Corporate Governance

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 six 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.

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 2023.

Business Risks

Risks Related to Price Competition

In the machinery business segment, there is an increasing risk of fierce competition based on prices. There may be heated competition as other companies cut prices, engineering companies enter this market, or manufacturers in China and Southeast Asia sell machinery with low prices. We are responding to this competition with cost reductions and other measures to prevent a decline in profit margins. However, unexpected price competition may have an effect on results of operations.

Risks Related to the Procurement of Raw Materials and Other Items

The Freund Group uses numerous measures for the stable procurement at low prices of high-quality raw materials and other items. Ups and downs of the COVID-19 pandemic, international conflicts such as Russia’s invasion of Ukraine, and other events may disrupt supply chains. If a disruption causes an unexpected increase in prices or restrictions on the ability to procure goods, there may be an effect on results of operations.

Risks related to Industrial Trends

Products sold to the pharmaceutical industry accounted for the majority of sales in the fiscal year that ended on February 28, 2023. The Freund Group focuses on operating businesses in a manner that accurately reflects changes in the needs of pharmaceutical companies. However, the pharmaceutical industry is changing because of many reorganizational activities in Japan and worldwide, actions by countries to hold down healthcare expenditures, and other events. These changes in the pharmaceutical industry may have an effect on results of operations.

Risks Related to Exchange Rate Fluctuations

The Freund Group uses numerous measures to reduce or avoid risks related to exchange rate fluctuations. However, as overseas sales increase with the increasingly global nature of business operations, sharp exchange rate movements may have an effect on results of operations. Income statement, balance sheet and other financial data of overseas consolidated subsidiaries are denominated in the currencies where these subsidiaries are located. Since these figures are converted into yen to prepare the consolidated financial statements, the exchange rates used for these conversions may have an effect on the yen-denominated values.

Risks related to Securing of Human Resources

The growth of the Freund Group requires a diverse workforce of skilled people with outstanding specialized knowledge concerning machinery or chemicals as well as training programs to upgrade these skills. If there are any difficulties concerning recruiting and training activities, there may be an effect on results of operations due to the inability to achieve the Freund Group’s business objectives.

Risks Related to Relationships with Business Partners

In the machinery business segment in Japan, manufacturing operations are highly dependent on certain business partners. Furthermore, the pharmaceutical excipient and food preservative operations of the chemicals business segment outsource manufacturing. If there is a significant change in the manufacturing, technological capabilities or the business operations of the business partners or in demand at major buyers of Freund Group products, there may be an effect on results of operations.

Risks of Impairment of Fixed Assets

The fixed assets of the Freund Group are producing earnings backed by sound business operations. However, there may be a need for the impairment of fixed assets if the profitability of a business declines because of a significant downturn in the operating environment, a sharp fall in market prices or some other event. The resulting impairment charge may have an effect on results of operations.

Risks Related to the Credibility of Client Companies

The results of operations of the Freund Group are relatively stable because pharmaceutical companies are a large percentage of all client companies. However, there may be a downturn in the results of operations of client companies in the future because of government measures to hold down healthcare expenditures, new competitors from other industries or other countries, the increasing difficulty of developing new products, or other reasons. If a downturn occurs, there may be an effect on results of operations.

Risks Related to Intellectual Property Rights

Research and development is a vital component of the Freund Group and there is a department that is responsible solely for the management of intellectual property. We have a rigorous framework for the management of patents and other intellectual property rights. However, competitors and other companies may infringe on our intellectual property right in association with our business operations in Japan or overseas. If there is an infringement of our intellectual property right by a third-party, we may lose the earnings that were expected from a particular business activity. Furthermore, if a product of the Freund Group violates the intellectual property right of a third party, the resulting dispute may have an effect on results of operations.

Risks related to Product Liability

The Freund Group has a commitment to supplying customers with highly reliable products and services. However, a defect or other problem involving a product or service may occur. We are strengthening quality assurance activities and have liability insurance for the products we manufacture. However, exposure to a problem not covered by insurance or the damage to the Freund Group’s reputation caused by a problem involving a product or service may have an effect on results of operations.

Risks Related to Regulations

The worldwide operations of the Freund Group are subject to a variety of laws and regulations concerning business licenses, export and import restrictions, and many other aspects of business activities. In addition, we must comply with laws and regulations for commerce, fair trade, patents, consumer protection, taxes, foreign exchange, the environment and other areas. Furthermore, these laws and regulations may be revised at any time through the use of experts. Although we monitor events involving these laws and regulations, restrictions may be imposed on our business activities or we may have to pay fines or be subject to penalties in other ways if we violate a law or regulation. Any of these events may have an effect on results of operations.

Risks Related to Information Leaks

The Freund Group has a large volume of information that includes customer information received through business activities, confidential information about the Freund Group’s business operations and other information. There are many activities to manage this information properly, such as information security training for employees, the use of software to shield information from cyberattacks, a system to prevent mistakenly sending e-mail, and other measures. If there is an information leak caused by unforeseen circumstances, the resulting damage to the Freund Group’s reputation for trust, associated decline in sales, need to pay damages and other issues may have an effect on results of operations.

Risks Related to Natural Disasters

An earthquake or other natural disaster may severely damage a factory, equipment or other facilities of the Freund Group. Although we have fire, earthquake and other insurance, the coverage of these policies is limited. If sales decline because operations are suspended or there are delays in manufacturing or shipments, or if there are substantial expenses for repairs to a factory or other facilities, there may be an effect on results of operations.

Potential Risks Associated with Overseas Business Activities

With the goal of maintaining steady growth, the Freund Group has business operations in five areas of the world, including the United States, Europe, Asia and other areas. These operations are vulnerable to a number of risk factors that include, but are not limited to, the following items:
(a) the unexpected enactment of laws and regulations or tax revisions that have a negative effect on business operations;
(b) unfavorable political or economic developments;
(c) difficulties in recruiting new employees;
(d) social turmoil caused by terrorism, wars or other problems; and
(e) a change in the operating environment or competitive circumstances.
If any of these problems unexpectedly prevents the Freund Group from doing business overseas, there may be an effect on results of operations.

Risks Related to the COVID-19

Although the COVID-19 pandemic is no longer a serious problem worldwide, there may be another wave that causes a large number of infections among Freund Group employees. If this happens, the resulting suspensions of some businesses may have an effect on business operations.