Corporate Governance Initiatives
Sumitomo Chemical has long dedicated itself to improving its corporate governance, and has undertaken a number of initiatives to further that end, including implementing the Corporate Governance Code. The company also makes continual improvements to ensure that the Board of Directors is highly effective, and that the company’s governance structures serve their appropriate functions, including with respect to executive nomination and remuneration, with the aim of further improving corporate governance.
Sumitomo Chemical cherishes deeply the Sumitomo Spirit which has been passed down through generations over nearly 400 years, the basic teaching of which is, among others, not to seek its own interests alone, but to contribute to society through its business activities. In accord with this business credo, the company strives to take on challenges constantly of creating new value by capitalizing on its proprietary technologies toward achieving the company’s sustained growth while at the same time cultivating corporate culture full of vigor and growing as a company that earns trust from the public at large. Recognizing that highly effective corporate governance is vital to attaining these ends, the company keeps working to further enhance its corporate governance in accordance with the following policies and principles, centering particularly on closer cooperation with shareholders and various other stakeholders, faster decision-making, proper oversight of business execution, enhanced systems of compliance and internal control, and active dialogue with stakeholders.
- Sumitomo Chemical not only shall respect the rights of shareholders, but shall endeavor to provide an environment where shareholders can exercise their rights smoothly and also to ensure the effectively equal treatment of shareholders.
- Recognizing that cooperation with various stakeholders, including employees, customers, business partners, creditors, and local communities, is essential to sustained growth, Sumitomo Chemical shall proactively work to fulfill its corporate social responsibility and strive to cultivate corporate culture of a company that can be trusted by society.
- As part of efforts to build a foundation for constructive dialogue with stakeholders, Sumitomo Chemical shall endeavor to provide information that is highly reliable and useful to recipients.
- Sumitomo Chemical’s Board of Directors shall fulfill its role and mission properly, based on their fiduciary responsibilities and accountability to shareholders and recognizing the important role of Independent Outside Directors & Auditors, through such measures as presenting appropriate corporate management policies and business strategies that have taken into account changing socioeconomic conditions, and conducting highly effective oversight over the execution of business.
- Sumitomo Chemical shall endeavor to promote constructive dialogue with shareholders with the aim of seeking to attain the company’s sustained growth and to enhance corporate value in the medium to long term.
Measures to Date for Strengthening Corporate Governance
|Date||Major Initiatives||Board Composition||Appointment of Board Members||Executive Remuneration||Other|
|2003||June||Introduced Executive Officer system (reduced number of Directors from 25 to 10)||●||●|
|July||Established Compliance Committee||●|
|2004||June||Eliminated system of retirement benefits for Directors and Corporate Auditors||●|
|2007||May||Established Internal Control Committee||●|
|September||Established Remuneration Advisory Group||●|
|2010||September||Established Nomination Advisory Group||●|
|2011||November||Drew up standards for appointment of independent outside directors||●||●|
|2012||June||Appointed 1 outside director||●|
|2015||June||Selected 3 outside directors (increased by 2)||●|
|October||Established Remuneration Advisory Committee in place of Remuneration Advisory Group||●|
|Established Nomination Advisory Committee in place of Director Nomination Advisory Group||●|
|2016||December||Formulated Sumitomo Chemical Corporate Governance Guidelines||●|
|2018||June||Selected 4 outside directors (including one woman) (increased by 1)||●|
Recent Initiatives to Strengthen Corporate Governance
Further Strengthening of the Board of Directors’ Oversight and Advisory Functions
With the goal of further strengthening the Board of Directors’ oversight and advisory functions to increase the transparency and objectivity of management, in June 2018 we added one outside director, increasing the total number to four (including one female director). As a result, of the 18 total members of the Board of Directors and the Board of Corporate Auditors, seven are outside members. Outside Directors have experience in a wide range of fields, including corporate management, economics, government, the legal profession, and accounting. We will continue to further revitalize the Board of Directors, leveraging these perspectives.
Board Composition (As of July 1, 2020)
(including one female director)
Changes in the Operation of the Board of Directors
After the implementation of Japan’s Corporate Governance Code, we changed the operation of the Board of Directors to place greater emphasis on deliberating management policies, business strategy, and important matters of business execution, and on oversight of that execution. Specifically, we are enhancing reporting on the status of business execution for each Executive Officer. Depending on the content of each report, we have established several reporting methods. For example, for large-scale projects, we share details with the Board of Directors at an early stage and discuss the direction of the projects. In this way, meaningful discussions are held that contribute to sustainable development and rapid and decisive decision-making.
Utilizing Outside Director Roles
To make maximum use of the oversight and advisory functions of the Outside Directors, it is essential to minimize asymmetries in information between inside and Outside Directors. The measures including those listed below have been implemented to revitalize board deliberation.
Measures to Make Maximum Use of Outside Director Functions
Briefings prior to Board of Directors meetings
Outside Directors gather together in advance of Board of Directors meetings to receive a detailed briefing from the relevant departments, along with a Q&A session, on issues to be discussed at the Board of Directors meeting.
|Reporting on issues discussed in internal meetings||Every month||Explanations are provided on the points of discussion at internal meetings, and on how the views expressed at the meetings are reflected in the proposal before the Board, for issues such as the launch of a business or an acquisition.|
|Reporting on important matters to the Board of Directors at an early stage||In each case||
Important matters, such as management direction, M&A transactions, or large-scale projects, are reported to the Board of Directors at an early stage of consideration so that the Board’s intentions can be reflected.
|Outside Directors & Corporate Auditors meetings||Once a year||
Based on such materials as the results of surveys on the effectiveness of the Board of Directors, meetings consisting of the Chairman of the Board, the President and the Outside Directors and Corporate Auditors are held to enable a frank exchange of views.
|Meetings with Outside Directors and Corporate Auditors only
||Twice a year||After Board of Directors meetings, meetings consisting of only Outside Directors and Corporate Auditors are held to exchange opinions freely.|
Meetings between Outside Directors and Corporate Auditors and major sectors
|Six times a year||After Board of Directors meetings, meetings are held between the executives and employees of the department in charge of the Rotation Report* for that Board of Directors meeting and the Outside Directors and Corporate Auditors, enabling them to exchange opinions freely and honestly.|
|Visits to production sites||Twice a year||Visits are made to our production sites both inside and outside Japan.|
- Rotation Report: Comprehensive and systematic reporting over a significant amount of time for each sector.
Assessing the Effectiveness of the Board of Directors
Sumitomo Chemical’s Board of Directors carries out analyses and appraisals regarding the effectiveness of the Board of Directors through exchanges of opinions at meetings attended by Outside Directors, Outside Corporate Auditors, the Chairman of the Board, and the President, as well as at Management Meetings attended by inside directors, while taking into account survey results from all Directors and Corporate Auditors and opinions expressed by the Board of Corporate Auditors. Based on these opinions, the Board of Directors works to improve its effectiveness every year.
Assessment of Fiscal 2019 and Improvements over Fiscal 2018
The effectiveness of the Board of Directors is assessed in terms of its composition, operational status, deliberation/reports at its meetings, auditing status on its business execution, and the operations of the non-mandatory Nomination Advisory Committee and Remuneration Advisory Committee. At the end of fiscal 2019, we confirmed steady yearly improvement in its effectiveness, which was at a favorable level in general. With new perspectives always in mind, we continue various initiatives and work to devise ways to improve its effectiveness.
Addressing Various Points to be Improved that were Raised in Fiscal 2018
- Setting up a timeframe for meetings, giving more ample time for the Board of Directors. Giving greater clarification of the main issues during briefings, and promoting more active discussion at the Board of Directors.
- To enable Outside Directors and Outside Corporate Auditors to play their roles and responsibilities properly, we plan a meeting only for independent outside directors and auditors, and provide a venue where Outside Directors and Outside Corporate Auditors can exchange views frankly with a broad range of personnel in the company.
PDCA Cycle for Further Improving the Effectiveness of the Board of Directors
Toward the Future
With the aim of achieving long-term sustainable growth, Sumitomo Chemical will discuss its long-term vision in depth, taking into account the next Corporate Business Plan, in addition to the promotion of sustainability. To further enhance group governance, we will strengthen our supervision of the post-merger integration (PMI) process for newly acquired businesses, examine ways to further increase synergies among businesses, and review business portfolios. In an effort to encourage more deliberation at meetings of the Board of Directors, we will also create greater linkages between pre-briefing sessions and meetings of the Board of Directors, set up a venue for more free discussion, and make more thorough Rotation Reports.
Visit to Production Sites by Outside Directors and Corporate Auditors
To gain a better understanding of the current situation, every year Outside Directors and Outside Corporate Auditors at Sumitomo Chemical visit production sites located in and outside of Japan. In November 2019, they visited the Misawa Works. Outside Directors and Outside Corporate Auditors considered the visit to be very significant, as it deepened their understanding of the business of the company.
Note: Visit to a group company in Taiwan scheduled in February 2020 was postponed due to the Covid-19 pandemic.
Record of Recent Visits
|November 2017||Oita Works|
|March 2018||A group company in South Korea|
|September 2018||Ehime Works|
|February 2019||A group company in Saudi Arabia|
|November 2019||Misawa Works|
Visit to Misawa Works (in November 2019)
Major Agendas Discussed at Meetings of the Board of Directors in Fiscal 2019
- Financial results, dividends, financing
- Management strategy, sustainability, assessment of the effectiveness of the Board of Directors
- R&D, digital innovation, IT promotion
- Internal controls, responsible care, risk management, compliance
- Nomination, remuneration, important personnel changes, recruitment and training of human resources
- Auditors, accounting auditors
- Important investments
- Acquisition of the South American business of Nufarm
- Strategic alliance with Roivant
- Projects relating to Petro Rabigh etc.
Current Corporate Governance Organization
Corporate Governance Organization
①Board of Directors
The Sumitomo Chemical Board of Directors decides important matters concerning the company’s management, including management policy and business strategies, in accordance with the law, the Articles of Incorporation, and the Board of Directors’ own rules. It also receives reports from Directors and others on the performance of duties, the financial situation, and operating results, and oversees the performance of duties by each Director.
It also analyzes and assesses the effectiveness of the Board of Directors, and follows up on the results to ensure and improve effectiveness. In accordance with the Nomination Advisory Committee’s advice, candidates for Director are nominated by the Board of Directors and are elected once a year at the General Meeting of Shareholders.
Overview of the Board of Directors
|Chairperson||Chairman of the Board||The Chairman of the Board does not concurrently serve as Executive Officer.|
|Number of Persons||13|
|Frequency||Monthly in principle||Special meetings of the Board of Directors are convened as needed.|
|The Term of Office of Directors||One year||The term of office of Directors is one year, in order to establish clear administrative responsibility and roles for Directors.|
Breakdown of 13 Directors
②Board of Corporate Auditors
We have a Corporate Auditor system, with a Board of Corporate Auditors consisting of five Corporate Auditors, including three Outside Corporate Auditors. The Corporate Auditors and the Board of Corporate Auditors play a vital role in our corporate governance by auditing the performance of duties by Directors in accordance with the law and the Articles of Incorporation. The Board of Corporate Auditors meets monthly as a rule and strives to obtain timely information, including important compliance-related information.
Standing Corporate Auditors and Outside Auditors attend meetings of the Board of Directors and the Board of Corporate Auditors. In conducting their audits, they receive reports and explanations as needed from the Internal Control & Audit Department, operating divisions, and accounting auditors. In addition, Standing Corporate Auditors attend meetings of the Internal Control Committee and other important company meetings.
The results of audits and the objective views of Outside Auditors are appropriately reflected in internal audits, corporate auditors’ audits, and accounting audits, so as to raise the effectiveness and efficiency of auditing.
The Corporate Auditors’ Office has been established with staff dedicated to providing assistance in auditing functions under the direction of Corporate Auditors.
Breakdown of 5 Corporate Auditors
Management Organizations for Decision-making, Execution, and Auditing
We have appointed Executive Officers to expedite the implementation of business operations. Executive Officers are responsible for carrying out operations in accordance with the policies adopted by the Board of Directors. The term of office for Executive Officers is one year.
Breakdown of 37 Directors
Management Meetings support the decision-making of our management by providing a forum for deliberation on such vital matters as corporate strategy and capital investment, including matters to be deliberated in the Board of Directors and reports to be made to the Board. Management Meetings consist of the Executive Officers who are in charge of or who supervise key management functions, the Standing Corporate Auditors, and the Chairman of the Board. In principle, the meetings are held 24 times a year.
We have established internal meetings (committees) to deliberate on important matters concerning the management of the company and the Group from a broad and diverse range of viewpoints. The content of these meetings is reported to the Board of Directors as needed, and the committees receive instructions from the Board of Directors in an effort to enhance business execution and oversight functions. Several of these committees are attended by the Standing Corporate Auditors, who serve as observers, including the Internal Control Committee, the Compliance Committee, and the Responsible Care Committee.
We regard the promotion of sustainability as a core issue for the entire Group. In 2018, we expanded the CSR Promotion Committee and established a new Sustainability Promotion Committee to further strengthen our sustainability initiatives. The Responsible Care Committee also examines specific measures to address climate change and other environmental issues. To further promote initiatives in respect of human rights, the Human Rights Promotion Committee was established in fiscal 2019.
Overview of Committees and Number of Meetings in Fiscal 2019
|Name||Purpose||Number of Meetings|
|Internal Control Committee||Deliberates on measures to build and improve a proper internal control system||3|
Sustainability Promotion Committee
This committee recommends measures to accelerate contributions to sustainability by comprehensively grasping the various efforts the Sumitomo Chemical Group makes regarding environmental and societal issues.
Responsible Care Committee
This committee formulates annual policies, medium-term plans, and specific measures concerning responsible care (safety, health, environment, and quality), including climate change issues.
Risk and Crisis
Deliberates on policies for specific risks and crises, such as earthquakes, wind and flood damage caused by extreme weather, pandemics, and breakdowns in public security.
Deliberates on the Group’s compliance policies and action plans, and the status of the operation of the compliance system, including responses to internal reports and the results of activities.
Human Rights Promotion Committee
This committee promotes increasing awareness of human rights issues, and drafts and executes policies to respect human rights in the entire value chain.
Note: Each committee separately held subcommittee meetings on specific important topics and secretariat meetings.
- The number of meetings increased as we deliberated on preventive measures for the Covid-19 pandemic.
Executive Nomination and Remuneration
⑥Nomination Advisory Committee
The Nomination Advisory Committee was established in October 2015 to act as an advisory body to the Board of Directors on the selection of senior management* and on the appointment of directors and auditors. The committee is made up of Outside Directors and Sumitomo Chemical representative directors. Regular meetings are held annually and ad hoc meetings are convened as needed. With a majority of members being Outside Directors, the committee advises the Board of Directors on the appointment of officers, with the purpose of ensuring more transparency, fairness, and openness in the process of appointing officers and bringing greater clarity to the process.
- Senior management means Executive Officers above Senior Managing Executive Officer, and Managing Executive Officers who are immediately under the President, supervising certain functions.
⑦Remuneration Advisory Committee
The Remuneration Advisory Committee was established in October 2015, as an advisory body to the Board of Directors on the remuneration system, remuneration levels, and other related matters, for top management and Directors. The committee is made up of Outside Directors and Sumitomo Chemical representative directors. It holds regular meetings annually and convenes ad hoc meetings as needed. With a majority of members being Outside Directors, the committee advises the Board of Directors in deciding the executive officer remuneration system and levels, in order to achieve greater transparency, fairness, and openness.
Directors’ and Corporate Auditors’ Remuneration in Fiscal 2019
(Millions of yen)
Breakdown of Remuneration
(Millions of yen)
Number of people*
|Directors (excluding Outside Directors)||650||585||64||12|
|Standing Corporate Auditors||78||78||ー||3|
|Outside Directors and Corporate Auditors||103||97||6||7|
- The above count includes three directors and one auditor who retired during fiscal 2019.
Composition of the Nomination Advisory Committee and the Remuneration Advisory Committee and Attendance Status (Meetings Attended / Meetings Held) in Fiscal 2019
|Chairman of the Board||
Representative Director & President
|Outside Director||Koichi Ikeda||
|Outside Director||Hiroshi Tomono||
|Outside Director||Motoshige Itoh||
|Outside Director||Atsuko Muraki||
Activities of the Advisory Committees in Fiscal 2019
Nomination Advisory Committee
Remuneration Advisory Committee
Policies and Procedures for Reshuffling Senior Management and Nominating Candidates for Directors and Auditors
- Performance, knowledge, experience, personality, and the insight of a candidate are comprehensively considered from the standpoint of having “the right person in the right place,” as well as ensuring a proper and prompt decision-making process, so as to select a person suitable for the respective duties.
- According to the criteria set forth by the Company, the person who has reached a certain age set for retirement will resign, in principle, upon completion of his or her tenure.
- For the nomination of candidates for outside directors and outside auditors, if a candidate also serves as an executive officer of other listed companies, the number of these companies must be less than five, including our Company. This rule is to ensure that the candidate can properly fulfill his/her responsibility as our Director or Corporate Auditor.
- Representative Directors select candidates suitable for senior management, the Board of Directors, or the Corporate Auditors in line with the policies described above.
- The results of the nomination will be deliberated at the Nomination Advisory Committee, comprised of Outside Directors and Corporate Auditors, which is set up under the Board of Directors, and recommended to the Board of Directors. The Board of Directors will deliberate based on the advice and make a decision. Appointment of a Director or Corporate Auditor will be made by a resolution at the General Meeting of Shareholders.
Appointment/Dismissal policy and procedures
- The Board of Directors will deliberate and decide on its response if senior management commits a wrongful, inappropriate, or treasonous act, or if there is a cause that is deemed unsuitable to be committed by a member of senior management.
Policies and Procedures for Determining Remuneration of Senior Management and Directors*
1. Basic Policy for Remuneration of Directors, etc.
- The remuneration of senior management and directors (hereinafter “Directors etc.”) shall consist of basic compensation and bonuses.
- Basic compensation is designed to serve as an incentive for the actions of Directors, etc. to contribute to the company’s sustainable growth, rather than aiming for short-term or sub-optimal effects.
- The scale of bonuses shall largely reflect the company’s consolidated financial results for a fiscal year in order to heighten incentives to achieve the annual targets of business plans.
- Remuneration shall be set at levels which are designed to be objectively competitive to attract and retain outstanding talent while taking into consideration such factors as the scale and content of the company’s business. Based on surveys by a third-party organization and other materials, such levels shall be checked annually for objective appropriateness.
2. Mechanisms of Each Remuneration Element
- Basic Compensation
The level of basic compensation shall be determined based on the policy described in section 1(4) above.
While basic compensation for each year shall be fixed, the company will adopt a mechanism whereby basic compensation levels would be changed in the event that the company’s position has changed, in terms of the company’s size, earnings capacity, and outside evaluations, from a comprehensive and medium- to long-term perspective.
As main indicators for determining whether there has been a change in the company position, the company will apply the following: 1 in terms of the company’s size, sales revenue, total assets and market capitalization, 2 in terms of earnings capacity, net income (attributable to the parent company), ROE, ROI and D/E ratio, and 3 in terms of outside evaluations, credit ratings and the ESG index selected by the GPIF (Government Pension Investment Fund).
The amounts to be paid to each person will be determined in accordance with the base amount set for each position.
Bonuses shall be paid on the condition that performance for that fiscal year exceeds a particular level and shall be determined based on the bonus calculation formula (performance indicator x coefficient).
In order to reflect the current earnings capacity of the relevant business year (including financial activities) in the value of bonuses, the company will use the combined value of consolidated core operating profit and financial profit and loss as the performance indicator in the bonus calculation formula. In addition, the company will set the coefficient of the calculation formula so that it will get larger as the position of a person gets higher.
- Percentages of Fixed Remuneration (Basic Compensation) and Performance-linked Remuneration (Bonuses)
The company will set the bonus calculation formula such that the bonuses of Directors (excluding Outside Directors) accounts for roughly 30% of total remuneration when the consolidated performance goal (core operating profit) for the latest fiscal year of the Corporate Business Plan (FY2019 - FY2021) is achieved.
Conceptual Diagram of the Remuneration of Directors
3. Procedures for Determining Remuneration of Directors, etc.
The remuneration amount of Directors shall be set at a level not higher than the upper limit for total remuneration prescribed by the resolution of the 125th General Meeting of Shareholders, held on June 23, 2006 (i.e. 1 billion yen or less per year).
Furthermore, the specific amount of remuneration for each Director or other officer shall be determined by the Chairman of the Board, as authorized by the Board of Directors, based on the standard advised by the Remuneration Advisory Committee.
- Remunerations of Executive Officers are determined in the same manner.