Corporate governance

We have adopted a company structure with an Audit & Supervisory Board. As of December 22, 2023, we have ten directors (four of whom are outside directors) and four Audit & Supervisory Board Members (two of whom are outside Audit & Supervisory Board Members).
 

The Audit & Supervisory Board plays a critical role in the effective functioning of Hamamatsu Photonics. Composed of two Audit & Supervisory Board Members who are former employees and two outside Audit & Supervisory Board Members , the Audit & Supervisory Board cooperates in its audits with external accounting auditors to ensure effectiveness. The reason for appointing former employees as Audit & Supervisory Board Members is that they have inherited our corporate culture. For the continuing development of the Company, each Audit & Supervisory Board Member conducts audits on an independent, individual basis, informed by a thorough understanding of our corporate culture and operations.

The Board of Directors is the highest decision-making body of Hamamatsu Photonics after the general meeting of shareholders. We have formulated rules for the Board of Directors and have established standards for agenda items in the regulations on official authority. The Board of Directors meets once a month and on an as-needed basis to ensure swift decision-making and transparency, as well as to supervise the execution of duties by the directors. To facilitate extensive discussions, materials on agenda to be resolved by the Board of Directors are distributed to the directors and Audit & Supervisory Board members prior to the Board of Directors meeting.

The Audit & Supervisory Board meets approximately six times a fiscal year. The Audit & Supervisory Board formulates the auditing policy and implementation plan. Based on these directions, each Audit & Supervisory Board Member attends important meetings within the Company, including meetings of the Board of Directors, to assess management performance, and audits the execution of duties by the directors by conducting interviews in each department. In addition, the Audit & Supervisory Board meets with external accounting auditors, regularly or on an as-needed basis, to exchange information.

We established the Nomination and Compensation Committee in July 2021. Our Nomination and Compensation Committee is formed on a voluntary basis and is positioned as an advisory body. The Nomination and Compensation Committee regulations stipulate that a majority of its members shall be outside directors and that we shall respect the reports of the Nomination and Compensation Committee. The nomination of director candidates and the amount of director compensation are ultimately determined by the Board of Directors. By ensuring fairness, transparency, and objectivity in decisions made by the Board of Directors, we are striving to gain further understanding and trust from the market.

【Composition of committee members】

【Activity status in FY2023 ( from October 2022 to September 2023 )】

・Meetings Held : 3times

・Matters for Consultation  : Consideration of introducing short-term performance-linked compensation, appointment of director candidates

Hamamatsu Photonics has appointed outside directors since 1987, bringing the total to two in 2015, three in 2020 and four in 2021. Outside directors are required to have a high level of insight into technology and management. We have also appointed outside  Audit & Supervisory Board Members since 1987, and in 2004 established a two-outside-Audit-&-Supervisory-Board-Members system. Outside Audit & Supervisory Board Members include individuals with considerable knowledge of finance and accounting. When appointing outside directors and outside Audit & Supervisory Board Members, the Company discloses its interest in the appointment to ensure their independence, thereby increasing transparency and gaining the understanding of shareholders.
 

One concern sometimes voiced about outside directors and outside Audit & Supervisory Board Members is that they may lack insight into the internal workings of the Company, preventing them from making informed decisions on the agenda to be resolved at meetings of the Board of Directors and other meetings. To ensure that outside directors and outside Audit & Supervisory Board Members can function effectively at meetings of the Board of Directors, we implement the following measures.
・Advance distribution of materials on matters for resolution
・Prior explanation of the agenda as necessary
・Reporting of views of internal Audit & Supervisory Board Members

【Officer in charge of contact point for outside directors and outside Audit & Supervisory Board Members】
Ken Nozaki（Managing Executive Officer, Chief of Global Management and Planning General Headquarters）

The general meeting of shareholders convenes in mid- or late December every year for the fiscal year ending in September. Although many shareholders attend the general meeting every year, to encourage broader participation and facilitate the exercise of voting rights, we are taking the following measures.

• Notice of convocation of the general meeting of shareholders is sent in writing three weeks or more before the general meeting and is disclosed even earlier on the Company’s website.
• An electronic voting platform is established to facilitate the exercise of voting rights by institutional investors (since the fiscal year ended September 2006).
• Electronic voting forms are adopted (since the fiscal year ended September 2006).
• Notices of convocation are provided in English as well as Japanese.

In December 2020, we introduced the Executive Officer system to revitalize the Board of Directors, accelerate management decision-making, and strengthen the Board of Directors's supervisory functions.
This will allow the Board of Directors to devote time to essential discussions such as future planning, divisional strategy, and M&A, as well as strengthen the supervisor's position.
In addition, many of the decisions previously made by the Board of Directors have been transferred to Executive Officers or the Board of Executive Officers, enabling flexible decision-making with the aim of expanding our core businesses.
The Board of Executive Officers is held once a week. The first half of the Board of Executive Officers is composed of our executives such as Executive Officers, Audit & Supervisory Board Members, executive managers, and managers. In addition to sharing information, we are considering important matters other than the Board of Executive Officers matters for resolution from a multifaceted perspective.
And the second half of the Board of Executive Officers consists of Executive Officers, Audit & Supervisory Board Members, and executive managers, which resolve the matters delegated by the Board of Directors and discuss the essential matters of the Company.

To enhance the effectiveness of directors, since 2016 the members of the Board of Directors are asked to conduct self-evaluations. All directors and Audit & Supervisory Board Members are subject to a five-point evaluation and a free-form descriptive questionnaire regarding the composition, operation and responsibilities of the Board of Directors. The results are reported at meetings of the Board of Directors and used as appropriate to improve the Board’s operation.
Since September 2020, we have outsourced the evaluation of effectiveness to a third party in order to increase transparency and objectivity.

We encourage directors and Audit & Supervisory Board Members to conduct voluntary self-training to enhance their ability to fulfill their duties. We also obtain training from outside sources.

 2023: Performance indicator
 2022: Anti-corruption
 2021: Revised Corporate Governance Code
 2021: ESG management
 2019: Patent Infringement Proceedings
 2019: Cost of capital
 2018: Directors’ duties and responsibilities

The Articles of Incorporation stipulate that the term of directors of Hamamatsu Photonics is one year and the term of Audit & Supervisory Board Members is four years. Directors and Audit & Supervisory Board Members are elected when attending shareholders with a majority of voting rights approve their appointment at a general meeting of shareholders in which at least one third of the total voting rights of all shareholders are exercised by the attending shareholders.

Candidates for director are required to have deep knowledge of photonics, a desire to explore the frontiers of light and an entrepreneurial spirit with passion for a new industry. To put these qualities into practice, candidates should be capable of implementing bold reforms, backed by leadership and teamwork. Based on these criteria, the Company selects candidates while taking into consideration gender and other diversity in the composition of the Board of Directors, as stated in Article 13 of the Basic policy on corporate governance, and through a comprehensive assessment of their performance, achievements, insight, character, ethics and other factors. After obtaining feedback from outside directors as well, we select candidates at meetings of the Board of Directors. We also receive advice from female outside directors on how to promote the success of female employees.

Candidates for Audit & Supervisory Board Members are required to fulfill their duties from an independent and objective standpoint. Candidates should be individuals of outstanding character, insight and abilities, abundant experience, and high ethical standards. At least one Audit & Supervisory Board Member is appointed with appropriate knowledge of finance and accounting.

Beginning with the December 2017 regular general meeting of shareholders, the Company discloses its reasons for nominating candidates for directors in the reference documents for the notice of convocation, both for inside and outside candidates.

In determining director candidates, we consult with the Nomination and Compensation Committee in advance to obtain their consent in order to increase fairness, transparency and objectivity and to gain the trust of our shareholders. The Nomination and Compensation Committee stipulates that a majority of the Nomination and Compensation Committee shall be outside directors and that we shall respect the reports of the Nomination and Compensation Committee.

To fulfill its corporate social responsibility on a sustainable basis, Hamamatsu Photonics believes it is vital to take effective steps to cultivate successors, not only for the president but also for directors. However, the Company has no officially stipulated procedures for cultivating successors.

Instead, the Company relies on a bottom-up process of manager development. A characteristic of the Company that has continued since its foundation is that each small manufacturing-group unit or “segment” is required to be profitable in its own right. Multiple small segments combine to comprise a manufacturing department, and the manufacturing departments combine to form a business division. Personnel in charge of each unit are asked to carry out management with an awareness of profitability. This arrangement enables managers to acquire the awareness and qualities they need to serve the Company as management professionals.

Compensation for directors and Audit & Supervisory Board Members is as follows.

On the basis of the conviction that light has unlimited possibilities, the Company strives to pursue the unknown and unexplored. Based on new technologies and knowledge the Company creates new markets that contribute to a better society and a healthier planet.

Since these philosophies cannot be achieved in the short term, the Company requires its Directors to achieve results from a medium-to long-term perspective, not from a short-term perspective. Therefore, the Company considers that fixed remuneration is suitable as the base remuneration for Directors. In addition, the Company has introduced short-term performance-linked remuneration in consideration of the need to achieve stable performance improvement in each fiscal year in order to respond to shareholders' entrustment.

On the other hand, the Company has introduced stock-based remuneration (restricted stock remuneration) with the aim of contributing to the sustainable enhancement of corporate value from a long-term perspective, standing on the same standpoint as our shareholders.

As a result, the remuneration for Directors (excluding Outside Directors) consists of (1) fixed remuneration, (2) short-term performance-linked remuneration, and (3) stock-based remuneration. Since the Company places importance on a medium-to long-term perspective, the Company has structured the ratio of these remunerations to be generally 70:15:15 (see note below). In addition, the remuneration for Outside Directors is fixed remuneration only.

(Note) Short-term performance-linked remuneration may increase or decrease depending on the business performance of each fiscal year. Therefore, the actual ratio may change. In addition, above ratio may not be applied to Officers who concurrently serve as employees due to the relationship with their salaries as employees.

A summary of the remuneration system for Directors is as follows:

1. Involvement of the Nomination and Compensation Committee

Remuneration for Directors is determined on an individual basis by the Board of Directors. Decisions by the Board of Directors are made after consultation with the Nomination and Compensation Committee, the majority of whose members are Outside Directors. The Nomination and Compensation Committee regulations stipulate that the Company respect the reports of the Nomination and Compensation Committee.

2. Summary of each remuneration

Remuneration for Directors consists of (1) fixed remuneration, (2) short-term performance-linked remuneration, and (3) stock-based remuneration. The ratio of these remunerations shall be 70:15:15. Short-term performance-linked remuneration changes in accordance with business performance.
A summary of each remuneration is as follows:

(1) Fixed Remuneration

The amount of monthly fixed remuneration is determined for each position, taking into consideration other companies' standards through surveys conducted by external organizations. Remuneration for Outside Directors is fixed remuneration only.

(2) Short-term performance-linked remuneration

Short-term performance-linked remuneration is determined individually by the Board of Directors based on the performance of each fiscal year. The specific method of determining it is as follows:

① The index of short-term performance-linked remuneration is consolidated operating income. First, the Company compares consolidated operating income for the previous and current fiscal years and determines a coefficient (which varies depending on the position) based on the increase or decrease of it. Then, the Company calculates the amount of remuneration by multiplying the coefficient by the base amount for each position, and pays it to the directors in December of each year.

② The coefficient based on the comparison of consolidated operating income shall be "1" if it is between -5% and +5% compared to the previous year. Then, short-term performance-linked remuneration is paid based on this coefficient. In this case, the ratio of Directors’ remuneration shall be approximately 70:15:15 (standard ratio). And, in order to provide an incentive for Directors to further improve performance, the coefficient shall be varied within a range of ±30% of the previous year's ratio of consolidated operating income. On the contrary, short-term performance-linked remuneration shall not be paid if consolidated operating income is less than -30% of the previous year's rate.

(3) Stock-based remuneration

Stock-based remuneration set at around 15% of total Director remuneration is decided for each Director at the Board of Directors and paid prior with a 30-year transfer restriction period from the record date.

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Note: The Company submits the list of all outside directors and outside Audit & Supervisory Board Members to the Tokyo Stock Exchange as independent officers, as stipulated in the securities listing regulations of the Tokyo Stock Exchange.

Our officers and employees will not engage in any conduct that conflicts with the interests of the Company for the benefit of an individual (including conflicts of interest and potential one) without just cause.