- *1 Appointed and assumed office at the General Meeting of Shareholders in March 2022.
- *2 Appointed and assumed office as a member of the Audit & Supervisory Board at the General Meeting of Shareholders in March 2022.
- *3 Resigned at the General Meeting of Shareholders on March 2022.
- * The call options issued by utilizing the common stock held by Uzabase’s founder Yusuke Umeda (announced in February 2021) are not considered a part of incentives issued by Uzabase directly, and are thus not included in Outstanding Stock options.
Measures to Enhance the Effectiveness of the Board of Directors
External Director as Chair of the Board of Directors
On March 25, 2022, Uzabase decided to appoint Shintaro Asako, an independent External Director, as Chair of the Board of Directors, continuing from FY2021. The Chair of the Board of Directors has significant influence over the discussions of the Board of Directors through their decisions on time allocation and proceedings, and we believe that by assuming the responsibilities of the Chair of the Board of Directors, Shintaro Asako will be able to operate the meetings of the Board of Directors with the objectivity required for the task.
Meeting of External Directors and Offsite Meetings for the Board of Directors
In order to ensure the effectiveness of discussions at the Board of Directors meetings, Audit & Supervisory Board meetings, and voluntary Nomination and Compensation Committee meetings and avoid turning them into a formality, Uzabase has established the practice of holding meetings exclusively for External Directors, where they can share information to avoid compartmentalization. In addition, Uzabase has established offsite meetings, which are held separately from the Board of Directors meetings, where both the Inside Directors and External Directors can engage in more in-depth deliberations on medium- to long-term strategies and other, more time-consuming discussions. This practice has successfully increased the substantive significance of discussions among Directors, and was also positively evaluated by multiple participants in the Effectiveness Assessment.
Questionnaire Format and Outline of Results
Each Board Director, Executive Officer who regularly participates in the Board of Directors meetings, and member of the Board of Directors Secretariat responded to a detailed questionnaire and described their reasoning behind each of the responses. The respondents generally agreed that the Board of Directors was effective and indicated that the Board of Directors meeting is demonstrating continuous improvements, as demonstrated by positive evaluations of “the quality and quantity of agenda items and materials submitted to the Board of Directors”, “activeness of discussions”, ”the progress in consideration of proposals”, “the size of the Board of Directors, the ratio and diversity of External Directors”, and “the degree of contribution made by each Director”.
Actions to Address Issues Identified in the Effectiveness Assessment Conducted in January 2021
- 1 Implementation of Performance-Linked Compensation
- As an incentive designed to motivate the management team to contribute to the increase of corporate value in the medium- to long-term, Uzabase determined that it would be appropriate to replace a portion of monetary compensation with RSU and SO packages (awarded without performance conditions). In accordance with this policy, the Company has implemented this system for its Directors since April 2022.
- 2 Policies and Procedures for the Nomination and Dismissal of Executive Officers
- In order to ensure the effectiveness of discussions at the Audit & Supervisory Board meetings and avoid turning them into a formality, Uzabase has established the practice of holding meetings exclusively for External Directors, where they can share information among themselves to avoid compartmentalization, which has led to the improvement of nomination procedures. On the other hand, although Uzabase has a basic policy for the nomination of Executive Officers, as per the feedback received, more detailed criteria and policies still need to be formulated.
- 3 Human Resource Strategy (Selection and Development of the Next Generation of Business Leaders)
- In December 2021, we introduced the Group Executive Officer system, one of the objectives of which is to select and develop the next generation of business leaders. Under this system, an Executive Officer is selected from among all Executive Officers of the Group in each fiscal year to address management issues from the broader perspective of the entire Group. In addition to selecting executive officers who possess expertise in certain areas connected with important management issues that need to be tackled in that fiscal year, this system also takes into consideration the development paths and diversity of Executive Officers from a long-term perspective.
Issues Identified in the Effectiveness Assessment Conducted in January 2022
As a result of the improvements made based on the findings of the Effectiveness Assessment in FY2021, no serious concerns have been identified in 2022.
However, the following issues have been identified as potential areas for long-term, continuous improvement:
- Management team development and training;
- Human resource strategy in relation to External Directors (selection of the next generation of External Directors);
- Operational improvements for the Board of Directors meetings.
Each Audit & Supervisory Board member attends meetings of the Board of Directors, audits compliance with laws, regulations, and the Articles of Incorporation, as well as the status of management decision-making processes and internal controls, and expresses their opinions on the above. They also attend important meetings such as the Management Meeting and Risk Management Committee meetings as necessary, and conduct hearings with business teams. Based on the findings and impressions obtained through these auditing activities, the Audit & Supervisory Board holds discussions with the Co-CEOs to exchange opinions on the situation and makes recommendations as necessary.
Audit Policy and Key Audit Matters in FY2021
In FY2021, Uzabase aimed to 1) halt the decline in net sales growth rate and 2) make investments towards achieving 30% growth from 2022 onwards. We also believed it to be of great importance to define priority investment areas for SPEEDA, NewsPicks, new businesses, and the engineering team, and for these investments to be properly executed. At the same time, establishing a governance structure that is appropriate for future growth was also determined to be an area of priority for the future development of the company.
The latter in particular was considered an urgent task, and we worked to improve the operation of the risk management system by making it a part of the OKRs for the Corporate Division. Furthermore, the Nomination and Compensation Committee discussed stock-based compensation, which is scheduled to be implemented in FY2022, and the development of the next generation of business leaders, among other issues. In addition, with the ongoing COVID-19 pandemic and remote work becoming the norm in the company, new labor management issues were also considered to be likely to arise.
As such, we monitored and supervised the management’s executive decisions, focusing on the following high-priority audit matters:
Strengthening governance by establishing and improving the operation of the Board of Directors and the Nomination and Compensation Committee;
Enhancement of the operation of the risk management system;
Execution of investments into priority areas;
Status of Internal Audit
The Internal Audit team is an organization under the direct jurisdiction of the Co-CEOs and the Audit & Supervisory Board (a “double reporting line” structure). It conducts internal audits of all management activities of Uzabase from an independent and objective standpoint, assessing legal compliance, appropriateness of financial reporting, and effectiveness and efficiency of operations, while also strengthening internal controls through proposals for the improvement of the effectiveness of such controls.
The results of the internal audit activities are reported to the Uzabase management and Audit & Supervisory Board members, who then exchange opinions on the status of internal audit activities, if required. In addition, the Internal Audit team share information with the audit firm wherever necessary regarding the status and evaluation of internal control over financial reporting, and the progress of internal audit activities, in order to facilitate mutual cooperation.
Internal audits are conducted using the framework for internal control over financial reporting (J-SOX standards). When auditing company-wide internal controls, in addition to confirming the control environment, the team conducted sample tests on the actual operations related to the joining and leaving the company by employees, as well as other aspects. In addition, when auditing controls over business processes, the team’s key audit matters included confirmations on the status of payment processing related to sales recognition and receivables/purchase management for key business units, as well as each company's approval systems.
In addition to the apparent risks revealed as part of the regular audit activities, the team also identified potential risks and “added value” matters requiring continuous improvement, compiling then into a risk management chart. This chart was then used by members of each division of the company, including business units, to continuously implement countermeasures throughout the year, and the results of this activity were then checked by the Internal Audit team.