Corporate Governance

Directors and the Board of Directors

The term of office of Directors is one year. With the objective of strengthening the management supervisory functions, three out of eight Company’s Directors are independent Outside Directors; moreover, the Chairperson of the Board is appointed from among Directors who are not involved in the execution of business. The Board of Directors holds a meeting, in principle, once a month. It makes decisions on important matters, such as management policy, and supervises the status of business execution by Directors and Executive Officers. In FY2023, 15 meetings of the Board of Directors were held.

Auditors and the Board of Auditors

Of four Auditors, three are Outside Auditors. Auditors not only attend Board of Directors’ meetings, Management Council meetings, and other important meetings, but also inspect important approval documents. They thus audit the status of Directors’ business execution, capitalizing on the knowledge of inside members who are well versed in the wide range of businesses of the Company, as well as the expertise of outside members with experience relating to financial and accounting affairs or with business management experience. In addition, as an organization under the direct control of the Board of Auditors, the Company has established the Auditors Staff Division. The Division staff who assist the Auditors in their duties are independent of the Directors. By establishing this structure, we strive to secure the effectiveness of audits.

Management Council

The Management Council meets once a month, in principle, to make decisions on important matters regarding business execution by Executive Officers, based on the management policy, etc., determined at meetings of the Board of Directors.

Composition of each committee

Note: ◎ Chairperson, 〇 Committee members

The Company selects candidates for its Board of Directors by comprehensively considering each member’s personality and other aptitudes, in order to form a Board of Directors with a good overall balance of knowledge, experience, and ability to effectively perform its roles and responsibilities. It should also ensure it maintains an appropriate size and diversity, including in terms of gender, internationality, professional experience, and age. To enhance our corporate value in the medium to long term in keeping with the basic philosophy described below, the Nomination and Compensation Committee held discussions on the skill items required for the Company’s Board of Directors, and decided on the following eight items: corporate management; compliance and risk management; understanding of diversity and sustainability; international business; R&D, production, and new business development; sales and marketing; human resource development and training; and finance and accounting. These skill items will be reviewed and revised, if necessary, in the light of the business environment and social circumstances.

As of the end of June 30, 2024, the current Board of Directors consists of eight directors with knowledge in line with these skill items (including three independent Outside Directors, two of whom are female) and four Auditors (two of whom is an independent Outside Auditors). Independent Outside Directors include members who have management experience at other companies.

How to address board diversity

In 2022, The Company identified its material issues. To address one of these issues, “Challenge-oriented and transparent management,” it has set out the following indicators for board diversity.

Process for determining the compensation level and system

The compensation level and system are based on business performance trends and external objective data, and their appropriateness is verified by the Nomination and Compensation Committee, the majority of whose members are outside directors. The basic policy for determining compensation for directors is deliberated and determined by the Board of Directors.

Overview of types of compensation, etc.

The compensation for Directors consists of basic compensation, bonuses, and stock-based compensation.

Although the ratio of basic compensation, bonuses, and stock-based compensation to the total compensation for each director has not been determined, the compensation level and system are regularly verified by the Nomination and Compensation Committee, the majority of whose members are outside directors, so that they can function as incentives to improve business performance.

Board of Directors

• Formulation and revision of the Medium-Term Management Plan and the Comprehensive Plan
• Policy on operating major businesses
• Matters regarding investment, financing
• Confirmation of the results of the effectiveness evaluation of the Board of Directors
• Matters on which to seek advice from the Nomination and Compensation Committee
• Approval of closed financial statements
• Matters regarding procedures for the general meeting of shareholders
• Resolutions on conflict-of-interest transactions, directors’ liability insurance, etc., appointment and dismissal of important employees, and matters related to compensation for directors based on the Companies Act

Nomination and Compensation Committee

• Evaluation indicators reflected in officer compensation
• Verification of a development plan for the next Representative Director, President and CEO candidate
• Management responsibility for extraordinary loss recorded following the withdrawal from the superabsorbent polymer business
• Terms of office of consultants, advisors, and special commissioned employees

Sustainable Management Committee

• Basic Policy on Sustainability
• Response to TCFD Recommendations
• Human Capital Management Activities
• Realization of management that takes into account capital costs and stock prices
• CSR Promotion Management Committee activities
• Sustainable Distribution

Compliance Committee

• Implementation plan and status of corporate ethics study meetings
• Results of the use of whistleblowing contact points for consultation or reporting
• Revision of the Compliance Committee Regulations
• Risk management activities

Internal Control Committee

• Results of the evaluation of internal control activities related to financial reports
• Regarding proposals for disclosing the operational status of the Internal Control System in the Business Report
• Results of the evaluation of the operational status of the Internal Control System regarding significant risks other than those included in financial reports

The Company evaluates the effectiveness of the Board of Directors once a year. In FY2023, it conducted an anonymous questionnaire survey of all directors, including outside directors, and all auditors, and evaluated the effectiveness of the Board of Directors based on the results.

FY2023 questionnaire survey on the Board of Directors

Target: All directors including outside directors (nine people) and all auditors (four people)

Timing: March 2024

Method: Conducted anonymously using a third-party system to ensure objectivity

Content: Answer each question in the following major categories on a 5-point scale or in free text

1. Composition and operation of the Board of Directors
2. Discussions at Board of Directors meetings
3. Monitoring function of the Board of Directors
4. Performance of Directors
5. Support system and training for Directors and Auditors
6. Dialogue with shareholders
7. Efforts made by each Director
8. Operation of the Nomination and Compensation Committee

The results were reported to the Board of Directors’ meeting held in May 2024, and were discussed and analyzed based on the results of a 5-point evaluation and free comments to evaluate the effectiveness of the Board of Directors.

Overview of effectiveness evaluation

The previous year’s evaluation results indicated that there was room for improvement to further enhance the effectiveness of the Board of Directors in the areas of “individual matters related to the operation and discussion of the Board of Directors” and “enhancing support from the Secretariat.” In this survey, there were no responses that gave the low rating of “no improvement,” and almost all respondents rated things as “generally improved.” Based on this, the Board of Directors was evaluated as having made some improvements. Through the survey, it was also evaluated that the effectiveness of the Board of Directors was generally ensured.

Future issues

To further enhance the effectiveness of the Board of Directors, it is necessary for the Chairman to encourage each director to be more active in expressing their views, and for inside directors to engage in more open discussion with awareness that they oversee management. It is also required to review feedback from investors and the appropriateness of holding cross-shareholdings, and to further advance efforts to realize “management that takes into account capital costs and stock prices.” Also recognizing the need to further improve the support system provided by the Secretariat, such as by providing a space for exchange of views among outside directors alone and improving training for directors, we will tackle these issues sincerely.