In the Medium-term Management Plan, "avex vision 2027" announced on May 12, 2022, Avex Group defined a new corporate philosophy with the aim of clarifying the purpose of its corporate activities and the significance of its existence in society. The new philosophy is to "Continue to pursue the potential of entertainment. Believe in the infinite creativity of people and deliver a variety of talent and excitement to the world. And create an enriched future." Based on this corporate philosophy, in order to "Seek to discover and develop "beloved" intellectual property in many different regions and fields," which is a key strategy under the plan, Avex Group will implement key initiatives such as "Develop proprietary intellectual property that is rich in continuity, while seeking exits by type of culture;" "Improve talent development in line with the distribution market and discover many different kinds of intellectual property;" "Develop festivals and events valuable as intellectual property;" and "Develop and acquire intellectual property for animation and video works that will be loved for a long time."
To push forward with this Medium-term Management Plan, Avex Group recognizes that it is essential to build a more robust corporate governance framework in order to properly meet the expectations and trust placed in it by its shareholders and all other stakeholders. Avex Groupʼs basic philosophy of corporate governance is to build a management framework that provides the functions of accurate managerial decision-making, and prompt and appropriate business execution, and the adequate monitoring of these functions, while at the same time working to maintain and improve corporate ethics.
Avex is a Company with Audit and Supervisory Committee and the majority of Audit and Supervisory Committee is composed of Independent Outside Directors. By including members of the Audit and Supervisory Committee in its Board of Directors, Avex seeks to ensure the effectiveness of the supervisory function of the Board of Directors and further strengthen the corporate governance framework, and by delegating some of the decision-making authority for business execution of the Board of Directors to Directors, Avex seeks to separate the supervisory function and business execution, with the aim of speeding up management decision-making and increasing the flexibility of business execution.
Avex has adopted the system of a Company with Audit and Supervisory Committee, and the Audit and Supervisory Committee, which comprises four members including three Outside Directors, audits and supervises the business execution of Directors. The Board of Directors comprises four Directors (who are not Audit and Supervisory Committee Members) and four Directors who are Audit and Supervisory Committee Members and, out of a total of eight Board members, three are Outside Directors, which means that Outside Directors account for more than one-third of the Board of Directors. The Board of Directors meets once a month, as a general rule, to decide on the main issues facing the Company and its Group companies. The Management Meetings, comprised of executive directors, corporate executives and executives and charged with ensuring the control and flexibility of Group management, meets twice a month, as a general rule, to discuss and monitor significant matters related to management and business execution of Avex Group. Further, to ensure proper business operations by Avex Group, the Internal Affairs Department conducts monitoring in the form of operational audits in an effort to maintain and improve Avex Group's governance framework.
In addition, with the aim of ensuring the effectiveness and soundness of business operations, Avex Group has established the following corporate governance units.
The Group maintains and develops a system of internal controls for ensuring the reliability of its financial reporting and increasing the effectiveness and efficiency of its business operations. In accordance with its "Fundamental Policy for Internal Controls," the Group checks the status and configuration of its system of internal controls every fiscal year. Moreover, to maintain and improve its system, the Group sets a compliance policy that underlies its corporate ethics stance, and all executives and employees are made aware of and fully understand the importance of strict compliance with laws and regulations. The Group has also established an Internal Reporting System ("Helpline") and allocated external lawyers to the Helpline to continually strive to guard against infractions of laws and regulations, unfair practices, and ethical transgressions occurring within Avex.
With regards to the risk control structure, the Group has developed a structure to provide risk management by establishing risk management regulations, specifying divisions bearing executive responsibility for risk, designating risks that may be faced by Avex and Group companies and preparing their countermeasures, and appointing directors with responsibility for risk control to manage the comprehensive risks that face the Group as a whole.
Further, the Group has developed a structure whereby the Internal Affairs Department conducts audits of the status of risk control and reports its findings to the president and to the Audit and Supervisory Committee Members. When potential issues are found, the Department takes steps to resolve them in partnership with the Risk Management Division and other relevant divisions. This system ensures that the risk control structure remains robust, and is constantly maintained and improved.
Avex appoints three Outside Directors. When these Outside Directors are selected, Avex sets forth the Independence Standards as follows to assess their independence.
Criteria for assessing independence of Outside Directors
Avex deems that the Outside Director is independent if he/she does not meet any of the following criteria.
Further, when selecting such Outside Directors, Avex considers factors such as their career history and experience, in addition to their character and insight, in order to strengthen the Company's management and corporate governance framework. For the current Outside Directors, the Company has appointed individuals with considerable expertise in the performance of duties, including legal qualifications and U.S. Certified Public Accountant qualifications, in addition to satisfying the above standards. The Company believes that this will further improve the Company's management and corporate governance system.
The Outside Directors attend the meetings of Avex's Board of Directors, which are held once a month as a general rule. Along with monitoring the status of management, the Outside Directors offer advice and exchange opinions when necessary with respect to business decisions. The Outside Directors also attend the monthly meetings of the Audit and Supervisory Committee, which are held once a month as a general rule, and so are aware of the situation regarding business execution by Directors of Avex and its Group companies. The Outside Directors also verify the results of internal audits carried out by the Internal Affairs Department, as well as the audit reports made by the accounting auditor and the structural condition of the system for internal controls. This knowledge enables them to liaise with the relevant departments to ensure the appropriateness of the Group's business operations.
Pursuant to Article 427, Paragraph 1 of the Companies Act of Japan, Avex has entered into contracts with all of the non-executive Directors to limit their liability to Avex under Article 423, Paragraph 1 of the same act. The maximum amount of liability set forth in each contract is the minimum liability stipulated by Article 425, Paragraph 1 of the Companies Act. The limitation of liability applies only to duties of the non-executive Directors performed in good faith and without gross negligence.
There are no capital, human, business or other relationship of interests between a company at which an Outside Director serves or had served as an officer and the Company and its other Directors.
The Company has positioned executive compensation as a driver to achieve sustained growth that will bring about greater corporate value. For the system to function properly from this perspective, decisions associated with the specific design and operation of the Company's system of executive compensation should take into account objective viewpoints from outside the Company. To this end, Avex has adopted a three-person Compensation Committee chaired by an Independent Outside Director and with an additional Independent Outside Director and a Director as members. Decisions made at the Board of Directors are based on the findings of the Compensation Committee.
Avex has set forth the following basic policies regarding executive compensation.
(Basic Policies on Compensation)
Avex has a contract with Deloitte Touche Tohmatsu LLC to conduct financial audits as stipulated in the Companies Act and Japan's Financial Instruments and Exchange Law.