Corporate Governance Systems

In June 2003, HOYA instituted a company-with-committees system. By broadly devolving decision-making authority from the Board of Directors to executive officers, the Company has set up a system that helps executive officers improve business results by allowing them to manage operations in a more timely and efficient manner. At the same time, HOYA established three committees—the Nomination Committee, the Compensation Committee and the Audit Committee—which are distinct from the Board of Directors and are composed of outside directors. The objectives are to provide enhanced powers of supervision over the executive officers and to ensure overall soundness and transparency of management.

Governance Structure

The Board of Directors and the Three Committees

The eight-member Board of Directors comprises five outside directors and three internal directors. To guard against the potential for stagnation in the Board of Directors system, and to ensure lively debate, HOYA has since 1989 been gradually reducing the number of its directors. From a total of 17 in 1989, numbers have fallen to the current eight. Further, to ensure that views can be freely expressed, unconstrained by internal hierarchical structures or personal relationships, the Company has invited outside directors to participate in its management since 1995. Outside directors provide managerial supervision and advice.

The Board of Directors meets every month, excluding February and August. These meetings ensure that the outside directors both oversee and offer advice to the executive officers in their business activities, in an atmosphere that encourages lively debate. Three internal directors serve concurrently as executive officers. Authority has also been devolved from the executive officers to the heads of each business division, who are responsible for day-to-day business operations in their respective areas of activity. These division heads make a detailed report to the executive officers at monthly business reporting meetings, and strategies for responding to each issue are discussed. Important matters are all reported to meetings of the Board of Directors. The Nomination Committee, Compensation Committee and Audit Committee are all composed exclusively of outside directors. The independence of the Committees and their downstream organizations from the executive officers is ensured by their decision-making authority, including the powers of appointment and dismissal. All of the outside directors, who have been invited from outside the HOYA Group, have plenty of experience in management and possess international outlooks. All of them can be expected to offer impartial and appropriate opinions, taking the standpoint of our shareholders. At all meetings of the Board of Directors and the three Committees, they offer frank, genuine opinions.

Nomination Committee

The Nomination Committee decides on the selection of candidates for appointment as directors and executive officers, and submits them to the Board of Directors for its decision. The committee also makes decisions on the referral to Shareholders’ Meetings of proposals to relieve directors of their posts, and on the referral to the Board of Directors of proposals to relieve executive officers of their posts. The committee follows standards for the selection of candidates for appointment as directors to ensure that appointments are fair and appropriate.

Compensation Committee

The Compensation Committee prepares the remuneration system that boosts incentives for the directors and executive officers. It was established with the objective of contributing to improved financial performance for Hoya, by undertaking fair and accurate evaluations of results. The remuneration package of each director is composed of a fixed salary, results-based remuneration and stock options. Each package is decided based on a consideration of such factors as prevailing business conditions, financial results and standards adopted by other companies.

Audit Committee

The Audit Committee, following the audit objectives and audit plans decided upon by the same committee, verifies the financial statements of the Company on the basis of reports received from outside auditors. In addition, it conducts hearings of the results of operational audits made by the Audit Department, verifying the soundness, lawfulness and efficiency of the Company’s operations. All items of significant interest are reported to the Board of Directors, and action is taken according to need.

Internal Control Systems

The Hoya Group devotes resources to the development of sound internal control systems with the objective of ensuring fitting and efficient business management. Internal control systems are included in the day-to-day administrative processes of each business division, and the various business divisions bear the primarily responsibility for their implementation, verification and improvement. Each division is obligated to seek to further improve internal control systems, with the objectives of maintaining compliance, the effectiveness and efficiency of work practices, the reliability of financial reporting and the integrity of management assets. Concerning the development of control systems within each business division, the operating environment differs according to the business. Factors that can differ include methods of improving and developing the control environment, and the risk evaluation and response systems in the workplace. This also extends to the ways control processes are audited and improved. For these reasons, the control systems that operate within each business division and each office are those that are deemed to be the most appropriate and most effective ones for each environment.

Business Conduct Guidelines

To achieve the best results from internal control systems, it is essential that all employees performing duties for an organization work to foster greater awareness. The Hoya Group has established a set of Business Conduct Guidelines that clarify the guiding principles under which each employee should perform his or her duties, with resolute adherence to work ethics, and Hoya is engaged in a wide range of employee education activities.

Hoya Help Line (HHL)

HHL was established in 2003 as an internal reporting and consultative system. If there is an act that contravenes the law or the Hoya Business Conduct Guidelines, HHL ensures that the Company can discover the contravention and that a report will quickly reach top management, enabling timely and appropriate action to be taken on the issue. This structure helps to preserve the integrity of the Hoya Group as a whole. HHL is a dedicated system located within the Company’s HQs for internal use, and it can also be used as a point of contact with external lawyers who are available to listen to employees. This separation preserves anonymity and works to maintain the system’s functional effectiveness. The system had been introduced at Group companies in Japan, USA, Canada, Thailand and Europe.