Corporate Governance Policy
Formulated on November 20, 2015
Amended on March 30, 2016
Amended on March 30, 2017
Amended on March 30, 2018
Amended on March 29, 2019
Amended on January 1, 2020
Amended on March 31, 2020
Dentsu Group Inc. (the “Company”) will put effective corporate governance into practice in order to fulfill its responsibilities to its stakeholders (such as its shareholders, clients, employees and local communities) and to ensure sustainable growth and enhance mid- to long-term corporate value.
The Board of Directors has formulated this Policy, will continuously and periodically review it, and will work on improving and developing the Company’s corporate governance to enhance corporate value.
Chapter 1 General Provisions
(Basic Policy for Corporate Governance)
The Company shall offer value to clients by resolving their problems through its core competence in the field of marketing communication. Further, the Company shall not only bring brightness and energy to the world, but shall also aim to create new social value and realize a sustainable society by putting its corporate philosophy into practice against continuous challenges while focusing on important fields such as corporate governance, respect for human rights, a safe and healthy working environment, environmental protection, fair business practice, resolving problems of consumers, contribution to development of community.
To realize the above, pursuing the best corporate governance is important. The Company shall ensure sustainable growth and enhance the mid- to long-term corporate value through transparent and fair decision-making, effective use of management resources and expeditious and resolute decision-making.
For the above purposes, the Company shall work on enhancing the corporate governance in accordance with the basic concepts below.
- (ⅰ)To respect shareholders’ rights and ensure their equal treatment
- (ⅱ)To consider the interests of stakeholders, including shareholders, and cooperate with them appropriately
- (ⅲ)To appropriately disclose company information and ensure transparency
- (ⅳ)To enhance the effectiveness of the supervisory function of the Board of Directors concerning business execution
- (ⅴ)To engage in constructive dialogue with shareholders who have an investment policy that conforms to the mid- to long-term interests of shareholders
Chapter 2 Ensuring Shareholders’ Rights and Equal Treatment
1. General meetings of shareholders
The Company shall be aware and conduct a general meeting of shareholders under the basic policy that explanations should be thorough and easy to understand for shareholders in order to make such meetings the highest decision-making body of the Company and a forum for constructive dialogue with shareholders. In addition, after the Board of Directors passes a resolution for convocation of a general meeting of shareholders, the Company shall quickly publish a notice of such convocation together with an English translation thereof on its website and also send such notice of convocation to its shareholders not later than three weeks before the date of the general meeting of shareholders so that the shareholders may appropriately exercise their voting rights. The Company shall also improve its infrastructure (such as adopting the electronic voting platform) wherein all of the shareholders, including those shareholders who do not attend a general meeting of shareholders, are able to exercise their voting rights appropriately.
As to how to treat the situation where institutional investors whose shares are being held in the name of trust banks or other parties wish in advance to exercise their voting rights by themselves at a general meeting of shareholders, the Company shall discuss such situation with the trust banks or other relevant parties beforehand, taking into consideration that there are some issues, such as how to check whether the relevant institutional investors are beneficial shareholders of the Company and how to avoid double voting by both the nominee shareholders and the beneficial shareholders.
2. Ensuring equal treatment of shareholders
The Company shall effectively ensure the rights of all shareholders, including minority and foreign shareholders’ rights. The Company shall also enhance its dialogue with shareholders and investors through IR activities by properly and timely disclosing information to them with respect to management strategy, financial position, business performance and other related matters.
3. Analyzing votes against company proposal
Every year, votes at a general meeting of shareholders are analyzed by the section in charge of general meetings of shareholders. The result thereof is shared with IR related sections, executive officers in charge of corporate matters and the management, and is also reported to the Board of Directors. With respect to any proposals against which many opposing votes were cast, the Board of Directors shall deliberate on matters such as how to obtain shareholders’ support based on the reasons for the opposition.
4. Capital policy
The basic capital policy (concepts and measures for optimal capital structure), which aims to enhance intrinsic corporate value, and which is the Company’s top priority for capital distribution that contributes to the Company’s growth, shall make positive investments in the fields inside and outside of Japan stated below.
- (ⅰ)Investments designed to acquire and expand the capacity necessary to strengthen competitiveness in major businesses
- (ⅱ)To develop and invest in businesses that can make use of our core competencies
Further, in addition to the above, the Company shall provide returns to shareholders through a combination of stable dividend distribution and repurchasing of the Company’s own shares, enhance capital efficiency and aim to increase the mid- to long-term ROE.
In order to enhance mid- to long-term corporate value by maintaining and strengthening business relationships with its business partners and other similar parties, it is possible that, apart from pure investment, the Company will hold shares in listed companies that are the Company’s business partners.
Of such shareholdings strategically held by the Company, in principle, the Board of Directors reviews and considers reducing individual stocks from the viewpoint of whether the profit and related profits, such as the dividend and related profits, are higher than the target capital costs of the Company’s stocks, or whether the stock ownership contributes to the maintenance and enhancement of the business relationship with the investee company and the promotion of collaboration. According to this principle, the Board of Directors shall examine the purpose and economic rationale for owning each share every year in light of mid- to long term point of view; and disclose the result of such examination in the Corporate Governance Report or other document.
The Company shall exercise the voting rights of such shares at general meetings of shareholders of the relevant companies considering, on a proposal-by-proposal basis, the enhancement of corporate value of such companies and the mid- to long-term increase in economic profit of the Company and its group companies, taken as a whole, to ensure appropriate voting. With respect to important shareholdings strategically held by the Company, how the votes of such shares are exercised shall be reported to the Board of Directors. For example, the Company shall examine each proposal deliberately and determine to vote on such proposal as impairs corporate value and value for shareholders regardless of company proposal or shareholder proposal including those fall under items below.
- (ⅰ)Appointment of director(s) and corporate auditor(s) responsible for material breach of laws and regulations; or misconducts
- (ⅱ)Introduction of anti-takeover measure
- (ⅲ)Reorganization such as mergers
- (ⅳ)Transfer of important assets
In the event that shareholders owning shares of the Company (hereinafter referred to as "cross-shareholding shareholders") indicate their intention to sell such shares, the Company will not conduct any act that may prevent the sale of such shares, such as suggesting reduction of business transactions. Furthermore, the Company shall also fully examine the economic rationality of our business transactions with cross-shareholding shareholders and shall not engage in any transaction with them that would impair the common interests of the Company and its shareholders.
6. Related party transactions
Directors who enter into business competition transactions or conflict of interest transactions stipulated in the Companies Act with the Company shall explain the transactions to the Board of Directors and obtain approval from the same. Such directors shall report the status of such transactions thereafter. The Board of Directors shall strictly implement the rules and appropriately monitor the relevant transactions.
In addition, apart from the transactions stipulated in the Companies Act, the Company shall submit a questionnaire to each director once a year to ascertain whether there is any transaction between the Company and any directors of the Company or consolidated subsidiaries or their close relatives. Other related party transactions, including those with major shareholders, shall be properly disclosed in accordance with applicable laws and regulations, such as the Companies Act or the Financial Instruments and Exchange Act, and applicable rules of the Tokyo Stock Exchange.
Chapter 3 Proper Cooperation with Stakeholders including Shareholders
1. Code of conduct and conflict of interest
The Company understands that it is its social responsibility to tackle social problems and work independently to realize a sustainable society, taking into consideration every stakeholder while focusing on important fields such as corporate governance, respect for human rights, a safe and healthy working environment, environmental protection, fair business practice, resolving problems of consumers, contribution to development of community. In addition, the Dentsu Group Code of Conduct provides that the management and employees shall protect stakeholders’ interests and work with high ethical standards. The Company shall ensure that the management and employees fully understand such provisions.
2. Dealing with problems concerning sustainability
The Company understands that it is its social role to create new social value by continuously discovering social issues and presenting solutions, and the Company aims to be a partner of its stakeholders that can contribute to sustainable growth of such stakeholders.
In addition, the Company has formulated its CSR basic policy, the “Dentsu Group Code of Conduct,” as a code of conduct to be followed by employees of the Company group in order for each of such employees to fulfill their social responsibilities in the respective areas. Taking ISO 26000 as a guideline, the Company has set seven important fields (corporate governance, respect for human rights, ensuring a safe and civilized working environment, environmental protection, fair business practices, addressing consumer issues and contributing to the community) and is undertaking various actions in each field.
Efforts and recent reports on activities are summarized in the Dentsu Integrated Report.
3. Whistleblowing system
The Company has established its “Compliance Line” as a whistleblowing system inside the Company group, which is available via telephone, e-mail, letters and other means. The special section inside the Company and outside counsel fulfill a liaison role with respect to such Compliance Line. Moreover, the Company has established a consultation section for sexual harassment and power harassment apart from the “Compliance Line.”
Under these systems, whistleblowers’ names and sections are kept confidential outside the secretariat, and rules of the Company stipulate that such whistleblowers shall not be treated adversely in their working environment due to such whistleblowing. The Company continues to implement such systems effectively.
4. Fulfilling the functions of asset owners of corporate pension plans
As our employees are seconded from Dentsu Inc., our wholly-owned subsidiary, we apply the corporate pension plan of Dentsu Inc. (excluding our contract employees who have retired from Dentsu Inc. and are receiving the corporate pension). In April 2015, Dentsu Inc. transitioned to a defined contribution pension plan. Since the management of corporate pension contributions affects the stable asset formation of employees, the personnel in the relevant corporate pension organization have acquired the qualifications of a corporate pension manager, etc. in order to enable the corporate pension organization to conduct appropriate activities such as monitoring the investment institution. In addition, Dentsu Inc. assigns staff with specialized skills to Group companies that are entrusted with the management of corporate pension plans, and regularly receives appropriate advice from outside experts.
Chapter 4 Appropriate Information Disclosure and Transparency
The Company shall appropriately disclose in a fair, detailed and plain manner its business performance, financial conditions and other financial information as well as management strategy, business information, risks, governance and other nonfinancial information in compliance with applicable laws and regulations, such as the Companies Act and the Financial Instruments and Exchange Act, and applicable rules of stock exchanges. The “Information Management Committee,” chaired by the director in charge of information disclosure, fairly controls essential information, including insider information.
Chapter 5 Responsibilities of the Board of Directors and Related Matters
With respect to its corporate governance structure, the Company is a company with an Audit and Supervisory Committee.
1. The Board of Directors
The main role of the Board of Directors is to control the Company strategically along with its corporate philosophy. The Board of Directors delegates a large part of its decision-making authority regarding business execution to the management (including the representative director and president & CEO) and urges expeditious and resolute business judgment thereby. The Board of Directors also enhances corporate value by recognizing its fiduciary duties to shareholders and appropriately fulfilling its monitoring function under applicable laws and its Articles of Incorporation toward overall management, including its management strategy and mid-term management plan.
The basic policy for our group to achieve mid- to long-term growth is summarized in the Dentsu Group mid-term policy.
2. Members of the Board of Directors and term of directors
The number of directors will be 12 (no more than 15 as the Articles of Incorporation stipulate) and four or more directors (one third of the total members of the board of directors) will be independent outside directors. The term of directors who are not members of the Audit and Supervisory Committee is until the closing of the general meeting of shareholders concerning the last business year ending within one year after their assumption of office, while the term of directors who are members of the Audit and Supervisory Committee is until the closing of the general meeting of shareholders concerning the last business year ending within two years after their assumption of office.
Diversity in experience, insight and balanced ability, gender and internationality are among the factors that will be considered in nominating members of the Board of Directors.
3. Nomination Committee and Compensation Committee
On July 1, 2019, the Company established the Nomination and Compensation Committee as an optional advisory body to enhance the independence, objectivity and accountability of the Board of Director’s functions in determining the nomination and compensations of the directors and executive officers. The Company set up two committees, the Nomination Committee and the Compensation Committee as of April 1, 2020, to transform the Nomination and Compensation Committee into more specialized advisory bodies by separating the function related to nomination/dismissal and compensation. Each Committee consists of three or more directors or outside experts appointed by the Board of Directors. The majority of the committee members are independent outside directors and the committee chairman is appointed by a resolution of the Board of Directors from among the members who are independent outside directors. The Nomination Committee is responsible for the nomination and dismissal of directors and executive officers, and the Compensation Committee is responsible for deliberating items concerning the determination of individual compensation of the directors who are not a member of Audit and Supervisory Committee and executive officers. Each committee shall report to the Board of Directors.”
4. Standards in nominating director candidates and executive officers; and process of nomination
The Company has established the following policies with regard to the appointment of executive officers including internal directors who are not members of the Audit and Supervisory Committee but concurrently serve as executive officers:
- (ⅰ)Appropriately nominate persons who contribute to sustainable growth and mid- to long-term enhancement of corporate value of our group
- (ⅱ)To have a balance between diversity and expertise from candidates with knowledge, experience and skills related to management, and organize a management team to quickly reflect the innovation of our group
Furthermore, in nominating each director candidate, the Company shall nominate such director candidate primarily in accordance with the following standards as set forth in the rules of directors.
<Standards in nominating candidates of internal directors who are not members of the Audit and Supervisory Committee>
- (ⅰ)A person who is able to make determinations from a company-wide viewpoint
- (ⅱ)A person who has expertise with respect to the Company’s business
- (ⅲ)A person who has remarkable business judgment and ability in business execution
- (ⅳ)A person who has remarkable leadership, foresight and decision and planning ability
- (ⅴ)A person who has character and insight suitable for directors
<Standards in nominating internal director candidates who are members of the Audit and Supervisory Committee>
- (ⅰ)A person who has the ability to legally and managerially understand the duties of internal directors who are members of the Audit and Supervisory Committee
- (ⅱ)A person who is able to make determinations from a company-wide viewpoint
- (ⅲ)A person who has remarkable problem-solving and leadership abilities
- (ⅳ)A person who fulfills other requirements deemed necessary as internal directors who are members of the Audit and Supervisory Committee
<Standards in nominating outside director candidates>
- (ⅰ)A person who has extensive experience in management or who is a professional in legal, accounting, finance and other such fields
- (ⅱ)A person who can be independent of the representative director of the Company
- (ⅲ)A person who has character and insight suitable for outside directors
In nominating directors who are not members of the Audit and Supervisory Committee from the viewpoint of securing objectivity and transparency, the Board of Directors shall determine director candidates after consultation on the candidate plan with the Nomination Committee and considering opinions of the committee formed through its deliberation. In nominating directors who are members of the Audit and Supervisory Committee, the Board of Directors shall submit its candidate plan to the Nomination Committee and consider opinions of the committee formed through its deliberation. After receiving approval from the Audit and Supervisory Committee, candidates shall be decided upon by the Board of Directors.
Regarding the proposals for the appointment of each director, the reasons for the nomination of each director candidate shall be described in the reference material of the general meeting of shareholders.
In nominating executive officers, from the viewpoint of ensuring objectivity and transparency, the Board of Directors shall submit its candidate plan to the Nomination Committee and the committee forms its opinions through deliberation. Considering such opinions, the Board of Directors shall appoint executive officers.
In the event that directors or executive officers are deemed not to fulfill their duties adequately, from the viewpoint of ensuring objectivity and transparency, the Board of Directors shall submit its dismissal plan to the Nomination Committee and the committee forms its opinions through deliberation. Considering such opinions, the Board of Directors shall carry out its dismissal procedures.
5. Scope delegated to the management
As a company with an Audit and Supervisory Committee, the Company transfers authority for important business execution in part from the Board of Directors to establish an expeditious and effective business execution system, and aims to enhance the supervisory functions of directors towards business execution through the Board of Directors.
Specifically, the Company established the Group Executive Management Committee that consists of the representative director and executive officers, including executive directors under the Board of Directors which deliberates on important business matters exclusive of those exclusively resolved by the Board of Directors concerning the entire Dentsu Group and matters to be decided by the Board of Directors before deliberation by the Board of Directors.
Moreover the Company established the Dentsu Japan Network Board (established in virtual in-house company Dentsu Japan Network) to deliberate on important matters of Japan business and the Dentsu Aegis Network Board (DAN Board) to deliberate on important matters of the international business, thereby dividing the business execution system into Japan business sector and the international business sector, and each has responsibility for profit and authority delegated.
With regard to internal controls and risk management, the Company established the Internal Control and Risk Committee to enhance the effectiveness of internal controls and risk management across the entire group.
6. Role of outside directors
Of our twelve directors, four directors, which is one-third of all directors, or more shall be outside directors, of whom at least four members meet our standards of independence. In order to enhance corporate governance, the Company expects such outside directors to initiate discussion at Board of Directors meetings by raising questions and expressing opinions and to promote proper judgment by the Board of Directors by expressing opinions from their respective professional points of view. Outside directors will also have a role to verify and evaluate the business results and performance of the Company’s management in light of the corporate strategy decided by the Board of Directors and to express their opinions in light of shareholders’ interests as to whether delegation of authority to the management is appropriate.
The Independence Standards for Outside Directors decided by the Company are shown in the Schedule.
7. Members of the Audit and Supervisory Committee
In order to improve the effectiveness of auditing and monitoring by directors who are members of the Audit and Supervisory Committee and having voting rights at the Board of Directors, and to improve the effectiveness of internal controls through the audit departments, the Company has adopted a system of the audit and supervisory committee, which consists of five members (four outside directors).
Of the five directors who are members of the Audit and Supervisory Committee, all four outside directors will satisfy the independence standards formulated by the Company and are expected to fulfill a monitoring role on the Board of Directors with respect to business execution by making good use of each director’s extensive experience in his or her respective field.
Members of the audit and supervisory committee will also request reporting from the Company’s accounting auditor and the internal control section as necessary with respect to the process and results of their respective audits, and ensure communications among the relevant parties through exchanging necessary information. They may also request reporting from the internal control section concerning the status of establishment and operation of internal control.
Moreover, assistants of members of the Audit and Supervisory Committee and a secretariat for the same committee will be provided. The employees in charge of such offices will be ensured independence from directors (other than members of the Audit and Supervisory Committee).
8. Concurrent posts as officers at other listed companies
Directors may concurrently serve as directors, corporate auditors or officers of other listed companies only to the reasonable extent that they are able to devote their necessary time and effort to appropriately fulfill their roles and responsibilities as directors of the Company and after following necessary procedures and obtaining approval by the Board of Directors. Important concurrent posts will be disclosed in the reference material of the relevant general meeting of shareholders, in business reports under applicable laws and regulations.
9. Internal control
To promote expeditious business execution under proper control, the Board of Directors has provided a basic policy on the internal control system and established the Internal Control and Risk Committee, effective business execution, risk management, and securing the appropriateness of financial reports, and the Board of Directors monitors the status of operation of such systems.
10. Accounting auditor
In order to secure reliability of disclosure information and responsibility to shareholders and investors, the Company will ensure that the accounting auditor (i) will be given ample time to conduct a high-quality audit, (ii) may cooperate with the internal audit section and directors who are members of the Audit and Supervisory Committee, and (iii) may access the management, including the CEO and CFO.
11. Remuneration of directors and executive officers
The Company determined the following policies with regard to the compensation of senior management and directors.
- (ⅰ)With a globally competitive compensation structure and level
- (ⅱ)The compensation system shall be based on the results of management, in which fixed compensation and variable compensation (performance-linked compensation and share-linked compensation) shall be appropriately balanced.
- (ⅲ)The level of compensation is determined based on the level in the relevant region.
With regard to the remuneration system and level, the Company will determine appropriate remuneration system and level in accordance with objective and transparent procedures by comprehensively taking into account corporate value, enterprise size, and remuneration levels, etc., by referring to remuneration market research data from external specialist organizations.
The remuneration system for executive officers shall be established with the aim of clarifying the linkage between remuneration, business performance, and corporate value, and raising the awareness of our executive officers who contribute to the sustainable growth of the group and the enhancement of corporate value over the mid- to long-term.
The remuneration of each director shall be calculated based on the formula set forth in the executive compensation rules and the officers' share compensation rules approved by the Board of Directors and shall be determined each fiscal year in accordance with the following procedures.
The amount of remuneration of each director who is not a member of the Audit and Supervisory Committee (including that for the role of executive officers) will be determined by a resolution of the Board of Directors within the limit of remuneration to be approved at the ordinary general meeting of shareholders; and from the viewpoint of ensuring objectivity and transparency, such decision will be made after consulting with the Compensation Committee on compensation plan and considering the opinions of the Committee expressed for the Board of Directors and disclosing each remuneration to the Board of Directors.
The amount of remuneration of each director who is a member of the Audit and Supervisory Committee will be determined through deliberation among them within the limit of remuneration approved at the general meeting of shareholders.
To ensure objectivity and transparency, with regard to the amount of remuneration paid to executive officers, the Board of Directors shall determine a compensation plan after consultation on such plan with the Compensation Committee considering opinions of the committee formed through its deliberation.
12. Preparing and deciding the successor to the CEO
The CEO must be aware that preparing his successor is one of his important responsibilities. Thus, the CEO shall prepare his successor by (i) providing executive officers with a mission in accordance with their respective duties together with the business performance targets and (ii) letting the executive officers participate in the management of the Company through attending important meetings, including the Group Executive Management Committee. To ensure objectivity and transparency, the Board of Directors shall determine a successor candidate after consultation on the candidate plan with the Nomination Committee. Considering opinions of the committee formed through its deliberation and expressed for the Board of Directors, the Board of Directors shall determine the successor candidate.
13. Training policy of directors and executive officers
Directors and executive officers shall be given opportunities for gaining indispensable knowledge for their offices and for continuous training so that they may perform their roles and responsibilities appropriately.
Currently, when they become directors (excluding outside directors), the Company provides them with lectures conducted by inside and outside experts with respect to the Company’s strategies of management, business, finance and other applicable fields and important matters and laws and regulations related thereto, and enables them to acquire and update the knowledge required for their offices. They are also given opportunities through discussion to find issues to be addressed by the Company group and solutions thereto. Moreover, after becoming directors (excluding outside directors) or executive officers, they are given opportunities to hold study seminars regularly to gain the latest information as to the best practices for various megatrend issues.
When new outside directors assume their offices, they are provided with an explanation of the business, organization structure and other related matters of the Company, and the necessary information related to issues to be addressed by the Company shall be provided to them periodically.
The contents of lectures and other training matters will be reviewed as necessary.
14. Evaluating the Board of Directors
In order to continuously enhance the effectiveness of the Board of Directors, the Company conduct an annual questionnaire survey of all directors on the effectiveness and appropriateness of management supervision by the Board of Directors, and conduct analyses and evaluations by a third-party organization. The Board of Directors, after receiving reports from the Secretariat of the Board of Directors on the results, analyzes and evaluates the effectiveness of the Board of Directors as a whole.
An overview of such analysis and evaluation will be disclosed in the Corporate Governance Report.
Chapter 6 Dialogue with Shareholders
1. Policy on dialogue with shareholders
The Company is working on enhancing its mid- to long-term corporate value by disclosing various information, such as management strategy, financial information and non-financial information to shareholders and investors in a timely and proper manner and continuously engaging in constructive dialogue with shareholders and investors through IR activities.
More specifically, mainly the CEO, CFO and officers in charge of disclosure carry out various activities, such as regular meetings with analysts and institutional investors, roadshows both within and outside of Japan to visit investors individually, and sufficient information disclosure on the Company’s website. The Company established the Group IR Office as a special section so that such activities may effectively function, and the Group IR Office closely cooperates with the Group CEO Office, Group Financial Reporting Office, Group Corporate Secretary Office and other relevant sections.
Opinions and requests obtained through IR and other activities are reported to the Group Executive Management Committee or the Board of Directors and utilized in the discussions for enhancement of corporate value.
The Company has established the Information Management Committee to appropriately control insider information and provides a “silent period” during which the Company must withhold dispatching information with respect to financial results.
The Company also conducts a survey of its beneficial shareholders periodically and attempts to grasp the share ownership structure.
2. Establishing and disclosing management strategies and plans
The Company determines and discloses its medium to long-term management policies that aim for sustainable growth based on our management philosophy, considering capital cost. In addition, the Company will analyze the progress each year and make flexible revisions including plans for the allocation of management resources such as new business investment, capital investment, and investment in human resource development, as necessary. We will explain these understandably at our financial results briefings and general meetings of shareholders.