Issues to be Addressed

The outlook for the global economy is beset by marked uncertainty due to increasing risk, despite the diminishing impact of the novel coronavirus disease (COVID-19) pandemic. This risk is associated a series of continuing developments that are having a major impact on world affairs, which include the spread of infections of variant viruses, heightening geopolitical risk caused by the situation in Ukraine, persistently high inflation, and stronger monetary tightening.
Even in such an unpredictable operating environment, the Group aims to achieve sustained growth through the initiatives listed below.

(I) Strengthening the Corporate Governance System

The Group, which is expanding its business globally, must implement sound management suitable for a company whose parent company is a listed company, along with its acquired companies. To continually achieve this, a priority objective will be to enhance the Group-wide corporate governance and compliance system. In addition, the internal control system must be applied to the Group as a whole, with common goals and methodology established from the viewpoint of global management.
The Company received a notice on request to submit an improvement report and public announcement from Tokyo Stock Exchange, Inc. on February 22, 2022. It submitted the improvement report on March 8, 2022, and then the improvement status report on September 22, 2022. The Company deeply apologizes again for causing considerable concern and inconvenience to all shareholders and investors. The Company is working to create and operate internal controls through the execution of measures to prevent recurrence and to strengthen the internal management systems at the Group. At the Company and its domestic subsidiaries, some level of results in reforming the corporate culture, fostering compliance awareness among employees, and improving accounting literacy, all areas that contributed to the aforementioned issues have been seen. However, at some overseas subsidiaries, there has been a weakening of management systems and a lack of thorough compliance awareness. In terms of the Company’s company-wide internal controls, it is aware that there is insufficient monitoring of overseas subsidiaries and significant defects in their internal controls.
The Company is strengthening corporate governance systems and monitoring functions, particularly for its overseas subsidiaries, through the measures listed below. Doing so will prevent recurrence while emphasizing internal controls both at the Company and its domestic subsidiaries.

(Measures to prevent recurrence)
・Raising compliance awareness and thorough implementation of measures to prevent recurrence at overseas subsidiaries
・Strengthening checking capabilities by reviewing management systems at overseas subsidiaries
・Strengthening the monitoring functions of overseas subsidiaries at the Company
・Creating and operating an internal reporting system at overseas subsidiaries

In line with these initiatives, in order to further strengthen the Company’s corporate governance, having been granted approval at the ordinary general meeting of shareholders held on March 28, 2023, the Company made a transition to a company with Nominating Committee, etc. It has three committees (Nominating, Compensation and Audit), each of which is composed of a majority of external directors. It enables significant delegation of authority from the Board of Directors to executive officers, in order to further clarify the separation of management supervisory and execution functions and to ensure prompt and decisive decision making while strengthening management supervisory functions.
The Company thus recognizes that, in an effort to achieve growth and enhance corporate value over the medium to long term, its management must assign the utmost priority to creating a fully autonomous, highly ethical corporate governance system that is closely monitored and routinely reviewed. The Company also recognizes that such a system will prove invaluable in the ongoing building of trust and confidence with all its stakeholders, including shareholders, clients, local communities, and employees, as it works to improve its corporate governance.

(II) Enhancement of an SDGs Approach in Management

The Group is making efforts to contribute to a sustainable development of society and companies based on the sustainability policy. The Group has further enhanced this activity and set KPIs in line with five materiality themes (priority issues), and will contribute to achievement of targets for SDGs while doing much for resolution of social issues through its business.

(III) Strengthening Corporate Structure through Staff Development

Being engaged in a business that deals with human resources, the Group recognizes its staff as its foremost business asset. The Group undertakes thorough training and educational activities to increase not only the basic knowledge and skills for properly handling human resources and providing various services related to human resources but also labor and production management skills for production worksites. Together with these, the Group is tackling important issues of securing top-quality human resources and training them in order to meet customer needs quickly, flexibly, and precisely, which are growing more sophisticated and diverse.
The Company will be working to strengthen its corporate structure through the global recruiting and training of qualified individuals, regardless of their nationality or gender, who have a broad range of expertise and experience, are acquainted with global protocols, and have a globally acceptable law-abiding awareness.

(IV) Constructing a System to Supplement Highly Variable Businesses

For the Manufacturing Outsourcing Business, a large number of workers can suddenly lose their job when a major recession, such as the one caused by the collapse of Lehman Brothers hits. This is due to the nature of dispatching workers and outsourcing operations related to mass production, which entails sudden changes in production. However, some of these companies that let workers go are unable to reach the same level of earnings they previously had. The reason for this is that their hiring cannot keep up with demand when production grows during the subsequent economic expansion. These lost opportunities create serious issues.
It is important, therefore, for the Group to create a system in which the overall group can continue to be profitable even when there is a sudden, massive contraction in manufacturing activity and keep workers without letting them go. It is also important to generate the same level of earnings when manufacturing activity begins to pick up by immediately dispatching workers. To do so, the Group aims to make the foundation for growth more resilient by smoothing out earnings by curtailing the relative proportion of revenue it generates from the Manufacturing Outsourcing Business. This will be done through expansion of its businesses in fields that have different business cycles from that of the manufacturing industry and fields that are not easily impacted by business conditions.

(V) Creating a Foundation that Does not Miss Growth Opportunities

Because of Japan’s declining population, the Japanese human resource market is limited, and strong future growth cannot be expected. On the other hand, the global population is expanding, and some people believe that it may grow by an additional 3.0 billion. For many of the Group’s businesses, earnings are tied to the number of people working. Therefore, the Group will build a system to facilitate the international flow of people from countries with growing, excessive populations to ones with insufficient populations, and will strive to capture that growth potential. At the same time, the Group is working on a business to support workers who are transitioning under human resources mobilization schemes. The Group accordingly aims to establish and expand it as a new pillar of business that is not associated with recruitment. It is the Group’s opinion that after establishing this global human resources network, it will have created a path to become the world’s top human resources company. Thus, the Group is investing in growth to create this system.