Corporate Governance

Basic stance

The first item in our Corporate Philosophy is “corporate growth while fulfilling our responsibilities in harmony with society as a good corporate citizen,” and we are promoting sustainable corporate activities through rigorous adherence to corporate ethics. We believe it is important to maintain and further improve the efficiency, fairness, and transparency of management, and we aim to enhance corporate governance based on five specific items: (1) ensure shareholders’ rights and equality; (2) ensure appropriate cooperation with stakeholders other than shareholders; (3) ensure appropriate information disclosure and transparency; (4) appropriate execution of the roles and responsibilities of the Board of Directors; and (5) constructive dialogue with shareholders. We have also established a basic stance on compliance and risk management, and are implementing activities accordingly.

Response to the Corporate Governance Code

Toyota Boshoku has determined that it is in compliance with all principles of the Corporate Governance Code. Please refer to our Corporate Governance Report, which was submitted to the Tokyo Stock Exchange.

Corporate governance system

Toyota Boshoku has appointed five internal directors and four outside directors with extensive experience and broad insight. Through their supervisory function, the outside directors serve to ensure the legality and appropriateness of decision-making by the Board of Directors and the execution of duties by directors.
The four persons appointed as outside directors satisfy the requirements for independent directors as stipulated by the Financial Instruments Exchange. They have been designated as independent directors of the Company because it has been determined that there is no risk of conflicts of interest with general shareholders.
In addition, we have adopted a corporate auditor system, in which a four-person structure that includes two outside Audit & Supervisory Board members audits the management of directors.
Audit & Supervisory Board members audit the business execution of directors, as well as the business and financial condition of subsidiaries in Japan and overseas. Such initiatives, including assigning dedicated staff to the Audit & Supervisory Board Office, help strengthen the functions of the Audit & Supervisory Board.
The two persons appointed as outside Audit & Supervisory Board members satisfy the requirements for independent auditors as stipulated by the Financial Instruments Exchange. They have been designated as independent auditors of the Company because it has been determined that there is no risk of conflicts of interest with general shareholders.
The Management Advisory Council was established as a forum for the candid exchange of opinions related to such matters as management issues, appointment and dismissal of management, nomination of candidates for director and Audit & Supervisory Board member, and compensation for management and directors.

System diagram of corporate governance (as of June 14, 2022)

Roles of various meeting bodies

Ratio of outside officers

Business execution system

Toyota Boshoku adopts a simple organization consisting of four units (Corporate Operation, Product Business, Regional Business and Functional Collaboration Reinforcement) and Plant Management. We have introduced a Chief Officer System to ensure cross-functional cooperation, and have assigned Segment Chiefs, Field Chiefs, Center Chiefs, and Chief Plant General Managers so as to clarify roles, responsibilities, and authority, simplify the decision-making process, and make quick management decisions.
The Corporate Planning Meeting is held twice a month to ascertain the status of implementation of the above, share information on important management issues, and make decisions, while the Corporate Strategy Meeting is held as necessary to deliberate and set the direction for company-wide management strategies as well as product business and regional strategies. In this way, as well as ensuring thorough deliberation on issues prior to submission to the Board of Directors, we strive to quicken our response to management challenges. In addition, we have established the Corporate Management Meeting, where information is shared among internal directors, standing Audit & Supervisory Board members, Chief Officers, Segment Chiefs, Field Chiefs, Center Chiefs and Chief Plant General Managers, as well as various committees and meeting bodies, so as to enhance deliberations on individual matters and regularly monitor and follow-up on the status of business execution based on policies decided by the Board of Directors.

(1) Board of Directors

Number of meetings held in FY2022: 12

The Board of Directors convenes at least once a month, and as the management decision-making body, decides on important management matters such as legal matters, corporate hoshin (policy), business plans and capital expenditure plans, and also monitors business execution.
The Board of Directors is chaired by the Chairman.
Items that should be submitted to the Board of Directors are stipulated in rules of the Board of Directors, and other items are delegated to the President, Chief Officers, Segment Chiefs, Field Chiefs, Center Chiefs, and Chief Plant General Managers in accordance with the Authorization Policy.

Main discussions at the Board of Directors

(2) Audit & Supervisory Board Member, Audit & Supervisory Board

Number of meetings held in FY2022: 13

The Audit & Supervisory Board consists of two standing Audit & Supervisory Board members and two outside Audit & Supervisory Board members, and the lead standing Audit & Supervisory Board member serves as Chair of the Audit & Supervisory Board.
The main items discussed by the Audit & Supervisory Board include the selection of standing Audit & Supervisory Board members, audit policy and audit implementation plans, status of development and operation of internal control system, appropriateness of audit method performed by accounting auditors and the results thereof, and the preparation of audit reports.
With regard to the activities of Audit & Supervisory Board members, they conduct audits of internal divisions and domestic and overseas group companies based on the audit policy and annual plans, communicate with directors, etc., attend the Board of Directors, Corporate Planning Meeting and other important meetings, inspect important documents, etc., and exchange information with the internal auditing department and accounting auditors.

Main discussions at Audit & Supervisory Board (excluding audit reports)

(3) Management Advisory Council

Number of meetings held in FY2022: 5

The Management Advisory Council is composed of four outside directors（Akihiro Koyama, Junko Shiokawa, Takafumi Seto, Kenichiro Ito）, as well as Chairman Shuhei Toyoda, Vice Chairman Naoki Miyazaki, and President Masayoshi Shirayanagi. The chair of the Management Advisory Council is the Chairman. The Management Advisory Council, as an advisory body to the Board of Directors, deliberates on important management strategies and issues, the selection and dismissal of management, compensation, succession planning and other matters, and has the authority to determine the amount of individual compensation for directors upon resolution by the Board of Directors.

Independence

The Management Advisory Council is responsible for both　nomination and compensation functions, and its members, agenda and activities were resolved by the Board of Directors in　December 2018 as the “Management Advisory Council Rules.” To incorporate independent perspectives, the Management Advisory Council is composed of four outside directors and three internal directors.

Authority and Roles

As an advisory body to the Board of Directors, the Management Advisory Council deliberates and resolves matters related to the selection and dismissal of management, compensation, etc. from an objective and fair perspective, and provides reports and advice to the Board of Directors.

Initiatives to strengthen corporate governance

Support structure for outside directors and Audit & Supervisory Board members

Evaluation results of the effectiveness of the Board of Directors

Toyota Boshoku analyzes and evaluates the effectiveness of the Board of Directors as follows.

(1) Method

• ①The operational status and response to issues identified in the past are analyzed and reported to the Board of Directors in January.
• ②The Segment Chief in charge of the administrative office of the Board of Directors conducts a questionnaire of and interviews with all directors and Audit & Supervisory Board members, including outside members, in February.
• ③The evaluation results and the direction to be taken to resolve issues are summarized and reported to the Board of Directors in March for discussion.

(2) Overview of fiscal 2022 evaluation results

• a. Continuous improvements have been made, including the following: the submission of agenda items in line with the annual agenda plan, including ESG-related items such as risk, human rights, and carbon neutrality, and future-oriented DX items; extension of the timescale for explanations made prior to Board of Directors Meetings; and opinion exchange meetings, which were newly planned in fiscal 2022. As a result, it was determined that the effectiveness of the Board of Directors in making important management decisions and supervising business execution has been ensured.
• b. Opinions were expressed about in-depth exploration of future strategy and business strategies, discussions based on clear and easy-to-understand materials, and further increasing the diversity of the Board members.
• c. There was a request for improvement, such as the provision of enhanced information by way of plant visits and participation in internal meetings by outside officers, and the provision of information on recent ESG issues in addition to information about the Company itself.

(3) Key challenges and improvement measures

Toyota Boshoku will strive to make the following improvements to ensure even greater effectiveness of the Board of Directors.

• ①Make an annual plan for the agenda and deepen strategic discussions
  Systematically conduct discussions on topics such as carbon neutrality and health promotion, as well as future-oriented digital transformation (DX), by further refining the necessary agenda items throughout the year and ensuring adequate time for them.
• ②Conduct opinion exchange meetings
  By having each outside officer present points for improvement to the Company from their respective fields of expertise, and by having free discussions, aim to provide suggestions for future-oriented strategies and enhance communication among directors.
• ③Enhance information provided to outside officers
  To further invigorate discussions, have outside officers make visits related to agenda items and provide related information to outside officers.
• ④Ensure member diversity
  Further increase diversity by organizing and utilizing the required experience and expertise as a skill matrix.

Policy for deciding the amount of officers’ compensation and the calculation method

The “Policy for deciding the amount of compensation for Directors and Operating Officers” is resolved by the Board of Directors.

(1) Basic approach

In order to realize a compensation system that is highly linked to the Company’s business performance, the following are reflected in part of the compensation structure:

• a. we set the disparity between positions reasonably in light of the roles and responsibilities, and
• b. grant stock-based compensation under the transfer-restricted stock compensation plan to directors other than outside directors.

In addition, in order to reflect annual performance and efforts to improve medium-term corporate value in compensation (bonus),

• c. the Company’s uniform annual performance and the degree of achievement of annual hoshin (policy) by each individual for the single year, and
• d. evaluation of medium-term corporate value enhancement in terms of the enhancement of social value and economic value.

Structure of Directors’ Compensation

• Annual compensation for directors is limited to 600 million yen (including 70 million yen for outside directors), as resolved at the Ordinary General Meeting of Shareholders held on June 17, 2020. The number of directors as of the close of this Ordinary General Meeting of Shareholders was nine, including four outside directors.

(2) Approach to the level of compensation

For the level of compensation, we select companies listed on the Prime Market of the Tokyo Stock Exchange for benchmarking, based on their corporate size, consolidated revenue, consolidated operating profit, and number of employees and we confirm the appropriateness of compensation amounts while also incorporating the results of external compensation survey organizations.

(3) Directors’ compensation

Annual compensation for directors is limited to 600 million yen (including 70 million yen for outside directors), as resolved at the Ordinary General Meeting of Shareholders held on June 17, 2020. The number of directors as of the close of this Ordinary General Meeting of Shareholders was nine, including four outside directors.

(4) Compensation for outside directors

Outside directors are paid only fixed monthly compensation as they are expected to fulfill their roles and responsibilities from a standpoint completely independent of business execution.

(5) Compensation for Audit & Supervisory Board members

Audit & Supervisory Board members are paid only fixed monthly compensation and there is no variable factor based on performance. Compensation for Audit & Supervisory Board members is determined through discussion among the Audit & Supervisory Board members within the limit of compensation set by resolution of the Ordinary General Meeting of Shareholders held on June 14, 2022 (not to exceed 130 million yen per year; the number of Audit & Supervisory Board members as of the close of this Ordinary General Meeting of Shareholders was four).

(6) Procedures for determining compensation, etc.

In order to ensure the appropriateness of the level and amount of compensation and transparency in the decision-making process, the decision on specific individual compensation payments based on the policy for deciding the amount of compensation is entrusted to the Management Advisory Council, which is composed of four independent outside directors, Chairman (the Chair of the Council), Vice Chairman, and the President.
The process is set forth in the Board of Directors Rules and the Management Advisory Council Rules, and since the amount of compensation for each individual director is determined through established procedures, the Board of Directors believes that the details thereof are in line with the policy for deciding the amount of compensation.

(7) Transfer-restricted stock compensation

The Board of Directors is scheduled to decide on the specific payment period and allocation using the stock compensation limit (within 100 million yen per year and within 100,000 shares per year) defined at the General Meeting of Shareholders held on June 17, 2020.

Total amount of compensation, etc. for directors and Audit & Supervisory Board members

• The above fixed compensation includes two directors and one Audit & Supervisory Board member who retired as of the close of the 96th Ordinary General Meeting of Shareholders held on June 11, 2021.
  The number of persons to whom performance-linked compensation (bonuses) and stock compensation (transfer-restricted stock) will be paid is five directors (excluding outside directors).

Policy and procedure for nominating candidates for director and Audit & Supervisory Board member

A decision is made at the Board of Directors on the appointment and dismissal of directors and Audit & Supervisory Board members following debate and discussion by the Management Advisory Council.
The policy on appointment to management and nomination of candidates for director takes into account the fields he/she can cover. This also includes a comprehensive examination to ensure the right person is assigned to the right position so that decision-making is fast and accurate.
The policy on nomination of candidates for Audit & Supervisory Board member involves a comprehensive examination of whether the person has knowledge regarding finance and accounting, a general understanding of the Company’s business and diverse perspectives on corporate management.
The policy on nomination of candidates for outside director and Audit & Supervisory Board member involves a comprehensive examination of the requirements for externality stipulated in the Companies Act and the independence criteria established by the Financial Instruments Exchange, and whether the person has extensive experience and broad insight.

Skill matrix of Director and Audit & Supervisory Board member (as of June 14, 2022)

Reasons for election of outside officers

•  Director Junko Shiokawa was nominated as an outside director at the 96th Ordinary General Meeting of Shareholders, held on June 11, 2021.
•  Director Takafumi Seto and Kenichiro Ito were nominated as outside directors at the 97th Ordinary General Meeting of Shareholders, held on June 14, 2022.
•  Audit & Supervisory Board member Hiroshi Miura was nominated as an Audit & Supervisory Board member at the 97th Ordinary General Meeting of Shareholders, held on June 14, 2022.