Corporate Governance

Corporate Governance Initiatives

Sumitomo Chemical has been committed to continual efforts to improve corporate governance. In response to demands for further raising the governance level, including application of the Corporate Governance Code, we are taking measures to achieve the optimal governing structure and decision-making processes, while remaining faithful to the intent and spirit of the Code.

Basic Stance

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

DateMajor 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, 2019)

 InsideOutside
Director 9 4
(including one female director)
Corporate Auditor 2 3

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

Specific MeasuresFrequencyDescription

Briefings prior to Board of Directors meetings

Every  month

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*1 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*1

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*2 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.
  1. Beginning in FY2019
  2. Rotation Report: Comprehensive and systematic reporting over a significant amount of time for each sector.

Assessing the Effectiveness of the Board of Directors

Assessment Method

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 for Fiscal 2018 and Improvements over the Previous Fiscal Year

The effectiveness of the Board of Directors is assessed from a variety of perspectives, including its composition, its operation, the deliberations and reporting at the Board of Directors meetings, its oversight of business execution, and the operations of the non-mandatory Nomination Advisory Committee and Remuneration Advisory Committee. At the end of fiscal 2018, we confirmed that improvements were steadily being made each year, and that the level was generally favorable. We also confirmed that we will continue various initiatives aimed at increasing corporate value going forward.

Initiatives Addressing Areas for Improvement from the Previous Fiscal Year

  • Strengthening supervision through reporting and discussions on important matters relating to Group companies
  • Holding discussions on long-term strategies throughout the drafting of the new Corporate Business Plan
  • Further sharing of internal discussions with Outside Directors and Corporate Auditors

Toward the Future

We will again discuss the roles of inside and Outside Directors and Corporate Auditors and take the following measures. In order to further revitalize the activity of the Board of Directors, we will allot more time for Board of Directors meetings to allow more room for discussion, provide detailed explanations of the background of internal discussions on deliberations and other matters, and further clarify the points of discussion in the explanations. In order for Outside Directors and Corporate Auditors to properly fulfill their roles and duties, we will also provide meetings consisting solely of independent Outside Directors and Corporate Auditors and forums where they can frankly exchange their opinions with a wide range of employees.

PDCA Cycle for Further Improving the Effectiveness of the Board of Directors

Visit to Production Sites by Outside Directors and Corporate Auditors

In order for Outside Directors and Corporate Auditors to improve their understanding of our business, Sumitomo Chemical provides them with opportunities to visit our production sites both inside and outside Japan each year. In fiscal 2018, they visited the Ehime Works and a Group company in Saudi Arabia. They have expressed the opinion that this initiative is extremely valuable, enabling them to get a deeper understanding of our business.

Current Corporate Governance Organization

Corporate Governance Organization (As of July 1, 2019)

  •  Corporate Governance Organization

Organizational Structure

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, financial situation, and operating results, and oversees the performance of duties by each Director.
To ensure the effectiveness of the Board of Directors, assessments and analyses are conducted annually and the results are followed up on in subsequent meetings. 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

③Executive Officers

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 36 Directors

 MaleFemaleTotal
Japanese 32 1 33
Non-Japanese 3 0 3
Total 35 1 36

④Management Meetings

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 Auditor, and the Chairman of the Board. In principle, the meetings are held 24 times a year.

⑤Committees

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 Auditor, who serves as an observer, 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.

NamePurposeNumber of Meetings in Fiscal 2018
Internal Control Committee Deliberates on measures to build and improve a proper internal control system 3

Sustainability Promotion Committee

Comprehensively reviews the Group’s sustainability promotion activities and examines the Group’s contributions to sustainability at a high level, with the aim of accelerating the Group’s efforts to solve societal issues, such as the SDGs.

2

Responsible Care Committee

Deliberates on annual policies, Corporate Business Plans, and specific measures, and analyzes and evaluates the results of measures to address climate change and other environmental issues.

1

Risk Crisis Management Committee

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.

1*

Compliance Committee

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.

1

* Subcommittee meetings on specific key themes

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 top 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.

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 2018

(Millions of yen)

Title

Total

Breakdown of Remuneration

Number of people

Basic RemunerationBonuses
Directors (excluding Outside Directors) 728 553 175 10
Standing Corporate Auditors 78 78 2
Outside Directors and Corporate Auditors 108 93 14 9

Composition of the Nomination Advisory Committee and the Remuneration Advisory Committee and Attendance Status (Meetings Attended / Meetings Held)

 

Nomination
Advisory
Committee

Remuneration
Advisory
Committee

Chairman of the Board

Osamu Ishitobi
(Chairman)

5/5 times
(100%)

2/2 times
(100%)

Representative Director & President

Masakazu Tokura

5/5 times
(100%)

2/2 times
(100%)

Outside Director Koichi Ikeda

5/5 times
(100%)

2/2 times
(100%)

Outside Director Hiroshi Tomono

5/5 times
(100%)

2/2 times
(100%)

Outside Director Motoshige Itoh

5/5 times
(100%)

2/2 times
(100%)

Outside Director Atsuko Muraki

5/5 times
(100%)

2/2 times
(100%)

 

The Committee Members of the Nomination Advisory Committee and the Remuneration Advisory Committee in Fiscal 2019

Chairman of the Board

Masakazu Tokura
(Chairman)

Representative Director & President

Keiichi Iwata
Outside Director Koichi Ikeda
Outside Director Hiroshi Tomono
Outside Director

Motoshige Itoh

Outside Director

Atsuko Muraki

Major Activities in the Nomination Advisory Committee and the Remuneration Advisory Committee in Fiscal 2018

Nomination Advisory Committee

  • Discussions on candidates to be the next President
  • Discussions on officers for fiscal 2019
  • Discussions on the Counselor system

Remuneration Advisory Committee

  • Discussions on revising the policy for determining the remuneration of executive officers
  • Discussions on how basic remuneration should change
  • Discussions on basic remuneration for fiscal 2018
  • Discussions on the calculation method for the bonuses of officers upon adoption of IFRS
  • Discussions on the payment of bonuses to officers for fiscal 2018

Policies and Procedures for Determining Remuneration of Senior Management and Directors

1. Basic Policy for Remuneration of Directors, etc.

  1. The remuneration of senior management and directors (hereinafter “Directors etc.”) shall consist of basic compensation and bonuses.
  2. 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.
  3. 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.
  4. 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

  1. 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.
  2. Bonuses
    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.
  3. 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 (fiscal years 2019 to 2021) 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.