Corporate Governance

Corporate Governance Basic Policies

The Company sets forth as its basic policy for corporate governance the promotion of sustainable corporate growth and the increase of corporate value. To realize this, the Company will enhance the transparency/fairness of management, pursue prompt decision-making, and continue to fulfill the expectations of "customers," "shareholders," "employees," "business partners," and "local communities and the environment," the five major categories of stakeholders that the Company values most, through the creation of value to society.

SEKISUI Corporate Governance Principles

The Company has established and disclosed the Sekisui Corporate Governance Principles for the purpose of further evolving its corporate governance initiatives and communicating our corporate governance approach and initiatives to our stakeholders.
In addition to the above Principles, the status of the Company's initiatives and its approach with respect to all 78 items of the Corporate Governance Code, consisting of the General Principles, Principles and Supplementary Principles, are summarized and disclosed in the form of the Initiatives to Each of Principles of the Corporate Governance Code.

Corporate Governance Systems

Organizational Structure

As an organizational structure under the Companies Act, the Company has chosen to be a company with Audit & Supervisory Board.
Under the Divisional Company System, the Company has adopted the Executive Officer System in order to clearly distinguish the business execution function from the decision-making function in management.

Corporate Governance System chart

Corporate Governance System

Board of Directors

Roles and Responsibilities of the Board of Directors

The Board of Directors continually strives to strengthen its role as a body responsible for decision-making concerning the Company's fundamental policies and upper-level management issues, and supervising the execution of business. The Board includes three Outside Directors to ensure transparency in management and fairness in business decisions and operations.

Composition of the Board of Directors

The number of directors shall not exceed 15, and 2 or more of them shall be independent outside directors.
The Board of Directors of the Company shall consist of directors who have an excellent character, insight, and a high moral standard in addition to knowledge, experience, and competence. In addition, Audit & Supervisory Board Members, including Outside of them, shall attend the meetings of the Board of Directors.
The Company ensures diversity among board members and keeps the number of directors at an optimal level for appropriate decision-making that is commensurate with the business domain and size. The presidents of the divisional companies who are the top management of each business and senior corporate officers with significant experience and strong expertise are appointed as inside directors. Together with the outside directors who have broad knowledge and experience and Audit & Supervisory Board Members with strong expertise, they effectively perform the roles and responsibilities of the Board of Directors, taking the balance with respect to diversity, optimal size, and capabilities.

Outside Directors

The Company appoints to the Board three Outside Directors with verified independence from the Company who contribute to the enhancement of corporate value by providing advice and oversight based on their extensive administrative experience and specialized knowledge. The Outside Directors provide counsel based on their diverse and objective perspectives on priority management issues, such as global development strategy, business model revisions, and strengthening of CSR management.

Kunio Ishizuka, Outside Director

Mr. Ishizuka is Senior Advisor of Isetan Mitsukoshi Holdings Limited. Since he has provided advice with respect to the business management of the Company and supervised business execution appropriately by leveraging his abundant knowledge of business management and leadership fostered through his position as a management executive of a leading retail and service company, he is expected to contribute to further enhancing the corporate value of the Sekisui Chemical Group.

Yutaka Kase, Outside Director

Mr. Kase is Senior Corporate Advisor of Sojitz Corporation. Since he has provided advice with respect to the business management of the Company and supervised business execution appropriately by leveraging his abundant experience and past achievements regarding global corporate management and business strategy fostered through his position as a corporate manager of a general trading company, he is expected to contribute to further enhancing the corporate value of the Sekisui Chemical Group.

Hiroshi Oeda, Outside Director

Mr. Oeda serves as a Corporate Special Advisor of Nisshin Seifun Group Inc. The Company expects him to leverage his abundant experience and skill regarding global corporate management, business strategies and overseas M&A, fostered through having been a management executive of the largest milling company in Japan, provide advice with respect to the business management of the Company and supervise business execution appropriately and be able to contribute to enhancing the corporate value of the Sekisui Chemical Group.

Nominating and Remuneration Advisory Committee

The Company has established an optional advisory committee concerning nomination and remuneration to further enhance the fairness and transparency of management.
The Nomination and Remuneration Advisory Committee deliberates matters related to the nomination and dismissal of senior executives, including representative directors, the nomination of candidates for Director, enhancing the effectiveness of the Board of Directors, including the system of remuneration and levels of remuneration for Directors, as well as the commissioning of and dealings with advisors or executive advisors, including former representative directors and presidents, and submits recommendations and advice to the Board of Directors. The Nomination and Remuneration Advisory Committee comprises five members, the majority of whom are independent outside board members. The Chairperson is elected from the independent outside board members.

Director Compensation

The remuneration, etc., for Directors of the Company consists of basic remuneration, bonus and share-based compensation (excluding Outside Directors), whereas the remuneration for Audit & Supervisory Board Members consists of base remuneration and bonus (excluding Outside Audit & Supervisory Board Members).
The basic remuneration is provided in a flat amount commensurate with the roles and responsibilities of each Director within the limit of the officers' remuneration allowance. Directors are obliged to allocate a certain amount of the base remuneration to purchase the shares of the Company through the Officers Stock Ownership Plan with the aim of enhancing management awareness of placing an emphasis on the stock price.
The bonus represents the performance-based remuneration, the amount of which is determined based on the payment standards linked to the business performance of the Company and each divisional company, the dividend policy and ROE (return on equity).
The share-based compensation plan is an incentive plan aimed at further raising motivation to contribute to the improvement of mid- and long-term business performance and improve the Group's corporate value, under which the number of shares to be granted is determined in accordance with the position of Directors (excluding Outside Directors). Said plan has a structure enabling Directors to receive a benefit at the time of retirement for the results for which they contributed to enhancing the Company's mid- and long-term corporate value in the form of the Company's shares reflecting such enhancement in share value, thereby enhancing the link with mid- and long-term shareholders' value.

Compensation in Fiscal 2017

(Millions of yen)


Basic remuneration Bonus Share-based compensation Stock options Total
Number of eligible officers(persons) Amount Number of eligible officers(persons) Amount Number of eligible officers(persons) Amount Number of eligible officers(persons) Amount Number of eligible officers(persons) Amount
Directors 10 327 8 182 8 68 9 1 10 579
(Of which external Directors) 2 24 1 0 2 24
Audit & Supervisory Board Members 6 78 2 14 6 92
(Of which external Audit & Supervisory Board Members) 3 28 3 28

(Notes)
1. The number of eligible officers includes one Audit & Supervisory Board Member who retired at the closing of the 95th Annual General Meeting of Shareholders held on June 28, 2017.
2. The amount paid to Directors does not include the portion of employee's salary (including bonus) amounting to 142 million yen for Directors who concurrently serve as employees.
3. We are not granting shares since we have transferred to the share-based compensation system in June 2016, and the number of Stock Option above shows the booked amount necessary for the accounting processing of fiscal 2017 from the shares granted in the past fiscal years.

Notice of Convocation of the Annual General Meeting of Shareholders

Director Company Stock Ownership Guidelines

In addition to having introduced, for Directors (excluding Outside Directors) and division company operating officers, a share-based compensation plan to further raise motivation to contribute to the improvement of mid- and long-term business performance and improve the Group's corporate value, the Company has established "Company Stock Ownership Guidelines" for those who are holding more than a certain number of shares.

Executive officer system and Executive Committee

To maximize corporate value, the Company has built its management structure based on a system of three division companies. Together with assigning to each division company operating officers specializing in business execution, an Executive Committee has been established to serve as the top decision-making body in each division company. Executive Committee members, whose term of office is deemed to be for one year, are appointed by resolution of the Board of Directors.
By transferring authority to the division companies, the Board of Directors strives to achieve continual improvements in corporate value as an organization responsible for decisions on basic policies of the Sekisui Chemical Group's management as well as high-level management decision-making and supervision of business execution.

Management system

Management system

Auditing System

Approach to Appointment of Audit & Supervisory Board Members

To enhance the internal audits that form part of internal control, the Company is working to appoint talented people who possess exceptional corporate management as well as finance and accounting knowledge to corporate auditor positions.
In fiscal 2017, a total of five corporate auditors, consisting of two full-time corporate auditors and three part-time outside auditors, were appointed. For the two full-time corporate auditor positions, the Company appointed the former heads of the Corporate Audit Department and Corporate Finance & Accounting Department. One of the outside auditors appointed is Mr. Yasuhiro Nishi, who possesses experience as a certified public accountant and from having worked for an auditing company.

Internal Control System

In May 2006, the Board of Directors resolved to adopt a fundamental policy regarding the establishment of an internal control system for ensuring the appropriateness of the Group's business activities.
Based on the Corporate Activity Guidelines set forth in accordance with the Group management principles, the Company seeks to realize collaborative interaction concerning the supervision, directives, and communications of the SEKISUI CHEMICAL Group (the Company and its subsidiaries), and SEKISUI CHEMICAL's duties include providing guidance and counsel, and undertaking evaluations of all SEKISUI CHEMICAL Group members to ensure that their business activities are being conducted in an appropriate manner.

Compliance

To further strengthen the Group's compliance activities, the CSR Committee, chaired by the president, deliberates the Fundamental Compliance Policies, which are subject to approval by the Board of Directors. In addition, the Compliance Sub-committee supervises compliance activities group wide, and conducts activities to highlight the importance of compliance as a fundamental aspect of our corporate culture.

Risk Management

SEKISUI CHEMICAL maintains a companywide risk management structure for integrated management of measures to prevent risk events from occurring (risk management) and to respond with risk events occur (crisis management). The Risk Management Group of the Human Resources Department maintains and refines the risk management structure and disseminates information to all directors, executive officers, and employees of the Company and the Group companies.
In fiscal 2017, some 170 task forces are working to reduce and eliminate risk by analyzing and assessing conditions and implementing risk management measures followed by periodic reviews and implementation of the PDCA cycle of risk management for ongoing improvement. The Risk Management Group addresses risk expediently and systematically, reports to each subcommittee of the CSR Committee, and considers measures for implementation throughout the Company.
Crisis management activities are carried out following the SEKISUI CHEMICAL Group Crisis Management Guidelines. Risk management officers of each department regularly hold crisis management liaison meetings to research incidents and reinforce practices.
The Company's overseas crisis management activities are overseen by the Global Crisis Management Office and Regional Crisis Management Responsibility in each of the Company's nine regions in line with the SEKISUI CHEMICAL Group Global Crisis Management Guidelines.

Information Disclosure and Communication with Stakeholders

In order to deepen mutual trust with all of our shareholders, we believe it is important not only to actively disclose information in a timely and appropriate manner, but also to enhance two-way communications with our shareholders. To steadily put this belief into practice throughout the Group, we established the "Principle of Corporate Information Disclosure" in December 2005 and simultaneously, beefed up our internal information disclosure framework. For instance, we have set up the "Corporate Information Disclosure Regulations" which specify the content and system of disclosure. In order to pursue this principle further, that is to actively disclose more information, since fiscal year 2006 we have been holding meetings with the staff who are responsible for information disclosure at the respective divisions.
In SEKISUI CHEMICAL Group, the Investor Relations Group within the Business Strategy Department is working hard to strengthen two-way communications with our shareholders and investors, not only by disclosing financial statements in a timely and appropriate manner but also by actively reflecting our shareholders' voice in our management. For example, we hold quarterly briefings on financial results where our management explains these figures. Also, we pay heed to the voice of capital markets by holding one-on-one meetings with analysts and investors.
To ensure information is provided in a fair manner, the Group posts its financial statements and results briefings on the Company website in Japanese and English simultaneously and additionally provides audio recordings of the briefing and a transcript of the question and answer session.