Governance

Basic views on corporate governance

Our corporate philosophy since foundation is "Create unique solutions. Create new value." We are striving to increase our enterprise value in the mid to long term by establishing a solid relationship with customers globally and continuously developing advanced products that contribute to the progress of society. We recognize that the efforts to enhance corporate governance are essential to meet the expectations of shareholders and all other stakeholders since higher transparency, soundness, and efficiency in management will help us achieve more competitive edge and, ultimately, sustainable growth.

1. Corporate Governance Structure

(a) Reason why we have the corporate governance structure described in (b) below

Because of the scale of business and the number of employees we have and because of the track record of successful audits by Audit & Supervisory Board Members, we have chosen to retain the structure of a company with an audit & supervisory board. Based on the basic philosophy on corporate governance, we have taken measures to enhance transparency and sound management. For example, we have appointed Outside Directors to the Board of Directors in addition to having Outside Members on the Audit & Supervisory Board. We have also adopted the corporate governance structure described below in accordance with our basic policy on the establishment of internal control system.

(b) Corporate governance structure

Corporate Governance Structure Diagram

Corporate Governance Structure Diagram

Directors, Board of Directors and other executive bodies

Our Board of Directors is currently comprised of 9 Directors (the maximum number of Directors allowed by the Articles of Incorporation is 15) including 4 Outside Directors. The Board of Directors performs the duties set forth by laws and regulations and by the Articles of Incorporation, resolves on the matters of importance for the Company, such as the adoption of business plans, and supervises each Director's execution of duties. The term of the office of Director is 1 year.

A regular meeting of the Board of Directors is held once a month. If necessary, a special meeting may be held to discuss and resolve on the matters of importance.

As an advisory body for the President that discusses the matters of importance concerning the execution of duties, we have put in place an institution called Management Meeting, which convenes once a month. The purpose of Management Meeting is to assist proper decision making and to build a consensus on the execution of duties. The right of Audit & Supervisory Board Members to attend Management Meeting and state opinions is guaranteed under the rules of Management Meeting so that there is no lack of supervision over management decisions.

As of July 1, 2021, we revised our compensation scheme for Directors in accordance with the Board of Directors resolution dated June 28, 2021. The Compensation Committee was renamed the Nomination and Compensation Committee and given expanded functions due to this revision. As a nomination committee, the Committee is tasked to propose the removal of individual Directors and to examine the evaluation process of individual Directors. In the future, we will discuss whether it should be given advisory authority about the nomination of Directors to enhance its functions. As a compensation committee, it is tasked to check our compensation calculation process for Directors. The Committee members consist of all 4 Outside Directors, Chairman of the Board, and the President. The chair of the Committee is selected from the Outside Directors.

Audit & Supervisory Board and its members

The Audit & Supervisory Board is currently comprised of 3 Members (the maximum number of Audit & Supervisory Board Members allowed by the Articles of Incorporation is 4) including 2 Outside Members. In addition to its duties under law and the Articles of Incorporation of the Company, the Audit & Supervisory Board is responsible for establishing its audit policy, audit plans and audit procedures, for reporting the status of audit by each member, and for forming an opinion from the result of audit. A regular meeting is held once a month and a special meeting may be held as necessary. At the request of Audit & Supervisory Board Members, we have appointed an assistant for the Audit & Supervisory Board.

Limited liability agreement

In compliance with Article 427 Paragraph 1 of the Companies Act of Japan and the Articles of Incorporation, the Company has entered into a liability limiting agreement with each Outside Director and with each Outside Audit & Supervisory Board Member to limit their liability for damages under Article 423 Paragraph 1 of the Companies Act. In this agreement, the limit of liability is set at the minimum amount required by law for Outside Directors and Outside Audit & Supervisory Board Members who perform duties in good faith and without gross negligence.

(c) Basic policy on the establishment of internal control system

I. Internal control system that ensures proper conduct of business

Pursuant to the Companies Act of Japan and the Ordinance for Enforcement of Companies Act, we establish internal controls to ensure that the execution of duties by Directors complies with laws, regulations and the Articles of Incorporation.

1. Internal controls to ensure that the execution of duties by Directors and employees complies with laws, regulations and the Articles of Incorporation
  1. 1The Board of Directors discusses matters of importance regarding the Company's management at its monthly meetings and, if necessary, by holding special meetings in accordance with laws, regulations and the Articles of Incorporation.
  2. 2Audit & Supervisory Board Members and Outside Directors are guaranteed the right to attend Management Meeting, an advisory body for the President, and state opinions on items on the agenda under our Management Meeting rules.
  3. 3In addition to audits mandated by laws, Auditing Office conducts internal audits pursuant to our internal audit rules and reports its findings directly to the President. If the findings call for corrective actions, the President directs the manager of relevant department(s) to take the actions and report the result to him.
  4. 4Pursuant to our own compliance rules, we take the following measures for overall compliance management: designate a Director as executive officer in charge of compliance matters; clearly state our basic compliance policy; elucidate the basic obligations of Directors and employees upon their encounter with compliance issues; establish the principles and code of conduct Directors and employees should follow as a guideline of fair judgment and action when performing duties; establish systems that ensure organization-level compliance; and put in place a whistleblower protection system. We will make sure that these measures are implemented properly.
  5. 5We keep updating our internal controls on matters related directly or indirectly to accounting and financial reporting to prevent mistakes and misconduct that may jeopardize the integrity of our financial reports.
2. Internal controls for proper recordkeeping and information management concerning the execution of duties by Directors
  1. 1We keep proper records of decision making and reporting related to Directors' execution of duties by taking the minutes of the Board of Directors meetings and Management Meeting in accordance with our rules on these meetings and archiving them for a legally or internally mandated period. We keep records of other decision making by documenting them on our internal forms and archiving them for an internally mandated period.
  2. 2We prepare, maintain, store and dispose of business documents in accordance with our document administration rules. We keep documents in good order and make them available for review by Directors and Audit & Supervisory Board Members and for auditing by the Financial Auditor.
  3. 3We protect important information assets such as documents, digital records and information systems in accordance with our information security rules.
3. Internal controls to manage the risk of losses that may be incurred by Lasertec Corporation or by its subsidiaries
  1. 1At the time of business planning and budget making, we properly assess the risk of losses that may be incurred in operation. At monthly Board of Directors meetings and Management Meeting, we review the status of materialized risks and the extent of losses and discuss and decide on necessary actions. We invest financial resources properly in accordance with our accounting rules and report the status of investment to the Board of Directors regularly.
  2. 2We make a proper crisis response in the event of natural disaster, epidemic or any other case of force majeure causing losses of corporate assets or dangers to personnel by promptly forming a crisis response team headed by the President, gathering information on the extent of losses, and taking measures to contain and minimize losses in accordance with our crisis management rules.
4. Internal controls to ensure efficiency in the execution of duties by Directors
  1. 1We appoint Outside Directors to the Board of Directors to enhance the decision-making and oversight functions of the Board. At the same time, we give more responsibilities to Executive Directors to streamline our decision-making process so that we can respond quickly to changes in the business environment and achieve sustainable growth.
  2. 2We clearly define the scope of responsibility for each department in accordance with our rules concerning organization and the division of authority and duties. We also define responsibility and authority for each position in accordance with our executive authority and approval procedure rules to operate business efficiently and effectively.
5. Internal controls to ensure proper business operation of the Lasertec Group as a whole including subsidiaries
  1. 1We appoint a manager in charge of the oversight of subsidiary administration in accordance with our subsidiary administration rules. This oversight manager oversees subsidiary administration in cooperation with other relevant departments.
  2. 2The status of important matters listed in our subsidiary administration rules is reported to the Board of Directors regularly either by the subsidiary's representative officer or by an executive of the subsidiary designated by the oversight manager.
  3. 3The whistleblower protection system of the Company applies to all of its subsidiaries.
6. Matters concerning employees who are tasked to assist the execution of duties by the Audit & Supervisory Board Members, matters concerning their independence from Directors, and matters concerning insurance of effectiveness of instructions to them
  1. 1We provide an assistant to Audit & Supervisory Board Members in a timely manner upon receiving a request from them. Prior consent of the Audit & Supervisory Board is required for appointment, replacement and appraisal of the assistant.
  2. 2Audit & Supervisory Board Members are free to give audit-related instructions to the assistant. The assistant will not be obliged to follow the order of Directors that contradict the instructions of Audit & Supervisory Board Members.
7. Internal controls to safeguard the act of whistleblowing by Directors, officers and employees to Audit & Supervisory Board Members and to ensure that whistleblowers will not be treated unfavorably for their act
  1. 1If a Director, officer or employee of the Company or its subsidiaries find a matter where serious damage has been or may have been made to the Company or if he/she witnesses an illegal act or misconduct of a Director, officer or employee, he/she must report it to the Audit & Supervisory Board immediately.
  2. 2Audit & Supervisory Board Members attend Board of Directors meetings and other important meetings of the Company, including Management Meeting, to stay informed of decision-making processes and the status of operations related to important matters. They are authorized to review documents related to important management decisions and request a report from Directors, officers and employees on their execution of duties.
  3. 3The whistleblower protection provided in the Company's compliance management rules applies to the act of whistleblowing to Audit & Supervisory Board Members. No Director, officer or employee of the Company or its subsidiaries will be dismissed, have his/her employment contract terminated, or be treated unfavorably in any manner for his/her act of whistleblowing.
8. Matters concerning policy on advance payment or reimbursement of expenses for execution of duties by Audit & Supervisory Board Members and procedure for payment of expenses and debts from their execution of duties

The Company sets aside a budget for the execution of duties by Audit & Supervisory Board Members. When there is a request for payment, including advance payment, concerning expenses or debts incurred by Audit & Supervisory Board Members for their execution of duties, it will be paid in a timely manner.

9. Other internal controls to ensure effective auditing by Audit & Supervisory Board Members
  1. 1Audit & Supervisory Board Members meet with Representative Directors regularly to exchange opinions and maintain proper communication to perform audits effectively.
  2. 2Audit & Supervisory Board Members coordinate with Financial Auditor and Auditing Office and maintain proper communication to perform audits effectively.

II. Basic principles for exclusion of anti-social forces and establishment of internal controls for this purpose

We have adopted the following basic principles for the exclusion of anti-social forces and established internal controls for this purpose to ensure proper business conduct:

  1. 1We are resolved to have no relationship with any anti-social forces that pose a threat to the safety and order of society. Our Directors and employees are prohibited from making use of, paying, supporting, aiding or having a relationship of any kind with such forces and with individuals and groups associated with such forces.
  2. 2General Affairs Department is tasked to handle the matter related to anti-social forces and take necessary actions with assistance from attorneys and police.
    1. (1)In case we are approached by an anti-social force, we will contact the police and other authorities immediately. We will stand firmly against their demand, respond as an organization, and act lawfully.
    2. (2)We are and will be a member of the league of corporate defense against anti-social forces to keep us informed of the current situation and ready to respond to an unexpected encounter.

2. Status of Internal Audit and Audit by Audit & Supervisory Board Members

Status of audit by Audit & Supervisory Board Members

The Audit & Supervisory Board is currently comprised of 3 Members (the maximum number of Audit & Supervisory Board Members allowed by the Articles of Incorporation is 4) including 2 Outside Members. In addition to its duties under law and the Articles of Incorporation of the Company, the Audit & Supervisory Board is responsible for establishing its audit policy, audit plans and audit procedures, for reporting the status of audit by each member, and for forming an opinion from the result of audit. A regular meeting is held once a month and a special meeting may be held as necessary.

Audit & Supervisory Board Members are engaged in fair and strict audits while gathering information and promoting a good audit environment through communication with Directors and Auditing Office, an office responsible for internal audits, in accordance with audit policy, audit plan and other decisions by the Audit & Supervisory Board. For example, they attend the Board of Directors meeting and Management Meeting, actively participate in other meetings, hear briefings on the status of execution of duties by Directors and others, review documents of important decision making and others, examine the status of business operation and assets, and conduct the oversight and review of the internal control system.

Audit & Supervisory Board Members receive an annual audit plan from the Financial Auditor at the beginning of each fiscal year and have regular meetings with the Financial Auditor to exchange opinions. They also receive briefings on the results of quarterly and year-end financial audits and actively exchange opinions and information to conduct effective audits. At the request of Audit & Supervisory Board Members, we have appointed an assistant for the Audit & Supervisory Board.

Status of internal audit

Auditing Office is engaged in internal audits on the Company's day-to-day operation based on its own annual audit plan in accordance with the Company's internal audit rules and reports its findings directly to the President. It is working closely with the Audit & Supervisory Board to make its internal audits effective in identifying issues and proposing corrective actions. Auditing Office exchanges opinions with Audit & Supervisory Board Members regularly to keep them informed of the results of internal audits.

Corporate Governance Report