Agenda Item 1: Election of Three (3) Directors who are Audit and Supervisory Committee Members
Proposal 1: Elect Mr. Nobuo Gohara as a director who is an Audit and Supervisory Committee member.
Reason for Nomination as a Director Candidate
Mr. Gohara is a lawyer with significant experience regarding corporate misconduct, and within the Japanese judicial and corporate legal communities is one of the most knowledgeable lawyers on compliance. He has developed unparalleled expertise especially in crisis management across his career, leading independent committees of listed companies, such as Fujiya and Kirin Holdings and Kyushu Electric Power, as well as councils and committees for government ministries and agencies. Moreover, Mr. Gohara and his law firm have no past or current interest in the Company, and there is no concern of a familiar relationship with Company management.
As the control of the Company’s Board of Directors by the three founding families is apparent, the Company needs management supervision by truly independent outside directors. Shareholders can expect Mr. Gohara, as a truly independent external expert and outside director, to monitor management’s performance of duties with neutrality and fairness, to ensure the transparency of the process of appointing and removing officers, and to provide beneficial advice.
For the above reasons, Oasis proposes the election of Mr. Gohara as a candidate for outside director.
Proposal 2: Elect Mr. Motohiko Nakamura as a director who is an Audit and Supervisory Committee member
Reason for Nomination as a Director Candidate
Mr. Nakamura has served as Representative Director of major retail companies and, particularly while working in the product division of Circle K Sunkus Co. Ltd., participated in product development and procurement, and achieved merger synergies via logistics integration. He has expert knowledge drawing on his diverse experiences in product development and store development.
Given the saturation of the drug store industry, the Company will need to provide a comprehensive range of food and other products. Mr. Nakamura can be expected to provide appropriate advice to management and appropriately supervise the performance of duties by the Company’s management based on his long years of experience and knowledge as a manager in the retail industry and in handling food and various other products.
For the above reasons, Oasis proposes the election of Mr. Nakamura as a candidate for director.
Proposal 3: Elect Ms. Yuko Nakahata as a director who is an Audit and Supervisory Committee member.
Reason for Nomination as a Director Candidate
Ms. Nakahata has extensive experience and achievements in management, having served in senior positions, including president, at several domestic and overseas enterprises, and is also a serial entrepreneur. While in Hong Kong, she also gained experience in establishing and managing new companies, primarily in South East Asia, and in managing domestic and overseas group companies.
The Company urgently needs to prepare for the expected demand recovery from inbound tourists in the post-COVID period. Continued success in overseas businesses such as in Thailand is also imperative, over the medium and long term. In the restructuring of the Company’s sales model for inbound tourists and expansion into overseas markets, Ms. Nakahata can be expected to provide beneficial advice from a global perspective based on her overseas experience.
Additionally, ESG is increasingly important in the drugstore industry, and Ms. Nakahata has strong knowledge of ESG from her experience running a global business directory of sustainability problem-solving companies at her startup.
For these reasons, Oasis proposes the election of Ms. Nakahata as a candidate for outside director.
Agenda Item 2: Election of Two (2) Directors (Excluding Directors who are Audit and Supervisory Committee Members)
Proposal 1: Elect Mr. Muneto Tamagami as a director (excluding directors who are Audit and Supervisory Committee members).
Reason for Nomination as a Director Candidate
Mr. Tamagami has held key positions at major consumer businesses, and has extensive knowledge of and experience in corporate management and M&A. For example, at Nitori Holdings, he led the proposal for the establishment of, and managed, the General Planning Office, which is responsible for M&A, and the Public Relations Department.
More mergers between drugstore operators are expected in the future, as the industry shows signs of maturity and saturation. It is increasingly important that the Company lead this industry consolidation, build an advantage over its peers, increase profit margins through cost reductions, invest in new areas, and expand into overseas markets. In this context, Mr. Tamagami can provide appropriate advice and supervision of management’s performance of its duties from a position independent of management to help the Company seize this M&A trend and opportunity, and benefit from synergies, based on his expert knowledge concerning corporate management.
For the above reasons, Oasis proposes the election of Mr. Tamagami as a candidate for director.
Proposal 2: Elect Ms. Akiko Ikeda as a director (excluding directors who are Audit and Supervisory Committee members).
Reason for Nomination as a Director Candidate
Ms. Ikeda has extensive experience in the overall management of consumer businesses, having previously served as Representative Director and President of both Jolly Pasta Co., Ltd. and Cocos Japan Co., Ltd. She achieved record profits in her first year at Jolly Pasta and implemented measures for store and human resource development at Cocos Japan. Her experience in the consumer business is long and broad, including serving as merchandiser for Ito-Yokado’s various clothing divisions and managing and leading the development of the first apparel line in the Seven Premium series, a private brand (“PB”) of Seven-Eleven, from its product development to launch, achieving sales on the order of JPY 100 billion. Ms. Ikeda’s experience positions her well to advise the Company, including on its own PB, particularly as there is room for improvement in the penetration and value-addition to their products.
Based on the above, Ms. Ikeda can provide advice to the Company’s management based on her broad knowledge of management and appropriately supervise the management’s operation of business. For these reasons, Oasis proposes the election of Ms. Ikeda as a candidate for outside director.
Agenda Item 3: Dismissal of One (1) Director who is an Audit and Supervisory Committee Member
Summary of the Agenda Item
Dismiss Fumiyo Fujii as a director.
Reasons for Proposal
While Mr. Fujii held multiple successive important posts at North Pacific Bank, Ltd., we conjecture that North Pacific was the Company’s main bank or performed a similar function in the past. According to disclosures, North Pacific still has some business dealings with the Company. North Pacific, also lends money to Hokuryo Co., Ltd., where Mr. Okazaki serves as outside auditor, and holds cross-shareholdings with Hokuryo. These facts suggest a relationship of friendly cross boarding between the Company, Hokuryo and North Pacific that calls into question Mr. Fujii’s independence.
Reforming the Board of Directors is impossible without replacing all three current outside directors, each of whom lack expertise, independence, and diversity. To improve the Company’s governance, the Company must have truly independent outside directors who possess both diverse backgrounds and strong expertise. Oasis proposes outside directors who can effectively supervise The Company’s operations and achieve growth through industry restructuring and new business development.
Thus, in addition to the two outside directors whose terms are expiring, shareholders must remove Mr. Fujii during his term.
Agenda Item 4: Determination of Individual Fixed Compensation Amounts For Outside Directors (Excluding Directors who are Audit and Supervisory Committee Members)
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Agenda Item 5: Determination of Individual Fixed Compensation Amounts For Outside Directors who are Audit and Supervisory Committee Members
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Agenda Item 6: Change of Restricted Stock Compensation for Directors (Excluding Directors who are Audit and Supervisory Committee Members)
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Agenda Item 7: Determination of Restricted Stock Compensation for Outside Directors who are Audit and Supervisory Committee Members
Reasons for our Proposals (the “Shared Reasons for Compensation Restructuring”).
Need to make fixed compensation for Outside Directors transparent and introduce stock-based compensation. During the annual general meeting on August 10, 2021, shareholders approved compensation for the Company’s directors (excluding directors who are Audit and Supervisory Committee Members) of no more than JPY 500 million per year in fixed compensation, which consists of monetary monthly compensation and bonuses, and no more than JPY 150 million for performance-linked variable compensation in the form of a grant of restricted shares, while only granting outside directors a fixed compensation of no more than JPY 50 million per year. Shareholders also approved fixed compensation for directors who are members of the Audit and Supervisory Committee of no more than JPY 100 million per year.
Currently, the Company has only fixed a total upper limit on compensation for all outside directors, regardless of membership in the Audit and Supervisory Committee, while the amount to be paid to any single such outside director remains variable depending on the number of outside directors. Although fixing total compensation is common practice, individual compensation should also be fixed, especially for outside directors to offer predictability and to recruit talented candidates who can perform supervisory functions over management. Moreover, clearly determining the compensation in advance at a shareholder meeting, as opposed to this being left to the common determination of the Board of Directors and the Audit and Supervisory Committee, will ensure transparency and secure the independence of outside directors.
Outside directors are also, as a class, currently excluded from participation in stock-based compensation and performance-linked compensation. While it is desirable to attract diverse and high-quality talent from across Japan, the current Board of Directors composition is, as mentioned above, skewed in favor of regional and industry connection. Therefore, to attract such diverse and high-quality talent, the Company should implement stock-based compensation as an incentive for all outside directors.
Background of Oasis’s Proposal. Oasis proposes that compensation for outside directors should (1) be at a level appropriate for independent outside directors with knowledge, expertise and abilities in relevant business fields; (2) be determined for outside directors as a class regardless of their membership in the Audit and Supervisory Committee, ensuring transparent and reasonable compensation by fixing the amount for each director; and (3) include restricted stock awards, regardless of membership in the Audit and Supervisory Committee, with a fixed upper threshold for each director, in order to incentivize their engagement following their appointment.
Specific Content of the Proposal. The Company should compensate Outside Directors with an amount that reflects the value of their substantive performance of duties. Thus, the Company shall offer JPY 10 million fixed compensation per outside director per fiscal year, and offer monetary compensation claims for the allotment of shares with restrictions on transfer equal to JPY 3 million per outside director per year, in each case regardless of membership in the Audit and Supervisory Committee. If passed, these proposals would offer internal directors, excluding Audit and Supervisory Committee members, in total up to JPY 150 million per year and outside directors, regardless of membership in the Audit and Supervisory Committee, up to JPY 3 million per year and per person, in monetary compensation claims for the allotment of shares with restrictions on transfer. However, even after these proposals, the internal directors who are a member of the Audit and Supervisory Committee would not be eligible for monetary compensation claims for the allotment of shares with restrictions on transfer.
Agenda Item 8: Amendment to the Articles of Incorporation (Abolition of Director-Chair and Director-Vice Chair positions)
Summary of the Agenda Item
Article 22.3 will be amended as follows. Also, if the passage of another proposal (including proposals in company proposals) at this Annual General Meeting of Shareholders necessitates a formal adjustment (including, but not limited to, the correction of a deviation in article numbers) to the text included as this proposal, the text of this proposal shall be replaced with the text after the necessary adjustment.
Reasons for Proposal
The Ministry of Economy, Trade and Industry's guidelines state that while the role of the director-chairperson is different at each company in various ways, such as those who execute business together with the President, those who oversee management as the Chairperson of the Board, etc., companies should consider the appropriate authority and title for the chairperson. In addition, voting advisory firms generally recommend separating the post of president from that of the chairperson of the board.
While the Company explains the role of a chairperson to be “supervision of the management,” the Company’s articles provide that the Company’s president shall serve as the chairperson of the Board, which means there is no separation between the chairperson of the Board and the president. This creates confusion about the role and purpose of a chairperson. Also, because the chairperson is the father of the current president, it is unclear whether the chairperson can effectively and appropriately supervise the president and make governance effective in this structure.
Not only is the position of chairperson unnecessary, but it also undermines the governance of the Company. The abolition of this position is an essential institutional reform for the proper execution of business by management and the supervision thereof.
Agenda Item 9: Amendment to the Articles of Incorporation (Selection of Board Chair from among Outside Directors)
Summary of Proposals
Article 23 shall be amended as follows. Also, if the passage of another proposal (including proposals in company proposals) at this Annual General Meeting of Shareholders necessitates a formal adjustment (including, but not limited to, the correction of a deviation in article numbers) to the text included as this proposal, the text of this proposal shall be replaced with the text after the necessary adjustment.
Reasons for the Proposal
The Ministry of Economy, Trade and Industry's guidelines point out that it is easier to ensure the effectiveness of the supervisory function of the Board of Directors when the chairperson of the Board is a non-executive director, such as an outside director. As mentioned in the guidelines, when submitting matters to the Board of Directors, important matters should be taken up for discussion in a timely manner and substantive discussions should be held on management strategies, etc., but at the Company, the executive and supervisory sides may have not only different views on the importance and necessity of a given matter, but also conflicts of interest, given that the founding families form the majority within the internal directors.
In the Board of Directors’ current situation, internal directors—the majority of whom are from the founding families—lead discussions. Shareholders cannot in this environment expect constructive discussions to take place, especially on reforms like those described above, including corporate restructuring. In order to benefit the Company as a whole and to engage in dialogue with shareholders from a medium- to long-term perspective under appropriate governance, the chairperson of the board of directors should be appointed from among outside directors. This will strengthen the involvement of outside directors, and eliminate the appearance of strong influence by the founding families.