Foundation Underpinning ESG Management

The Company has established and disclosed the SEKISUI Corporate Governance Principles for the purpose of further evolving its corporate governance initiatives and communicating its corporate governance approach and initiatives to 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 Initiatives to Each of the Principles of the Corporate Governance Code.
Details of SEKISUI CHEMICAL Group’s Corporate Governance Report, SEKISUI Corporate Governance Principles, and Initiatives to each of the Principles of the Corporate Governance Code are available at the following address.

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 supervisory function of directors from the business execution function of executive officers.

Each year, the Company conducts a survey for Directors and Audit and Supervisory Board members to assess the effectiveness of the Board of Directors.
Based on the results of the survey, the Company confirmed that the Board of Directors set appropriate agendas, ensured sufficient time for discussion, and allowed Directors and Audit and Supervisory Board members, including Outside Directors, to actively offer their opinions and suggestions at meetings. The Company has therefore determined that the current Board of Directors is contributing to enhancing the corporate value of the Group and is functioning properly.
In fiscal 2022, the Board of Directors engaged in thoroughgoing discussions of important management issues. Items of deliberation included the next Medium-term Management Plan, growth strategies (including R&D, large new businesses, and large-scale capital investments) and fundamental strategies (Sustainability Committee reports, digital transformation, safety, compliance, CS & Quality, and the environment).
The selection of candidates for the positions of Director and Audit and Supervisory Board member, individual evaluation, and such matters as compensation paid are deliberated by the Nomination and Remuneration Advisory Committee. The results of these deliberations are reported to the Board of Directors where decision are made. In fiscal 2022, the Nomination and Remuneration Advisory Committee met five times, deliberating on a wide range of matters including the composition and effectiveness of the Board of Directors as well as efforts to strengthen governance.

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, business briefings several times a year, and inspections of business sites. 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 dialogue with Audit and Supervisory Board members and accounting auditors. From a succession planning perspective, 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.

To deepen understanding of the Company and the characteristics of the Group’s wide-ranging businesses, Outside Directors and Outside Audit and Supervisory Board members undertake business site visits every year. Business briefings are also conducted for Outside Directors and Outside Audit and Supervisory Board members.
In fiscal 2022, visits were made to the MINASE INNOVATION CENTER of the HPP Company.

At the quarterly Executive Officers Liaison meetings, the sharing of earnings announcements is combined with invited speakers from outside the Company, so that executive officers obtain the latest information on economic, environment, and social trends that are directly linked to management issues as well as knowledge from other companies and industries.

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 deliberates on the appointment of former representative directors and presidents to the positions of advisors or executive advisors as well as other relevant factors as their treatment, and submits recommendations and advice to the Board of Directors.
The Nomination and Remuneration Advisory Committee comprises seven members, the majority of whom are independent Outside Directors. The Chairperson is elected from the independent Outside Directors.

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.

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.

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. The results of internal audits are regularly reported at management meetings, and such matters as the status of improvement of issues pointed out by internal audits is reported to the Board of Directors by the director in charge or the Corporate Audit and Supervisory Board member, as necessary.

In order to ensure that Directors carry out their duties efficiently, the Board of Directors met 17 times in fiscal 2022. 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 charged with the responsibility of carrying out the executive function. Policy decisions were made by the Board of Directions following these discussions.

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 internal control. The Audit and Supervisory Board met 17 times in fiscal 2022 for the purpose of sharing the information from these reports. Audit and Supervisory Board members regularly exchanged opinions with accounting 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.

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.