Corporate Governance

Basic stance

The Toyota Boshoku group has stated as the first part of its corporate philosophy ”the desire to promote corporate growth while fulfilling its responsibilities as a good corporate citizen.” To realize this, in accordance with the five basic items : (1) Securing the rights and equal treatment of shareholders; (2) Appropriate cooperation with stakeholders other than shareholders; (3) Ensuring appropriate information disclosure and transparency; (4) Appropriate execution of the roles and responsibilities of the Board of Directors; (5) Engaging in constructive dialogue with shareholders, the Company recognizes the importance of maintaining and improving management efficiency, fairness and transparency as a global company alongside efforts to maintain its ethical values and ensure sustainable corporate activities, and will strive to expand and enhance its corporate governance. We have also defined our basic stance towards compliance and risk management, and act 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 September 1, 2021)

Figure:System diagram of corporate governance (as of September 1, 2021)

Ratio of outside officers

Figure: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.
Prior to submission to the Board of Directors, the Corporate Strategy Meeting and the Corporate Planning Meeting deliberate thoroughly on the issues in order to quicken 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, etc., as well as various meeting bodies and committees, 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 FY2021: 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 in FY2021

General Meeting of Shareholders
  • Decision on convocation and agenda items
  • Approval of business reports, financial statements, etc.
  • Decision on candidates for director and Audit & Supervisory Board member
Executive officers and organization
  • Selection of representative director and executive director
  • Directors’ compensation and bonuses
  • Introduction of Chief Officer System
  • Appointment of Operating Officers, Segment Chiefs, Field Chiefs and Center Chiefs
General management
  • Formulation of Toyota Boshoku’s materiality
  • Formulation of 2025 Mid-Term Business Plan
  • Formulation of global hoshin (policy)
  • Deliberation on business advancement, alliances, reorganization, etc.
  • Items related to property and assets
  • Implementation of interim dividend
Other
  • Report on operational status of basic policy regarding maintenance of internal control system
  • Approval and report on transactions involving a conflict of interest
  • Implementation and report on assessments of the effectiveness of the Board of Directors
  • Condition of the exercise of voting rights on agenda items at the General Meeting of Shareholders
  • Examination of stockholdings
  • Operational status of whistle-blowing system
  • Report on efforts for consistent information disclosure
  • Report on status of response to business risks including COVID-19 and cybersecurity
  • Report on initiatives relating to quality

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

Number of meetings held in FY2021: 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 Meeting, Corporate Planning Meeting and other important meetings, inspect important documents, etc., and exchange information with the internal auditing department and accounting auditors.

Main discussions in FY2021 (excluding audit reports)

General management
  • Company member safety and health management, environmental management initiatives
Internal control and auditing
  • Basic policy on the development of internal control systems, etc.
  • Consideration on introducing KAM (Key Audit Matters)
  • Status of global internal auditing system
  • Results of remote audit of overseas subsidiaries
Other
  • Response to COVID-19

(3) Management Advisory Council

Number of meetings held in FY2021: 5

The Management Advisory Council is composed of four outside directors (Takeshi Ogasawara, Akihiro Koyama, Junko Shiokawa, Hiroyuki Ina), as well as Chairman Shuhei Toyoda, Vice Chairman Naoki Miyazaki, and President Takeshi Numa. The chair of the Management Advisory Council is the Chairman.
The Management Advisory Council is established as an advisory body to support the roles of the Board of Directors in deciding the nomination and remuneration of directors, executive officers and Audit & Supervisory Board members.

Independence

The Management Advisory Council is responsible for the functions of both nomination and remuneration, and the members, agenda, and contents of the Management Advisory Council were resolved at a meeting of the Board of Directors held in December 2018 as the Management Advisory Council Rules. The Management Advisory Council is composed of 4 outside directors and 3 internal directors in order to incorporate an independent perspective.

Authority and Roles

As an advisory body to the Board of Directors, the Board deliberates and makes resolutions on matters related to the election and dismissal of managements and remuneration from an objective and fair perspective, and reports and provides advice to the Board of Directors.

Initiatives to strengthen corporate governance

Figure: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, directors and Audit & Supervisory Board members are provided with reports on the progress of global hoshin (policy), and 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.

Photo:Visit to the MONOZUKURI Innovation Center
Visit to the MONOZUKURI Innovation Center

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 2021 evaluation results

  • ①As a result of continuous improvements, such as the implementation of reports on risk and compliance through the planning of agenda items, as well as the participation of outside officers in discussions during the formulation of the 2025 Mid-Term Business Plan, the effectiveness of the Board of Directors in making important management decisions and supervising business execution has been ensured.
  • ②Although the 2025 Mid-Term Business Plan was discussed, opinions were expressed about the need for discussions on more future-oriented topics, setting appropriate time for deliberations in line with the agenda, and about further increasing the diversity of the Board members
  • ③In addition, there was a request for improvement in the provision of information to outside officers and an increase in the frequency of communication among directors in order to facilitate discussions.

(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,

  • ①we set the disparity between positions reasonably in light of the roles and responsibilities, and
  • ②grant 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),

  • ③the Company’s uniform annual performance and the degree of achievement of annual hoshin (policy) by each individual for the single year, and
  • ④evaluation of medium-term corporate value enhancement in terms of the enhancement of and social value and economic value
    are reflected in part of the compensation structure.

Structure of Directors’ Compensation

Type of Compensation Payment Criteria Structure of Compensation Category
Fixed Compensation*
(Monthly compensation)
Compensation table: Set according to position (level of responsibility)
Set the disparity between qualifications at a certain rate, and set the amount of compensation according to the index for each position.
55% Monetary compensation
Performance-Linked Compensation*
(Bonuses)
  • ①Reflect performance for a single fiscal year in the compensation (bonus) table according to position, based on consolidated operating profit.
  • ②Reflect medium-term enhancement of corporate value in the bonus payment amount according to the achievement rate (0–150%) based on the contribution to economic value enhancement (20% increase in net assets) and contribution to social value enhancement (20% increase in CSR evaluation score) after three years.

[ Structure of bonus ]

Figure:Structure of bonus
35%
Stock compensation
(Transfer-restricted stock)
Issue shares to directors, excluding outside directors, which are restricted from sale for a certain period of time (the total amount of stock-based compensation is to be no more than 100 million yen per year, as resolved at the Ordinary General Meeting of Shareholders held on June 17, 2020; from 2021, the Board of Directors will resolve the timing and distribution of compensation) 10% Stock 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 first section of the Tokyo Stock Exchange based on their corporate size, consolidated revenue, consolidated operating profit, number of employees and other factors, and conduct benchmarking based on the results of external compensation survey organizations to confirm the appropriateness of compensation amounts.

(3) 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.

(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, 2012 (not to exceed 8 million yen per month; the number of Audit & Supervisory Board members as of the close of this Ordinary General Meeting of Shareholders was five).

(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 Board), 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

Category Total compensation, etc. (million yen) Total compensation, etc. by type (million yen) Number of persons to be paid
Fixed compensation (Monthly compensation) Performance-linked compensation (Bonuses) Stock compensation (Transfer-restricted stock)
Director (of which outside directors) 459
(43)
282
(43)
137
(-)
40
(-)
11
(4)
Audit & Supervisory Board Member (of which outside Audit & Supervisory Board members) 94
(18)
94
(18)
5
(2)
Total (of which outside officers) 554
(61)
376
(61)
137
(-)
40
(-)
16
(6)

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

A decision is made 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.

Director Skill Matrix (as of September 1, 2021)

Position Name Management Advisory Council Corporate Management Industry Knowledge Governance Overseas Business R&D MONOZUKURI (production) Sales and Procurement Finance Human Resources Legal and Compliance Environment and energy
Chairman Shuhei Toyoda        
Vice Chairman Naoki Miyazaki      
President Takeshi Numa        
Director, Operating Officer Yoshihiro Ito          
Director, Operating Officer Takashi Yamamoto            
Outside Director Takeshi Ogasawara            
Outside Director Akihiro Koyama                
Outside Director Junko Shiokawa              
Outside Director Hiroyuki Ina            

Reasons for election of outside officers

Classification Name Independent Officer Supplementary explanation regarding suitability items Reasons for election Number of Board of Directors, Audit & Supervisory Board attended in fiscal 2021
Directors Takeshi Ogasawara Advisor, MUFG Bank, Ltd., business partner of the Company Mr. Ogasawara was elected as a director because it was deemed that he could reflect his extensive experience and broad insight as a manager in the management of the Company and contribute to the maintenance and strengthening of the Company’s corporate governance. Board of Directors
12/12 meetings
Akihiro Koyama Mr. Koyama was elected as a director because it was deemed that he could reflect his research into such areas as corporate finance and corporate governance and also his expert knowledge acquired over many years in corporate management from a global perspective in the management of the Company and contribute to the maintenance and strengthening of the Company’s corporate governance. Board of Directors
12/12 meetings
Junko Shiokawa Ms. Shiokawa was elected as a director because it was deemed that she could reflect in the management of the Company the broad insight she has gained as a lawyer on global cases related to investment funds, finance, cross-border M&A, and investment fund-related dispute resolution, and contribute to the maintenance and strengthening of the Company’s corporate governance. Board of Directors
— meetings*
Hiroyuki Ina Senior Executive Officer, DENSO Corporation, business partner of the Company Mr. Ina was elected as a director because it was deemed that he could reflect his many years of experience and broad insight in business management of the electronic components that form the backbone of an automobile and contribute to the maintenance and strengthening of the Company’s corporate governance. Board of Directors
12/12 meetings
Audit & Supervisory Board members Hiroyuki Yokoyama Former Executive Advisor, Daihatsu Motor Co., Ltd., a business partner of the Company. Mr. Yokoyama was elected as an Audit & Supervisory Board member because it was deemed that he could reflect his experience in the Quality Assurance Division and at overseas locations at Toyota Motor Corporation, as well as his extensive experience and insight gained at Daihatsu, in the audit system of the Company and contribute to the maintenance and strengthening of the Company’s corporate governance. Board of Directors
12/12 meetings
Audit & Supervisory Board
13/13 meetings
Masakazu Aida Mr. Aida was elected as an Audit & Supervisory Board member because he has many years of experience as a manager and it was deemed that he could reflect his extensive experience and the broad insight he has gained in the audit system of the Company and contribute to the maintenance and strengthening of the Company’s corporate governance. Board of Directors
12/12 meetings
Audit & Supervisory Board
13/13 meetings

  • Director Junko Shiokawa was nominated as an outside director at the 96th Ordinary General Meeting of Shareholders, held on June 11, 2021.