Corporate Governance
- Related ESG :
- G
- Management approach
- Structure
- Overview of boards and committees
- Targets and KPIs
- Progress in system enhancement
- Officer compensation system
- Evaluating the effectiveness of the board of Directors
- Outside Director message
- Cross-shareholding
Management approach
Policy and approach
Based on the corporate philosophy “Jun-Ri-Soku-Yu,” the company believes that its purpose is to contribute to solving social issues through its proprietary technologies after ascertaining these issues from a long-term perspective.
The company, to respond to the changing times and enhance sustainable corporate value in the future as well, has established the policies of (1) ensuring timeliness and accuracy in decision-making, (2) ensuring transparency in management, and (3) emphasizing fairness, and will work to appropriately collaborate with all stakeholders, such as shareholders. Furthermore, by carrying out its fiduciary responsibility and accountability to shareholders, the company will ensure the effectiveness of corporate governance and continually work on its improvement.
Structure
Toyobo is a company with Board of Corporate Auditors and, under this governance system, has adopted the executive officer system. In the executive officer system, which is defined in our Articles of Incorporation, the Board of Directors oversees the business execution of executive officers. Under Toyobo's governance framework, a clear separation is made between the role of the Board of Directors—which oversees decision-making and performs management oversight—and the executive officers who are in charge of business execution. This system enables rapid decision-making and efficient business execution.
Corporate governance structure (as of June 2023)
Composition of the Board of Directors
Overview of boards and committees
* As of June 2023
| Members* and roles | Main issues (FY2023) | ||
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| Board of Directors Number of meetings held in FY2023: 18 |
Members | 10 members. The Board of Directors is composed of five independent outside directors, a director who is also an executive officer, and the company Chair, who serves as the chair of the Board of Directors. The number of directors on the Board of Directors is set to 14 or fewer. |
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| Role | The Board of Directors receives reports on the progress of medium- and long-term themes, including from the perspective of sustainability, and the status of business execution in each business, and conduct appropriate supervision. In addition, by taking our fiduciary responsibility and accountability to shareholders into account, it works to build a corporate governance structure that will enable us to sustainably enhance corporate value. |
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| Board of Corporate Auditors Number of meetings held in FY2023: 15 |
Members | 4 members, including 2 independent outside corporate auditors. |
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| Role | The Board of Corporate Auditors attends the Board of Directors meetings and other important meetings, states opinions when necessary, and audits the execution performance by directors through audits of each department's operation. KPMG AZSA LLC has been appointed to conduct accounting audits required under Japan's Companies Act. The Board of Corporate Auditors receive reports on auditing plans and auditing results from the accounting auditor, and meet with them to periodically exchange information. Information is also exchanged with the Internal Audit Department, which monitors the effectiveness of internal control. |
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| Nomination and Compensation Advisory Committee Number of meetings held in FY2023: 5 |
Members | 3 members, including 2 independent outside directors and the Chair. The Nomination and Compensation Advisory Committee is led by an outside director. 1 outside corporate auditor also participates as an observer. |
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| Role | Based on proposals from the President, the Nomination and Compensation Advisory Committee deliberates basic policies and criteria on the nomination of officers and succession planning, and reports to the Board of Directors. | ||
| Board of Managing Executive Officers and Controlling Supervisors Number of meetings held in FY2023: 32 |
Members | 12 members, including those also serving as directors. The Chair and 2 inside corporate auditors may also participate and state their opinions. | Same issues as the Board of Directors |
| Role | The Board of Managing Executive Officers and Controlling Supervisors deliberates in advance on matters to be resolved by the Board of Directors, and determines matters related to business execution entrusted by the Board of Directors. The Corporate Planning Committee and the Financial Control Committee have been established under the Board of Managing Executive Officers and Controlling Supervisors to manage risks related to management. | ||
| Sustainability Committee Number of meetings held in FY2023: 4 |
Members | 13 members. The Sustainability Committee consists of the Chair and the members of the Board of Managing Executive Officers and Controlling Supervisors, and the President serves as chair. 2 inside corporate auditors may also participate and state their opinions. |
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| Role | The Sustainability Committee reviews the progress of company-wide sustainability activities each quarter, and discuss new issues to be addressed and company-wide risks. The content of the Committee's discussions is reported to the Board of Directors on a regular basis. | ||
| Corporate Planning Committee Number of meetings held in FY2023: 8 |
Members | 19 members. The Corporate Planning Committee members are selected from each specialized field and business departments. The Director in charge of planning serves as chair. |
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| Role | The Corporate Planning Committee provides opinions and deliberates from a professional and managerial perspective on strategic matters, including important capital investments, new businesses, new company establishment, technology introduction, and business alliances, based on the entrustment of the Board of Managing Executive Officers and Controlling Supervisors. This is to improve the efficiency of deliberations and resolutions by the Board of Managing Executive Officers and Controlling Supervisors and to ensure the proper approval process, including matters concerning affiliate companies. | ||
| Financial Control Committee Number of meetings held in FY2023: 17 |
Members | 1 Chairperson, and 4 standing committee members. |
The following matters of individual importance:
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| Role | The Financial Control Committee pursues improving the efficiency of deliberations and resolutions at the Board of Managing Executive Officers and Controlling Supervisors, and the appropriateness of the approval process by expressing opinions and deliberating from a professional and managerial perspective on important individual investments, loans, guarantees, and other matters. In addition, it seeks to streamline the deliberation or resolution of matters not subject to deliberation or resolution at the meetings, as required by various rules and regulations. | ||
Targets and KPIs
< Targets >
Toyobo group is building a fair and highly transparent governance structure through compliance with the Corporate Governance Code and proactive information disclosure.
< KPIs and results >
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- Nomination and Compensation Advisory Committee
Progress in system enhancement
Toyobo group has worked continuously to strengthen corporate governance.
Initiatives to strengthen corporate governance
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Election and dismissal of top management and nomination of candidates for directors and corporate auditors
Policy
The election and dismissal of top management members (executive officers who also serve as directors) and the nomination of candidates for directors and corporate auditors are based on whether they are outstanding individuals who have the appropriate insight for their respective posts, while also taking into consideration the criteria for nominating directors and corporate auditors, and are decided by the Board of Directors after deliberation by the Nomination and Compensation Advisory Committee.
(1) Stance on composition of the Board of Directors and Board of Corporate Auditors
a) Board of Directors
The Board of Directors is comprised of the Chair of the Board, outside directors, and directors who also serve as executive officers, in order to have a balanced structure with the expertise and skills necessary to appropriately provide strategic direction and made decisions on important business operations, and the independence necessary to strengthen supervision of management, while also ensuring diversity in terms of professional background, gender, age, etc. Based on the concepts of (1) ensuring timeliness and accuracy in decision-making, (2) ensuring transparency in management, and (3) emphasizing fairness, the Articles of Incorporation stipulate that the Board of Directors must have no more than 14 members, and that the ratio of outside directors be at least one-third of members.
b) Board of Corporate Auditors
The Board of Corporate Auditors comprises human resources with expertise and skills in finance and accounting as well as knowledge of the group's business, from the perspective of ensuring the effectiveness of auditing.
(2) Summary of criteria for nomination, etc.
a) Candidates for directors (excluding candidates for outside directors)
Candidates for directors should have knowledge, achievements, experience, and skills as a manager, as well as a company-wide perspective
b) Candidates for outside directors
- Candidates for outside directors are expected to contribute to the enhancement of corporate value and the strengthening of supervision, such as providing business suggestions and management support
- Candidates for outside directors must meet separately specified independence criteria for outside directors
c) Candidates for corporate auditors
- Candidates for outside corporate auditors are expected to have ability to make appropriate judgments from an independent and objective standpoint in the auditing of the performance of duties, etc.
- Candidates for outside corporate auditors must meet the independence criteria
[Reference] Independence standards for outside officers
The company has deemed that if none of the attributes in the following items apply, the outside Director or outside Corporate Auditor (or the candidate for outside Director or outside Corporate Auditor) has a high degree of independence from the company, and there are no concerns of conflicts of interest with general shareholders.
(1) A major shareholder in the company (refers to a shareholder with a voting rights ownership ratio of 10% or more; the same applies below) or an individual who executes business for the shareholder
(2) An individual who executes business for a company of which the company is a major shareholder
(3) A business partner of the company for which the company is a major partner (refers to a party that provides products or services to the company for which the average annual transaction amount for the past three fiscal years is over 2% of that business partner’s annual gross sales) or an individual who executes business for that company
(4) A major business partner of the company (refers to a party that the company provides products or services to for which the average annual transaction amount for the past three fiscal years is over 2% of the company’s annual gross sales) or an individual who executes business for that company
(5) An individual who executes business as an employee of a financial institution that is a major lender to the company (refers to a lender for which the loan balance amount is equivalent to over 2% of the company’s total assets)
(6) An individual who obtains over ¥10 million per year in cash or other assets in profit from the company as a specialist, such as a consultant, accountant, or attorney at law, other than officers’ compensation (or an individual who belongs to a corporation, etc., that obtains over ¥100 million per year in this matter)
(7) An individual for which any item in (1) to (6) above has applied within the past three years
(8) A relation within the second degree of an individual for which any item in (1) to (7) above applies
Note: Even if none of the attributes above apply, in some cases it may be deemed that there is no independence in consideration of matters such as transaction volumes at a group company of the company or a group company of a business partner.
Procedures for nominations, etc.
The Nomination and Compensation Advisory Committee, comprising a majority of outside directors, has been established as an advisory body to the Board of Directors to ensure fairness and transparency, and is chaired by an outside director.
The Committee deliberates and reports to the Board of Directors on basic policies and criteria for nominating officers and succession planning, etc., based on proposals from the President.
Dismissal policy and procedures
In the event of an act of misconduct, impropriety, or actions suggesting a breach of trust, or of other reasons that make the member unsuitable to serve as an officer, after deliberation by the Nomination and Compensation Advisory Committee, a decision will be made by the Board of Directors on their dismissal.
Attendance record at board of Directors and Corporate Auditors, skill matrix
- Click to enlarge the diagram
Training programs for officers
For our newly appointed directors and corporate auditors, we provide orientation concerning their roles and duties, as they undergo an external training program upon their appointment, in order to acquire the necessary knowledge.
In addition, newly appointed outside directors and outside corporate auditors also attend orientations regarding the company's operations, finances and organization, and more.
They are also encouraged to continue participating in external training programs and lectures to continuously build on their managerial literacy.
Officer compensation system
Basic policy
Toyobo's system of officer compensation is designed as follows, in line with basic policy, within the monetary amount resolved at the Annual General Meeting of Shareholders.
- 1)
- Provide incentives that lead to Toyobo group's sustained growth and enhance corporate value over the longer term
- 2)
- Secure highly talented management personnel
- 3)
- Set determination procedures that are objective and highly transparent
Compensation structure and levels are reviewed based upon the company's business environment, levels of employee salaries, and other companies' levels based upon surveys conducted by specialized external organizations.
Monetary compensation (including performance-based amounts)
(1) Composition of monetary compensation
Monetary compensation for directors (excluding outside directors) is a fixed monthly compensation, comprising the following two components:
- 1)
- Basic compensation
- 2)
- Short-term incentive compensation
(2) Short-term incentive compensation
- 1)
- Short-term incentive compensation reflects evaluations of company-wide performance and the performance of department under charge, in accordance with position.
- Representative Director and Executive Director: company-wide performance only
- Director: company-wide performance 2; performance of department under charge 1
- Executive Officer (full-time): company-wide performance 1; performance of department under charge 2
- 2)
- Individual compensation reflecting company-wide performance and the performance of the department under charge is calculated and is determined by the Board of Directors.
- 3)
- The major management indicator EBITDA is used as a KPI for company-wide performance. It varies between 0% and 200%, according to the degree of achievement with respect to the target value.
- 4)
- With regard to specific target values, the Nomination and Compensation Advisory Committee is consulted. Based on its report, the Board of Directors makes decisions.
- 5)
- Performance of the department under charge is evaluated on a 5-point scale that takes into account the degree of operating income achieved, ROA, EBITDA, and other factors in the department under charge. It varies between 50% and 200%.
Stock compensation
In order to increase incentives to sustainably enhance corporate value and to promote more value sharing with shareholders, a certain percentage of compensation is granted annually as non-monetary compensation for granting restricted shares (non-performance-based, provided in advance).
Ratio of compensation
The ratio is designed to allow incentives for enhancement of corporate value to function appropriately. For basic compensation, short-term incentive compensation, and long-term incentive compensation, a ratio of 6:3:1 is set as a guideline (when KPI achievement is 100%).
Other
- (1)
- Compensation for outside directors is to be fixed monetary compensation in view of their role and independence.
- (2)
- Compensation for corporate auditors is to be fixed monetary compensation in accordance with their duties and responsibilities, and is to be decided by discussions with the corporate auditors in view of their duties and responsibilities.
- (3)
- The Nomination and Compensation Advisory Committee, comprising a majority of outside directors as members, has been established as an advisory body to the Board of Directors to ensure the transparency and objectivity of decisions regarding compensation. The Nomination and Compensation Advisory Committee receives advice from the Board of Directors and deliberates on the system, level, and calculation method of officer compensation, in addition to the targets set for the company-wide performance evaluations forming part of the compensation by position. The Board of Directors makes the final decision on the amount of individual compensation based upon the report from the Nomination and Compensation Advisory Committee.
Details of officer compensation (FY2023)
* Including mid-period appointments and resignations
| Position | Total compensation, etc. |
Total compensation by type | Number of officers* | ||
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Performance-based compensation |
Non-monetary compensation (Compensation for granting restricted shares) |
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| (¥ mn) | (¥ mn) | (¥ mn) | (¥ mn) | ||
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Review of officer compensation system
In fiscal 2023, the Board of Directors partially revised the officer compensation system based on a study of social trends surrounding executive compensation and appropriate incentives to improve performance. The main points of the review are as follows and were implemented starting in July 2022.
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(1) Composition of compensation
The guideline for the ratio of base compensation, short-term incentive compensation, and long-term incentive compensation (restricted stock compensation) will be changed as follows.
Pre-change: 7:2:1; Post-change: 6:3:1 -
(2) Composition of short-term incentive compensation
Pre-change: Calculated by multiplying evaluations of company-wide performance and departmental performance.
Post-change: The ratios of company-wide performance and departmental performance reflected in short-term incentive compensation are as follows:- Representative directors and executive directors: company results only
- Directors: company performance = 2, Performance of the department in charge = 1
- Executive officers (full-time): company performance = 1, Performance of the department in charge = 2
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(3) Performance indicator for short-term incentive compensation
The KPI for company-wide performance will be changed from consolidated operating income to EBITDA*, linking it to the targets of the 2025 medium-term management plan.
- Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is an indicator that indicates a company's profit level.
Ratio of compensation
In June 2023, the Board of Directors decided to incorporate sustainability indices into short-term incentives for executive compensation from July 2024 as a means of pursuing perspectives including sustainable growth and Environment, Society, Governance (ESG).
The sustainability indicators achievement factors show the level of achievement of the targets for the safety and disaster prevention indicators and the human capital indicators. From July 2024, these indicators will be applied to compensation paid based on fiscal 2024 results.
Sustainability Indicators achievement factors
| Sustainability Indicators | KPIs | Reflection method | |
|---|---|---|---|
| Safety and disaster prevention Indicators | Number of major accidents | 0 accidents per year | 5% of the total short-term incentive is added if all items are achieved. |
| Frequency rate of workplace accidents resulting in lost workdays | 0.25 or less | ||
| Number of fires or explosions | 0 accidents per year | ||
| Number of spill accidents | 0 accidents per year | ||
| Human capital indicators | Results of the engagement survey | +5% vs. last year | 5% of the total short-term incentive is added. |
Evaluating the effectiveness of the board of Directors
In order to further enhance the functions of the Board of Directors, the company carried out an overall analysis and evaluation of the effectiveness of the Board of Directors in fiscal 2023 with the support of an external organization. An outline of this evaluation is as follows.
Method of analysis and evaluation of effectiveness
- (1)
- Target: All directors and corporate auditors
- (2)
- Method: Conducted a survey with approximately 50 questions, and provided the responses directly to an external service provider.
- (3)
- Analysis and evaluation: The Board of Directors conducted the analysis and evaluation based on reports of aggregate results from the service provider.
Summary of evaluation results
- (1)
- Member numbers for the Board of Directors, the ratio of internal and external members, and the Chair's management of meetings procedures were evaluated as generally appropriate.
- (2)
- It was confirmed that certain results and improvements were achieved as a result of addressing the five issues identified previously [1) strengthened risk management including of QA and of safety and disaster prevention, 2) Initiatives aimed at medium- to long-term themes, 3) Initiatives for succession planning and appointment procedures, 4) Further streamlining of management of meeting procedures, and 5) Strengthening of group governance]. However, some voices viewed the improvements as insufficient.
- (3)
- The items 2), 3), and 5) above in particular received relatively low evaluations, and were identified as issues to be addressed along with the newly identified issue of reviewing our business portfolio. In addition, the item 1) above remained an issue to be addressed in order to make further improvements through ongoing initiatives.
Issues and future initiatives
The Board of Directors is working to improve its own effectiveness as a whole through the following initiatives.
(1) Risk management including of safety and disaster prevention, and QA
We will further enhance the risk management systems of our group as a whole, by means including supervision of the status of our initiatives for KPIs and materiality targets.
(2) Revision of our business portfolio
- We will set this as a priority theme in our annual plans, and will take it up at the beginning and work to enhance discussions.
- We will engage in a review of our business portfolio, with group companies included.
(3) Strengthening of group governance
- We will receive reports on risk management at group companies and on other topics from the Corporate Business Management Department, and will engage appropriately.
- We will ensure the effectiveness of internal audit functions through means including audit plans from the Internal Audit Department and reports on their outcomes, and will work to strengthen group governance.
(4) Initiatives for CEO succession planning and appointment procedures
We will further ensure transparency and fairness by means including activity reports from the Nomination and Compensation Advisory Committee.
(5) Initiatives aimed at other medium- to long-term themes (DX, human capital, environmental action, etc.)
We will set this as a priority theme in our annual plans, and will take it up at the beginning and work to enhance discussions.
Feature: Outside Director message
Cross-shareholdings
The company shall periodically review cross-shareholdings from assorted perspectives, such as the impact on improving medium-to long-term corporate value and economic rationality, and sell any stock which is no longer meaningful as is appropriate. On the other hand, the company shall enter into cross-shareholdings with key business partners when judging that the maintenance and strengthening of stable relationships with the business partners will contribute to sustainable growth and enhancement of medium-to long-term corporate value of the company.
The Board of Directors individually reviews cross-shareholdings every year, including future business strategies and operational relationships, and determines whether or not to continue holding these shares.
Also, with regard to the exercise of voting rights in cross-shareholdings, the company deeply considers the status of the business partner and the content of the proposals, and as needed, discusses with the business partner. The company thereby confirms whether these holdings contribute to the sustainable growth and medium-to long-term enhancement of corporate value of the company and its business partner, and makes a comprehensive decision.