Business and Other Risks

The following presents particularly significant risks that could impact 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 impact 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 December 31, 2024.

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

Likelihood: Medium | Time of Occurrence: Unspecified | Impact: Moderate

Risk description:
During the fiscal year ended December 31, 2024, the Japanese economy gradually recovered with the improvement of the employment and income environment. However, the economic outlook remains unclear because of rising prices due to the depreciation of the yen, and geopolitical risks due to the impact of U.S. political trends on the global economy and the unstable international situation. A decline in demand for services due to the stagnation or deterioration of economic conditions could impact the Group’s business results.
Specific impacts may include those related 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:
Amid the increasing speed of change in the business environment and in order to respond flexibly and quickly to change and minimize any negative impact, the Group has set “management with good reflexes” as one of the three goals of its management policy. As such, the Group is able to make prompt decisions based on discussions of economic conditions and other matters at management meetings as required.
In the 2010s, the Group entered the ALT Placement Business and the Career School Business, which are relatively insulated from the impact of economic conditions, and built a business portfolio that is resilient to economic downturns. In the Organizational Development Division, which accounts for approximately 50% of overall gross profit, the Group has worked to stabilize business by increasing recurring revenue through sales of Motivation Cloud.

2. Risks Related to Intellectual Property

Likelihood: Medium | Time of Occurrence: Unspecified | Impact: Moderate

Risk description:
The Group’s brand derives from the development of 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 efforts to expand its business scale and the 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 impairment and reputational damage. In addition, the rapid proliferation of generative AI has increased the risk that AI could generate content that imitates the Group’s core technology.

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 the acquisition of 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 establish frameworks for detecting outflows and leakage and to raise employee awareness regarding the use of generative AI technology to improve the effectiveness of protecting information assets, including trade secrets.

3. Risks Related to Data Security and Data Privacy

Likelihood: Medium | Time of Occurrence: Unspecified | Impact: Large

Risk description:
In the course of its businesses, the 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 applicant and open position information (Matching Division).
Furthermore, due to the development of generative AI technology in recent years, the risk of leakage of personal and confidential information is increasing as employees use generative AI more frequently.
In the event that an information leak occurs due to external fraud or through unauthorized access via cyberattacks, or due to internal accidents, and the leak causes damage to the owner of the information, client companies or other parties, the resulting claims for damage and/or loss of public trust could impact 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 implements 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 safeguards that take into account the confidentiality, integrity and availability of information, and ensures thorough compliance with them when structuring and operating various systems. The Group also implements technical measures to defend against external threats such as ransomware and unauthorized access, and to prevent internal accidents.
In addition, to defend against increasingly sophisticated external threats, the Group continuously works to gather information from outside organizations and implements the necessary measures to enhance information security from a medium- and long-term perspective. The Group is also working to prevent the leakage and unauthorized disclosure of information related to the use of generative AI technology by establishing appropriate governance and enhancing employee awareness and education.

4. Risks Related to Securing Human Resources

Likelihood: Medium | Time of Occurrence: Unspecified | Impact: Small

Risk description:
The Group places the highest priority on human capital, and will continue to 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 capable project managers and engineers. The Group’s business results could be impacted if it is unable to secure the required human resources.

Main countermeasures:
Since its establishment, the Group has been committed to investing in the recruitment of highly engaged, capable talent, and has used its own recruitment consulting knowledge to secure excellent 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. In addition, we are leveraging technology to optimize the number of required personnel by moving some organizational and human resource consulting services to the Cloud.

5. Risks Related to Impairment of Assets

Likelihood: Medium | Time of Occurrence: Unspecified | Impact: Moderate

Risk description:
The Group has been accelerating its growth through business expansion, including through M&As, 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&As 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, and the Group could fall into insolvency in the worst-case scenario.

Main countermeasures:
The Group minimizes impairment losses by enhancing follow-up measures to generate synergies post-acquisition and the regular monitoring of business performance.
Following M&As, we apply our consulting expertise to the relevant business and work to thoroughly improve human resource and organizational capabilities (engagement), with the objective of improving profitability based on human capital.