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 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 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

10 (In-house: 7; Outside: 3) including 1 female director

Ratio of outside (independent) directors

30.0%

Ratio of female directors

10.0%

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

Corporate Governance System

Board of Directors

Roles and Responsibilities of the Board of Directors

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, the Board of Directors has in place a highly effective supervisory system for Directors by appointing three 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. Following the change in the Company’s president, 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, 2020)
Attendance of Board of Directors Meetings of the Company
(Fiscal 2019)
Attendance of Audit and Supervisory Board Meetings of the Company
(Fiscal 2019)
Attendance of Nominating and Remuneration Advisory Committee Meetings of the Company
(Fiscal 2019)
Teiji Koge Chairman of the Board and Representative Director 15 years 100%
(17 out of 17)
100%
(6 out of 6)
Keita Kato President and Representative Director Chief Executive Officer 6 years 100%
(17 out of 17)
100%
(1 out of 1)
Yoshiyuki Hirai Director Senior Managing Executive Officer 5 years 100%
(17 out of 17)
Toshiyuki Kamiyoshi Director Senior Managing Executive Officer 1 years 100%
(13 out of 13)
Futoshi Kamiwaki Director Senior Managing Executive Officer
Hiroyuki Taketomo Director Managing Executive Officer 4 years 100%
(17 out of 17)
Ikusuke Shimizu Director Managing Executive Officer 1 years 100%
(13 out of 13)
Yutaka Kase Independent Outside Director 4 years 94%
(16 out of 17)
100%
(6 out of 6)
Hiroshi Oeda Independent Outside Director 2 year 100%
(17 out of 17)
100%
(6 out of 6)
Yoko Ishikura Independent Outside Director 1 year 100%
(13 out of 13)
100%
(5 out of 5)
Toshitaka Fukunaga Corporate Audit and Supervisory Board Member
Moritoshi Naganuma Corporate Audit and Supervisory Board Member 3 years 100%
(17 out of 17)
100%
(18 out of 18)
Tetsuo Ozawa Independent Outside Audit and Supervisory Board Member 6 years 94%
(16 out of 17)
94%
(17 out of 18)
100%
(6 out of 6)
Kazuyuki Suzuki Independent Outside Audit and Supervisory Board Member 5 years 100%
(17 out of 17)
100%
(18 out of 18)
Ryoko Shimizu Independent Outside Audit and Supervisory Board Member 1 years 100%
(13 out of 13)
100%
(13 out of 13)
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
Teiji Koge
Keita Kato
Yoshiyuki Hirai
Toshiyuki Kamiyoshi
Futoshi Kamiwaki
Hiroyuki Taketomo
Ikusuke Shimizu
Yutaka Kase
Hiroshi Oeda
Yoko Ishikura
Toshitaka Fukunaga
Moritoshi Naganuma
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 Men 0 0 0 5 4
Women 0 0 0 0 1

Note: As of the end of the General Meeting of Shareholders held on June 23, 2020.

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 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.

Yoko Ishikura, Outside Director

Ms. Ishikura is the Professor Emeritus of Hitotsubashi University. Ms. Ishikura has advanced academic expertise in international politics/economics and international corporate strategy, and is well-versed in corporate management through her experience as outside director at multiple global enterprises. Furthermore, she has been actively involved in diversity management and promotion of greater participation of women, which are areas being addressed by the Group. Therefore, the Company has judged that she would be able to contribute to enhancing the corporate value of the Group and thus appointed her 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 2019, the Board of Directors thoroughly deliberated important management issues such as its Long-term Vision, new Medium-term Management Plan, growth strategies, including R&D, M&A, investment, and large new businesses, and fundamental strategies, including work style reform, digital transformation, and CS & quality. The Board also ensured that adequate time was provided to sufficiently discuss these issues and active participation and opinions and recommendations were actively provided by both outside and inside directors as well as Audit and Supervisory Board Members.
The Nomination and Remuneration Advisory Committee made recommendations to the Board of Directors on such matters as director as well as Audit and Supervisory Board member nominations, individual performance, and remuneration levels. The Nomination and Remuneration Advisory Committee met six times, including to discuss the plan for the president’s succession, the composition and effectiveness of the Board of Directors, and initiatives for strengthening governance.
In fiscal 2020, the Company will further enhance deliberations on important management issues and ensure fairness and transparency in the Company’s management by making what the Board of Directors deem to be appropriate decisions.

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 2019, outside directors visited the Kinki site of Sekisui Heim Industry Co., Ltd., which is advancing innovation in manufacturing at the Housing Company, and the headquarters Tsukuba Office , which is engaging in new technology development with a view to commercialization.

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 2019 Executive Officers Liaison Meeting Lecture Topics
●Key Management Points〜Basic Strategy of Nisshin Seifun Group
●Toward Realizing a Lifelong Society

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 six 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) Basic 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) Remuneration 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 2019

(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 13 311 6 136 6 54 13 502
(Of which Outside Directors) 4 41 4 41
Audit and Supervisory Board Members 6 93 6 93
(Of which Outside Audit and Supervisory Board Members) 4 34 4 34

Notes:

1. The number of eligible officers includes four directors and one Audit and Supervisory Board member who retired at the closing of the 97th Annual General Meeting of Shareholders held on June 20, 2019.

2. The amount paid to officers does not include the portion of employee’s salary (including bonus) amounting to 46 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 Corporate Finance & Accounting Department and Head of Technology & CS Promotion Department have been appointed as full-time Corporate Audit and Supervisory Board Members in fiscal 2020.
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.

Compliance

To further strengthen the Group’s compliance activities, the Sustainability 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.
Note: The name of the CSR Committee was changed to the Sustainability Committee on April 1, 2020.

Risk Management

SEKISUI CHEMICAL 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). Previously positioned within the Human Resources Department, the Risk Management Group was transferred to the ESG Management Department from April 2020. Steps will also be taken to establish a Group-wide enterprise risk management (ERM) structure.
In fiscal 2019, 175 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. In addition, the risks that are uncovered are then sorted and arranged in a timely manner by a dedicated department. While these risks were reported to such organizations as the subcommittees of the Sustainability Committee with deliberations regarding Group-wide countermeasures undertaken as required, steps will be taken to integrate the risks uncovered by dedicated department into Group-wide risks and promote an ERM structure under the new Medium-term Management Plan (2020-2023).
Crisis management activities are carried out following SEKISUI CHEMICAL Group Crisis Management Guidelines. Risk management officers of each headquarters department and company regularly hold crisis management liaison meetings to research incidents and reinforce practices.
Note: The name of the CSR Committee was changed to the Sustainability Committee on April 1, 2020.


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 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 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.