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Our Stance on Corporate Governance

Advantest’s corporate mission is “Enabling Leading-Edge Technologies.” Advantest constantly strives to improve so that we can offer products and services that will satisfy customers around the world, and contribute to the future of society through the development of the most advanced technologies.

In accordance with the corporate mission described in the preceding paragraph, and in response to our mandate from stakeholders, Advantest aims to achieve a sustainable level of business development for the Advantest Group and to enhance corporate value over the mid-to-long term. To that end, the Advantest Group will establish a fair and efficient and transparent governance system. Above is a basic view on the Advantest Group’s corporate governance.

• Advantest Corporate Governance Policy

Management Structure

The global business environment is changing more rapidly than ever before, due to factors such as technological advancement and the expansion of protectionist trade policies. To continuously increase our corporate value and competitiveness in today's world, we emphasize swift decision-making and execution. We also place an emphasis on sound, highly transparent business operations in compliance with relevant laws and regulations. In order to meet these challenges, we draw clear lines of authority within our organization and set responsibilities in accordance with each management function, assigning each role to the best person for the job.

We have become a company with an Audit and Supervisory Committee since June 2015. Advantest further strengthened its corporate governance and Board of Directors' audit function as a company with an Audit and Supervisory Committee, where the committee members use their voting rights in Board of Directors Meetings with the aim of further increasing our corporate value. Furthermore, we have established a structure that can quickly respond to the rapidly changing business environment, and in order to strengthen our corporate governance, we introduced an Executive Officer system in 2003.

Corporate governance structure

Please see the information below for the Corporate Governance Report.

• Corporate Governance Report

Board of Directors

The Board of Directors of Advantest, as the management decision making body, shall make decisions on significant matters with respect to the management policies and management strategies for Advantest group, and in its capacity to supervise management, the Board of Directors shall monitor and supervise the status of exercise of duties by Executive Officers. Advantest strengthens the oversight and supervision functions of the Board of Directors so as to appoint multiple outside directors as members of the Board of Directors. The Board of Directors met 14 times in FY2019, Mr. Yoshiaki Yoshida, Mr. Osamu Karatsu, Mr. Hans-Juergen Wagner, Mr. Soichi Tsukakoshi, Mr. Yuichi Kurita and Ms. Tsuneko Murata attended 14 times, and Mr. Toshimitsu Urabe, Mr. Nicholas Benes, Mr. Atsushi Fujita and Mr. Kouichi Nanba attended 11 times, Mr. Seiichi Yoshikawa, Mr. Sae Bum Myung and Mr. Megumi Yamamuro attended 3 times. All the members were present at every Board of Directors meeting. Attendance numbers vary since some members were replaced after the general meeting of shareholders.   At the Board of Directors meetings, directors with a wealth of knowledge and experience expressed their opinions from each point of view on the agenda proposed by the management team, and active discussions took place. The Board of Directors spends about 3 to 5 hours per meeting, and considers budgets, financial statements, Executive Officer personnel, and acquisition or sales of businesses etc.  The Board of Directors of Advantest (including Directors who are Audit and Supervisory Committee members) is composed of five executive directors (inside directors), one non-executive director (inside directors) and five non-executive directors (outside directors) as of the filing date of the Report. Two of the directors have non-Japanese nationality. One of the directors is female. In order to maintain seamless communication despite the diversification of Directors, Advantest has arranged for simultaneous interpretation at the Board of Directors meetings so that Board members can speak freely in both Japanese and English. Materials and minutes are also translated into English.

At a Board of Directors’ meeting, all directors answered a questionnaire to evaluate the effectiveness of their roles and obligations. Their opinions on the structure of the Board of Directors, operation and discussion status were collected and analyzed.

(Result of FY2018 and action in FY2019)

Regarding board effectiveness in FY 2018, Advantest considered the following three items: succession plans of the Representative Director, re-analysis of risks that influence our business, and investigation of the director training menu.
Regarding the succession plan of CEO, the Board of Directors will take the initiative after considering in the Nomination and Compensation Committee. Currently, we are working on the formulation of this plan, and the Nomination and Compensation Committee will report progress to the Board of Directors.
Regarding the re-analysis of risks, we described the risks in the securities report after discussions on the executive side.
In relation to the investigation of the training menu, we newly appointed an outside director in FY 2019 who is familiar with the training of directors. Executive Officers who had not attended the training have received officer training on governance, and in addition, a lecture by an expert on ESG and improvement of corporate value for domestic Directors and Executive Officers was held.

(Result of FY2019)

Regarding the effectiveness of the Board of Directors in FY 2019, it was confirmed that its structure is appropriate, and the Board of Directors exchanged opinions freely. On the other hand, the following points were raised regarding future improvements.

• Distributed materials and explanation methods of the Board of Directors
• Nomination and Compensation Committee reporting method
• How to utilize outside experts by outside directors

• Directors and Executive Officers

Director Off-site Meetings

In FY2019, all ten Directors (at the time) visited a U.S. subsidiary to confirm the current status of their business condition including the acquired company as well as the initiatives to take going forward.

Director Training

In FY2019, Advantest conducted training as follows.

• For a newly appointed director, Advantest explained Advantest group’s business, or organization etc.
• Executive Officers who had not attended the training prior to FY 2019 received officer training on governance.
• A lecture by an expert on ESG and improvement of corporate value for domestic Directors and Executive Officers was held.

Nomination and Compensation Committee

In 2005, Advantest established a Nomination and Compensation Committee as a discretionary institution. The Nomination and Compensation Committee consists of three Directors (including two outside Directors selected by the Board of Directors' resolution), with an outside Director serving as the chairperson of the committee. The Nomination and Compensation Committee, in consultation with the Board of Directors, discusses matters related to the nomination and compensation of Directors and Executive Officers, and makes proposals to the Board of Directors. The Committee was held 14 times during FY 2018. The Directors and Executive Officers Nomination/Dismissal Policy and Procedures and the Directors and Executive Officers Compensation Policy and Procedures were reviewed and discussions on the revision of the Directors' compensation system based on the review were conducted and suggested to the Board of Directors.

* The number of people given is correct as of June 25, 2020.

We have established a policy and procedures to assure the objectivity and transparency of the nomination and compensation of Directors, which are publicly available on the website.

• Directors and Executive Officers Nomination/Dismissal Policy and Procedures
• Directors and Executive Officers Compensation Policy and Procedures

Executive Officer System

Advantest has introduced an Executive Officer system that keeps decision-making functions separate from executive functions, in order to boost management efficiency.

Executive Officers are selected by the Board of Directors as senior management dedicated to the execution of operations. They have the responsibility for swiftly and efficiently implementing management policies and strategies determined by the Board of Directors. The term of each Executive Officer is limited to one year, so as to achieve more explicit accountability.

There is a total of 24 Executive Officers*, 10 of whom are not citizens of Japan (America: 3, Europe: 3, Asia: 4, percent of non-Japanese: 41%) appointed to enhance the integration of the company's global operations.

* The number of people given is correct as of June 25, 2020.

• List of Directors

Executive Compensation

In response to consultation from the Board of Directors, the Nomination and Compensation Committee deliberates and proposes the Compensation for Directors (excluding Directors who are Audit and Supervisory Committee members) and Executive Officers to the Board of Directors. The Board of Directors deliberates and determines the compensation based on the proposal from the Nomination and Compensation Committee. The Audit and Supervisory Committee deliberates and determines the compensation for Directors who are Audit and Supervisory Committee members.

Executive compensation for FY2019 is as follows.

1. The above list includes two directors (excluding audit and supervisory committee members) and one director (an audit and supervisory committee member) who resigned from its position on 26 June, 2019.
2. The amounts of remuneration set forth above include compensation in the form of stock options.
3. The amounts of remuneration set forth above includes the aggregate amount of remuneration for four outside Directors (excluding Audit and Supervisory Committee members) and three outside Directors (Audit and Supervisory Committee members) in the amount of 29 million yen.

Internal Controls

Advantest has set up and maintains internal control systems that correspond to the requirements of the Companies Act and the Financial Instruments and Exchange Act. In order to manage the group with an emphasis on performance evaluation based on the consolidated financial statements, these systems are built as a unified system that includes both Advantest and its affiliates.
Advantest has established an Internal Control Committee in which the Representative Director acts as the chairperson and outside Directors are observers. This committee identifies and analyzes significant risks for the whole company, and clarifies the responsible department and procedures for responding to each risk. Furthermore, if a material weakness is found in the internal control system development and operating status and the internal control evaluation process, it is reported to the Board of Directors.

Auditing System

Audit and Supervisory Committee

The Audit and Supervisory Committee investigates the status of Advantest's businesses and assets based on the audit policy and audit plan formulated by the Audit and Supervisory Committee. In addition, the Audit and Supervisory Committee will audit the execution of duties by Directors, Executive Officers and other business executing agencies by collaborating with internal control teams and Accounting Auditors. Advantest’s Audit and Supervisory Committee is composed of one inside director and two outside directors whom are Audit and Supervisory Committee members (of which one is a full-time Audit and Supervisory Committee member)*. Directors who are Audit and Supervisory Committee members are appointed by the General Meeting of Shareholders separately from other Directors who are not Audit and Supervisory Committee members. The Audit and Supervisory Committee, the Auditing Group and other internal control departments, the Accounting Auditors, and the corporate auditors of each Advantest group company collaborate with one another so as to carry out regular discussions and timely meetings.

* The number of people given is correct as of June 25, 2020.

Accounting Auditors

Accounting Auditors perform accounting audits of the consolidated financial statements, accounting documents, etc., and produce an audit report. Advantest has appointed Ernst & Young ShinNihon LLC as the Accounting Auditor, and undergoes the specified audit by the company.

Internal Auditing

Advantest has established an internal auditing team that comprises the Auditing Group, and the Singapore and Korean auditing team. To verify whether the company's day-to-day operations are carried out appropriately and efficiently in accordance with the requirements of relevant domestic and overseas laws ordinances, and internal rules, the internal auditing team implements operational auditing, compliance auditing and internal controls auditing. Besides evaluating the efficiency of the internal controls system, the internal auditing team also provides support to assist in making improvements at individual business locations, when necessary. The internal auditing team hold appropriate qualifications (such as Certified Public Accountant, Certified Internal Auditor, or Qualified Internal Auditor), and all team members are committed to enhancing auditing quality.