Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code – Fourth Meeting

These are the minutes of the meeting held on December 22, 2015 . The materials that were distributed at the meeting can be downloaded at the bottom of this entry.

[Ikeo, Chairman]  “Although it’s a few minutes earlier than the scheduled opening time, as all the prospective attendees are here, I’d like to open the fourth Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code. Thank you very much for taking the time from your busy schedule.

The secretariat has made efforts to revitalize discussion, and changed the seating plan this time. If you find any inconvenience, please let me know later.

As shown in the meeting agenda, today I’d like you to discuss growth-oriented governance as “Points at issue on the Board (2)”. As I mentioned in the previous meeting, I believe we have plenty to say about the board, and we need to have a series of discussions on how the board should be. Exploring the issues raised during the first round and taking them into account, today we will discuss growth-oriented governance. Specifically, I’d like you to focus on measures for securing an independent and objective standpoint of the board, and the appointment and dismissal of CEO.

In relation with today’s topic, we invited guests from Kao Corporation – Mr. Sonosuke Kadonaga, Chairman of the Board, and Mr. Tadaaki Sugiyama, Executive Officer, who will provide a presentation later.

First, I’d like to ask a representative of the Financial Services Agency to explain issues to be discussed today.

[Tahara, Director of the Corporate Accounting and Disclosure Division, FSA] Good morning.

Now I’d like to explain today’s agenda according to the material at your hand. Please take a look at Material 1 titled “Points at issue on the Board (2)”. As you see, Material 2 has the similar title, “Points at issue on the Board”. Please don’t be confused. This one is the summary of opinions expressed in the previous meeting. Please note that it does not constitute a consensus of the Council. Please use it for your reference, where necessary. As we already explained those issues, I will not explain Material 2 today. Now I’d like to explain Material 1. As Chairman just mentioned, today we’d like you to discuss -2- measures to secure the independence and objectivity of the board, as well as the appointment and dismissal of CEO. First, I’d like to explain points at issue concerning the “independent and objective standpoint” of the board, which is related to Principle 4.3

We summarized the members’ opinions expressed in the previous meeting in 6 bullet points. First, it was pointed out that it is important for independent directors to effectively perform their functions in order for the board to enhance discussion so that the board can enhance discussions on setting strategic direction and carry out oversight from an independent and objective standpoint. While this is linked to the next point about how to provide information to independent directors, what are effective functions to be performed by independent directors? And what qualifications are required for them? What should we think about the selection of and appointment procedures for them? We’d like you to discuss these points.

The second point is that it is necessary to take measures to adequately provide necessary information to independent directors. For example, the Code suggests further use of executive sessions and lead independent director. We’d like to hear your opinions about it.

Third, it was noted that although the board is expected to discuss such matters as business strategies, it tend to spend time on making decisions on day-to-day operations, and thus it is necessary to think of ways to enable the board to spend more time on discussions of business strategies. Some members introduced practical examples of corporate efforts such as narrowing down the number of agenda items, or introducing ‘matters for deliberation’. We’d like you to discuss what you think about these points, and what should be kept in mind when narrowing down the number of agenda items.

The fourth point is specifically relevant to Companies with Kansayaku Board and Companies with Supervisory Committee. It was pointed out that it is important to make use of optional advisory committees or the like for nomination, remuneration, etc., and to take measures to make better selection of committee chairs and members. What roles can such optional advisory committees fulfill? What kind of measures can be considered for the selection of committee chairs and members? We’d like to hear your opinions.

Fifth, it was mentioned that an evaluation of the board effectiveness is important to gain the understanding of shareholders with regard to corporate efforts to improve governance. We’d like you to discuss specific methods of such an evaluation, as well as disclosure of evaluation results….”

Read the remainder of the minutes: – Minutes (PDF:451KB)

Materials that were distributed:

The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.