Corporate Governance

Basic Philosophy and Framework for Corporate Governance

SEKISUI CHEMICAL Group (the Group) has put in place a basic philosophy regarding corporate governance that lays out efforts for securing sustainable growth and increasing corporate value over the medium and long terms. To help achieve these goals, we are increasing the transparency and fairness of our management and pursuing swift decision- making and will do so while continuing to meet-through the creation of value for society that is part of our Corporate Philosophy-the needs of the five types of stakeholders the Group emphasizes: customers, shareholders, employees, business partners, and local communities and the environment.

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 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 Initiatives

Organizational Structure

As an organizational structure under the Companies Act, the Company has chosen to be a company with Audit and Supervisory Board. Under the Divisional Company Organization 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.

Organizational Structure A company with an Audit and Supervisory Board
Total number of directors 9 (In-house: 7; Outside: 2)
Ratio of outside (independent) directors 30.0%
Director's term of office 1 year
Executive officer system introduced Yes
Organization to assist the president in making decision Policy Committee
Voluntary advisory board to the Board of Directors Nomination and Remuneration Advisory Committee established

Initiatives Taken to Enhance Corporate Governance

Corporate Governance System

Corporate Governance System Chart (As of September 1, 2021)

Corporate Governance System

Board of Directors

Roles and Responsibilities of the Board of Directors

The Board of Directors is positioned as the body responsible for decision-making concerning the Company's fundamental policies and upper-level management issues as well as for supervising the execution of business.
In addition to the Company’s Chairman, who is a non-executive director and serves as its chair, the Board of Directors has in place a highly effective supervisory system for Directors by appointing sufficiently experienced 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 two or more of them shall be Outside Directors.
The Board of Directors of the Company shall consist of directors who are of excellent character, have insight, and high moral standards in addition to knowledge, experience, and competence. In addition, Audit and Supervisory Board Members, including outside Audit and Supervisory Board members, shall attend the meetings of the Board of Directors. With regard to the Audit and Supervisory Board, one or more members will have knowledge and expertise in corporate finance and accounting, and one or more will have knowledge and expertise in legal systems.
Following the change in the Company’s president in March 2020, the Board of Directors is chaired by the Chairman, a non-executive director.
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 independent Outside Directors, who have broad knowledge and experience, and Audit and Supervisory Board Members with strong expertise, the presidents of the divisional companies effectively perform the roles and responsibilities of the Board of Directors and maintain a balance with respect to diversity, optimal size, and capabilities.

Name Position in the Company Number of Years
(At the closing of the Annual General Meeting of Shareholders held on June 23, 2021)
Attendance of Board of Directors Meetings of the Company
(At the closing of the Annual General Meeting of Shareholders held on June 23, 2021)
Attendance of Audit and Supervisory Board Meetings of the Company
(Fiscal 2020)
Attendance of Nominating and Remuneration Advisory Committee Meetings of the Company
(Fiscal 2020)
Teiji Koge Chairman of the Board and Representative Director 16 years 100%
(17 out of 17)
- 100%
(6 out of 6)
Keita Kato President and Representative Director Chief Executive Officer 7 years 100%
(17 out of 17)
- 100%
(1 out of 1)
Yoshiyuki Hirai Director Senior Managing Executive Officer 6 years 100%
(17 out of 17)
- -
Toshiyuki Kamiyoshi Director Senior Managing Executive Officer 2 years 100%
(17 out of 17)
- -
Futoshi Kamiwaki Director Senior Managing Executive Officer 1 year 100%
(13 out of 13)
- -
Ikusuke Shimizu Director Senior Managing Executive Officer 2 years 100%
(17 out of 17)
- -
Kazuya Murakami Director Executive Officer - - - -
Yutaka Kase Independent Outside Director 5 years 100%
(17 out of 17)
- 100%
(6 out of 6)
Hiroshi Oeda Independent Outside Director 3 years 100%
(17 out of 17)
- 100%
(6 out of 6)
Hiroyuki Taketomo Corporate Audit and Supervisory Board Member - 100%
(17 out of 17)
- -
Toshitaka Fukunaga Corporate Audit and Supervisory Board Member 1 year 100%
(13 out of 13)
100%
(13 out of 13)
-
Tetsuo Ozawa Independent Outside Audit and Supervisory Board Member 7 years 100%
(17 out of 17)
100%
(19 out of 19)
100%
(6 out of 6)
Kazuyuki Suzuki Independent Outside Audit and Supervisory Board Member 6 years 100%
(17 out of 17)
100%
(19 out of 19)
-
Ryoko Shimizu Independent Outside Audit and Supervisory Board Member 2 years 100%
(17 out of 17)
100%
(19 out of 19)
-

Note: Hiroyuki Taketomo’s attendance at Board of Directors meetings refers to his attendance as a director.

Name Directors' and Audit and Supervisory Board Members' Outstanding Expertise, Experience and Capabilities
Corporate Management / Management Strategy Financial Affairs / Accounting Legal Affairs Quality Control Human and Labor Administration / Human Resources Development International Mindset Research & Development DX
(Digital Transformation)
Teiji Koge
Keita Kato
Yoshiyuki Hirai
Toshiyuki Kamiyoshi
Futoshi Kamiwaki
Ikusuke Shimizu
Kazuya Murakami
Yutaka Kase
Hiroshi Oeda
Hiroyuki Taketomo
Toshitaka Fukunaga
Tetsuo Ozawa
Kazuyuki Suzuki
Ryoko Shimizu
Note: The list above does not reflect the full range of expertise possessed by the Directors and Audit and Supervisory Board Members.

About the Age-group Composition of Corporate Officers

Under 30 30~39 40~49 50~59 60 or older
Number of Officers by Age 0 0 0 3 6
Note: As of September 1, 2021.

Outside Directors

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

Yutaka Kase, Outside Director
Mr. Kase serves as Advisor at Sojitz Corporation. Mr. Kase 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. Therefore, the Company has judged that he would be able to contribute to further enhancing the corporate value of SEKISUI CHEMICAL Group and thus appointed him as a director.
Hiroshi Oeda, Outside Director
Mr. Oeda serves as Corporate Special Advisor at Nisshin Seifun Group Inc. As Mr. Oeda has been a management executive of the largest milling company in Japan, the Company expects him to provide advice with respect to the business management of the Company and supervise business execution appropriately by leveraging his abundant experience and skill regarding global corporate management, business strategies, and M&A activities fostered through his positions. Therefore, the Company has judged that he would be able to contribute to enhancing the corporate value of SEKISUI CHEMICAL Group and thus appointed him as a director.

Assessment Relating to the Board's Effectiveness

The Company evaluates the effectiveness of the Board of Directors every year.
Having set an appropriate agenda, the Board of Directors engages in sufficient discussion with opinions and recommendations actively provided by Directors (including Outside Directors) and Audit and Supervisory Board Members. The Company has therefore determined that the current Board of Directors is contributing to enhancing the corporate value of the Group and functioning properly.
In fiscal 2020, we implemented questionnaires for Directors and Audit and Supervisory Board Members to evaluate the effectiveness of the Board of Directors. Through these questionnaires, we confirmed that sufficient time for discussions was secured for the Board of Directors and that both Outside and Inside Directors, as well as Audit and Supervisory Board Members actively exchanged their opinions with one another. With the goal of further improving the effectiveness of the Board of Directors, we are planning to add important management concerns identified in the questionnaire responses to the agenda for future meetings.
The important management issues deliberated by the Board of Directors in fiscal 2020 were its Long-term Vision, new Medium-term Management Plan, growth strategies (including R&D, large new businesses, and capital investment), and fundamental strategies (Sustainability Committee reports, digital transformation, safety and CS & quality). The Nomination and Remuneration Advisory Committee met six times for purposes such as discussing director remuneration, ensuring the effectiveness of the Board of Directors, and considering policy regarding the determination of remuneration levels.

Support for and Collaboration with Directors and Audit and Supervisory Board Members

To enable the Outside Directors to enhance deliberations at Board of Directors' meetings, the Company continuously provides opportunities for them to deepen their understanding of the Group's businesses. This is done, for example, by the prior distribution of materials for Board of Directors' meetings and explanations given beforehand by the executive officer in charge of the secretariat, orientation visits at the time Outside Directors are appointed, and inspections of business sites several times a year. To further enhance the effectiveness of management supervision by Outside Directors, the Company is making improvements to the deliberations that take place at the Nomination and Remuneration Advisory Committee, where the majority of the members are Outside Directors, and facilitating their dialog with Audit and Supervisory Board Members and corporate auditors. From the point of view of succession planning, the Company is strengthening contacts between current management and next-generation management candidates, for example by having Outside Directors give lectures at Executive Officers Liaison Meetings that are held on a quarterly basis and providing opportunities for Directors, Audit and Supervisory Board Members and Executive Officers to meet when the new management system is inaugurated following the Annual General Meeting of Shareholders.

Business Site Visits
To deepen their understanding of the Company and the characteristics of the Group's wide-ranging businesses, outside directors conduct business site visits every year.
In fiscal 2020, we did not visit our business sites directly to inspect them from the perspective of preventing the spread of COVID-19 infections. As an alternative, in fiscal 2021 (April 9, 2021), we conducted an online inspection of the Shiga-Ritto Plant and the General Institute of the Urban Infrastructure & Environmental Products Company.

Consultations with Stakeholders on Economic, Environmental and Social Topics

At the quarterly Executive Officers Liaison Meetings, the sharing of earnings announcements is combined with invited speakers from outside the company, so that stakeholders obtain the latest information on economic and social trends that are directly linked to management issues.

Fiscal 2020 Executive Officers Liaison Meeting Lecture Topics

  • Yoko Ishikura
  • Topic: During the COVID-19 Pandemic - What Mindsets Do Business Leaders Need to Have, What Actions Do They Need to Take?

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 on matters related to enhancing the effectiveness of the Board of Directors, including the nomination and non-reappointment of senior executives, including representative directors, the nomination of candidates for director, and the system of remuneration and levels of remuneration for directors. The Committee also discusses 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 directors. The Chairperson is elected from the independent outside directors.

Remuneration and Other Compensation for Officers

1. Policy regarding determination of remuneration and other compensation
  1. 1Basic policy

    The remuneration system policy for officers of the Company is defined as follows in keeping with the corporate philosophy of the Group.

    • The policy should contribute to continuous growth and medium- to long-term improvement of corporate value for the Group
    • Officers of the Company should share value with shareholders and increase their awareness of shareholder-focused management
    • The remuneration policy should be highly-connected to business performance, providing motivation for officers of the Company to achieve management plan goals
    • The policy should provide a framework and baseline which enables the Company to acquire and keep on staff with a diverse variety of management talent in order to increase the competitiveness of the Group
  2. 2Remuneration mindset

    Remuneration and other compensation for executive directors of the Company is made up of basic remuneration, bonuses, and stock options. For Outside Directors and Audit and Supervisory Board Members, remuneration is made up of basic remuneration only.

    < Basic Remuneration >

    Basic remuneration within the framework of officer remuneration is a fixed payment determined by the roles and responsibilities of each Director. For executive directors, a portion of the basic remuneration is required to be used for the purpose of the Company's stock through the Officers Stock Ownership Plan, increasing the emphasis on and awareness of stock prices in management.

    < Bonuses >

    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, ROE (return on equity), and dividend policy.

    < Share-based compensation >

    The share-based compensation 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.

2. Determination Process for Officer Remuneration and Other Compensation
  • In order to achieve the goals of the officer remuneration system, the Company has established a Nomination and Remuneration Advisory Committee as an advisory organization to the Board of Directors. This committee deliberates on the structure and levels of Director remuneration and verifies the validity of remuneration for individuals, carrying out these processes with objectivity and transparency.
  • < Overview of Nomination and Remuneration Advisory Committee Activities >
    • This committee is convened by the chairperson (an Outside Director).
    • The agenda items of this committee are introduced by the committee members, and the secretariat compiles them and presents them to the chairperson.
    • The deliberation results of this committee are reported to the Board of Directors by the chairperson.
    • The Board of Directors carries out final policy determination, respecting the report of this committee. In addition, the Directors and members of this committee must carry out these decisions from the perspective of whether or not they contribute to the corporate value of the Company and providing benefit to shareholders. Decisions must never have the goal of providing individual benefit to the Directors or committee members themselves, management ranks, or any other third party.

Officer Remuneration in Fiscal 2020

(Amount: Millions of yen)
Basic remuneration Bonus Share-based compensation 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
Directors 10 327 6 115 7 74 10 517
(Of which Outside Directors) 3 43 - - - - 3 43
Audit and Supervisory Board Members 6 81 - - - - 6 81
(Of which Outside Audit and Supervisory Board Members) 3 36 - - - - 3 36
Notes:The amount paid to officers does not include the portion of employee's salary (including bonus) amounting to 82 million yen for directors who concurrently serve as employees.

⇒Notice of Convocation of the Annual General Meeting of Shareholders
https://www.sekisui.co.jp/ir/document/invite/index.html

Director Company Stock Ownership Guidelines
In addition to having introduced, for Directors (excluding Outside Directors) and divisional company Executive 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 the Divisional Company Organization System. Together with assigning to each divisional company Executive Officers specializing in business execution, an Executive Committee has been established to serve as the top decision-making body in each divisional 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 divisional companies, the Board of Directors strives to achieve continual improvements in corporate value as an organization responsible for decisions on basic policies of 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 and Supervisory Board Members

SEKISUI CHEMICAL Group maintains an Audit and Supervisory Board structure consisting of two full-time Corporate Audit and Supervisory Board Members and three part-time Outside Audit and Supervisory Board Members for a total of five Audit and Supervisory Board Members. As far as the composition of the Audit and Supervisory Board is concerned, one or more members will have knowledge and expertise in corporate finance and accounting, one or more will have knowledge and expertise in legal systems, and one or more will have knowledge and expertise in manufacturing and CS & quality, which are extremely important for manufacturers.
Officers with experience as Head of Technology & CS Promotion Department and Head of Legal Department have been appointed as full-time Corporate Audit and Supervisory Board Members in fiscal 2021.
A certified public accountant with experience working for an auditing firm, a lawyer with extensive experience in corporate law, and a university professor specializing in quality control have been appointed as Outside Audit and Supervisory Board Members.

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 corporate philosophy, the Company seeks to realize collaborative interaction concerning the supervision, directives, and communications of 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.

Internal Control System Overview

In order to ensure the internal control system for the Company and Group companies is properly maintained and operated, our Corporate Audit Department carried out operation and accounting audits of the Company and Group companies based on a yearly auditing plan, investigating whether execution of operations is being performed appropriately and efficiently.

Compliance

We hold meetings of the Sustainability Committee chaired by the president and carry out deliberations on fundamental policies and other issues related to compliance. Also, as the operational arm of the Sustainability Committee, we operate a Compliance Sub-committee with the Legal Department serving as the secretariat. In addition to divisional company and headquarters executive officers, the Heads of the Corporate Audit Department are also serving as members on this sub-committee, and this organization is reporting compliance activity results and matters for Compliance Advisory Board deliberation, as well as discussing future activity policy.
In fiscal 2020, expansion of the applicable scope of our internal reporting system overseas and adjustment of SEKISUI CHEMICAL Group regulation were important working items. With cooperation from regional headquarters in the United States, China, Europe and Thailand, we were able to carry out these activities.
October 2020 was named “Compliance Reinforcement Month,” and as part of the related activities we requested all top executives to issue compliance messages and submit reports related to their content. In addition, compliance training and other activities were carried out not only in Japan but also for local employees at overseas locations such as the United States, China, Europe, ASEAN, and India.

Execution of Duties by Directors

In order to ensure that Directors carry out their duties efficiently, the Board of Directors met 17 times in fiscal 2020. In addition, discussions of important matters related to our management policies and strategies were carried out at meetings of the Policy Committee, which is made up of inside Director members. Policy decisions were made by the Board of Directions following these discussions.

Execution of Duties by Audit and Supervisory Board Members

Audit and Supervisory Board Members attended not only the Board of Directors meetings but also other important meetings, carrying out confirmation of the maintenance and operating conditions of the internal control system through operations such as investigation of related departments, including at Group companies, and confirmation of approval documents for major projects. In addition to personally visiting various sites for audits, they also receive reports from the Internal Auditing Department and each headquarters department that has jurisdiction over internalcontrol. The Audit and Supervisory Board met 19 times in fiscal 2020 for the purpose of sharing the information from these reports. Audit and Supervisory Board Members regularly exchanged opinions with corporate auditors, cooperating closely to improve the effectiveness of auditing efforts. Liaison meetings were held with related corporate auditors to improve coordination with auditors and enhance the quality of auditing. In addition, regular meetings were held with the Representative Director, and Audit and Supervisory Board Members also exchanged opinions with Outside Directors.

Risk Management

SEKISUI CHEMICAL Group maintains a 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).
In our risk management activities, we comprehensively identify risks related to our corporate value as the business environment grows increasingly uncertain and complex. Each of these risks is quantitatively evaluated in terms of likelihood of occurrence and impact, the specific risks which have a high probability of causing major company-wide incidents are identified, and an ERM (enterprise risk management) system has been constructed for sharing and management of risks within the Group. In addition, we regularly confirm uncertainty factors and carry out continuous verification of the effectiveness of the ERM system. Specific company-wide risks and specific risks identified for each organization based on SEKISUI CHEMICAL Group Risk Management Guidelines are analyzed and evaluated. We then determine countermeasures for these risks and carry out repeated periodic review and revisions, which will be run through the PDCA management cycle every year.
In the event of a major incident, crisis management activities are carried out based on the SEKISUI CHEMICAL Group Crisis Management Guidelines. Crisis Management Liaison Meetings are held regularly with each specialized department of headquarters and divisional company representatives in attendance to ensure appropriate handling measures are implemented rapidly, and we also carry out education and training sessions using case studies.
In addition, from fiscal 2020, we have intensified our initiatives for the drafting of business continuity plans (BCP) with the goal of establishing a business continuity management (BCM) cycle (PDCA) in order to minimize the impact of incidents on our corporate value. A total of 143 organizations requiring initial response plans and disaster handling and management plans have been determined, and we have drafted BCP (BCM) guidelines and the Group’s standard templates.
In addition to establishing BCP for 143 target organizations in fiscal 2021 (100% establishment rate), we are also aiming for increased awareness of risks among employees through these BCP establishment activities.

Group Company Business Management

Through rules such as our domestic and overseas affiliate company handling regulations and decision-making authority standard requirements, we have constructed a framework for receiving decision-making and reports from Group companies to the Company. In addition, our Corporate Audit Department implements internal auditing and results of audits by Audit and Supervisory Board Members of our Group companies are collected at Audit and Supervisory Board meetings.

Engagement

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 set up the "Corporate Information Disclosure Regulations," which specify the content and system of disclosure, guided by the "Principle of Corporate Information Disclosure" and beefed up our internal information disclosure framework.
In SEKISUI CHEMICAL Group, the Investor Relations Group within the Business Strategy Department is working hard to strengthen engagement 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.