Fair Management

 As a member of modern society, the Alps Electric Group aims to strengthen foundations for enabling and practicing fair management by implementing active measures in the areas of corporate governance, compliance, risk management and information security.

Corporate Governance

Approach to Corporate Governance

 The Alps Group defines corporate governance as the “establishment and operation of frameworks for realizing efficient and appropriate decision-making and execution of duties by senior management, prompt reporting of outcomes to stakeholders, and sound, efficient and transparent business administration, for the purpose of heightening corporate value.” Our basic approach, placing importance on maximizing benefits for shareholders and all other stakeholders, is to maximize corporate value and deliver benefits directly or indirectly to stakeholders in a balanced way, satisfying their respective interests.
 The company has also established the Alps Electric Corporate Governance Policy both in order to ensure fulfillment of our responsibilities to shareholders, customers, communities, employees and other stakeholders and to enable an effective style of corporate governance. The policy can be viewed on the Alps Electric website.
 (http://www.alps.com/e/ir/ir_governance.html)

Corporate Governance Structure

 Alps Electric made the transition from a “company with an audit and supervisory board” to a “company with an audit and supervisory committee” following approval at the 83rd Ordinary General Meeting of Shareholders on June 23, 2016. Independent of executives, the Audit and Supervisory Committee bolsters auditing and supervision functions while closely coordinating with independent auditing firms and the internal audit department, thereby further strengthening corporate governance and enabling fair and highly transparent business administration.

Corporate Governance Structure

 

Board of Directors

 Alps Electric’s Board of Directors consists of 12 directors (not including Audit and Supervisory Committee members) and five directors (including three outside directors) who are Audit and Supervisory Committee members. It is positioned as an organ that deliberates and makes decisions on basic management policy, important managerial matters, such as short- and midterm business plans, and carries out monitoring and supervision of the execution of duties. The board convenes once a month for regular meetings and on other occasions as required to thoroughly deliberate on and pass resolutions on all important matters.
 The Board of Directors is operated in accordance with related rules and bylaws. Resolution items are checked in advance from legal, accounting, tax, economic rationality and other perspectives to ensure legal compliance and reasonableness. Furthermore, a guide for submission of items to the Board of Directors has been created to clarify standard formats for document submission and main factors for deliberation, helping to realize rational and efficient discussion in Board of Directors meetings.

Evaluation of Board of Directors Effectiveness
 Alps Electric is working to strengthen its corporate governance structure with the objective of improving soundess and transparency, as well as efficiency and agility, in the execution of duties. As part of those efforts, the company has been evaluating the effectiveness of the Board of Directors since fiscal 2016. The following is a summary of evaluation results.

  1. Method of Analysis and Evaluation
     To evaluate the effectiveness of the Board of Directors, all 17 directors are asked to complete an open questionnaire about aspects including the composition and running of the Board of Directors, subject matter deliberated on by the board, communication between directors and support structures. Each gives their own evaluation reflecting their perspective. These evaluations are analyzed by the Audit and Supervisory Committee, including outside directors, as well as directors in charge of administration and corporate planning. Issues are identified and reported to the Board of Directors for verification and debate.
  2. Summary of Analysis and Evaluation Results
     The results indicated that debate, deliberation and administration of the Board of Directors under the current structure in place since June 2016 have been undertaken appropriately with no major issues and it was verified that effectiveness is achieved.
    Meanwhile, the request for frank comments from directors turned up constructive opinions regarding such matters as the active appointment of women, younger personnel and experienced businesspeople to director; enabling more effective deliberation by the Board of Directors through earlier submission of materials and efficient reporting; creating even better opportunities for interaction between Audit and Supervisory Committee members and executive directors; shared understanding and stronger management of growing risks; and methods for conducting these evaluations.
  3. Action
     Besides advancing deliberations on the content of the opinions received over the short term, or the mid to long term, the evaluations will be repeated next fiscal year and beyond because they highlight areas where directors' views and awareness were in agreement and making that known fosters greater solidarity in management posture that can be put to use in improving both the company's governance and its corporate value.

Audit and Supervisory Committee

 Alps Electric's Audit and Supervisory Committee comprises three outside committee members and two inside members. With a majority of members coming from outside the company, the committee endeavors to make suitable judgments from an objective standpoint independent of executives. A full-time Audit and Supervisory Committee member is also selected to attend important internal meetings, gather important information and receive reports on a routine basis.
 Outside committee members, possessing extensive experience as attorneys (legal specialists) or certified public accountants (accounting specialists), and inside committee members, including one full-time member, familiar with the company’s business carry out audits with high efficacy. And while liaising with the internal audit department, they offer opinions to management at meetings of the Board of Directors and other important meetings.
 Furthermore, persons are assigned to assist the duties of the Audit and Supervisory Committee and it is ensured that employees who engage in these duties (not including directors who are committee members) are independent of the Board of Directors.

Outside Directors

 Alps Electric has appointed three outside directors who are Audit and Supervisory Committee members in order to strengthen the supervision function of the Board of Directors. The three outside directors have no vested interests in the company, including personal ties, capital ties or any business ties which could create a conflict of interest with ordinary shareholders.
 Outside directors focus on ensuring legal compliance in business administration and, bearing all stakeholders in mind, strive to strengthen supervision of business administration by actively offering opinions and advice in meetings of the Board of Directors and through supervision of the election and removal of, and determination of compensation for, management personnel as well as conflicts of interest between the company and management personnel, controlling shareholders and other parties, plus other decisionmaking by the Board of Directors on important matters.
 They also work to realize effective supervision by regularly visiting facilities of Alps Electric to gather information and engage in information and opinion exchange with other directors and employees.
 Appointment of outside directors is determined based on company standards for selection of director candidates, including criteria for independence, and outside directors, with their consent, are designated independent directors with their appointment as independent directors notified to Tokyo Stock Exchange, Inc.

Name Reason for appointment Other main positions currently held Activity During FY2016
Board of Directors Audit & Supervisory Committee Audit & Supervisory Board
Takashi Iida To receive sound guidance and advice for management of the company based on his extensive experience and achievements in the judicial world as a lawyer Outside Corporate Auditor, Shimadzu Corporation Outside Audit & Supervisory Board Member, Nippon Telegraph and Telephone Corporation 12/12 10/10 -
Hiroshi Akiyama To employ in the management of the company his expert knowledge and experience and broad insight accumulated as a lawyer Outside Corporate Auditor, YKK Corporation 11/12 10/10 1/1
Takuji Kuniyoshi To employ in the management of the company his international experience gained in accounting firms and broad knowledge accumulated as a certified public accountant 12/12 10/10 1/1

Director Compensation

 Alps Electric employs a system where importance is placed on tying compensation to short-term and mid- to long-term results. This is for the purpose of adding to the enduring corporate value of the entire Group by fully encouraging director conduct that helps to improve the company's results and share price.

Composition of Compensation

a) Compensation for Inside Directors Who Are Not Audit and Supervisory Committee
  Members
 ・Compensation for inside directors who are not Audit and Supervisory Committee
  members is made up of a fixed portion, a performance-based bonus and stock options
  as compensation.
 ・The performance-based bonus changes according to financial results (operating income,
  net income etc.) for the single fiscal year.
 ・The stock options as compensation are linked to mid- to long-term results. Stock options
  corresponding to a compensation value determined by the director's position are assigned
  with the amount of shares calculated from their value at the time of assignment.
  These stock options have an equivalent effect to the effective issuance of treasury stock,
  designed so the recipient experiences both the same merits when the company's share
  price rises and the same risks when the share price falls as shareholders.
b) Compensation for Directors Who Are Audit and Supervisory Committee Members
 ・Compensation for directors who are Audit and Supervisory Committee members consists
  of fixed compensation only.

For the total value of compensation paid to directors and corporate auditors, please refer to the "Notice of Convocation of the 84th Ordinary General Meeting of Shareholders" on the Alps Electric website.
http://www.alps.com/e/ir/ir_meeting.html

Internal Controls

 Acknowledging the Founding Spirit (Alps Precepts) as the origin of Group management, Alps Electric has established within the Alps Group Management Paradigm a fundamental philosophy and action guidelines relating to compliance by Alps Electric that apply to the entire Alps Group, including Alps Electric and listed subsidiaries.
http://www.alps.com/e/ir/ir_governance.html

Alps Group Internal Controls

Alps Group Internal Controls

 

Outside Director Comment

Working to Further Enhance Governance

We asked Takuji Kuniyoshi, an Audit and Supervisory Committee member and outside director of the Company, about corporate governance at Alps Electric.


Message from an Outside Director

Outside Director
Audit and Supervisory
Committee Member

Takuji Kuniyoshi

One Year since My Appointment as an Outside Director and Audit and Supervisory Committee Member

 It has been a year since Alps Electric transitioned from being a company with an audit & supervisory board to a company with an audit and supervisory committee. When my role changed from an Audit & Supervisory Board member to an outside director and member of the Audit and Supervisory Committee, the people I came into contact with in the Company changed, as well. In my role as outside director, my internal contacts have expanded to include people ranging from section managers and general managers to members of top management. As a result, my understanding of the overall Company has increased.
 I have also had the opportunity to search for answers, on almost a daily basis, about the meaning of governance. If governance relies too heavily on manuals, it is in danger of becoming formulaic. To avoid this situation, I focus on assessments of the Board of Directors’ effectiveness and attempts to systemize internal audits using the internal audit department’s risk-based approach. Going forward, I aim to continue contributing proactively to management as an outside director. I will monitor the Alps Group’s efforts to set frameworks in place and the steady progress of initiatives to improve them.

Alps Electric’s Corporate Culture of Supporting Governance

 I believe three factors support governance. The first is the vigorous and energetic hustle and bustle of the town factory. It was this sort of town, in Yukigaya, where the late Katsutaro Kataoka founded the Company. Alps started out as just one of these small town factories, and I believe the Company retains that original vigor and energy today. The second factor is a sense of respect. At general meetings of shareholders, the management team does its best to answer shareholders’ questions thoroughly and in their own words. My sense is that the Company respects cooperating factories and suppliers in the communities, regions, and overseas countries where it is developing its business. The third factor is the corporate value of being humble and tenacious. Alps has several factories in the Tohoku region, which experienced a great deal of damage in the Great East Japan Earthquake of 2011. The Company addressed the situation by pulling together. People worked noon and night to get the factories back up and running so that customers would not be inconvenienced and brought them back on line quickly. By virtue of operating in the region for many years, I think Alps has naturally cultivated the strong sense of humility and tenacity for which the region is known.
 Put another way, if the Company were to lose this shared sense of culture and spirit, I think its governance would be in crisis. Governance is conducted by people and, as such, can break down easily. Complementing this reality, I consider an ongoing corporate culture of humility and soundness to be vital.

My Role as an Outside Director and Audit and Supervisory Committee Member

 Alps is a combination of two personalities. The first is characterized by its pursuit of profits as a private enterprise. This personality’s role is to bolster sales, ensure a return on invested capital, invest any surplus toward the future, and award suitable dividends. In this guise, the Company strives for sustainable growth. To respond to customer requirements amid a globalizing economy, the Company’s overseas developments must include a “made-in-market” aspect. Also, the Company needs to respect the laws of the countries in which it does business and respond appropriately with respect to accounting and transfer price taxation. I will keep alert to these needs, drawing on my experience as a certified public accountant working overseas.
 The second personality involves the Company’s social structure, comprising shareholders, customers, suppliers, employees, governments, and various other stakeholders. To build trust among stakeholders, a company must provide extensive disclosure. In the sense of corporate disclosure, the question of how to alleviate the information asymmetry that exists between the management team and shareholders and other stakeholders is currently being put up for review. Annual reports and integrated reports play a role in addressing this asymmetry of information. Hence, they serve as an aspect of governance. As an outside director, I am committed to promoting appropriate and timely disclosure from the perspective of shareholders and other stakeholders.