1. Framework for Corporate Governance
(1) Overview of Framework for Corporate Governance
UBE has had the board of company auditors to improve supervisory functions with the board of directors. By means of this, we promote fairness and transparency of management. And we have a system for executive officers in place since June 2001, with the aim of separating governance and management functions. As of the date of submitting annual security report, the management team comprises eight directors and 24 executive officers, three of whom are also directors. As a rule, the Board of Directors is chaired by a director who does not serve as an executive officer. The Board strives to achieve regulatory compliance and adhere to the articles of incorporation and Board rules, in making decisions about critical matters concerning the running of the Company. The Board also oversees the directors and executive officers to ensure that they execute their business in an appropriate and efficient manner. Executive officers are entrusted by the President and Representative Director to execute the Company's business, guided by the management policies decided by the Board.
UBE has appointed outside directors since June 2005, in order to secure an independent, third party perspective for decision making and monitoring of management, and secure the efficiency, transparency, and objectivity of management. Furthermore, UBE does not use a nominating committee management system, but operates a Nominating Committee and Evaluation and Compensation Committee that report to the Board of Directors. As of the date of submitting the securities report, the committees are made up of six directors each, with each committee headed by an outside director.
Directors and executive officers currently serve a term of one year. The shorter term was adopted at a general shareholder's meeting on June 28, 2007, in order to facilitate greater flexibility in the appointment of directors and executive officers, and reinforce a results-oriented approach in striving to improve the business results of the UBE Group for the short term as well as in the medium- and long-range future.
Under the current framework for corporate governance, UBE incorporates outside perspectives in an effort to raise the efficiency of management and speed of decision making, and increase the transparency of management and better supervise management.
(2) Internal Controls
The Board of Directors has outlined a basic policy for establishing an internal control system (date of initial resolution: May 11, 2006; most recent revision resolution date: March 28, 2015). Corporate organization details are covered under the decision-making meeting structure outlined in item 5 of the Basic Policy for Establishing Internal Control. To learn more about UBE's basic policy for establishing internal control, click here.
(3) Corporate Organization and Internal Control
(4) Framework for Risk Management
UBE has outlined a basic policy for establishing internal control that secures risk management by ensuring that directors and employees achieve regulatory compliance and adhere to the articles of incorporation in executing their duties. The Company also operates rules and other systems to manage the risk of losses.
(5) Accounting Audit
The names of certified public accountants conducting audit operations on the Company's accounts, years of continuous service and the name of the auditing firm are shown in the table below.
|Names and other details of certified public accountants||Name of the auditing firm|
|Designated Limited Liability Partner||Tomohiro Narita||Ernst & Young ShinNihon LLC|
Note: Years of continuous service for all concerned are less than seven years. Accordingly, details have been omitted.
Details of individuals assisting in accounting audit operations: Number of certified public accountants: 10; Number of other staff: 24
- A. Overview of the content of limited liability contracts
In accordance with Article 427, Paragraph 1 of Japan's Companies Act, the Company has concluded contracts that limit the liability for damages of outside directors stipulated under Article 423, Paragraph 1 of the same act. The limit of the liability for damages under each contract is the minimum limit prescribed by law.
In addition, changes to the Company's Articles of Incorporation allowing UBE to conclude contracts that limit the liability for damages of outside corporate auditors were authorized by a resolution of shareholders at the Company's Annual General Meeting of Shareholders held on June 26, 2009. Accordingly, UBE has concluded limited liability contracts with two outside corporate auditors.
- B. The number of directors
- The Company's Articles of Incorporation stipulate that the number of directors shall not exceed 15.
- C. Requirements for the resolution of director appointments
- The Company's Articles of Incorporation stipulate that a resolution for the appointment of a director requires the attendance of shareholders with more than one-third of the voting rights of shareholders eligible to exercise voting rights. Appointments are determined by a majority of voting rights of the aforementioned shareholders in attendance and not by the cumulative number of votes.
- D. Items for resolution at the Company's Annual General Meeting of Shareholders that may be resolved by the Board of Directors
- ⅰ. Acquisition of own shares
- In accordance with Article 165, Paragraph 2 of Japan's Companies Act, UBE's Articles of Incorporation state that the Company may acquire its own shares by market or other transactions pursuant to a resolution of the Board of Directors. This provision is designed to enable the Company to conduct capital policies in an expeditious manner.
- ⅱ. Interim dividends
- In accordance with Article 454, Paragraph 5 of Japan's Companies Act, UBE's Articles of Incorporation state that the Company may undertake the payment of an interim dividend pursuant to a resolution of the Board of Directors. This provision is designed to enable the Company to distribute profits to shareholders in an expeditious manner.
- E. Requirements for special resolutions at the Company's Annual General Meeting of Shareholders
- In accordance with Article 309, Paragraph 2 of Japan's Companies Act, UBE's Articles of Incorporation state that special resolutions at the Company's Annual General Meeting of Shareholders require the attendance of shareholders with more than one-third of the voting rights of shareholders eligible to exercise voting rights and are determined by more than two-third of voting rights of aforementioned shareholders. This provision is designed to allow for the flexible and smooth operation of Annual General Meetings of Shareholders by moderating a quorum applicable to special resolutions.
2. Internal Audits and Audits Conducted by Corporate Auditors
(1) Internal Audits
Internal audits are conducted by UBE's Audit Department, which has a staff of 12 people and reports directly to the President as an independent organization. Internal audits cover the entire UBE Group including overseas subsidiaries, and are designed to check internal controls and verify regulatory compliance and adherence to internal rules and guidelines. The Audit Department seeks to identify potential risks in all business activities, and continually exchanges information with UBE's independent accounting auditors and consults with them regarding the internal control system and its operation. The General Manager of the Audit Department also participates in company-wide risk management organizations such as the Compliance Committee and Information Security Committee, and works with other committee members to strengthen the risk management.
(2) Audits Conducted by Corporate Auditors
Four corporate auditors including two outside auditors and three additional support staff work in the Corporate Auditor's Office to conduct management audits based on the audit policy and audit plan that are formulated each fiscal year. Corporate auditors attend meetings of the Board of Directors and other important meetings to provide input, and review important approval documents and receive business reports from directors and officers. These activities are designed to ensure that directors and executive officers suitably execute their duties.
Setsuro Miyake, a full-time corporate auditor, spent a total of nine years (from June 2002 to June 2011) working in the Company's administration and accounting departments, including serving as General Manager, Accounting Dept., Corporate Planning & Administration Office, from April 2006 to April 2011. During this entire nine-year period, he was engaged in such activities as account settlement procedures and the preparation of financial statements. Miyake is accordingly well versed in finance and accounting matters.
Takanobu Kubota, a full-time corporate auditor, spent 21 years (from January 1986 to March 2007) working in the Company's finance departments, including serving as General Manager of the Finance Department, Corporate Planning & Administration Office, from April 2005 to March 2007. Kubota has been involved in financing and currency exchange, and is highly knowledgeable about finance and accounting.
(3) Audit Cooperation and Internal Controls
Corporate auditors regularly and when necessary meet with independent accounting auditors to receive updates about implementation and planning for audits, and receive reports from their counterparts at Group companies on the implementation status of audits. Corporate auditors also conduct regular study meetings and feedback meetings to improve audit quality.
They also participate in regular study meetings and feedback meetings regarding audits to improve audit quality. Close cooperation is achieved through regular information exchange between corporate auditors and the Audit Department. Members of the Audit Department assist with audits conducted by corporate auditors as needed.
The main departments involved in internal control are the Corporate Planning & Administration Office, General Affairs & Human Resources Office, Environment & Safety Department, and CSR Department. These departments work closely with corporate auditors and the Audit Department to ensure the suitability of business execution including regulatory compliance, by supporting audits conducted by corporate auditors and internal audits conducted by the Audit Department. The Corporate Planning & Administration Office is responsible for consulting with independent accounting auditors on internal control related to financial reporting, and responds to accounting audits.
3. Outside Directors and Outside Corporate Auditors
(1) Number of Outside Directors and Outside Corporate Auditors and Their Relationship to UBE
UBE’s four outside directors are Takashi Kusama, Keikou Terui, Takashi Shoda and Mahito Kageyama. Its two outside corporate auditors are Seiichi Ochiai and Miyako Suda. As detailed below, these individuals have no personal connection with UBE, nor do they have any vested interest in the Company, such as a relationship as a business partner. The four outside directors and two outside corporate auditors are registered with the Tokyo Stock Exchange as independent directors. Outside director Keikou Terui owns 40,000 shares of UBE stock. Outside director Takashi Shoda owns 27,000 shares. Outside director Mahito Kageyama owns 6,000 shares. Outside corporate auditor Seiichi Ochiai owns 14,000 shares. Outside corporate auditor Miyako Suda owns 47,000 shares.
(2) Standards Aimed at Ensuring Independence in the Selection of Outside Directors and Outside Corporate Auditors
In cases where candidates hold or have held an executive position with a business partner of UBE or with a company that owns shares in UBE or have another interest, when selecting outside director and outside corporate auditor candidates, careful consideration is given to the percentage of the total transaction volume of such companies made up by the transaction volume (sales, the balance of total outstanding borrowings, etc.) between UBE and such companies, as well as to the equity stake such companies hold as a percentage of UBE’s total number of shares outstanding. These considerations are used to determine the presence or otherwise of any vested interest in the Company or conflict of interest with general shareholders.
(3) Approach to Independence of Outside Directors; Functions and Roles in Corporate Governance
- A. Takashi Kusama
Takashi Kusama was previously an executive officer of The Industrial Bank of Japan (IBJ, now Mizuho Bank, Ltd.), which is one of UBE’s main lenders. After leaving IBJ in March 2000, Kusama was appointed Representative Director and President of Shinko Securities Co., Ltd. and later became Representative Director and Chairman of the Board of Directors of Mizuho Securities Co., Ltd. Kusama has served as an advisor to Mizuho Securities since June 2011. It should be noted that lead underwriter and other business related to the issuance of straight bonds as part of the Company’s fund procurement are conducted between UBE and Mizuho Securities Co., Ltd.
However, as Mizuho Securities Co., Ltd. is one of a number of lead underwriters, there are no special-interest relationships between UBE and Mizuho Securities Co., Ltd.
There is also no risk of a conflict of interest with general shareholders.
- B. Keikou Terui
During a long career with the Ministry of Economy, Trade and Industry, Keiko Terui held a number of important positions as an administrative official. He currently serves as director of the non-profit Japan Utility Telemetering Association, which has no major transactions with UBE. This ensures full independence from UBE and there is no risk of a conflict of interest with general shareholders.
Terui brings valuable advice based on his expertise, to help UBE achieve sustainable growth and enhance its corporate value over the medium and long term. He also provides an independent and third party perspective on UBE's decision making and monitoring of management, playing an important role in helping to secure the efficiency, transparency, and objectivity of management.
- C. Takashi Shoda
Takashi Shoda held a number of management positions during a long career with leading pharmaceutical manufacturer Daiichi Sankyo Co., Ltd. He was appointed advisor to UBE in June 2014. UBE has transactions with Daiichi Sankyo for pharmaceutical products, which accounted for less than one percent of UBE's net sales in the fiscal year ended March 31, 2015. As such, Daiichi Sankyo has no particular vested interest in UBE, nor is there a risk of conflict of interest with general shareholders.
Shoda brings valuate value over the medium and long term. He also provides an independent and third party perspective on useful advice based on his expertise, to help UBE achieve sustainable growth and enhance its corporate value over the medium and long term. He also provides an independent and third party perspective on UBE's decision making and monitoring of management, playing an important role in helping to secure the efficiency, transparency, and objectivity of management.
- D. Mahito Kageyama
- Mahito Kageyama was previously an executive officer of UFJ Bank Ltd. (UFJ, now The Bank of Tokyo-Mitsubishi UFJ, Ltd.), which was then one of UBE’s main lenders. After leaving UFJ in February 2003, Kageyama took up management positions with trading companies, including serving as president of Tomen Corporation and vice president of Toyota Tsusho Corporation. Toyota Tsusho has transactions with the Company for chemical products, which accounted for less than one percent of UBE’s net sales in the fiscal year ended March 31, 2017. As such, Toyota Tsusho has no particular vested interest in the Company, nor is there a risk of conflict of interest with general shareholders.
(4) Outside Corporate Auditors' Views on Independence and Their Functions and Roles in Securing Corporate Governance
- A. Seiichi Ochiai
During a long career as a legal scholar, Seiichi Ochiai has held positions as a professor at The University of Tokyo and Seikei University. She currently serves as a Professor Emeritus at The University of Tokyo and Of Counsel Attorney at law firm Nishimura & Asahi, as well as serving as an outside auditor of Nippon Telegraph and Telephone Corporation and outside director of Meiji Yasuda Life Insurance Company. Ochiai has never served as an executive officer of a main shareholder of UBE or a company having major transactions with UBE. There is also no risk of a conflict of interest with general shareholders.
UBE considers Ochiai suitable to serve as an outside corporate auditor and further strengthen UBE's auditing, by auditing the execution of duties by directors from an independent and neutral standpoint, and giving feedback from his specialized expertise and extensive experience.
- B. Miyako Suda
During a long career as an economist, Miyako Suda has held positions as a professor at Senshu University and Gakushuin University. She currently serves as a special advisor to The Canon Institute for Global Studies, outside director of Fujitsu Limited, and outside director of Meiji Yasuda Life Insurance Company. Suda has never served as an executive officer of a main shareholder of UBE or a company having major transactions with UBE. There is also no risk of a conflict of interest with general shareholders.
UBE considers Suda suitable to serve as an outside corporate auditor and further strengthen UBE's auditing, by auditing the execution of duties by directors from an independent and neutral standpoint, and giving feedback from his specialized expertise and extensive experience.
(5) Monitoring, auditing, and internal auditing by outside directors and outside corporate auditors; cooperation with audits conducted by corporate auditors and accounting audits and relationships with internal control departments
Outside directors monitor and oversee the Company's overall management by offering valuable input to the Board of Directors from an external and independent perspective. At the same time, opinions and information are exchanged with corporate auditors as well as directors and other officers responsible for internal control departments. Moreover, outside corporate auditors receive in advance explanations based on documents and materials from internal control departments, including the Corporate Planning & Administration Office, in connection with deliberation and reporting items of the Board of Directors.
Outside corporate auditors exchange opinions and information focusing on audit policies, audit plans, and audit results at meetings of the Board of Corporate Auditors. In addition, every effort is made to enhance communication and collaboration among corporate auditors. Outside corporate auditors regularly meet with corporate auditors and accounting auditors, and receive reports from full-time auditors regarding the details of the collaboration described in the preceding Section 2 (3) between auditors and departments for internal audits and internal control.
4. Director and Corporate Auditor Compensation
(1) Compensation by Appointment Type and No. of Persons Compensated
|Compensation by Type (Million Yen)||No. of
outside corporate auditor
(2) Policy for Deciding Director and Corporate Auditor Compensation and Method of Calculation
The structure of remuneration at UBE consists of base compensation and stock options, and is specifically determined as below.
- The structure of remuneration of directors (excluding outside directors) and executive officers at UBE consists of base compensation and stock options, and is specifically determined as below.
1) Base compensation is calculated by the sum of the following components: a fixed compensation portion; a performance-linked portion based on achievement of designated consolidated earnings indicators such as operating income, net income and free cash flow; a portion based on achievement of job targets for each director/executive officer; and a portion based on achievement of performance indicators for safety.
2) Stock options are awarded to provide an added incentive to achieve medium- and long-range targets consistent with the interests of shareholders.
- Outside directors receive base compensation only, at a fixed amount.
- In order to secure transparency and objectivity, compensation for directors and executive officers is reviewed by the Evaluation and Compensation Committee, which operates as an internal committee of the Board of Directors and on which the Chairman and a majority of the members are, as a rule, outside directors. After reviewing the proposed compensation, the committee forwards its recommendations and findings to the Board.
- Corporate auditors receive base compensation only, at a fixed amount. Since July 2016, internal corporate auditors have received a fixed amount the same as the outside corporate auditors.
- External data is constantly referenced in order to objectively verify the suitability of director and corporate auditor compensation levels.