Corporate Governance

Basic Views on Corporate Governance

Daiwa Securities Group Inc. practices group management based on a holding company structure, establishes a highly transparent and objective governance structure that conforms international standards, realizes highly efficient oversight of group companies and builds a unified group management system that elicits synergies among group companies.

The Company has adopted a company with Three Committees system (a company with nominating committee, etc.) as an institutional design in order to supervise management through the following (1) and (2).

  1. (1)Making swift and decisive decisions by having the Board of Directors assign wide-ranging authority to Corporate Executive Officers and clarifying the division of the duties among Corporate Executive Officers
  2. (2)Improving transparency and fairness of the management by establishing three Committees : the Nominating Committee, Audit Committee, and Compensation Committee with highly independent Outside Directors as a majority of the members

Furthermore, the Company proactively addresses corporate social responsibility activities in order to obtain trust from all of the stakeholders. There are indeed various aspects to corporate social responsibility, such as providing superior products, services, and sincere responses to customers; returning profits appropriately and disclosing information to shareholders; measures for labor environment and evaluation of the employees; establishing legal compliance and corporate ethics; environmental management; as well as social contribution.

The Company believes that these approaches, together with a strengthened corporate governance system which emphasizes transparency, mobility and efficiency will lead to the sustainable improvement of the corporate value.

Corporate Governance Guidelines

The Company’s Corporate Governance Guidelines define the basic framework and policies of the Daiwa Securities Group’s corporate governance.

Corporate Governance System

The corporate governance system of the Company consists of the Board of Directors and the Three Committees (Nominating Committee, Audit Committee, and Compensation Committee) as a supervising body, Outside Director’s Committee as a subcommittee of the Board of Directors, Executive Management Committee and its subcommittees (Group Risk Management Committee, Group Compliance Committee, Disclosure Committee, Group IT Strategy Committee, and Overseas Management Committee) as an executive body, and Group Internal Audit Committee, which is in direct control of the CEO as an internal audit body.

Corporate Governance System at Daiwa Securities Group

Major Initiatives in Corporate Governance

History of Daiwa’s Corporate Governance

The Group discloses its state of compliance with the Corporate Governance Code via corporate governance reports.

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置
June 2002 Elected outside directors
Shortened directors’ terms of office from two years to one year
July 2003 Established the Internal Audit 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 Director's Committee
April 2017 Appointed outside directors as chairpersons of all three committees
June 2020 Adopted structure in which majority of directors are non-executive directors

Board of Directors

Role and responsibility
The Board of Directors determine core management matters such as basic management policy, matters related to appointment and dismissal of Corporate Executive Officers (Shikkoyaku), division of duties, command system, etc., internal control systems and risk management systems.
In order to make management decisions promptly and to enhance efficient group management, the Board of Directors delegates decision-making powers to the Corporate Executive Officers (Shikkoyaku) as much as possible.
In addition, by supervising the execution of duties of the Directors and the Corporate Executive Officers (Shikkoyaku), the Company aims to ensure the fairness and transparency of the Group management and to achieve sustainable growth and maximization of corporate value over the medium to long term based on the corporate philosophy.
The Board of Directors convenes at least once every three months; in FY2020, it convened 12 times.

Composition
The Board of Directors, in which a Board Chairman served as a chairman, consists of all Directors, of which between three and 20. In order for the Board of Directors to exercise the supervisory function over the management more appropriately, two or more and one-third or more of the members of the Board of Directors shall be independent Outside Directors with a high degree of expertise and a sense of ethics.
As a general rule, the majority of Directors do not concurrently serve as Corporate Executive Officers (Shikkoyaku). Regarding the personnel composition of the Board of Directors, the Company endeavors to ensure a balance of knowledge, experience and abilities, and diversity including gender, internationality, etc. The Company aims to increase the ratio of female Directors to 30% or more by 2030.
Following the June 2021 Shareholders Meeting, the Board of Directors consists of 14 members, seven of whom are Outside Directors—one more than in FY2020—and four of whom are female. Of its seven Internal Directors, five concurrently serve as Corporate Executive Officers (Shikkoyaku).

The members of the Board of Directors and their status of attendance in FY2020

In FY2020, all Internal and Outside Directors attended 100% of Board of Directors’ meetings.

Takashi Hibino (Chairman of the Board) 12/12
Seiji Nakata 12/12
Toshihiro Matsui 12/12
Keiko Tashiro 12/12
Akihiko Ogino 9/9*
Sachiko Hanaoka 12/12
Hiromasa Kawashima 9/9*
Michiaki Ogasawara (Outside Director) 12/12
Hirotaka Takeuchi (Outside Director) 12/12
Ikuo Nishikawa (Outside Director) 12/12
Eriko Kawai (Outside Director) 12/12
Katsuyuki Nishikawa (Outside Director) 12/12
Toshio Iwamoto (Outside Director) 9/9*
Yumiko Murakami (Outside Director) new appointment

*Attendance rates for the nine meetings held following their appointment as directors in June 2020

Supporting system
In order to provide support for the Board of Directors Secretariat and for Outside Directors, a Corporate Secretariat was established in April 2020.

The Skill Matrices of Outside Directors

Internal Auditing System Diagram of Daiwa Securities Group

Evaluating the Effectiveness of the Board of Directors

Every year since FY2014, the Group has evaluated the effectiveness of its Board of Directors, in order to clarify and rectify any issues, with the goal of improving its effectiveness.
The Company takes a survey for all of the Directors about the role and responsibility of the Board of Directors, its structure, its operating methods, and the state of its discussions. Based on the results of the survey, the Company implements the interview for them, and analyzes and evaluates the results of those interviews by expert organizations.
The results of the evaluation are reported to the Board of Directors and discussed by the directors in order to implement PDCA cycle. The Company endeavors to maintain and enhance the effectiveness of the Board of Directors using such PDCA cycle.

Response to Feedback from FY2019 Evaluations

1. Strengthening support for the Outside Directors
The Company strengthened its support for outside directors in a number of ways: it used Outside Directors’ meetings—which were convened seven times in FY2020—and off-site meetings to hold discussions on diverse themes, and to encourage exchanges of opinions between the Outside Directors and their departments of responsibility; the Group also promoted information sharing among outside directors. In particular, the Company increased opportunities for discussing the new Medium-Term Management Plan, so that outside directors could participate from the earliest stages.

2. Strengthening Group governance
Reports regarding important risks taken by Group companies as well as governance of overseas branches were submitted to the Board of Directors, which verified key issues and responses to them.

3. Responses to and active discussions regarding important issues
Furthermore, the Group actively discussed “Customer First” operations, further promotion of SDG/ESG initiatives, DX (digital transformation), and potential risks related to the spread of COVID-19, etc.

Overview of the results of the Evaluations of the Effectiveness of the Board of Directors in FY2020

Regarding the evaluations of the effectiveness of the Board of Directors in FY2020, the Company evaluated the following items with reference to the advice of an external third-party organization And confirmed that the effectiveness is ensured.

Evaluation items:
1.Strategy and its execution
2. Risks and crisis management
3. Corporate culture
4. Performance monitoring
5. Investment and business alliance
6. Engagement with stakeholders
7. Composition and operation of the Board of Directors

Directors pointed out that it is necessary to strengthen monitoring of the new Medium-Term Management Plan and risks, and to discuss DX and SDGs/ESG.
Furthermore, there was an opinion that it is necessary to deepen the common understanding of the functions and roles of the Board of Directors and to further streamline the operation of the Board of Directors.
The Company will continuously endeavor to enhance the effectiveness of the Board of Directors to earn trust from various stakeholders and improve the corporate value sustainably.

Key Agenda Items for the Board of Directors in FY2020
Main agenda for the Board of Directors in FY2020
Main items to be resolved Formulating the new Medium-Term Management Plan (including the 2030 Vision), and reviewing
the current Medium-Term Management Plan
Management policies
Formulating risk appetite statements (first and second-half), and corporate governance guidelines
Main items to be reported Monitoring the state of discussions regarding both the new Medium-Term Management Plan and annual plans
State of progress regarding adoption of “Customer First” operations
Budget structure reforms
Various types of risk monitoring
Responses to COVID-19
Important new businesses, investments, and business partnerships; Group reorganization
New personnel systems
State of dialogue with shareholders and investors
Response to and evaluation of SDGs and ESG

Nominating Committee

Role and responsibility
The Nominating Committee examines the composition of the Board of Directors and the basic idea of candidates for Director in consideration of corporate governance, and selection of candidates for Director, the succession plan for the CEO.
The meetings of the Nominating Committee are held once or more a year. In FY2020, there were six meetings in total.

Composition
Nominating Committee is chaired by an Outside Director, and consists of a total of seven members, of whom five are Outside Directors and two are Internal Directors.

Nominating Committee members
Chairperson Michiaki Ogasawara (Outside Director)
Members    Takashi Hibino, Seiji Nakata, Hirotaka Takeuchi (Outside Director), Eriko Kawai (Outside Director), Katsuyuki Nishikawa (Outside Director), and Toshio Iwamoto (Outside Director)

Audit Committee

Role and responsibility
The Audit Committee is in charge of auditing the execution of duties by the Directors and Corporate Executive Officers (Shikkoyaku), auditing business reports and financial statements, etc., preparing audit reports, and determining the content of proposals to be submitted at shareholders meetings regarding the election or dismissal and non-reappointment of the Accounting Auditor.
Audit Committee members attend meetings of the Board of Directors, and Audit Committee members selected by Audit Committee attend the Executive Management Committee as well as other important meetings and have report hearings from Directors and employees to share the information with other Audit Committee members, in order for the Company to create an environment for the effective audit by the Audit Committee.
In principle, meetings of Audit Committee are held once a month. In FY2020, there were 15 meetings in total

Composition
The Audit Committee is chaired by an Outside Director, and consists of seven Directors who do not serve as Corporate Executive Officers (Shikkoyaku), of whom five are Outside Directors and two are full-time Internal Directors.

Audit Committee members
Chairperson Ikuo Nishikawa (Outside Director)
Members    Sachiko Hanaoka, Hiromasa Kawashima, Michiaki Ogasawara (Outside Director), Eriko Kawai (Outside Director), Katsuyuki Nishikawa (Outside Director), and Yumiko Murakami (Outside Director)

Supporting system
The Audit & Supervisory Board Member’s Office, which is not engaged in executive operations, provides support for the Audit Committee.

Audit Committee’s Activities

The Daiwa Securities Group Inc. Audit Committee carries out auditing activities for duties executed by Directors and Corporate Executive Officers (Shikkoyaku) as part of the Group’s corporate governance. In particular, it focuses on verifying the structure and operational status of internal control systems.
For example, in FY2020, the Audit Committee conducted hearings with employee unions and various divisions, including the Compliance Department and Sales Division. These hearings were designed to verify the Group’s initiatives for practicing “Customer First” operations, which is a key issue in its audit policy. The Audit Committee members also visited sales branches.
The Audit Committee visited the former Yokohama Station West Exit Branch*on December 10 and Shinjuku Branch on December 17, 2020 (some members took part via internet conferencing).
There, the committee exchanged opinions with branch managers, compliance managers, managing directors, managers, and sales employees regarding initiatives aimed at transitioning to “Customer First” operations; at Yokohama Station West Exit Branch, the Audit Committee also received explanations on the progress of office consolidation. These were valuable opportunities for the Audit Committee to hear at first hand the thoughts and diverse opinions of sales employees on various topics.
Going forward, the committee intends to deepen its understanding of Group operations, and continue its initiatives to strengthen the Group’s corporate governance systems.

  1. *The former Yokohama Station West Exit Branch has now been integrated into Yokohama Branch
The Audit Committee inspects the sales floor of the former Yokohama Station West Exit Branch
The Audit Committee inspects the sales floor of the former Yokohama Station West Exit Branch/figcaption>
The committee receives explanations from Shinjuku Branch sales employees
The committee receives explanations from Shinjuku Branch sales employees

Compensation Committee

Role and responsibility
The Compensation Committee discusses issues related to Director remuneration policy and decisions upon individual remuneration, as well as the incentive plan of the Company group, to ensure the enhancement of consolidated earnings, etc. The specialized expertise of the Outside Directors is taken into consideration so that the Compensation Committee can plan, operate, and verify rational Remuneration system.
The meetings of the Compensation Committee held once or more a year. In FY2020 there were five meetings in total.

Composition
The Compensation Committee is chaired by an Outside Director, and consists of four Outside Directors including a chairman and two Internal Directors.

Compensation Committee members
Chairperson Hirotaka Takeuchi (Outside Director)
Members  Takashi Hibino, Seiji Nakata, Ikuo Nishikawa (Outside Director), Toshio Iwamoto (Outside Director), and Yumiko Murakami (Outside Director)

Outside Director’s Committee

The primary purpose of Outside Directors’ Committee is sharing of information among the Outside Directors and aims to exchange their opinions on the issues including the contents of the proposal of the Board of Directors.
The meetings of the Committee are held once or more a year. In FY2020 there were seven meetings.

The Executive Management Committee

Role and responsibility
The Executive Management Committee deliberates and determine important business matters and the Company group’s business strategy and the basic policy on the structural problems between the group companies.
In order to make the management decisions promptly, the Board of Directors delegated decision-making powers to the Executive Management Committee as much as possible. Furthermore, to have more expert deliberation, the Company established subcommittees each of which consists of certain Corporate Executive Officers (Shikkoyaku), etc.
Executive Management Committee is held once or more than once every three months. In FY2020, there were eighteen meetings in total.

Composition
The Executive Management Committee consists of all of 16 the Corporate Executive Officers.

Subcommittees

Group Risk Management Committee

Role and responsibility
Group Risk Management Committee deals with the group risk management system and the status of the risk of the Company group etc., deliberates and decides upon policy and concrete measures on risk management.
The meetings of the Group Risk Management Committee are held once or more than once every three months. In FY2020 there were ten meetings in total.

Composition
The CEO is the chairman of the committee, and the Committee consists of ten Corporate Executive Officers (Shikkoyaku) and one Executive Officer (Shikkoyakuin).

Group Compliance Committee

Role and responsibility
Group Compliance Committee deliberates and decides general policies and specific measures on the compliance with the laws and regulations, establishment of corporate ethics, internal control, etc. of the Company group.
The meetings of the Group Compliance Committee are held once or more than once every three months. In FY2020 there were four meetings in total.

Composition
The CEO is the chairman of the Committee, and the Committee consists of eleven Corporate Executive Officers (Shikkoyaku).

Disclosure Committee

Role and responsibility
Disclosure Committee is in charge of decision making regarding disclosure of the Company group’s information on management, effectiveness and appropriateness of internal control report, the scope of consolidated financial reporting, etc.
In principle, the meeting of the Committee are held before the quarterly earnings announcement, disclosure of a securities report or a quarterly report. Committee meetings are also held from time to time when certain important matters to be disclosed occur. In FY2020, there were sixteen meetings in total.

Composition
In principle, the chairman of the Committee is CFO, and the Committee consists of seven Corporate Executive Officers (Shikkoyaku), who are in charge of the sections which have close relations to the above decision making and who have jurisdiction over such section and one other member, a total of eight members.

Group IT Strategy Committee

Role and responsibility
Group IT Strategy Committee deliberates and decides to integrate management strategy and IT strategy, enhance speed of the decision-making related to IT investment and improve IT investment efficiency.
In principle, the meetings of the Group IT Strategy Committee are held once every six months in principle. In FY2020 there were two meetings in total.

Composition
The CEO is the chairman of the Committee, and the Committee consists of six Corporate Executive Officers (Shikkoyaku) and four Executive Officer (Shikkoyakuin), a total of ten members.

Overseas Management Committee

Role and responsibility
The Company established the Overseas Management Committee as a deliberative and decision-making body for the management administration of overseas subsidiaries, etc. and other related matters.
The meetings of the Committee are held once or more than once every three months. In FY2020 there were six meetings in total.

Composition
The CEO is the chairman of the Committee, The Committee consists of thirteen Corporate Executive Officers (Shikkoyaku), eight Executive Officers (Shikkoyakuin) and two Senior Managing Director (Sanyo), a total of twenty three members.

Group Internal Audit Committee

Role and responsibility
Group Internal Audit Committee deliberates and determines various matters of the business of the Company group related to the development of the internal audit system and verification of internal controls to secure suitability and effectiveness of the Group’s business operations, internal audit system and internal control.
The meeting of the Group Internal Audit Committee are held once or more than once every three months. In FY2020 there were six meetings in total.

Composition
The CEO is the chairman of the Committee, and the Committee consists of twelve Corporate Executive Officers (Shikkoyaku).

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

As stipulated by the Companies Act, the Compensation Committee has determined “Policies for Determination of Remuneration of Directors and Corporate Executive Officers”.

Policies on Determination of Remuneration of Directors and Corporate Executive Officers

Compensation for Directors and Corporate Executive Officers is based on the following fundamental policies.

  • 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 and in the medium/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 operate effectively as a company with a nominating committee, etc.

Remuneration of Directors and Corporate Executive Officers consists of base remuneration,Performance-linked remuneration and Stock-linked remuneration, and determined at the Compensation Committee which are specifically as below.

  • Base remuneration
    • A fixed amount calculated based on his/her position, duties and role, and paid monthly and in cash.
  • Performance-linked remuneration
    • Determined depending on the level of individual contribution, mainly on the basis of consolidated ROE and consolidated ordinary income, which are set 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 other relevant factors and provided at a certain time every year.
    • A certain limit is set on Performance-linked remuneration to be paid in cash based on business performance. If Performance-linked remuneration exceeds the limit, the exceeded amount will be paid in restricted stock instead of cash.
    • It 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, the Company grants, as Stock-linked remuneration, restricted stock, etc., the value of which corresponds to a certain percentage of base remuneration as non-monetary remuneration at a certain time every year.
    • It does not apply to Outside Directors.

Performance-linked remuneration
The Company refers to KPIs, which are set as the Group numerical goals in the Medium-Term Management Plan “Passion for the Best” 2023 to calculate Performance-linked remuneration.
The performance evaluations used for calculating Performance-linked remuneration reflects the Financial Performance Evaluation, which is based on Performance KPIs (a subset of Financial KPIs), and Quality Evaluation that comprehensively evaluates the KPIs of each strategic target. The Financial Performance Evaluation and the Quality Evaluation are determined by the Compensation Committee.
Performance-linked remuneration is calculated by multiplying the reference amount determined for each position and the Performance Evaluation and reflecting the degree of individual contribution. The same calculation formula is applied to all positions for Performance Evaluation.

Procedures to Determine Executive Compensation
The Articles of Incorporation stipulate that the remuneration, etc., of the Directors and Corporate Executive Officers (Shikkoyaku) is determined by the resolution of Compensation Committee.
In determining the amount of remuneration, it is calculated based on the indicators determined by Compensation Committee, majority of which is held by Outside Director to secure the transparency.

Procedures to Determine Executive Compensation
*In addition to above, Compensation Committee is held from time to time.

Internal Control System and Internal Audit

The Company group has created management structure centered on the Company with regard to the group’s various main risks, and seeks to ensure compliance with the laws and regulations regarding the effectiveness and efficiency of operations, the reliability of the finance report and the business operations, and the preservation of assets, etc. This is based on the recognition that the maintenance of the internal control system to accomplish the sound and appropriate operation is the responsibility of the manager.
The Internal Audit Department verifies the effectiveness of the system.

Based on the recognition that instalment of a sound and efficient internal audit system enhances the value of the Company group, and having concluded that the internal audit plays an important role in such a system, the Company has positioned a full-time Internal Audit Corporate Executive Officer (Shikkoyaku) in charge, and has Internal Audit Department, which is independent from other sections, examine the internal control system.
By conducting effective audits on a risk basis, the Department strives to enhance the Group’s corporate value.

Examples of aspects of the Group’s business activities to which the Internal Audit Department pays special attention

  • The internal control systems at Daiwa Securities and its overseas offices as global financial instruments business operators
  • The status of businesses at Group companies, and the status of control over Group companies by the holding company
Internal Auditing System Diagram of Daiwa Securities Group

Authorization of Plans and Reporting of Results

Internal audit plans are subject to approval by and results of the audits are presented to the Group Internal Audit Committee. Furthermore, internal audit plans shall be consented by the Audit Committee or Selected Committee Member who has been given certain authority from the Audit Committee, and the results of the 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. They also include highly important findings made during audits conducted on companies in Japan and overseas.

Collaboration with Parties Inside and Outside the Group and Improvement of System

The Internal Audit Department collaborates with the internal auditing divisions of Group companies in Japan and overseas through periodic meetings, monitoring, and audits.
The Internal Audit Department maintains communications with the Audit Committee and accounting auditor, making any necessary adjustments to ensure that audits are performed efficiently. The Department also sometimes 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 outside third parties. The Group thus strives to constantly improve its system.