Corporate Governance

Basic Approach to Corporate Governance

The DIC Group defines corporate governance as a mechanism 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 with its shareholders, customers and other stakeholders and enhancing corporate value, the 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 global website.

Corporate Governance System

As a company with internal auditors, DIC has a Board of Directors and an Audit & Supervisory Board. The Company has also instituted an executive officer system and has established a Nomination Committee, Remuneration Committee, Executive Committee, Sustainability Committee, Quality Committee and Work Style Revolution (WSR) 2020 Committee.

Corporate Governance Organization
  • Board of Directors

    From the perspective of making business decisions in a timely manner and reinforcing corporate governance, the Board of Directors consists of nine directors, three of whom are outside directors (one of whom is female). The Board typically meets once monthly to make decisions on matters stated in the regulations for meetings of the Board of Directors, as well as to receive status reports on the execution of business activities and supervise the execution of business.

  • Nomination Committee

    To ensure objectivity in the nomination of directors, Audit & Supervisory Board members and executive officers, the Company has established the Nomination Committee, which provides recommendations to the Board of Directors regarding the appointment and dismissal of directors, Audit & Supervisory Board members and executive officers. The committee meets as necessary. At present, three of the committee’s five members are independent outside directors, while the position of committee chairman is also filled by an independent outside director.

  • Remuneration Committee

    To ensure objectivity in the determination of remuneration for directors, Audit & Supervisory Board members and executive officers, the Company has established the Remuneration Committee, which has been entrusted with responsibility for determining remuneration for directors and executive officers, among others. The committee meets as necessary. At present, three of the committee’s five members are independent outside directors, while the position of committee chairman is also filled by an independent outside director.

  • Executive Committee

    The Executive Committee was established as a body to advise on important matters related to the execution of business activities. In principle, the committee meets twice monthly. The committee consists of executive officers and others designated by the Board of Directors from among the president and CEO, the executive vice president, the heads of the units, and the general managers of the management units and product divisions. As part of the auditing process, one Audit & Supervisory Board member also attends committee meetings. Details of deliberations at meetings and the results thereof are reported to the Board of Directors.

  • 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. The committee consists of executive officers and others designated by the Board of Directors from among the president and CEO, the executive vice president, the heads of the units, the general managers of the management units and product divisions, and the managing directors of regional headquarters. As part of the auditing process, one Audit & Supervisory Board member also attends committee meetings. Details of deliberations at meetings and the results thereof are reported to the Board of Directors.

  • Quality Committee

    The Quality Committee reports on the status of DIC Group quality management and the progress of related initiatives, as well as deliberates Group quality policies, important measures and key issues. In principle, the committee meets once quarterly to report on the status and progress of quality management. The committee consists of executive officers and others designated by the Board of Directors from among the president and CEO, the executive vice president, the heads of the units, and the general managers of the management units and product divisions. As part of the auditing process, one Audit & Supervisory Board member also attends committee meetings. Details of deliberations at meetings and the results thereof are reported to the Board of Directors.

  • WSR 2020 Committee

    The WSR 2020 Committee was established as a body to deliberate work style reform–related measures and investment plans, among others, with the aim of enhancing Group employee job satisfaction and productivity. In principle, the committee meets once quarterly. The committee consists of executive officers and others designated by the Board of Directors from among the president and CEO, the executive vice president, the heads of the units, and the general managers of the management units and product divisions. Details of deliberations at meetings regarding matters of particular importance and the results thereof are reported to the Board of Directors.

  • Audit & Supervisory Board

    The Audit & Supervisory Board comprises four members, including two outside 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, Executive Committee and 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, the Company has established an Audit & Supervisory Board Members’ Office, to which it assigns dedicated personnel to assist the Audit & Supervisory Board members in their duties.
    The Company’s three full-time Audit & Supervisory Board members have extensive experience in and knowledge of finance and accounting, which they are able to leverage in the performance of their duties. Full-time Audit & Supervisory Board member Hiroyuki Ninomiya oversaw corporate accounts at the Company for many years and was general manager of the Accounting Department and Head of the Finance and Accounting Unit. Outside Audit & Supervisory Board member Michiko Chiba is qualified as a certified public accountant and has engaged in the audit of companies for many years. In addition to providing expertise in corporate law, outside Audit & Supervisory Board Member Keita Nagura provides tax accounting services pursuant to Article 51 of the Certified Public Tax Accountant Act.

  • Internal Auditing Department

    The internal auditing department is charged with internal auditing, which includes monitoring the effectiveness of internal controls. In the Asia–Pacific region, the PRC, and the Americas and Europe, internal auditing is the responsibility of local auditing teams.

  • Accounting Auditors

    The Company has engaged Deloitte Touche Tohmatsu LLC as its independent auditors. The Company 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.

Meeting Data

Rationale Behind Current Corporate Governance System

The Company has instituted an executive officer system, a move aimed at separating decision making and implementation and thereby accelerating business execution and clarifying responsibilities. The Company has appointed three highly independent outside individuals to its Board of Directors and taken other steps to reinforce its monitoring of management’s business execution. The Company also has a Nomination Committee and a Remuneration Committee, each of which includes three independent 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, conducts audits in liaison with the accounting auditors and the internal auditing department. This structure ensures the effective functioning of the Company’s corporate governance system.

System of Internal Controls

01Status of the System of Internal Controls and the Establishment and Operation of a Framework for Risk Management

In striving to conduct its operations in accordance with The DIC Way, the DIC Group has prepared and operates a system of internal controls based on the Companies Act of Japan to ensure the appropriateness of its operations. The key components of this system are as follows:

  • 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, as part of its compliance activities, establish an internal notification system as a channel available for the employees of the DIC Group, which has multiple notification channels independent from channels for communication used in the execution of business and provides a structure to 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 long-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 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, including those pertaining to subsidiaries, that must be approved by or reported to the Company.

02Basic Policy Toward Eliminating Demands by Antisocial Elements

This basic policy, which is 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 & HR Department is responsible for coordinating efforts to respond to extortion or other demands 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 legal counsel and the police to ensure the Company’s responses are resolute. The Company 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

The Company currently has three outside directors and two outside Audit & Supervisory Board members. In addition to attending meetings of the Board of Directors, the three 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 the Company’s corporate management. The two Audit & Supervisory Board members—one a certified public accountant and the other an attorney— advise management of the DIC Group from an expert, multifaceted and independent perspective, thereby helping to reinforce the auditing function.

02Independence Standards for Outside Directors and Outside Audit & Supervisory Board Members

The Company has established standards for evaluating the independence of individuals to the position of outside director and outside Audit & Supervisory Board member, which are shown below. The Company’s outside directors and outside Audit & Supervisory Board members are individuals who, based on these standards, are unlikely to have conflicts of interest with ordinary shareholders and who comply with criteria for the independence of directors and Audit & Supervisory Board members set by the Tokyo Stock Exchange.

Independence Standards for Outside Officers

The Company does not recognize individuals with the connections listed below as being independent in the appointment of independent outside officers.

  • Individuals who are executives of the Company or one of its consolidated subsidiaries (collectively, the DIC Group) 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 of a company to which this description applies
    • An individual for which the DIC Group is a principal business partner (a business partner with which transactions in a single fiscal year exceed 3% of the partner company’s consolidated net sales in that year) or an executive of a company to which this description applies
    • A shareholder who holds 5% or more of the voting rights in the Company or an executive 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 exceed 3% of the DIC Group’s total assets in that year) or an executive of a company to which this description applies
    • An individual who has received contributions from the DIC Group in a single fiscal year that exceed ¥10 million or who belongs to a group to which this description applies
    • An accountant who has served as an accounting auditor or accounting advisor for the DIC Group or an individual who is an employee, partner or associate of an audit firm to which this description applies
    • Any individual to whom (6) does not apply but who has received remuneration from the DIC Group that exceeds ¥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
    • An executive of another company in the event that an executive of the Company is appointed to an outside officer position at that company
  • Spouses and relatives within the second degree of kinship of individuals indicated in 1 or 2 above
  • An individual whose term as an outside officer of the Company has exceeded eight years

03Support System for the 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. The officer in charge provides explanations of matters to be discussed to outside directors, while the fulltime Audit & Supervisory Board members provide explanations as necessary to outside Audit & Supervisory Board members.

Other Initiatives to Enhance the Corporate Governance System

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 and the need to manage its businesses in a manner that takes diversity into account, the Company also strives to ensure diversity in the Board’s composition, including by appointing female directors. Two members of the Board of Directors—one outside director and one outside Audit & Supervisory Board member—are women.

  • Composition of the Board of Directors

Composition of the Board of Directors and the Audit & Supervisory Board

In-house Outside Total Percentage of outside members
Directors In-house 6 Outside 3 Total 9 Percentage of outside members 33.3%
Audit & Supervisory Board members In-house 2 Outside 2 Total 4 Percentage of outside members 50.0%
Total In-house 8 Outside 5 Total 13 Percentage of outside members 38.5%

Skills Matrix for Directors and Audit & Supervisory Board Members

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 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. The table to the right is a skills matrix summarizing the knowledge, experience and capabilities of current directors and Audit & Supervisory Board members.

Skills Matrix for Directors and Audit & Supervisory Board Members

02Remuneration for Directors and Audit & Supervisory Board Members

Remuneration for directors is determined by the Remuneraiton Committee, which takes into account prevailing market rates, and consists of basic remuneration; bonuses, which are linked to consolidated operating results and achievement of individual targets; and stock compensation, which is linked to the medium- to long-term achievement of performance targets. Directors who serve concurrently as executive officers are eligible for bonuses and stock compensation, while other directors and outside directors are eligible for basic remuneration only. Remuneration for Audit & Supervisory Board members is determined in accordance with internal rules established by the Audit & Supervisory Board, with consideration given to ensuring a balance with remuneration for directors and prevailing market rates.

Remuneration for Directors and Audit & Supervisory Board Members in Fiscal Year 2021

Total remuneration
(Millions of yen)
Composition of remuneration(Millions of yen) Number of directors and Audit & Supervisory Board members
Basic salary Bonus Stock Compensation
Directors
(excluding outside directors)
290 206 68 16 7
Audit & Supervisory Board members
(excluding outside Audit & Supervisory Board members)
60 60 - - 2
Outside officers 72 72 - - 6
    Note:
  • The above data includes that for one outside director and one outside Audit & Supervisory Board member who retired at the conclusion of the 123rd Annual General Meeting of Shareholders held on March 30, 2021.
  • The total amount of stock compensation is the total monetary value of shares corresponding to the points granted for fiscal year 2021 based on the Company’s performance-based stock compensation plan.

03Evaluating the Effectiveness of the Board of Directors

The Company analyzes and evaluates the effectiveness of the Board of Directors annually via a self-evaluation conducted by directors and Audit & Supervisory Board members. In fiscal year 2021, all directors and Audit & Supervisory Board members were surveyed regarding self-evaluations, Board administration and other issues, and interviewed on an individual basis, with responses analyzed and evaluated by the Board of Directors.
Owing to the aforementioned efforts, it was confirmed that free and lively discussions had been held, led by outside directors and Audit & Supervisory Board members, and that appropriate deliberations had been conducted by the Board of Directors. In addition, regarding issues identified in the evaluation conducted in fiscal year 2020, it was judged that discussions pertaining to the formulation of the Company’s DIC Vision 2030 long-term management plan had been enhanced through improvements such as the creation of multiple opportunities for explanation and deliberation. Accordingly, the effectiveness of the Board of Directors was confirmed.
In fiscal year 2022, the Company will seek to further bolster the Board of Directors’ effectiveness by reviewing the progress of priority measures set forth in DIC Vision 2030, as well as by taking steps to strengthen the Board’s supervision of internal controls and the risk management system on a global basis, as part of its ongoing effort to promote improvement.

Other Initiatives

01Ensuring the Diversity of Core Human Resources

With regard to ensuring diversity, the Company states in this integrated report that it “works to foster a corporate culture that draws on its understanding and respect for diversity to produce creative ideas and to incorporate the concept of diversity into management, thereby creating workplaces that enhance job satisfaction for employees.” Respect for diversity and human rights is also stipulated in the Company’s basic sustainability policy.
As measurable targets for ensuring diversity, the Company has set targets for percentage of management positions in Japan occupied by female employees and percentage of its overall labor force in Japan accounted for by foreign nationals, which it publishes in this report, together with actual figures for both of these statistics, as well as for other yardsticks such as mid-career hires as a percentage of total new hires.
The Company’s policy for fostering human resources and creating work environments in a manner that ensures diversity is to “promote efforts to ensure diverse human resources are in the right places and the creation of work environments that enable employees to maximize their capabilities.” An executive officer has been put in charge of diversity to create an effective configuration. In its long-term management plan, the Company identifies “Foster human resources,” “Ensure mobility (hiring, retention and succession)” and “Improve engagement and organizational cohesiveness” as the three priorities of its strategy to reinforce its management of human capital. Given projections for the postpandemic “new normal,” in 2020 the Company launched Work Style Revolution (WSR) 2020, a project targeting the development of new work styles with the aim of boosting employee productivity and motivation.

02Sustainability Initiatives

The Company promotes sustainability initiatives in line with key themes that reflect its belief that, as a manufacturer of fine chemicals, it has a responsibility to address ESG-related issues, and discloses the progress thereof in this report.
Regarding human capital, the Company’s long-term management plan sets forth “Reinforce management of human capital” as a basic strategy, further explaining this as “Build a strategic human resources portfolio that maximizes the value of human capital.” Various related initiatives are disclosed in the Human Resources Management section of this report.
Recognizing the effective use of intellectual property as indispensable to the creation of new value, a key management challenge, the Company actively capitalizes on patent landscapes and other intellectual property information, and on the relative strength of its patent portfolio compared to those of its competitors, and has created a configuration whereby business groups and technical and intellectual property teams work as one to advance intellectual property strategies that are in conformance with business strategies. These efforts are also described in the New Technology Development and Value Creation section of this report.
The Company has declared its support for the Task Force on Climate-related Financial Disclosures (TCFD). Taking into account data on carbon pricing, etc., presented in the Sustainable Development Scenario set forth in the International Energy Agency’s World Energy Outlook, as well as data on decarbonization technologies, among others, and the RCP8.5 Representative Concentration Pathway greenhouse gas concentration scenario adopted by the Intergovernmental Panel on Climate Change (IPCC), the Company collects and analyzes data on related risks, including from case studies focusing on climate change–related natural disasters suffered by other companies, such as damage to the production sites located in coastal areas and infrastructure failures. The Company also conducts scenario analysis to assess climate change–related risks and opportunities and impact on business activities and profitability and discloses information in line with the recommendations of the TCFD in the Support for the TCFD section of this report.

Changes Implemented to Enhance Corporate Governance System

Changes Implemented to Enhance Corporate Governance System