Continuous Reform of the Board of Directors (April 2016–End of June 2017)
Based on its corporate philosophy, the Kurita Group works to enhance corporate governance with the aim of carrying out transparent, fair, prompt, and decisive decision-making and highly effective management supervision in order to achieve sustainable growth and raise corporate value. Accordingly, in the fiscal year ended March 31, 2017, we worked on a variety of governance reforms.
Reinforcing Functions of the Board of Directors
In the evaluation of the effectiveness of the Board of Directorsthat took place in the fiscal year ended March 31, 2016, it was considered as an issue to implement further reinforcement so that the Board of Directors intensively discuss important matters, such as setting longer-term targets and drawing up strategies. Accordingly, in the fiscal year ended March 31, 2017, the Board of Directors discussed the possibility of its transition to either a company with a nominating committee, etc., or a company with an audit & supervisory committee, as well as its basic approach to the task of improvement in operations execution systems and validity of matters to be resolved at Board meetings.
As a result, while it was determined that the audit & supervisory board system continues to function effectively, we will continue to consider a change in our organizational design. As well, in order to intensively discuss important matters at Board meetings, part of the decision-making authority was transferred to the Executive Committee, which is composed of management executives, and operating divisions from the Board of Directors. At the same time, with regard to the status of operational execution, the number of matters to be reported at Board meetings was reduced. From April 2017, with the Investment Committee established to consider and examine business strategies and financial matters prior to discussion on investment projects at Board meetings, we strove to further ensure the effectiveness of discussions at Board meetings.
Size and Composition of the Board of Directors
The Board of Directors comprises three or more members, of which two or more are external directors, ensuring the independence and objectivity of the Board. As of June 29, 2017, the Board has 10 directors, of which two are external directors. To carry out oversight functions regarding the execution of business, the Board has members from each business segment as well as specialized personnel from corporate planning, finance and accounting, legal affairs, technology, and other fields, creating a structure that augments the knowledge and experience needed by the Board as a whole to make decisions. The term of office of directors is set to one year. This is intended to facilitate flexible changes to the management structure in response to changes in business conditions.
Nomination & Remuneration Advisory Council
Kurita Water Industries Ltd. has in place a Nomination & Remuneration Advisory Council, a voluntary committee to increase transparency in the decision-making process regarding remuneration for directors and nomination of directors and members of the Audit & Supervisory Board. The Council, which mainly comprises external directors and external members of the Audit & Supervisory Board, is consulted about candidates for officers and their remunerations, and submits a report on appropriateness thereof to the Board of Directors. Through the application of these processes, the effectiveness of improvements in transparency will be verified.
Profile of Nomination & Remuneration Advisory Council (April 2016–End of June 2017)
- ※ Job titles are stated as of after April 2017
Activities of External Directors and Reasons for Appointment
The roles that the Kurita Group expects its external directors to perform are to increase rationality and transparency in decision-making by the Board of Directors by checking management from viewpoints which internal people do not have, with insight cultivated through managerial experiences and knowledge in special fields.
The Board of Directors valued the increased dynamism of its deliberations following the appointment of Mr. Seiji Nakamura in June 2013. Therefore, the number of external directors became two, with Mr. Tsuguto Moriwaki appointed in June 2015. Since assuming office, both of them have attended all of the Board meetings held, actively made comments, and provided a wide range of recommendations on reinforcing functions of the Board of Directors, some of which have been adopted by the Board of Directors.
The standard of their consecutive reappointments is set at three times as the Company expects the external directors to make comments on and point out issues from external and fresh perspectives. In June 2017, Mr. Nakamura resigned at the expiration of his term of office. Ms. Ryoko Sugiyama, an expert on the environment and waste, took office.
Adoption of the Audit & Supervisory Board System
Kurita Water Industries Ltd. is a company with an audit & supervisory board. The Audit & Supervisory Board currently comprises three members, of which two are external members. Individual members of the Audit & Supervisory Board monitor the status of execution of duties by directors and the status of performance of oversight duties by the Board of Directors. They also conduct asset status surveys of the entire Kurita Group including subsidiaries and audit the development and operation of internal control systems implemented by the directors. The individual members of the Audit & Supervisory Board attend important meetings including Board of Directors’ and Executive Committee meetings and audit execution of duties by directors.
Appropriate Cooperation among the Internal Auditing Department, the Audit & Supervisory Board, and the Accounting Auditor
Kurita Water Industries Ltd. has an Internal Auditing Department that is independent from operational execution functions and reports directly to the president. The Internal Auditing Department conducts internal audits of Group companies, identifies issues and problems in operational execution, and provides recommendations to the president on improvement measures.
The Company has appointed Grant Thornton Taiyo LLC as its accounting auditor. The Audit & Supervisory Board nominates candidate accounting auditors, and makes decisions on proposed resolutions regarding appointment, dismissal, and refusal of reappointment of the accounting auditor. In addition, members of the Audit & Supervisory Board, the Internal Auditing Department, and the accounting auditor share information with one another on audit plans and concerns and work to engage in close collaboration.
Remuneration System for Directors and Members of the Audit & Supervisory Board
The Company’s remuneration system for directors excluding external directors is composed of fixed remuneration as base remuneration, and incentive remuneration reflecting business results. The fixed remuneration system is adopted for external directors and members of the Audit & Supervisory Board, who perform oversight functions. An amount of the fixed remuneration is decided for each job title in case of directors and for each working style in case of members of the Audit & Supervisory Board. Part of the remuneration is paid to the Directors’ and Members’ of Audit & Supervisory Board Shareholding Scheme and allocated for purchasing the Company’s shares. The incentive remuneration consists of short-term incentive remuneration according to a degree of achievement in an annual business plan and evaluation of duties for which a person is responsible, and long-term incentive remuneration according to business performance and job title during the term of office. From June 2016, the Company increased the proportion of remuneration accounted for by performance-linked remuneration for directors excluding external directors, and introduced a performance-linked stock compensation program that grants stock at the time of their retirement as a long-term incentive. The purpose of this system is to increase motivation to contribute to a continuous growth of the Group and an improvement in corporate value, by sharing profits and risks caused by stock price fluctuation with the shareholders.
Change in the Remuneration System for Officers
Disciplinary Rules for Investment
When making an investment, the Kurita Group evaluates profitability of the investment and makes a decision on the investment, setting a hurdle rate in consideration of individual risks for each investment project in addition to the cost of shareholders’ equity, in accordance with the policy of striving to maintain return on equity (ROE) at levels above the cost of shareholders’ equity.
Shareholdings in Other Listed Companies
Kurita Water Industries Ltd. may hold shares of other listed companies for strengthening business relationships and other purposes. We verify the economic rationality for respective stocks we have held and the risks of holding those stocks, as well as relationships with companies whose stock the Company holds periodically and at other times as necessary, and review the appropriateness of holdings. In the fiscal year ended March 31, 2017, deciding to sell stock of two companies through resolutions at Board meetings, we sold stock of three companies including stock of a company decided to be sold in the fiscal year ended March 31, 2016.