Corporate Governance

Basic Views on Corporate Governance

Our management philosophy is to contribute to the realization of a healthy society through the latest and optimal medical device technologies. As a company that deals in medical equipment, this management philosophy expresses our desire to provide patients and medical professionals with superior medical devices and to enhance the corporate value by fulfilling our social role of realizing a healthy society.

To meet the expectations and demands of the various stakeholders surrounding us, we believe that implementing initiatives for corporate sustainability will strengthen the foundation that enables sustainable growth over the medium-to long-term. In particular, we believe that securing effective functioning of corporate governance is key to the corporate sustainability. With efforts to strengthen our governance system, we will ensure the transparency and objectivity of management and build a management system that can respond quickly and accurately to changes in the business environment.

Corporate Governance Structure

Corporate Governance Report

Further details on our corporate governance.

Board of Directors

Composition of Board of Directors

The Company's articles of incorporation stipulate that we can have up to 15 directors, excluding those who are members of the AS committee, and up to five directors who are members of the AS committee. Currently, out of 15 directors, six are outside directors, all of whom we have registered as independent directors. The Board of Directors holds regular meetings once a month and extraordinary meetings as needed.

In the Board of Directors meeting for the fiscal year ending March 2023, we deliberated and decided on important matters such as budget, financial statements, significant organizational and personnel issues, investment projects, important contracts, transfer of subsidiary shares, and important matters related to sustainability, all following laws, articles of incorporation, and Board of Directors regulations.

We have reviewed financial statements, the status of directors' duties, and important matters related to compliance on the monthly basis. Additionally, we received reports from the Investment Committee and the Sustainability Committee, and held abundant discussions. Outside directors, while coordinating with each other, supervised and advised on the execution of directors' duties from an objective standpoint.

Skill Matrix

When nominating candidates for director, in order that the Board of Directors may fulfill its roles and duties effectively, the Company aims for the Board to be composed of members who have experience and knowledge in the areas of corporate management, business promotion, and strengthening of business foundation.

When nominating candidates for outside director, the Company aims to achieve a composition of people with experience such as a corporate manager and with specialist knowledge in areas such as finance and accounting, or law and compliance.

(Notes)

1. The above table lists up to three of the skills possessed by the directors, and does not show all of the skills they possess.
2. “Management experience” means experience and knowledge that provides the basis for strategic thinking aimed at achieving sustainable improvements in corporate value over the medium to long term.
3. “Knowledge of the medical device industry” means experience and knowledge that provides the basis for comprehensive decision-making in the rapidly changing medical device industry.
4. “Sales/marketing” means experience and knowledge that provides the basis for formulating competitive sales strategies in the medical device industry.
5. “R&D/manufacturing/medical affairs” means experience and knowledge that provides the basis for formulating competitive product strategies in the medical device industry.
6. “Finance/accounting” means experience and knowledge that provides the basis for making decisions in relation to corporate and business activities.
7. “Legal affairs/compliance” means experience and knowledge that provides the basis for taking advantage of opportunities and managing risk in relation to corporate and business activities.
8. “Personnel affairs/human resource development” means experience and knowledge that provides the basis for securing and utilizing management resources in relation to corporate and business activities.
9. “DX/IT” means experience and knowledge that provides the basis for reforming business processes in relation to corporate and business activities.

Evaluation on the Effectiveness Regarding the Board of Directors

To further enhance the effectiveness of the Board of Directors, we analyze and evaluate the effectiveness of the entire Board of Directors every year and disclose an overview of the results.

Evaluation for the fiscal year ended March 31, 2023 included questionnaires to all directors, and analysis and evaluation of the effectiveness of the Board of Directors based on the opinions of outside consultants. As a result, we have confirmed that the board is properly managed and effective.

We will continue to make efforts to improve the effectiveness of the Board of Directors.

A summary of the analysis and evaluation results for the fiscal year ending March 31, 2023 is as follows.

Major items of the self-evaluation questionnaire

1. Composition and operation of the Board of Directors
2. Management strategy and business strategy
3. Corporate ethics and risk management
4. Evaluation on business performance and evaluation on each member’s performance and their Remuneration
5. Dialogue with shareholders, etc.

Outline of the analysis and evaluation results

We have confirmed that the Board of Directors as a whole is appropriately fulfilling its roles and functions in all evaluation items after discussions on the analysis of the self-evaluation questionnaire at the Board of Directors meeting.

Regarding each evaluation item, we analyzed that the number and composition of the Nomination and Remuneration Advisory Committee received high ratings. This is likely due to the fact that we appointed a new independent outside director to the committee last April, making the majority of the committee independent outside directors.

We also confirmed that there has been a significant improvement in the evaluation of our efforts to promote constructive dialogue with shareholders (like institutional investors), which was identified as an issue in last year's effectiveness evaluation.

On the other hand, we agreed that there is still a need for further enhancement of director training (providing training opportunities when directors take office and continuously afterwards) to further improve the effectiveness of the Board of Directors.

We will continue its regular analysis and evaluation of the Board of Directors and further improve its effectiveness for the medium to long-term growth.

Outside Directors

Appointment Criteria

Upon appointing outside directors, we judge based on our criteria for determining the independence of outside directors, which follows the criteria for independence set forth by the Tokyo Stock Exchange. We recognize our independent directors meeting these standards can perform their duties as outside directors from an independent standpoint.

With regards to outside directors who are not members of the Audit and Supervisory Committee, we selected them based on the belief that appointing individuals with a wide range of insight and extensive experience in corporate management will ensure objectivity and transparency in our decision-making and supervision of business execution.

With regards to outside directors who are members of the Audit and Supervisory Committee, we selected them because they are capable of strengthening the corporate governance of the Company by conducting audits and supervision based on their broad insight and abundant experience in their respective areas of expertise as lawyers or tax accountants.

Criteria for Determining the Independence of Outside Directors

We judge outside directors are independent with no risk of conflicts of interest with general shareholders if they do not fall under any of the following items.

1. Persons who have been executive directors, executive officers, or other employees. (hereinafter referred to as "Business Executors") of the Company or its subsidiaries (hereinafter referred to as "the JLL Group") at present or in the past 10 years
2. Persons or any company’s Business Executors who have the JLL Group as a major business partner with the amount of transactions with the JLL Group in the most recent fiscal year more than two percent or more of such persons’ or Business Executors’ consolidated net sales
3. Major business partners of the JLL Group or their Business Executors with the amount of transactions with such business partners in the most recent fiscal year more than two percent or more of the JLL Group’s consolidated net sales
4. Major lenders or their Business Executors to the JLL Group with the amount of the JLL Group’s borrowings from such lenders exceeding two percent of the JLL’s consolidated gross asset
5. Consultants, accounting experts, or legal experts who receive a large amount of money* or other property from the JLL Group other than remuneration for their services as directors (if the person receiving such property is a corporation, the person belonging to such corporation.) (Note: the amount is judged as large if the amount of money or other assets exceeds, on average, 10 million yen per year for an individual, or two percent of the consolidated net sales of a corporation, for the past three fiscal years)
6. A person or Business Executors of a corporation who hold 10 percent or more of the total voting rights of the Company
7. Business Executors of companies that have directors (whether full-time or part-time) from the JLL Group
8. Persons or any organization’s Business Executors that have received donations or grants from the JLL Group more than 10 million yen per year in the most recent fiscal year.
9. The accounting auditor of the JLL Group or a person belonging to an auditing firm that is the accounting auditor of the JLL Group
10. Those who have fallen under any of 2 to 9 in the last one year
11. Close relative (spouse or relative within the second degree) of a person who falls under any of 1 through 9 (limited to a person in an important position such as directors other than outside directors, executive officers, or officers with equivalent authority)

Remuneration for Directors

Policy on Remuneration for Directors

We have established the NRA (Nomination and Remuneration Advisory) Committee, chaired by an outside director, as an advisory body to the Board of Directors to ensure objectivity and transparency in the process of nominating and evaluating directors and determining their remuneration.

The NRA Committee deliberates on the basic policy for remuneration, composition and amount of remuneration of directors, and the Board of Directors decides based on the report from the NRA Committee.

1. Basic Policy of Remuneration for Directors

We have established the following basic policy to ensure that the remuneration system for directors functions properly to achieve sustainable growth and enhance corporate value of the Company.

1. Provide appropriate incentives for achieving performance targets
2. Provide a competitive remuneration level that will lead to the recruitment of excellent human resources
3. The amount of remuneration should lead to the enhancement of corporate value over the medium- to long-term.
4. The process of determining remuneration should be highly objective and transparent.

2. Remuneration Structure and Method of Determining the Amount of Remuneration

We have made some changes to the amount and content of performance-linked stock remuneration for directors (excluding those who are AS committee members). This decision was made at the 43rd regular shareholders' meeting held on June 28, 2023, and the changes will take effect from July 2023.

The remuneration for directors is composed of fixed remuneration, performance-linked bonuses, and performance-linked stock remuneration (Directors’ remuneration BIP trust). In addition to fixed monetary remuneration, we have adopted performance-linked bonuses as monetary remuneration linked to short-term performance and performance-linked stock remuneration as an incentive for medium- to long-term improvement of corporate value. However, for outside directors excluding those who are AS committee members and directors who are AS committee members, we will only provide fixed remuneration, considering their roles and independence.

1. Fixed remuneration
   1. Eligible Recipients
      Directors including those who are members of the AS Committee
   2. Individual Payment Amount
      For directors excluding those who are members of the AS Committee, the fixed remuneration is determined by the NRA Committee, which is appointed by the Board of Directors. The NRA Committee takes into account each director's position, responsibilities, and contributions to performance, as well as benchmarking against remuneration levels in outside database services.
      For directors who are members of the AS committee, their fixed remuneration is decided through discussions within the AS committee.
   3. Payment Method
      The fixed remuneration is paid monthly as a fixed cash reward.
2. Performance-linked bonus
   1. Eligible Recipients
      Directors excluding those who are members of the AS Committee and those who are outside directors
   2. Individual Payment Amount
      Performance-linked bonuses are calculated based on performance-linked variables and individual contribution rates determined by the NRA Committee. The ratio between the basic bonus and the distribution bonus is set at 8:2. The basic bonus is calculated for each director eligible for payment. It is based on the basic bonus standard amount set for each fiscal year, which is disclosed at the beginning of the fiscal year. The calculation also takes into account the consolidated sales, consolidated operating profit (after deducting the executive bonus when 100% of the performance forecast is achieved), and earnings per share (EPS) for the fiscal year. These three individual performance achievement rates (with 100% achievement being 1.0) are multiplied by the performance-linked variables to determine the payment amount.
   3. Payment Method
      The performance-based bonus will be paid out once a year, within three months after the end of the fiscal year.
3. Performance-linked stock remuneration (Directors’ Remuneration BIP Trust)
   1. Eligible Recipients
      Directors excluding those who are members of the AS Committee and those who are outside directors
   2. Individual Payment Amount
      The performance-linked stock remuneration is calculated by multiplying the performance-linked variable, which is set based on the degree of achievement of consolidated sales, consolidated operating profit (after deducting the executive bonus at the time of 100% performance achievement of the consolidated performance forecast), and earnings per share (EPS) for each fiscal year disclosed at the beginning of the fiscal year, by the standard points set for each director who is the subject of payment. The resulting points (with one point corresponding to one share) are then used to annually provide directors with our company's shares and the monetary equivalent of the conversion disposal amount of our company's shares.
   3. Payment Method
      The performance-linked stock remuneration involves giving out our company's stocks and the equivalent amount of money from the conversion disposal of our stocks. We do this once a year, after the end of the fiscal year.

3. Policy for determining the ratio of remuneration by type of director

The ratio of performance-linked remuneration to the total amount of remuneration is approximately 80% for fixed remuneration and 20% for performance-linked remuneration in the case of a standard level of performance achievement, as an average of the eligible directors.
The ratio of non-monetary remuneration to total remuneration is, on average, 90% for monetary remuneration and 10% for non-monetary remuneration.

Remuneration for Directors (FY3/2023)

(Notes)

1. The above includes one director who served as an AS Committee member and resigned at the conclusion of the 42nd general shareholders' meeting held on June 28, 2022.
2. For performance-linked bonuses, we have listed the amount set aside for executive bonuses for this fiscal year.
3. As performance-linked stock remuneration (Directors’ Remuneration BIP Trust), we have recorded an amount of 42 million yen set aside for stock remuneration based on the number of points awarded or expected to be awarded this fiscal year.
4. In addition to the total amount of the above remuneration, based on the resolution of the 37th general shareholders' meeting held on June 28, 2017, we have paid 1 million yen as a retirement bonus to one retiring director. This amount includes 1 million yen set aside for retirement bonuses disclosed in the business report of the previous fiscal year.

Holdings of Listed Shares

Policies for Shareholdings

In respect to investment securities the purpose of which is other than pure investment, we maintain our policy on shareholdings that contribute to the attainment of expertise to which we cannot easily have access and the smooth execution and development of our businesses by building and strengthening relationships with business partners.

For each individual shareholding case, the Investment Committee regularly monitors and deliberates on the evaluation and continuation of the investments or loans. The Board of Directors then annually verifies the appropriateness of these issues by confirming the merits of holding them in terms of the Company’s medium- to long-term business strategy, based on the status of transactions with the companies.

If any shareholding is deemed inappropriate, we will sell such shares from time to time to reduce the holdings.

Exercise of Voting Rights

With regards to the exercise of voting rights, we will decide whether to vote or not to vote after comprehensively considering the purpose of holding the voting rights mentioned above and the possibility of impairing the corporate value of such business partners.

Compliance

Basic Views on Compliance

As a company that handles medical devices that are critical to the lives of patients, we believe that in order to be a trusted presence at all times, we must not only comply with laws and regulations but also follow compliance policies with high ethical standards. To that end, the actions of each and every employee are important. Therefore, we strive to ensure thorough compliance awareness by disseminating the Code of Conduct so that we can meet the expectations of all stakeholders and build relationships of trust.

Compliance System

Based on the Compliance Promotion Regulations, the Board of Directors has appointed a Chief Compliance Officer (CCO) and the Compliance Committee, chaired by the CCO, plays a central role in promoting company-wide compliance activities. The Compliance Committee meets quarterly to discuss various compliance issues, including sharing information on compliance violation cases, the operation of the whistleblower system, and the status of compliance training. In addition, the CCO reports quarterly to the Board of Directors on the status of company-wide compliance and receives instructions as appropriate.

Internal Reporting System

We have established an internal "Compliance Consultation Desk" and "JLL Group Helpline" utilizing an external organization as a whistle-blowing contact for the internal reporting system for employees. In accordance with relevant laws and regulations and rules on whistleblowing, the Company investigates whistleblowing cases, giving due consideration to the protection of the whistleblower, and takes corrective measures as necessary.

In addition to posting information on the company intranet introducing the whistleblowing contact, the whistleblowing contact is regularly explained at new employee training sessions and at compliance training sessions for all employees. We have also deployed a contact point at our overseas subsidiaries, which provides support in local languages in addition to Japanese and English.

Preventing Corruption

Our business involves a lot of interactions with public officers and medical professionals. Thus, when outsourcing or remuneration is involved, we strictly monitor to ensure that fair and equitable relationships in accordance with the rules set by the industry is maintained.

Our website discloses "Guidelines for Transparency in Relationships between Corporate Activities and Medical Institutions, etc." as a guideline for transparency and the payments that are subject to disclosure can be also seen there.

https://www.jll.co.jp/privacy/transparency.html (Available only in Japanese)

In addition, in response to the expansion of our business overseas, in December 2019, we restructured our existing regulations and prepare and enforce the Guidelines to Prevent Bribery of Foreign Public Officials Regulations to ensure thorough preventing bribery of foreign public officials.

Export Control

We comply with the Foreign Exchange and Foreign Trade Law by properly managing exports within the company based on the Security Export Control Regulations to ensure that neither cargo exported overseas nor technology provided by the company is diverted to military use.

Disseminating Information to Employees

We have established a Code of Ethics and Code of Conduct which are available on the company intranet. In addition, we conduct training for new employees, compliance training for all employees, and e-learning to continuously foster compliance awareness. The training also covers topics such as harassment and ethics laws for public officials.

Discussions are underway to implement compliance training at overseas sites, including the use of multiple languages.

Respect for Human Rights

We respect the human rights of all people involved in our business activities.

We have established the JLL Group Human Rights Policy on December 22, 2022 to fulfill our responsibility for human rights. Based on this, we will promote efforts to reduce human rights-related risks along with the Compliance/Risk Management Subcommittee, headed by a director.

JLL Group Human Rights Policy

We, the JLL Group, hold our management philosophy that says, "Contributing to the realization of a healthy society through the latest optimal medical device technologies". To put this into practice through our business activities, we respect the human rights of all stakeholders, including patients, medical professionals, shareholders, investors, business partners, employees, and local communities. Our Code of Conduct also states that all officers and employees must respect the human rights of all stakeholders and behave. Based on these two above, we have established the JLL Group Human Rights Policy.

1. Commitment to Respecting Human Rights
   We understand that our business activities may affect the human rights of various people. Therefore, we will take utmost care to prevent any human rights violations. If we find any negative impact on human rights in our business activities, we will correct our actions.
   We will comply with the local laws and regulations of the countries and regions of our business. We will respect the International Bill of Human Rights, the International Labor Organization Declaration on Fundamental Principles and Rights at Work, the United Nations Guiding Principles on Business and Human Rights, and other international standards.
2. Scope of the Human Rights Policy
   We apply this policy to all officers and employees of our group. We will also encourage our business partners to respect human rights.
3. Human Rights Due Diligence
   We will establish a human rights due diligence system to identify potential negative human rights impacts derived from our business activities. If we find any, we will work to prevent or mitigate such impacts.
4. Remedies and Corrections
   We will immediately correct any wrongdoings of ours that have or may have possibly caused any negative human rights impacts.
5. Dialogue and Consultation with Stakeholders
   We will interact with and consult our stakeholders regarding our initiatives against actual or potential negative human rights impacts.
6. Information Disclosure
   We will disclose information on our efforts and progress regarding human rights-related issues on our website.
7. Education and Execution
   We will provide right education and training related to human rights issues with all officers and employees in our group so that they can understand it and take the right actions.

Risk Management

Basic Views on Risk Management

As a Company that handles medical devices, we have a responsibility to ensure a stable supply of medical devices to patients and medical professionals. In order to reliably fulfill these responsibilities and to achieve sustainable enhancement of corporate value, we are promoting the development of a risk management system so that appropriate measures can be taken against risks that may have a significant impact on business activities.

Risk Management System

Based on the Risk Management Regulations, the Board of Directors has appointed a Chief Risk Management Officer (CRO) and the Risk Management Committee, chaired by the CRO, promotes company-wide risk management. The Risk Management Committee meets semi-annually to identify and evaluate risks, determine policies for responding to risks, and confirm response status. The committee also works with related committees such as the Sustainability Committee and the Information Security Committee to ensure effective risk management. In the event that a risk that may have a significant impact on business activities arises and requires a company-wide response, a task force headed by the President and CEO as Executive Manager will be established to take appropriate action to minimize losses.

BCP（Business Continuity Plan）

Measures Based on the Location of the Bases

As for natural disaster risks, our damage assumptions are mainly based on the assumption of an earthquake directly below the Tokyo metropolitan area and river flooding.

Since our Toda Factory is located near the Arakawa River, the risk of flooding was taken into consideration from the design stage of the factory, and the floor height of the first floor was raised in order to prevent the production facilities from being submerged and to prevent flooding of the second floor and above. In addition, measures have been taken in consideration of the risk of river flooding, such as installing manufacturing equipment on the second floor and above and placing cleanrooms on the third and fourth floors.

For our Oyama Factory, we checked hazard maps and other data to determine areas that would be less likely to be affected even if other factories were to be damaged. The location was considered based on the fact that there are few natural disasters and the distance would not interfere with business operations.

In addition, we have factories in Malaysia, as well as outsourcing assembly to partner companies in Japan and overseas, in order to diversify risks in our production system.

Sales offices throughout Japan are located on the second floor or higher of office buildings as a condition of the buildings' earthquake resistance as well as to prevent flooding and crime prevention due to disasters.

Formulation of BCP (Business Continuity Plan)

We believe that it is an important role of a company handling medical device to ensure the supply of products and goods so that patients can receive optimal treatment even in the event of a disaster. To fulfill this role, we have established a BCP based on the basic rules for business continuity to ensure early recovery from business stoppages caused by disasters.

Inventories of products are managed at the distribution centers of our contractors in principle, but we also store a small number of them at our sales offices nationwide. Since some of our products are used by patients who require urgent care, we have registered some of our company cars as exempted vehicles and we expect to utilize those cars in the event of an earthquake etc.

Information Security

Basic Views on Information Security Measures

Recognizing that information security risks have a significant impact on our management, we are working to strengthen our countermeasures. In addition to technical measures such as the introduction of systems and countermeasure tools and physical measures such as office access control and restricting access to classified areas, we also focus on human measures by providing e-learning education and targeted e-mail attack training since we believe that it is important to improve the security-related awareness and knowledge of each employee.

Information Security Management System

Based on the Information Security Management Regulations, the Board of Directors has appointed a Chief Information Security Officer (CISO), and the Information Security Committee, chaired by the CISO, plays a central role in promoting company-wide information security measures. The Information Security Committee meets semi-annually to identify issues to be addressed, confirm the progress of measures, and confirm the results of training. Furthermore, in the event of an information security incident, such as unauthorized access, malware infection, or loss of storage media, the CSIRT* plays a role in responding under the instructions of the Information Security Committee in cooperation with external organizations as necessary.

*CSIRT (Computer Security Incident Response Team)
An organization that collects information on information security and takes measures in preparation for incidents that could lead to serious information security incidents, and executes and manages measures in the event of an incident.

Information Security System Chart

Management of Important Information Related to Business

The information we must manage includes patient information and manufacturing design information, in addition to general confidential information. Personal information is managed in accordance with the Regulations for Handling Personal Information, and the privacy statement and basic policy for specific personal information are published on the website. In addition, we have obtained the Privacy Mark and have established a system to take appropriate protection measures for personal information.

https://www.japanlifeline.com/privacy/

https://www.jll.co.jp/privacy/personal.html (Available only in Japanese)

There are cases when we obtain information about patients who have used the products we handle, as well as information about individuals that will be included in materials for "Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices."

In addition to taking care of the way of storing this information in order to block access from the outside, we limit the number of employees who have access to the information. We also keep an access log and take other necessary physical and technical measures for security management.

Disseminating Information to Employees

We are focusing on education and training so that each employee can act with a heightened awareness of information security. For new and mid-career employees, we focus on information security topics in training for new employees. We also trying repeatedly to ensure thoroughness by providing e-learning for all employees twice a year and holding irregular web conferences.

For business devices such as PCs and smartphones, we have taken various measures such as remote locking in case of loss, data encryption, and limited authentication methods.

In addition, since information leakage via e-mail has become a social issue recently, we conduct e-mail trainings regularly for our employees to raise awareness.