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 an Audit & Supervisory Board. DIC has also instituted an executive officer system and has established a Nomination Committee, a Remuneration Committee, an Executive Committee and a Sustainability Committee.
Board of Directors
To accelerate decision making and reinforce corporate governance, eight directors have been elected to the Board of Directors. Of the eight, three are outside directors (one of whom is female). 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.
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, Audit & Supervisory Board member or executive officer, and the dismissal of serving directors, Audit & Supervisory Board members 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 independent outside directors, while the position of committee chairman is filled by an independent outside director.
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 directors, while the position of committee chairman is also filled by an independent outside director.
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 Audit & Supervisory Board member as part of the auditing process. Details of deliberations and resolutions are reported to the Board of Directors.
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 Audit & Supervisory Board member 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.
Audit & Supervisory Board
The Audit & Supervisory Board comprises four members, including two outside Audit & Supervisory Board members (one of whom is female). In principle, the Audit & Supervisory Board 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 Audit & Supervisory Board Members’ Office to which it assigns dedicated personnel to assist the members in their duties.
Full-time Audit & Supervisory Board member Hiroyuki Ninomiya oversaw corporate accounts at the Company for many years and previously served as general manager of the Accounting Department and Head of the Finance and Accounting Unit. DIC’s two outside Audit & Supervisory Board members also have extensive experience in and knowledge of finance and accounting, which they are able to leverage in the performance of their duties as outside directors of DIC. Outside Audit & Supervisory Board member 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 Audit & Supervisory Board member Michiko Chiba is a certified public accountant and has extensive experience in corporate auditing.
Internal Auditing Department
The Internal Control 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.
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 members of the Audit & Supervisory Board, accounting auditors and the 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 Audit & Supervisory Board, which includes one attorney and one certified public accountant as outside members, 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
01Status 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, based upon the Companies Act of Japan and the Financial Instruments and Exchange Act of Japan. The Board of Directors hears annual reports on the status of the system of internal controls, a synopsis of which is included in the Company’s official report on its business activities. The following is summary of the synopsis:
- 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.
- 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 for communication used in the conduct of business. The Company shall prepare a structure that can quickly respond to domestic and internal notifications.
- In order to ensure the duties of directors are performed properly and efficiently within the DIC Group, the Company shall establish regulations regarding company organization and authority.
- The Company shall formulate medium-term management plans and the annual budget based on management policies and management strategies, and, through dissemination of the same, ensure common goals are shared within the DIC Group. The Company shall make progress reports to the Board of Directors.
- Information pertaining to the performance of duties by directors shall be recorded, retained and managed appropriately based on 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.
- 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.
- 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.
- The Company shall clarify important matters pertaining to subsidiaries that require reporting to the Company.
02Basic 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 Audit & Supervisory Board Members
01Number and Role of Outside Directors and Outside Audit & Supervisory Board Members
DIC currently has three outside directors and two outside Audit & Supervisory Board members. In addition to attending meetings of the Board of Directors, the outside directors—who have extensive experience in corporate management—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 Audit & Supervisory Board members—one an attorney specializing in corporate law and the other a certified public accountant—advise management of the DIC Group from an expert, multifaceted and independent perspective, thereby helping to reinforce the auditing function.
02Standards Used to Evaluate the Independence of Outside Directors and Outside Audit & Supervisory Board Members
DIC has established standards for evaluating the independence of individuals appointed to the position of outside director or outside Audit & Supervisory Board member, which are shown below. DIC’s outside directors and outside Audit & Supervisory Board members 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/audit & supervisory board members 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.
- Individuals who are executive officers of DIC or of one of its consolidated subsidiaries at present or have been in the preceding 10 years.
- Individuals to whom any of the following items have applied in the preceding three years:
- 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
- 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% of the company’s consolidated net sales in that year) or an executive officer of a company to which this description applies
- A shareholder who holds 5% or more of voting rights in DIC or an executive officer of a company to which this description applies
- 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 assets in that year) or an executive officer of a company to which this description applies
- 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
- 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
- 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 of 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
- 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
- A spouse or relative within two degrees of kinship of individuals listed in section 1 or 2 above
- An individual whose term in office as an outside officer of DIC has exceeded eight years
03Framework for Supporting the Efforts of Outside Directors and Outside Audit & Supervisory Board Members
Prior to meetings of the Board of Directors, relevant materials are distributed to all directors, full-time Audit & Supervisory Board members, outside directors and outside Audit & Supervisory Board members. In addition, directors bringing matters before the Board provide explanations in advance to outside directors, while full-time Audit & Supervisory Board members provide explanations as necessary to outside Audit & Supervisory Board members.
Other Initiatives to Enhance the Corporate Governance Organization
01Composition 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 the DIC Group’s global operations, DIC also strives to ensure diversity in the Board’s composition.
One member of the Board of Directors is female, as is one member of the Audit & Supervisory Board.
Composition of the Board of Directors and the Audit & Supervisory Board
|In-house||Outside||Total||Percentage of outside members|
|Directors||In-house 5||Outside 3||Total 8||Percentage of outside members 37.5%|
|Audit & Supervisory Board members||In-house 2||Outside 2||Total 4||Percentage of outside members 50.0%|
|Total||In-house 7||Outside 5||Total 12||Percentage of outside members 41.7%|
02Remuneration for Executives
Remuneration for directors is determined by the Remuneration Committee, which takes into account prevailing market rates, and consists of basic remuneration; bonuses, which are linked to consolidated operating results and the degree of achievement of individual targets; and stock compensation, which is based on medium- to long-term operating results. Directors who serve concurrently as executive officers are eligible for bonuses and stock compensation. Other directors and outside directors are eligible for basic remuneration only. Remuneration for Audit & Supervisory Board members consists of basic remuneration only and is determined through discussion involving all Audit & Supervisory Board members, in accordance with internal rules established by the Audit & Supervisory Board, with consideration given to ensuring a balance with remuneration for directors and to prevailing market rates.
Remuneration for Directors and Audit & Supervisory Board Members in Fiscal Year 2019
(Millions of yen)
|Composition of remuneration(Millions of yen)||Number of directors and Audit & Supervisory Board members|
|Basic salary||Bonus||Stock Compensation|
(excluding outside directors)
|Audit & supervisory board members
(excluding outside audit & supervisory board members)
- The above data includes that for one outside director, one inside Audit & Supervisory Board member and one outside Audit & Supervisory Board member who retired at the conclusion of the 121st Annual General Meeting of Shareholders held on March 27, 2019.
- The total amount of stock compensation is the total monetary value of shares corresponding to the points granted for fiscal year 2019 based on the Company’s performance-based stock compensation plan.
03Evaluation 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 Audit & Supervisory Board members. In fiscal year 2019, the Company conducted a survey of all directors and Audit & Supervisory Board members regarding, among others, self-evaluation and Board administration, responses to which were analyzed and evaluated by the Board of Directors. As a result, the effectiveness of the Board of Directors was confirmed.
To further improve the Board’s effectiveness, DIC recognizes the enhancement of discussion regarding corporate strategy, including confirming the status of the medium-term management plan, as a key challenge and will continue working to promote improvements.