Corporate Governance

Daiwa Securities Group clearly separates the supervisory and executive functions of its management to create a highly transparent and objective corporate governance system. We have adopted a structure in which Corporate Executive Officers of Daiwa Securities Group Inc., as well as employees responsible for head office functions, concurrently serve in the securities subsidiary. This reflects our pursuit of a management structure that improves the efficiency of head office operations and maximizes synergy of each group company.

Basic Views on Corporate Governance

With group management based on a holding company structure, Daiwa Securities Group aims to achieve a highly transparent and objective governance structure in international terms. The Group has built a unified group management system that elicits synergies among group companies with highly efficient and specialized oversight of group companies.

The Group has adopted a company with Three Committees System with the objective of supervising management through:

  1. a.Better decision-making agility by having the Board of Directors assign significant authority to corporate executive officers while clarifying the division of duties among corporate executive officers;
  2. b.More effective supervisory functions at the Board of Directors from the appointment of outside directors with highly specialized skills, and better transparency in management from the establishment of the Nominating Committee, Audit Committee and Compensation Committee with outside directors a majority of their members and serving as chairpersons; and
  3. c.Highly independent and ethical outside directors providing advice from an outside perspective to the Board of Directors and the three committees based on their knowledge and experiences.

The Group also proactively engages in CSR activities to gain the trust of stakeholders. CSR encompasses providing excellent products and services to customers with integrity, appropriately returning profits and disclosing information to shareholders, creating pleasant work environments and fair personnel evaluation systems for employees, strictly observing regulations and following corporate ethics, managing the environment, and contributing to society.

Through these initiatives, the Group aims to further enhance its corporate governance structure in terms of transparency, agility and efficiency, in order to continuously improve corporate value.

The corporate governance structure consists of the Board of Directors and the three committees (Nominating Committee, Audit Committee and Compensation Committee) as supervisory functions. Business execution functions are embodied in the Executive Management Committee and its subcommittees comprising the Group Risk Management Committee, the Group Compliance Committee, the Disclosure Committee, the Group IT Strategy Committee, and the Overseas Management Committee, as well as the Group Internal Audit Committee, the internal audit organization that reports directly to the Chief Executive Officer (CEO).

To incorporate more diverse perspectives into group management, we have appointed four female directors and corporate executive officers. On a group-wide basis, nine female officers serve as directors, corporate executive officers, and executive officers.

Number of times each committee met (FY2019)
Nominating Committee 3 times
Audit Committee 17 times
Compensation Committee 4 times
Board of Directors 10 times
Rate of attendance at Board of Directors meetings by outside directors 100%

Major Initiatives in Corporate Governance

History of Daiwa’s Corporate Governance
June 1998 Elected outside auditors
April 1999 Became the first listed Japanese company to adopt a holding company structure
Established the Advisory Board
Established the Group Management Committee
June 2000 Established the Compensation Committee
June 2002 Elected outside directors
Shortened directors’ terms of office from two years to one year
July 2003 Established the Internal Control Committee
June 2004 Shifted to a Committee system (currently, a company with Three Committees system)
October 2015 Complied with the Corporate Governance Code
Established the Outside Directors Committee
April 2017 Appointed outside directors as chairpersons of all three committees

Point

  • Published the Corporate Governance Report detailing our response to the Corporate Governance Code
  • Decided that more than two members and more than one third of the Board of Directors should be independent outside directors
  • Established the Outside Director's Committee in FY2015 for the purpose of increasing communication amongst outside directors
  • Have elected one additional outside director and six out of 14 Board of Directors as outside directors since FY2016
  • Strengthened management transparency and oversight functions by increasing the ratio of outside directors on the Nominating Committee and the Audit Committee
  • Determined that all of the chairpersons of the three committees would be outside directors from FY2017 while taking steps to further improve the governance system

Supervisory Function

The Board of Directors consists of 13*1 directors, including 6 outside directors*2 and 3 female directors. The Board of Directors determines key management policy, in addition to overseeing executive duties. In order to perform this supervisory role from multiple viewpoints in accordance with the demands of society, the policy for selecting new board members states that candidates must have a strong sense of ethics and demonstrate initiative and leadership.

Additionally, outside directors are experts in management and other fields. In addition, the supervisory function of Daiwa Securities Group Inc. is reinforced by the Audit Committee and the Office of the Audit Committee. The Audit Committee, which consists of a majority of outside directors, plays a pivotal role in the supervision of executive duties. The Audit Committee is assisted by the Office of the Audit Committee, which is a department independent of execution of business.

  1. *1As of June 30, 2019
  2. *2Outside directors as defined by Article 2-15 of Japan’s Companies Act

Audit Committee’s Activities

Daiwa Securities Group Inc.’s Audit Committee is engaged in auditing activities for duties executed by directors and corporate executive officers as part of corporate governance. In particular, it focuses on verifying the construction and operational status of the internal control system.

For example, in FY2019, in order to confirm one of the priority issues of the audit policy, "Efforts to realize and deepen customer-first business operations, the Audit Committee conducted hearings with the Compliance Department, Sales Headquarters, and sales offices and employee unions.

In February 2020, all Audit Committee members, including four outside directors, visited Daiwa Securities’ Compliance Department and head office. They received explanations from the Compliance Department regarding monitoring centered on VLS hearings and systems for inspecting sales branches, and from the head office regarding the conduct of meetings where opinions are actively presented, self-checks by sales staff, and measures for reviewing check methods by senior staff. The members asked various questions, including about sales staff’s time allocation methods and motivation. They thus took advantage of the visit as a valuable opportunity to deepen their understanding. The Audit Committee will continue to deepen its understanding of the Group’s operations and proceed with initiatives to strengthen the Group’s corporate governance system.

Audit Committee members receiving explanations from the Compliance Department
Audit Committee members receiving explanations from the Compliance Department
Visit to the office floor of the head office
Visit to the office floor of the head office

Preventing Conflict-of-Interest Transactions between Group Companies

Conflict-of-interest transactions can occur between Daiwa Securities Group Inc. and Group companies in situations such as intra-Group transactions. Daiwa Securities Group applies rules regarding conflicts of interest stipulated by Japan’s Companies Act to the Executive Management Committee as well as the Board of Directors. Conflicts of interest between Daiwa Securities Group Inc. and Group companies are appropriately prevented through a rule prohibiting an executive officer from voting when he or she concurrently serves as an officer of an interested Group company and thus has a special interest in a matter to be decided.

Executive Compensation that is Closely Linked to Performance

Compensation for directors and corporate executive officers is based on the following fundamental policies.

Compensation Committee’s Policy on Determination of Compensation of Directors and Corporate Executive Officers

  • To create effective incentives, which contribute to the increase of shareholders’ value through sound business development and also lead to the improvement of business performance in the short term as well as the medium and long term.
  • To maintain a remuneration level which is competitive enough to recruit and retain people not only in Japan but also in the world as a global securities company group.
  • To ensure the execution and supervision functions operated effectively as a company with a nominating committee, etc.

Compensation for directors and corporate executive officers is determined by the Compensation Committee. Executive compensation has three components: basic compensation; performance-based compensation; and share price-linked compensation. The details of each component are as follows:

  • Basic Compensation
    A fixed amount calculated based on his/her position, duties and role.
  • Performance-linked remuneration
    • Determined depending on the level of individual contribution, based on consolidated ROE and consolidated ordinary income, which are settled as Performance KPIs of the Medium-Term Management Plan, while also comprehensively taking into account achievement status of the managerial goals set in the Medium-Term Management Plan, and the like.
    • Does not apply to directors who do not serve as corporate executive officers.
  • Stock-linked remuneration
    • To increase the link between remuneration and shareholders’ value, granted by the Company as Restricted Stock, etc., the value of which corresponds to a certain percentage of base remuneration.
    • Does not apply to outside directors.

Internal Control System and Internal Audit

In recognition that management is responsible for maintaining an internal control system to ensure the sound and appropriate execution of business, the Group, under the main initiative of Daiwa Securities Group Inc., has established a system for managing the Group’s major business risks. Through this system, the Group endeavors to ensure business effectiveness and efficiency, reliable financial reporting, compliance with laws related to business activities, and asset preservation. Internal auditing departments verify the efficacy of this.

The Internal Audit Department verifies the internal control system. This department sits independently from all other departments, reports to a dedicated corporate executive officer, and ensures internal audits to act as an important function of raising Group value through the creation of a sound and efficient internal control system. It seeks to raise corporate value by effectively conducting internal audits, and primarily implements risk-based internal audits.

The Group’s business activities to which the Internal Audit Department pays special attention

  • The internal control systems at Daiwa Securities Co. Ltd. and overseas offices as a global financial instruments business operator
  • Internal control systems at Daiwa Next Bank, Ltd. as a bank
  • Status of businesses that involve collaboration between Group companies and with companies outside the Group
  • Status of management of new risks arising from expansion into new business fields
  • Status of control over Group companies by the holding company

Authorization of Plans and Reporting of Results

The authorization of internal audit plans and reporting of audit results are undertaken by the Group Internal Audit Committee. Internal audit plans are authorized by the Audit Committee or an appointed Audit Committee member who has received the prerequisite authority from the Audit Committee. The results of audits are also reported to the Audit Committee. Reports to the Group Internal Audit Committee are not limited to the audit results conducted at Daiwa Securities Group Inc. and Daiwa Securities Co. Ltd. , but also include highly important findings made during audits conducted on Group companies in Japan and overseas.

Internal/External Group Cooperation and System Enhancements

The Internal Audit Department collaborates with the internal auditing departments of domestic and overseas Group companies through periodic meetings, monitoring, and audit activities.

The Internal Audit Department maintains communications with the Audit Committee and accounting auditor, making any necessary adjustments to ensure that audits are performed efficiently, and receives audit requests from the Audit Committee. The degree to which these internal auditing activities satisfy The Institute of Internal Auditors’ “International Standards for the Professional Practice of Internal Auditing,” the global standard for internal auditing, is routinely evaluated by independent third parties, which helps to constantly improve its system.

Structure and Achievements of Whistleblowing System (Corporate Ethics Hotline)

Since January 2003, Daiwa Securities Group has been operating a Corporate Ethics Hotline, through which employees can report problems in the workplace directly to a corporate ethics officer of Daiwa Securities Group Inc. or outside lawyers. The system mainly aims to detect corporate misconduct—which includes violations of the Financial Instruments and Exchange Act and other laws, regulations and rules that include bribery and corruption—in its early stages and prevent such misconduct from occurring.
We declare the protection of callers in our regulations, stipulating that the executives and employees of Daiwa Securities Group may not cause detriment of any kind (dismissal, demotion, pay cuts, cancellation of worker dispatch contracts, replacement, etc.) in relation to reports by callers, may not ask people who have information on callers to disclose such information, and may not seek to identify callers or search for any other information about them in relation to reports.

When the hotline is contacted, the corporate ethics officer, in cooperation with the internal control officers at each Group company, carries out a factfinding investigation, while taking steps to protect the caller. In FY2019, 42 reports were received through the whistleblowing system.

Number and breakdown of reports to Corporate Ethics Hotline
Matter Number Percentage
Harassment-related 17 40%
Compliance violation-related 10 24%
Workplace environment/manners-related 9 21%
Expense/cost-related 2 5%
Labor management-related 1 2%
Other 3 7%

The Group is working to ensure that all employees are familiar with the Corporate Ethics Hotline, including staff at affiliated companies and temporary workers, in order to ensure that anyone can use it without hesitation. We are also making efforts to respond quickly when calls are received. The Group is taking steps to improve the hotline so that it can work effectively as a deterrent to prevent problems before they occur, not just as a measure to solve problems.

Use of the intranet to increase employee awareness
Use of the intranet to increase employee awareness