other aspects.

In order to facilitate sustainable and robust corporate governance, the Company believes that it is needed to exclude arbitrariness in selecting and nominating candidates for Outside Directors, and to establish an environment that maintains the independence of Outside Directors after they assume their office. In line with this notion, the Board of Directors resolved to adopt the “Criteria for the independence of Outside Officers” as detailed below. The establishment and revisions of these criteria shall obtain an approval and be resolved by the Board of Directors after deliberation at the Nomination Committee, which is an advisory body of the Board of Directors. The Company emphasizes that its Outside Directors remain neutral and independent of the Company. In light of this, in selecting candidates for these positions, it places importance on whether or not their independence meets these criteria.

<Criteria for the independence of Outside Officers>
With reference to the results from reasonable assessments conducted by the Company and other information, the Company judges that the Outside Director (hereinafter referred to as the “Outside Officer”) or Outside Officer candidate is sufficiently independent of the Company’s management if he/she or his/her business title does not fall into any of the categories as set out below.

  1. A person who executes business*1 of the Company or its subsidiaries (hereinafter collectively referred to as the “Company Group”);
  2. A principal shareholder*2 of the Company or a person who executes business*1 for such shareholder;
  3. A person who executes business*1 of an organization of which the Company Group is a principal shareholder*2;
  4. A person of an organization of which the Company Group is a major client*3, or a person who executes business*1 for such organization;
  5. A major client*3 of the Company Group or a person who executes business*1 for such client;
  6. A person of an organization which receives a large amount of contributions in the form of money or other asset*4 from the Company Group, or a person who executes business*1 for such organization;
  7. A consultant, professional accountant (e.g. certified public accountant) or legal professional (e.g. lawyer) who receives a large amount of money or other asset*4 other than Director’s compensation (if the subject receiving a large amount of money or other asset*4 is a corporation or institution such as association, then a person belonging to one of these organizations);
  8. A person from an organization with which the Company Group has a reciprocal Outside Director appointment*5 relationship;
  9. A person who has fallen under any of the above 1 to 8 in the past*6;
  10. A person who is a spouse or relative within the second degree of those stated in a) or b) below;
    1. Important persons*7 of those described in the above 1 (note that these include both incumbent and former Directors who are/were not persons who execute business*1 when judging the independence of Outside Directors elected as Audit Committee Members or their candidates);
    2. Important persons*7 of those described in the above 2 to 8; or
  11. Other than those described above, a person whose circumstances are reasonably considered incapable of fulfilling Outside Director’s responsibilities, from his/her perspective being independent of the Company.

(Notes)

  • *1 “A person who executes business” refers to a person who executes operations of Director (excluding Outside Director), Officers, employees (including Executive Officers), etc. It also refers to a person who executes operations of a legal entity (other than a corporation) or an institution, e.g. association.
  • *2 A shareholder whose voting common stocks in the Company (held either directly or indirectly) accounts for 10 percent or more of the total is reasonably deemed as a “principal shareholder.”
  • *3 “Major client” is defined according to the description of a “major client” prescribed in III 5.(3)-2 of the Guidelines Concerning Listed Company Compliance, etc. of the Tokyo Stock Exchange.
  • *4 The Company reasonably assesses that the value of “money or other asset” awarded to the person is “large,” if it, for any fiscal year, stands at 10 million yen or more, or accounts for 1 percent or more of the person’s gross income, whichever is greater.
  • *5 “Reciprocal Outside Director appointment” refers to a relationship between the Company Group and another company where an incumbent Outside Director of the other company was previously an employee of the Company Group and in reverse an Outside Director of the Company Group was previously an employee of the relevant other company.
  • *6 The “past” in this context does not represent any specific period of time with regard to the person stated in 1 above, whereas the term “past” referring to the above 2 to 8 means the previous 5 fiscal years including the most recent one.
  • *7 The term “important persons” specified in a) means persons who execute business as stated in the above 1. They include important employees such as Executive Officers but exclude those whose positions are General Managers or lower. With regard to the “important persons” of those described in the above 2 to 8 (excluding 7) as specified in b), the criteria is limited to important persons who execute business and ranked at important positions, such as Director, Officer or Executive Officer. Separately the “important persons” referred to in the above 7 are limited to those with professional qualifications, such as public certified accountants or lawyers.
  • *8 The Company will separately set out, as necessary, the criteria for “the amount of transactions or contributions that can be deemed not to have significant influence on shareholders’ decisions regarding the exercise of their voting rights,” concerning “Listed company clients and Directors who were previously employees of such clients” and “Beneficiaries of contributions made by listed companies or Directors who were previously employees of such beneficiaries”(both are mandatory attributable information to be incorporated in the Corporate Governance Report and Independent Directors/Auditors Notification filed with the Tokyo Stock Exchange in accordance with the Exchange’s rules).
6. Requirement of resolution concerning appointment of a director

With regard to resolutions concerning the appointment of Directors, the Company has made regulations under the Articles of Incorporation to the effect that Directors shall be elected at a general meeting of shareholders under the condition that shareholders holding more than 1/3 of the shareholders’ voting rights are present, the election shall take place through a resolution of a majority vote of such voting rights, and the election of Directors by cumulative voting shall not be allowed.

7. Acquisition of treasury shares

The Company has made regulations under the Articles of Incorporation that matters outlined in each item of the provisions of the Article 459, paragraph 1 of the Companies Act can be applied via resolution of the Board of Directors, except where separately regulated under laws and regulations, so that flexible capital policies can be fulfilled.

8. Special resolution requirements for general meetings of shareholders

The Company has made regulations under the Articles of Incorporation to the effect that resolutions regulated under Article 309, paragraph 2 of the Companies Act are made under the conditions that shareholders holding more than 1/3 of the shareholders’ voting rights are present at a general meeting of shareholders and more than 2/3 of such voting rights effectuate a resolution, in order to further assure the preservation of a quorum for a special resolution at a general meeting of shareholders.

9. Interim dividend

In order to return profits to our shareholders in a flexible manner, the Company has made regulations under the Articles of Incorporation to the effect that interim dividends can be paid on September 30 of each year as a record date by resolution of the Board of Directors in accordance with the provisions of Article 454, paragraph 5 of the Companies Act.

10. Outlines of Agreements on Limitation of Liability

Subject to the regulations under the Article 427, paragraph 1 of the Companies Act, agreements on limitation of liability for damage under Article 423, paragraph 1 of the said Act have been concluded between the Company and Directors who do not execute business (including Outside Directors). The limit of liability for damage in accordance with the relevant agreement is either 10 million yen or the amount stipulated by laws and regulations, whichever is higher. Such limitation of liability is permissible only in cases in which the relevant Directors act in good faith and without gross negligence when performing duties which triggered such liability.

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