Based upon recognition that corporate governance is a key management priority, Tokuyama has always been working to bolster corporate governance. Taking into consideration the introduction of the Corporate Governance Code in Japan as its basic policy, the Company places the utmost emphasis on ensuring the rights and equality of its shareholders and cooperating with various stakeholders properly while strengthening the supervisory function and securing the independence of the Board of Directors. At the same time, Tokuyama works diligently to accelerate decision making and to clarify the business execution responsibilities of its Board of Directors while ensuring appropriate disclosure and transparency and promoting constructive dialogue with its shareholders.
Basic Policy on Establishing the Internal Control System
Views on the Internal Control System
Based on chemistry, Tokuyama's mission is to create a bright future in harmony with the environment in collaboration with its customers. To fulfill this mission, we have established the Basic Principles of Sustainability and promote CSR management based on the Principles.
We recognize that it is essential for corporate governance to function effectively in all business activities of Tokuyama and Tokuyama Group companies. We will ensure the appropriateness of business operations and maintain the soundness of the organization through the development of an internal control system and continuous improvement in response to changes in the business environment.
Basic Policy on Establishing the Internal Control System
- System for ensuring the legality and efficiency of execution of duties by Directors
- Directors shall execute their duties based on the division of duties to which they are entrusted under the applicable laws and regulations, Articles of Incorporation, Rules for the Board of Directors, and other internal rules, as well as under Board of Director's resolutions.
- Directors shall make the necessary proposals and reports at the Board of Directors regarding their execution of duties, and the Board of Directors shall provide oversight for the execution of duties by Directors. Moreover, the Board of Directors shall include External Directors in order to strengthen the Board's oversight function.
- Directors shall provide mutual monitoring and oversight regarding the legality and efficiency of execution of duties by other directors via attendance at important meetings in addition to the Board of Directors.
- Directors shall efficiently execute their duties pursuant to the stipulated company organization, executive responsibilities, and division of duties for each organization, and to the delegated authority based on the Company's approval rules.
- System for retaining and managing information relating to execution of duties by Directors
- Rules and other systems relating to management of risk of loss
- The Company shall define the responsible department for rules regarding risk management of loss within the Tokuyama Group, establish management regulations, and work to ensure the thorough implementation of these.
- The Company shall establish a management system that understands important laws and regulations that are relevant to business execution and that tracks movements in the revision thereof as a means of reducing compliance risk within the Tokuyama group.
- The Company shall respond appropriately when a risk manifests within the Tokuyama group by establishing a crisis response headquarters in accordance with the severity of the manifest risk, and shall rapidly engage in recovery and post-event management efforts.
- System to ensure that the execution of duties by employees complies with laws and regulations and the Articles of Incorporation
- The Company shall establish a Whistle-blowing System contact point (helpline) that allows individuals to report and consult on compliance violations, or matters that are believed to hold the potential to violate such, in a safe, anonymous manner without receiving disadvantageous treatment, and shall implement appropriate management and countermeasures according to the report or consultation.
- The Company shall conduct monitoring and self-assessments led by the responsible party for the business divisions, etc., and management divisions in order to ensure the appropriateness of duties. At the same time, each Group company shall also be requested to conduct monitoring and self-assessments.
- The Company shall provide the required guidance, support, and requests regarding important matters to all business divisions, etc., and Group companies through the Corporate Planning Division, the Corporate Social Responsibility Division, and other management divisions.
- The Company shall conduct internal audits of business divisions, etc., management divisions, and Group companies via an auditing department that is independent of the divisions, etc.
- The Company shall report any discovery of compliance violation matters to those within and outside the organization in accordance with the severity of such, and shall immediately correct for the violation and deploy such horizontally within the Tokuyama group in order to prevent a recurrence.
- System to ensure appropriateness of business within the corporate group
- The Company shall establish the CSR Promotion Council for the purpose of promoting CSR management within the Tokuyama Group, and shall deliberate and determine important matters regarding internal control.
- The Company considers risk management and compliance to be central and equally important to internal control, and shall therefore establish the Risk Management and Compliance Committee within the CSR Promotion Council in order to effectively and efficiently carry out internal control within the Tokuyama Group.
- With regard to areas requiring specialist expertise and of great importance from the viewpoint of risk management and compliance (financial reporting, antitrust law compliance, security export controls, cyber and information security, security and environmental measures, product safety and quality, and sustainability), the Company shall establish expert committees separate from the Risk Management and Compliance Committee.
- The Company shall evaluate the effectiveness and efficiency of internal control for the Tokuyama Group through the above meeting structure and shall engage in ongoing improvements.
- The Company shall establish an internal management system for group companies and shall operate and manage group companies thereby.
- The Company shall respect the principle of self-responsibility in order for each group company to achieve healthy growth while at the same time providing the required guidance, support, and requests to ensure the appropriateness of business.
- The Company shall dispatch Company Directors and employees as Directors or Auditors for group companies as necessary.
- The Company shall include group companies as being subject to the Whistle-blowing System and internal audits.
- System to ensure effective audits by the Audit and Supervisory Committee
- The Company shall establish an Audit and Supervisory Committee Office to aid the duties of the Audit and Supervisory Committee, and shall appoint Company employees for this purpose. Moreover, the Company shall receive consent form the Audit and Supervisory Committee regarding personnel evaluations, hiring, transfers, and discipline in regard to such employees.
- The authority to instruct and provide orders to employees of the Audit and Supervisory Committee Office shall reside in the Audit and Supervisory Committee.
- The Company shall immediately report on any cases to the Audit and Supervisory Committee when a request is made by the Audit and Supervisory Committee for an explanation of matters relating to the execution of such duties and when a compliance violation matter is discovered by the Company, including that reported by a group company. Moreover, NO disadvantageous treatment shall be made against the reporting party due to the provision of information to the Audit and Supervisory Committee.
- The Company shall permit the necessary audit expenses, including those for employing attorneys at law, certified public accountants, consultants, and other external advisors for the purpose of supporting an audit by the Audit and Supervisory Committee, when such is deemed necessary by the Audit and Supervisory Committee.
- The Audit and Supervisory Committee shall cooperate closely with the Internal Audit Department and accounting auditors in order to improve the efficiency of audits.
- The Company shall establish other systems for the purpose of ensuring that audits by the Audit and Supervisory Committee are carried out effectively.
- System to ensure the reliability of financial reporting
- The Company shall establish and operate internal controls relating to business processes (including business processing controls relating to IT) and general controls relating to IT, and shall ensure the reliability of accounting data through the evaluation and improvement of such controls.
- The Company shall work to standardize and improve the efficiency and quality of accounting and financial duties, and shall maintain and operate internal controls relating to financial reporting in order to ensure the reliability of financial reporting.
- The Company shall establish a Financial Reporting Committee that fully ensures the reliability of financial disclosures through deliberations.
- System for blocking ties with anti-social forces
- The Company shall address unfair demands made by anti-social forces throughout the organization, from upper management on down. Moreover, the Company shall ensure the safety of Directors and employees who address such unfair demands.
- The Company shall prepare for unfair demands made by anti-social forces by building close cooperative relationships with external expert organizations during normal times.
- The Company shall NOT maintain any relationships, including transactional relationships, with anti-social forces. Moreover, the Company shall reject all unfair demands made by anti-social forces.
- The Company shall take legal action from both a civil and criminal standpoint against unfair demands made by anti-social forces.
- The Company shall prohibit backroom dealings with and providing funding for anti-social forces, and shall never engage in such.
- The Company shall establish and maintain a structure for itself and each Group company for the purpose of blocking ties with anti-social forces.
The Company, in accordance with applicable laws and regulations and the stipulations of the Company's management regulations, shall retain information relating to the execution of duties by Directors for the designated retention period at the responsible department.
Corporate Governance Structure
As of June 26, 2023
Corporate governance structure
|Corporate organization||company with an Audit and Supervisory Committee|
Number of Directors
(Number of External Directors)
|Number of External Directors granted to be independent(*)||4|
|Directors' term of office||One year (Two years for directors who are Audit and Supervisory Committee members)|
|Incentive compensation for Directors||Introduction of Performance-related Share-based Remuneration Plan for Directors|
Number of Audit and Supervisory
(Number of External Audit and Supervisory
|Number of independent officers||3|
|Adoption of an executive officer system||Yes|
|Committees that assist the president in making decisions||Executive Committee : The Executive Committee serves as the Company's decision-making body with respect to the execution of business operations.
Strategy Committee : The Strategy Committee deliberates on the direction in which business is executed.
|Discretionary committee that advises the Board of Directors||Human Resources Committee : The Human Resources Committee holds discussions on such matters as remuneration as well as the selection of director and executive officer candidates.|
|Independent Accounting Auditors||Grant Thornton Taiyo LLC|
|Introduction of anti-takeover measures designed to prevent the large-scale purchase of the Company's shares||No|
* Judged by the Company's "Criteria for Independence of External Directors and External Audit & Supervisory Committee Members"
(As of June 26, 2023)
Criteria for Defining the Independence of External Directors
With regard to its Criteria for Defining the Independence of External Directors, the Company adjudges those who do not fall into any of the following categories as demonstrating sufficient independence.
- Persons who are not currently nor in the past 10 years been engaged in the execution of business operations of the Company or its affiliated companies*1.
- Persons who are not currently nor in the past three years been engaged in the execution of business operations of a major trading partner of the Company, or executives thereof. However, the Company's major trading partners are defined as those that fall into either of the following categories:
- Financial institutions that have financed more than 2% of the Company's total borrowings.
- Trading partners that account for more than 2% of the Company's consolidated net sales.
- Persons who currently deem or in the past three years have deemed the Company or an executive thereof to be a major trading partner. However, persons who deem the Company to be a major trading partner are defined as those cases in which the amounts paid by the Company account for 2% or more of the said trading partner's consolidated sales.
- Consultants, accountants or legal professionals who currently receive or in the past three years have received large financial considerations or other property*2 from the Company besides their compensation as a director/auditor. (If the entity in receipt of the assets is an organization, such as a legal entity or an association, the person who belongs to such organization.) However, includes those that fall into either of the following categories:
- Auditors who are responsible for the statutory audit of the Company.
- Law firms that serve as legal counsel to the Company.
- Spouses or relatives within the second degree of kinship of the relevant persons in the sections above (but limited to important persons*3.
- Pursuant to Article 2, Paragraph 3, Item 6 of the Ordinance for Enforcement of the Companies Act of Japan.
- In the case of an individual, a substantial compensation payment is defined as an annual amount of compensation that exceeds 10.0yen million, and in the case of an organization, an amount of 2% or more of the annual total income of that organization.
- In the case of a company, important persons are defined as those who hold the responsible positions of director, executive officer, operating officer and positions equivalent to manager; in the case of an accounting office and audit corporation, certified accountants; in the case of law offices and legal corporations, lawyers; and in the case of a tax accountant office and tax accountant corporation, tax accountants. In other organizations, an important person means directors, such as a director or a councillor.
The table below can be scrolled horizontally.
|name||Audit & Supervisory
|Reason for Selection|
|Yuzo Kawamori||○||○||Mr. Kawamori brings a wealth of practical experience to his position, including business development outside Japan for a major paint manufacturer, as well as extensive and outstanding insight based on his experience as a corporate executive. The Company judged him to be suitably qualified as a Director who will serve on the Company's Audit and Supervisory Committee and has appointed him as such.|
|○||○||Ms. Mizumoto also has extensive practical experience gained from positions in research and head office operations at a major heavy industrial manufacturer as well as extensive and outstanding insight based on his experience as a corporate executive. The Company judged her to be suitably qualified as a Director who will serve on the Company's Audit and Supervisory Committee and has appointed her as such.|
|○||○||Given his extensive practical experience at a financial institution and his time as a corporate executive there, Mr. Ishizuka has considerable knowledge of finance and accounting. The Company judged him to be suitably qualified as a Director who will serve on the Company's Audit and Supervisory Committee and has appointed him as such.|
|○||○||Although Mr. Kondo has never been involved in corporate management other than serving as an independent director or independent corporate auditor, he has legal expertise and insight based on his wealth of experience as a law firm partner. The Company judged him to be suitably qualified as a Director who will serve on the Company's Audit and Supervisory Committee and has appointed him as such.|
The Company's Executives Remuneration
Policy on Determining Director Remuneration on an Individual Basis
The Company has established a policy for determining the content of remuneration for Directors on an individual basis (excluding those who serve on the Audit and Supervisory Committee). The following provides an overview of such, where individual remuneration is determined by the Board of Directors following deliberations by the Human Resources Committee*1.
- The remuneration plan for the Company's Directors is based on the following views.
- Ensures that Directors contribute to charting sustainable growth for corporate performance and corporate value based on the “Vision of Tokuyama”
- Provides a level of remuneration that secures and retains human resources that can support the Company's management
- Considers the performance of the Company
- Employs a highly transparent, objective remuneration decision process
(Policy on Determining Director Remuneration on an Individual Basis)
- The content (annual amount) of basic remuneration is determined from a comprehensive perspective that takes into account the roles and responsibilities of each Director. Further, the determined basic remuneration is divided into 12 equal parts and paid on a monthly basis.
- The content of bonuses is determined in accordance with the achievement level of the predetermined performance targets for each fiscal year in respect to the standard amount for bonuses determined separately for each position. The performance targets are established based on the main financial targets for Tokuyama's overall performance. Further, the determined bonuses are paid at a specific period each year.
- Performance-linked Share-based Remuneration is based on the fiscal years covered by the Medium-term Management Plan as the target period, and is provided in the form of Company shares in accordance with the achievement level for the predetermined performance targets. The performance targets are established based on the main financial targets in the Medium-term Management Plan. Further, as a general rule, this form of remuneration is provided at the completion of the target period.
- The level of remuneration takes into consideration remuneration survey data provided by external expert organizations.
(Policy on Determining the Ratio of Remuneration for Directors by Type)
The ratio of remuneration for Company Directors by type is determined in consideration of the ideal balance between the basic standard for the required roles/responsibilities and incentives to stimulate the desire to achieve performance targets.
(Policy on Determining Director Remuneration on an Individual Basis)
- The final annual amount of basic remuneration for each individual is calculated and determined by the Representative Director, President and Executive Officer, having received authorization to do so from the Board of Directors, based on a standard amount predetermined for each position.
The Human Resources Committee deliberates on whether the calculated basic remuneration is appropriate or not.
- Bonuses are determined by the Representative Director, President and Executive Officer, having received authorization to do so from the Board of Directors, based on performance for the target fiscal year after first determining the payment ratio in accordance with the standard bonus amounts for each position, the performance targets for the target fiscal year, and the achievement level for those targets.
The Human Resources Committee deliberates on whether the performance targets, calculation methods, and calculation results are appropriate or not.
- Performance-linked Shared-based Remuneration is calculated by the Board of Directors using points granted to Directors on an individual basis based on the established executive remuneration share delivery regulations following deliberations by the Human Resources Committee.
- The Human Resources Committee is composed of a majority of External Directors and deliberates matters related to human resources and remuneration regarding officers. This Committee also serves as a voluntary advisory committee for the Company that makes appropriate reports and recommendations to the Board of Directors.。
- All directors, except those who serve on the Audit & Supervisory Committee, Non-executive Directors, External Directors, and those NOT residing in Japan, are eligible for the performance-linked Share-based Remuneration plan.
Amount of remuneration paid to Directors and Audit & Supervisory Comittee members (For FY2022)
The table below can be scrolled horizontally.
|Subject of Remuneration||Number of People||Remuneration Amount|
(Excluding directors who are Audit &
Supervisory Committee members)
|Directors who are Audit & Supervisory
(Excluding External Directors)
- The above amount includes performance-linked share-based remuneration. This includes a deduction of 25 million yen as an adjustment to recorded expenses in consideration of the degree of achievement concerning performance evaluation indicators (total consolidated operating income, etc.) for fiscal 2021 and 2022, the period covered by the program. It also includes expenses for fiscal 2022.
- The above amounts do not include employee salaries paid to directors with duties in an employee's capacity.
Policy on the Holding of Listed Shares for Purposes Other Than Pure Investment
The Company holds shares of publicly listed companies on a strategic basis in accordance with the necessities of its business activities as a part of its overall management strategy.
This includes the need to maintain and bolster transactions, raise funds and stably procure raw materials. As far as the strategic holding of shares in publicly listed companies is concerned, the Company will limit its holdings to the minimum level possible taking into consideration the need to ensure efficient corporate management. It sold all shares of one listed issue in FY2022, resulting in a total of 20 listed issues of shareholdings.
In addition, the Board of Directors takes steps to verify the economic rationality of holding shares in publicly listed companies by comparing capital costs that factor in associated risks with accrued benefits while confirming the propriety of its holdings based on an outlook of the future each year.
Analysis and Evaluation of Overall Effectiveness of the Board of Directors
The Company conducts an annual evaluation of the effectiveness of its Board of Directors. In the fiscal year ending March 31, 2023, it engaged an external organization to conduct a questionnaire survey of all the directors, and analyzed their responses. The results were submitted the Board of Directors for review and discussion.
The evaluation revealed that the effectiveness of Board of Directors is generally good. It showed that efforts to address the issues identified in the previous evaluation had achieved a certain level of results overall. A high score was given for the board's monitoring and oversight of management team selection, evaluation, and compensation, while the score for communication with stakeholders was relatively low, making it a high-priority issue.
Additionally, the board needs to remain focused on effective monitoring concerning progress made on initiatives to address the priority issues identified in the Medium-Term Management Plan 2025. The Board of Directors will continue to monitor and oversee the executive management team as it steadily implements the Medium-Term Management Plan 2025 to achieve its goals.