Further Strengthening of Corporate Governance
(Fiscal Year Ended March 31, 2018)

Basic Concept

The Kurita Group will make efforts to promote sustainable growth and enhance its corporate value in the medium and long term, deferring to the rights and position of various stakeholders such as customers, business partners, employees, shareholders, and local communities while striving to meet their expectations. To this end, the Kurita Group will establish corporate governance, with the aim of realizing transparent, fair, prompt, and decisive decision-making measures and highly effective management supervision.

Continuous Reform of the Board of Directors

Each of Kurita’s directors and members of the Audit & Supervisory Board completed an analysis and evaluation of the effectiveness of the Board of Directors and discussed measures for further strengthening corporate governance.

In the effectiveness evaluation of the Board of Directors for the period from January to December 2016, the following three issues were identified.

  • a.In relation to business strategies for a long-term improvement of corporate value as well as involvement with the environment and society that would lead to long-term growth, it is necessary to discuss these issues more deeply throughout the entire Kurita Group.
  • b.In order to increase the level of discussions at Board meetings, it is necessary to enhance a prior examination on matters to be discussed at the meetings so as to further improve the accuracy of considerations.
  • c.It is necessary for the Board of Directors to share a consistent theme and message with regard to dialogue with shareholders.

The Company responded to these issues by taking the following measures during the fiscal year ended March 31, 2018.

  • a.The Company clarified the direction for the Group’s mediumto long-term growth going forward based on changes in the management environment. For example, the Company defined the corporate vision and reviewed the significance of the corporate philosophy. It also renewed the Kurita Group Philosophy System starting with the corporate philosophy.
    In addition, the Company formulated the CSR policy, which is positioned at the core of the management strategy and sets key domains for CSR with targets for the year 2030. Furthermore, the period covered by the next medium-term management plan was changed from three years as before to five years, and the Company worked to formulate challenging targets based on its medium- to long-term vision and a plan comprising ambitious measures to achieve them.
  • b.The Investment Committee was established as a pre-screening body made up of in-house experts to review investment projects ahead of resolutions by the Board of Directors and the Executive Committee. This strengthening of the screening system enabled the Board of Directors and the Executive Committee to concentrate their discussion on the strategic significance of the projects.
  • c.The activity policy for IR and SR activities was determined by the Board of Directors and direct dialogue with shareholders and investors and information disclosure to shareholders and investors were conducted in line with the activity policy. In addition, the Company strengthened the operation of systems enabling members of the Board of Directors to confirm the specific results of dialogues undertaken in IR and SR activities.

In other initiatives, the Company appointed a female external director in June 2017, aiming to ensure diversity in the Board of Directors. Furthermore, study sessions were held as management training on themes such as CSV management and crisis management and compliance. External directors were also provided with site visits and study sessions to help them to deepen their understanding of the Company’s businesses. Furthermore, in an effort to enhance dialogue with shareholders, the section on corporate governance initiatives in the convocation notice was enhanced.

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 Kurita Group and an improvement in corporate value, by sharing profits and risks caused by stock price fluctuation with the shareholders.

The Remuneration System for Officer

Nomination & Remuneration Advisory Council

The Company 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 remuneration, and submits a report on appropriateness thereof to the Board of Directors. In the fiscal year ended March 31, 2018, the Council advised the Board of Directors to abolish the honorary advisor. Through the application of such processes, the effectiveness of improvements in transparency will be verified.

Profile of Nomination & Remuneration Advisory Council(Fiscal year ended March 31, 2018)

Activities of External Directors, Reasons for Appointment, and Change in Criteria for Judging Independence

The roles that the Company 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 Company appointed Mr. Tsuguto Moriwaki as external director in June 2015, followed by Ms. Ryoko Sugiyama, an expert on the environment and waste, in June 2017. Since assuming office, both of them have provided a wide range of recommendations on reinforcing functions of the Board of Directors. In drafting the medium-term management plan, they proposed the establishment of a junior board, in which young employees make proposals for the Kurita Group’s future strategies; and the Board of Directors’ has adopted this idea.

Furthermore, in the fiscal year ended March 31, 2018, the criteria for judging independence were made stricter. The criteria that stipulated “A current major business partner of the Company or a major business partner at some time during the past year, or a person who executes the operations of the major business partner.” Previously, the term “major business partner” was defined as a partner for whom sales from the Company made up “10% or more” of the partner’s net sales, but this has been revised to “2% or more of consolidated net sales.” With regard to the judgment criteria, “A consultant, an accountant, or a legal professional who currently receives or has received at some point during the past year a lot of money or property other than remuneration for officers from the Company,” since the expression “a lot of money or property” was unclear, the Company has now defined this as ¥10 million or more per year.

Establishment of the Investment Committee

The Investment Committee was established in April 2017. In the fiscal year ended March 31, 2018, it was chaired by the Assistant general manager of the Group Administrative Division, who is the chief officer responsible for financial management and composed of people responsible for the main departments within the Administrative Division. The role of the Investment Committee is to pre-screen investment and financing projects to be discussed by the Board of Directors or the Executive Committee and report the pre-screening result and major discussion points to the directors and members of the Audit & Supervisory Board. The Committee was engaged in pre-screening of 21 projects in the fiscal year ended March 31, 2018. Organizing the major discussion points through the pre-screening by the Investment Committee helped to enhance the quality of discussion by the Board of Directors and Executive Committee.

Roles and Results of the Investment Committeee (The fiscal year ended March 31, 2018)

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

The Company holds shares of other listed companies for strengthening business relationships. We verify the economic rationality for respective stocks we have held and the risks of holding those shares, as well as relationships with companies whose shares the Company holds, periodically and at other times as necessary and review the appropriateness of holdings. In the fiscal year ended March 31, 2018, we sold the shares of nine companies through resolutions at Board meetings.