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Significant differences from NYSE Corporate Governance Standards
Companies listed on the New York Stock Exchange, or the "NYSE" must comply with certain listing standards regarding corporate governance under the NYSE's Listed Company Manual, or the "NYSE Corporate Governance Standards". Listed companies that are foreign private issuers, such as us, however, are permitted, with certain exceptions, to follow home country practices in lieu of the NYSE Corporate Governance Standards. Our corporate governance practices, which comply with Japanese laws, regulations and stock exchange rules, and the NYSE Corporate Governance Standards followed by U.S. listed companies have the following significant differences:
Director Independence
A company listed on the NYSE must have a majority of directors that meet the independent requirements under Section 303A of the NYSE's Listed Company Manual. The Company Law (Law No.86, 2005) of Japan, or the "Company Law," does not require Japanese companies with boards of corporate auditors, such as us, to have a director who is independent as defined in the NYSE Corporate Governance Standards, on their boards of directors.
Audit Committee
A company listed on the NYSE must have an audit committee composed entirely of independent directors. We are generally exempted, with some exceptions, from this requirement by virtue of paragraph (c)(3) of Rule 10A-3 of the U.S. Securities Exchange Act of 1934 as amended.
Consistent with the requirements of the Company Law, our corporate auditors are elected by a resolution at a general meeting of shareholders. We currently have five corporate auditors, which exceeds the minimum of three corporate auditors required by the Company Law, who comprise our board of corporate auditors. Our board of corporate auditors has a statutory duty to monitor, review and report on the administration of our affairs and accounts for the benefit of our shareholders.
The Company Law requires that at least half of a company's corporate auditors be "outside auditors," which is defined as a corporate auditor who has not been a director, executive officer, manager or employee of the company or any of its subsidiaries at any time prior to his or her election. Four of our five current corporate auditors are outside corporate auditors.
Compensation, Nominating and Corporate Governance Committees
A company listed on the NYSE must have a compensation committee comprised entirely of independent directors. Under the Company Law, we and other Japanese companies with boards of corporate auditors, are not required to establish a compensation committee. The Company Law requires that the total amount of remuneration to be paid to all directors and the total amount of remuneration to be paid to all corporate auditors must be approved by a resolution of the general meeting of shareholders, unless their remuneration is provided for in the articles of incorporation. The distribution of remuneration among directors is broadly delegated to the board of directors, and distribution of remuneration among corporate auditors is determined by consultation among the corporate auditors.
A company listed on the NYSE must also have a nominating or corporate governance committee comprised entirely of independent directors. Under the Company Law, we and other Japanese companies with boards of corporate auditors are not required to establish a nominating or corporate governance committee.Pursuant to the Company Law, our board of directors nominates and submits a proposal for election of directors for shareholder approval. Our shareholders elect or dismiss directors by a simple majority of votes at a general meeting of shareholders. Our corporate auditors are also elected or dismissed at a general meeting of shareholders. A proposal by our board of directors to elect a corporate auditor needs the consent of our board of corporate auditors.
Corporate Governance Guidelines
A company listed on the NYSE must adopt and disclose corporate governance guidelines. Under the Financial Instruments and Exchange Law of Japan and applicable stock exchange rules, we are not required to adopt or disclose corporate governance guidelines. However, we are required to disclose policies and the present status of our corporate governance under the Financial Instruments and Exchange Law of Japan in respect of timely disclosure.
Shareholder Approval of Equity-Compensation Plans
A company listed on the NYSE must obtain shareholder approval for an equity compensation plan. Under the Company Law, a public company seeking to issue rights to acquire from the company shares of its stock at a prescribed price, or "stock acquisition rights," must obtain the approval of its board of directors.
Under the Company Law, if a company desires to adopt an equity-compensation plan in which stock acquisition rights are granted on specially favorable terms to the plan's recipients, then the company must obtain shareholder approval by a "special resolution" of a general meeting of shareholders, where the quorum is one-third of the total number of voting rights and the approval of at least two-thirds of the voting rights represented at the meeting is required.
Executive Sessions
A company listed on the NYSE must hold regularly scheduled executive sessions where participants are limited to non-management directors. Under the Company Law, Japanese corporations are not required to hold such executive sessions.
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