Corporate Governance Systems

HOYA employs a “company-with-committees” management system, which was created as a result of a legislative amendment. Under the “company-with-committees” management system, by giving executive officers authority to manage business, business decision makings are accelerated. At the same time, three committees - the Nomination Committee, the Compensation Committee and the Audit Committee - were established, with a majority of the members being outside directors (at HOYA, the committees are composed exclusively of outside directors), to ensure the effectiveness of management supervision by the Board of Directors. Adopting the “company-with-committees” management system enables us to clearly separate the execution and supervision of corporate management, whereas this was not possible with the previous “company-with-auditors” system. Through this system, we aim to ensure efficient management and improve the overall soundness and transparency of management.

Governance Structure

The Board of Directors

Our Board of Directors comprises five outside directors and two internal directors, for a total of seven directors. The Board holds 10 regular board meetings per year. At meetings, outside directors draw on their ample management experience and international perspectives to supervise and offer advice to the executive officers in the execution of their duties from a wide range of viewpoints. Also at the meetings, besides approving major business plans, a detailed information is provided to outside directors though means such as presentations by division managers regarding products and the competitive environment.

Executive Officers

At HOYA, candidates for Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Executive Officer in Charge of Technology; are nominated by the Nomination Committee and appointed at the Board Meeting (CEO and CFO serve concurrently as internal directors.) They manage business execution of the HOYA Group according to the mission designated by the Board of Directors and decision makings are made promptly. In regards to day-to-day business operations in each business, significant power is delegated to each division managers and executive officers direct division managers to create and execute specific measures based on a business policy decided at a board meeting. At the monthly business reporting meetings, division managers report to executive officers about the progress of their respective operations.

Committees

As internal organizations of the Board of Directors, we have the Nomination Committee, Compensation Committee and Audit Committee; each of which is composed exclusively of outside directors.

Nomination Committee

The Nomination Committee selects candidates for directors in accordance with selection standards, and submits nominations to the General Meeting of Shareholders for approval. Also, the committee selects candidates for executive officers and representative executive officer and submits nominations to the Board of Directors for approval. When necessary, the Nomination Committee refers proposals to relieve directors of their posts to the General Meeting of Shareholders, and refers proposals to relieve executive officers of their posts to the Board of Directors.

Our Nomination Committee has set standards for selecting candidates for directors, and the outline of the selection standards are as follows:

Those with appropriate personalities and insights as director and with no health problems in performing their duties. With regards to internal director candidates, they must have a high level of specialized knowledge in our business, excellent business decision-making ability and business execution ability, and excellent leadership, decision-making, analytical, forward-thinking and policymaking skills.
Regarding candidates for outside directors, they must have extensive experience as business managers or be in positions as professionals in law, accounting, finance or similar fields. They must not have significant interests in the HOYA Group, be able to maintain their independence and participate in at least 75% of HOYA Group’s board meetings.

To ensure the independence of candidates for outside directors, candidates must not fall under any of the categories below.

<Those related to the HOYA Group>
・Those who previously worked for the HOYA Group
・Those who have a family member (spouse, child or blood relatives or in-laws up to the second degree) who have held the position of a director, executive officer, auditor or management employee in the past 5 years.

<Those related to a big business partner>
・Those who are operating officers, executive officers or employees of HOYA Group’s important clients who make up 2% or more of HOYA’s consolidated sales in the past 3 consecutive years; or if the HOYA Group is an important client who makes up 2% or more of the consolidated sales of the candidate’s enterprise group in the past 3 consecutive years.

<Those who provide professional services (lawyers, chartered accountants, certified tax accountants, patent attorneys, judicial scriveners and those in similar professions.)>
・Those who have received remuneration of JPY5 million or more per year from the HOYA Group in the past two years.

<Other categories>
・When directors are mutually dispatched between HOYA and other companies/organizations
・If the candidate’s company has any other important interests within the HOYA Group

Compensation Committee

The Compensation Committee prepares a remuneration philosophy and system that incentivizes directors and executive officers. The objective is to contribute to improved financial performance for HOYA, by undertaking appropriate evaluations of results. The Compensation Committee decides on a remuneration package for each director and executive officer in accordance with the following policies:

●Policy on compensation for directors
The remuneration package for each director includes a fixed salary and stock options. The fixed salary comprises a basic salary and remuneration as a committee member or chairperson of the three committees; the Nomination Committee, Compensation Committee and Audit Committee; and is set appropriately based on consideration of factors such as our business conditions and industrial average data obtained from a third party compensation consultants.

●Policy on compensation for executive officers
The remuneration package for each executive officer includes a fixed salary, performance-based remuneration and stock options. The fixed salary is set appropriately according to the position and duties of each executive officer (such as representative executive officer, Chief Operating Officer) based on consideration of factors such as our business conditions and industrial average data obtained from the third party compensation consultants. Performance -based remuneration is decided based on business results (Achievement of plan for sales, current net profit and current net profit per share ~ 80% weighting) and measures (Achievement of business measures set at the beginning of the financial year ~ 20% weighting). The standard remuneration package comprises 50% fixed salary and 50% performance-based remuneration and performance-based remuneration may vary significantly according to our business results.

●Stock options
Stock options for directors and executive officers are discussed at the Compensation Committee based on our business results and individual evaluation and are resolved at a board meeting.

We abolished retirement allowances for directors and executive officers in 2003 since such allowances had been paid customary to reward long-term service and unrelated to the company’s business results or to shareholders interest.

Audit Committee

The Audit Committee formulates the audit policy and audit plans for each fiscal year, and receives quarterly and final reports from certified public accountants to verify the financial statements. In addition, it conducts hearings of the results of operational audits carried out by the Audit Department, verifying the soundness, lawfulness and efficiency of the Company’s operations. All items of significant interest are reported to the Board of Directors, and action is taken as needed.

Internal Control System

In addition to striving to further strengthen corporate governance, the HOYA Group also works toward the development of sound internal control systems with the objective of ensuring appropriate and efficient business management. Each business division and facility develops and improves the control environment, evaluates and responds to risk, and verifies and improves the control processes to ensure that the control systems that operate within each division and facility are the most appropriate for their operating environment. The head of each business division has managerial authority and is responsible for improving the business results. Each head is also obligated to seek to further improve internal control systems, with the objectives of maintaining compliance, effectiveness and efficiency of work practices, the reliability of financial reporting and the integrity of management assets. The Audit Department at HOYA Group Headquarters is responsible for the regular auditing and verification of administrative processes for each division and business office from an independent standpoint. It conducts operational audits, checks that internal control systems are functioning as they should, ensures that there is no dishonesty, and checks for areas for potential improvement. Problems that come to light as a result of audit procedures become the subject of a recommendation for improvement. Particularly important matters are reported to the Audit Committee and the Board of Directors, as well as to the executive officers. The executive officers decide upon and issue directives for speedy, appropriate responses.

Business Conduct Guidelines

To achieve the best results from internal control systems, it is essential that all employees performing duties for an organization work to foster greater awareness. The HOYA Group has established a set of Business Conduct Guidelines that clarify the guiding principles under which each employee should perform his or her duties, with resolute adherence to professional ethics. The Group also conducts a wide range of employee education activities to foster awareness of regulations and rules.

HOYA Help Line

In 2003 the Company implemented another initiative, the HOYA Help Line, as an internal reporting and consultation system for the Group. If there is an act that contravenes the law or the HOYA Business Conduct Guidelines, the HOYA Help Line is intended to enable early identification of the problem and quick reporting to top management, while protecting the informer, which enables timely and appropriate action to be taken on the issue. This system helps to preserve the integrity of the HOYA Group as a whole. The HOYA Help Line has two types of points of contact; one is “HHL” a dedicated section within the Company’s headquarters and the other is an outside legal counsel. The system is designed to preserve anonymity and works to maintain the system’s functional effectiveness. Currently, the system is in place at Group companies in Japan, North America (the United States and Canada), Thailand, Philippines, Singapore, Australia and Europe. We continue to expand the number of countries covered, giving the HOYA Help Line worldwide coverage.

Internal Control Reporting System

HOYA has completed the creation of a system for visualizing the status of internal controls over financial reporting for the Group’s key operating divisions. The Group has also created a framework for evaluation of these controls. In the fiscal year under review, the Group will begin conducting verifications of the effectiveness of internal controls. Items that do not conform or for which internal controls are found to be inappropriate or insufficient will be improved, and HOYA will continue its efforts to ensure the reliability of financial reporting.

Full Disclosure and Investor Relations Activities

HOYA considers fair and prompt disclosure of information and other investor relations activities to be a fundamental duty of management. The Company also values communication with shareholders, and it continues to clearly reflect their views in its management practices. In 1998, HOYA started quarterly disclosure of financial statements, ahead of many other Japanese firms. Since then the Company has sought to increase the timeliness and broaden the scope of disclosure by shortening the period between the account settlement at the end of each quarter and the disclosure, and ensuring that the volume of information in the quarterly reports is equivalent to that in the year-end financial reports. Top management is actively involved in investor relations activities. For example, the CEO attends every quarterly investor meetings to explain results and answer questions from securities analysts and institutional investors.