Sustainability ESG Management: Governance / Corporate Governance
Basic Approach
We believe that one of our priorities is facilitating prompt and effective decision making, enhancing supervision of business execution, ensuring compliance and increasing management transparency to achieve sustainable growth and improve corporate value over the medium to long term under a basic management policy of continuing to develop together with society by promoting corporate activities in consideration of our social mission and pursing developmen of technologies to meet user needs and preservation of the environment globally. Based on this belief, we will enhance corporate governance.
Corporate Governance System
The Company has a corporate structure with an audit & supervisory board. Under this structure (details follow), while promoting swift management decisions and execution of duties, the Company has appointed three outside directors to provide advice on management from an external perspective and strengthen the supervisory function for directors. We adopted this structure to fully exercise our monitoring and supervisory role for management through audits by the Audit & Supervisory Board.
Corporate Governance Structure
| Organization | Board of Directors | Audit & Supervisory Board | Nomination and Compensation Advisory Committee |
Management Committee |
|---|---|---|---|---|
| Composition | 9 members(6 internal + 3 external) * Chaired by the president and CEO |
4 members(1 internal + 3 external) * Chaired by the full-time Audit & Supervisory Board member |
4 members (1 internal + 3 external) * Chaired by outside director |
6 members (6 internal) * Chaired by the president and CEO |
| Objectives | Ensuring efficient execution of duties by directors | Monitoring and supervising management | Deliberate and report on matters related to nomination and compensation as a voluntary advisory body to the Board of Directors | Prompt management of decision-making and business execution |
| Main Discussion Items | ・Decisions on important management matters ・Supervision of business execution |
・Checks on business execution ・Reporting on the status of internal audits, etc. |
Matters related to nomination and compensation of directors and Audit & Supervisory Board members, etc. | Confirmation of progress against targets and for solutions to issues, etc. |
| Number of Meetings Held (FY2023) |
18 times | 12 times | 3 times | 38 times |
・In June 2022, the Board of Directors made progress in diversifying membership with the addition of a new female outside director who has extensive experience and achievements in international corporate management.
・In the Nomination and Compensation Advisory Committee, we require that the majority of the committee members are outside directors and that the chairperson of the committee is an outside director, in this way ensuring independence and objectivity.
Audits by Audit & Supervisory Board Members
The Audit & Supervisory Board consists of a full-time Audit & Supervisory Board Member and three Outside Audit & Supervisory Board Members. They attend Board of Directors meetings and other important management meetings. The Audit & Supervisory Board formulates a plan for audits by Audit & Supervisory Board Members for each fiscal year and monitors and supervises management by reviewing important documents, exchanging opinions with the President and CEO, and visiting major offices and carrying out audits.
Full-time Audit & Supervisory Board Member Toshihiko Goto and Outside Audit & Supervisory Board Member Kazuhiko Kimura have worked for financial institutions for many years and have considerable knowledge about finance and accounting.
Outside Audit & Supervisory Board Member Kazuhisa Hayashida is a certified public accountant and has considerable knowledge about finance and accounting.
In FY2023, the Company held 12 times of the Audit & Supervisory Board. The attendance of each Audit & Supervisory Board Member was as follows:
Toshihiko Goto attended 12 times. Taketo Nasu attended 12 times. Kazuhiko Kimura attended 12 times. Kazuhisa Hayashida attended 12 times.
Major agenda items of Audit & Supervisory Board meetings are the formulation of audit policies and audit plans, the sharing of the results of audits of the performance of the Directors, audits of subsidiaries and other information, the appropriateness of the method and results of the accounting auditor’s audit, the exchange of opinions based on interim reports from the accounting auditor and discussion on matters related to accounting procedures.
The main activities of the full-time Audit & Supervisory Board Member are the formulation of a basic audit plan for each fiscal year, visiting and auditing based on the basic audit plan, reviewing related documents, holding regular discussions on audit status with persons in charge of internal audits and the sharing of audit results with the Outside Audit & Supervisory Board Members at Audit & Supervisory Board meeting. The full-time Audit & Supervisory Board Member received reports from the accounting auditor about its execution of duties and requested explanations as needed to ensure proper auditing.
Internal Auditing
An Internal Audit Office consisting of four members has been set up that is independent from operating departments and that is directly supervised by the President and CEO for the purpose of conducting internal audits. The Internal Audit Office conducts accounting audits, business audits, efficiency and economic efficiency audits of business execution departments, and evaluates the effectiveness of internal controls related to financial reports based on internal audit plans prepared according to “Internal Audit Regulations,” etc., reports the result of audits to the President and CEO, and regularly makes reports to the Board of Directors, Audit & Supervisory Board members, and the Audit & Supervisory Board. Regarding coordination for internal audits, audits by Audit & Supervisory Board members, and accounting audits, the Internal Audit Office and Audit & Supervisory Board members regularly meet to exchange information and tasks for improving the efficiency and effectiveness of audits. Opinions on reports from each audit are regularly exchanged with the Accounting Auditor, and reports are made and discussions held on audits as needed.
Outside Officers
The Company has three Outside Directors and three Outside Audit & Supervisory Board Members.
Outside officers are expected to provide managerial advice and supervisory functions to the directors from an objective and expert standpoint, and to act on the basic principle of ensuring that there will be no conflicts of interest with general shareholders. The outside officers are considered independent if they or their relatives (within the second degree of kinship) have not fallen under the following items in the past 10 years.
- Executives at the Company, its affiliates, major shareholders, major business partners, or companies for which the Company is a major partner
- Non-executive directors or accounting advisors at the Company’s affiliates
- Consultants, accounting experts or legal experts who receive significant amounts of cash or other property other than executive compensation from the Company
- Directors or other executives at organizations that receive donations or financial support exceeding a certain amount from the Company or its affiliates
Improving Corporate Governance
Assessing the Effectiveness of the Board of Directors
We conduct an annual evaluation of the Board of Directors to verify whether or not the Board is functioning effectively and to further strengthen its effectiveness for achieving sustainable growth and for improving corporate value over the medium to long term. The evaluation is based on questionnaires and interviews; the results are discussed by the Board of Directors.
| Evaluation and Analysis Methods | ・Conducted evaluation questionnaires for all directors and Audit & Supervisory Board members ・Individual interviews with each officer by the president and CEO, who chairs the Board of Directors |
|---|---|
| Summary of Evaluation Results for FY2023 | ・Confirmation that the Board of Directors as a whole is effective ・The atmosphere allows for free and open comments from outside officers, and there is a healthy and relaxed atmosphere for active discussion |
| Improvements from Previous Year | ・Improving discussions for accomplishing medium-term management plans ・Ensuring the diversity of Board of Directors by appointing outside female directors |
| Future Challenges | ・Improving meeting operation methods for promoting active discussions at Board of Directors meetings ・Formulation and operation of succession plans for CEO, etc. |
Approach to Nominations
Approach to the Composition of the Board of Directors
The Company’s policy is to appoint candidates for directors who, regardless of gender, age, nationality, etc., have excellent character, insight and ability, high ethical standards, and are judged to be able to improve the medium- to longterm corporate value of the Group and earn the trust of stakeholders, in order to provide a balance of knowledge, experience and ability for the Board of Directors as a whole.
Policies and Procedures for Appointing and Dismissing Directors at the Nomination and Compensation Advisory Committee
The president and CEO, when appointing directors, proposes candidates who are vetted by the Nomination and Compensation Advisory Committee, an auxiliary advisory body of the Board of Directors, and then approved by the Board of Directors and appointed at the General Meeting of Shareholders. In addition, the appointment of executive directors is resolved at meetings of the Board of Directors.
Succession Planning
(1) Formulation and operation of a succession plan for the President
The Nomination and Compensation Advisory Committee discusses the formulation and operation of the succession plan for the president, taking into consideration his/her experience, ability, personality and other qualities, based on the management philosophy and management strategy, as necessary, and then report to the Board of Directors, when necessary.
(2) Appointment criteria and procedures
The appointment of the president is decided by the Board of Directors based on the succession plan and after receiving a report from the Nomination and Compensation Advisory Committee.
(3) Dismissal Criteria and Procedures
Dismissal of the president is decided by the Board of Directors when it becomes difficult for the president to execute his/her duties.
Executive Compensation
Basic Policy
The Company’s basic policy is to link the compensation system of directors to business performance and shareholder returns in order to incentivize the improvement of the Group’s business performance and increase the corporate value over the medium to long term, as well as to set the compensation of individual directors at an appropriate level based on their responsibilities and achievements. Guided by this basic policy, the compensation of the Company’s executive directors includes basic compensation, bonuses, and stockbased compensation, and basic compensation is also paid to the Company’s outside directors.
Please refer to the Corporate Governance Report posted on the Company’s website for the details of the policy for determining compensation, etc. for individual directors (including an overview of the monetary and stock compensation systems, as well as performance-linked compensation and the procedures for determining Directors’ compensation).
https://www.ikont.co.jp/ir/business/pdf/cgreport20240213.pdf (in Japanese)
Compensation System for Executive Directors
| Basic Compensation | Bonuses | Stock-based Compensation | |
|---|---|---|---|
| Cash/Stock | Monetary compensation | Monetary compensation | Stock-based compensation |
| Fixed/Variable | Fixed compensation | Variable compensation (linked to short-term performance) | Variable compensation (linked to medium- to long-term performance) |
| Target Ratio | 65 | 20 | 15 |
Group Governance
The Group, consisting of the Company and 14 Group companies (including eight consolidated subsidiaries and six nonconsolidated subsidiaries), manufactures and sells bearings and other products in Japan and around the world.
Based on the Regulations on Division of Duties, etc., the divisions under the control of the Company are given the authority and responsibility to manage affiliated companies, and they cooperate with related divisions to provide guidance and the full implementation of internal controls for the affiliated companies that they are in charge of.
The officers of affiliated companies are appointed by the Company’s directors or senior employees, etc., to successfully execute and supervise their business operations. By reporting and discussing business operations with affiliated companies, we ensure successful business execution by sharing information and collaborate with them when necessary. The Internal Audit Department conducts internal audits of the Company and its affiliates, and then provides regular reports on the audit results to the President and CEO, the Board of Directors, and members of the Audit & Supervisory Board.
Decisions concerning important matters at affiliated companies are reported to the Company, the parent company, in advance. These decisions are thoroughly reviewed and approved either by the Management Committee or the Board of Directors to ensure the appropriateness of business operations at affiliated companies.
Further, for ensuring effective and smooth execution of business operations at affiliated companies, the Company has established the Affiliated Company Management Regulations to clarify the management system and operation methods of affiliated companies.
Cross-Shareholdings
Holding Policy
The Company has established internal standards for cross-shareholdings. The main purpose of cross-shareholdings is to maintain stable business relationships, and the Board of Directors annually examines the need, rationality, and other factors for retaining the holdings after comprehensively considering their stability as investment targets, among various criteria.
As a result, the Company will consider selling shares that are determined to have little significance for our holdings and will work to reduce the number of shares held.
Verifying the Rationality for Holding Shares
The Board of Directors annually reviews every shareholding from both qualitative and quantitative perspectives.
The qualitative verification is related to business strategies, such as maintaining smooth business relationships with customers and suppliers and ensuring that supply chains function well.
The quantitative verification relates to, for example, whether the earnings from shareholdings, including related transactions, exceed the cost of capital.
