Corporate Governance Structure
(as of June 22, 2016)
1. Overview of Corporate Governance Structure
Board of Directors
Our Board of Directors comprises nine directors (none of which are outside directors), and holds regular meetings monthly, with special meetings of the Board held from time to time as required. The Board is responsible for decision-making involving management policies, annual budgets and other important matters. It also oversees business execution and the business performance of each director through reports on monthly budget management and other important matters.
Executive Officer System
To work toward sound, efficient management and more rapid decision-making, Linical has introduced a system of executive officers. The executive officers are responsible for business execution in accordance with basic policies determined by the Board of Directors.
The Management Committee, which consists of directors and executive officers with titles, as well as full-time Audit & Supervisory Board Members, meets at least once a month. In addition to providing timely solutions to various issues that arise in the execution of business, the Management Committee is intended to deliberate on and work to communicate regarding other important management matters, progress with business initiatives and other issues.
2. Reasons for Employing a Corporate Governance Structure
Linical operates its business with the goal of serving as partner to the pharmaceutical companies, contributing to drug development efforts and helping them to maximize value. To accomplish this, our Board of Directors consists primarily of individuals familiar with the drug business. To strengthen oversight of management decision-making by the Board of Directors, auditing is conducted by four outside Audit & Supervisory Board Members, ensuring the soundness and transparency of business operations.
3. Development of an Internal Control System
Linical has formulated a basic policy for its internal control system, and is working to develop a structure for ensuring that the execution of business by our directors complies with the laws and regulations and articles of incorporation. Audit & Supervisory Board Members and the auditing office monitor our officers and employees in the performance of their duties, implementing the necessary audit procedures as required from time to time.
4. Development of a Risk Management Structure
At Linical, the Internal Control Committee is responsible for overseeing and managing compliance, risk and crisis response. Specifically, at the instruction of the Internal Control Committee, its Secretariat works with the cooperation of every division and department to understand and consider countermeasures in response to inhibiting risk factors in each division and department. In addition, by developing, maintaining and continually improving an effective risk management structure, Linical aims to reduce company-wide risk.
With regards to risks arising in the operation of our business, Linical has established a Legal Section in its Corporate Planning Office, with in-house counsel providing review and advice as appropriate based on a legal perspective. To complement efforts to ensure compliance, Linical has also put into effect a whistleblower system in accordance with the Whistleblower Protection Act, in an effort to gain a quick understanding of any matters in breach of compliance. To strengthen its compliance structure, Linical also enters into advisory contracts with outside experts, including consulting attorneys as well as those experienced in fields such as law, tax accounting and labor, building a structure that gives Linical access to appropriate, timely advice and direction.
The Quality Control Division is responsible for inspecting development operations for compliance with the Pharmaceutical Affairs Act, which governs the drug development business in general, as well as the Ordinance for Enforcement of the Pharmaceutical Affairs Act, and related rules and ordinances of the Ministry of Health, Labour and Welfare. We work to ensure all employees are familiar with these requirements by regularly gathering the latest information and providing training and orientation.
5. Development of a Structure for Ensuring Fair Business Practices by Filing Company Subsidiaries
Linical and its group companies share their basic policies regarding compliance, and in addition to clarifying targets to be met, evaluate and manage business execution. Based on rules for management of affiliates, Linical also works to obtain important information about its group companies and understand their status, building a structure that enables us to respond quickly when necessary.
6. Requirements for Appointment of Directors
Requirements for appointment of directors are stipulated in Linical's articles of incorporation, which state that said appointments shall be by a majority of voting rights in the presence of greater than one-third of shareholders entitled to exercise voting rights, and shall not be by cumulative vote.
7. Provision of the Articles of Incorporation Regarding Number of Directors
The number of directors shall be 10 or fewer, as stipulated in Linical's articles of incorporation.
8. Dividend of Surplus
To ensure a dynamic policy of dividends to shareholders and to enable a capital policy, Linical's articles of incorporation stipulate that, except when otherwise provided for by law, dividend of surpluses and other matters stipulated in Article 459, Paragraph 1 of the Companies Act shall be determined by resolution of the Board of Directors, rather than by vote of the General Meeting of Shareholders.
9. Requirements for Special Resolutions of the General Meeting of Shareholders
Regarding requirements for special resolutions of the General Meeting of Shareholders as stipulated in Article 309, Paragraph 2 of the Companies Act, Linical's articles of incorporation stipulate that such resolutions shall be determined by at least two-thirds of voting rights in the presence of greater than one-third of shareholders entitled to execute voting rights. Loosening restrictions on the quorum required for special resolutions of the General Meeting of Shareholders is intended to ensure the smooth operation of shareholders' meetings.
10. Entity for Determining Acquisition of Own Shares
To enable agile execution of financial initiatives in response to changing business conditions, Linical's articles of incorporation stipulate that the company may acquire its own shares through a resolution of its Board of Directors, as stipulated in Article 165, Paragraph 2 of the Companies Act.
11. Overview of Liability Limitation Agreements
Linical has entered into agreements with Audit & Supervisory Board Members Tetsuya Senda and Masaya Ishii limiting their liability for damages under Article 423, Paragraph 1 of the Companies Act. The amount of the limitation on liability under said agreements shall be the minimum liability amount as stipulated in Article 425, Paragraph 1 of the Companies Act.
Status of Internal Audits, Audits by Audit & Supervisory Board Members, and Accounting Audits
(as of June 22, 2016)
1. Internal Audits and Audits by Audit & Supervisory Board Members
Linical has established an Auditing Office comprising a Head of Auditing and one dedicated staff member, which reports directly to the president. At the beginning of each business year, the Auditing Office conducts audits of all divisions, covering the rationality, efficiency, adequacy and appropriateness of business execution in accordance with the fiscal year plan approved by the president. Based on the results of the internal audit, a Notice of Internal Audit Results and, if so indicated, an Instructions for Improvements document are prepared, and the division involved is instructed to make improvements. Upon receipt of such notification, the audited division promptly prepares a response to those instructions for items requiring improvement, reflecting the results of the internal audit in actual business improvements.
The Audit & Supervisory Board and the Auditing Office also share information on a day-to-day basis, working together to ensure audits move forward effectively and efficiently. The Audit & Supervisory Board Members and the head of the Auditing Office also meet quarterly with the company's accounting auditors, and, as necessary, exchange information from time to time and verify the status of improvements to any audit findings.
Note that the Audit & Supervisory Board comprises two full-time Audit & Supervisory Board Members (both outside Audit & Supervisory Board Members) and one part-time Audit & Supervisory Board Member (outside Audit & Supervisory Board Member). Hitoshi Oyasu, a full-time Audit & Supervisory Board Member, is familiar not only with the drug development business, but the pharmaceutical industry overall; full-time Audit & Supervisory Board Member Masaya Ishii has experience as a full-time Audit & Supervisory Board Member and is also familiar with accounting and bookkeeping; Junji Kaji, a part-time Audit & Supervisory Board Member, has extensive experience with and knowledge of business overseas. Each of our Audit & Supervisory Board Member utilizes his specialized expertise, building a structure to ensure a thorough audit process. The three Audit & Supervisory Board Members also hold regular monthly Audit & Supervisory Board, with special Audit & Supervisory Board held from time to time as required. They also not only attend meetings of the Board of Directors and speak out as required, but the full-time Audit & Supervisory Board Members attend the Management Meeting and conduct audits involving business execution and other matters.
2. Accounting Audits
The certified public accountants who conduct Linical's accounting audits are Minoru Meboso and Masafumi Takami, both with Deloitte Touche Tohmatsu LLC. Details omitted as both of them have seven years or less of continuous audit experience. Ancillary staff involved in Linical's accounting audit work include three certified public accountants and an additional five staff.
3. Relationship Between Corporate Entities and Internal Controls
Linical employs a corporate auditor system. Each Audit & Supervisory Board Member is responsible for implementing audits based on an audit plan and policies determined by the Audit & Supervisory Board, and for reporting and reviewing those results at Audit & Supervisory Board. Cooperation between these entities is as indicated in the organization chart below.
Outside directors and outside Audit & Supervisory Board Members
(as of June 22, 2016)
There are three outside Audit & Supervisory Board Members.
No personal or trade relationships or other interests exist between Linical and its Audit & Supervisory Board Members Hitoshi Oyasu, Masaya Ishii and Junji Kaji. Note that two of the outside Audit & Supervisory Board Members, including Hitoshi Oyasu and Masaya Ishii, own Linical stock.
Outside Audit & Supervisory Board Member Hitoshi Oyasu was once a managing director at Fujisawa Pharmaceutical Co., Ltd. (currently Astellas Pharma Inc.); outside Audit & Supervisory Board Member Masaya Ishii served as Audit & Supervisory Board Member at Astellas Pharma Inc.; and outside Audit & Supervisory Board Member Junji Kaji was previously general manager of the Medical Business division at Astellas Pharma Inc. Linical's relationship with Astellas Pharma Inc., one of our customers, consists of a normal business relationship, with no direct interests involving our outside Audit & Supervisory Board Members.
While Linical has no special provisions regarding independence as a condition for electing its outside Audit & Supervisory Board Members, our basic approach to electing auditors is that they are expected to conduct objective, appropriate oversight and audits based on specialized knowledge in their function and role in the audit process, and that there is no risk of a conflict of interest arising with our general shareholders.
Linical has elected no outside directors. Linical believes that by having all of its Audit & Supervisory Board Members be outside Audit & Supervisory Board Members, it offers a strengthened external structure for management oversight of the Board of Directors, which functions as a management decision-making body and manages and oversees business execution by the executive officers. We believe that this enables us to ensure that our objective, neutral management oversight function is effective, an important aspect of corporate governance.