Corporate Governance

Basic policies

Showa Denko continuously promotes corporate governance to ensure the soundness, effectiveness, and transparency of management, and to contribute enhancing its corporate value, thereby contributing to the sound growth of society and earning its full trust and confidence. To that end, it is essential for the Company to strengthen relations with its stakeholders, including shareholders, customers, suppliers, community residents, and employees. Based on the above, the Company has clarified its mission in the form of Our Vision and Showa Denko is working hard to realize this Vision. Showa Denko includes “Decision-making process, structure” in its material issues and regards continuing the evaluation of the Board of Directors’ effectiveness and disclosing the results as a KPI for materiality.

Showa Denko formulated the Corporate Governance Basic Policies in line with Japan’s Corporate Governance Code and discloses the policies at its website.

 

■ Corporate governance structure
Corporate governance structure

Implementation status of corporate governance measures

Policies and procedures of the Board of Directors in the selection of senior management personnel and the nomination of candidates for Directors and Auditor & Superisory Board Members

Candidates for Directors must possess sufficient knowledge, experience and capabilities to fulfill their obligations as Directors. Senior management personnel are selected by additionally taking into account, among others, their corporate and individual performance. Candidates for the Audit & Supervisory Board Members must possess, in addition to an appropriate level of expertise in the areas of finance and accounting, sufficient knowledge, experience and capabilities to fulfill their obligations as Audit & Supervisory Board Members.
The Nomination Advisory Committee deliberates the nomination of candidates for the aforementioned positions and submits recommendations to the Board of Directors. The Committee is an advisory body to the Board of Directors and more than half of its members are independent outside directors.

Explanation regarding the selection of senior management personnel and the nomination of candidates for Directors and Audit & Supervisory Board Members

Reasons why each candidate has been nominated are stated in the Reference Materials for the General Meeting of Shareholders.

Criteria on the independence of outside directors

The Board of Directors has established independence standards for Outside Directors based on independence criteria stipulated by law and the Tokyo Stock Exchange and selects candidates who meet the standards. See the Attachment of Corporate Governance Basic Policies for the independence standards.

Policies and procedures for determining the remuneration of directors, Audit & Supervisory Board members, and corporate officers

<Outline of Director Compensation Scheme>

The outline of SDK’s director compensation scheme in and after 2022 is as follows:

1.Basic policy

●Directors (excluding outside directors)
  • A compensation scheme appropriate for recruiting and maintaining excellent human resources inside and outside Japan as SDK aims to become a world-leading chemical company for advanced functional materials
  • A compensation scheme that will help motivate efforts to achieve financial goals and increase medium-to-long-term enterprise value, thereby contributing to sustainable growth of the Group
  • A transparent, fair and rational process for deciding compensation from the viewpoint of accountability to all stakeholders, including shareholders
●Outside directors
  • A compensation scheme appropriate for the role and responsibility for supervising the management of SDK from an independent and objective standpoint

2.Composition and levels of compensation

The compensation for executive directors and corporate officers consists of basic compensation (fixed compensation) based on position, short-term performance-linked compensation, and medium-to-long-term performance-linked compensation (stock-based compensation). In case of a standard amount for President and CEO, the proportions of basic, short-term performance-linked, and medium-to-long-term performance-linked compensations are roughly 40%:30%:30%. Compensations for other executive directors and corporate officers are decided in line with the case of president. As for director and chairman of the board (without right of representation), short-term performance-linked compensation will not be given in view of its basic role of supervising the management. Compensation paid to outside directors and members of the Audit & Supervisory Board will be only basic compensation in consideration of their roles and responsibilities. In deciding the composition and levels of compensation, we will use objective market research data provided by external specialized institutions (such as Willis Towers Watson’s database regarding compensation for executives). We will consider the results of comparison with global chemical or other material companies of a similar scale.

Graph 1 Type of compensation and scope of payment

Type of compensationScope  
Fixed/fluctuating Money or not money Composition Executive directors/corporate officers Director/chairman of the board (without right  of representation) Outside directors Members of the Audit & Supervisory Board
Fixed Money Basic
Fluctuating Short-term performance-linked(Bonuses)  ー
Not money Medium-to-long-term performance linked(Stock-based)

 

Graph 2 Percentage of compensation components for President and CEO (image)

3.Incentive compensation

Incentive compensation will be granted according to performance based on indexes of long-term numerical goals included in the integrated company’s long-term vision. It is intended to urge performance of tasks for realizing vision and strategy under the compensation scheme linked to business results and enterprise value.

i)Short-term performance-linked compensation (bonuses)

Payment to each person is decided by multiplying standard value (decided in advance based on position) by performance evaluation coefficient (changing in the range of 0%-200%). The coefficient consists of overall business results evaluation (70%) and personal evaluation (30%). In the case of representative director and chairman of the board, only overall business results evaluation is considered.

Indexes of overall business results evaluation consist of the amount of consolidated EBITDA (20%), the ratio of consolidated EBITDA to sales (30%), and ROIC (20%). As for the first two, evaluation is made relative to the degree of achievement of goals for each term. As for ROIC, evaluation is made on the basis of the average for the past three years.

Personal performance evaluation is made by the Compensation Advisory Committee entrusted by the Board of Directors concerning individual goals, evaluation, and the amount of payment. In case of misconduct, SDK may nullify the right to receive benefit or demand return of compensation, depending on the timing of misconduct and the timing of its revelation. The Board of Directors will make a decision on the matter after deliberations at the Compensation Advisory Committee.

Graph 3 Evaluation indexes of short-term performance-linked compensation (bonuses)

Evaluation indexesWeighting of evaluation
Evaluation of overall business results

Consolidated EBITDA(amount) 20%
Ratio of consolidated EBITDA to sales (%) 30%
ROIC 20%
Personal performance evaluation 30%
ii)Medium-to-long-term compensation (stock-based compensation)

Under the new scheme, points are given by multiplying standard figures (decided in advance based on position) by TSR evaluation coefficient (changing in the range of 0%-200%). TSR evaluation coefficient will be decided based on SDK’s rank order of three-year relative TSR evaluation (percentile, hereinafter “%ile”) by comparison with competitors in the chemical/textile industries having similar business models and of the same size or larger. To encourage realization of the long-term vision, TSR coefficient will be set at 100% when SDK’s rank order is in 60%ile, while it will be 0% when SDK’s rank order is below 20%ile. To promote long-term sharing of value with shareholders, shares will be given in a lump after resignation according to cumulative points. In case of misconduct, SDK may nullify the right to receive benefit or demand return of compensation, depending on the timing of misconduct and the timing of its revelation. The Board of Directors will make a decision on the matter after deliberations at the Compensation Advisory Committee.

Graph 4  TSR evaluation period and share grant (image)

Graph 5 TSR evaluation coefficient

4. Compensation governance

SDK’s Compensation Advisory Committee is chaired by an independent outside director, and independent outside directors/auditors account for the majority of committee members. The committee will make proposals and reports as necessary to the Board of Directors in view of the latest situation concerning executive compensation and market trends, results of comparison with relevant competitors, and other pieces of advice. To ensure high levels of independence and objectivity, decisions on compensation for respective directors will be entrusted to the Compensation Advisory Committee as from 2022. SDK has appointed Willis Towers Watson, an external consultancy, as advisor.

<Amount of remuneration paid to Directors and Audit & Supervisory Board Members (2021)>

 Remuneration, etc.(Millions of yen)
Total Amount by Type of Remuneration, etc. (Millions of yen)
Number of applicable persons
Basic CompensationShort-term Performance- linked CompensationStock Compensation
Directors 307 208 51 48 9
Outside members included in above 58 58 4
Audit & supervisory Board Members 96 96 5
Outside members included in above 36 36 4
  1. 1.The amounts of "Base Compensation" and "Short-Term Performance-Linked Compensation" above are the total amount of compensation paid in fiscal 2021 (all monetary compensation).
  2. 2.The amount of "Stock Compensation" above is the total amount expensed in fiscal year 2021.The Company's stock-based compensation is the number of shares, etc. determined by position in accordance with the Company's TSR evaluation for each medium-term management plan period, to be deferred and delivered upon retirement. Sixty percent (60%) of the shares, etc. to be delivered are physical shares, and 40% are to be paid in cash equivalent to the market value of the shares, etc. For the management of stock-based compensation, we utilize the Stock Benefit Trust ("BBT") of Mizuho Trust & Banking Co.
  3. 3.The amount of monetary compensation for directors was resolved at the 107th Ordinary General Meeting of Shareholders held on March 30, 2016 to be no more than ¥42 million per month (not including employee salaries for directors who also serve as employees). As of the close of the said annual general meeting of shareholders, the number of directors is 9 (including 3 outside directors). Separately from such monetary compensation, a resolution was passed at the same general meeting of shareholders to pay stock-based compensation, etc. to directors excluding outside directors (up to 288 million yen over three fiscal years to be contributed as funds to acquire shares). The number of directors (excluding outside directors) as of the conclusion of the said ordinary general meeting of shareholders is as follows. The number of directors (excluding outside directors) as of the close of the Ordinary General Meeting of Shareholders is six. The amount of monetary remuneration for corporate auditors was resolved at the 96th Ordinary General Meeting of Shareholders held on March 30, 2005 to be no more than ¥12 million per month. The number of corporate auditors as of the close of the said annual general meeting of shareholders was .

Overview of Governing Bodies/Committees/Councils

Governing BodyMembersMeeting frequency
Board of Directors 10 members (Four of them are outside directors.(One is female.))
(As of March 2022)
Once or twice a month
Management Committee President, CXO, and General Managers of Divisions approved by the President twice a month in principle
Audit & Supervisory Board 5 Auditors (Three of them are outside Auditors. (Two are female.))
(As of March 2022)
Once or twice a month 
Nomination Advisory Committee 2 inside directors and 4 outside directors(As of March 2022) 3 or 4 times a year
Remuneration Advisory Committee 2 inside directors and 3 outside directors(As of March 2022) 3 or 4 times a year

Attendance at Meetings of the Board of Directors and Auditit & Supervisory Board(2021)

*Marked Directors and Audit & Supervisory Board Member : Number of attendances after appointment at the Ordinary General Meeting of Shareholders held in March 2021

Directors



Bord of Directors
Representative Director, Chairman Kohei Morikawa 14/14(100%)
Representative Director, President Hidehito Takahashi 14/14(100%)
Director Hideo Ichikawa 14/14(100%)
Director Motohiro Takeuchi 14/14(100%)
Director Hisashi Maruyama* 11/11(100%)
Director Hiroshi Sakai 14/14(100%)
Outside Director Masaharu Oshima 14/14(100%)
Outside Director Kiyoshi Nishioka 14/14(100%)
Outside Director Kozo Isshiki 14/14(100%)
Outside Director Noriko Morikawa 14/14(100%)

Audit & Supervisory Board Members



Board of DirectorsAudit & Supervisory Board
Audit & Supervisory Board Members Toshiharu Kato 14/14(100%) 13/13(100%)
Audit & Supervisory Board Members Jun Tanaka 14/14(100%) 13/13(100%)
(Outside Member) Kiyomi Saito 14/14(100%) 13/13(100%)
(Outside Member) Setsu Onishi 14/14(100%) 13/13(100%)
(Outside Member) Masako Yajima 14/14(100%) 13/13(100%)

Attendance at Nomination Advisory Committee and Remuneration Advisory Committee(April 2021~March 2022)

Nomination Advisory Committee



Attendance records
Representative Director, Chairman Kohei Morikawa 4/4(100%)
Director Hideo Ichikawa 4/4(100%)
Outside Director Masaharu Oshima(Chairman) 4/4(100%)
Outside Director Kiyoshi Nishioka 4/4(100%)
Outside Director Kozo Isshiki 4/4(100%)
Outside Director Noriko Morikawa 4/4(100%)

Remuneration Advisory Committee



Attendance records
Representative Director, Chairman Kohei Morikawa 4/4(100%)
Director Motohiro Takeuchi 4/4(100%)
Outside Director Kiyoshi Nishioka(Chairman) 4/4(100%)
Outside Director Noriko Morikawa 4/4(100%)
Outside Auditor Setsu Onishi 4/4(100%)

Board of Directors

Showa Denko introduced the corporate officers system to clearly separate the business execution function from the management supervision function. Under the system, a top management team composed of the president and corporate officers makes prompt and dynamic decisions on management. At the same time, the number of Board of Directors members has been substantially reduced while the number of independent outside directors has been kept at two or more for the enhancement of the supervision function.

The Board of Directors decides basic policies of the Company. It also thoroughly discusses and makes decisions regarding matters specified in the Companies Act or the Company's Articles of Incorporation as well as important issues in executing business operations, while promoting prompt and dynamic decision making on management.
We appoint directors with emphasis on the viewpoint of corporate governance, aiming to strengthen the Board of Directors' monitoring and supervisory functions and ensure the propriety of decision making process. We have adopted a management system in which corporate officers dedicate themselves to business execution, which is their primary duty, but do not concurrently serve as directors, in principle. Furthermore, we have abolished the system of officer directors except the Chairman and the President, while strengthening monitoring by Audit & Supervisory Board Members including outside Memberss and mutual supervision among directors.
The term of office of directors is set to one year to ensure a quick and flexible formation of management team corresponding to changes in the business environment.

Audit & Supervisory Board Members

Showa Denko employs an auditor system. The Audit & Supervisory Board Members attend the Board of Directors meetings and other important internal meetings, offering opinions as necessary. They conduct audits on execution of business operations through on-site investigations, interviews with responsible persons, and reference to important documents so as to provide suggestions, advice, and recommendations for securing soundness in management. They also audit group companies in cooperation with auditors of major affiliated companies.

Accounting audits

Showa Denko concluded an auditing contract with KPMG AZSA, and this audit corporation performs accounting audits for the Company.
The Accounting Auditor confirms the annual audit plan with the Audit & Supervisory Board Members and reports the audit results to them. The Accounting Auditor and the Audit & Supervisory Board Members also exchange information and views as required, to promote their cooperation.

Management Committee and R&D Committee

The Management Committee, which is chaired by the President, deliberates and decides on matters to be referred to the Board of Directors' meetings and important matters pertaining to overall management of the Company. The decisions are made after deliberations on two occasions. As for the investment issues to be submitted to the Management Committee, risk analysis as well as achievement/progress management are conducted in advance, through preliminary risk reviews and examinations by a relevant task team. The basic business policies including Company's medium-term business plans are decided not only through the deliberation of the Management Committee but also through sufficient examination by all corporate officers.
The R&D Committee deliberates and makes decisions on important issues related to research and development.

Internal Audit Department

We have the Internal Audit Department reporting directly to the President. The Internal Audit Department investigates the overall execution of business including group companies and verifies its accuracy, validity and efficiency. It also investigates and verifies the functional state of management policies, business plans and internal control systems. The results of internal auditing are also reported to the Audit & Supervisory Board Members for mutual cooperation with Auditors' auditing.

Committees and Promotion Councils

For specific issues to be addressed to ensure appropriate business execution, Showa Denko operates the Security Export Control Committee and Safety Measures Committee, which report directly to the president. Moreover, under the Management Committee chaired by the president, we have the Responsible Care Promotion Council, Risk Management Promotion Council, Human Rights/Corporate Ethics Promotion Council, and IR Promotion Council. Each of these councils conducts surveys and research and holds deliberations regarding the issues entrusted to them.

Sustainability Promotion Council

The Sustainability Promotion Council examines the Showa Denko Group’s important CSR issues, with a focus on compliance and risk management. With regard to compliance, the Council examines the medium- to long-term action plans and other important issues, decides on the measures to be taken in line with the action plans and evaluates the implementation of the measures. The Council also collects data and make assessments about risks on a regular basis, formulates measures to deal with high-level risks that might adversely affect the Group and checks how the measures are being implemented.

Responsible Care Promotion Council

The Showa Denko Group conducts activities based on the Responsible Care Action Guidelines, which set forth the Group’s management policies related to the environment, safety and health. The Responsible Care Promotion Council conducts preliminary discussions concerning important issues around Responsible Care.
These issues are reported to and approved by the Management Committee (Menbers: President, Corporate Officers in Charge, and other Corporate Officers and General Managers of Staff Departments as deemed necessary by the President. Chairperson: President).

IR Promotion Council

The IR Promotion Council is chaired by the CFO. The Council examines the comprehensive measures and basic plans for IR, centrally manages the important factual data, such as the financial results, in line with the Tokyo Stock Exchange’s timely disclosure rules, and ensures the appropriate disclosure of important facts.
Showa Denko conducts information disclosure and IR activities to help shareholders and investors deepen their understanding of its corporate management, business activities, and strategies so that they can evaluate its corporate value in an appropriate manner. To this end, we work to communicate proactively with shareholders and investors, improve management transparency, and strive to disclose information concerning Showa Denko in an easy-to-understand, fair, timely, and accurate manner. In April 2018, the Revised Financial Instruments and Exchange Act was enforced in Japan, and to ensure compliance with the fair disclosure rules of this law, we revised our disclosure policy and made it public on our website.

Security export control Committee

For all export products, the Security Export Control Committee determines whether or not government permission is required, investigates customers, and makes a decision on whether to enter into each transaction through systematized procedures.

Safety Measures Committee

The Safety Measures Committee examines comprehensive measures and basic plans for the environment, safety and health, and offers relevant opinions to the related agencies.

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