Corporate Governance

Kuraray Co., Ltd. (“Kuraray” or “the Company”) believes that the maintenance of appropriate relationships with various stakeholders and the fulfillment of social responsibilities through establishing a corporate governance system that ensures effective and fair management will contribute to the long-term and sustainable enhancement of corporate value.

The Company has adopted the governance system as “a company with the board of corporate auditors.” Under this framework, the Company has established corporate governance functions centered on its Board of Directors and Board of Corporate Auditors to improve the effectiveness of supervisory and monitoring functions while maintaining management efficiency and to handle issues including management remuneration, selection of new company officers, internal control, and risk management.

The Company believes that the above establishment of functions contributes to the long-term and sustainable enhancement of corporate value.

Kuraray’s Steps to Strengthen Corporate Governance

The Company has worked continuously to strengthen corporate governance by taking steps such as separating supervision and execution functions through the introduction of the Executive Officer System, appointing and increasing the number of Outside Directors and Outside Corporate Auditors, establishing the CSR Committee and the Risk Management and Compliance Committee, evaluating the effectiveness of the Board of Directors, and establishing the Corporate Advisory Committee.

Starting from 2020, out of the 12 members of the Board of Directors, the number of Outside Directors increased by one to four, accounting for one-third of the Board of Directors. Additionally, for diversity in terms of gender and nationality and so forth, we appointed two females as Outside Director and Outside Corporate Auditor, and one foreign national as Director. We will hold discussions based on a variety of views and perspectives and further strengthen the corporate governance system.

Board of Directors and Business Execution Body

The Board of Directors (convenes at least once a month), according to the Board of Directors’ Regulations, deliberates and decides important management matters, including legal matters, and supervises the execution of business. The maximum number of Directors is 12 in order to promote agile management decision-making by the Board of Directors, and the term of office is one year to clarify their responsibilities to the shareholders. There are currently 12 incumbent Directors, including four Outside Directors, of whom one is female, with a wealth of experience in and broad insight into economy, finance, and management. These four Outside Directors are supervising management from an independent third-party standpoint.

As the chief executive responsible for business execution, the President appointed by the Board of Directors exercises control over the execution of business in the Company and its subsidiaries (hereinafter “the Group”). Every executive officer (one-year term of office) appointed by the Board of Directors is responsible for business execution in the Group organization. As the heads of internal companies, divisions, and major functional organizations, the executive officers bear responsibilities for operations and business results.

In this way, the Company clearly separates the responsibilities of Directors, that is, decision-making on and supervision of management, from the responsibilities of business execution. Some Directors hold concurrent positions as executive officers. The President has established the Executive Committee (in principle, convenes twice a month) and various other councils and committees to deliberate and report on important matters concerning the Group’s management policies and business execution.

Corporate Advisory Committee

The Company set up the Corporate Advisory Committee as an advisory body to the Board of Directors, the membership of which is comprised of Outside Officers and outside experts, in order to further enhance the corporate governance of the Company by improving the transparency, fairness, and objectivity of decision-making on important management matters. The Committee functions as a nomination and remuneration committee and advises the Board of Directors on the reasonableness of the selection of candidates for Director, including the President, as well as remuneration.

As of January 1, 2021, the Corporate Advisory Committee consists of a total eight members, with Chairman and Director(Mr. Masaaki Ito), four Outside Directors(Mr. Tomokazu Hamaguchi, Mr. Jun Hamano, Ms. Keiko Murata and Mr. Satoshi Tanaka), one Outside Corporate Auditor(Ms. Tomomi Yatsu), and two outside experts(Mr. Takeshi Komura and Mr. Go Egami([Mr. Haruki Kohata in the family register]), There is no chairperson in place for leading the deliberation. The chairperson is to facilitate the deliberation.

Board of Corporate Auditors and Internal Audit

The Board of Corporate Auditors consists of five Corporate Auditors, of whom four are males and one is female, and three of them are independent Outside Corporate Auditors, the majority thereof. The Outside Corporate Auditors, with extensive experience in and broad insight into areas such as finance, law, and management, perform their duties from an independent third-party standpoint.

Corporate Auditors attend meetings of the Board of Directors and other important meetings, and monitor the Directors’ execution of duties through inquiries conducted by such means as the examination of important documents and requests for explanations of the state of business affairs. In principle, the Board of Corporate Auditors convenes monthly.

The Corporate Auditors regularly have meetings with the Accounting Auditor and receive reports on audit planning, implementation status and audit content. In addition, Corporate Auditors concurrently serve as corporate auditors at major Group companies and conduct Group company audits as appropriate, and attend the periodic Group Auditor Liaison Meetings consisting of the group company auditors, through which they aquire information on the respective companies.

＜Board of Directors (January to December 2020) ＞

＜Board of Corporate Auditors (January to December 2020) ＞

Risk Management and Compliance Committee

The Risk Management and Compliance Committee is chaired by the Director in charge of the CSR Division and aims to ensure the appropriate management of material risks that could have a significant impact on business management, thorough compliance with laws and regulations and corporate ethics, and fair business practices. The committee extracts material risks and proposes them to the President in regularly monitoring risks for the entire Group. The President then specifies those that require countermeasures as management risks and, at the same time, appoints a supervising officer for each risk to implement risk avoidance and mitigation measures. The committee checks the progress of the measures to ensure the steady execution of the risk countermeasures. The committee reports this series of activities to the Board of Directors and reflects its instructions in the risk countermeasures.

Policies for the Appointment of the Candidates for Directors and Corporate Auditors

• The Company appoints individuals who have experience, knowledge, and capabilities required for Directors of the Company as candidates at the Board of Directors meeting with the attendance of Outside Officers and elect them as Directors with the resolution of the General Meeting of Shareholders. However, the candidates for Outside Directors shall satisfy the criteria of independence provided separately.
• The Company appoints individuals who have experience, knowledge, and capabilities required for Corporate Auditors of the Company as candidates at the Board of Directors meeting with the presence of Outside Officers, and elects them as Corporate Auditors with the resolution of the General Meeting of Shareholders after obtaining the consent of the Board of Corporate Auditors. However, the candidates for Outside Corporate Auditors shall satisfy the criteria of independence provided separately.

Independence Standards for Outside Officers

(1) The Company judges that its Outside Officers and the candidates for the Outside Officers are fully independent from the Company if they do not fall under any of the following items:

• A business executive of the Group
• A counterparty that has transactions principally with the Group, or its business executive thereof
• A major business partner of the Group, or its business executive thereof
• A major lender of the Group, or its business executive thereof
• A counterparty that receives a large amount of donations from the Group, or its business executive thereof
• A major shareholder of the Company (who possesses 10% or more of the total voting rights either directly or indirectly), or its business executive thereof
• A business executive of the party whose major investor (who possesses 10% or more of the total voting rights either directly or indirectly) is the Group
• A consultant, certified public accountant, or other accounting professional, attorney, or other legal professional who receives a large amount of monetary or other assets from the Group other than the executive remuneration (in case of a legal entity, association, or other organization, a person belonging thereto)
• A person who belongs to an accounting firm that conducts the statutory audit of the Company
• A person who has fallen under the above criterion (i) in the past 10 years
• A person who has fallen under any of the above criteria (ii) through (ix) in the past three years
• A person whose position constitutes him/her as having an Outside Officer’s interlocking relationship with the Group
• A relative of the persons listed in the above criteria (i) through (xi)

(2) Even in cases where a person falls under any of the above items, if the person is deemed to be appropriate for the post of an independent Outside Officer in light of his/her personality, knowledge, and other qualities, the Company may appoint him/her as independent Outside Officer on the condition that the reasons why the person is deemed appropriate for the post are explained to the public.

Policies for Determining the Remuneration for Directors

• Remuneration for Directors is determined by taking into consideration the remuneration level of other companies and other factors so that the remuneration will function as one of the incentives for mid- to long-term and sustainable enhancement of the corporate value.
• Remuneration for Directors is comprised of monetary remuneration consisting of fixed remuneration by position and performance-linked remuneration, and stock option-based remuneration. However, monetary remuneration for Outside Directors does not include performance-linked remuneration.
• Remuneration for each Director is determined based on the calculation method stipulated by the Board of Directors within the limit amount resolved at the General Meeting of Shareholders. The remuneration for the President, which serves as the basis for calculating the remuneration for each Director, is determined after the deliberation by the Corporate Advisory Committee comprised of Outside Officers and outside experts.
  　Changes in the remuneration system and structure as well as the amount of remuneration for Directors are also determined by the Board of Directors after the deliberation at the aforementioned Corporate Advisory Committee.

Performance-Linked Remuneration System

The Company abolished the bonus scheme for Directors and introduced a performance-linked remuneration system in July 2006, thereby strengthening the incentives of Directors to increase the Company’s corporate value. In addition, to respond to the increase in the amount of performance-linked remuneration in conjunction with the improved business performance, it was resolved to increase the maximum amount of annual remuneration to Directors from ¥450 million to ¥800 million (including ¥100 million annually for Outside Directors) at the Company’s 131st Ordinary General Meeting of Shareholders, held on June 22, 2012.

Calculation Method of Performance-Linked Remuneration

As a short-term performance incentive, the performance-linked remuneration for the President shall be the amount that is obtained by multiplying the amount of actual consolidated net income for the prior fiscal year with a predetermined coefficient. The performance-linked remuneration for Directors shall be determined by dividing the said amount in proportion to the index corresponding to each Director. The Company does not have a performance-linked remuneration system for Outside Directors based on the above calculation method.

Remuneration-Type Stock Option Scheme

The Company abolished the prior severance and retirement benefits system for Directors in July 2006 and introduced a remuneration-type stock option scheme that entails the issue of share acquisition rights for the purpose of further boosting Directors’ sensitivity and motivation to improve the Company’s performance. The stock option-based remunerations under this scheme shall not exceed ¥90 million, separately from the maximum amount of annual remunerations to Directors. The number of share acquisition rights to be granted shall not exceed 120 each year. (The number of common stock to be issued upon exercise of share acquisition rights shall not exceed 60,000 shares each year.)

Analysis and Evaluation of the Effectiveness of the Board of Directors

(1) Analysis and Evaluation Method

The company executes Evaluation of the Effectiveness of the Board of Directors once a year.The Company distributed “Questionnaire on Evaluation of the Effectiveness of the Board of Directors” to all the Directors and Corporate Auditors in December 2019 and collected responses and opinions from all members in January 2020. The secretariat of the Board of Directors aggregated the responses, and analyzed and evaluated the effectiveness of the Board of Directors based on the data.

<Questionnaire > (32 questions in total)

• Concerning the structure of the Board of Directors
• Concerning the agenda of the Board of Directors
• Concerning the operations of the Board of Directors
• Systems outside the Board of Directors

(2) Outline of Analysis and Evaluation Results

The evaluation confirmed that the Company’s Board of Directors is generally functioning properly and that the effectiveness of the Board of Directors is secured in all aspects such as its size, composition, diversity, agenda selection, the scope of matters to be discussed or reported, the timing for scheduling the Board of Directors meetings, frequency of the meetings, operations of the Board of Directors including deliberation time, provision of additional information to the Directors, systems outside the Board of Directors such as those for providing training opportunities, etc.

In light of the results of this evaluation, the Company will continue to examine and implement necessary measures to make discussions more lively and productive at the Board of Directors meetings.

Content of Examination on the Propriety of Holding Cross-Held Shares

In the fiscal year ended December 31, 2019, the Company sold all shares of five stocks and part of one stock of its cross-held shares. Additionally, as the result of an examination at the Board of Directors meeting held on February 26, 2020 of the economic rationality and significance of holding individual cross-held stock for the fiscal year ended December 31, 2019 (examination on cross-held shares as of the end of December 2019) in consideration of benefits and risks, capital cost, and other factors associated with such holding, the Company plans to continue with the sale of some stocks.