Corporate GovernanceLast updated: Oct 19, 2017

The Sekisui Chemical Group sets forth as the basic policy for corporate governance the promotion of sustainable corporate growth and the increase of corporate value. To realize this, the Group 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 values to the society.

Overview of the Corporate Governance System

(1) Organizational Structure and business execution system

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. Each divisional company has an Executive Officers Committee, which serves as the company’s highest decision-making body. The Executive Officers Committee has been delegated substantial authority previously entrusted to the Board of Directors. Executive Officers are appointed by a resolution of the Board of Directors, and their term of office is one year.

(2) 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 two Outside Directors to ensure transparency in management and fairness in business decisions and operations.

The number of directors shall not exceed 15, and two or more of them shall be independent outside 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 Audit & Supervisory Board Members with strong experience, they effectively perform the roles and responsibilities of the Board of Directors, taking the balance with respect to diversity, optimal size, and capabilities, with Audit & Supervisory Board Member with strong expertise.

(3) Auditing System

The Company has established an Audit & Supervisory Board Member Board as a supervisory body to oversee the Board of Directors and business execution system. Together with the adoption of outside Audit & Supervisory Board Members, the system ensures wide-ranging viewpoints and fairness.

A group-wide internal framework has been put in place to enable Audit & Supervisory Board Members to exercise without any obstacle its authorities by, among others, attending various important meetings, conducting an investigation into divisions concerned including affiliates, and examining the approval documents of important projects. Sufficient information sharing and exchange of opinions take place among the members of Audit & Supervisory Board (including Outside Audit & Supervisory Board Members). Audit & Supervisory Board Members also hold a regular meeting with the representative directors to exchange opinions on, among others, the issues that the Company should resolve, the status of the improvement of the environment for audit by Audit & Supervisory Board Members, and important audit issues and to make necessary requests to enhance mutual understanding.

The Corporate Audit Department has been established under the direct control of the President, and conducts internal audits on the operations of the entire Group. Internal audit field work is conducted in accordance with the internal audit regulations and based on the audit policy and the audit plan for the year. The findings are reported to the President, directors, Audit & Supervisory Board Members and divisions concerned. The Corporate Audit Department receives action plans for improvement from the audited parties or conducts follow-up audits where necessary, through which it streamlines and improves the internal control system.

The Company’s accounting auditor is Ernst & Young ShinNihon LLC, and certified public accountants who execute the accounting audit work are Mikio Konishi and Hiroshi Matsuura; each certified public accountant is replaced in a timely manner in accordance with the replacement plan formulated with Ernst & Young ShinNihon LLC.

(4) Nomination and Remuneration Advisory Committee

The Company has established an optional advisory committee on nominations and remuneration policies as a complementary function to the Board of Directors, and for the purpose of enhancing fairness and transparency.

The Company has established an optional advisory committee concerning nomination and remuneration to further enhance fairness and transparency of management.

The Nomination and Remuneration Advisory Committee deliberates matters related to the selection of Directors, matters related to the remuneration of Directors, and matters related to enhancing the effectiveness of the Board of Directors, etc., and submits recommendations and advice to the Board of Directors. The Nomination and Remuneration Advisory Committee comprises five members who have been selected by the Board of Directors from among Directors and Audit & Supervisory Board Member, the majority of whom are independent outside board members. The Chairperson is elected from the independent outside board members.

Corporate Governance Measures of Recent Years Management System

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 Member consists of base remuneration and bonus (excluding Outside Audit & Supervisory Board Member).

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 compensation for fiscal 2016 is set out in the chart below.

Director Compensation in Fiscal 2016

Compliance

Chaired by the president, the CSR Committee deliberates on the Fundamental Compliance Policies and other important matters. As an executive organization, the CSR Committee also manages a Compliance Sub-committee with the Legal Department serving as the secretariat. In addition to having Group company and Headquarters executive officers as well as the head of the Corporate Audit Department join its members, the Compliance Subcommittee reports on the results of compliance initiatives and on matters discussed at the Compliance Advisory Board, and discusses future initiative policy.

In fiscal 2016, we regarded harassment prevention as an important implementation item and enhanced our education and training activities, including the implementation of training for executive officers with regard to the U.S. Employment Non-Discrimination Act. In October 2016, as part of the activities for Compliance Reinforcement Month, top executives sent messages, and we conducted e-learning sessions and training (open seminars).

In addition, the Sekisui Chemical Group developed its S.C.A.N. (Sekisui Compliance Assist Network) intracompany whistle-blowing system in 2002 and has made the system available for use by all Group employees.

Corporate Governance System

Reinforcement of the Risk Management Structure

Sekisui Chemical maintains a companywide risk management structure for integrated management of measures to prevent risk events from occurring (risk management) and to respond when 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 Group companies.

Based on the Sekisui Chemical Group Risk Management Guidelines, 170 task forces are working (fiscal 2017) 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 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 Global Crisis Management Guidelines.

Information Disclosure

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” and 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 the 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 feedback from our shareholders and investors in our management.

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 an audio recording of briefings and a transcript of the question and answer session.

Dialogue with Stakeholders

The Sekisui Chemical Group believes that an active and appropriate information disclosure as well as interactive communication is important to build a relationship of trust with our five stakeholders of customers, shareholders, employees, business partners, and local communities & the environment.

As part of that communication, we actively engage in communication with business partners—such as at CAT (Customer and Top) meetings, at which top management in housing sales companies meet customers to receive feedback directly; and Dialogue with Top Management and Heim Mutual Prosperity Group, where top management talk directly with employees—and conduct interviews with investors and research institutions.

Of these, the Dialogue with Top Management meetings, at which top management talk directly with employees, are considered indispensable in resolving issues surrounding the Company and work-related challenges and have provided employees with an opportunity to speak directly to management since 2002. In fiscal 2016, Sekisui Chemical President Teiji Koge visited Japan-based Group companies, explained the progress made with the Medium-term Management Plan and conducted question and answer sessions. For the exchanges of opinions that followed, active discussions were held on a number of topics, including “the Company’s future competitive strength”and “how we and the Company should change in the years to come.”

Actively Engaging in Dialogue with Shareholders and Investors

In addition to the financial results briefings given on a quarterly basis by the management team, as part of our efforts to actively utilize feedback from shareholders and investors in management we actively conduct one-on-one meetings with, for example, analysts and institutional investors, while paying attention to feedback from capital markets.

In addition, having been actively engaged in social contribution through its business activities—for example by advocating CSR management and from an early stage having adopting a plan to expand earnings through its Environment-contributing Products—the Group is actively engaged in social contribution, there is growing interest in socially responsible investment (SRI), by which investments are actively made in companies that engage in CSR, and investigations are actively carried out by rating agencies. In this regard, every year we conduct ongoing direct dialogue with SRI ratings agencies, including those in Europe, as well as with financial institutions and investors inside and outside Japan.

General view of President Koge conducting a financial results briefing.

Response to the Corporate Governance Code

The Company has established and disclosed the SEKISUI Corporate Governance Principles for the purpose of further evolving the initiatives of the Group to improve its corporate governance 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 73 items of the Corporate Governance Code consisting of the General Principles, Principles and Supplementary Principles have been summarized and disclosed in the form of the Initiatives to Each of Principles of the Corporate Governance Code, including the items for which the implementation method is currently being considered. Please refer to the following.
http://www.sekisuichemical.com/about/governance/index.html

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