Basic Philosophy for Corporate Governance

Our basic approach to corporate governance is rooted in our corporate mission: “We contribute to the health of society through our diligent efforts to create healthcare solutions that have a positive impact and improve the lives of people.” To put this philosophy into practice, we strive to build a governance framework that enables the management team to efficiently oversee compliance with laws, the Articles of Incorporation, and internal policies and regulations. From the perspective of ensuring soundness, efficiency, and transparency in management, as well as sustainably enhancing corporate value, PHC Group is committed to building and implementing appropriate governance practices.

PHC Group Governance Structure

Board of Directors

The Board of Directors is composed of eight directors, including five external directors. When appointing external directors and external auditors, we created a skill matrix to ensure a balance of knowledge, experience, abilities, and perspectives of each director and auditor, as well as policies and procedures regarding appointment. Currently, the Nomination and Compensation Committee deliberates on any selection and dismissal involving management, considering the business environment and characteristics, and the results are submitted to the Board of Directors, where they are deliberated and then resolved. The three independent external directors have management experiences in other companies/organizations, therefore we believe they have special capabilities to contribute to our sustainable growth and mid/long-term corporate value improvement.

Activities of the Board of Directors

A total of 19 meetings were held during fiscal year 2024, and the main deliberations and reports were as follows:

Criteria and Qualities for Evaluating the Independence of Independent External Directors

When appointing external directors and external auditors, the Company determines independence based on the independence standards set by the Tokyo Stock Exchange. The Company appoints individuals who are capable of making appropriate contributions to its management from an objective perspective based on their extensive knowledge and experience. When appointing external directors and external auditors, the Nomination and Compensation Committee shall deliberate on compatibility with independence standards and policies, and the results shall be escalated to the Board of Directors, which will deliberate upon those results and make a decision.

Support System for External Directors (External Auditors)

For external directors and external auditors, the Legal, Patents and Compliance Department provides support such as advance explanations of proposals for meetings of the Board of Directors and information to enable sufficient discussion at those meetings. For external auditors, information and other support is provided by members of the Audit and Supervisory Board and by the Auditing Office, which is comprised of full-time staff and functions as the secretariat for the Audit and Supervisory Board.

Audit and Supervisory Board

If deemed necessary by members of the Audit and Supervisory Board, they will have the opportunity to interview directors or employees of the company and PHC Group. Members of the Audit and Supervisory Board hold regular meetings to collaborate with accounting auditors and the corporate auditors of important subsidiaries, and attend important meetings.

Nomination and Compensation Committee

To support the Board of Directors, PHC Group has established a voluntary Nomination and Compensation Committee, whose main members are independent external directors. The Nomination and Compensation Committee deliberates and makes recommendations on matters related to the appointment and dismissal of directors, succession plans for representative directors and executive officers, and matters related to compensation of directors and executive officers to be submitted to the general meeting of shareholders. Regarding the position of Representative Director and President (CEO), the Nomination and Compensation Committee is responsible for selecting a person who demonstrates leadership in realizing our corporate mission and management philosophy and achieving sustainable growth of the company. The Nomination and Compensation Committee consists of four members: two independent external directors, one external director, and one internal director, and is chaired by an independent external director.

Activities of the Nomination and Compensation Committee

Executive Committee

The Company has established an Executive Committee for the purpose of streamlining management-related decision making and clarifying decision-making procedures. Meetings of the committee are held monthly. The Executive Committee is an executive meeting body that decides on important matters related to the management of PHC Group (including all capital subordinate companies) and manages the objectives and progress of plans for the entire group.

The current composition of the Executive Committee is listed below.
Members: Kyoko Deguchi (Chairperson/CEO), Koichiro Sato (Chief Operating Officer), Kaiju Yamaguchi (Chief Financial Officer), Ryuichi Hirashima (Senior Executive Corporate Officer), Toru Yoshimitsu (Observer/Audit and Supervisory Board Member)

Appointment of Officers, BOD Members (incl. Audit and Supervisory)

When appointing Directors and Audit and Supervisory Board Members, the Company carefully considers candidates' expertise, experience, abilities, and the balance of diversity. To ensure objectivity and transparency in the selection policy and process, we utilize a proprietary skills matrix.

For the appointment of External Directors and External Audit and Supervisory Board Members, our basic policy is to assess the skills and expertise of our full-time Directors, Audit and Supervisory Board Members, and Corporate Officers, and then select individuals who possess the skills and experience to supplement the company’s needs. Additionally, the company confirms candidates’ independence based on the Tokyo Stock Exchange’s independence criteria and selects individuals with extensive knowledge and experience who can contribute appropriately to management from an objective standpoint.

The appointment and dismissal of Directors and Audit and Supervisory Board Members are reviewed by the Nomination and Compensation Committee, approved by the Board of Directors, and submitted to the General Meeting of Shareholders as a proposal for resolution.

Status of Internal Audits

The Company has established the Group Internal Audit Department as an organization under the direct control of the Representative Director, President and CEO. A total of 14 members, including the Group Internal Audit Manager, conduct internal audits (operational audits and internal control audits) of the company and its subsidiaries. Audit results are reported in writing (audit report) by the Group Internal Audit Department Manager to the Representative Director, President and CEO, and related officers.

The Group Internal Audit Department Manager reports monthly to the Representative Director, President and CEO on the internal audit activities status. The Manager also reports on a monthly basis to the company’s auditors about the status of audits and exchanges information and opinions with the auditors. Other directors and auditors receive internal audit reports through the Board of Directors and the Audit and Supervisory Board, and improve the usefulness of the audit by providing their opinions. In addition, the Group Internal Audit Department maintains appropriate links with auditors, directors, and outside auditors of subsidiaries and affiliates as necessary, and strives to carry out efficient internal auditing.

Regarding Executive Compensation

The compensation for directors is determined by the basic policy outlined below.

Compensation Standards Policy

Compensation levels for directors are set at a competitive level that enables us to secure and retain top-class personnel, taking into consideration, among other factors, objective external data, evaluation data, industry trends, and business conditions, commensurate with employees’ roles and responsibilities. Specifically, benchmarks such as the compensation levels of global healthcare companies and compensation levels in major recruiting markets are used, and where necessary relative comparisons are done to determine compensation levels.

Compensation Structure

Compensation for Directors (excluding external directors)

Director compensation consists of monthly compensation, short-term performance-linked compensation, stock compensation, and retirement benefits. These are paid out following a resolution by the Board of Directors after a report from the Nomination and Compensation Committee.

* We have introduced a post-delivery performance-based stock compensation plan (Performance Share Units), and, pursuant to the resolution of the Annual General Meeting of Shareholders held on June 25, 2025, a post-delivery stock compensation plan (Restricted Stock Units).

Compensation for Audit and Supervisory Board Members (excluding external auditors)

Compensation for auditors is calculated based on a decision by the Audit and Supervisory Board, and is paid in the form of both monthly compensation and retirement benefits.

Compensation for External Directors

Compensation for independent external directors is based on monthly compensation and stock compensation. Payments are made following a voluntary report from the Nomination and Compensation Committee and a resolution by the Board of Directors. Note that independent external directors are the only external directors to receive compensation.

Stock compensation for independent external directors was begun using a stock options system based on approval at the ordinary general meeting of shareholders on June 29, 2022. However, following approval at the ordinary general meeting of shareholders on June 26, 2024, this was changed to a post-delivery stock compensation plan, a type widely used globally, with the aim of both ensuring the retention of a diverse range of personnel in terms of nationality, experience, etc., and also further increasing incentives to increase stock prices and improve corporate value towards additional global business expansion and growth.

Compensation for External Auditors

Compensation for external auditors is calculated based on a decision by the Audit and Supervisory Board, and is paid only in the form of monthly compensation.

Total Amount of Compensation, etc., by Officer Classification (Actual for the fiscal year ended March 31, 2025)

Officer classification	Total amount of compensation, etc. (million yen)	Total amount of compensation by type (million yen)						Number of eligible officers (persons)
		Fixed compensation	Stock options*1	Performance-linked compensation*2	Retirement benefits	Others	Of the columns listed on the left, non-monetary compensation, etc.
Directors (excluding external directors)	263	136	2	67	35	21	23*3	3*5
Audit and Supervisory Board Members (excluding external auditors)	23	21	－	－	1	－	－	1
External Directors	92	56	4	－	－	31	35*4	3*6
External Auditors	30	30	－	－	－	－	－	2

• *1The stated amount of stock options is the calculated price as of the end of March 2025.
• *2The targets and results of indicators related to performance-linked compensation for the current consolidated fiscal year are as follows. Each index was reviewed by the Nomination and Compensation Committee and approved by the Board of Directors, taking into consideration the balance and comprehensiveness of the company’s business growth potential, profitability, and efficiency. The operating profit below is the adjusted operating profit excluding one-time expenses.
• *3 Non-monetary compensation, etc. is the amount of long-term incentives to be recorded as expenses for the current fiscal year. The amount of non-monetary compensation for directors (excluding external directors) includes stock options and a post-delivery performance-based stock compensation plan. The compensation limits for a post-delivery performance-based stock compensation plan for directors (excluding external directors) are set at 66,000 shares per year and 165 million yen per year, as resolved at the ordinary general meeting of shareholders held on June 26, 2024 (however, a cumulative total of 198,000 shares and 495 million yen for the number of years related to the evaluation period may be paid in a lump sum) (for the two directors at the time of the resolution).
• *4The amount of non-monetary compensation for external directors includes stock options and a post-delivery stock compensation plan. The limit for stock option compensation for independent external directors will be 70 million yen or less per year (the number of independent external directors at the time of the resolution is three), as determined by a resolution at the ordinary general meeting of shareholders held on June 29, 2022. The compensation limit for a post-delivery stock compensation plan for independent external directors is set at 22,000 shares per year and 53 million yen or less per year (for the three directors at the time of the resolution) as resolved at the ordinary general meeting of shareholders held on June 26, 2024.
• *5The number of directors (excluding external directors) is shown including the number of directors who ended their terms during the fiscal year.
• *6The number of external directors is shown excluding the three non-compensated external directors (including external directors who resigned during the fiscal year).

Short-Term Performance-Linked Compensation in Fiscal Year 2024

Evaluation index	Weight	Target for the fiscal year ended March 2024	Achievements	Level of achievement
Core sales	26%	360,047 million yen	348,572 million yen	97%
Operating profit	30%	20,378 million yen	22,232 million yen	110%
Net profit	19%	10,278 million yen	10,485 million yen	103%
Individual performance goals	25%	Set for each person	Set for each person	Set for each person

Evaluation of the Effectiveness of the Board of Directors

In February and March 2025, the Company conducted a questionnaire regarding the effectiveness of the Board of Directors as a whole among all directors (seven people) and members of the Audit and Supervisory Board (three people) at the time. The questionnaire covered the topics listed below.

1. (1) Composition of the Board of Directors
2. (2) Matters related to the operation of the Board of Directors
3. (3) Effectiveness of the Board of Directors as a whole
4. (4) System related to support and cooperation with external directors
5. (5) Audit function
6. (6) Nomination and Compensation Committee
7. (7) Relationship with shareholders and investors
8. (8) Others (Status of responses to issues pointed out in the previous effectiveness evaluation, etc.)

In order to ensure objectivity, we received support from a third-party organization in setting the survey content and analyzing and assessing evaluation results. Based on the results of the analysis by the third-party organization, the Board of Directors assessed the current situation and issues.

Evaluation Results

We believe that the Board of Directors as a whole is functioning appropriately and effectively. In addition, with regard to the “Analysis of achievement of mid-term plan/Revision and formulation based on it” and “Reports on investments, etc. /Discussion at Board meetings” which were identified as the main issues in the previous effectiveness evaluation, significant improvements were observed by establishing opportunities to share information and discuss important topics, in addition to regular Board meetings. However, to further improve effectiveness, we recognize the following points as the main priorities going forward.

Key Future Issues

• Monitoring of the status of ESG initiatives
• Discussions of crucial sustainability-related issues
• Acceleration of timing of distributing materials to the Board of Directors
• Clear sharing of concerns based on audits with the Board of Directors

While working to improve the issues identified this time, we will continue to implement an effectiveness evaluation every year and continue efforts to increase the effectiveness of the entire Board of Directors.

Officer Training Policy

The Company provides a range of training opportunities not only for directors and members of the Audit and Supervisory Board, but also for all employees to acquire and appropriately update the knowledge necessary for their responsibilities and work. When new external directors and members of the Audit and Supervisory Board are appointed, in addition to their legal roles and responsibilities, the company also provides information necessary for those officers to contribute to effective supervision of the company’s management from the perspective of transparency and fairness (for example, industry information, company history, business overview, financial information, strategy, organization, etc.). In addition, for active deliberations of the Board of Directors, we provide opportunities to acquire and update the knowledge necessary for management supervision, and the Company bears the cost of seminars/networking events, etc., in which each officer voluntarily participates according to his or her needs.

Cross-Shareholdings

In principle, the company has a policy of not holding cross-shareholdings. However, if cross-shareholdings are held from the perspective of business strategy, the significance of the holdings must be confirmed by the Board of Directors at the time of acquisition. In addition, the Finance Department regularly conducts an inventory to determine the significance of cross-shareholdings, and if it is determined that holding the shares is not meaningful, the company will consider selling the stock. The results of the review are reported to the Board of Directors every year. In regard to exercising voting rights, we do not set uniform standards, but rather respect the management policies and strategies of investee companies, and exercise voting rights after making a comprehensive judgment of whether doing so will contribute to improving the company’s corporate value over the medium- to long-term.

Policy Regarding Constructive Dialogue with Shareholders

In building a relationship of trust with our shareholders and other stakeholders, we believe that it is important to understand shareholder expectations and reflect them appropriately in management, and we will proactively respond to IR/SR activities. (i) At the company, the CFO also serves as SVP in charge of IR and oversees the Group’s IR activities. In addition, the Investor Relations & Corporate Communications Department actively accepts IR interviews by investors, including telephone inquiries and small meetings, while at the same time holding financial results briefing sessions in which briefings are given by the President & CEO and the CFO. Dialogues (interviews) with shareholders are conducted by the President & CEO and the CFO, with the support of the Investor Relations & Corporate Communications Department. (ii) As a support system for dialogues, the IR & Corporate Communications Department collaborates with each business department and management department on a regular basis. (iii) For shareholders and investors, the company holds financial results briefing sessions and business briefing sessions as well as participates in domestic and international conferences run by securities companies, etc., and the company also holds a succession of small meetings with investors. (iv) Feedback from IR/SR activities is periodically reported by the CFO in charge of IR to the Board of Directors. (v) When communicating with investors, whether at financial results briefings or small meetings, we manage insider information by focusing on matters related to the company’s sustainable growth and increasing corporate value over the medium- to long-term.

Employee Stock Purchase Program

PHC Group offers an employee stock purchase program for eligible employees in 14 countries, including Japan. Due to regulations in various countries, it can be challenging for individuals outside Japan to invest in companies listed on the Tokyo Stock Exchange, so this plan provides eligible employees an opportunity to become shareholders in PHC Holdings Corporation. The purpose of the plan is to create a culture of shared ownership in the Company’s business management, to create demand for the Company’s shares, to improve liquidity in the stock market, and to enhance employee benefits by providing incentive payments for participation.

Cover (left) and inside pages (right) of the English booklet.
The booklet is available in various languages.