Sustainability / GovernanceCorporate Governance

Outline of the Corporate Governance Framework (as of June 23, 2023)

Electing multiple Outside Directors is a basic policy of the Daicel Group. By electing Outside Directors, who now comprise a majority of the Board of Directors, and considering their opinions and advice as informed by their diverse expertise, Daicel is working to bolster the oversight functions and appropriateness of management decisions made by the Board of Directors. Moreover, our Executive Officer system has enabled us to clearly separate our decision-making/supervisory functions from our business execution functions, allowing for a dynamic business execution structure that allows us to quickly respond to changes in the management environment.
Through this governance structure, we strive to consistently improve corporate value with all reasonable considerations made for our stakeholders.

Scroll left or right

*The compensation system is also used for executive officers and others.
The ratio of (1), (2), and (3) above is generally 55:30:15, with the ratio changing based on the individual’s position.

ESG DataCorporate Governance

Corporate Governance Framework (as of June 23, 2023)

Board of Directors

The Company recognizes a role of Board of Directors as following; Setting the direction we should aim for and creating a concrete business strategy toward the target, Supervising the execution of business and business operations from the objective point of view. Ensuring this effectiveness of the role of Board of Directors, it is constituted of four Inside Directors and six Outside Directors; the former have a profound insight about our businesses, the latter have a wealth of experience in the business management and diverse expertise (including eight men and two women in the Board as a whole). Also, all of Outside Directors are independent. The details about them are indicated in the part titled “Information about Directors and Audit & Supervisory Board Members” in the Securities Report. The Outside Directors satisfy the “Standards for Independence of Outside Directors/Outside Audit & Supervisory Board Members” as defined by the Company. Therefore, we organize the Board of Directors in a way that allows the Outside Directors, who are in a majority on the Board of Directors, to state their opinions to the Company’s management from the objective and independent Directors’ point of view.
The Board of Directors has a meeting once a month as a general rule. The Board of Directors meets to make decisions concerning important management issues and supervise the execution of duties and operations. In addition, five Audit & Supervisory Board Members, three of whom are the Outside Audit & Supervisory Board Members, also attend the Board of Directors meetings, where they express their opinions appropriately in case of necessity.
The term of office for Daicel’s Directors is one year. This short term of office enables Daicel shareholders to increase their involvement in the appointment of Directors. At the same time, it allows the Company to better clarify the management responsibilities of its Directors and thereby strengthen its corporate governance.
It is necessary for each Director to develop his/her knowledge of our business to ensure effective supervision of the execution of business. Therefore, we provide opportunities for mainly Outside Directors and Outside Audit & Supervisory Board Members to tour our manufacturing sites and provide an explanation of Daicel’s departments, products and technologies as well as the Board of Directors’ meetings.

The activities of the Board of Directors are as follows.

Number of meetings of the Board of Directors held in FY2023/3 was15
Number of Board of Directors resolutions, discussions, and reports

FY2023/3 Board of Directors
Summary of Major Resolutions, Discussions, and Reports Related to Governance and Compliance

Scroll left or right

Audit & Supervisory Board

The Audit & Supervisory Board comprises five members (four men and one woman), and a majority of three members are independent Outside Audit & Supervisory Board Members that meet the standards for independence of Outside Directors and Outside Audit & Supervisory Board Members. Outside Audit & Supervisory Board Members possess extensive experience and wide-ranging knowledge concerning accounting, finance, legal affairs, management, and other disciplines, and fulfill auditing functions from a third-party, independent standpoint.
The Audit & Supervisory Board holds meetings to share information, deliberate on, and make decisions about important issues related to the Company’s audits. It also regularly attends Board of Directors meetings and important internal meetings held by Standing Audit & Supervisory Board Members, and regularly meets with the Representative Director, Outside Directors, and External Auditors. In addition, it works to improve auditing effectiveness through such means as communicating with the Auditing Division, the organization for conducting internal reviews when needed.

The activities of the Audit & Supervisory Board Members are as follows.

Scroll left or right

*Relevance [ ○: Responsible ●: Optional / Partially responsible ]

With respect to Key Audit Matters (KAM), along with attending regular meetings and gatherings with External Auditors to confirm brainstorming progress, the Audit & Supervisory Board communicate important information to the executive team as needed.

Nomination and Compensation Committee

The Nomination and Compensation Committee, which is chaired by Outside Directors and consists of Outside Directors, who are in the majority of the Board of Directors, and Representative Directors, reports on the personnel and remuneration of Directors, Executive Officers and other officers in response to requests from the Chairperson of the Board of Directors or Chairperson of the Audit & Supervisory Board, from the point of view of ensuring objectivity, transparency, and validity in the process of decision.
The Nomination and Compensation Committee is administered in line with the regulations for the Nomination and Compensation Committee. This committee has the authority to state the opinions in response to requests from the chairperson of the Board of Directors regarding the decision of the candidates for the Directors and the Audit & Supervisory Board Members, the appointment of executive officers, etc. and the compensation assessment process of Directors and Audit & Supervisory Board Members. The chairperson of the Board of Directors must report the response of the Nomination and Compensation Committee in the Board of Directors meetings regarding the decision of the candidates for Directors and Audit & Supervisory Board Members and the decision on compensation for Directors and Audit & Supervisory Board Members. The Board of Directors meets to make decisions concerning these topics in consideration of responses from the Nomination and Compensation Committee.

The activities of the Nomination and Compensation Committee are as follows.
Number of meetings of the Nomination and Compensation Committee in FY2023/3 was 8
Number of Committee agenda items

Executive Officers

The Company has an Executive Officer System in order to clearly delineate decision-making and supervisory functions from business execution functions and further energize corporate management through swift decision-making.
The Company’s 21 Executive Officers (four of whom are also Directors) execute operations as heads of SBUs, sites, or corporate divisions or as presidents of Group companies.
In accordance with the Rules Concerning Circulars (rules relating to job functions) these Executive Officers are given a certain measure of decision-making authority that they exercise to make swift decisions after accurately assessing business opportunities. Certain committees have an Executive Officer nominated by the President and CEO to serve as Chairperson in overseeing efforts to develop driven, responsible managers that will achieve the aims of the medium-term strategy and long-term vision of the Company.
These Executive Officers report important matters concerning business execution at monthly Board of Directors meetings and take advice from Directors and Audit & Supervisory Board Members to serve in supervising the Board of Directors.

Management Meetings

In the course of the President and CEO carrying out basic policies on corporate management as determined by the Board of Directors, the Management Meetings holds discussions and makes decisions about important business plans and business execution plans, as well as individual business operation execution.
Generally meeting twice a month, the committee consists of the President and CEO as well as Directors (excluding Outside Directors) and Executive Officers nominated by the President and CEO. The committee also has two Standing Audit & Supervisory Board Members that give their views on matters when needed.
The committee reports on the progress and results of its proceedings at monthly Board of Directors meetings and takes advice from Directors and Audit & Supervisory Board Members to serve in supervising the Board of Directors.

FY2023/3 Initiatives Based on the FY2022/3 Effectiveness Evaluation

In view of the Effectiveness Evaluation of FY2022/3, in FY2023/3 we spent time improving reports with regard to the importance of subjects such as major investments in our business strategy, as well as progress and issues related to such subjects.

FY2023/3 Effectiveness Evaluation of the Board of Directors

Although our effectiveness evaluations of the Board of Directors to date have been done strictly by those affiliated with the administrative office of the Board of Directors, FY2023/3 saw us begin to enlist the support of a third party organization (a law firm) with the goal of incorporating the knowledge of experts to further improve the effectiveness of the Board of Directors. We plan to make use of this third party once every three years.

Compensation for Directors and Audit & Supervisory Board Members

1. 1Basic Policy
   1. （1）The Compensation of Directors and Audit & Supervisory Board Members shall be determined by Board of Directors’ resolutions for Directors and Audit & Supervisory Board Members’ discussions for Audit & Supervisory Board Members, within the scope of the total amount of compensation, etc. approved at the General Meeting of Shareholders.
   2. （2）The Compensation of Directors shall consist of monthly compensation, performance-based bonuses, and stock compensation, which will generally be paid according at a 55:30:15 ratio that is subject to change according to the position. This rule does not apply to Outside Directors, who shall be paid only monthly compensation. The compensation of Audit & Supervisory Board Members shall consist solely of monthly compensation.
   3. （3）To ensure objectivity, transparency, and validity regarding compensation, the Board of Directors makes its decisions following deliberations based on recommendations made by the Nomination and Compensation Committee.
2. 2Basic Policy on Compensation
   1. （1）Monthly Compensation
      In principle, the monthly compensation of Directors and Audit & Supervisory Board Members is a fixed amount paid in accordance with internal rules that are determined by the Directors’ duties and job titles in business execution and as to whether or not the Audit & Supervisory Board Members are fulltime.
      Regarding monthly compensation, the Company has revised the compensation to an appropriate and fair level reflective of its business performance, accomplishment of medium- and long-term business plans, and social situations, among other factors.
   2. （2）Performance-linked remuneration

      Performance-linked remuneration of Directors is paid in accordance with the accomplishment of performance indicators designated by the Board of Directors.
      Currently, net sales and operating income are used as the indicators to evaluate things such as business growth, market expansion, and improvements in the earning power of our core business. These indicators are given a 50-50 weighting, and the basic amount of the performance-based bonus is calculated by multiplying the rank-based amount with a payment rate that fluctuates between 0% and 200%, depending on the level of accomplishment of the performance indicators. The payout rates linked to the indicators are calculated as shown in the table below.

      Indicator	Weight	Target achievement rate	Coefficient
      Net sales	50%	120% or more	200%
      		More than 100% but less than 120%	*1
      		100%	100%
      		More than 80% but less than 100%	*2
      		80% or less	0%
      Operating income	50%	120% or more	200%
      		More than 100% but less than 120%	*1
      		100%	100%
      		More than 80% but less than 100%	*2
      		80% or less	0%

      • *1These bonuses are proportional to the percentage that the target figure was achieved, within a range of 101% to 199%.
      • *2These bonuses are proportional to the percentage that the target figure was achieved, within a range of 1% to 99%.

      The final amounts of performance-based bonuses are determined by assessing the status of each Director from the perspectives of practicing sustainable management policies and accomplishing medium-term strategies and adding or subtracting up to 20% to or from the basic amounts of the performance-based bonuses.

   3. (3)Restricted Stock Compensation System
      Daicel introduced the Restricted Stock Compensation System to step up value sharing with shareholders and motivate Directors to contribute more to medium- to long-term improvement in corporate value. The stocks cannot be transferred for a period of 30 years, and the Board of Directors decides on an amount for each eligible individual, which is then divided by the stock price at a certain point to calculate the number of shares to be awarded.

*Daicel does not have a system for paying retirement benefits to officers.

Training for Directors, Audit & Supervisory Board Members and Executive Officers

Directors and Audit & Supervisory Board Members attend external seminars and training sessions in order to accomplish such things as acquiring the knowledge necessary for the performance of their duties and work tasks, as well as to update their skills. The Company bears the costs of these activities.

It also provides annual compliance training for Directors, Audit & Supervisory Board Members, Executive Officers, and other employees such as senior employees (excluding Outside Directors).

In addition, we provide opportunities for Outside Directors to tour our manufacturing sites and receive an explanation of Daicel’s business activities so they can better understand our business and utilize their knowledge in discussions within Board of Directors meetings.
In FY2023/3 we released information about our information disclosure and governance systems with regard to our intellectual property and intangible asset investment, our initiatives in our cellulose business and at our Biomass Innovation Center, our investments in the engineering plastics segment, and information about our Sustainable Management Committee.

Education and Training Programs

Establishment of the Internal Control System

Daicel develops and manages a system of internal controls under its Basic Policy for Structuring the Internal Control System to ensure the appropriateness of its business operations as stipulated under Japan’s Companies Act.
Furthermore, Daicel has established the Internal Control Council chaired by a senior managing executive officer, who concurrently serves as the general manager of the Corporate Support Headquarters and comprising general managers of corporate departments as members, to accurately grasp the status of the establishment and management of these systems and to discuss related measures toward ultimately ensuring the effectiveness of internal controls throughout the Group. Standing Audit & Supervisory Board Members also attend meetings held by the council as observers. The council provides a report on its activities to the Audit & Supervisory Board and Board of Directors, and the Board of Directors has confirmed that the Basic Policy is being implemented appropriately.

Basic Policy for Structuring Internal Control Systems [PDF：107KB]

Cross shareholdings of the Company (investment shares held for purposes other than to be net assets)

In line with the above-mentioned policy, in FY2023/3 the Company sold all shares of three securities out of 25 listed securities held by the Company. We also sold all shares of two unlisted securities. As of the end of FY2023/3, the Company held 48 stocks for a balance sheet amount of ¥58.9 billion. The decrease in the balance sheet amount is due to the sale of cross shareholdings and to fair value.
The ratio of the balance sheet amount to consolidated net assets increased in FY2021/3. This owes to a decline of approximately ¥167 billion in consolidated net assets in connection with the Company acquiring 100% ownership of consolidated subsidiary Polyplastics Co., Ltd. in October 2020. The Company continues to decrease its cross shareholdings.

Scroll left or right

Cross shareholdings of the Company (total investment securities and deemed holdings of shares for purposes other than to be net assets)

Scroll left or right

Plan for Future Stockholding Reductions

In light of various circumstances that include the impact on the market and the financial strategies of the issuing entity, the Company plans to sell any stock that fails to satisfy our purpose for shareholding or that is deemed to be no longer economically practical due to factors that include changes in the business environment.
The balance of cross shareholdings not including deemed holdings of shares and cross shareholdings including deemed holdings of shares as a proportion of consolidated net assets from FY2024/3 to FY2026/3 is expected to be as shown below.

Scroll left or right

*The Company’s reduction plan is based on information obtained by the Company as of May 26, 2023 and on certain assumptions deemed to be reasonable. Actual figures may diverge from the plan due to various factors.

General Meeting of Shareholder

We have considered the Annual General Meeting of Shareholders as a valuable opportunity to engage with our shareholders. Daicel posts the convocation notice for its Annual General Meeting of Shareholders on its website prior to distributing it by postal mail, aiming to provide shareholders with sufficient time to examine the agenda items. Moreover, to ensure that as many shareholders as possible to exercise their voting rights, we offer voting alternatives via postal mail or the Internet, using computers, smartphones and other devices, for those who are unable to attend the meeting.
To facilitate their further understanding of initiatives of the Daicel Group, we are striving to provide easy-to-understand answers to questions voiced by shareholders.
The Annual General Meeting of Shareholders was held on June 22, 2022, amid the COVID-19 pandemic. During the meeting, we asked shareholders to wear masks and placed alcohol-based disinfectants near the reception desk and contactless thermometers near the entrance as measures to prevent infection. Inside the buildings, we let shareholders seat at a greater distance from each other compared to past meetings, and staff disinfected the microphones after use by each shareholder. Daicel’s Directors and organizing staff also checked their temperatures and physical condition prior to participating and wore masks during the meetings.
We will continue to place importance on dialogue with shareholders and hold General Meetings of Shareholders with thorough safety considerations.

IR Activities

Under the supervision of the officer in charge of IR, the Company promotes IR activities in cooperation with the management team including the President and CEO, and related departments such as the IR department. In line with the forementioned basic policy on Information disclosure, Daicel adopts a proactive approach toward its IR activities.

By holding quarterly financial briefing session and things such as individual interviews, interviews at conferences sponsored by securities companies, and small meetings with the President and CEO, the Company strives to promote communication, aspiring to foster better understanding of the Daicel Group among institutional investors. In FY2023/3, business briefings on the Healthcare, Smart and Materials were held as opportunities to promote a better understanding of the Daicel Group's businesses. In view of the COVID-19 pandemic, these IR events, including the financial briefing session, were held not only in person but also online teleconferencing to allow investors to participate as much as possible.

With respect to individual investors, we participated in individual investor events hosted by securities companies and explained our business, in addition to providing information via our corporate website. Furthermore, we conducted an online survey of 2,000 individual investors to develop a deeper understanding of the Daicel Group and ask their opinion about Daicel Group.
Furthermore, we offer an email newsletter service providing information that Daicel has published on TDnet and EDINET. Please follow this link to sign up for our investor relations email newsletter.

Investor Relation

Feedback on dialogue with shareholders and investors

The IR department feeds back to management and related departments as needed about the content of dialogues with shareholders and investors, their opinions and requests, and the content of analyst reports. In addition, the officer in charge of IR reports the dialogue to the Board of Directors and the IR department reports it to the management team on a quarterly basis at the meetings, which is used in discussions aimed at improving our corporate value.