Corporate governance

FUNDAMENTAL APPROACH

Kyowa Hakko Kirin operates its business in accordance with its corporate philosophy of "contributing to the health and wellbeing of people worldwide by creating new value with the pursuit of advances in life sciences and technology." Our basic goal in corporate governance is to clarify the responsibilities and duties of the management organization, to ensure the policies that we have in place are complied with, and to progress toward the realization of the Company's philosophy. We recognize the importance of increasing management transparency and reinforcing oversight functions and strive to enhance corporate governance to continually raise corporate value.

FUNDAMENTAL STRUCTURE

Kyowa Hakko Kirin uses a company auditor system, with the General Shareholders' Meeting as the highest decision-making body. The corporate governance structure is based on the Board of Directors and the Board of Auditors, which together carry out the functions stipulated under the Corporation Law of Japan.

(as of June 25, 2009)

Directors and Board of Directors

In principle, the Board of Directors meets once a month and had seven members, including one outside director, as of June 25, 2009. The Board of Directors performs critical Groupwide management functions, including strategic planning, decision making, and the monitoring of operational execution. In performing these functions, the Board of Directors met 15 times during the year ended March 31, 2009.

Company Auditors and Board of Auditors

The Company has adopted a corporate governance system using company auditors. The Board of Auditors comprised five members, including four outside auditors, as of June 25, 2009.
Based on the audit policies established by the Board, company auditors attend important meetings, including those of the Board of Directors, inspect operations and assets, and audit the work of directors. In performing these duties, the Board of Auditors met 14 times during the year ended March 31, 2009.

Group Management Meeting, Executive Officer System, and Advisory Board

The Group Management Meeting has been established as a decision-making body to make accurate and effective management decisions from a strategic viewpoint. It met 15 times during the year ended March 31, 2009, to deliberate on important and fundamental issues related to the Group's management policies and operational execution. In addition, an executive officer system has been introduced to facilitate rapid decision making and strengthen operational execution.
Also, Kyowa Hakko Kirin has established the Advisory Board, which acts as a counseling body to the Board of Directors in order to strengthen management and ensure transparency and soundness as well as to provide an external management perspective on various management-related issues to the entire Group. The Advisory Board is made up of four outside advisors and met twice during the year ended March 31, 2009.

Risk Management System and In-House Committees

To address the variety of risks inherent in management issues, seven in-house committees have been established to strengthen risk management and enhance corporate governance.
These committees regularly report on their activities to the Board of Directors. These in-house committees are the CSR Committee, the Group Risk Management Committee, the Risk Management Committee, the Group Environmental Safety Committee, the Group Quality Assurance Committee, the Information Disclosure Committee, and the Financial Management Committee. For details of identified risks, please refer to "Risk Factors" on page 51.

INTERNAL CONTROL SYSTEM

A policy for the establishment of a system for internal control to ensure the integrity of operations was approved by the Board of Directors on May 22, 2006, and this system is currently under development based on that resolution. Based on subsequent changes to the operating environment, such as law revisions, and the progress made by the Kirin Group and the Company in developing the internal control system, the Company's Board of Directors resolved at a meeting on April 22, 2009, to revise the internal control system.

Compliance

Kyowa Hakko Kirin views regulatory compliance as one of its most important management issues and the Kyowa Hakko Kirin Group Compliance Guidelines make clear its position on employees always observing corporate ethics when carrying out their duties. Further, the Company has established organizations and regulations to ensure the guidelines are effectively adhered to. This includes a specialist organization to promote corporate ethics throughout the Group and to carry out training for all employees in all Group companies. Kyowa Hakko Kirin has also created a system of internal reporting and works to ensure all employees are aware of it and utilize it if necessary.
In addition to aiming to protect those people reporting on compliance-related issues, a structure is in place to maintain transparency and to decisively respond to situations arising from internal reporting. The Company has also established a dedicated internal audit organization that is independent of the operating organization to carry out checks on the effectiveness of the compliance system.

Internal Audit

The Audit Department consists of six people and was established to operate under the direct supervision of the Company president. It examines and reports on the status of the Company's operations from legal, internal compliance, and effective management perspectives. Also, the Audit Department offers advice and makes proposals to enhance operations and improve efficiency.

Structure for Reporting to Company Auditors

Directors and employees are obligated to report to company auditors any violations of laws, internal regulations, resolutions of the Board of Directors, or other rules under the internal reporting structure. Company auditors may attend important management meetings, including those of the Board Directors and the Group Management Meeting, as well as examine meeting minutes and other documents as well as carry out other audits in cooperation with the dedicated internal audit department.

INDEPENDENT AUDITOR

The Company's independent audit is carried out by three certified public accountants, each of whom is an employee of Ernst & Young ShinNihon. Also, a further four certified public accountants and ten other staff provide support for the execution of the independent audit.

COMPENSATION TO DIRECTORS AND AUDITORS

Executive compensation to directors and company auditors during the year ended March 31, 2009, totaled ¥373 million, of which ¥281 million was compensation for directors (including ¥9 million as compensation paid to outside directors) and ¥91 million was for company auditors.
The Company introduced a performance-based compensation system for its directors and executive officers. Furthermore, a stock option scheme for a stock-linked compensation plan has been offered in place of the discontinued retirement benefit system, and the compensation to directors shown above included stock options of ¥40 million. In addition, ¥153 million in audit fees were paid to the independent auditor, including ¥121 million for audit-certification duties.