Japan Lifeline : Corporate Governance Report 2023/12/25(803KB)

Corporate Governance Report

Last Update: December 25, 2023

Japan Lifeline Co., Ltd.

President and CEO Keisuke Suzuki

Contact: Corporate Planning Division

Tel [phone]

Securities Code: 7575

https://www.japanlifeline.com/

The corporate governance of Japan Lifeline Co., Ltd. (hereafter "We", "Japan Lifeline" or "the Company") is described below. In the report, the Nomination and Remuneration Advisory Committee and the Audit and Supervisory Committee are abbreviated as "the NRA Committee" and "the AS Committee", respectively.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic

Information

1. Basic Views

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-tolong-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.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code]

We are following all the principles of the corporate governance code.

[Disclosure Based on the Principles of the Corporate Governance Code]

[Principle 1-4]

In respect to investment securities the purpose of which is other than pure investment, our shareholding policy is as follows. Primarily it should help strengthen the expertise to which we cannot easily have access. Secondly, it should help us with the smooth execution and development of our businesses by building and strengthening relationships with business partners. For each individual shareholding case, the Investment Committee will regularly monitor and deliberate on the evaluation and continuation of the investment projects. The Board of Directors will examine annually the ongoing projects by confirming the merits of shareholding in terms of the Company's medium- to long-term business strategy, based on the outlook of

- 1 -

the relationships with the invested companies. If we think any shareholding is not right at the Board of Directors meeting discussion, we will sell such shares from time to time to reduce the holdings. 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.

[Principle 1-7]

We do transactions with related parties, such as directors and major shareholders, upon the approval of the Board of Directors. We also do a questionnaire-survey on related-party transactions with all the directors to confirm the existence of such transactions.

[Principle 2-4 (1)]

We believe that it is important to reflect diverse values in the management to enhance corporate value over the medium-tolong-term. When appointing employees to management positions, we evaluate and decide based on their experience and abilities, regardless of gender, nationality, new graduates or mid- career hires.

The percentage of women in management positions in our group was 3.5%. We will continue to increase the percentage of women in our workforce by creating an environment in which women can work comfortably. We aim to achieve a 15% ratio of women in management positions by 2030 by promoting initiatives related to the promotion of women's activities. Regarding the percentage of non-Japanese employees in management positions and the percentage of mid-career hires were 1.5% and 86.6% respectively. Many employees with different background and experiences play central roles in our group. Currently, we have yet to set a specific target on the number of non-Japanese employees or mid-career hires but we will in the future as necessary.

(Note: Figures are as of March 2023)

[Principle 2-6]

Since we have introduced a defined contribution pension plan, we are not involved in the management of corporate pension as asset owners. However, we provide newly registered employees with opportunities to learn about asset management.

[Principle 3-1]

(i) Management Philosophy, Strategy, and Plan

We have posted our management philosophy and strategy on the corporate website.

Mission Statement: https://www.japanlifeline.com/the/#bottom

Message from the President and CEO: https://www.japanlifeline.com/investors/message.html

We have described our management plan in IR presentation materials for institutional investors and posted them on the corporate website.

IR library: https://www.japanlifeline.com/investors/library.html

(ii) Basic Concept and Policy on Corporate Governance

We have described our basic policies on corporate governance in this report and in the "Status of Corporate Governance" section of the annual securities report (available only in Japanese).

(iii) Policies and Procedures for Determining Directors' Remuneration

We have stated our policies and procedures for determining directors' remuneration in II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management, 1. Organizational Composition and Operation, [Incentives] and [Director Remuneration] in this report.

- 2 -

1. Policies and Procedures for the Election and Dismissal of Senior Management and Nomination of Candidates for Directors
   In nominating candidates for directors, the NRA Committee deliberates based on the following selection criteria, and the Board of Directors makes decisions after receiving a report from the NRA Committee. In nominating candidates for directors who are members of the AS Committee, the Board of Directors resolves after obtaining a prior consent of the AS Committee. If we find any of the following criteria for dismissal can apply during the subject director's term of office, the NRA Committee should deliberate on the matter and, upon receiving a report from the AS Committee, the Board of Directors will decide to start the dismissal procedure.

Appointment criteria

The candidate should

• Have excellent character and insight, as well as a high sense of ethics
• Be able to make appropriate decisions regarding overall management
• Be able to analyze and make decisions objectively from a company-wide perspective;
• Have excellent foresight, insight and leadership
• Have the knowledge, experience and expertise necessary for auditing (AS Committee members)

As for the succession plan for the CEO, the current President and CEO is discussing and deliberating with the members of the NRA Committee. In addition, the President and CEO takes the initiative in nurturing candidates for successors by providing them with opportunities to accumulate knowledge and experience through personnel changes and assigning them issues of high managerial importance. The NRA Committee will monitor the progress. Furthermore, the NRA Committee confirms the development status of the successor candidates by conducting a multifaceted evaluation on the annual basis.

Dismissal Criteria

Any candidate is subject to dismissal if

• He/she does material unlawful acts (against laws or the Articles of Incorporation)
• He/she deviates from the selection criteria significantly
• Other reasons than the above two arise that make it difficult for him/her to perform duties properly.

1. Explanation of Individual Elections and Dismissals When Selecting and Removing Management Executives and Nominating Candidates for Directors
   We have stated the reason for the election of directors in the reference document for the General Meeting of Shareholders at the time of the proposal for election. Please see the following page on our website for more details.
   https://www.japanlifeline.com/investors/library_3.html

[Supplementary Principle 3-1 (3)]

1. Initiatives to Promote Sustainability at the Company

Our management philosophy is "to contribute to the realization of a healthy society through the latest and optimal medical device technologies". We will work to solve social/healthcare issues through our business. Based on the idea that it is essential to meet the expectations and demands of our various stakeholders, we promote sustainability-related initiatives to achieve a sustainable goal over the medium- to long- term. We disclose our sustainability policy, promotion system, and initiatives in the sustainability section of our website. Please see the following page on our website for more details.

Sustainability: https://www.japanlifeline.com/sustainability/

1. Investment in Human Capital and Intellectual Property

We believe that human capital is key to our management. The following are what we think important issues regarding human capital.

• Creating a workplace where employees can work with peace of mind
• Developing human resources and provide opportunities for employees to play an active role.
• • 3 -

In addition, in the mid-term management plan, we have set the further expansion of in-house products as a priority issue, and we are working to strengthen our intellectual property based on our business strategy, as well as to promote digital transformation (DX) through the renewal of our core operational system.

Please see the following page on our website for more details.

Human Resources: https://www.japanlifeline.com/sustainability/human_resources.html

Products: https://www.japanlifeline.com/sustainability/product.html

1. The impact of climate change-related risks and opportunities on our business activities and earnings. We recognize the reduction of our environmental burden as one of the key issues of ours. We believe that climate change is one of the most important risks or opportunities that have much to do with our business continuity and its sustainable growth. On our website, we disclose our climate change initiatives following the framework of TCFD (Task Force on Climate-related Financial Disclosures).
   Disclosure Based on TCFD Recommendations: https://www.japanlifeline.com/sustainability/environment.html#en02

[Supplementary Principle 4-1 (1)]

The Board of Directors supervises important decision-making and execution of operations by directors as stipulated in laws and regulations, and other matters are delegated to management. Each director makes decisions on the execution of individual business operations following the provisions of Divisions of Duties Regulations and Administrative Authority Regulations.

[Principle 4-9]

In appointing outside directors, we have established our own criteria, which follow the independence criteria stipulated by the Tokyo Stock Exchange, for determining the independence as below. We appoint independent outside directors after confirming they can perform their duties as outside directors from an independent standpoint meeting these standards.

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. • 4 -

1. 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.
2. The accounting auditor of the JLL Group or a person belonging to an auditing firm that is the accounting auditor of the JLL Group
3. Those who have fallen under any of 2 to 9 in the last one year
4. 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)

[Supplementary Principle 4-10 (1)]

The Company's Board of Directors currently consists of 15 directors (including four AS Committee members), six of whom are outside directors. We have established a voluntary NRA Committee as an advisory body to the Board of Directors. To ensure objectivity and transparency in procedures related to the nomination and remuneration of directors and AS Committee members, the highly independent Committee deliberates on the criteria for the election and dismissal of Directors and AS Committee members, the remuneration system, and other matters. For the purpose of further increasing the independence of the AS Committee, in April 2022, we have appointed one new member who is an independent outside director, and the AS Committee now consists of five members, including three independent outside directors. One of the independent outside directors presides in the chair of the AS Committee.

[Supplementary Principle 4-11 (1)]

The Company's Board of Directors is composed of a maximum of 15 members (excluding those who are AS Committee members) and five directors who are members of the AS Committee as set forth in the Articles of Incorporation, and the number of members who can engage in substantive discussions and swift decision-making considering the nature and size of the business. We will also ensure the diversity of its members, including gender, age, and internationality. As for appointment of internal directors, we select candidates who have expertise and experience in different areas of business. As for outside directors (including those who are AS Committee members), we select candidates who have knowledge and experience as managers or specialists in legal, accounting, tax, and other matters, and are capable of auditing and supervising from an independent standpoint and thus advising the Board of Directors. We have disclosed a skills matrix listing the main knowledge, experience, and abilities possessed by each director in the reference materials for the General Meeting of Shareholders.

The 43rd General Shareholders' Meeting reference material https://pdf.irpockom/C7575/ba4w/DFxT/sMwp.pdf

[Supplementary Principle 4-11 (2)]

When appointing outside directors, we confirm in advance whether they can devote enough time and effort for the Company, including attendance at the Board of Directors' meetings. We disclose each director's concurrent positions in the annual business report and the annual securities report.

[Supplementary Principle 4-11 (3)]

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

• 5 -

1. Management strategy and business strategy
2. Corporate ethics and risk management
3. Evaluation on business performance and evaluation on each member's performance and their Remuneration
4. Dialogue with shareholders, .

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.

[Supplementary Principle 4-14 (2)]

Directors must attend outside training sessions at the time of their appointment to better understand the roles and responsibilities as directors. We will conduct trainings for all directors once a year. In addition, when each director attends the training, the Company should bear the cost.

[Principle 5-1]

We promote constructive dialogue with shareholders based on the following policies.

1. The Corporate Planning Division serves as the contact point for shareholders and investors, and the director in charge of IR meets with shareholders or investors. If shareholders or investors request a meeting with a person other than the director in charge of IR, we will accommodate their request to the extent possible.
2. Under the direction of the director in charge of IR, the Corporate Planning Division takes the central role in taking investor related initiatives, cooperating with the General Affairs Division and the Finance & Accounting Division from time to time.
3. We hold conference calls or online financial briefing sessions on the quarterly basis for institutional investors for them to deepen the understanding of the Company. Our recent updates include video materials and Q&A session transcripts on the website.
4. We report any opinions or concerns gained through dialogue with shareholders or investors to the President and the Board of Directors. Depending on the content of the report, we also report to important internal conferences where senior management members participate.
5. We manage any insider information following the Regulations Governing the Management of Internal Information and do not disclose it to shareholders or investors in dialogue. In addition, to prevent any leakage of accounting information and ensure fairness for investors, we define a silent period starting from the next day of the closing date to the date of disclosure, during which we do not speak of latest financials or important information or whatsoever.

[Dialogue with Shareholders and Investors]

The status of implementation for FYE March 2024 is as follows.

1. Main persons involved in dialogue with shareholders

Financial results briefings (4 times): President, Senior Executive Vice President, Director in charge of IR

Conferences sponsored by securities company (1 time), individual meetings (54 times): Director in charge of IR, IR Department

- 6 -

1. Summary of shareholders and investors with whom dialogue was held Domestic investors 34 times, overseas investors 20 times
2. Main themes of the dialogue and matters of interest to shareholders and investors

Summary of quarterly and full-year financial results, business conditions and growth strategies by business segment, capital policies, etc.

4. Status of feedback to management and board of directors

The Corporate Planning Division reports to the Board of Directors meeting on the status and content of dialogue (quarterly)

5. Matters incorporated as a result of the dialogue

Reduction of working capital, shareholder return policy, policy on cash allocation, etc.

[Measures Implemented to Promote Cost of Capital and Stock Price-Conscious Management]

We recognize that our cost of capital (WACC) is around 8%. As our company-wide ROIC for the fiscal year ending March 31, 2023 was 11.9%, we believe we are currently securing returns that clearly exceed our cost of capital.

In our medium-term plan (FYE March 2024 to FYE March 2028), we have set " Improve capital efficiency management" as one of the priority measures, and have set ROIC and EPS as numerical targets to be managed (ROIC 12%, EPS 120 yen for FYE March 2028). We will strive to achieve the ROIC target by taking measures such as improving operating efficiency and inventory efficiency through operational improvements.

We have described our capital policy in Medium-Term Plan presentation materials as in "Improve capital efficiency management", which is available on the corporate website.

IR library: https://www.japanlifeline.com/investors/library.html

2. Capital Structure

Foreign Shareholding Ratio

From 20% to less than 30%

[Status of Major Shareholders]

Name / Company Name	Number of Shares Owned	Percentage (%)
MT Shokai	9,860,800	12.93
KS Shoji	8,684,100	11.62
The Master Trust Bank of Japan, Ltd. (Trust	7,992,200	10.48
Account)
Custody Bank of Japan, Ltd. (Trust Account)	6,627,100	8.69
Keisuke Suzuki	2,325,016	3.05
Japan Lifeline Employee Shareholders	1,238,254	1.62
Association Exclusive Trust
JP MORGAN CHASE BANK 385781	946,364	1.24
STATE STREET BANK WEST CLIENT - TREATY	870,600	1.14
505234
Takashi Nakao	781,500	1.02
Nippon Life Insurance Company	720,000	0.94
Controlling Shareholder (except for Parent
Company)
Parent Company

- 7 -

Supplementary Explanation

Besides the above, there are 6,667,594 of the Company's treasury shares as of September 30, 2023. 169,612 of shares remaining in the Directors' Remuneration BIP Trust are not included in the number of treasury shares.

3. Corporate Attributes

	Listed Stock Market and Market Section		Tokyo Stock Exchange Prime Market
	Fiscal Year-End		March
	Type of Business		Wholesale Trade
	Number of Employees (consolidated) as of		More than 1000
	the End of the Previous Fiscal Year
	Sales (consolidated) as of the End of the		From ¥10 billion to less than ¥100 billion
	Previous Fiscal Year
	Number of Consolidated Subsidiaries as of		Less than 10
	the End of the Previous Fiscal Year

1. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder
2. Other Special Circumstances which may have Material Impact on Corporate Governance

II. Business Management Organization and Other Corporate Governance Systems regarding

Decision-making, Execution of Business, and Oversight in Management

1. Organizational Composition and Operation

Organization Form

Company with Audit and Supervisory Committee

[Directors]

Maximum Number of Directors Stipulated in Articles of Incorporation

20

- 8 -

	Term of Office Stipulated in Articles of		1 year
	Incorporation
	Chairperson of the Board		President and CEO
	Number of Directors		15
	Appointment of Outside Directors		Appointed
	Number of Outside Directors		6
	Number of Independent Directors		6

Outside Directors' Relationship with the Company (1)

Name

Attribute

Relationship with the Company*

a

b

c

d

e

f

g

h

i

j

k

Fumihiro Sasaki

From another

△

company

Yoshiaki Ikei

From another

△

company

Yusuke Naiki

From another

△

△

△

company

Masahiko Nakamura

Laywer

〇

Daizo Asari

Tax Accountant

Yutaka Karigome

Tax Accountant

△

*Categories for Relationship with the Company

"○" when the director presently falls or has recently fallen under the category; "△" when the director fell under the category in the past

"●" when a close relative of the director presently falls or has recently fallen under the category; "▲" when a close relative of the director fell under the category in the past

a. Executive of the Company or its subsidiaries

b. Non-executive director or executive of a parent company of the Company c. Executive of a fellow subsidiary company of the Company

d. A party whose major client or supplier is the Company or an executive thereof e. Major client or supplier of the listed company or an executive thereof

f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director

g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a legal entity)

h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) (the director himself/herself only)

i. Executive of a company, between which and the Company outside directors are mutually appointed (the director himself/herself only)

j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only)

k. Others

Outside Directors' Relationship with the Company (2)

- 9 -

Membership

Designation

Supplementary

of Audit and

as

Name

Explanation of

Reasons of Appointment

Supervisory

Independen

the Relationship

Committee

t Director

Fumihiro Sasaki

No

Yes

Mr. Fumihiro Sasaki had

Mr. Fumihiro Sasaki has a

been a Senior Managing

wealth of experience and

Executive Officer of

broad knowledge as a

XYMAX Corporation until

corporate manager. He

March 2023, and we have

not only provides

a business relationship

appropriate supervision

with XYMAX. However,

for our company's

the amount of

management, but also

transactions with XYMAX

offers valuable advice and

in the most recent fiscal

suggestions from an

year was less than 2% of

objective and diverse

the consolidated net sales

perspective. As the chair

of both companies, and

of the Nomination and

the criteria for

Remuneration Advisory

determining the

Committee, he plays a

independence of an

crucial role in ensuring

outside director as

the objectivity and

defined by the Company

transparency of the

are met.

nomination and

remuneration decision-

making process. We have

appointed him as an

outside director because

we believe he can

strengthen the

supervisory function of

the Board of Directors and

provide advice and

suggestions for

continuous improvement

of corporate value.

Furthermore, we have

designated him as an

independent officer

because he meets our

criteria for judging the

independence of outside

directors and no risk of a

conflict of interest with

general shareholders

likely involved.

Yoshiaki Ikei

No

Yes

Mr. Yoshiaki Ikei is a

Mr. Yoshiaki Ikei has been

representative director of

involved in the M&A

MA Partners and we had a

industry for many years,

business relationship with

and also has a wealth of

MA Partners in the fiscal

experience and broad

year ended March 31,

insight as a corporate

2017, but since the

manager. He not only

transaction amount was

provides appropriate

less than 2% of

supervision for our

- 10 -