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 and outside Japan. 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 13, 2023)

Roles of various meeting bodies

Ratio of outside officers

Business execution system

Toyota Boshoku adopts an organization consisting of seven units (Corporate Operation, Product Business, RegionalBusiness, Functional Collaboration, Research & Development, Production, and Special Duties). We have introduced a Chief Officer System to ensure cross-functional cooperation, and have assigned Center Chiefs, etc. 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. 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, Center Chiefs, etc., 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 FY2023: 13

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, Center Chiefs, etc. in accordance with the Authorization Policy.

Main discussions at the Board of Directors in FY2023

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

Number of meetings held in FY2023: 14

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 in FY2023 (excluding audit reports)

(3) Management Advisory Council

Number of meetings held in FY2023: 5

To incorporate independent perspectives, 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.
In addition, the Management Advisory Council’s members, agenda and activities were resolved by the Board of Directors in December 2018 as the Management Advisory Council Rules.

Main discussions at Management Advisory Council in FY2023

Initiatives to strengthen corporate governance

Support structure for outside directors and Audit & Supervisory Board members

Internal directors and standing Audit & Supervisory Board members provide explanations about required knowledge pertaining to areas such as the Company’s businesses, financial affairs and organizations when outside directors and outside Audit & Supervisory Board members assume office. The Company also sends materials of the Board of Directors beforehand to outside directors and outside Audit & Supervisory Board members and provides them with prior explanations on the important matters of agenda items submitted to the Board of Directors. Furthermore, outside directors and Audit & Supervisory Board members are provided with reports on the progress of global hoshin (policy), and plans are made for them to tour plants and offices. The Company has assigned Audit & Supervisory staff to the Audit & Supervisory Board Office as part of a structure for supporting the day-to-day auditing activities of standing Audit & Supervisory Board members. They also support the auditing activities of outside Audit & Supervisory Board members through the operation of the Audit & Supervisory Board.

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

• a. The operational status and response to issues identified in the past are analyzed and reported to the Board of Directors in January.
• b. The Segment Chief in charge of the administrative office of the Board of Directors conducts a questionnaire and interviews with all directors and Audit & Supervisory Board members, including outside members, in February.
• c. The 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 2023 evaluation results

• a. We have continued to make improvements by enhancing the topics discussed at the Board of Directors meetings, including business strategy and the intellectual property management system, and by enhancing information provision through the implementation of pre-Board meeting briefings for outside officers, reporting on the status of information disclosure such as ESG briefings, and participation in business debriefings, plant visits, and important meetings. As a result, the evaluation has shown that the effectiveness of the Board of Directors in making important management decisions and supervising business execution has been ensured and improved.
• b. On the other hand, a view was expressed that the Board of Directors should deepen its discussion of company-wide strategy, human capital, and intellectual property strategy, and promote discussion using materials that clearly explain the background, main points, and issues of each case.
• c. There was also a request for improvement in areas such as discussions on dialogue with investors, the establishment of a forum for the exchange of opinions among outside officers only, and further enhancement of facility visits, including sites outside Japan.

(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.

• a. Deepen strategic discussions
  We will organize the necessary agenda items throughout the year and systematically implement topics related to company-wide strategy, human capital, intellectual property strategy, etc. We will also further improve information provision and meeting materials to facilitate discussion.
• b. Enhance support for outside officers
  We will provide relevant information to deepen understanding of the Company and contribute to discussions at the Board of Directors, including annual plans and reports on the status of dialogue with investors, opportunities for communication among outside officers only, and enhanced facility visits that develop strategies and investment opportunities.

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.

(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 company members 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.
Please see the table below, “Structure of Directors’ Compensation,” for details on the types of compensation, payment criteria, and the structure of compensation.

Structure of Directors’ Compensation

• Consolidated operating profit for the fiscal year ended March 31, 2023 was 47.6 billion yen.
• From fiscal 2023, the evaluation indicator for social value enhancement has been changed from a CSR evaluation score to an ESG evaluation score for CSV activities. Of the 25 main indicators that make up the ESG evaluation score, 3 are related to climate change. These are: production CO₂ emissions reduction ratio, renewable energy installation ratio, and CO₂ emissions ratio in logistics.
• Net assets for the fiscal year ended March 31, 2023 were 436.8 billion yen, and the ESG evaluation score was 3.9 points (out of 5.0 points).

(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 (April 2022–March 2023)

• The above fixed compensation includes four directors and one Audit & Supervisory Board member who retired as of the close of the 97th Ordinary General Meeting of Shareholders held on June 14, 2022.
• 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 appointing and dismissing senior management, and nominating candidates for director and Audit & Supervisory Board member

The appointment and dismissal of senior management and the nomination of candidates for director and Audit & Supervisory Board member are discussed and deliberated by the Management Advisory Council before the Board of Directors makes a resolution. Our policy for the appointment of senior management and the nomination of director candidates is based on a comprehensive review from the perspective of having the right people in the right places, so that accurate and prompt decisions can be made while taking into consideration the extent to which they can cover their respective business fields.
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 13, 2023)

Reasons for election of outside officers

• Directors 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

Support for training the next generation of executive management candidates

Through discussions at operating officer level and above at the GSCT,^*1 an executive management successor development committee, and at the GSC,^*2 a successor development committee for global key posts (such as candidates for the presidents of business entities, directors, and division general managers), we are promoting optimal global assignment of human resources with a focus on their development, regardless of background. We have introduced a skills matrix for executives as well, in order to visualize their skills and experience. In addition, we run global executive training programs (GEDP^*3 and GLDP^*4) to develop future executive candidates, among others.
The GEDP and GLDP started in fiscal 2019 and are both held once a year. From fiscal 2019 to fiscal 2023, 70 people participated in the GEDP and 94 in the GLDP.
In addition, from fiscal 2023, we have expanded the scope of the GEDP and GLDP to further focus on developing young executive candidates, with participation by 22 participants in the GEDP and 25 participants in the GLDP planned in fiscal 2024.
At the GEDP and GLDP, participants learn about the Toyota Boshoku group’s history and common values, develop basic management skills, and receive training to improve their organizational and human resource management capabilities to maximize the organization’s strengths.

• Global Succession Committee by Top Executives
• Global Succession Committee
• Global Executive Development Program: Selective training program for senior executive positions
• Global Leader Development Program: Selective training program for junior executives and managers