Corporate Governance

Corporate Governance

In relationship with all FREUND Group stakeholders, all those who constitute the FREUND Group from management personnel to employees strive to act ethically with awareness of the significance of social existence of the FREUND Group, while steadily proceeding with legal compliance and building and strengthening our governance systems in adherence with laws and regulations.
We also consider proper functioning of corporate governance under the spirit of legitimate value creation is essential for continuous growth of the Group and improvement of corporate value.

  • Basic Policy
  • Corporate Governance System
  • Risk Management

The FREUND Group takes it as its basic policy and purpose of corporate governance to continuously make improvements of corporate value through enhancement of corporate transparency and securement of legal compliance, fairness, and independence from the perspective of all stakeholders, including shareholders, investors, and users.

Basic Idea of Corporate Governance

Our Group carries out business activities, through which we intend to “contribute to the future of medical care and health of people throughout the world, and create and develop technologies that support an affluent lifestyle and food safety and security” as a management vision. In addition, we believe that it is important to enhance corporate value by fulfilling accountability through communication with various stakeholders including shareholders and business partners, keeping highly transparent business activities in mind, and taking fair and honest action promptly based on the basic philosophy: “Companies are public institutions in society.” Maintaining awareness that corporate governance is an important foundation, we strive to build a workable corporate governance system and strengthen it on the basis of the Board of Directors that determines the execution of critical tasks related to the whole Group and supervises the execution of duties by the directors, and the board of auditors that audits the execution of duties by the directors independently of the Board of Directors.

FREUND Group’s Code of Conduct

We, as an R&D-oriented company, are determined to expand business with creativity and a challenging spirit, achieve sound growth, build further solid operating foundations, maintain smooth and good relationships with stakeholders, and contribute to society.
In social situations where many laws and regulations having significant impact on corporate management are established and revised, such as the Companies Act, Financial Instruments and Exchange Act, Antimonopoly Act, Whistleblower Protection Act, and Act on the Protection of Personal Information, action guidelines we should follow are established as our “Corporate Code of Conduct” (*).
Management personnel, including the top management of each Group company, shall recognize that realization of the spirit of this Code is their role, lead by example, ensure all employees understand it, always listen to internal and external voices, and upgrade in-house systems.
In addition, when a situation arises that violates this Code, management personnel shall voluntarily work toward solving the problem, investigate the cause, prevent its recurrence, disclose information to society in a timely and appropriate manner and also make clear corporate responsibility, and then, impose strict penalties even on management themselves when applicable.

* About corporate ethics (compliance)
It refers to maintaining a relationship of trust with stakeholders by observing not only minimum required laws and regulations, but also social norms, morals, and various other rules.
Corporate ethics is synonymous with compliance.

We will continuously develop our company through compliance with all applicable laws and regulations, rules, and their spirit with high ethical standards from the following perspectives:

  • 1. Relationship with customers

    We will earn our customers' satisfaction and trust by creating new market needs by creating products rich in originality and by foresight.

  • 2. Relationship with business partners

    We will establish a relationship of trust with our business partner based on fair and free competition toward mutual evolution.

  • 3. Relationship with politics and public administration

    We will maintain sound and normal relationship with politicians and government when developing our business activities.

  • 4. Relationship with society

    We will disclose information to shareholders in a timely and appropriate manner and communicate widely with society and actively and fairly disclose corporate information.

  • 5. Relationship with employees

    We will build a relationship of mutual trust by creating a challenging spirit when confronting difficulties and enrich human relationships, respecting the personality and individuality of each employee.

  • 6. Relationship with communities and environment

    We will remind ourselves of our duties as corporate citizens, and act voluntarily and proactively to address environmental issues common to all humankind.

  • 7. Confrontation with antisocial forces

    We will have no relationship with antisocial forces and bodies that threaten the order and safety of civil society, and confront them decisively.

  • 8. Relationship with international society

    We will comply with international rules and local laws and regulations and respect diverse cultures and practices when performing international business operations.

Board of Directors

The Board of Directors sets the management policies and objectives for our whole Group and supervises the management and execution of operations of each Group company. The Board of Directors is comprised of five directors (two of them are outside directors) with diverse experience, knowledge, and expertise, and the Board of Directors’ Meeting is held once a month in principle to decide important matters in management and to supervise the execution of operations. In addition, three auditors participate in the Board of Directors’ Meeting for appropriate and prompt decision-making as well as further strengthen the supervisory function.

Our outside directors provide advice and supervision from the perspective of continuous growth of the company and medium-to-long-term improvement of corporate value through involvement in the process of deciding important basic policies, such as management strategies, and supervision of the execution of operations, by making use of their knowledge and experience different from those of our internal directors.
Our outside directors receive reports directly or indirectly from the internal control sector by way of financial statements as well as proposals and deliberations on internal control system reviews, etc., by the Board of Directors, and supervise and monitor effective management in general.
Those with experience in their specialized fields, who have long years of experience in corporate management, are appointed as outside directors.

Auditors and External Audit and Supervisory Board

Auditors and the External Audit and Supervisory Board set out corporate governance in order to realize sound development of the company and enhancement of social trust through audits. They come under a system of three highly-independent outside auditors (one of them is a full-time auditor), having rich experience in audits and sophisticated expertise. The auditors coordinate with the Internal Audit Office under the President’s direct control and accounting auditors to enhance the effectiveness of audits. Ernst & Young ShinNihon LLC takes charge of our accounting auditors.

Outside Officers

We have made notification of outside directors and outside auditors as independent officers to the Tokyo Stock Exchange.
Based on the Tokyo Stock Exchange’s requirements for determination regarding independent officers, they are appointed according to the following criteria for judging independence:
·They shall have no conflict of interest with general shareholders.
·They shall have no special interest.
·They shall have the ability to make judgmental decisions objectively and fairly for enhancement of the soundness and transparency of our management.

Internal Audit Office

The Internal Audit Office, independent of the operation execution sector, conducts internal audits to evaluate and verify the appropriateness of operations based on the regulations of our company and subsidiaries. In addition, it strives to enhance the effectiveness of audits in coordination with auditors and accounting auditors as needed.

Basic Idea of Internal Control

We define internal control as a “mechanism for management to control the business operation execution organization.”
The Board of Directors shall assume responsibility for design of the basic internal controls of our respective Group companies based on the Companies Act and other related laws and regulations as well as our Articles of Incorporation and other company regulations; and supervising the design, operation, and assessment of the internal controls.
The representative director and other directors shall assume responsibility for designing, operating, and assessing the internal controls of our company and subsidiaries based on the basic policies of internal controls given by the Board of Directors, and establishing an environment in which employees have sufficient awareness of the internal controls. In addition, having a corporate philosophy of “Develop the Future through Creativity®,” in order to fulfill corporate social responsibility serving as a basis for this, we address the penetration of compliance and the establishment of a risk management system.
We define compliance as “companies and individuals acting correctly by not only not violating laws but also in light of common sense and ethics.” There are many cases where lack of compliance awareness leads to occurrence of risks. Therefore we believe that compliance and risk management are two sides of the same coin, so we have set up a compliance and risk management committee and an internal control committee that comprehensively manages and operates the internal controls.
In addition, based on the fact that the “Amendment of the Companies Act” and the “Ministerial Ordinance Revising the Ordinance for Enforcement of the Companies Act” were enforced on May 1, 2015, we have revised part of the “Basic Policies regarding the Design of Internal Control Systems.” Through this revision, for the purpose of strengthening the corporate governance, we aim to further enhance FREUND Group’s compliance system and crisis management system, and also to promote reinforcement of the system to ensure the appropriateness of operations, and the system to ensure the effectiveness of audits conducted by auditors, etc.

About BCP (Business Continuity Plan)

In response to the diversification and complication of risks in association with business expansion, we are committed to risk management on a consolidated basis, including respective Group companies.
BCP is an action plan established in advance with the aim of preventing interruptions of important corporate operations in the case of unexpected events, such as natural disasters and accidents, or restoring and resuming operations as quickly as possible even in the case of interruptions.
At the time of occurrence of crises, such as “natural disasters” and “emerging infectious diseases,” we will promptly put BCP in motion to ensure the minimum continuation of important operations, and strive toward quick restoration of business.

Risk Management

Our Group regards risks as inherent factors underlying corporate activities, which may undermine the social trust or corporate value of our Group.
Our Group’s businesses are subject to various risks described below, and we may suffer unexpected performance fluctuations due to a manifestation of risks. With the awareness of the possibility of occurrence of these risks, we are committed to making efforts to prevent their occurrence wherever possible, and take action promptly and accurately if they occur. However, not all risks are covered.
Matters related to the future included in this article are our findings as of the end of the period ended February 2020.

Business Risks

Risks related to Industrial Trends

The volume of trading for the pharmaceutical industry accounts consists majority of our Group’s sales. The pharmaceutical industry has entered an era of reorganization both domestically and internationally, and also our Group’s performance may be affected by each country’s political measures toward holding down medical expenses, etc.

Risks related to Price Competition

In the machinery business, the risk of exposure to severe price competition has been increasing due to lower-priced competition with competitors and the emergence of technology companies as well as competition with inexpensive products made in China and Southeast Asia, etc. So our Group works on cost reduction and other measures to address the decline in profit margins. However, it may have an impact on our performance in the case of unexpected price competition.

Risks related to Credibility of Customer Companies

Many of our Group’s customer companies are pharmaceutical companies, and their performance is relatively stable. In the future, however, if the performance of customer companies deteriorate due to government medical cost reductions, other industries and overseas companies entering the market, increased difficulty in developing new products, etc., it may have an impact on our Group’s performance.

Risks related to Relationship with Business Partners, etc.

Our domestic machinery business is heavily dependent on specific business partners in manufacturing. In addition, in the chemicals business, pharmaceutical excipients and food preservatives are on a make-to-stock production system, therefore, production capacities and technological capabilities of our business partners and sale destinations, their financial conditions, and significant changes in demand trends of major sale destinations may have an impact on our performance.

Risks related to Tie-ups with Strategic Partners

Our Group has many strategic tie-ups regarding development of new technologies and new products as well as improvement and refinement of existing products, etc., but if we cannot maintain the tie-ups due to changes in these partners’ strategic objectives, occurrences of financial or other business problems, etc., it may have an impact on our performance.

Risks related to Intellectual Property Rights

Our Group promotes an R&D-oriented company that strictly manages intellectual property rights, including patent rights, by establishing a specialized department for management of intellectual properties, but since we have expanded our business both in Japan and overseas, if any dispute, etc., regarding our intellectual property rights arises with any business competitor, etc., or if our Group companies’ own products, etc., infringe the intellectual property rights of any third party resulting in a dispute, it may have an impact on our performance.

Risks related to Product Liability

While our Group seeks to realize high reliability of the products and services we offer, there is a risk that defects may arise. Although we have obtained product liability insurance, our trust may be lost due to risks not covered by the insurance or lowering of social evaluation, which may have an impact on our performance.

Risks related to Public Regulations, etc.

Our Group is subject to various public regulations, such as business-related permits and licenses as well as restrictions and regulations regarding export and import, in many parts of the world where we conduct our business. We are also covered by laws and regulations related to trade, fair trade, patent, consumer protection, taxation, exchange controls, environment, etc., which are reviewed as needed. Although we are paying close attention to the trends of various regulations, if we fail to comply with these, our Group’s activities may be limited or a monetary penalty, etc., may be imposed on us.

Risks related to Securing of Human Resources

Since our Group needs to secure competent human resources and maintain employment for new product development and sales tasks, we implement periodic recruitment and mid-career recruitment to secure human resources and develop them after employment. If we cannot secure competent engineers and sales personnel or maintain their employment, in that case, it will become difficult to achieve our Group’s business objectives, which may have an impact on our performance.

Risks related to Exchange-rate Fluctuations

Rapid exchange-rate fluctuations due to overseas sales expansion with the internationalization of our business may have an impact on our Group’s performance. In addition, local currency-denominated profits and losses, assets and liabilities, etc., of overseas consolidated subsidiaries may have an impact on value in yen terms depending on exchange rates at the time of conversion.

Risks related to Natural Disasters, etc.

Our Group’s manufacturing bases, facilities, etc., may be significantly affected by natural disasters, such as earthquakes and outbreaks of infectious diseases. Fire and earthquake damage is covered by insurance, but the coverage is limited, and suspension of operation and delays in production and shipment may have an impact, and moreover, repairs of manufacturing bases, etc., may require costs.

Risks of Impairment Loss on Fixed Assets

Concerning the fixed assets held by our Group, if our business profitability decreases due to a significant deterioration in business environment, or if market value drops significantly, an impairment loss may occur due to the application of impairment accounting of fixed assets. It may have an impact on our Group’s performance.

Risks Underlying Overseas Business Activities

Our Group’s performance may be affected if we cannot deploy our business overseas due to:
1. Unexpected changes in laws and regulations, etc.
2. Occurrence of disadvantageous political and economic factors.
3. Difficulty in employment of personnel.
4. Social turmoil by terrorism, war, infectious diseases, other diseases and illnesses, etc.
5. A manifestation of inherent risks in operating environment, competitive environment, etc.

  • Basic Policy
  • Corporate Governance System
  • Risk Management