Kuraray : Corporate Governance（246KB）

Kuraray Report 2024	Kuraray Group Businesses "For People and the Planet" Toward Realizing the Vision Three Challenges Business and Growth Strategies Management Foundation	Corporate Data	57

Corporate Governance

Basic Views

The Company believes that the maintenance of appropriate relationships with various stakeholders and the fulfillment of social responsibilities through establishing a corpo-

Corporate Governance Report

Corporate Governance Highlights

rate governance system that ensures effective and fair management would contribute to the long-term and sustainable enhancement of corporate value.

The Company has adopted the governance system of "a company with Audit & Supervisory Board." Under this framework, the Company has established corporate governance centered on its Board of Directors and Audit & Supervisory Board to improve the effectiveness of the supervisory and monitoring function while maintaining management efficiency and to handle issues, including management remuneration, selection of new company officers, internal control and risk management.

Independence	Outside Audit &
Internal Audit		Supervisory Board
& Supervisory		Members
Board Members
	Ratio of
	Outside Officers
	.•%	Outside
Internal		Directors
Directors

Diversity	Female Directors

Ratio of
Female and	Non-
Non-Japanese
Japanese
Directors
.%	Director

Attendance

Board of

Directors

Attendance rate

(Average)

.%

Through the above, the Company believes the effectiveness of the supervisory and monitoring function will be improved while maintaining management efficiency, contributing to the long term and sustainable enhancement of corporate value.

Corporate Governance System (As of March 27, 2024)

General Meetings of Shareholders
			Appoint/
	Appoint/Dismiss	Appoint/Dismiss	Dismiss/
			Non-reappointment

Corporate Advisory	times2 *	Board of Directors times16*	Audit &		12
Committee			Consult	11 Directors	Supervisory Board times*
7 members						5 Members of Audit &			Independent
						Audit		Coordinate
(including 4 Outside		Report				Supervisory Board			Auditor
		back				(including 3 Outside
Directors and 1 Outside					(including
Member of Audit &					Members of Audit &
Supervisory Board)					4 Outside Directors)	Supervisory Board)

Kuraray's Steps to Strengthen Corporate Governance

		Initiative	Purpose
		Reduced the maximum number and the term of office of Directors
		Introduced Executive Officer system
		Increased the number of Outside Corporate Auditors from two		Strengthening the management monitoring
2003		to three		function of Members of Audit & Supervisory Board
		Established the CSR Committee	Reinforcing the Group's CSR promotion structure
		Established the Management Advisory Committee	Establishing an advisory body for the President
					Strengthening the management monitoring
		Introduced Outside Directors (two)
			function of the Board of Directors
		Started early delivery of the notice of convocation of the ordinary	Providing enough time for shareholders to
		general meeting of shareholders (at least three weeks before the
2008		examine each proposal
		date of the meeting)

Present and Report

Report

			2	Report
			and
	Risk Management and	times*	Propose
	Compliance Committee
	Sustainability	4
	times*
	Committee

		Report	Audit Coordinate
Appoint/Dismiss/Supervise
		Report
President			Corporate Auditing
					Division
Executive		Audit
Committee

Accounting

Audit

Executive

Function

Coordinate

	Started uploading an English translation of the notice of	Enhancing disclosure targeting overseas
	convocation of the ordinary general meeting of shareholders to
	investors
	the Tokyo Stock Exchange platform and the Company's website
2016	Started analysis and evaluation of the effectiveness of the Board
of Directors
2017	Split off the Risk Management and Compliance Committee from	Strengthening risk management and compliance
the CSR Committee	measures
	Abolished the Management Advisory Committee and established	Improving the transparency, fairness, and
	objectivity of decision-making on important
2018 the Corporate Advisory Committee as an advisory body to the
management matters such as the appointment
	Board of Directors, comprised mainly of Outside Officers
	and remuneration of Directors, etc.
	Increased the number of Outside Directors from three to four	Strengthening the management monitoring function

Internal Companies, Functional Organizations, Group Companies

* Number of times held in 2023.

Internal officers

Outside officers

Outside experts

2020	(one-third of the Board of Directors)	and independence of the Board of Directors
2022	CSR Committee reorganized into Sustainability Committee	Stepping up sustainability promotion initiatives

* PSA: Portfolio Sustainability Assessment

Status of Medium-TermManagement Plan "PASSION 2026"

Progress of diversity and inclusion measures in Japan and abroad

Group response to regulatory trends regarding sustainability

Status of efforts to secure and cultivate talent for the next generation, retain tal- ented personnel, pass on skills, etc.

Supplier questionnaire survey in CSR procurement

Response measures related to serious acci- dents, epidemics, natural disasters, and other risks

Extending scope of TCFD scenario analysis Exploring concrete measures to reduce GHG emissions

Implementation, operation of internal control systems at various Kuraray Group companies

PSA* System assessment results

Quality assurance framework

Participation in GX League

Legal compliance, compliance framework

Major Agenda Items for Fiscal 2023

Main Topics Considered in Fiscal 2023

Officer remuneration Officer personnel matters HR development

Major Discussions and Reports in Fiscal 2023

Verification of fire incident at EVAL plant in the United States

HR development

Progress of Medium-TermManagement Plan "PASSION 2026"

Capital investment Business planning

Operation of new isoprene plant in Thailand

Major Proposals and Reports in Fiscal 2023

Verification of significance of holding cross-heldshares

TCFD-basedclimate change initiatives

Kuraray Report 2024	Kuraray Group Businesses "For People and the Planet" Toward Realizing the Vision Three Challenges Business and Growth Strategies Management Foundation	Corporate Data	58

Corporate Governance System

Board of Directors

The Board of Directors, which meets at least once a month, sets bylaws for the Board, deliberates and decides on statutory matters and other key management issues, and supervises business execution. The Board of Directors is chaired by the Chairman and Director. The maximum number of Directors is set at 12, to facilitate agile management decision-making

by the Board, and the term of office is set at one year to clarify their responsibilities to shareholders. There are currently 11 incumbent Directors, of whom two are female and one is non-Japanese. Four are Outside Directors, who possess a wealth of experience in and broad insight into the economy, finance, and corporate management, and are responsible for supervising management from an independent, third-party standpoint.

Audit & Supervisory Board and Internal Audits

The Audit & Supervisory Board consists of five Members, including three independent Outside Members of Audit & Supervisory Board. Four are male and one is female. The Audit & Supervisory Board convenes monthly, in principle.

The Members of Audit & Supervisory Board meet regularly with the Independent Auditor and receive reports on audit planning, implementation status, and audit content. They also receive reports on the results of internal audits from the Corporate Auditing Division, the in-house audit department. In addition, the Members of Audit & Supervisory

Board serve as corporate auditors at major Group companies and conduct Group company audits as appropriate. They also attend the periodic Group Auditor Liaison Meetings consisting of the Group company auditors to gain informa-

tion on the respective companies. There are also staff to assist the

Members of Audit & Supervisory Board in carrying out their duties.

Corporate Advisory Committee

The Company has established a Corporate Advisory Committee composed of Outside Officers and outside experts to serve as an advisory body to the Board of Directors. The committee works to improve the transparency, fairness, and objectivity of decision-making on important management matters such as the appointment and remuneration of Directors and further enhance corporate governance. Corporate Advisory Committee meetings are held twice a year in principle.

The committee consists of seven members: four Outside Directors (Ms. Keiko Murata, Mr. Satoshi Tanaka, Mr. Kiyoto Ido, and Ms. Naoko Mikami), one Outside Member of Audit & Supervisory Board

(Ms. Tomomi Yatsu), and two outside experts (Mr. Go Egami [listed under

the name Mr. Haruki Kohata] and Mr. Jun Hamano). The committee is chaired by an Outside Director.

Risk Management and Compliance Committee

The committee, under the direct control of the President, is tasked with ensuring the appropriate management of 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 identifies material risks and proposes them to the President in its regular monitoring of risks for Group companies. The President then specifies those that require countermeasures as management risks and appoints a supervising officer for each risk to implement risk avoidance and mitigation measures. This committee also reports on a range of activities to the

Directors and incorporates their direction in future risk response measures.

P.64

Sustainability Committee

In January 2022, the Kuraray Group established a Sustainability Committee to replace the CSR Committee.

Chaired by the President, the committee makes swift decisions regarding sustainability issues at the management level, expedites the planning and implementation of response measures, and reinforces sustainability initiatives in the Group. The Sustainability Committee also reports on a range of activities to the Board of Directors and

reflects Board directives in sustainability initiatives.

Question Content (40 questions in total)

Composition of the Board of Directors

Board meeting agendas

Operation of Board meetings

Support system for Directors and Audit & Supervisory Board Members

Kuraray Report 2024	Kuraray Group Businesses "For People and the Planet" Toward Realizing the Vision Three Challenges Business and Growth Strategies Management Foundation	Corporate Data	59

Evaluation of the Effectiveness of the Board of Directors

Every fiscal year, the Company evaluates and verifies the effectiveness of the Board of Directors to make improvements as needed.

In fiscal 2023, the Company administered a signed questionnaire for evaluating the effectiveness of the Board of Directors

to all Directors and Members of Audit & Supervisory Board. The secretariat of the Board of Directors aggregated the responses and opinions and analyzed and evaluated the effectiveness of the Board of Directors based on the data.

Summary of Evaluation Results

Questionnaire responses were positive overall, confirming that the effectiveness of the Board of Directors is being ensured, including the fact that Board discussions are constructive and that the recommendations and deliberations of various Directors are appropriate and draw on their respective expertise. On the other hand, responses noted issues, including the need to deepen discussions around the building of a more sophisticated business portfolio, longer-term management strategies, and management that is attuned to the cost of capital.

Key Comments

• The composition of the Board of Directors is generally appropriate but, in addition to increasing the ratio of Outside Officers, there is a need for greater diversity, such as increasing the number of female and non-Japanese members and directors with knowledge of digital transformation and IT.
• The Board should consider increasing the number of Outside Directors with experience in corporate management.
• While the Board discusses a wide range of topics, building businesses to be the next drivers of earnings, management that is attuned to the cost of capital and stock prices, and raising up candidates to succeed the President are ongoing issues for management.
• It is desirable to foster more vigorous discussions about longer-term improvements to the portfolio and management strategies.
• The way Board meetings are run and the support framework for Directors and Audit & Supervisory Board Members have improved over the years.

Initiatives for the Future

The Kuraray Group continues to seek to improve the effectiveness of the Board of Directors based on past evaluations of its effectiveness and issues to be considered. In March 2024, we appointed a new female director who has experience in corporate management to increase the diversity of the Board. In fiscal 2024, we will conduct a management review of the Medium-Term Management Plan, including by members of the Board of Directors, aiming to facilitate more lively, more in-depth discussions at Board meetings.

Policies and Procedures for the Election and Dismissal of Executives*1 and the Appointment of Candidates for Directors and Members of Audit & Supervisory Board

The Company appoints individuals who have the experience, knowledge, and capabilities required for Directors of the Company at Board of Directors meetings with the attendance of Outside Officers, and elects them as Directors with a resolution of the General Meeting of Shareholders. However, candidates for Outside Directors will satisfy the criteria of independence provided separately.

The Company appoints individuals who have the experience, knowledge, and capabilities required for Members of Audit & Supervisory Board of the Company at Board of Directors meetings with the attendance of Outside Officers, and elects them as Members of Audit & Supervisory Board with a resolution of the General Meeting of Shareholders after obtaining the consent of the Audit & Supervisory Board. However, candidates for Outside Members of Audit & Supervisory Board will satisfy the criteria of independence provided separately.

The election and dismissal of Directors and the appointment and removal of Representative Directors and Directors with special titles are determined by the Board of Directors after deliberation by the Corporate Advisory Committee.

*1 The Company defines executives as Directors and Members of Audit & Supervisory Board.

Support System for Outside Officers

Information is shared with Outside Officers by distributing and explaining in advance the proposals to be deliberated at the regular and extraordinary meetings of the Board of Directors. Staff from the Secretariat Group of the General Affairs Department assist in sharing this information with Outside Directors. Staff are appointed to assist Members of Audit & Supervisory Board including Outside

Members of Audit & Supervisory Board. Staff collect and provide information necessary for their auditing activities and offer other forms of support.

Cross-Shareholdings

From the viewpoint of stable, long-term business operations, the Company holds the shares of its business partners and other entities if maintaining and strengthening the relationships with such business partners and other entities are deemed to contribute to the enhancement of corporate value. The Board of Directors regu-

larly verifies the economic rationality

Status of Cross-Shareholdings

and significance of holding shares

(cross-shareholdings), and seeks to

(Billions of yen)

Amount*2 on balance sheet

Shares (Companies)

sell shares, as necessary, whose holding

.

(Billions of yen)

held

is deemed not to be appropriate, to

reduce such stocks. In fiscal 2023,

out of its cross-shareholdings in listed

.

companies, the Company sold all stocks

held in six companies and a portion of

stocks held in two companies. This

brought the ratio of cross-shareholdings

Proportion

(FY)

to net assets to 2.1% as of the end of

of net assets .

.

.

.

.

(％)

fiscal 2023.	*2 Total of stocks of listed and unlisted companies

Kuraray Report 2024	Kuraray Group Businesses "For People and the Planet" Toward Realizing the Vision Three Challenges Business and Growth Strategies Management Foundation	Corporate Data	60

Officers' Remuneration System

The Company's basic policy for the remuneration of its officers is to have a competitive level and system of remuneration that can secure and retain competent Directors fit for their positions and responsibilities to achieve long-term and sustainable improvements in corporate performance and corporate value. The remuneration system for Directors comprises three parts: (1) fixed remuneration as basic remuneration per job responsibilities, (2) performance-linked remuneration as an incentive to achieve yearly business results, and (3) stock-based remuneration designed to enhance corporate value over the medium to long term and sharing of value with shareholders through appropriate corporate management, provided that remuneration for Outside Directors will solely comprise fixed remuneration without performance-linked or stock-based remuneration, as their role is to supervise management from an independent standpoint.

The specific level and system of remuneration will be verified and deliberated by the Corporate Advisory Committee, made up of outside officers and outside experts, on whether the level and system of remuneration are appropriate, based on the results of a survey by a specialized external research institution on executive remuneration covering companies such as those listed on the First Section of the Tokyo Stock Exchange, and the salary of the managers of the highest level in the Company. The Board of Directors receives reports on the results from the Committee and gives it due consideration to determine the level and system of remuneration.

Total Amount of Executive Remuneration			(FY2023)
	Total	Total amount by type of remuneration, etc. (Millions of yen)
	amount of	Monetary remuneration		Stock-based
	remuneration,		remuneration	Number of
Category
etc.						persons paid
	Fixed	Performance-			Restricted stock
	(Millions
	linked		Other*2
	remuneration		compensation*3
	of yen)	remuneration*1
Directors	512	313	168		2	28	11
[of which Outside Directors]	(57)	(57)	(-)	(-)	(-)	(4)
Members of Audit &
Supervisory Board	95	95					5
[of which Outside	-	-	-
(37)	(37)	(3)
Members of Audit &

Supervisory Board]

*1 Performance-linked remuneration is calculated based on net income attributable to owners of the parent ¥42.4 billion in fiscal 2023 (rounded down to the nearest ¥100 million based on figures given in the securities report).

*2 One Director who is not a resident of Japan received monetary compensation linked to stock price (phantom stock) instead of restricted stock compensation within the range of the monetary remuneration limit.

*3 This is the restricted stock compensation of six Directors. Separately from the restricted stock compensation under the Scheme, another ¥13 million in restricted stock compensation was given to four Directors concurrently serving as Executive Officers of the Company as compensation to serve as Executive Officers.

Composition of compensation, etc.

	Fixed compensation		Incentive compensation
	Fixed compensation		Performance-linked	Restricted stock
			compensation
		compensation
(60% ± 10%)
		(10% ± 5%)
	(30% ± 5%)

Method for determining the amount of compensation (incentives), etc.

	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 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. Performance-linked remuneration is not paid to
Performance-Linked	Outside Directors.
Remuneration System	(Calculation Method)
	As a short-term performance incentive, the performance-linked remuneration
	for the President will be the amount that is obtained by multiplying the amount
	of actual net income attributable to owners of the parent for the current fiscal
	year (before deducting performance-linked remuneration [bonus]) by 0.75/1000.
	The performance-linked remuneration for Directors will be determined by
	multiplying the said amount by a predetermined index corresponding to each
	Director's position. The amounts of performance-linked remuneration paid to
	Directors in charge of business units will be determined so that they partially
	reflect the performance of the relevant business units.
	At the 140th Ordinary General Meeting of Shareholders held on March 25,
	2021, the Company resolved to abolish the existing stock option plan*4 and
	introduce a restricted stock compensation plan, with the aim of incentivizing
	Internal Directors and Executive Officers to improve the Company's corporate
	value in a sustainable manner as well as raise the degree to which they share
Restricted Stock	value with shareholders. Restricted stock compensation for Directors under
this plan will not exceed the annual amount of ¥90 million, separately from the
Compensation Plan
maximum amount of fixed remuneration by position and performance-linked
	remuneration. The number of shares to be granted under the plan will not
	exceed 60,000 shares each year. Restricted stock compensation is not paid to
	Outside Directors. Monetary compensation linked to stock price (phantom
	stock) has been introduced in lieu of restricted stock compensation for
	Directors who are non-residents of Japan.

*4 The exercise of previously granted stock options held by Directors and Executive Officers on retirement will continue until such time as all Directors and Executive Officers currently holding stock options have retired.