Corporate Governance

Corporate Governance Practices

Under our mid-term growth strategy, we endeavor to conduct our business operations in an efficient manner, by making swift management decisions so as to adapt to the constantly changing business environment. In so doing, as a fundamental principle, we conduct business honestly with management integrity based on the spirit of respect for human dignity, and strive to strengthen corporate governance to ensure the trust of shareholders, customers, executives and all stakeholders. Specifically, efforts are being made to accelerate decision-making by requiring a more active role of the Board of Directors; to separate performance and oversight through the introduction of an executive officer system and appointment of external directors; to augment the management surveillance system through our Board of Statutory Auditors including external statutory auditors; to build, assess and improve internal controls; and to enhance our internal functions. Furthermore, a Compliance Committee made up of knowledgeable persons was established on 24 June 2006 to act as an advisory body to the Board of Directors. Under its guidance, various policies concerning compliance and risk management are being enacted.

We see our endeavors to strengthen corporate governance through monitoring of corporate governance effectiveness as a continuous process.

Corporate Governance Practices
Followed by Us

Under the Corporate Law, Japanese joint stock corporations are permitted to choose between the traditional corporate governance system based on a board of statutory auditors (the "statutory auditor system") and a corporate governance system based on committees (the "committee system"). The vast majority of Japanese companies employ the statutory auditor system. For Japanese companies with the statutory auditor system, including us, the Corporate Law of Japan has no independence requirement with respect to directors. The statutory auditors, who are separate from the company's management, monitor performance of directors and oversee accounting firms and have separate staff to assist them in completing their tasks. Pursuant to the Corporate Law, Japanese companies with a board of statutory auditors, including us, are required to have at least 50% of the statutory auditors to be "outside statutory auditors" as defined in the Corporate Law and who must meet independence requirements under the Corporate Law. Statutory auditors must not have served as a director, accounting officer (kaikei-sanyo), executive officer, manager or any other employee of the company or any of its subsidiaries. Currently, we have two outside Statutory Auditors.

As discussed above, we employ the statutory auditor system. Under this system, our Board of Statutory Auditors is a legally separate and independent body from our Board of Directors. The function of our Board of Statutory Auditors is similar to that of independent directors, including those who are members of the audit committee, of a U.S. company. In particular, their function is to monitor the performance of our Directors, and review and express on opinion on the method of auditing by our independent public accounting firm and on such accounting firm?s audit reports, for the protection of our shareholders.

Japanese companies with a board of statutory auditors, including us, are required to have at least three statutory auditors. Currently, we have four Statutory Auditors. The term of each Statutory Auditor is four years. In contrast, the term of each of our Directors is one year.

Since July 31, 2005, when the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934 relating to listed company audit committees become applicable to foreign private issuers, we have relied on an exemption under that rule available to foreign private issuers with boards of auditors (or similar bodies), or statutory auditors meeting certain criteria. We make disclosure regarding such reliance in Item 16.D. to our annual report on Form 20-F.

Directors are elected at a meeting of shareholders. The Board of Directors does not have the power to fill vacancies in the board.

Statutory Auditors are also elected at a meeting of shareholders. Under the Corporate Law, before our Board of Directors submits a proposal to a meeting of our shareholders to elect a Statutory Auditor, the proposal must be approved by a resolution of our Board of Statutory Auditors. Our Board of Statutory Auditors is empowered to adopt resolutions requesting that our Directors submit a proposal for the election of Statutory Auditors to a meeting of our shareholders. Statutory Auditors have the right to state their opinion concerning the election or resignation of Statutory Auditors at meetings of our shareholders.

Under the statutory auditor system, unless otherwise provided in our Articles of Incorporation, total amounts of compensation for our Directors and Statutory Auditors are respectively proposed to, and voted on by, a meeting of our shareholders. Our Articles of Incorporation do not provide for any such total amounts. Once the proposals for the total amounts of compensation are approved at a meeting of our shareholders, our Board of Directors allocates the total amount for the Directors among its members in its discretion and our Statutory Auditors allocate the total amount for the Statutory Auditors among themselves in their discretion, unless there is a resolution at the shareholders' meeting or a provision in the Articles of Incorporation relating to the allocation of compensation.

Under the Corporate Law, our Board of Directors is authorized to issue stock acquisition rights unless the issuance is made under "specifically favorable conditions." The issuance of stock acquisition rights to our Directors, Statutory Auditors and employees as stock options would not be deemed to be an issuance under "specifically favorable conditions," even if the stock options are issued at no charge, since we would receive benefits corresponding to the value of such stock options in the form of services from the recipients. However, because the Corporate Law provides that compensation for our Directors and Statutory Auditors shall be determined at a meeting of our shareholders unless otherwise provided in our Articles of Incorporation, we must obtain shareholder's approval for the issuance of stock options if the options are to be issued as compensation for our Directors and Statutory Auditors.

As discussed above, we employ the statutory auditor system under which our Statutory Auditors monitor the performance of our Directors. In addition, in order to enhance our internal audit function, we voluntarily established a Group Audit Department, which checks our internal audit function regularly. Our Group Audit Department is different from our Board of Statutory Auditors, and reports directly to our president.