Status of Corporate Governance
Based upon our management philosophy mandating "respect for humanity," "contributions to local communities," and "efficient management," the HEPCO Group recognizes that we cannot develop unless there the community enjoys sustained development, and we will make sure that we fulfill our responsibility as a member of society and provide electric power and services, and endeavor to achieve sustainable growth and enhance corporate value.
In order to promote such efforts for increasing corporate value, we will actively strive to implement the following basic policies based on our fundamental belief that it is essential that we work to enhance corporate governance that supports transparent, fair, quick and decisive decision-making.
Appropriate cooperation with shareholders
HEPCO believes that it is efficient to have a system where management and business execution are integrated and has accordingly adopted a structure in which there is both a Board of Directors and Audit & Supervisory Board Members. Moreover, we have set up a system of operating officers to strengthen decision-making and supervision performed by directors as well as to expedite and make business execution more efficient.
In principle, the board of directors holds monthly meetings to make decisions on execute important operations, where it also receives reports on the status of operation being undertaken from members of the board, who supervise the performance of each other's duties. Also, in principle, the Management and Operations Committee, which is comprised of President & Director (CEO), Member of the Board, Executive Vice President and Director & Member of the Board, Executive Officer etc.meets weekly to consider policies and plans pertaining to HEPCO Group management overall as well as important matters relating to business execution. In addition, committees have been established to deliberate and coordinate the direction of the entire company and other matters relating to key management issues, such as compliance and risk management.
The Articles of Incorporation stipulate specific provisions including that there are up to 15 directors, that the voting rights for electing these directors are exercised at the shareholders' meeting by a majority of voting rights of attending shareholders where shareholders holding one-third or more of the voting rights of all voting shareholders are in attendance, and that cumulative voting shall not be accepted for such resolutions.
The Articles of Incorporation also stipulate that the company may acquire its own shares upon a resolution of the Board of Directors pursuant to Article 165.2 of the Companies Act, in order to implement an agile capital policy in response to changes in the business environment.
So that directors and Audit & Supervisory Board Members are able to fully perform their expected roles in the fulfillment of their duties, the Articles of Incorporation provides, pursuant to Article 426.1 of the Companies Act, that directors (including former directors) and Audit & Supervisory Board Members (including former Audit & Supervisory Board Members) may be exempted by liability upon a resolution of the Board of Directors to the extent provided in laws and regulations as specified in Article 423.1 of the Companies Act.
To enable the return of profits to shareholders in a agile manner, the Articles of Incorporation stipulate the Board of Directors to pass a resolution providing an interim dividend in accordance with Article 454.5 of the Companies Act to shareholders andregistered pledgees recorded on the shareholder register as of September 30 each year.
To ensure that general meeting of shareholders proceed smoothly, the Articles of Incorporation prescribes that resolutions specified in Article 309.2 of the Companies Act shall be made by two-thirds or more of the votes of the shareholders present at a meeting where shareholders holding one-third or more of the votes of the shareholders who are entitled to exercise their votes are present.
HEPCO has established the "Basic Policy on Internal Control System to Ensure Business Appropriateness," and we set and operate our internal control system in accordance with this basic policy.
Regarding systems ensuring the appropriateness of operations within the HEPCO Group, HEPCO Group companies share policies on compliance and other matters, and we execute our business operations in close cooperation using reports and other communications in accordance with group management policies and group management codes.
In our management policies and other aspects of the management cycle, we manage risks by, among other efforts, systematically ascertaining risks, formulating response strategies, and verifying their implementation.
Under the auspices of the the Corporate-Ethics Committee chaired by the president, HEPCO works to ensure thorough compliance with the "the HEPCO Group CSR Behavior Charter" and "the Compliance Action Guidelines" by providing education and training for employees in addition to other efforts. We promote company-wide activities aimed at ensuring observance of laws, regulations, corporate ethics and other standards and preventing violations of these in our business activities.
So that legal assessments are available for reference in executing our operations, we have a system in place that allows for advice and other consultations to be provided as appropriate by our corporate attorneys as well as other attorneys well-versed in the law.
[Relationship of HEPCO Institutions, Internal Controls, etc.]
Internal Audits and Audit & Supervisory Board Members' Audits
In accordance with the audit policy and other guidelines specified by the Audit & Supervisory Board Members, the Audit & Supervisory Board Members (of the five, three are outside Audit & Supervisory Board Members) audit directors' execution of their duties by attending meetings of the Board of Directors and other important meetings, questioning directors and others about the status of the execution of their duties, perusing important decisions and other documentation, examining operations and assets, and other methods. Of the five Audit & Supervisory Board members, Noriko Narita is a qualified attorney and Fumiyo Fujii has lengthy banking experience. Each also has abundant knowledge about finance and accounting. In addition, a full-time staff (8 personnel) has been assigned to support the Audit & Supervisory Board members in conducting their audits.
A full-time staff (18 personnel) has been assigned to the internal audit divisions, and a framework is in place for conducting internal audits on the efficiency, appropriateness and other aspects of operation execution as well as for evaluating internal controls relating to financial reporting. The internal audit divisions include internal audits of HEPCO Group companies, the results of which as well as other developments are reported to the President and the Audit & Supervisory Board members.
The effectiveness of audits conducted by the internal audit divisions, Audit & Supervisory Board, and accounting auditors has been strengthened by sharing information regarding audit plans, results and other aspects.
Outside Directors and Outside Audit & Supervisory Board members
To augment our corporate governance, HEPCO has arranged for more than half of the members of the Board of Audit & Supervisory Board members to hail from outside the company so that we may obtain an objective third-party perspective on the appropriateness of operation execution. Two outside directors have been appointed who are not engaged in any executive activity as we strive to ensure the effectiveness of the Board of Directors' oversight of management from an independent and objective standpoint.
Outside directors provide objective and multi-faceted opinions and advice in sessions of the Board of Directors and other forums, and outside Audit & Supervisory Board members exchange opinions with the representative director, Audit & Supervisory Board members as well as the Board of Directors during periodic meetings.
Outside Director Shigeki Ichikawa brings with him a wealth of experience as an attorney-at-law. Outside Director Mitsuko Ukai has had a wealth of experience and wide-ranging insight as an academic. Both have both been appointed with the expectation that they will apply their unique experiences and abilities for the benefit of HEPCO's management.
Outside Audit & Supervisory Board members are expected to assume an even broader vantage point when auditing HEPCO's businesses. Accordingly, Jun Hasegawa was elected because of his wealth of experience and wide-ranging insight as an academic, Noriko Narita on account of her wealth of experience and broad insight as an attorney-at-law as well as abundant knowledge in finance and accounting, and Fumiyo Fujii as a consequence of his wealth of experience and broad insight as an officer as well as abundant knowledge in finance and accounting.
Until June 27, 2017, Mr. Fumiyo Fujii is a Managing Director of North Pacific Bank, Ltd., in which the Company holds shares. North Pacific Bank, Ltd. is a shareholder of the Company, and there are transactions, such as the borrowing of funds, between the Company and North Pacific Bank, Ltd. In addition, one of our former directors has taken up a position as an outside Audit & Supervisory Board members at North Pacific Bank, Ltd.
In addition, Outside Director Shigeki Ichikawa as well as Outside Audit & Supervisory Board members Jun Hasegawa and Fumiyo Fujii own shares in HEPCO.
The two outside directors and three outside Audit & Supervisory Board members do not have any other particular personal, capital, or business intersts with HEPCO.
It has been determined that business transactions, contributions in annual amounts of less than ¥1 million, and electricity supply contracts do not entail a risk that the independence of a director or Audit & Supervisory Board members may be affected, and such corresponding notations have been omitted.
HEPCO has not established our own standards or policies regarding independence from the company in order to be elected as an outside director or outside Audit & Supervisory Board members. Nevertheless, we fully review each candidate's character, knowledge, capabilities and other qualities on the principle that requirements for an independent corporate officer based on the provisions prescribed by the Companies Act Article 2 (15) and (16), Tokyo Stock exchange, and Sapporo Securites Exchange will be met with regard to the person's election, and submit qualified candidates to the shareholders meeting.