Business and Other Risks

The following presents particularly significant risks that could affect the Link and Motivation Group’s performance and financial position. The information contained herein may not cover all scenarios, and risks not currently apparent or considered significant may affect the Group in the future. Forward-looking statements contained herein are judged by the Group’s management to be consistent with information available as of the end of the previous consolidated fiscal year.

1. Risks Related to the Macro Environment, Including Changes in Economic Conditions

Risk description:
Rising prices stemming from the escalating conflict in Ukraine and the sharp depreciation of the yen, in addition to the continued impact of the COVID-19 pandemic on global economic activity, are clouding the economic outlook. A decline in demand for services due to the stagnation or deterioration of economic conditions could impact the Group’s business results.
Specific impacts that might be expected include those due to suspension of projects due to a worsening business environment for consulting services provided by the Organizational Development Division, particularly to small- and medium-sized enterprises and startups, and changes in the corporate recruiting environment for the Personnel Placement Business of the Matching Division.

Main countermeasures:
In the 2010s, the Group entered the ALT Placement Business and the Career School Business, which are comparatively insulated from the impact of economic conditions, and built a business portfolio that is resilient to economic downturns. Amid the increasing speed of change in the business environment, the Group set “management with good reflexes” as one of the three goals of LMG’s management policy in order to respond to change flexibly and quickly, and to minimize negative impacts. Based on this policy, the Group is able to make immediate decisions based on discussion of economic conditions and other matters in management meetings as required. One example of this is the Group’s monitoring of human capital return on investment (ROI), which links business and organizational strategies, and considers investments according to economic conditions to maximize results in the short, medium and long term.

2. Risks Related to Intellectual Property

Risk description:
The Group has established a brand by developing businesses based on Motivation Engineering. However, if companies imitating this technology emerge, the Group may become unable to sufficiently demonstrate an advantage over competitors, which could have an adverse impact on Group results, including a decrease in sales.
Furthermore, the Group’s expansion of business scale and adoption of telework have created an environment that is more susceptible to outflow and leakage of intellectual property, such as consulting know-how and client case studies. This has increased the risk of brand damage and reputational damage.

Main countermeasures:
To reduce the possibility that Motivation Engineering is imitated, the Group will constantly evolve this technology, led by the R&D department, while the legal department will protect the Group’s intellectual property through a multifaceted strategy that combines multiple intellectual property rights, including trademarks, patents and copyrights.
In addition, to prevent the outflow and leakage of intellectual property, the Group will not only establish reasonable information management measures and data governance as required by law, but will also step up efforts to raise employee awareness to improve the effectiveness of information asset protection, including trade secrets.

3. Risks Related to Data Security and Data Privacy

Risk description:
In the course of its businesses, the Link and Motivation Group handles large volumes of personal and confidential information, including information about the organizational structure and human resources of client companies (Organizational Development Division), customer information such as names and dates of birth (Individual Development Division), and company information such as job applicants and open positions (Matching Division).
In the event that an information leak occurs due to external fraud, such as unauthorized access via cyberattacks, or due to internal accidents, and the leak causes damage to the owner of the information, client companies or others, the resulting damage claims and/or loss of public trust could affect the Group’s business results and financial condition.

Main countermeasures:
The Group has formulated information management rules and management methods that conform to Privacy Mark requirements, and takes both organizational and technical measures to comply with them. Specifically, the Group has established work rules in accordance with said management rules , and regularly provides comprehensive training on personal information protection and management to all executives and employees.
The Group has formulated security requirements that take into account the confidentiality, integrity and availability of information, and ensures thorough compliance with them when structuring and operating various environments. The Group also takes technical measures to defend against external threats such as ransomware and unauthorized access, and to prevent internal accidents.
In addition, to prepare against increasingly sophisticated external threats, the Group continuously works to gather information from outside organizations and take necessary measures to enhance information security from a medium- and long-term perspective.

4. Risks Related to Natural Disasters, Transmission of Infectious Diseases, and Emergencies

Risk description:
A disaster on a greater scale than anticipated or an infectious disease pandemic could cause system failures or suspension of business, both of which could significantly affect the Group’s business operations, results and financial condition.
In particular, as an example of the acute physical risks associated with climate change, flooding or landslides due to extreme weather (torrential rains) could cause damage to school buildings or suspension of sales operations in the Career School Business of the Individual Development Division.

Main countermeasures:
The Group continues to limit its exposure to acute physical risks by reducing the number of school buildings and encouraging enrollees to take courses online.

5. Risks Related to Laws and Regulations

Risk description:
The Group is required to comply with laws and regulations in every country/region where it does business. Violation of any applicable laws or regulations that apply to the Group, including those governing personal information protection, data protection, telecommunications, consumer protection, labor, human rights, anti-corruption and anti-bribery, taxation, and anti-monopoly laws, could have a significant impact on the Group’s business operations, results and public trust.
Furthermore, there has been active public discussion on the topic of corporations and human rights issues in recent years. Failure by the Group to appropriately comply with human rights-related laws could impact the Group’s brand. In addition, in the Group’s ALT Placement Business, if the schools that the Group dispatches ALTs to do not provide a safe and hygienic workplace environment, the human rights of the dispatched employees could be violated, which could have an impact on the Group’s business results, brand and public trust.

Main countermeasures:
The Group has set “management with integrity” as one of the three goals of LMG’s management policy, and strives for management that ensures no legal/regulatory violations or acts of dishonesty toward the Group’s stakeholders, who include customers, business partners, employees, shareholders and others. The Group will continue working to properly understand and respond to changes in laws and regulations in all countries/regions where it does business.
Regarding human rights, the Group has already studied and implemented measures to strengthen compliance and prevent harassment, and will continue to practice human rights due diligence. In the ALT Placement Business, the Group will periodically conduct engagement surveys of ALTs dispatched nationwide to predict and prevent human rights risks and maintain a thorough understanding of actual conditions.

6. Risks Related to Securing Human Resources

Risk description:
The Group places the highest priority on human capital, and will continue to maximize human and other forms of capital, and create value for customers based on that capital. Therefore, securing excellent human resources is vital for achieving sustainable growth. In the Organizational Development Division, where significant growth is expected, it is important to hire and develop project managers and engineers; however, the Group’s business results could be impacted if it is unable to secure the required human resources, or if the compensation and wage levels needed to attract and retain excellent talent rise.

Main countermeasures:
Since its establishment, the Group has shared the idea of being willing to invest in recruitment of highly engaged, capable talent, and has used its own recruitment consulting knowledge in securing human resources. To attract capable talent, the Group also continues to work on improving employee engagement and branding in order to be an employer that job seekers choose. To enhance business stability and consulting productivity, the Group is adopting cloud technologies for some of its organizational and personnel consulting services, while seeking an optimal balance between technology and the human touch.

7. Risks Related to Impairment of Assets

Risk description:
The Link and Motivation Group has been accelerating its growth through business expansion, including through M&A, and is actively entering new fields and adding to its lineup of products/services. As a result, its consolidated financial statements include a considerable amount of goodwill resulting from the acquisition of shares in the process of M&A and other transactions. Going forward, the Group will apply impairment accounting to recognize non-recurring loss on acquisition of equity if factors including changes in the operating environment or business conditions significantly reduce the profitability of acquired businesses, which could affect the Group’s financial position.

Main countermeasures:
The Group minimizes impairment losses by enhancing follow-up measures to generate synergies post-acquisition and the regular monitoring of business performance.