- (1) IRI's basic idea on corporate governance
- IRI has been seeking and working on improvement in transparency, securement of fairness and independence, and speedy making of decisions since the Company regards that developing a corporate management system through corporate governance, a framework of controlling corporate activities, is of top priority in enhancing our corporate value. Although IRI Group companies are under different business environments, they recognize the significance of an effective corporate governance system and accordingly have cooperated with IRI in establishing a group governance system.
- (2) Description of the Company's organ and development of the internal control system
-  Description of the Company's organs
The Company may have up to fifteen Directors according to the Articles of Incorporation. The Articles of Incorporation also prescribe that a Director is elected at a general meeting where shareholders with one third or more of voting rights are present and when shareholders with a half or more of voting rights approve the resolution for election at the meeting. Furthermore, in accordance with Article 309 Paragraph 2 of the Company Law, the Articles of Incorporation prescribe that a special resolution requires approval at a general meeting of shareholders where shareholders with one third or more of voting rights are present and when shareholders with two thirds or more of voting rights approves the special resolution at the meeting.
The Ordinary General Meeting of Shareholders of IRI, held in September 2002, adopted the resolution that the term of office of Directors shall be one year. As of September 27, 2007, the Board of Directors of the Company has eight Directors (including one Outside Director) and four Corporate Auditors (all are Outside Corporate Auditors). The Board of Directors determines corporate policies, business strategies, business plans, acquisitions and dispositions of important assets, decisions of the organization and personnel, and execution and supervision of the Company and major IRI Group companies. In accordance with Article 165 Paragraph 2 of the Company Law, the Articles of Incorporation prescribe that the Company may acquire treasury stock in market transactions upon a resolution approved by the Board of Directors. However, because IRI was delisted from the Tokyo Stock Exchange on June 24, 2007, the Company plans to modify the provision of acquisition of treasury stock.
Aside from the Board of Directors, the Company also has the Executive Committee, consisting of seven Directors including President and Directors with specific assignments. The Executive Committee holds regular weekly meetings, where Directors exchange information and opinions to examine and determine business directions and strategies, and discuss agenda to be proposed to the Board of Directors' meetings. In addition, the Executive Committee also examines reports and matters for prior approval submitted by Group companies. They cover Group business promotion, business strategy directions, technological development, and Group environment development. The Corporate Governance Department plays the role of secretariat in steering the Board of Directors and the Executive Committee by, for example, contacting Directors for arrangement of meetings and providing them with documents to be examined at meetings. In case of handling an important subject, the Executive Committee first examines the subject carefully prior to proposing it to the Board of Directors for a final decision. Under the circumstances, the Board of Directors and the Executive Committee play an important role in making speedy and precise decisions on directions of Group business.
In addition, to develop a more effective corporate governance system between IRI and the Group companies, the Corporate Governance Department of the Company took the initiative in founding the Corporate Governance Committee (the "CGC") in July 2004, which has begun to function under the IRI Group Governance Guidelines since then. The CGC, being chaired by the Director for Corporate Governance of the Company, consists of members appointed by departments concerned of the Company and major Group companies. The CGC holds separate regular meetings with members of Group companies listed on a stock exchange, and with non-listed Group companies. At meetings, IRI has been familiarizing the Group companies with legal compliance and sharing the system of corporate governance and common issues with Group companies. Matters discussed at the CGC are reported from time to time to the Board of Directors and/or the Executive Committee. The CGC will be reviewed, however, after IRI becomes a subsidiary of ORIX Corporation on November 1, 2007.
The Board of Corporate Auditors of the Company consists of four Outside Corporate Auditors, who strictly monitor the execution of duties carried out by Directors. The Outside Corporate Auditors ensure fairness and transparency in auditing.
The following block diagram illustrates the corporate governance system of the Company.
[click to enlarge]
As of September 27, 2007
 Development of the internal control system
The Board of Directors’ meeting, which was held on May 12, 2006, has decided the following policies in order to develop an internal control system.
1) Institutional systems that ensure the compliance of Directors’ execution of assignments with law and the Articles of Incorporation and the compliance of employees’ execution of duties with law and the Articles of Incorporation
a) The President and CEO shall familiarize the Company and its group companies with legal compliance and adherence to social morals in business activities.
b) The Corporate Governance Department shall take the initiative in developing and reinforcing the company-wide legal compliance system. The Finance Department shall examine and control credits and investment projects. The Executive Committee, which has a characteristic of playing the role of the Compliance Committee, shall review and examine compliance-related matters and seek advice from outside experts when necessary.
c) The Company shall implement training programs to familiarize all the employees with legal compliance.
d) Matters considered as important in terms of legal compliance shall be reported to the Board of Directors and Corporate Auditors.
2) Matters concerning safekeeping and controlling information on Directors’ execution of assignments
a) Concerning safekeeping and controlling information on Directors’ execution of assignments, the Officer in charge of Corporate Governance shall keep and control the documents stated below (including associated documents and electromagnetic records; same shall apply hereinafter) pursuant to the documentation regulations of the Company.
Minutes of General Meeting of Shareholders;
Minutes of Board of Directors’ meetings;
Minutes of meetings of Executive Committee;
Minutes of Corporate Governance Committee;
Copies of documents submitted to the Kanto Local Finance Bureau, stock exchanges, and other government offices;
Circular letters and agreements approved by Directors;
Closing statements, accounting books, financial statements, and supplementary schedules; and
Any other documents defined in the documentation regulations of the Company.
c) Any revisions in the documentation regulations shall obtain approval from the Board of Directors.
3) Rules of managing exposures to loss and other systems
a) The Directors of the Company shall be held responsible for risk in their assignments. In connection with this, the following table defines risk items, responsible Directors, and the handling Departments.
i) Risk management on handling legal compliance and information
ii) Risk management on reputation
Director for Corporate Governance
Corporate Governance Department
iii) Risk management on asset management and the Group’s credit management
Director and CFO
iv) Risk management on the environment, disasters, etc.
Director for Administration and Personnel
Administration and Personnel Department
v) Risk management on information systems
Director for IX Technology Strategy, and CIO
Information Systems Department
c) The Representative Director shall supervise risk management on information security and conduct comprehensive supervision of risks defined in i) to v) in preceding paragraph a), results of which shall be reported to the Board of Directors and Corporate Auditors.
4) Systems that ensure the Directors’ efficient exercise of assignments
a) The Company’s decision making rules are based on the Regulations of Administrative Authorities and the Regulations of Divisions of Duties that allow the Directors to exercise appropriate and smooth actions in their assignments.
b) Besides the Board of Directors, the Company has installed the Executive Committee that holds weekly meetings. In addition, the Directors with specific assignments hold meetings from time to time to handle and settle various matters and projects and share information among them.
c) The Company formulates a business plan covering performance targets and budgets at the beginning of every fiscal year. The Company also controls the budgets and performances of the Group companies based on their business plans, submitted to the Company, and monitors their performances and informs the Group companies of their monthly performances. If any of the Group companies fail to achieve the target performance, the Company asks the company to analyze the causes of the failure and to report countermeasures to be taken to the Company.
5) Systems that ensure appropriateness in business conducted by the business group consisting of corporations, the parent company, and its subsidiaries
a) Pursuant to the IRI Group Governance Guidelines, the Officer in charge of Corporate Governance of the Company holds regular monthly meetings of the Corporate Governance Committee, which consists of members of the related departments of the Company and of the major seven Group companies, to examine governance related subjects among the Group companies and to reinforce the awareness of legal compliance.
b) The Presidents of Group Companies Committee, including the Representative Director of the Company, hold meetings once a month to exchange and share information among the Representative Directors.
c) The Company has established certain rules with each of the Group companies for efficient communications between them, including prior consultation and follow-up reporting. This allows the Executive Officers’ Meeting of the Company to review reports submitted by the Group companies in time.
d) The Company has established a system in which transactions among the Group companies are handled appropriately pursuant to laws and regulations.
e) The Finance Department of the Company supervises the budgets, performances, and credits of the Group companies and submits their monthly reports to the Executive Committee.
7) System that allows Directors and employees to report to the Corporate Auditor concerned and other Corporate Auditors a) Each Director shall consult with a Corporate Auditor to formulate reporting rules that define matters to report to the Corporate Auditor concerned. Such reporting rules shall cover the following.
a) Each Director shall consult with a Corporate Auditor to formulate reporting rules that define matters to report to the Corporate Auditor concerned. Such reporting rules shall cover the following.
Matters resolved at the meeting of the Executive Committee
Matters that may cause significant loss on the Company and/or Group companies
Important matters for monthly business conditions (for the Company and Group companies)
Important matters for internal audit and risk management
Breaches of laws, regulations, and the Articles of Incorporation
Other important matters to report
8) Other Systems that ensure effective audit by Corporate Auditors
a) Corporate Auditors may have periodical opportunities to exchange opinions with the Representative Director, Directors with specific assignment, and Accounting Auditors.
b) Corporate Auditors may conduct separate hearings with Representative Directors of the Group companies.
 Remunerations for officers and for audit
The remunerations for services carried out by Directors and Corporate Auditors of the Company for the 11th business term and for audit conducted by the Accounting Auditor are as stated below. These amounts do not include the remuneration (9,675,000 yen in total) paid to three Directors and the remuneration (1,500,000 yen in total) paid to two Corporate Auditors, all of them who retired on September 26, 2006 on their expiration of term of office.
Remunerations for officers:
Remunerations paid to Directors 97,150,000 yen
(including 4,650,000 yen paid to Outside Director)
Remunerations paid to Corporate Auditors 8,550,000 yen
(all 8,550,000 yen paid to Outside Corporate Auditors)
Total 105,700,000 yen
Remunerations for audit:
Remunerations for the service defined in Article 2 Paragraph 1 of the Certified Public Accountant Law
21,000,000 yen Remunerations for services other than above 3,000,000 yen Total 24,000,000 yen
 Internal audit and audit by Corporate Auditors
The internal audit function of the Company is carried out by the Corporate Governance Department (one employee). Although the Company has two business divisions, the scale of operation of the Company is still small and requires no large-scale division-wise audit. Thus, the Corporate Governance Department monitors daily operations of the Company and whether individual sections of the Company abide by the internal rules and legal compliance because this is more practical and effective, considering the business scale of the Company. In implementing internal audit, the Director for Corporate Governance checks in-house circular letters and indications. In case that such a circular letter or indication is important, the Director for Corporate Governance confirms with the responsible Director for the case and, when necessary, reports it to the President. Although the internal audit function of the IRI Group companies is still in the course of development, the Director for Corporate Governance of the Company conducts interviews with Directors for each assignments and managerial personnel of IRI Group companies every six months. In addition, the Director for Corporate Governance checks documents and carries out hearings from time to time. Furthermore, Corporate Auditors of the Company carry out hearings with Presidents of IRI Group companies and Directors for each assignments on the progress in their business and decision making processes in order to monitor the situation of the IRI Group companies; when necessary, Corporate Auditors visit Group companies to conduct internal audit. The Corporate Governance Department of the Company also submits reports, from time to time, to Corporate Auditors for close cooperation.
Corporate Auditors also attend Board of Directors' meetings and express objective and fair opinions on business management in general and specific subjects at meetings. In addition, in accordance with the audit policies adopted by the Board of Corporate Auditors, Corporate Auditors audit the execution of duties carried out by Directors.
he Accounting Auditor of the Company has meetings or exchange e-mail with Corporate Auditors every quarter term or from time to time when needed.
 Accounting audit
The Company has concluded an audit agreement and an auditor's opinion service agreement on financial statements for quarter terms with Deloitte Touche Tohmatsu and accordingly has received such reports.
The Company took accounting audit service for the 11th business term as stated below.
Name of Accounting Auditor: Deloitte Touche Tohmatsu
Names of certified public accountants who conducted audit service: Takashi Inoue, designated and engagement partner (number of continued audit years: one year)
Yasufumi Mitomi, designated and engagement partner (number of continued audit years: four years)
Number of audit assistants: three certified public accountants and fifteen other assistants including assistant certified public accountants
- (3) Relationship between Outside Directors and Outside Corporate Auditors
- The Articles of Incorporation of the Company prescribes limited liability of Outside Directors and Outside Corporate Auditors so that they can fully play their expected roles. Accordingly, the Company has concluded a limited liability agreement with all of the Outside Directors and Outside Corporate Auditors, as briefed below:
Each of the Outside Directors and Outside Corporate Auditors shall bear the liability for damage prescribed in Article 423 Paragraph 1 of the Company Law up to the amount of one million yen or up to the amount of minimum liability prescribed in Article 425 Paragraph 1 of the Company Law, whichever is larger, in case that an Outside Director or Outside Corporate Auditor with good intent commits non-gross negligence in doing one's duty.
The one (and only) Outside Director for the 11th business term has no interest relation, in terms of personnel, capital, business transactions, and research and development projects on consignment, with the university for which the Director works.
In addition, of the four Outside Corporate Auditors of the Company for the 11th business term, one Outside Corporate Auditor concurrently serves as Outside Corporate Auditor for IRI Ubiteq, Inc., a wholly-owned subsidiary of the Company, and another Outside Auditor concurrently serves as Outside Corporate Auditor for BroadBand Tower, Inc., an equity-method affiliate of the Company. Although the Company has business relations with IRI Ubiteq, Inc. and BroadBand Tower, Inc., the aforementioned Outside Corporate Auditors have no direct interest relations with these companies.
- (4) Other matters on our corporate governance system
- The Company has worked on the development of an effective and useful governance system that includes the IRI Group companies. In particular, the Company's Group governance system has allowed listed IRI Group companies to maintain independence. However, since it was found that IXI Co., Ltd. ("IXI"), which became a consolidated subsidiary since August 2005, had engaged in illegal circular transactions for years, IXI was delisted from the Tokyo Stock Exchange. This also eventually led to the delisting of IRI, the parent company of IXI, from the Tokyo Stock Exchange.
The Company is scheduled to become a wholly-owned subsidiary of ORIX Corporation on November 1, 2007. IRI is determined to work on the development and reinforcement of the corporate governance systems, including the development and reinforcement of a more effective crediting control system, internal cross-checking function to prevent illegal business transactions, and familiarizing employees with legal compliance, even after IRI becomes a subsidiary of ORIX Corporation.
Internet Research Institute, Inc