Corporate Governance
Basic Stance
In the business area in which we operate, used car distribution centering on the auto auction business, our group's management goal is "to increase corporate value" through continuous business expansion.
Clearly, it is natural that the increase in shareholder value is the most important issue as since we are an incorporated public company, but, as illustrated and exemplified by the six core elements of our corporate vision which are "the creation of a fair market", "achieving symbiosis with our members", "providing service to consumers", "delivering returns to our shareholders," "respecting our employees," and "making a contribution to the community", our corporate value is the result of fulfilling our responsibilities to all of these interested parties (stakeholders). As such we conduct the management of our operations on the basis of the recognition that "shareholder value" is realized through "corporate value".
In addition, since every company is a member of society, it is natural that it should comply with social norms in its business activities, and so it is essential to comply with and to fully satisfy the requirements of both the Basic Policy on Corporate Governance and of the Corporate Governance Code. By conducting thorough evaluations of our operations and by formulating an improvement plan for the next fiscal year at the final regular meetings of the Board of Directors held at the end of each business year, we make every effort to ensure high performance in terms of the quality of our accountability (duty to explain and account for our activities) and of highly transparent management, and to improve our corporate governance.
Corporate Governance System
Simplified Chart of Corporate Governance
| Main Items | Content |
|---|---|
| Form of Organizational Design | Company with Board of Auditors |
| Number of Directors (Female Directors) | 7 persons (2 person) |
| External Directors (Female Directors) | 3 persons (2 person) |
| Number of Corporate Auditors (Female Corporate Auditors) | 3 persons (-) |
| Outside Corporate Auditors (Female Corporate Auditors) | 3persons (-) |
| Number of Times Board Meetings Held (FY2022) | 9 times |
| (Average Attendance Rate of External Directors) | 100% |
| (Average Attendance Rate of External Corporate Auditors) | 100% |
| Term of Office of Directors | 1 year |
| Adoption of Executive Officer System | Adopted |
| Voluntary Committee of Board of Directors | Nomination and Compensation Committee |
| Audit Corporation | KPMG AZSA LLC |
Corporate Governance Flowchart
Organizational reforms
Skill matrix
The Board of Directors
The Board of Directors consists of seven Directors, including four Directors who are USS executive officers and three outside Directors, which is within the limit of 12 Directors specified in the Articles of Incorporation.
Director candidates and executive officers are selected from among individuals with the extensive experience, outstanding knowledge and professional expertise required by these positions. The Nomination and Compensation Committee, where a majority of the members are independent outside directors, first discusses these selections. The Board of Directors then makes the final selections while taking into consideration the conclusions of this committee.
The Board of Corporate Auditors
The Board of Corporate Auditors consists of three members (including three Outside Corporate Auditors), who attend the meetings of the Board of Directors and conduct surveys and audits of the Directors' execution of their duties and other business and asset-related considerations. Furthermore, the Board works in cooperation with the Internal Auditing Office, which conducts audits of each division and office (including at the Company's subsidiaries).
When nominating candidates for Corporate Auditor, persons with an abundance of experience, a significant degree of insight, and the high level of expertise appropriate for a Corporate Auditor of the Company are considered as candidates, with the final decision being made after obtaining the consent of the Board of Corporate Auditors.
Outside Directors and Corporate Auditors
The Company has appointed three Outside Directors to ensure management transparency and fairness. We consider all three Outside Directors to be Outside Executives in relation to whom there is no concern of any possibility of conflicts of interest arising with our ordinary shareholders, and have filed a report about their status as independent officers at the Financial Instruments Exchange on which the Company is listed. It is expected that, in relation to such independent directors, actions can be taken, such as stating such opinions as need to be taken into consideration at the decision phase etc. regarding execution of business by the Board of Directors etc. to safeguard the interests of our ordinary shareholders. Furthermore, the Company's three Corporate Auditors are Outside Corporate Auditors and have been reported as being independent officers because they all are possessed of a high degree of independence. These independent Corporate Auditors attend the meetings of the Board of Directors and conduct thorough investigations and audits of directors' execution of their duties and of other business operations and asset conditions.
Although there is no special provision stipulated in relation to the independence of the Company in its selecting Outside Directors and Outside Corporate Auditors, the Company is expected to maintain an objective and appropriate oversight or audit function and role, and one that is based on a wide range of experiences and professional insights, and so they have been appointed in accordance with the basic idea that there is no risk of any conflicts of interest arising with our ordinary shareholders.
Outside Directors and Outside Corporate Auditors regularly hold meetings to exchange information, share views among themselves, and work together. Furthermore, the Outside Corporate Auditors, the Internal Audit Department and the Accounting Auditors also exchange views and work together in a similar manner.
Reasons for Appointment of Officers and Status of Activities
| Category | Name | Reason for Appointment | Status of Activities in the FY2022 |
|---|---|---|---|
| Chairman and Representative Director, Chief Executive Officer | Yukihiro Ando | Following his election as a Director in July 1982, Mr. Yukihiro Ando was involved as a senior executive in the opening of new auto auction sites and the development of auto auction systems and was the Manager of the Nagoya Office. He became President and Representative Director in June 2006 and was named Chairman, Representative Director and Chief Executive Officer in June 2019. In this position, Mr. Ando has used strong leadership and decision-making backed by many years of experience and accomplishments to oversee large capital expenditures and M&A deals in order to achieve consistent medium to long-term growth of earnings and corporate value. | Meetings of the Board of Directors 9 out of 9 (100% attendance rate) Nomination and Compensation Committee 2 out of 2 (100% attendance rate) |
| President and Representative Director, Chief Operating Officer | Dai Seta | Mr. Dai Seta has outstanding knowledge and accomplishments concerning the operation of auction sites and was the Manager of the Auction Operations Department. He has also served as the president of consolidated subsidiaries, ARBIZ Co., Ltd. that operates a recycling business, and USS Support Service Co., Ltd. that operates a finance business.To utilize Mr. Seta's outstanding management skills, he was named President, Representative Director and Chief Operating Officer in June 2019. Since then, he has performed the roles of decision-making and supervising business operations very well. | Meetings of the Board of Directors 9 out of 9 (100% attendance rate) Nomination and Compensation Committee 2 out of 2 (100% attendance rate) |
| Executive Vice President | Masafumi Yamanaka | Mr. Masafumi Yamanaka has expertise in the fields of accounting and finance and acquired outstanding management skills as Manager of the Finance Department and was elected a Director in June 2004 to utilize these skills. Mr. Yamanaka is currently Executive Vice President and Manager of the Supervisory Office. He supervises all administrative operations and uses his thorough knowledge of USS business operations for management activities. In June 2020, Mr. Yamanaka was named president of Reproworld Co., Ltd., which buys and sells accident-damaged vehicles. | Meetings of the Board of Directors 9 out of 9 (100% attendance rate) |
| Junior Managing Director | Hiromitsu Ikeda | Mr. Hiromitsu Ikeda has experience with the opening of new auction sites and the development of auction systems. He has considerable knowledge and accomplishments involving these systems and he acquired outstanding management skills at the Nagoya Office. He was elected a director in June 2004 to utilize these skills. As a Director, Mr. Ikeda was Manager of the Systems Office, Manager of the Tohoku Auction Site, Manager of the Osaka and Kobe Auction Sites, Manager of the Shikoku Auction Site, Junior Managing Director of HAA Kobe which was a consolidated subsidiary, and Manager of Nagoya and R-Nagoya Auction Site. He is currently Junior Managing Director and Manager of the Auction Operations Department, where he oversees the entire auto auction business. Mr. Ikeda has outstanding knowledge of USS business operations and management skills. | Meetings of the Board of Directors 9 out of 9 (100% attendance rate) |
| Director | Nobuko Takagi | Ms. Nobuko Takagi is a certified public accountant who started her career performing auditing work at an auditing firm. She subsequently acquired experience at an M&A advisory firm and operating company involving the determination and implementation of M&A strategies. She is currently an independent management consultant where she provides advisory and other services for new business development for accomplishing long-term strategic goals, investment decisions and other matters. Since being elected as an Outside Director in June 2018, she has taken advantage of this knowledge in giving advice on various issues in management in general, and thereby contributed to the enhancement of corporate value. |
Meetings of the Board of Directors 9 out of 9 (100% attendance rate) Nomination and Compensation Committee 2 out of 2 (100% attendance rate) |
| Director | Shinji Honda | Mr. Shinji Honda has many years of experience and extensive knowledge concerning corporate management. At a company with global operations, he was involved as a manager and director with management and the oversight of management, group management, medium and long-term growth strategies, ESG/SDGs, corporate planning and overseas operations. After his election in June 2022 as an Outside Director, Mr. Honda has played an important role concerning the suitability of management decisions and the oversight of management. He used his extensive knowledge of corporate management and professional skills to provide extremely valuable advice and suggestions concerning the determination of business strategies and plans, the supervision of progress involving these strategies and plans, and other matters. |
Meetings of the Board of Directors 7 out of 7 (100% attendance rate) Nomination and Compensation Committee 2 out of 2 (100% attendance rate) |
| Director | Yoshiko Sasao | Ms. Yoshiko Sasao successfully revitalized a company by using her own personnel development system as a managing director of Tepco Partners and subsequently acquired corporate management experience as a representative director. She has knowledge and experience as a manager in many industries with particular expertise involving the empowerment of women, working style reforms, diversity and human resource development. After her election in June 2022 as an Outside Director, Ms. Sasao has played an important role concerning the suitability of management decisions and the oversight of management. She used her diverse experience and professional skills involving corporate management and human resources to provide extremely valuable advice and suggestions. |
Meetings of the Board of Directors 7 out of 7 (100% attendance rate) Nomination and Compensation Committee 2 out of 2 (100% attendance rate) |
| Corporate Auditor | Kenichi Goto | Mr. Goto has expertise concerning taxes and finance and experience working in key position at a government agency. Mr. Goto contributes comments as required, from his expertise as a tax accountant,at meetings of the Board of Directors and at the meetings of the Board of Corporate Auditors. | Meetings of the Board of Directors 9 out of 9 (100% attendance rate) Meetings of the Board of Corporate Auditors 10 out of 10 (100% attendance rate) |
| Corporate Auditor | Keiji Miyake | Mr. Miyake has many years of experience as a certified public accountant and expertise in the fields of finance and accounting. Mr. Miyake contributes comments as required, from his professional standpoint as a Certified Public Accountant, at the meetings of the Board of Directors and at the meetings of the Board of Corporate Auditors. | Meetings of the Board of Directors 9 out of 9 (100% attendance rate) Meetings of the Board of Corporate Auditors 10 out of 10 (100% attendance rate) |
| Corporate Auditor | Jun Ogawa | As an attorney for many years, Mr. Jun Ogawa has many years of experience as an attorney and an extensive knowledge of legal matters. Mr. Ogawa contributes comments as required, from his professional standpoint as a lawyer, at the meetings of the Board of Directors and at the meetings of the Board of Corporate Auditors. | Meetings of the Board of Directors 9 out of 9 (100% attendance rate) Meetings of the Board of Corporate Auditors 10 out of 10 (100% attendance rate) |
Significant Concurrent Posts
| Title | Full name | Significant Concurrent Positions |
|---|---|---|
| Director | Dai Seta | President and Representative Director of USS Support Service Co., Ltd. President and Representative Director of ARBIZ Co., Ltd. |
| Director | Masafumi Yamanaka | President and Representative Director of Reproworld Co., Ltd. |
| Director | Hiromitsu Ikeda | President and Representative Director of US Butsuryu Co., Ltd. |
| Outside Director | Nobuko Takagi | Representative Director, COEING AND COMPANY Inc. Representative, Nobuko Takagi Certified Public Accountants' Office Outside Director of SMS Co., Ltd. |
| Outside Director | Shinji Honda | Executive Director and Chief Operating Officer of CYBERDYNE, INC. President and Representative Director of CEJ Capital Co., Ltd. |
| Outside Director | Yoshiko Sasao | President and Representative Director of Career & Life Supporters, Inc. Outside Director of Sanki Service Corp. Outside Director of Hiramatsu Inc. |
Nomination and Compensation Committee
The Nomination and Compensation Committee is made up of five Directors, three of whom are Outside Directors. The Chairman, Representative Director, and Chief Executive Officer (CEO) acts as the chair of this committee. As an advisory body to the Board of Directors, the Nomination and Compensation Committee evaluates and gives the Board of Directors input on the appropriateness of the proposals below.
(1) Nominations of director candidates and the appointment of executive officers
(2) Policy for the remuneration of directors and executive officers
(3) The selection and dismissal of representative directors and directors who are also USS executives
(4) The termination of directors and executive officers
(5) Details of director succession plans
The Nomination and Compensation Committee also makes decisions on all Director and Executive Officer remuneration matters on an individual basis according to detailed compensation policies.
Evaluation of the Effectiveness of the Board of Directors
To evaluate the effectiveness of the Board of Directors, USS asks all directors and corporate auditors to complete questionnaires. The results of this survey are reported to the Board of Directors.
-
Evaluation process
Time:March 2023
Participants:All directors and corporate auditors (including outside directors and corporate auditors)
Method:Self-assessment using a questionnaire(1) All directors and corporate auditors complete a self-evaluation questionnaire
(2) Responses to the questionnaire are compiled and analyzed by the secretariat of the Board of Directors
(3) Results and issues are reported to the Board of Directors, which then discusses these subjects
-
Items evaluated
(1) Evaluation of the activities regarding major issues of the fiscal 2022
(2) Composition of the Board of Directors - Size and composition (diversity, professional knowledge)
(3) Operation of the Board of Directors - Frequency of meetings, length of discussions of agenda items, materials provided to directors
(4) Support for the Board of Directors - Training programs, information provided to outside directors and corporate auditors
(5) Discussions by directors - Topics to be discussed at the Board of Directors
(6) Board of Directors risk management - Risk management, activities concerning social and environmental problems
-
Summary of evaluation results
The use of this evaluation process confirmed that all questionnaire items are generally appropriate and that the Board of Directors is effective. The evaluation also showed that there were activities to deal with the two issues identified by the last year's evaluation and that improvements have been made.
(Major issues identified by the last fiscal year's questionnaire and subsequent actions)
(1) More thorough discussions at meetings of the Board of Directors about medium to long-term management strategies
The questionnaire showed that the Integrated Report provided adequate information about the determination of materiality and the value creation process. However, the evaluation revealed that there is still room for improvements in order to conduct more thorough discussions about medium and long-term business strategies.(2) The need to provide directors with opportunities for training about ESG, SDGs and sustainability and upgrade these training programs
Several external training services are used to provide opportunities for learning about ESG, SDGs and sustainability. There are primarily opportunities for participating in online seminars and in-person presentations. The Board of Directors discussed climate change and other ESG subjects seven times. As a result, the evaluation confirmed that improvements have been made. -
Upcoming activities
Based on the results of this effectiveness survey, the following actions will be used to further upgrade discussions at the Board of Directors and make the board more effective.
(Goals for the next fiscal year based on the results of this questionnaire)
(1) More thorough discussions by the Board of Directors about medium and long-term business strategies
(2) More thorough discussions about activities involving sustainability, particularly carbon neutrality and strengthening the Company's human resources
Voting by shareholders
When a resolution submitted by USS at a shareholders meeting passes with an approval percentage of less than 80%, the Board of Directors follows up by examining the reasons for opposition to the proposal and the causes of the large number of opposing votes. The directors then hold discussions to consider any actions that are needed.
At the shareholders meeting held on June 20, 2023, "Item 2 Election of seven (7) directors" was approved. There was no significant opposition to the election of any director.
Executive Remuneration
Remuneration in FY2022
| Executive Classification | Total Amount of Remuneration etc. (Million yen) | Breakdown (Million yen) | Number of Eligible Executives (Persons) | |||
|---|---|---|---|---|---|---|
| Basic Remuneration | Performance-linked remuneration | Performance-linked stock | Restricted stock | |||
| Directors (Excluding Outside Directors) | 404 | 272 | 58 | 36 | 36 | 4 |
| Auditors (Excluding Outside Corporate Auditors) | － | － | － | － | － | － |
| Outside Executive Officers | 30 | 30 | － | － | － | 8 |
- The above include 2 Directors who retired at the close of the 42nd Annual General Meeting of Shareholders on June 21, 2022.
- There are no directors who also are employees.
（1）Basic policy for remuneration of officers
USS will maintain a competitive level of remuneration for the purpose of attracting and retaining talented managers with the skills needed for the sustained growth of the USS Group and medium to long-term growth of corporate value.
In addition to receiving fixed remuneration, officers receive as performance-linked remuneration bonuses as a short-term incentive, performance-linked stock remuneration (performance share units) as a medium-term incentive, and restricted stock remuneration as a long-term incentive. The policy is to properly determine percentages of total remuneration for each of these remuneration categories with the aim of having these remuneration plans function as sound incentives for achieving sustained growth.
（2）Explanation of remuneration for officers
Based on the basic policy in the preceding section, USS plans to use the following remuneration plans for directors. A black circle indicates eligibility for each category of remuneration.
| Remuneration category | Eligibility | ||||
|---|---|---|---|---|---|
| Executive Officer Directors (Note 1) |
Outside Directors (Note 2) |
Corporate Auditors (Note 3) |
|||
| Fixed | Cash | Basic | ● | ● | ● |
| Variable | Bonus | ● | - | - | |
| Stock | Performance- linked stock |
● | - | - | |
| Restricted stock | ● | - | - | ||
- Executive officer directors are all directors other than outside directors and receive all four categories of remuneration as their remuneration as executive officer directors.
- Outside directors receive only basic remuneration for the purpose of ensuring that these directors supervise management with objectivity and independence.
- Remuneration for corporate auditors is decided by the mutual agreement of the corporate auditors. This composition is solely basic remuneration to ensure that corporate auditors perform audits of management with objectivity and independence.
Composition of remuneration for executive officer directors
| Remuneration category | Percentage |
|---|---|
| Basic | 60％ |
| Bonus | 20％ |
| Performance-linked stock | 10％ |
| Restricted stock | 10％ |
Note: Composition when the performance-based evaluation coefficient is all 100% for all KPIs.
（3）Basic remuneration
Basic remuneration is paid in fixed amounts every month and is based on the roles, responsibilities and other characteristics of each director's executive position at USS.
（4）Bonus
Bonuses are performance-linked remuneration that is paid in cash as a short-term incentive. The bonus for each fiscal year is linked to results of operations and calculated as follows.
The basic amount used to calculate bonuses (i) and bonus payment ratio (ii) are multiplied to obtain the bonus paid to each individual.
Bonus = Basic bonus calculation amount (i) x Bonus payment ratio (ii)
(i) Basic bonus calculation amount
This figure is determined by the Nominations and Remuneration Committee, where the majority of members are independent outside directors, which has been authorized by the board of directors to perform this task.
(ii) Bonus payment ratio
This ratio is calculated by using the sales evaluation coefficient, operating profit evaluation coefficient, net income evaluation coefficient (using profit attributable to owners of parent, same hereafter) and ROE evaluation coefficient, which are financial indicator evaluation coefficients (all using consolidated financial data, same hereafter), and applying the applicable weighting (20% for the sales coefficient, 40% for the operating profit coefficient, 20% for the net income coefficient and 20% for the ROE coefficient).
These financial indicator evaluation coefficients are between 0% and 200% depending on the degree to which performance targets for the applicable fiscal year were achieved. The initial forecast for the fiscal year is used as the targets for determining the sales, operating profit and net income coefficients. For the ROE coefficient, 15% is used because this is one of the medium-term targets of USS.
Bonus payment ratio =
Sales evaluation coefficient x 20% + Operating profit evaluation coefficient x 40%
+ Net income evaluation coefficient x 20% + ROE evaluation coefficient x 20%
(Financial indicators and evaluation coefficients in the bonus payment ratio)
| KPI | Basis for evaluation |
Weight | Achievement ratio | Evaluation coefficient |
||
|---|---|---|---|---|---|---|
| Financial indicators |
Sales | Degree of achievement of target |
20% | Minimum | 50% | 0% |
| Target | 100% | 100% | ||||
| Maximum | 150% | 200% | ||||
| Operating profit |
Same | 40% | Minimum | 50% | 0% | |
| Target | 100% | 100% | ||||
| Maximum | 150% | 200% | ||||
| Net income |
Same | 20% | Minimum | 50% | 0% | |
| Target | 100% | 100% | ||||
| Maximum | 150% | 200% | ||||
| ROE | Same | 20% | Minimum | Below 11% | 0% | |
| Target | 15% | 100% | ||||
| Maximum | 20%+ | 200% | ||||
（5）Performance-linked stock remuneration
The purpose of this stock remuneration is to increase the medium-term incentive for executive officer directors to achieve the consistent growth of USS's corporate value. This remuneration accomplishes this by further clarifying the link between each director's remuneration and results of operation and the value of USS stock. For the period beginning after an annual shareholders meeting and ending with the annual shareholders meeting in the following year, this remuneration distributes to eligible directors a number of shares of USS common stock based on the degree to which performance targets have been achieved for the applicable period of three consecutive fiscal year. Shares are distributed at the end of this three-year period.
The number of shares of USS common stock an eligible director receives is calculated by multiplying the number of stock units (i) and the stock distribution ratio (ii).
Shares distributed = Number of stock units (i) x Stock distribution ratio (ii)
(i) Number of stock units
This number is calculated by dividing the standard amount of performance-linked stock remuneration (a) for each executive officer director by the stock price for the stock unit formula (b).
| Number of stock units |
= | Standard amount of performance-linked stock remuneration for individual directors (a) |
| Stock price for stock unit formula (b) |
(a) Standard amount of performance-linked stock remuneration for individual directors
The standard amount for each director is determined by the Nominations and Remuneration Committee, where the majority of members are independent outside directors, as authorized by the board of directors.
(b) Stock price for stock unit formula
The stock price in this formula is the higher of the closing price of USS stock on the final day of the fiscal year prior to the first fiscal year of the applicable three-year performance evaluation period (or the most recent prior closing price if USS stock was not traded on that day) or the average stock price for the entire fiscal year prior to the first fiscal year of the applicable evaluation period.
(ii) Stock distribution ratio
This ratio is calculated by using the TSR* evaluation coefficient and ROE evaluation coefficient, which are financial coefficients, with the applicable weighting (50% for TSR evaluation coefficient and 50% for ROE evaluation coefficient) and then making an adjustment to reflect the ESG evaluation coefficient, which is a non-financial coefficient. If this calculation results in a negative figure, the result is revised to 0%.
The TSR evaluation coefficient and ROE evaluation coefficient are figures between 0% and 200% depending on the degree to which performance targets established for each performance evaluation period were achieved.
The ESG evaluation coefficient, which is a non-financial performance indicator, is a figure between -10% and +10% and is linked to MSCI and CDP ratings of USS during the performance evaluation period.
Stock distribution ratio = TSR evaluation coefficient x 50% + ROE evaluation coefficient
x 50% +/- ESG evaluation coefficient
The TSR is a figure calculated as follows for each performance evaluation period.
| TSR | = | Average closing price of USS stock during last 3 months prior to end of performance evaluation period + Total dividends paid during performance evaluation period |
- | 1 |
| Average closing price of USS stock during last 3 months prior to start of performance evaluation period |
(Financial indicators and evaluation coefficients in the stock distribution ratio)
| KPI | Basis for evaluation |
Weight | Achievement ratio | Evaluation coefficient |
||
|---|---|---|---|---|---|---|
| Financial indicators |
TSR (vs. index) |
USS TSR vs.TOPIX 500 stock growth ratio (relative stock growth ratio) | 50% | Relative stock growth ratio is below 70% |
0% | |
| Relative stock growth ratio is 70% to 130% |
Same as relative stock growth ratio | |||||
| Relative stock growth ratio is over 130% |
200% | |||||
| ROE | Degree of achieving target | 50% | Minimum | Under 11% | 0% | |
| Target | 15% | 100% | ||||
| Maximum | 20%+ | 200% | ||||
（6）Restricted stock remuneration
This remuneration is a long-term incentive for executive officer directors. Enabling these directors to constantly hold USS common stock means that these directors have the same potential benefits and risks involving stock price movements as all other shareholders do. The purpose of this long-term incentive is to increase the motivation of these directors to contribute to raising the price of USS stock and increasing the corporate value of USS. As a rule, USS will distribute restricted stock to eligible executive officer directors every year. Each director will be restricted from transferring ownership of this USS common stock from the day the stock is received until the day the individual is no longer a director of USS.
The total monetary amount of restricted stock remuneration in every year is determined by the Nominations and Remuneration Committee, where the majority of members are independent outside directors, as authorized by the board of directors. The maximum number of shares of restricted stock that can be distributed every year is 300,000.
（7） Level and composition of remuneration for executive officer directors
USS believes that the level of remuneration and composition of this composition are appropriate. This judgment is based on comparisons of the level of remuneration, remuneration composition, labor's share of income and salaries of USS employees with the same figures for TOPIX 500 companies and companies with a market capitalization and sales similar to those of USS.
The level, format, composition and other aspects of remuneration for executive officer directors is determined with the purpose of further increasing motivation to contribute to medium to long-term growth of sales and earnings and corporate value by more clearly linking remuneration with results of operations. All aspects of this remuneration are reexamined periodically. The percentages of each category of remuneration for executive officer directors are in the preceding item (2).
（8） Return of remuneration (malus and clawback provisions)
USS has a system (malus and clawback) for the return of performance-linked stock remuneration and restricted stock remuneration distributed to executive officer directors. These actions may be taken when the board of directors determines that an executive officer director has committed an illegal act or a serious violation of internal rules or been involved with some other improper activity, including serious fraudulent accounting or an act causing a significant loss. In this event, USS can refuse to distribute USS common stock to a director, require a director to pay the market value of all or part of the USS common stock that was distributed as remuneration, demand the return of this stock, or take some other action. Terms for a demand for the return of stock or other action will be determined by a resolution of the board of directors.
（9） Process for determination of remuneration for directors
The policy for determining the composition of remuneration for directors and the specific remuneration for individual directors are determined by the Nominations and Remuneration Committee, where the majority of members are independent outside directors, as authorized by the board of directors, by using objective discussions.
As needed, members of the Nominations and Remuneration Committee ask external companies and other organizations for advice while holding discussions about remuneration for the purpose of obtaining an objective perspective and incorporating professional knowledge and information in discussions about remuneration.
（10） Policy for determining remuneration of executive officers
The policy for the determination of remuneration for executive officers of USS is based on the policy for the determination of remuneration for directors of USS and this remuneration consists of basic remuneration, bonuses, performance-linked stock remuneration and restricted stock remuneration.
Internal Audits and Corporate Auditor Audits
As the organization responsible for the Company's Internal Audits and Corporate Auditor Audits, the Internal Audit Office (2 members) is an independent organization and strives to strengthen and enhance the quality of the discharge of its functions, including the operation and evaluation of the internal controls related to financial reporting. The Corporate Audit involves, three Corporate Auditors, including Tax Accountants, in addition to Certified Public Accountants and lawyers, attending the meetings of the Board of Directors and auditing the Directors' business execution and financial conditions. Moreover, the Corporate Auditors collaborate with the Internal Audit Office and the Accounting Auditors to further improve internal control, including on-site audits of subsidiaries.
Accounting Audits
At the 27th Ordinary General Meeting of Shareholders held on June 26, 2007, the Azusa Audit Corporation (now the Azusa Limited Liability Audit Corporation) was appointed as the Accounting Auditor and has remained so to the present. The following persons are the Certified Public Accountants who have conducted accounting audits.
| Names of the Certified Public Accountants Conducted the Audits | Name of the Audit Corporation | |
|---|---|---|
| Designated Limited Liability Partner/Engagement Partner |
Kenji Suzuki | KPMG AZSA LLC |
| Designated Limited Liability Partner/Engagement Partner |
Atsushi Ohashi | KPMG AZSA LLC |
Message from the Outside Directors
Offensive and defensive actions contribute to stronger governance.
Nobuko Takagi Outside Director
DIRECTOR PROFILE :
Nobuko Takagi worked in corporate auditing as a certified accountant before taking the lead on M&A projects at M&A advisory and business firms. She currently serves as an advisor on new business development and investment decisionmaking matters. Ms. Takagi possesses extensive experience and expert knowledge in finance, accounting, M&As, and new business development.
I try to stay aware of capital market and stakeholder perspectives. The defensive actions should update priority subjects through debate at the Board of Directors meetings, while our offensive actions help executives to actively make decisions about medium to long-term growth. Throughout the six terms that I have served as outside director, I feel USS has made major enhancements to its corporate governance. Some of the major reforms include fine tuning the integrated report to share value creation stories with all stakeholders, supporting the TCFD recommendations, normalizing initiatives to enhance effectiveness evaluations of the Board of Directors, and revising the compensation policies to better reflect its market understanding.
Some areas USS should address in the future include the promotion of a digital transformation, support of electric vehicles and the expansion of businesses related to auto auctions and recycling. USS needs to invest in a digital transformation to maintain its lead of the industry as the company holding the top share of the auto auction market. It must also take advantage of an approach that makes bold decisions while gaining feedback from people on the front lines. USS also should take time to debate the expansion of peripheral auto auction businesses. To solidify future businesses, I feel USS needs to create some kind of framework that provides a place for employees of all ages and experience to participate in the discussion process.
As of the fiscal year ended March 31, 2023, two women are serving as USS directors, including myself. I must give high praise to Board of Directors for such sincere debate made possible through its diversity, review of climate change issues and reforms personnel policies. I hope that I can both help energize debate at Board of Directors meetings in the future and incite action tied to those discussions.
USS promotes environmental initiatives and Group-wide strategies.
Shinji Honda Outside Director
DIRECTOR PROFILE :
Shinji Honda mainly took charge of strategies and overseas businesses at the Takeda Pharmaceutical Company Limited centered upon group management, corporate strategies, and management planning. He also led its transformations into a global company. Mr. Honda even oversaw all overseas businesses and put together company-wide management plans as well as medium to long-term growth and environmental strategies for Nisshin Foods Holdings Co., Ltd.
To sustain high medium-to long-term performance, I strive to offer advice about growth strategies, management plans, climate change and other important management challenges. I also try to speak frankly from an objective standpoint about matters in front of the Board of Directors so that USS can maintain and enhance its sound corporate governance.
As a means to execute its medium-to long-term management plans during the fiscal year ended March 31, 2023, USS has been utilizing the TCFD framework to support the formulation of a transition plan (road map) incorporating business strategies. In the fiscal year ended March 31, 2023, the Board of Directors discussed climate change seven times, demonstrating the uncompromising commitment of management to tackling this priority issue. Discussions beforehand with the secretariat have helped in debates by the Board of Directors about disclosure based on the TCFD recommendations, CDP support, and specific plans to reduce CO2 emissions. As a result, USS has earned fantastic evaluations from external assessment bodies, including receiving the MSCI ESG Rating, which has helped improve its information online. The most significant change through these environmental initaitives has been the start of medium to long-term discussions about how the auto auction business can maintain a competitive edge in circular economies centered around electric vehicles and ways in which the recycling business can aim to reach sufficient business size and earnings.
Stakeholders insided and outside of the company should have confidence in the USS Group-wide strategies and management plans aiming to foster sustainable growth and enhance corporate value. That is why the Company has defined a clear long-term path as well as medium to long-term goals. To achieve these targets though, it is important for USS to devise specific and highly persuasive stories about its medium to long-term growth strategies. Thereafter, we will work to secure strategic investments, in addition to further solidifying existing businesses, investing in growth businesses, and exploring new business opportunities in order of priority, which are all important matters. I will take care to provide advice to help USS be bold in its business execution.
USS strives to enhance corporate value by strengthening human capital.
Yoshiko Sasao Outside Director
DIRECTOR PROFILE :
Yoshiko Sasao helped launch a variety of new businesses at Recruit Co., Ltd. before working on the corporate restructuring of Tepco Partners Co., Inc. through unique human resource development programs. She has broad knowledge on various corporate matters, such as diversity promotion, empowering women in the workplace, work-style reforms, and human resource development.
When I was appointed in the fiscal year ended March 31, 2023, I did my best to share my thoughts on human resource strategies and reforms to the corporate culture so that USS can reach the next stage of its journey. Over the fiscal year, we have put in the effort to get as close to that vision as possible. In particular, I have shared my ideas from the perspective of human capital in an effort to help invigorate debate at Board of Directors meetings. USS plans to revise its personnel policies and put in place new systems for human resource development. Active promotion of these measures will give employees a clear image of their career path and encourage them to take initiative toward independent career development. This will result in greater employee engagement and higher corporate value.
In the fiscal year ended March 31, 2023, I was very impressed the MSCI Japan Empowering Women (WIN) Select Index selected USS as one top brand. This stock index consists of listed companies demonstrating excellence in gender diversity. The MSCI gave high marks to USS and selected it for this index due to the high ratio of women hired as employees and its high ratio of female directors. USS will continue to empower women driven by the desire to build an organization where women feel excited to work.
Within the various USS businesses, the recycling business in particular is expected to show tremendous growth. Specifically, SMART Inc. continues to generate high earnings by establishing its unique technological prowess. However, it is people who support technology, which means it is vital for USS to work to strengthen its human capital in order to sustain and improve SMART's technological strength. I will support management in efforts to make SMART the next major pillar for the USS Group after the auto auction business.
Cross-Shareholdings
Holding policy
By implementing business and capital alliances, etc., the Company will expand our Used Vehicle Purchasing and Selling Business and Recycling Business, with the Auto Auction Business as the core. Through collaboration with other companies in these businesses where synergistic effects are expected, we aim to be a comprehensive company that leads the used vehicle distribution industry. Therefore, with regard to cross-shareholdings, the Company comprehensively considers business strategies, the need to maintain and strengthen business cooperative relationships, and the impact on business relationships. After confirming that the cross-shareholdings will contribute to the improvement of the corporate value of the Group from a medium- to long-term perspective, we will decide whether to newly hold or continue to hold the shares. In principle, we will sell the shares if the holdings are not judged to have meaningful significance.
Method of verifying the rationality of holdings and details of verification by the Board of Directors, etc., regarding the propriety of holding individual stocks
Once per year, the Board of Directors verifies if cross-shareholdings are appropriate when considering contributions to maintaining and strengthening cooperative business relationships, if the benefits and risks associated with ownership (including contributions to consolidated business performance) are commensurate with the cost of capital, etc., and if the purpose of holdings is appropriate in consideration of business strategies, business relationships, etc. In regard to fiscal 2022, the Board of Directors meeting held in March 2023 examined each of the above perspectives. The Board determined that the cross-shareholdings contribute to the improvement of the Group's corporate value from a medium- to long-term perspective, and that there is meaningful significance in all of the cross-shareholdings.
Investment shares held purely for investment purposes
| Category | FY2022 | |
|---|---|---|
| No. of stocks (stock brands) |
Total amounts listed in balance sheet (millions of yen) |
|
| Unlisted stock | 1 | 0 |
| Stock other than unlisted stock | 1 | 6 |