Principle 1.4 Cross-Shareholdings
(1) Policy on cross-shareholdings
Regarding cross-shareholdings, it is the Company's policy to hold shares deemed to help raise the corporate value of the Group in the medium- to long-term, in overall consideration of business strategy and relationships, based on the policy of carefully selecting the minimum cross-shareholdings necessary. The policy on exercising voting rights related to strategically held shares is to decide whether to use such rights based on the criteria of whether this will help raise the medium-to long-term corporate value of the Company and the entity whose shares are held.
(2) Cross-shareholding verification details
The Company also verifies the appropriateness of continuing to hold any particular shares once a year in a Board of Directors meeting based on the above policy. The shares to be held, the number of the shares, the purpose and effect of shareholdings, etc. are disclosed in the Company’s securities report.
(3) Criteria for exercising cross-shareholding voting rights
The policy on exercising voting rights related to strategically held shares is based on the decision of whether exercising such rights will enhance the medium- to long-term corporate value of the Company and the entity whose shares are held.
Principle 1.7 Related Party Transactions
In case transactions are to be carried out with related parties, deliberation and decision by the Board of Directors are required, and directors having a conflict of interest are prohibited from exercising voting rights on the matter. Moreover, all directors, Corporate Auditors, and Executive Officers are periodically required to confirm in writing whether or not they have transactions with related parties.
Supplementary Principle 2.4.1 Ensuring Diversity in the Promotion of Key Personnel
The Company positions “Respect for the Individual" at the forefront of its management principles, and has established an environment, including policies and systems related to human capital, that respects the rights of each employee with an aim to be a Company where individuals can pursue a meaningful and cultural life; a Company that believes in the ambition of each individual and supports their independent activities; a Company that creates an environment where employees can maximize their capabilities through work; and a company that rewards abilities and performance.
<Approach to ensuring diversity, measurable goals, and status of progress>
The Company aims to create a work environment in which all employees, regardless of gender, nationality, and age, whether new graduates, mid-career hires, or people with disabilities, can demonstrate their abilities and play active roles. We set targets for the number of female managers, female directors, and non-Japanese employees, and are working to ensure a diverse workforce.
(1) Promotion of woman to management positions
With regard to hiring women, the Company promotes the hiring of new female graduates, and in mid-career hiring, we are proactively hiring women and promoting them to management positions. The target for the number of female managers is five on a non-consolidated basis, and as of March 31, 2023, there were two female managers. As for the promotion of women to management positions, the percentage of potential candidates among all employees is small at this time, and we will continue to expand the candidate pool by strengthening support for career development and recruitment. At the Ordinary General Meeting of Shareholders held on June 21, 2023, a resolution was approved to appoint one female outside director, who assumed her position on July 1, 2023. Two female Executive Officers were also appointed on July 14, 2023. Further, one female director has been appointed at a subsidiary of the Company.
(2) Promotion of foreign nationals to management positions
To retain human resources who share our management principles and possess abilities required by the Group, the Company makes no distinction between Japanese and foreign national employees when recruiting new graduates and mid-career hires with an aim to create a diverse organization. The Company has long promoted foreign nationals to management positions based on their abilities without regard for nationality or other factors. As of March 31, 2023, foreign nationals accounted for only 1.2% (six people) of our workforce on a non-consolidated basis, most of whom are new graduates. We have not set targets for the ratio of foreign national employees in management positions or the number of management positions. We will first give priority to retaining foreign national, then consider targets for the number of managers at a later stage.
(3) Promotion of mid-career hires to management positions
To retain human resources who share our management principles and have the abilities required by the Group, we proactively recruit mid-career hires with various experiences, skills, and qualifications who are expected to achieve immediate results, in addition to the regular hiring of new graduates with an aim to create a diverse organization. The Company has long promoted new graduates and mid-career hires without distinction to management positions, and based on their abilities. Since the ratio of mid-career hires and the number of management positions is sufficient, no specific targets have been set.
As of March 31, 2023, mid-career hires in management positions or higher were as follows.
・Percentage of mid-career hires in management positions: 61.8%
・Percentage of mid-career hires in Executive Officer positions (excluding those concurrently serving as directors): 87.5%
<Summary and status of human resource development and internal environment improvement policies in order to ensure diversity>
(1) Human resource development policy
The basic policy is to develop human resources capable of realizing Company management principles, and the Company strategically develops human resources based on human resource development policy, which is divided into the following three phases.
Phase I Education and training: Through adherence to the basics of the type of employee the Company seeks.
Phase II Practical application: Support individual efforts as employees improve their competencies and establish their expertise, primarily through practical work. Also, nurture future Executive candidates.
Phase III Demonstrate expertise: Leverage abilities and experience in management and specialized skills and techniques accumulated up to now and contribute to division operations and younger employee development (nurturing role).
(2) Internal environment improvement policy
To create an organization in which each individual is motivated to play an active role, the Company strives to create a workplace environment in which a diverse range of employees can play an active role. Main initiatives are as follows.
▸Human resource system
The Company’s human resource system is based on the idea that improving employee abilities and motivation to work will enable it to achieve its management vision and goals.
A variety of other systems are also in place, including job rotation for the purpose of developing skills, a self-reporting system enabling employees to report directly to the director in charge of human resources regarding their future career path and desired skills development, as well as a childcare and nursing care leave systems that can be used regardless of employment status. Specifically, to strengthen support aimed at balancing work and childcare, we strive to create a comfortable work environment through various systems offering employees engaged in childbirth and childcare paid days off, leaves of absence, a system supporting the return to work, shorter working hours, and telework options. Further, the Company proactively promotes the use of the childcare leave system for male employees. In the fiscal year ended March 31, 2023, utilization rate of male employee childcare leave system was 56.3% on a non-consolidated basis.
▸Skill development system
Regarding skill development, the Company formulates systematic, medium- to long-term human resource development plans and have established a system that enables employees to effectively and continuously improve and develop the skills required of them.
Skill development training includes the following: mandatory level-based training for employees in all positions that enable them to demonstrate the capabilities required for their position; basic training necessary for job performance and career development; area of expertise training aimed at increasing specialization in work activities and the acquisition of specialized skills necessary for career development; and, in light of more sophisticated economic environments, technological standards, and the advance of globalization, the Company provides special training programs supporting employee acquisition of MBA, MOT, and other degrees from universities and other institutions of higher learning in Japan and overseas, as well as training at overseas affiliates and language study through AEI programs at overseas universities to further enhance skills through self-development.
▸Health management promotion
The company regards employee health as an important management resource and promotes health and safety and health management initiatives. Specific initiatives are as follows.
・Conduct periodic physical exams, stress checks and other efforts aimed at preventing employee physical and mental health issues
・Established division specializing in health promotion and provide detailed health consultation and guidance using in-house nurses
・Established contact points within and outside the Company for reporting and consultations pertaining to harassment and other issues
・Provision of telework environments, etc.
Principle 2.6 Roles of Corporate Pension Funds as Asset Owners
The Company has both defined-benefit and defined-contribution pension plans. With respect to asset management (including selection of investee, exercise of voting rights, etc.) for the covenant-type defined-benefit pension plan, the Company formulates the basic investment policy, selects asset management institutions that are expected to appropriately fulfill their fiduciary responsibilities, including stewardship activities, and entrusts the management of the assets to these institutions. In addition, the department in charge of the asset management of the Company requests regular reports from the relevant asset management institutions and verifies their investment performance and systems.
With respect to the defined-contribution pension plan, the Company provides eligible officers and employees with educational opportunities related to asset management institutions and investment products as appropriate.
Principle 3.1 Full Disclosure
(1) Management principles, business strategies, and mid-term plans
The Company defines management principles, strategies, and mid-term business plans and discloses these on the company website.
Management principles (https://www.hds.co.jp/english/company/idea/)
Business strategies and mid-term business plan (https://www.hds.co.jp/english/ir/management_policy/strategy/)
(2) Basic views on corporate governance
These are described in “Basic views on corporate governance, capital structure, corporate profile and other basic information 1. Basic views” of this report.
(3) policies and procedures for determining remuneration of directors
These are described in “Disclosure of policy on determining remuneration amounts and the calculation methods thereof” under “Director remuneration” in “Management organization and other corporate governance systems regarding decision-making, execution and management oversight 1. Matters concerning the organizational structure and operation” of this report.
(4) Policies and procedures for nominating directors and Corporate Auditors
When newly appointing or reappointing directors, the Representative Director nominates candidates based on an overall assessment of their knowledge, experience, skills, and expertise, following discussions with outside directors. Thereafter, the Board of Directors resolves the proposal referred to the General Meeting of Shareholders.
In appointing Corporate Auditors, recommendations are made by the Board of Directors, then their appointment is discussed and agreed to by the Board of Corporate Auditors, and the appointment is referred to the General Meeting of Shareholders for approval.
In appointing outside directors and outside Corporate Auditors, an overall assessment is made of the personal, equity, and business relationships of the Company with the candidates themselves and with their affiliated company or organization, and candidates are nominated when it is considered that they can fulfill their required functions and roles from an independent standpoint.
(5)Explanation of nomination and appointment of candidates for directors and Board of Corporate Auditors
When candidates for directors and Board of Corporate Auditors are submitted for discussion at the General Meeting of Shareholders, the Company provides a summary of their career history and decision-making materials that include achievements and experience. The Company also discloses the reasons for appointment and the expertise required by the Company in the form of a skills matrix included in the reference documents.
(6) Policies and procedures for the dismissal of senior management
In the event that a member of the Company's senior management commits an act that violates or may violate laws and regulations or the Articles of Incorporation, or if any other event occurs that makes it difficult for a member of the Company's senior management to perform his/her duties properly, the matter will be decided at the Board of Directors after the reasons for the dismissal are discussed and recognized in a timely manner, including for cases where the dismissal is proposed by an outside director.
Supplementary Principle 3.1.3 Sustainability Initiatives
<Sustainability initiatives>
Recognizing the importance of the sustainability initiatives, the Company established the Sustainability Committee on April 1, 2023, as an organization to promote, oversee, and manage overall sustainability in order to strengthen and promote the Group's overall sustainability in a strategic manner. The Sustainability Committee consists of Executive Directors and is chaired by the President and Representative Director. The Committee is scheduled to meet quarterly, approximately four times a year.
In addition, in March 2022, the Company formulated a basic sustainability policy based on our management philosophy, and identified materiality and began promoting initiatives in current medium-term and annual management plans from May.
<Investments in human capital and intellectual property>
Details regarding investment in human capital and intellectual property are disclosed on the Company’s website(https://www.hds.co.jp/Portals/0/files/english/ir/management_policy/strategy/pdf/Presentation%20material.pdf) (Japanese only) as “promotion of sustainable management,” “human resource development,” and “research and development investment” in the formulation of the current mid-term business plan.
Information on human capital is also disclosed in the Sustainability section of the Company’s website (https://www.hds.co.jp/english/csr/) as employee, customer, and social initiatives, and in this report under Supplementary Principle 2.4.1: Ensuring Diversity in the Promotion of Key Personnel” in “Disclosure based on the principles of the corporate governance code“ in 1. Basic views, and in the Company’s securities report.
Regarding investments in intellectual property, the Company is proactively working on the rights and protection of intellectual property created through research and development and manufacturing, the details of which are disclosed on the Company’s website (https://www.hds.co.jp/english/development/intellectual_property/).
Supplementary Principle 4.1.1 Scope of Delegation to Management
The Company stipulates the matters to be decided by the Board of Directors in the Board of Directors Regulations and operates the Board of Directors in accordance with laws and regulations, the Articles of Incorporation, and the Board of Directors Regulations, while delegating specific business execution to the Executive Directors. In addition, the Company has adopted an Executive Officer system, under the direction of the President and Representative Director, who execute business operations in accordance with the decision-making authority stipulated in the Rules on Administrative Authority to enable prompt decision-making.
Principle 4.9 Independence standards and Qualifications for Independent Outside Directors
In appointing independent outside directors, an overall assessment is made following the determination of the applicability of each item of the independence standards set by the Tokyo Stock Exchange. The details are disclosed in the Independent Directors Notifications submitted to the TSE and in this report in “Matters concerning organizational structure and operation; Directors” under “Management organization and other corporate governance systems regarding decision-making, execution, and management oversight”.
In appointing candidates for independent outside directors, we also consider various perspectives, such as each candidate’s background, knowledge, personality, gender, and international experience and other factors, and select people who we expect will help bring new perspectives to the Board of Directors.
Supplementary Principle 4.11.1Views on the Balance, Diversity, and Scale of the Board of Directors as a Whole and Disclosure of Skills, Etc.
The Company’s Articles of Incorporation stipulate that the number of directors shall not exceed 15. Given that the Company is an internationally expanding technology and technical group, basic policy regarding the appointment of directors is to have the Board of Directors comprised of Executive Directors with specialist skills and knowledge relating to overall management, manufacturing, development, sales, finance and accounting, etc. and outside directors with abundant management experience in other companies and industries as well as in international fields. Skills matrix is disclosed in the Notice of the Annual General Meeting of Shareholders in June 2022. The information is also posted on the Company's website (https://www.hds.co.jp/ir/management_policy/governance/). All of the Company's five independent outside directors have management experience at other companies.
Supplementary Principle 4.11.2 Status of Concurrent Positions Held by Directors and Corporate Auditors
The status of concurrent positions held by directors and Corporate Auditors is disclosed in the Convocation Notice of the General Meeting of Shareholders, business report, securities report, etc. The Company allows a maximum of two concurrent positions, including one at the Company, which we believe is within a reasonable range.
Supplementary Principle 4.14.2 Training Policy for Directors and Corporate Auditors
To enable Directors and Corporate Auditors to obtain the knowledge and information necessary for fulfilling their roles, the Company provides opportunities to take outside training courses related to such matters as overall management and the Companies Act, to attend important conferences that will enhance their understanding of the business, to tour main facilities, and to visit subsidiaries, with the expenses in each case paid by the Company. We disclose the details on the company website(https://www.hds.co.jp/english/ir/management_policy/governance/).
Principle 5.1 Policy for Constructive Dialogue with Shareholders
We consider our shareholders and investors to be important stakeholders and believe that it is our responsibility as a listed company to establish and develop systems for promoting constructive dialogue. To that aim, we have appointed an Executive Officer in charge of investor relations, and the IR division works in close cooperation with other relevant departments and actively carries out activities within a reasonable scope. Specific activities include financial results briefings for institutional investors, company briefing sessions for individual investors, plant tours for shareholders, holding of small-group or individual meetings with institutional investors, and enhancing the content of the company website. Through these and other means, we seek to enhance communication with shareholders and investors. For more details, please refer to the “Status of IR-related activities” section of this report.
Measures to Achieve Management Style that is Conscious of Capital and Share Price
With regard to the cost of capital, the Company's cost of equity and WACC are calculated based on finance theory with the assistance of outside experts, and the actual results and trends of such figures are shared with the Board of Directors. In making capital investment and other decisions, the Company verifies the reasonableness of such decisions by performing economic feasibility calculations using hurdle rates that take into account the cost of capital described above.
Further, the Company is working to achieve the policies and management targets set forth in its current mid-term business plan (fiscal 2021–fiscal 2023) with the mission of “to contribute to technological innovation in society through motion control technology,” targeting an operating profit margin of 20% or higher for profitability, ROE of 10% or higher for efficiency, and a payout ratio of 30% or higher for shareholder returns. The mid-term business plan is discussed and approved by the Board of Directors, and progress is reported at a Board of Directors meeting held at the end of each fiscal year. The management team takes the initiative in reviewing, analyzing, and evaluating plans for the appropriate allocation of management resources.
The President and Representative Director and the CFO explain initiatives and progress at analyst briefings, with the materials and scripts used in these briefings posted on the Company’s website.
・Mid-term business plan: https://www.hds.co.jp/english/ir/management_policy/strategy/
・Results briefing materials: https://www.hds.co.jp/english/ir/event/accounts/
Status of Dialogues with Shareholders
The Company positions shareholders and investors as important stakeholders and maintains a policy of proactively responding to inquiries and meeting requests from shareholders and institutional investors, which are led by the President and Representative Director, the general manager of the corporate planning division, the Director and CFO, and the Executive Officer and General Manager of corporate planning and investor relations. Dialogues with shareholders and investors in fiscal year 2022 were as follows.
・Institutional investors: One-on-one IR meetings: 231; small meetings: 14 (attended by 292 investors); and participation in IR conferences: Four times (attended by 95 investors)
・Individual investors: Company briefings: Twice (attended by 440 individual investors)