NYSE Corporate Governance Practices

Companies listed on the NYSE must comply with certain standards regarding corporate governance under Section 303A of the NYSE Listed Company Manual. However, listed companies that are foreign private issuers, such as NTT DOCOMO ("the Company"), are permitted to follow home country practice in lieu of certain provisions of Section 303A.

The following table shows the significant differences between the corporate governance practices followed by NYSE-listed U.S. companies under Section 303A of the NYSE Listed Company Manual and those followed by the Company.

Corporate Governance Practices Followed by NYSE-listed U.S. Companies Corporate Governance Practices Followed by the Company
A NYSE-listed U.S. company must have a majority of directors meeting the independence requirements under Section 303A of the NYSE Listed Company Manual.

Under the Companies Act, Japanese joint stock corporations (kabushiki kaisha) above a certain size whose shares are transferable without the approval of such corporations, including the Company, may elect to structure their corporate governance system as either, a company with an audit & supervisory board (kansayakukai secchigaisha), a company with nominating committees or similar (shimei iinkaitou secchikaisha), or company with audit and supervisory committees (kansatou iinkai secchikaisha.) The company with audit or similar committees is a new corporate governance system introduced by the Companies Act amendment enacted as of May 1st, 2015. The Company is currently a company with an audit & supervisory board.

As a company with an audit & supervisory board, the Company is not required under the Companies Act to have any outside directors on its board of directors.

However, due to the amendment described above, new rules to promote the establishment of outside directors are established and if a listed company greater than a certain scale does not have outside directors appointed, the Company is obligated to explain why it is not appropriate to appoint an outside director at the annual general meeting of shareholders.
Also, the definition of an outside director has been revised in this amendment of the Companies Act and outside directors are now defined as those who fulfill all of the conditions below:

  • A person who is not an Executive Director, Executive Officer, manager or other employee (hereafter, "Executive Director, etc.") of the Company or its subsidiaries and have not been an Executive Director, etc., of the Company or its subsidiaries in the 10 years prior to appointment as an outside director;
  • For a person who has been a director, accounting advisor or auditor of the Company or its subsidiaries at any time in the 10 years prior to appointment as an outside director, those who have not been an executive director, etc. of the Company or its subsidiaries in the 10 years prior to the appointment to the said position;
  • A person who is not a Parent Company, etc. of the Company (limited to a natural person) or director, executive officer, manager or other employee of a Parent Company, etc.;
  • A person who is not an Executive Director, etc. of a subsidiary, etc. of the Parent Company, etc. of the Company (excluding the Company and its subsidiaries); and
  • A person who is not a spouse or relative within the second degree of kinship of a director, executive officer, manager or other important employee of the Company, nor its Parent Company, etc (limited to a natural person).

The tasks of auditing the performance of its directors and auditing the Company's financial statements are assigned to the Company's audit & supervisory board members, who are separate from the Company's directors. Under the Companies Act, at least one half of a company's audit & supervisory board members are required to be outside audit & supervisory board members who must meet certain requirements. Due to the amendment to the Companies Act, the definition of outside audit & supervisory board members have also been revised, and outside audit & supervisory board members are defined as those who meet all of the following requirements:

  • A person who has not been a director, accounting advisor, executive officer, manager or other employee of the Company or its subsidiaries within the 10 years prior to the appointment;
  • For a person who has been an auditor of the Company or its subsidiaries at any time in the 10 years prior to this appointment, the person who has not been a director, accounting advisor, executive officer, manager or employee of the Company or its subsidiaries in the 10 years prior to the appointment to the said auditor position;
  • A person who is not a Parent Company, etc. of the Company (limited to a natural person) or a director, auditor, executive officer, manager or other employee of a Parent Company, etc.;
  • A person who is not an Executive Director, etc. of a subsidiary, etc. of Parent Company, etc. (excluding the Company and its subsidiaries); and
  • A person who is not the spouse or a relative within the second degree of kinship of a director, manager or other important employee of the Company, nor its Parent Company, etc. (limited to a natural person).

In addition, the Securities Listing Regulations of the Tokyo Stock Exchange ("TSE") requires the Company as a TSE-listed company to designate at least one independent director/auditor. Further, the regulations state that companies must take efforts to secure at least one independent director/auditor who is a director. An independent director/auditor is defined as an outside director/audit & supervisory board member who is unlikely to have conflicts of interest with general investors. As of June 2015, we have appointed one outside director and two outside audit & supervisory board members as independent director/auditor, these outside directors and outside audit & supervisory board members meet the revised criteria for outside directors or outside audit & supervisory board members under the aforementioned Companies Act amendment.

A NYSE-listed U.S. company must have an audit committee composed entirely of independent directors, and the audit committee must have at least three members.

Under the audit & supervisory board member system that the Company employs, the audit & supervisory board is a legally separate and independent body from the board of directors. The function of the audit & supervisory board and each audit & supervisory board member is similar to that of independent directors, including those who are members of the audit committee, of a U.S. company: to audit the performance of the directors, and express an opinion if it is the opinion of the audit & supervisory board that the method, or the results of the audit report by the Company's accounting firm is not suitable and express the reason for such opinion, for the protection of the Company's shareholders. Further, due to aforementioned amendments to the Companies Act, agenda items for shareholder's meetings in relation to the selection, termination or discontinuation of accounting auditors will be determined by the audit & supervisory board.

Under the Companies Act, the Company is required to have not less than three audit & supervisory board members. The Articles of Incorporation of the Company permit it to have up to five audit & supervisory board members. Currently, five audit & supervisory board members of the Company have been elected. The term of office of each audit & supervisory board member is up to four years after his/her election, whereas the term of office of each director is up to two years after his/her election.

With respect to the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934, relating to listed company audit committees, the Company relies on an exemption under that rule which is available to foreign private issuers with audit & supervisory boards meeting certain criteria.

A NYSE-listed U.S. company must have a nominating/corporate governance committee composed entirely of independent directors.

The Company's directors must be elected at a general meeting of shareholders. Its board of directors does not have the power to fill vacancies thereon.

The Company's audit & supervisory board members must also be elected at a general meeting of shareholders. The Company's board of directors must obtain the consent of its audit & supervisory board in order to submit a proposal for election of an audit & supervisory board member to a general meeting of shareholders. The audit & supervisory board is empowered to request that the Company's directors submit a proposal for election of an audit & supervisory board member to a general meeting of shareholders. All audit & supervisory board members have the right to state their opinion concerning the election of an audit & supervisory board member at the general meeting of shareholders.

A NYSE-listed U.S. company must have a compensation committee composed entirely of independent directors.

The maximum aggregate compensation amount for the Company's directors and that of the Company's audit & supervisory board members must be, and accordingly has been, approved at a general meeting of shareholders.

The Company must also obtain the approval at a general meeting of shareholders if the Company desires to change such maximum amount of compensation.

The compensation amount for each director is determined by the Company's President or another director who is delegated to do so by the board of directors, and that for each audit & supervisory board member is determined upon consultation among the audit & supervisory board members.

There are no procedural or disclosure requirements with respect to the use of compensation consultants, independent legal counsel or other advisors.

A NYSE-listed U.S. company must generally obtain shareholder approval with respect to any equity compensation plan.

Pursuant to the Companies Act, if the Company desires to adopt an equity compensation plan under which stock acquisition rights are granted on specially favorable conditions (except where such rights are granted to all of its shareholders on a pro rata basis), the Company must approve the said plan by a "special resolution" of a general meeting of shareholders, where the quorum is one-third of the total number of voting rights and the approval of at least two-thirds of the voting rights represented at the meeting is required.

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