Corporate Governance

KYB has developed effective corporate governance structure as a responsible and accountable entity that places importance on contributions to the society.

In order to fulfill the corporate social responsibility as to contribution to the society as well as to meet shareholders’ expectations through realization of sustainable and stable growth and the increase of corporate value, we pursue a speedy and efficient management structure, a highly fair and transparent management supervisory function, and continuous efforts to strengthen and enhance our corporate governance by the following corporate spirit and basic policies.

Corporate Spirit

By serving technologies and products that make people’s life safe and comfortable, KYB group dedicates to the society.

1. We shall follow all rules and face all issues with honesty.
2. We shall built a corporate culture full of vitality, and hold high goals.
3. We shall value sincerity, cherish nature, care for the environment.
4. We shall constantly pursue creativity, contribute to the prosperity of customers, shareholders, suppliers and society.

Basic Policies

1. We shall respect the rights of shareholders, and ensure the equal and fair treatment of all shareholders.
2. We shall take the benefits of stakeholders into consideration and endeavor to appropriately cooperate with those stakeholders.
3. We shall disclose not only the information in compliance with the relevant laws and regulations, but also actively provide the important and/or useful information to stakeholders for their well-informed decision making.
4. The Board of Directors shall be cognizant of its fiduciary responsibility and accountability to shareholders, and shall appropriately fulfill its roles and responsibilities in order to promote sustainable and stable corporate growth and increase corporate value, profitability, and capital efficiency.
5. We shall engage in constructive dialogue with shareholders, and make efforts to obtain shareholders’ support regarding the Company’s Business Policies and also reflect shareholders’ opinions and concerns in the improvement of management.

Overview of the corporate governance system

We take “Audit & Supervisory Board system” defined by Companies Act in Japan and our corporate governance structure mainly consists of Board of Directors, Audit & Supervisory Board and Audit & Supervisory Board Members. In addition, we have Board of Executive Officers for the purpose of making speedy decisions and the effective execution of operation. The Audit & Supervisory Board, which includes two (2) outside members, monitors management activities of Directors and Executive Officers. In order to enhance independent and objective function of the management, the Board of Directors elects two (2) independent outside members. With aforementioned system, we assess our system creates an effective framework for the corporate governance.

(1) Board of Directors: The Board of Directors consists of six (6) members, including two (2) outside Directors. In principle, the Board of Directors is held once each month. The Board of Directors makes decisions of items prescribed by laws, article of association and company regulations as well as policies and other important matters involving management. The Board of Directors also oversees the management of business operation.
(2) Board of Executive Officers: The Board of Executive Officers, a pre-deliberative body to the Board of Directors, discusses and authorizes important matters concerning management from a company-wide perspective.
(3) Other Management Committees: We have other Management Committees such as “Domestic Affiliated Companies Management Meeting”, “Global Executive Meeting” for the purpose of overseeing management condition of KYB group companies regularly. In addition, “Operation Review with the President” is held at each production affiliates, with KYB’s president to review and follow-up the matters relating to quality and Monozukuri (manufacturing).
(4) Audit & Supervisory Board: The Audit & Supervisory Board consists of four (4) full-time Audit & Supervisory Board Members, two of whom are outside auditors. Through audits by outside Audit & Supervisory Board Members, we expect effective management supervision and conclude that an effective governance is in place. In addition, one of the outside Audit & Supervisory Board Member is registered as an independent director.
(5) Corporate Governance Structure

Internal controls

To ensure the appropriateness of business operations, following “ Basic Policy for Internal Control System ” has been resolved by the Board of Directors.

1. System necessary to ensure that the execution of the duties of the Company’s and its subsidiaries’ Directors and employees complies with laws, regulations and articles of incorporation

(1) The Company shall establish the “Corporate Guiding Principles” in order to ensure that the officers and employees of the corporate group comprising the KYB Corporation and its subsidiaries (hereinafter referred to as “the KYB Group”) comply with laws, regulations and articles of incorporation, and that corporate activities are conducted impartially and in good faith on high ethical standards.
(2) In order to establish the highest value of compliance, which is a prerequisite for the realization of our Corporate Spirit, we have set up the Compliance Committee which our President serve as a Chairman and promote the KYB Group's compliance based on "Regulations on the Promotion of Group Compliance", as well as providing education and training for the officers and employees of the KYB Group and engage in fostering compliance awareness and reforming such awareness.
(3) The Company’s Audit Dept. shall conduct risk-based audits and investigate whether there was fraud or not and shall report the results to the Board of Directors.
(4) The J-SOX Office of the Audit Dept. shall conduct assessments of internal controls related to financial reporting and shall report the results to the Board of Directors.
(5) The KYB Group shall implement measures to prevent the recurrence of improper conduct.
(6) In order to prevent the risk of corporate scandals, our functional departments will carry out various inspections and audits.
(7) An appropriate whistle-blowing system shall be put in place inside and outside the Company in order to ensure that employees and others of the KYB Group are able to report information or serious doubts regarding illegal or improper conduct without fear of negative consequences. Efforts shall be made to ensure awareness of the system and increase its effectiveness. The Internal Control Dept. shall present information regarding the Group’s internal reports to the Board of Directors at fixed intervals.

2. System for preserving and managing information on the performance of the duties of the Company’s and its subsidiaries’ Directors

(1) The KYB Group shall preserve and manage information regarding Directors’ performance of their duties in accordance with laws, regulations and internal rules and regulations.
(2) Based on the “Standard Information Security Policy,” the Company shall construct a system to protect information assets and take measures against the risk of information leaks and information system failures caused by cyber-attacks.

3. System related to the management of the risk of loss and relevant regulations of the Company and its subsidiaries

(1) “Risk Management Rules,” which stipulate systematic risk management, shall be established in order to promote the KYB Group’s risk management.
(2) A Risk Management Committee, which shall identify the KYB Group’s potential risks and measure their severity as well as determine serious risks and the department to be responsible for those risks, shall be established. The Risk Management Committee shall report on the department’s activities aimed at countering serious risks to the Board of Directors at fixed intervals.
(3) When the fact of occurrence of a serious issue is confirmed in the KYB Group, it must be ensured that the person in charge of the prompt report immediately inform the President of the fact in accordance with the “Rules of Prompt Report.” The President shall give directions to the relevant parties in accordance with the fact of occurrence of the issue and take measures to minimize its impact.
(4) The Company shall proactively strive to collect information from sites so that early signs of corporate misconduct can be detected and addressed as quickly as possible.

4. System to ensure the efficient execution of the duties of the Company’s and its subsidiaries’ Directors

(1) The KYB Group, in order to achieve swift decision-making and efficient business operations, shall set “Board of Directors Regulations,” which stipulate matters to be approved by or reported to the Board of Directors.
(2) The KYB Group shall formulate its mid-term and fiscal-year business plans, share management objectives, and report on the progress of business execution at management meetings at fixed intervals.
(3) The Board of Executive Officers and other management committees shall perform adequate prior deliberations on important matters concerning management and business execution so that the Board of Directors can make decisions properly and efficiently.

5. System to ensure the fair business operations of the corporate group consisting of the Company and its subsidiaries

(1) System related to the reporting of information to the Company regarding the execution of the duties of the Directors and others of the Company’s subsidiaries
- i . “KYB Group Business Procedure Management Rules” shall be established in order to maintain the soundness of the KYB Group as well as to increase the efficiency of its consolidated management.
- ii. Based on the“KYB Group Business Procedure Management Rules,”the subsidiaries shall report on their management status at the Company’s management meetings at fixed intervals.
(2) “Global Regulation Defining Extent of Job Authorities,” which specifies matters for which subsidiaries of the Company shall ask for the Company’s prior approval or on which they shall report to the Company, shall be established. Based on the “Global Regulation Defining Extent of Job Authorities,” each subsidiary shall establish its Administrative Authority Regulations.
(3) The KYB Group shall appropriately monitor the situation of the Group governance and seek to strengthen the governance within the KYB Group.
(4) The Managing Executive Officer or higher position themselves shall control each overseas region toward independence of each overseas bases.

6. Matters regarding employees who assist Audit & Supervisory Board Members when Audit & Supervisory Board Members seek assistance in their duties

If Audit & Supervisory Board Members should request the assistance of an employee,
it falls upon the Board of Directors to arrange the provision of such employee.

7. Matters regarding such employees’ independence from Directors and the effectiveness of instruction to such employees

A personnel change involving the assisting employee, his or her performance assessment, disciplinary action against him or her and other relevant actions shall be carried out with the consent of the Audit & Supervisory Board.

8. System related to the reporting to Audit & Supervisory Board Members by Directors and employees of the Company and its subsidiaries

(1) When a fact comes to light that could cause substantial damage to the KYB Group, officers and employees of the KYB Group shall immediately report it to Audit & Supervisory Board Members.
(2) Directors and Executive Officers shall report to Audit & Supervisory Board Members through the Board of Directors and the Board of Executive Officers on the execution of the duties they are responsible for.
(3) The KYB Group shall not treat any person unfavorably on the basis that he or she made a report to Audit & Supervisory Board Members.

9. Other systems to ensure effective audits by Audit & Supervisory Board Members

(1) The Board of Directors shall ensure that Audit & Supervisory Board Members have the opportunity to attend management meetings, access important documents and conduct on-site investigations in the KYB Group and other relevant activities.
(2) Representative Directors shall hold meetings with Audit & Supervisory Board Members at fixed intervals and exchange views and ideas on management policies, issues that the Company should address, risks surrounding the Company, important issues identified through audits, and other issues.
(3) In order to ensure the effectiveness of audits, opportunities shall be ensured for information exchange and coordination among outside Directors, Audit & Supervisory Board Members, Audit & Supervisory Board Members of Group companies, Audit Dept. and external Accounting Auditor.
(4) The Company shall bear costs necessary for Audit & Supervisory Board Members to execute their duties and shall promptly carry out the procedure for advance payment or reimbursement.

(1) Internal audit

The Audit Department is established as the internal audit organization.

Based on the Internal Audit Charter, the Audit Department carries out internal audits of headquarters, functional department and KYB Group Companies. It also reports the results of internal audits and various kinds of internal and external information to Audit & Supervisory Board Members in a timely manner.

J-SOX Correspondence Office of Internal Control Dept. has been established as an internal control evaluation organization for financial report.
J-SOX Correspondence Office of Internal Control Dept. and Accounting Auditors hold regular meetings and occasional meetings as required regarding audit plans and results regarding internal control evaluation in connection to financial report.

(2) Audits by Audit & Supervisory Board Members

Based on the audit plan drafted by Audit & Supervisory Board Members, they attend the Board of Directors and other important units, and inspect the state of duties performed by directors by conducting visiting audits at each business.

Audit & Supervisory Board Members have additional posts as part-time Audit & Supervisory Board Members of major subsidiaries, where they audit the state of management in each company.

Information relating to each company and unified group auditing policies are shared at regularly held “group Audit & Supervisory Board Members liaison committees”. Audit & Supervisory Board Members work closely with accounting auditors, exchanging opinions and information so as to implement effective and efficient audits.

Audit & Supervisory Board Members have knowledge and/or experience of management, finance/accounting, audit and legal affairs etc. Their opinions reflect both their expertise as well as the general public opinion, and they maintain a neutral and fair standpoint.

If Audit & Supervisory Board Members should request the assistance of an employee, it falls upon the Company’s Directors and Board of Directors to arrange the provision of such employee. The employee is ensured the independence from directors regarding personnel change and evaluation, and effectiveness of orders and instructions from Audit & Supervisory Board Members.

(3) Cooperation between Audit & Supervisory Board Members and accounting auditors

Audit & Supervisory Board Members regularly receive reports and explanations from accounting auditors regarding audit results, and honest opinions and information regarding audits are exchanged as appropriate.

(4) Cooperation between Audit & Supervisory Board Members and internal Audit Department

The Audit Department holds meetings with Audit & Supervisory Board in a timely manner to share information in order to optimize audits (annual audit planning, consideration auditing topics, and information/opinion exchanges regarding internal controls, etc.) and cooperate with each other.

(1) Election of outside directors and outside Audit & Supervisory Board Members

KYB elects two (2) outside directors and two (2) outside Audit & Supervisory Board Members.
The election of the outside directors and outside Audit & Supervisory Board Members is based on the requirements of the Company Act. The election of independent officers is based on the evaluation criteria for independence as set forth by the financial instruments exchange.

There are no special interests between KYB and them.

(2) Function and role of outside directors

The Board of Directors has six(6) members, including two (2) outside directors. The outside director provides opinions to the Board from an independent standpoint, and plays a role in enhancing the management function as well as improving corporate governance.

(3) Function and role of outside Audit & Supervisory Board Members

KYB strengthens its management observation function on the Board of Directors by appointing two (2) outside Audit & Supervisory Board Members from among the four (4) full-time Audit & Supervisory Board Members, which is responsible for management decisions and supervising the duties performed by executive officers.