Corporate Governance

Basic Approach to Corporate Governance

The DIC Group identifies the purpose of corporate governance as being to ensure effective decision making pertaining to its management policy of achieving sustainable corporate growth and expansion through sound and efficient management, while at the same time guaranteeing the appropriate monitoring and assessment of and motivation for management’s execution of business activities. With the aim of achieving a higher level of trust on the part of shareholders, customers and other stakeholders and enhancing corporate value, the DIC Group also promotes ongoing measures to reinforce its management system and ensure effective monitoring thereof.

Policy on Corporate Governance

DIC has prepared a Policy on Corporate Governance, which it has published on its corporate website.

Corporate Governance Organization

A company with internal auditors, DIC maintains a Board of Directors and a Board of Corporate Auditors. DIC has also instituted an executive officer system and has established a Nomination Committee, a Remuneration Committee, an Executive Committee and a Sustainability Committee.

1.Board of Directors

To accelerate decision making and reinforce corporate governance, nine directors have been elected to the Board of Directors. Of the nine, three are outside directors. In principle, the Board meets once monthly. The Board of Directors is responsible for making decisions on matters stipulated in the Companies Act of Japan, and in DIC’s own regulations, as requiring Board-level approval, as well as for monitoring the execution of business activities, as reported by the executive officers.

2.Nomination Committee

The Nomination Committee was established as an internal committee of the Board of Directors with the aim of ensuring objectivity in the nomination of candidates for the position of director, corporate auditor or executive officer, and the dismissal of serving directors, corporate auditors and executive officers. The committee, which submits proposals to the Board of Directors, meets as necessary. At present, three of the committee’s five members are outside, while the position of committee chairman is currently filled by an outside director.

3.Remuneration Committee

The Remuneration Committee was established as an internal committee of the Board of Directors with the aim of enhancing the objectivity of procedures for determining executives’ remuneration. The committee, which has been entrusted with responsibility for determining the salaries and bonuses of directors and executive officers, meets as necessary. At present, three of the committee’s five members are outside, while the position of committee chairman is currently filled by an outside director.

4.Executive Committee

The Executive Committee deliberates and resolves issues related to the execution of business activities. In principle, the committee meets twice monthly. Committee members are directors and executive officers designated by the Board of Directors. Meetings are also attended by one corporate auditor as part of the auditing process. Details of deliberations and resolutions are reported to the Board of Directors.

5.Sustainability Committee

The Sustainability Committee, which functions as an advisory body, meets several times annually to formulate sustainability policies and activity plans, as well as to evaluate and promote initiatives. Committee members are directors and executive officers designated by the Board of Directors. As part of audit activities, one corporate auditor also attends Sustainability Committee meetings. The committee reports the matters upon which it deliberates and the results of its deliberations to the Board of Directors.

6.Board of Corporate Auditors

The Board of Corporate Auditors comprises four members, including two outside corporate auditors. In principle, the Board of Corporate Auditors meets once monthly. Board activities include debating and determining auditing policies and auditing plans. Board members also report on the results of audits conducted, as well as attend important meetings, including those of the Board of Directors, the Executive Committee and the Sustainability Committee, meet with representative directors on a periodic basis to exchange information and opinions, and collect business reports from directors, executive officers and employees. In addition, DIC has established an Office of Corporate Auditors, to which it assigns dedicated personnel to assist the corporate auditors in their duties.
DIC’s three outside directors have extensive experience in and knowledge of corporate management, which they are able to leverage in the performance of their duties as outside directors of DIC. Corporate auditor Yoshiyuki Mase is a qualified certified public tax accountant and has overseen corporate accounting at DIC for many years. Outside auditor Katsunori Takechi provides tax accounting services pursuant to Article 51 of the Certified Public Tax Accountant Act and has broad experience in the field of corporate law. Outside auditor Cindy Yoshiko Shirata is an academic expert in the field of accounting involved in research and education in financial accounting and corporate management.

7.Internal Auditing Department

The internal auditing department is charged with internal auditing, which includes monitoring the effectiveness of internal controls at DIC and domestic DIC Group companies. For DIC Group companies in Asia, Oceania, the PRC, the Americas and Europe, internal auditing is the responsibility of local internal auditing teams.

8.Accounting Auditors

DIC has engaged Deloitte Touche Tohmatsu LLC as its independent auditors. DIC strives to ensure an environment that facilitates the accurate disclosure of information and fair auditing. The corporate auditors, accounting auditors and Internal Auditing Department conduct audits from their respective independent positions, but also liaise periodically to facilitate close cooperation, thereby ensuring the effectiveness of auditing activities.

Rationale Behind Current Corporate Governance Organization

DIC has instituted an executive officer system, a move aimed at separating decision making and implementation and thereby accelerating business execution and clarifying responsibilities. As well as appointing three highly independent outside individuals to its Board of Directors, the Company has taken steps to reinforce its monitoring of business execution. DIC also has a Nomination Committee and a Remuneration Committee, which include the three outside directors, to ensure objectivity in the nomination of, and in determining remuneration for, directors and executive officers. The four-member Board of Corporate Auditors, which includes one attorney and one university professor as outside corporate auditors, liaises with the accounting auditors and the internal auditing department. This structure ensures the effective functioning of DIC’s corporate governance system.

System of Internal Controls

1.Status of the System of Internal Controls

The DIC Group maintains a keen awareness of four key objectives, which are to ensure the effectiveness and efficiency of its businesses, uphold the reliability of its financial reporting, comply with laws and regulations relevant to its business activities, and safeguard its assets. To this end, DIC has prepared and operates a system of internal controls, key components of which are summarized below, to ensure proper business activities, based upon the Companies Act of Japan and the Financial Instruments and Exchange Act of Japan. The Board of Directors hears annual reports on measures on the status of the system of internal controls, a summary of which is included in the Company’s report on its business activities.

  1. The Company shall work to set forth the DIC Group Code of Business Conduct as the standard regarding compliance, which directors and employees of the DIC Group shall comply with, and to disseminate the same.
  2. The Company shall establish an internal notification system as a channel available for the employees of the DIC Group and set up multiple notification channels independent from channels for communication used in the conduct of business. DIC shall prepare a structure that can quickly respond to domestic and international notifications.
  3. In order to ensure a system in which the duties of directors are performed properly and efficiently within the DIC Group, the Company shall establish regulations regarding company organization and authority.
  4. The Company shall formulate medium-term management plans and the annual budget based upon management policies and management strategies, and, through dissemination of the same, the DIC Group shares common goals. Reports shall be made to the Board of Directors outlining the status of the progress.
  5. Information pertaining to the performance of duties by directors shall be recorded, retained and managed appropriately based upon the regulations for document management. The Company shall establish regulations for systems of information management and shall prepare a system for preventing leakage of confidential information of the DIC Group.
  6. The Company shall formulate a risk management policy and shall identify, assess, prioritize and address properly any risks that may have a significant impact on management of the DIC Group.
  7. The Company shall determine an administrative department for each subsidiary from the standpoints of the conduct of business and business management, and shall supervise business affairs by dispatching a director to each subsidiary.
  8. The Company shall clarify important matters pertaining to subsidiaries that require approval of or reporting to the Company.

2.Basic Policy Toward Eliminating Demands by Antisocial Elements

DIC’s basic policy, as outlined in the DIC Group Code of Business Conduct, is to stand firmly against antisocial elements and in no way to acquiesce to demands presented by such elements. The General Affairs and HR Department is responsible for coordinating efforts to respond to extortion or other demand presented by antisocial elements, while individuals have been put in charge of efforts at each site and within each Group company. These individuals work in close collaboration with lawyers and the police to ensure the Company’s responses are resolute. DIC has also prepared and distributed a manual on appropriate responses to such demands, with the aim of raising awareness among employees.

Outside Directors and Outside Corporate Auditors

1.Number and Role of Outside Directors and Outside Corporate Auditors

DIC currently has three outside directors and two outside corporate auditors. In addition to attending meetings of the Board of Directors, the outside directors serve as members of the Nomination Committee and the Remuneration Committee, enabling them to provide supervision with an independent point of view, thereby helping to reinforce DIC’s corporate governance. The two outside auditors—one an attorney specializing in corporate law and the other an academic expert in the field of accounting whose specialties are financial accounting and corporate management—advise management of the DIC Group from an expert, multifaceted and independent perspective, thereby helping to reinforce the auditing function.

2.Standards Used to Evaluate the Independence of Outside Directors and Outside Corporate Auditors

DIC has established standards for evaluating the independence of individuals appointed to the position of outside director or outside corporate auditor. DIC’s outside directors and outside corporate auditors are individuals who, based on these standards, are unlikely to have conflicts of interests with ordinary shareholders and who comply with criteria for the independence of directors/auditors set by the Tokyo Stock Exchange.

Independence Standards for Outside Officers

DIC does not recognize individuals with the connections listed below as being independent in the appointment of outside officers.
1. Individuals who are executive officers of DIC or of one of its consolidated subsidiaries at present or have been in the preceding 10 years.
2. Individuals to whom any of the following items have applied in the preceding three years:

  1. A principal business partner of the DIC Group (a business partner with which transactions in a single fiscal year exceed 3% of the DIC Group’s consolidated net sales in that year) or an executive officer of a company to which this description applies
  2. An individual for which the DIC Group is a principal business partner (a company with which the DIC Group’s transactions in a single fiscal year exceed 3.0% of the company’s consolidated net sales in that year) or an executive officer of a company to which this description applies
  3. A shareholder who holds 5% or more of voting rights in DIC or an executive officer of a company to which this description applies
  4. A principal lender to the DIC Group (a lender from which loans in a single fiscal year exceeds 3% of the DIC Group’s total loans in that year) or an executive officer of a company to which this description applies
  5. An individual who has received contributions in a single fiscal year that exceeds ¥10 million or belongs to a group to which this description applies
  6. An accounting auditor, an accountant who has served as an accounting auditor for the DIC Group or an individual who is an employee, partner or associate of an audit firm to which this description applies
  7. An individual to whom 6 above does not apply but who has received remuneration from the DIC Group in excess of ¥10 million in a single fiscal year as a provider or professional services, such as consulting, accounting or legal services, or an individual who belongs to a group that has received remuneration in excess of 3% of its consolidated net sales in that year as compensation for professional services, such as consulting, accounting or legal services
  8. A corporate executive of another company in the event that an executive officer of DIC is appointed to an outside officer position at that company

3. A spouse or relative within two degrees of kinship of individuals listed in section 1 or 2 above
4. An individual whose term in office as an outside officer of DIC has exceeded eight years

3.Framework for Supporting the Efforts of Outside Directors and Outside Auditors

Prior to meetings of the Board of Directors, relevant materials are distributed to all directors, full-time auditors, outside directors and outside auditors. In addition, directors bringing matters before the Board provide explanations in advance to outside directors, while corporate auditors provide explanations as necessary to full-time auditors.

Other Initiatives to Enhance the Corporate Governance Organization

Composition of the Board of Directors

1.Composition of the Board of Directors

To enable the Board of Directors to resolve major operations-related issues, as well as to facilitate the effective oversight of management, the Board of Directors comprises outside directors, who maintain independence, and other individuals having a thorough knowledge of the businesses of the DIC Group, with consideration given to ensuring a balance among necessary knowledge, experience and capabilities. In light of DIC Group’s global operations, DIC also strives to ensure diversity in the Board’s composition.
With the aim or reinforcing its corporate governance organization, in March 2017 DIC increased the number of outside directors on its Board of Directors from two to three. One member of the Board of Directors is female, as is one member of the Board of Corporate Auditors.

Composition of the Board of Directors and the Board of Corporate Auditors

  In-house Outside Total Percentage of outside members
Directors 6 3 9 33.3%
Corporate auditors 2 2 4 50.0%
Total 8 5 13 38.5%

2.Remuneration for Executives

Remuneration for directors is determined by the Remuneration Committee, which takes into account market rates. In addition to executive compensation, which is a fixed monthly sum, remuneration for directors includes bonuses, which are linked to consolidated operating results and the degree of achievement of individual targets, and share-based compensation, which is linked to medium- to long-term operating results. Remuneration for corporate auditors is based on internal rules established by the Board of Corporate Auditors, with consideration given to ensuring a balance with remuneration for directors and corporate auditors, as well as to market rates for remuneration for auditors, and is determined through deliberations by the corporate auditors. In June 2017, DIC introduced a new Board Benefit Trust (BBT), a performance-based stock ownership plan for executives, thereby clarifying links between remuneration and degree of achievement of medium- to long-term operating results targets.

Remuneration for Directors and Corporate Auditors in Fiscal Year 2016

  Total remuneration
(Millions of yen)
Composition of remuneration
(Millions of yen)
Number of directors and corporate auditors
Basic salary Bonus Retirement bonus
Directors
(excluding outside directors)
230 165 64 - 6
Corporate auditors
(excluding outside auditors)
57 57 - - 2
Outside officers 48 48 - - 4
  • Note: One of the six directors retired from his position at the conclusion of the 118th Annual General Meeting of Shareholders, held on March 29, 2016.

3.Evaluation of the Board of Directors’ Effectiveness

DIC conducts an analysis and evaluation of the effectiveness of the Board of Directors annually via a self-evaluation conducted by the directors and corporate auditors. In fiscal year 2016, the Company conducted a survey of all directors and corporate auditors regarding the activities of the Board of Directors and the Board of Corporate Auditors, responses to which were analyzed and evaluated by the Board of Directors. As a result, the effectiveness of the Board of Directors was confirmed.
DIC will continue to review and modify the evaluation standards used in evaluating the Board of Directors’ effectiveness. DIC recognizes modifying standards related to the Board of Directors and enhancing communications between the Board and executive officers, among others, as key challenges and will continue working to promote improvements.

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