Foundation Underpinning ESG Management

As an organizational structure under the Companies Act, the Company has chosen to be a company with Audit and Supervisory Board. Under the Divisional Company Organization System, the Company has adopted the Executive Officer System in order to clearly distinguish the business execution function from the decision-making function in management.

The Board of Directors is positioned as the body responsible for decision-making concerning the Company’s fundamental policies and upper-level management issues as well as for supervising the execution of business.
In addition to the Company’s Chairman, who is a non-executive director and serves as its chair, the Board of Directors has in place a highly effective supervisory system for Directors by appointing sufficiently experienced Outside Directors to ensure transparency in management and fairness in business decisions and operations.

The number of Directors shall not exceed 15, and two or more of them shall be Outside Directors.
The Board of Directors of the Company shall consist of Directors who are of excellent character, have insight, and high moral standards in addition to knowledge, experience, and competence.
In addition, Audit and Supervisory Board members, including outside Audit and Supervisory Board members, shall attend the meetings of the Board of Directors. With regard to the Audit and Supervisory Board, one or more members will have knowledge and expertise in corporate finance and accounting, and one or more will have knowledge and expertise in legal systems.
The Company ensures diversity among board members and keeps the number of Directors at an optimal level for appropriate decision-making that is commensurate with the business domain and size.
The presidents of the divisional companies, who are the top management of each business and senior corporate officers with significant experience and strong expertise, are appointed as inside Directors. Together with the independent Outside Directors, who have broad knowledge and experience, and Audit and Supervisory Board members with strong expertise, the presidents of the divisional companies effectively perform the roles and responsibilities of the Board of Directors and maintain a balance with respect to diversity, optimal size, and capabilities.
Meanwhile, two male and one female Outside Directors for a total of three were appointed to the Company’s Board of Directors at the Annual General Meeting of Shareholders held in June 2021. Despite her appointment, the female Outside Director resigned as of the end of August 2021 to take up a position at Japan’s Digital Agency established on September 1, 2021. As of the end of March 2022, the number of Outside Directors stood at two.
Taking into consideration its Outside Director ratio and the need to secure diversity based on such wide-ranging criteria as gender, SEKISUI CHEMICAL Group has considered increasing the number of Outside Directors. As a result, the Company decided to submit an agenda item regarding the election of Directors including a proposal to increase the number of Outside Directors at its Annual General Meeting of Shareholders held in June 2022.

The Company appoints to the Board Outside Directors with verified independence from the Company who contribute to the enhancement of corporate value by providing oversight and advice based on their extensive administrative experience and specialized knowledge gained in backgrounds different to those of the Company. Based on their diverse and objective perspectives, the Outside Directors provide counsel especially on priority management issues, such as global development strategy, business model revisions, and the strengthening of ESG management.

Yutaka Kase, Outside Director

Hiroshi Oeda, Outside Director

The Company evaluates the effectiveness of the Board of Directors every year.
Having set an appropriate agenda, the Board of Directors engages in sufficient discussion with opinions and recommendations actively provided by Directors (including Outside Directors) and Audit and Supervisory Board members. The Company has therefore determined that the current Board of Directors is contributing to enhancing the corporate value of the Group and functioning properly.
In fiscal 2021, the Board of Directors engaged in thoroughgoing discussions of important management issues. Items of deliberation included both growth strategies (including R&D and large new businesses) and fundamental strategies (Sustainability Committee reports, digital transformation, safety, compliance, as well as CS & Quality).
In addition, steps were taken to conduct questionnaires for Directors and Audit and Supervisory Board members to assess the effectiveness of Board of Directors meetings. While identifying important management issues that require further deliberation, energies were directed toward reviewing the setting of agendas to ensure that sufficient time is allocated for the deliberation of important issues. Once again to confirm that the Board of Directors has sufficient time to discuss and comments on important issues, measures were implemented to ascertain whether Directors including Outside Directors and Audit and Supervisory Board members were actively expressing their opinions and proposals.
The selection of candidates for the positions of Director and Audit and Supervisory Board member, individual evaluation, and such matters as compensation paid are deliberated by the Nomination and Remuneration Advisory Committee. The results of these deliberations are reported to the Board of Directors where decision are made. In fiscal 2021, the Nomination and Remuneration Advisory Committee met six times, deliberating on a wide range of matters including the composition and effectiveness of the Board of Directors as well as efforts to strengthen governance.

To enable the Outside Directors to enhance deliberations at Board of Directors’ meetings, the Company continuously provides opportunities for them to deepen their understanding of the Group’s businesses. This is done, for example, by the prior distribution of materials for Board of Directors’ meetings and explanations given beforehand by the Executive Officer in charge of the secretariat, orientation visits at the time Outside Directors are appointed, and inspections of business sites several times a year. To further enhance the effectiveness of management supervision by Outside Directors, the Company is making improvements to the deliberations that take place at the Nomination and Remuneration Advisory Committee, where the majority of the members are Outside Directors, and facilitating their dialog with Audit and Supervisory Board members and corporate auditors. From the point of view of succession planning, the Company is strengthening contacts between current management and next-generation management candidates, for example by having Outside Directors give lectures at Executive Officers Liaison Meetings that are held on a quarterly basis and providing opportunities for Directors, Audit and Supervisory Board members and Executive Officers to meet when the new management system is inaugurated following the Annual General Meeting of Shareholders.

Opportunities to deepen understanding of the Company’s business
To deepen understanding of the Company and the characteristics of the Group’s wide-ranging businesses, Outside Directors and Outside Audit and Supervisory Board members undertake business site visits every year. Business briefings are also conducted for Outside Directors and Outside Audit and Supervisory Board members.
In light of the need to prevent further spread of COVID-19 infections, the following initiatives were implemented using a Web conference system in fiscal 2021.

At the quarterly Executive Officers Liaison meetings, the sharing of earnings announcements is combined with invited speakers from outside the Company, so that executive officers obtain the latest information on economic and social trends that are directly linked to management issues.
【十大赌博娱乐平台】
Jitsuro Terashima
Topic: Overcoming COVID-19
―The Course for Japan’s Economy and Industry in 2022―

The Company has established an optional advisory committee concerning nomination and remuneration to further enhance the fairness and transparency of management.
The Nomination and Remuneration Advisory Committee deliberates on matters related to enhancing the effectiveness of the Board of Directors, including the nomination and non-reappointment of senior executives, including representative directors, the nomination of candidates for Director, and the system of remuneration and levels of remuneration for Directors. The Committee also deliberates on the appointment of former representative directors and presidents to the positions of advisors or executive advisors as well as other relevant factors as their treatment, and submits recommendations and advice to the Board of Directors.
The Nomination and Remuneration Advisory Committee comprises five members, the majority of whom are independent outside directors. The Chairperson is elected from the independent outside directors.

• (1)
  Basic policy
  The remuneration system policy for officers of the Company is defined as follows in keeping with the corporate philosophy of the Group.

  • The policy should contribute to continuous growth and medium- to long-term improvement of corporate value for the Group
  • Officers of the Company should share value with shareholders and increase their awareness of shareholder- focused management
  • The remuneration policy should be highly-connected to business performance, providing motivation for officers of the Company to achieve management plan goals
  • The policy should provide a framework and baseline which enables the Company to acquire and keep on staff with a diverse variety of management talent in order to increase the competitiveness of the Group

• (2)
  Remuneration mindset
  Remuneration and other compensation for executive directors of the Company is made up of basic remuneration, bonuses, and stock options. For Outside Directors and Audit and Supervisory Board Members, remuneration is made up of basic remuneration only.
  

  • Regular monthly remuneration
  • Remuneration within the framework of officer remuneration is a fixed payment determined by the roles and responsibilities of each Director.

  • Note:
    For executive directors, a portion of the basic remuneration is required to be used for the purpose of SEKISUI CHEMICAL Group’s stock through the Officers Stock Ownership Plan.

  • In the event certain ROE and dividend payment amount criteria are met, the amount of bonuses paid determined within the scope of payment rates (0% to 100%) linked to the level of target achievement for such parameters as operating income and business performance of each divisional company.

  • Aimed at further raising motivation to help improve medium- and long-term business performance and SEKISUI CHEMICAL Group’s corporate value.
  • Points awarded annually according to position, and shares equivalent to the accumulated points during the term of office are issued upon retirement.

• ●
  This committee is convened by the chairperson (an Outside Director).
• ●
  The agenda items of this committee are introduced by the committee members, and the secretariat compiles them and presents them to the chairperson.
• ●
  The deliberation results of this committee are reported to the Board of Directors by the chairperson.
• ●
  The Board of Directors carries out final determination of the policy regarding the determination of Director remuneration levels, respecting the report of this committee. In addition, the Directors and members of this committee must carry out these decisions from the perspective of whether or not they contribute to the corporate value of the Company and providing benefit to shareholders. Decisions must never have the goal of providing individual benefit to the Directors or committee members themselves, management ranks, or any other third party.
• ●
  The specific remuneration amount, payment date, payment method, and other matters are left to the discretion of the President and Representative Director. The reason for delegating this authority to the President and Representative Director is because this individual is best suited to evaluate each Director’s responsibilities while overseeing the Company’s overall performance. The Board of Directors receives reports from the Nomination and Remuneration Advisory Committee, as described above, to ensure that such authority is properly exercised.

Notice of Convocation of the Annual General Meeting of Shareholders

Director Company Stock Ownership Guidelines
In addition to having introduced, for Directors (excluding Outside Directors) and divisional company Executive Officers, a share-based compensation plan to further raise motivation to contribute to the improvement of mid- and long-term business performance and improve the Group’s corporate value, the Company has established "Company Stock Ownership Guidelines" for those who are holding more than a certain number of shares.

To maximize corporate value, the Company has built its management structure based on the Divisional Company Organization System. Together with assigning to each divisional company Executive Officers specializing in business execution, an Executive Committee has been established to serve as the top decision-making body in each divisional company. Executive Committee members, whose term of office is deemed to be for one year, are appointed by resolution of the Board of Directors.
By transferring authority to the divisional companies, the Board of Directors strives to achieve continual improvements in corporate value as an organization responsible for decisions on basic policies of SEKISUI CHEMICAL Group’s management as well as high-level management decision-making and supervision of business execution.

Approach to Appointment of Audit and Supervisory Board Members
SEKISUI CHEMICAL Group maintains an Audit and Supervisory Board structure consisting of two full-time Corporate Audit and Supervisory Board members and three part-time Outside Audit and Supervisory Board members for a total of five Audit and Supervisory Board members. As far as the composition of the Audit and Supervisory Board is concerned, one or more members will have knowledge and expertise in corporate finance and accounting, one or more will have knowledge and expertise in legal systems, and one or more will have knowledge and expertise in manufacturing and CS & Quality, which are extremely important for manufacturers.
Officers with experience as Head of Technology & CS Promotion Department and Head of Legal Department have been appointed as full-time Corporate Audit and Supervisory Board Members in fiscal 2022.
A certified public accountant with experience working for an auditing firm, a lawyer with extensive experience in corporate law, and a university professor specializing in quality control have been appointed as Outside Audit and Supervisory Board members.

In May 2006, the Board of Directors resolved to adopt a fundamental policy regarding the establishment of an internal control system for ensuring the appropriateness of the Group’s business activities.
Based on the Corporate Activity Guidelines set forth in accordance with the Group corporate philosophy, the Company seeks to realize collaborative interaction concerning the supervision, directives, and communications of SEKISUI CHEMICAL Group (the Company and its subsidiaries), and SEKISUI CHEMICAL’s duties include providing guidance and counsel, and undertaking evaluations of all SEKISUI CHEMICAL Group members to ensure that their business activities are being conducted in an appropriate manner.

In order to ensure the internal control system for the Company and Group companies is properly maintained and operated, our Corporate Audit Department carried out operation and accounting audits of the Company and Group companies based on a yearly auditing plan, investigating whether execution of operations is being performed appropriately and efficiently.

We hold meetings of the Sustainability Committee chaired by the president and carry out deliberations on fundamental policies and other issues related to compliance. Also, as the operational arm of the Sustainability Committee, we operate a Compliance Sub-committee, which is chaired by the Executive Officer in charge of the Legal Department, which in turn serves as the secretariat. In addition to the heads of divisional company and headquarters departments, the Head of the Corporate Audit Department also serve as members on this sub-committee. This organization reports compliance activity results and matters for Compliance Advisory Board deliberation, as well as discusses future activity policy.
In similar fashion to the previous fiscal year, expansion of the applicable scope of our internal reporting system overseas and adjustment of SEKISUI CHEMICAL Group regulation were once again important working items in fiscal 2021. With cooperation from regional headquarters in the United States, China, Europe, and Thailand, we were able to carry out these activities.
October 2021 was named Compliance Reinforcement Month, and as part of the related activities we requested all top executives to issue compliance messages and submit reports related to their content. In addition, compliance training and other activities were carried out not only in Japan but also for local employees at overseas locations such as the United States, China, Europe, ASEAN, and India.

In order to ensure that Directors carry out their duties efficiently, the Board of Directors met 17 times in fiscal 2021. In addition, discussions of important matters related to our management policies and strategies were carried out at meetings of the Policy Committee, which is made up of inside Director members. Policy decisions were made by the Board of Directions following these discussions.

Audit and Supervisory Board members attended not only the Board of Directors meetings but also other important meetings, carrying out confirmation of the maintenance and operating conditions of the internal control system through operations such as investigation of related departments, including at Group companies, and confirmation of approval documents for major projects. In addition to personally visiting various sites for audits, they also receive reports from the Internal Auditing Department and each headquarters department that has jurisdiction over internal control. The Audit and Supervisory Board met 19 times in fiscal 2021 for the purpose of sharing the information from these reports. Audit and Supervisory Board Members regularly exchanged opinions with corporate auditors, cooperating closely to improve the effectiveness of auditing efforts. Liaison meetings were held with related corporate auditors to improve coordination with auditors and enhance the quality of auditing. In addition, regular meetings were held with the Representative Director, and Audit and Supervisory Board Members also exchanged opinions with Outside Directors.

SEKISUI CHEMICAL Group maintains a risk management structure for the integrated management of measures to prevent risk events from occurring (risk management) and to respond when risk events occur (crisis management).
In fiscal 2021, we identified 17 categories of risk that could lead to serious Company-wide incidents in the five areas of safety, quality, accounting, law, ethics, and information management as significant Company-wide risks. By incorporating this into our existing organization-specific risk management activities, positive steps have been taken to realize Company-wide enterprise risk management (ERM). Specific Company-wide risks and specific risks identified for each organization based on the SEKISUI CHEMICAL Group Risk Management Guidelines are analyzed and evaluated. We then determine countermeasures for these risks and carry out repeated periodic review and revisions, which will be run through the PDCA management cycle every year.
In the event of a major incident, crisis management activities are carried out based on the SEKISUI CHEMICAL Group Crisis Management Guidelines. Crisis Management Liaison Meetings are held regularly with each specialized department of headquarters and divisional company representatives in attendance to ensure appropriate handling measures are implemented rapidly, and we also carry out education and training sessions using case studies.
In addition, efforts were made to revise and formulate an initial response plan (ERP) that places the protection of human life as the highest priority for 143 organizations as a Groupwide initiative from fiscal 2021. Moreover, we are working to put in place a resource-based business continuity plan (BCP) as an all-hazard BCP that encompasses all types of crisis events at our major business organizations. During the current medium-term, we will work to establish a BCM system that can be periodically reviewed through training and other means within our own organization.

Through rules such as our domestic and overseas affiliate company handling regulations and decision-making authority standard requirements, we have constructed a framework for receiving decision-making and reports from Group companies to the Company. In addition, our Corporate Audit Department implements internal auditing and results of audits by Audit and Supervisory Board members of our Group companies are collected at Audit and Supervisory Board meetings.