Summary of Corporate Governance
Basic Concept
Based on the basic mission of the sustainable improvement of shareholder value, the Teijin Group has been strengthening its governance to fulfill its responsibilities to various stakeholders. The basics of corporate governance are "improving transparency," "ensuring fairness," "accelerating decision-making," and "ensuring the independence of monitoring and supervision," and we are working to establish and strengthen an effective corporate governance system through items such as an "Advisory Board," a "Nomination and Compensation Advisory Committee," a "Board of Directors including Independent Outside Directors and a Corporate Officer System," and a "Board of Statutory Auditors System including Independent Outside Statutory Auditors." Furthermore, the Group has established and published the Teijin Group Corporate Governance Guide, which serves as its corporate governance guidelines.
Major Initiatives for Strengthening Governance
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| 2003 |
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| 2012 |
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| 2015 |
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| 2021 |
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| 2022 |
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- *Applicable from the current Chairperson
Organization Structure : Company with Board of Statutory Auditors
The current Companies Act requires the Board of Directors to appropriately carry out two roles: making important business decisions and monitoring and supervising management. To properly fulfill these roles, the Company deems that a corporate governance system based on two core functions--(1) the execution of business led by the internal directors (limited to executive directors) and (2) management oversight and supervision focused on by outside directors and the Chairperson of the Board of Directors as well as monitoring and auditing carried out by statutory auditors and the Board of Statutory Auditors--is appropriate. Therefore, the Company has decided to continue to be a company with a Board of Statutory Auditors, for the time being.
Board of Directors
The Board of Directors meets once a month, in principle, and deliberates and determines/approves important matters, such as Groupwide management policies and plans, as well as any other items required by laws, regulations, and the Company's Articles of Incorporation. The Board also oversees directors' performance of their duties. To expedite decision-making and clarify accountability of business execution, the Company's Articles of Incorporation set the maximum number of directors at 10, and the Company has introduced a corporate officer system that delegates broad authority to corporate officers. Also, in the Articles of Incorporation, the term of office for directors is set at one year. The chair of the Board of Directors' meetings is selected from the outside directors as part of the Board's efforts to separate monitoring and supervision from business execution.
Evaluation of Board of Directors' Effectiveness
In order to further ensure the effectiveness and enhance the functions of the Board of Directors, the Company conducts analysis and evaluation of the effectiveness of the entire Board of Directors once a year. The method of the Board of Directors' effectiveness evaluation for fiscal 2021 and an overview of the results are as follows.
Analysis and Evaluation Method
A self-evaluation questionnaire of all directors and statutory auditors (15, including outside directors and outside statutory auditors) where the respondents gave their name was conducted based on the advice of external experts. The evaluation points in the questionnaire were compiled from the following eight fields. Respondents evaluated the questionnaire's 41 questions based on a five-step scale and made comments. In addition, external experts conducted interviews with a total of four directors and statutory auditors based on the questionnaire, aiming to deepen understanding of the management issues to be discussed at the Board of Directors' meetings and to formulate a concrete action plan to address the issues. Based on the results of these questionnaires and interviews, deliberations were held by the Board of Directors regarding the Board's effectiveness as well as issues to be addressed and improvement measures to be implemented.
- 1.Strategy and execution thereof
- 2.Risk and crisis management
- 3.Corporate ethics
- 4.Performance monitoring
- 5.Organization and business restructuring-related transactions
- 6.Management team evaluation, compensation, and succession planning
- 7.Stakeholder dialogue
- 8.Composition and operation of the Board of Directors
Evaluation Results
The results of the Board of Directors' effectiveness evaluation conducted via the above process found that there was no issue with the current corporate governance system and its implementation, and that the Company's Board of Directors was generally functioning properly and its effectiveness was verified. In addition, the questionnaire results indicated that there was a high ratio of positive evaluations (generally around 80%) for all items.
Status of Response to Issues Recognized in the Fiscal 2020 Evaluation
- Deepening discussions on business creation utilizing data and digital technology
In fiscal 2021, the Board of Directors set aside sufficient time to discuss the status of digital technology utilization. There, the Board confirmed the status of digital technology utilization in each business and discussed the ideal form of the Teijin Group's core system. For the formulation of the next medium-term management plan, the Board confirmed that clarification of the vision and further discussions would be needed on the direction of the strategy and future resources to be invested.
- Deepening discussions on the business portfolio
In fiscal 2021, the Board of Directors set aside sufficient time to discuss portfolio transformation. There, the Board discussed portfolio valuation methods and the future direction of the portfolio, and confirmed that it would be necessary to further deepen discussions on the business portfolio in the future while linking it to the formulation of the next medium-term management plan. In addition, at the discussion on verification of the rationale regarding the public listing of both parent and subsidiary companies and examination of possible options, from the viewpoint of maximizing the corporate value of the Teijin Group, Infocom Corporation, and Japan Tissue Engineering Co., Ltd. (J-TEC), the Board confirmed the rationale for maintaining the listing of Infocom and J-TEC, and shared possible options if the Group were to discontinue the public listing of both parent and subsidiary companies. In fiscal 2022, the Board of Directors will continue to discuss the rationale for maintaining the public listing of both Group companies.
- Deepening discussions on issues identified through stakeholder dialogue analysis
In fiscal 2021, the Board of Directors set aside sufficient time to discuss the Stakeholder Communication Report. The Board examined the status of the stock price and valuation, shared comments obtained through dialogue with investors, and discussed issues that could be extracted from the comments. In fiscal 2022, the Board of Directors will continue to deepen discussions on issues identified through the stakeholder dialogue analysis.
- Reviewing the agenda of Board of Directors' meetings and enhancing discussions on management strategies
The agenda items of Board of Directors' meetings are decided after items, such as those identified as issues at the Board of Directors' effectiveness evaluation, are added to regular items, including settlement of accounts, and confirmed by the chair of the meetings at the beginning of the period, except for those emerging unexpectedly during the period. In fiscal 2021 as well, the Board of Directors set a number of agenda items related to management strategies, such as discussion on portfolio transformation and the policy for formulating the next medium-term management plan, and discussed the ideal future of the Teijin Group. In fiscal 2022, we will continue to deepen discussions on management strategies as well as the next medium-term management plan.
Issues Identified in Fiscal 2021 and Measures Going Forward
In fiscal 2022, we identified the following issues as a result of discussions held at the Board of Directors' meeting based on the evaluation of effectiveness conducted in fiscal 2021, and will further promote efforts to address them together with discussions on the next medium-term management plan.
- Discussions on innovation creation utilizing data and digital technology
- Discussions on the business portfolio
- Discussions on the rationale behind the public listing of both parent and subsidiary companies
- Discussions on BCPs including the supply chain
- Discussions on allocation of management resources to human capital/intellectual property, etc.
The Company aims to increase the effectiveness of the Board of Directors and further strengthen corporate governance through these measures.
Board of Statutory Auditors and Committee of Teijin Group Statutory Auditors
The Company's statutory auditors possess a high level of expertise and experience in fields such as law, finance, and accounting. These statutory auditors oversee the execution of duties by the directors based on their abundance of expert insight. Furthermore, the Committee of Teijin Group Statutory Auditors, which comprises statutory auditors of Group companies and other members, meets regularly to enhance the effectiveness of Groupwide monitoring and audits.
Skills Matrix
Directors
| Directors | Independent Outside Directors | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Jun Suzuki | Akimoto Uchikawa | Akihisa Nabeshima | Toshiya Koyama | Eiji Ogawa | Naohiko Moriyama | Yukako Uchinaga | Yoichi Suzuki | Masaru Onishi | Masaaki Tsuya | |
| Corporate management | ✔ | ✔ | ✔ | ✔ | ✔ | ✔ | ||||
| Finance/ Accounting |
✔ | ✔ | ||||||||
| Legal and business risk management | ✔ | ✔ | ✔ | ✔ | ||||||
| Global management | ✔ | ✔ | ✔ | ✔ | ✔ | ✔ | ✔ | |||
| Environmental solutions | ✔ | ✔ | ✔ | ✔ | ✔ | |||||
| Health and safety solutions | ✔ | ✔ | ✔ | ✔ | ✔ | ✔ | ||||
| IT/DX/ Innovation |
✔ | ✔ | ✔ | ✔ | ✔ | ✔ | ✔ | ✔ | ||
| Diversity and inclusion | ✔ | ✔ | ||||||||
Statutory auditors
| Statutory Auditors | Independent Outside Statutory Auditors | ||||
|---|---|---|---|---|---|
| Masanori Shimai | Akio Nakaishi | Gen Ikegami | Hitomi Nakayama | Jun Arima | |
| Corporate management | |||||
| Finance/ Accounting |
✔ | ✔ | |||
| Legal and business risk management | ✔ | ✔ | ✔ | ✔ | |
| Global management | ✔ | ✔ | ✔ | ||
| Environmental solutions | ✔ | ✔ | |||
| Health and safety solutions | ✔ | ||||
| IT/DX/ Innovation |
✔ | ||||
| Diversity and inclusion | ✔ | ||||
Status of Activities of Directors, Statutory Auditors, and Non-Japanese Experts
| Name | Expected role | Advisory Board | Nomination Advisory Committee/ Compensation Advisory Committee | Status of meeting attendance in fiscal 2021 | |
|---|---|---|---|---|---|
| Directors | Jun Suzuki | Supervise the executive directors and strengthen corporate governance by taking advantage of his extensive experience as CEO for eight years | ✔ | ✔ | Attended 12 out of 12 Board of Directors' meetings |
| Akimoto Uchikawa | Play the role of CEO in formulating and executing management policies to enhance the corporate value of the Teijin Group | ✔ | ✔ | Attended 9 out of 9 Board of Directors' meetings | |
| Akihisa Nabeshima | Help secure timely and appropriate funding and maintain a sound financial base by leveraging his knowledge and insight cultivated in finance and accounting fields and the Company's businesses | Attended 12 out of 12 Board of Directors' meetings | |||
| Toshiya Koyama | Pursue sustainable management and promote risk management by leveraging his knowledge and insight cultivated in the Materials Business Field | Attended 12 out of 12 Board of Directors' meetings | |||
| Eiji Ogawa | Further expand profits in the Materials Business Field and develop and promote Strategic Focus fields, an area of priority | Attended 12 out of 12 Board of Directors' meetings | |||
| Naohiko Moriyama | Further increase profitability in the Healthcare Business Field and grow new healthcare businesses, a Strategic Focus fields theme | Attended 9 out of 9 Board of Directors' meetings | |||
| Independent Outside Directors | Yukako Uchinaga | Monitor business management and provide suggestions on business execution based on her experience as vice president of a listed company and deep knowledge of diversity | ✔ | ✔ | Attended 12 out of 12 Board of Directors' meetings |
| Yoichi Suzuki | Monitor business management and provide suggestions on business execution based on his experience as a diplomat, wealth of knowledge, and high level of insight from a global perspective | ✔ | ✔ | Attended 12 out of 12 Board of Directors' meetings | |
| Masaru Onishi | Monitor business management and provide suggestions on business execution based on his experience as president and chairman of a listed company, abundance of business experience, and high level of insight | ✔ | ✔ | Attended 12 out of 12 Board of Directors' meetings | |
| Masaaki Tsuya | Monitor business management and provide suggestions on business execution based on his experience as CEO and chairman of a listed company, abundance of business experience, and high level of insight | ✔*1 | ✔*1 | Appointed in June 2022 | |
| Statutory Auditors | Masanori Shimai | Monitor overall management and provide advice based on his wealth of knowledge and experience in finance and accounting fields and his deep understanding of the Company's business | Attended 12 out of 12 Board of Directors' meetings Attended 12 out of 12 Board of Statutory Auditors' meetings | ||
| Akio Nakaishi | Monitor overall management and provide advice by leveraging his knowledge of technologies in the Materials Business Field and wealth of practical experience | Attended 12 out of 12 Board of Directors' meetings Attended 12 out of 12 Board of Statutory Auditors' meetings | |||
| Independent Outside Statutory Auditors | Gen Ikegami | Contribute to maintaining and improving the Company's compliance, monitor management, and provide advice based on his insight and experience as a certified public accountant | Attended 12 out of 12 Board of Directors' meetings Attended 12 out of 12 Board of Statutory Auditors' meetings | ||
| Hitomi Nakayama | Contribute to maintaining and improving the Company's compliance, monitor management, and provide advice based on her insight and experience as a lawyer | Attended 12 out of 12 Board of Directors' meetings Attended 12 out of 12 Board of Statutory Auditors' meetings | |||
| Jun Arima | Contribute to maintaining and improving the Company's compliance, monitor management, and provide advice based on his insight and experience with global environmental issues, etc. | Attended 12 out of 12 Board of Directors' meetings Attended 12 out of 12 Board of Statutory Auditors' meetings | |||
| Non-Japanese Experts | Alexander H.G. Rinnooy Kan *2 | Provide advice and suggestions for management based on his wealth of knowledge related to global economies and business management and his high level of insight from a global perspective | ✔ | - | |
| Thomas M. Connelly, Jr. *3 | Provide advice and suggestions to improve corporate value based on his abundance of corporate and business management experience on a global level | ✔ | - |
- *1Member from fiscal 2022
- *2Professor, University of Amsterdam, the Netherlands
- *3Executive Director and CEO, American Chemical Society
Nomination Advisory Committee and Compensation Advisory Committee
The Nomination Advisory Committee and the Compensation Advisory Committee are established as consultative bodies of the Board of Directors to further enhance the transparency concerning the appointment of directors and officers. Each committee deliberates on the following matters and makes recommendations to the Board of Directors.
Nomination Advisory Committee
- Deliberation on CEO succession and recommendation of successor
- Selection and dismissal of candidates for representative directors
- Selection and dismissal of candidates for directors (including Chairperson)
- Selection and dismissal of candidates for statutory auditors
- Promotion, demotion, selection, and dismissal of internal directors and senior management
- Deliberation on matters concerning the criteria for independence of outside directors and outside statutory auditors
- Selection of candidates for CEO and review of the CEO's plan and progress thereof for developing potential successors
Compensation Advisory Committee
- Deliberation on matters concerning the compensation system of corporate officers of the Teijin Group
- Deliberation on matters concerning the level of compensation of corporate officers of the Teijin Group
- Evaluation on the performance of and deliberation on matters concerning the amount of compensation for internal directors (including the CEO) and senior management
For matters concerning the current CEO, in principle, the CEO leaves the room and does not participate in the deliberations. For matters concerning the Chairperson, the Chairperson leaves the room and does not participate in the deliberations. Four independent outside directors, the Chairperson of the Board of Directors (whose seat is left vacant in the case of a vacancy in the Chairperson's post), and the CEO participate as members of the committees while the outside director who chairs the committees presides over the meetings of each committee.
Advisory Board
The Advisory Board, comprising both Japanese and non-Japanese experts, has been established to provide advice to management in general from a broad and long-term perspective, and operates as a consultative body to the Board of Directors. The Advisory Board is made up of five to seven outside advisors (currently, it comprises four independent outside directors and two non-Japanese experts) as well as the Chairperson of the Board of Directors (whose seat is left vacant in the case of a vacancy in the Chairperson's post) and the CEO. The Advisory Board is chaired by the independent outside director who chairs the Board of Directors.
Group Strategy Committee and Group Management Committee
Important matters related to business execution of the Company and the Teijin Group, for which authority has been delegated by the Board of Directors, are decided by the CEO through deliberation in the Group Strategy Committee, which meets at least twice a month in principle, and the Group Management Committee, which meets once a month in principle. The Group Strategy Committee and the Group Management Committee comprise the CEO, presidents of the Company's respective business fields, chief officers, and others designated by the CEO. The CEO convenes and chairs the meetings of both committees. In addition to these members, the committees are also attended by the internal full-time statutory auditors.
Basic Policy on Officer Compensation
The Company revised its officer compensation system in fiscal 2021 from the viewpoint of corporate governance and the stakeholders and to further enhance corporate value creation based on strengthening management from a medium- to long-term perspective, including in terms of sustainability and ESG initiatives. In line with this revision, the Company has introduced "restricted stock" and "performance share units" systems with the aim of providing an incentive for directors to achieve the targets of the Company's medium-term management plan and to enhance corporate value over the medium to long term. As a result of introducing these systems, the ratio of share-based remuneration has increased. In addition, this revised officer compensation system has been applied to all corporate officers on a global basis in order to further strengthen the Group's management foundation.
Basic Policy on Compensation Systems (Revised in Fiscal 2021)
- The system should enhance awareness of contributing to medium- to long-term increases in earnings and corporate value.
- The system should be closely linked to the Company's performance and highly transparent and objective.
- The system should be primarily focused on sharing value with stakeholders and enhancing management's awareness of the interests of shareholders.
- The system should maintain sufficient compensation levels and content to act as incentives to secure high-quality management personnel.
Officer Compensation System
The compensation structure for internal directors (excluding the Chairperson and Senior Advisors) is as follows.
| Position | Fixed compensation | Variable compensation | Total | ||
|---|---|---|---|---|---|
| Basic compensation (cash) | Restricted stock (shares) | Performance-linked compensation (cash) | Performance share units (shares) | ||
| President & Representative Director, CEO | 45% | 10% | 20% | 25% | 100% |
| Other directors | 50% | 10% | 25% | 15% | 100% |
| Monetary compensation | Stock compensation | |
|---|---|---|
| Fixed compensation | Basic compensation A fixed amount is paid in the form of basic compensation to directors according to their position. |
Restricted stock A fixed number of restricted shares are provided to directors according to their position. |
| Variable compensation | Performance-linked compensation Performance-linked compensation is paid to directors in an amount based on individual performance assessments and the level of achievement of the three key management indicators in the medium-term management plan: consolidated ROE profitability indicator), consolidated EBITDA (growth indicator), and consolidated ROIC (indicator of profit efficiency relative to amount of capital invested). |
Performance share units (see chart below) Restricted shares are provided to directors on the basis of their level of achievement, etc., of total shareholder return (TSR), which reflects the perspectives of shareholders, and nonfinancial indicators ((1) changing portfolio, (2) diversity and inclusion), which take into account sustainable growth and environmental, social, and governance (ESG) factors, as evaluation indicators, in addition to key management indicators in the medium-term management plan. |
- Note:The Chairperson, Senior Advisors, outside directors, and statutory auditors are not eligible to receive performance-linked compensation, restricted stock (shares), and performance share units and are only paid basic compensation.
Performance Evaluation Indicators and Performance Evaluation Period for Performance Share Units (Portion applicable during the period of the current medium-term management plan)
| Performance evaluation indicators | Targets | Composition ratio of standard amounts of share-based compensation by position (annual amount) | Performance evaluation period | Timing of share allotment |
|---|---|---|---|---|
| Consolidated ROE | 10% or more | 40% | One year | Annually |
| Consolidated EBITDA | Fiscal 2022: ¥150 billion or more | 40% | Two years | The year after the final year of the medium-term management plan*1 |
| TSR | The Company's TSR >= Benchmark TSR | 10% | ||
| Non-financial indicators (1) Changing portfolio (2) Diversity and inclusion |
(1) Fiscal 2022: Strategic Focus EBITDA >= 15% (2) More than six female executives and six non-Japanese executives in fiscal 2022*2 |
10% |
- *1The number of shares to be allotted for the performance evaluation period is calculated at once by multiplying the number of years in the performance evaluation period during the process of calculating the number of shares to be allotted.
- *2The term "executives" includes corporate officers.
Officer Compensation Amounts (Fiscal 2021)
| Position | Total compensation amount (millions of yen) | Total compensation amount by type (millions of yen) | Number of officers receiving compensation | |||
|---|---|---|---|---|---|---|
| Basic compensation | Performance-linked compensation | Restricted stock | Performance share units | |||
| Directors (excluding outside directors) | 304 | 218 | 43 | 43 | - | 7 |
| Statutory auditors (excluding outside statutory auditors) | 74 | 74 | - | - | - | 2 |
| Outside directors | 71 | 71 | - | - | - | 4 |
| Outside statutory auditors | 39 | 39 | - | - | - | 3 |
- Note:Since the targets for the fiscal year under review were not achieved, the portion of performance share unit compensation for directors (excluding outside directors) corresponding with business execution was not granted.
Total Risk Management
In addition to enhancing shareholder value, the mission of the Teijin Group is to conduct sustainable business activities that deliver value to its shareholders and all of its other stakeholders. In light of this mission, the Group strives to comprehensively and effectively assess, evaluate, and manage the various risks that could threaten the realization of its mission. By doing so, the Group adopts an organizational and systematic approach to risk management that leverages its Groupwide management capabilities. Specifically, the Group has in place a Total Risk Management (TRM) system targeting both strategic risks--which relate to such factors as the formulation of management strategies and plans, the implementation of strategic actions, and the determination of individual investment projects--and operational risks, which involve various adverse events that can negatively affect the Group's operations, in order to address the various risks that impact the sustainable growth of the Group.
Established in fiscal 2003, the TRM Committee, chaired by the CEO, serves under the Board of Directors. The Board of Directors deliberates and decides the basic policy and annual plan related to TRM proposed by the TRM Committee. At the same time, the Board of Directors formulates systems for managing important risks and ensuring business continuity. Also, the statutory auditors conduct audits to check whether the Board of Directors is appropriately handling policy decisions, overseeing, and monitoring with regard to TRM. The CEO is in charge of assessing strategic risks and provides this assessment as valuable information to the decision-making process of the Board of Directors and other bodies. The Chief Social Responsibility Officer (CSRO) is in charge of overall Groupwide operational risks, including risks facing overseas Group companies, and works on a cross-organizational level to ascertain and confirm the status of risk management in each business group and at each Group company as well as to formulate consistent response policies. Through these efforts, the CSRO helps reinforce Groupwide risk management. In addition, the Group is working to clarify how risks and opportunities presented by trends in the macroeconomic environment relate to its materiality and follows up on such risks accordingly.