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Corporate Governance

At Sumitomo Seika, we believe that corporate governance is a means for a company to achieve sustainable growth and increase its corporate value over the medium to long term. We implement various initiatives to create and strengthen such a system.

Basic Stance

Sumitomo Seika is committed to its Corporate Mission, which is "Following the Sumitomo Business Spirit, the Sumitomo Seika Group will contribute to the advancement of society by developing world class creative technologies in the field of chemistry and, based thereon, supplying unique, high-quality products to people around the world." To ensure Sumitomo Seika's sustainable growth and enhance its corporate value over the medium to long term, we are working to strengthen and enhance our corporate governance in accordance with the following policies.

  • We ensure that our shareholders are provided with all of the information that they need to properly exercise their rights and with opportunities to exercise such rights, and that all shareholders are treated equally.
  • We foster a corporate culture that respects the interests of our stakeholders, including shareholders, customers, employees, and local communities, and proactively cooperate with them.
  • We establish and implement a code of conduct that our officers and employees must abide by and appropriately manage an internal control system.
  • We promote appropriate and adequate information disclosure through such means as publishing financial information in English and providing information via the website in a timely manner, thereby ensuring management transparency.
  • Given its fiduciary responsibilities and accountability to shareholders, the Board of Directors presents the management policies and corporate strategies of Sumitomo Seika Group and makes timely and bold decisions in order to promote sustainable growth and improve the Group’s medium to long term corporate value.
  • We engage in constructive dialogue with our partner toward achievement of sustainable growth and increased medium to long term corporate value, and we clearly explain our management strategies and plans in an easily understandable manner through such dialogue.

History of Strengthening Corporate Governance

Date Main Initiatives
2015 Jun.

Selected two independent external directors (Increased from one)

Dec.

Formulated the Sumitomo Seika Corporate Governance Guidelines
Established the Nomination and Compensation Committee
(Half of the committee members are independent external directors.)

2020 Jun.

Selected three external auditors (one female)

2021 Jun.

Took the form of a company with an audit and supervisory committee
Changed the composition of the Board of Directors so independent external directors comprise one third or more of members
Changed the composition of the Nomination and Compensation Committee
(Majority of the committee members are independent external directors.)

Nov.

Formulated standards relating to the appointment of independent external directors

Dec.

Established the Sustainability Committee

2023 Jun. Selected independent external directors with management experience

Corporate Governance Structure

On June 25, 2021, we transitioned from a company with a board of corporate auditors structure to a company with an audit and supervisory committee structure in order to further enhance corporate governance and management transparency by strengthening the supervisory function of the Board of Directors, as well as to accelerate decision-making and thereby further increase our corporate value. The current management structure consists of seven directors (excluding those who are members of the Audit and Supervisory Committee) and thirteen executive officers (including five who concurrently serve as directors).*
In order to strengthen corporate governance, realize efficient management, and enhance competitiveness, we have adopted an executive officer system that separates directors, who are responsible for formulating basic corporate policies, determining strategies, and supervising business execution, from executive officers, who focus on business execution.
*Under the Articles of Incorporation, the number of directors (excluding those who are members of the Audit and Supervisory Committee) is limited to ten and those who are Audit and Supervisory Committee members to five.

Outline of Corporate Governance Structure

Board of Directors

As well as deciding on management strategies and other important management matters, in accordance with laws and regulations, the Board of Directors takes reports on business execution and other topics from individual directors, and provides oversight to directors’ business execution and other duties. To strengthen the management monitoring and supervision function, executive officers and other non-directors attend board meetings as necessary to explain the status of business execution.
The term for directors who are not members of the Audit and Supervisory Committee is one year, and candidates are nominated by the board, after considering reports by the Nomination and Compensation Committee, and then selected at the Shareholders Meeting.

Outline of the Board of Directors (FY2022)

Chair

President

Members

7 directors (excluding those who are members of the Audit and Supervisory Committee, and including 5 directors concurrently serving as executive officers)
4 directors (members of the Audit and Supervisory Committee)

Frequency of Meetings

Once a month in principle, with extraordinary meetings as necessary

Number of Meetings

13 times

Attendance

OGAWA Ikuzo 13 times out of 13 times (100%)
HAMATANI Kazuhiro 13 times out of 13 times (100%)
MURAKOSHI Masaru 13 times out of 13 times (100%)
TOYA Takehiro 13 times out of 13 times (100%)
MACHIDA Kenichiro 13 times out of 13 times (100%)
SHIGEMORI Takashi 11 times out of 13 times (85%)
KATSUKI Yasumi 13 times out of 13 times (100%)
MICHIBATA Mamoru 13 times out of 13 times (100%)
KAWASAKI Masashi 12 times out of 13 times(92%)
MIURA Kunio 12 times out of 13 times (92%)
KISHIGAMI Keiko 13 times out of 13 times(100%)

Audit and Supervisory Committee

The Audit and Supervisory Committee audits directors' business execution from the perspective of legality and appropriateness, thereby contributing to the improvement of the Company's corporate governance. It also shares opinions and deliberates about, and investigates, a wide range of topics related to the suitability and effectiveness of management, and compliance, as well as offering advice or suggestions on legality and suitability.
The committee consists of one director (full-time Audit and Supervisory Committee member) and three external directors (Audit and Supervisory Committee members), and conducts effective audits by combining the independence of the part-time members with the information-gathering capabilities of the full-time member.

Outline of the Audit and Supervisory Committee (FY2022)

Members

4 directors (including 3 external directors)

Frequency of Meetings

Once a month in principle, with extraordinary meetings as necessary

Number of Meetings

14 times

Attendance

MICHIBATA Mamoru 14 times out of 14 times(100%)
KAWASAKI Masashi 13 times out of 14 times(93%)
MIURA Kunio 14 times out of 14 times (100%)
KISHIGAMI Keiko 14 times out of 14 times(100%)

Management Meeting

The Management Meeting holds discussions among executives when the Company decides on management strategies or other important management matters.

Nomination and Compensation Committee

The Nomination and Compensation Committee is a consultative body that offers advice on the selection of executives, the nomination of directors, and matters pertaining to remuneration. More than half of its members are independent external directors. It gives the Board of Directors advice on the selection of executives and on decisions about their compensation, to ensure that these processes are transparent and fair.

Sustainability Committee

The Sustainability Committee carries out a number of duties to promote sustainability management, including formulating sustainability policies, making sustainability plans, verifying and improving sustainability promotion at Sumitomo Seika and group companies, and other tasks necessary to promote sustainability management.

Internal Control Committee

The Internal Control Committee receives reports on how our internal control systems are operating, offers necessary guidance to different parts of the organization as well as the Risk & Compliance Committee, and works to maintain and enhance internal controls in order to bring them together.

Responsible Care Committee

The Responsible Care Committee discusses and determines the drawing up of medium and long-term plans connected to safety, the environment, and quality (incl. risks and compliance); the formulation of fiscal-year plans for the entire Group; major changes to task systems; measures to combat major problems; and other topics.

HR Committee

The HR Committee is responsible for the selection and training of executive candidates and appoints them to, and continuously reviews, important positions (department manager equivalent of higher, special-grade reemployment, etc.)

Corporate Governance Structure Chart
Corporate Governance Structure

Evaluating the Effectiveness of the Board of Directors

One aspect of our efforts to improve corporate governance is an evaluation of how effectively the Board of Directors is operating. See below for the results of the evaluation for fiscal 2022.

How we judge effectiveness

Board of Directors effectiveness evaluations are carried out according to the following processes.

  1. Each director completes a self-assessment (questionnaire)
  2. Interviews are conducted based on the answers given in ①
  3. Based on ① and ②, the current situation is analyzed, and issues identified
  4. The Board of Directors discusses the effectiveness evaluation and issues based on ③

The self-assessment includes the following topics:

  • Operations of the Board of Directors and its systems (no. of agenda items, time allocated, etc.)
  • Composition of the Board of Directors
  • Status of discussions, explanations, and reports at the Board of Directors
  • Status of oversight by the Board of Directors (of areas such as implementation of business plans,risk management, internal controls, and compliance)
  • Oversight of training for those who will succeed to executive posts
  • Status of efforts toward issues identified in the previous yearʼs effectiveness evaluation
FY2022 Board of Directors effectiveness evaluation

Based on the results of the questionnaires and interviews conducted with each director, the Board of Directors discussed the status of efforts toward issues from the last evaluation, as well as issues with the effectiveness of the board in the most recent fiscal year and measures to address these. Taking all of the above into consideration, the Board of Directors determined that it was adequately fulfilling the roles and functions it expected of itself. For more details, please see below.

Status of efforts toward issues identified in the previous yearʼs effectiveness evaluation
The Board of Directors responded to issues identified in the previous yearʼs effectiveness evaluation as follows:

  • The Board of Directorsʼ oversight of business execution and the setting of KPIs
    For the Board of Directors to oversee business execution, it has set both financial and non-financial KPIs.
    Non-financial targets have also been set announced with the formulation of the medium-term business plan for FY2023‒2025.
  • A Board of Directors composition that contributes to better governance
    To enhance governance, the Board of Directors were appointed as independent external directors who have experience of corporate management at the 110th Annual Shareholders Meeting on June 23, 2023.
  • Other ((ⅰ) formulation of the medium-term business plan, (ⅱ)) reporting to the Board of Directors by the Management Meeting, etc.)
    With regard to (ⅰ) formulating the next medium-term business plan, it was drawn up after sufficient, and repeated, discussions between the board and those on the business execution side and external directors.
    As for (ⅱ) reporting to the Board of Directors by the Management Meeting and other committees, rather than just providing summaries, they centered their reports on discussion processes or responses to issues they had become aware of. In light of the above, the initiatives that the Board of Directors is undertaking— one example measure being the further strengthening of its oversight functions—are appropriate.

Issues identified in the latest effectiveness evaluation and future actions
Taking into consideration the results of the effectiveness evaluation, going forward we will take the following actions in response.

  • Bolstering oversight for personnel strategies
    To accomplish the goals of our growth strategies, the Board of Directors receives thorough reports about approaches and initiatives toward personnel strategies and human-capital-focused management. It will deepen its discussions about personnel strategies in order to come up with desired attributes required for different levels of personnel—directors, executive officers, and ordinary workers—and to secure and train personnel.
  • Enhancing the information provided to external directors
    To ensure that external directors can attend meetings with a full understanding of the Company, we ensure opportunities for external directors who are not members of the Audit and Supervisory Committee to accompany those who are on their auditing visits. We also provide chances for them to receive explanations about the tasks performed by different departments. Through these and other measures, we will raise the quality and quantity of information given to external directors.
  • Improving the operation of the Nomination and Compensation Committee
    At present, the person selected to chair the Nomination and Compensation Committee is the president, as decided by mutual vote. However, to further increase transparency, we are looking into, and laying the ground for, a chair from outside the Company.
  • Upgrading the creation methods for Board of Directors materials and their volume
    With the aim of preventing increases in any more materials than are necessary, reducing the time needed for directors to check such materials, and preventing explanations to the Board of Directors from taking far too long, the secretariat will supply departments with important points about creating documents or giving explanations, and make these more widely known. This will allow more time for discussion by the Board of Directors and enhance its effectiveness.

Nomination and Compensation of Directors

Nomination of Candidates for Directors

The nomination of candidates for the Board of Directors is decided by the Board of Directors, taking into consideration the candidate's past performance and whether he or she can contribute to the Company's sustainable growth and increase in corporate value. In addition, the submission of proposals for the election or dismissal of directors to the Board of Directors requires the deliberation and opinion of the Nomination and Compensation Committee.

External Directors

We designate external directors as independent directors and notify the Tokyo Stock Exchange of their designation, in order for them to express their opinions on management policy and management improvement, supervise business execution, and ensure proper management from an independent and external standpoint.
At least one-third of the total number of directors are external independent directors. If circumstances arise in the future that require an increase in the number of external independent directors due to changes in the business environment or other factors, we will consider increasing the number of personnel according to the required fields.

Independence Criteria for Designation of Independent Directors

Independent external directors may be qualified as independent directors if they possess excellent ability, experience and insight that contribute to the management of the Company and can be expected to contribute to frank, active and constructive discussions at the Board of Directors, and if none of the following a. through i. apply.

  • An executor of the business of the Company or a company of the Company’s Group (a director other than an external director, an executive officer, or an employee [by whatever name, any person having an employment relationship with the Company or a company of the Company’s Group])
  • An executor of the business of a major customer or business partner. A major customer or business partner means a person who falls under any of the following items.
    • A business partner providing products or services to the Company or a customer to whom the Company is providing products or services of which the total amount of such transactions in the most recent business year relevant to intended designation as an independent officer exceeds 2% of the Company’s unconsolidated sales or exceeds 2% of their sales to the Company
    • A financial institution providing loans to the Company of which the total amount at the end of the most recent business year relevant to intended designation as an independent officer exceeds 2% of the Company’s unconsolidated sales; provided, however, that even if the amount does not exceed 2%, a financial institution stated as a lender to the Company on annual securities reports, business reports, or other public documents shall be included in major business partners
  • A consultant, certified public accountant, attorney, or other expert receiving remuneration from the Company other than remuneration for officers of which the total amount of the remuneration paid, other than the remuneration for officers from the Company, in the most recent business year relevant to intended designation exceeds 10 million yen
  • A person who belongs to an organization that is a consulting firm, tax accounting firm, law office, other corporate body, or partnership, which has transactions with the Company, and whose sales to the Company in the most recent business year relevant to intended designation as an independent officer exceeds 2% of the organization’s total sales or 10 million yen, whichever is larger
  • A shareholder of the Company whose share of voting rights at the end of the most recent business year relevant to intended designation as an independent officer is 10% or more (a total of direct and indirect holdings) of the total voting rights or an executor of the business at the shareholder entity
  • Of the companies in which the Company holds shares, a company in which the Company’s share of the voting rights at the end of the most recent business year relevant to intended designation as an independent officer is 10% or more (a total of direct and indirect holdings) of the total voting rights or an executor of the business at the shareholder entity
  • A person who belongs to an auditing firm that conducts statutory audits of the Company
  • A person to whom a above was applicable in the past or to whom any of b. to g. above was applicable in the past five years
  • A spouse or a relative (within a second degree of kinship) of a person to whom any of a. to h. above applies

Compensation for Directors

1. Remuneration decision-making policy
  • Basic Policy for Determining Compensation Amounts
    • The compensation system for directors and executives (executive officers with control over business operations) uses the achievement of performance targets as an incentive and aims for long-term increases in corporate value, not just quick profits.
    • Compensation shall be set at a level that is competitive in terms of attracting and retaining human resources, while taking into consideration the size and nature of the Company's business and other factors.
    • Whether the level of compensation is reasonable or not is something that is reviewed using objective materials.
    • The amount of individual compensation shall be determined based on whether or not the director concurrently serves as an executive officer, the executive officer's position (president, senior managing director, managing director, without role, etc.), and whether he/she is independent.
    • The transparency and fairness of decisions about compensation are ensured with contributions from the Nomination and Compensation Committee, more than half of whose members are independent external directors.
    • Compensation for directors who are members of the Audit and Supervisory Committee shall be limited to base remuneration only, and shall be determined through consultation among the Audit and Supervisory Committee members within the scope of the total amount of remuneration determined by a resolution of the Shareholders Meeting.
  • Compensation Breakdown
    • Compensation for directors and executives comprises two elements: fixed compensation (“base compensation”) and compensation linked to the Companyʼs business performance (“performance-linked compensation”) that takes the form of bonuses or stock-based compensation in the Company.
    • Directors who are not involved in business execution are responsible for monitoring and overseeing management; as such, they only receive base compensation.
    • Achieving an operating income of 12 billion yen, target performance indicator for the final year of the medium-term management plan (FY2023 to FY2025), the ratio of basic remuneration and performancebased remuneration(bonuses and s tock compensation)for each fiscal year is designed to be approximately 7:3. (The ratio between performance-based compensation bonuses and stock compensation is designed to b e approx. 7:3).
  • Base compensation
    • Base compensation is according to roles and responsibilities, in order to function as the foundational remuneration for professional duties.
    • Base compensation is paid as a pecuniary amount, monthly.
  • Performance-linked compensation
    • Bonuses: As short-term incentives tied into achievement of targets set in the medium-term business plan, these fluctuate depending on the consolidated performance for each fiscal year, and are paid as a pecuniary amount at a fixed time each year (scheduled for the end of June).
    • Stock-based compensation is positioned as a medium- and long-term incentive to promote a greater sharing of value with shareholders and sustainable growth for the Company. This is paid at a time decided by the Board of Directors.
2. Mechanisms of Each Compensation Element
  • Base compensation
    • The base compensation amount shall not be changed during the term of office (one year).
    • Should the "size of the Company" (net sales, market capitalization, number of employees) and "profitability" (operating income, ROE, D/E ratio) change, this will be reflected in the amount for the following year (term of office).
  • Performance-linked compensation and bonuses (short-term incentives)
    • These are paid on the proviso that consolidated operating income for the relevant fiscal year reaches or exceeds 5 billion yen, and are determined according to the formula below.
      Bonus calculation formula: performance indicator x coefficient
    • The performance indicator is the sum of consolidated operating income and financial balance, in order to reflect the consolidated performance for each fiscal year.
    • The coefficient is used to calculate the amount of bonus (set by position, etc., and according to whether the recipient is also a director and according to their position, with the higher the position, the higher the coefficient) based on the ratio given in 1.(2)(ⅲ) left, and the relevant bonus amount is set as a division of the target of 12 billion yen.
    • It is possible to reflect individual performance for each person's bonus within a range of +/- 10% based on the caluculation formula. However, the total bonus amount does not change.
  • Performance-linked compensation and stock-based compensation (medium- and long-term incentives)
    • Transfer-restricted stock in the form of common shares of the Company is granted in a number dependent on the recipientʼs position and other factors (however, the grant takes the form of payment as monetary claims equivalent to the price of the relevant shares; for directors and executives it will be paid in as property contributed in kind, to be received as shares of the Companyʼs common stock to be issued or disposed of).
    • The number of shares is determined based on the ratio given in 1. ② (ⅲ) left, according to whether the recipient is also a director and with the higher the position, the higher the number.
    • Recipients must hold the shares until they resign or retire from the position by the Company.
3. Organization and Procedures for Determining Directorsʼ Compensation

Shareholders Meeting
It was resolved and approved at the 108th Annual Shareholders Meeting, which was held on June 25, 2021, that the total annual amount of compensation for all directors who are not members of the Audit and Supervisory Committee shall be not more than 360 million yen (including 20 million yen for external directors). The number of executives to which this resolution relates is eight (including one external director).
It was also resolved and approved at the 108th Annual Shareholders Meeting held on June 25, 2021, that the total annual amount of compensation for all directors who are members of the Audit and Supervisory Committee shall be not more than 60 million yen. The number of directors to which this resolution relates is four.
At the 110th Annual Shareholders Meeting held on June 23, 2023, it was determined that the total amount set aside for transfer-restricted shares to directors shall be set to not more than 90 million yen per annum. The number of executives affected by this resolution is seven directors (excluding those who are members of the Audit and Supervisory Committee), including one external director and one non-executive director.

Board of Directors and Consultative Body
The Company has established the Nomination and Compensation Committee as a consultative body to the Board of Directors on compensation for executives and directors who are not members of the Audit and Supervisory Committee. The Nomination and Compensation Committee, consisting of the president, the director in charge of human resources, and three independent external directors, is intended to ensure transparency and fairness in the determination of compensation for executives and directors who are not members of the Audit and Supervisory Committee by advising the Board of Directors regarding the determination of compensation systems, levels, and specific amounts to be paid.
The Board of Directors deliberates and determines the policy and method of determining compensation for directors and executive officers based on advice from the Nomination and Compensation Committee. As they perform corporate management under the leadership of top management, the amounts of individual compensation for executives and directors who are not members ofthe Audit and Supervisory Committee for the relevant fiscal year have been delegated by Board of Directors decision to President to determine. Conditions to this delegation to the president have been set:(1) the amount of individual compensation for executives and directors who are not members of the Audit and Supervisory Committee is determined in accordance with relevant policies, and (2) the president will ask the Nomination and Compensation Committee to look at individual compensation amounts and decide whether or not they are suitable, according to the compensation determination policy above, and will accept the committee's answer when they decide they are suitable. Through the above, we have ensured that the president exercised his authority appropriately, and judged that the individual compensation amounts for executives and directors who are not Audit and Supervisory Committee members are in line with relevant policies.

Nomination and Compensation Committee

Roles of the Nomination and Compensation Committee

In order to ensure objectivity, transparency and fairness in the selection process of directors and executive officers, the Nomination and Compensation Committee deliberates on the following matters and provide opinions to the Board of Directors.

  1. Criteria for the selection of directors
  2. Skill sets required of the Board of Directors
  3. Nomination of candidates for directors and selection and dismissal of executive officers
  4. Policy on compensation for directors and senior management (executive officers and other management)
  5. Determination of the individual amount of compensation for directors and executive officers
The Activities Details of the Nomination and Compensation Committee

Committee and other activities related to executives nomination and compensation in fiscal 2022 were as follows.:

  • Nomination and Compensation Committee: 4 meetings
  • Deliberations on revision of the policy for determining compensation of directors
  • Deliberations on fixed compensation
  • Deliberations about executive officer selection
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