Corporate Governance

Corporate Governance Basic Policy of Sumitomo Heavy Industries, Ltd. ("SHI")

Chapter 1 General Provisions

(Business principles)

  1. Article 1:Under the Sumitomo's business philosophy, SHI shall conduct its management in consideration of value creation for all stakeholders, and shall strive to improve the SHI Group’s corporate value over the medium- to long-term based on the following business principles.

<Corporate Mission Statement>

  • We will aim to become a machinery manufacturer that continues to provide excellent products and services to the world.
  • With integrity being a key principle in the Group, we will contribute towards society by gaining high respect and confidence from all stakeholders.

<Our Values>

  • Customer First:
    We exceed customer expectations by providing sophisticated efficient products and services, giving the utmost consideration to their needs and requirements.
  • Embrace Changes:
    We will continue to drive and embrace changes without accepting the status quo.
  • Commitment to Technology and Innovation:
    We are passionate about contributing to society by further developing our unique, in-house technologies.
  • Respect People:
    We will nurture an organizational climate that fosters mutual respect, tolerance and learning for growth.

(Basic views on corporate governance)

  1. Article 2:SHI shall make efforts to enhance its corporate governance, aiming to establish an efficient and highly transparent management structure, in order to increase the SHI Group's corporate value and further enhance its reputation among and trustfulness of all stakeholders.

Chapter 2 Securing the Rights and Equal Treatment of Shareholders

(Securing the equal treatment of shareholders)

  1. Article 3:SHI shall treat all shareholders equally in practice according to the feature and number of each shareholder’s owned shares. Through means such as clearly setting procedures regarding the exercise of shareholder rights, SHI shall establish an environment where shareholders, including minority shareholders, may exercise their rights appropriately.

(General Meeting of Shareholders)

    Article 4:
  1. 1.To enable shareholders to ensure they have sufficient time to consider the proposals of a General Meeting of Shareholders, SHI shall send notices on the calling of the General Meeting of Shareholders at least three weeks before the meeting date and disclose the calling notice (including its English translation) by electronic means on TDnet or SHI’s website without delay after the day on which the Board of Directors’ resolution is made concerning the calling of the General Meeting of Shareholders.
  2. 2.SHI shall participate in the Electronic Voting Platform provided by the Tokyo Stock Exchange thereby ensuring convenience for institutional investors in exercising voting rights and communications with beneficial shareholders.
  3. 3.Regarding a proposal against which a considerable number of opposing votes are cast among the proposals approved at a General Meeting of Shareholders, SHI shall, at a Board of Directors meeting, analyze the reasons behind the opposition and why there were many opposing votes, and endeavor to understand the shareholders’ intentions. As necessary, SHI shall also take appropriate actions in response, such as having dialogue with shareholders.

(Basic strategy for capital policy)

    Article 5:
  1. 1.SHI’s goal shall be to have the return on invested capital (ROIC) of each business owned by SHI always exceed the capital cost in order to realize an improvement of shareholder value. To realize this goal, SHI shall not only concentrate its management resources on highly competitive businesses, but also proceed with the constant reform of its business structure to create new values by combining the knowhow, skills, and technological abilities of each business.
  2. 2.As the basis for implementing the means to achieve the goal outlined in the preceding paragraph, SHI shall maintain a sound financial structure that supports the sustainable growth of the businesses owned by SHI.
  3. 3.SHI shall deem strategic investment leading to improvements in shareholder value, and the implementation of appropriate returns to shareholders as two of the most important management tasks, and endeavor to strongly perform such tasks.

(Strategic shareholdings)

    Article 6:
  1. 1.While SHI considers the task of improving asset efficiency to be important, from the viewpoint of establishing and maintaining stable and long-term transaction relationships and facilitating and strengthening business tie-ups and cooperative business development, among other matters, SHI may hold shares that it considers necessary to promote the businesses it owns as strategic shareholdings.
  2. 2.SHI shall annually review the significance and risks of its main strategic shareholdings at a Board of Directors meeting, reviewing each issue individually.
  3. 3.SHI shall appropriately exercise the voting rights of its strategic shareholdings by judging whether such exercise of the voting rights will contribute to the improvement of the corporate value over the long-term of the SHI Group and the company shares of which SHI holds as strategic shareholdings.

(Related party transactions)

  1. Article 7:When SHI conducts a transaction involving a conflict of interest with a director, and when SHI conducts with a corporate auditor, executive officer or main shareholder who holds shares of 10% or more of SHI’s total voting rights an important transaction that could harm the common interests of shareholders, SHI shall, in accordance with the company rules, seek prior approval for such transaction at a Board of Directors meeting and report to the Board of Directors the result of such transaction.

Chapter 3 Appropriate Cooperation with Stakeholders Other Than Shareholders

(Ethics code)

    Article 8:
  1. 1.SHI shall establish an Ethics Code as a code of conduct to be complied with by all employees.
  2. 2.SHI shall distribute a Compliance Manual to all employees as specific conduct guidelines for each business activity and offer compliance training to ensure that the issue of compliance is understood by all employees.
  3. 3.SHI shall conduct an annual awareness survey on compliance with all employees to further improve the compliance awareness of each employee and to discover any problems with employees and SHI at an early stage and respond appropriately. SHI shall report the survey results and improvement and response measures to its Ethics Committee and Board of Directors.

(Approach to environmental problems)

  1. Article 9:SHI shall establish a Sumitomo Heavy Industries Group Environmental Policy and formulate a Medium-Term Environmental Plan in order to resolve environmental problems positively and actively.

(Whistleblowing)

    Article 10:
  1. 1.SHI shall establish a whistleblowing system, with contact persons including SHI’s corporate auditors, as a point of contact for reports on instances of violation and potential violation of laws and regulations and corporate ethics, shall promote the use of this system, and shall endeavor to discover such problems at an early stage.
  2. 2.SHI shall stipulate in the Sumitomo Heavy Industries Ethical Hotline Regulations that no information provider will be treated unfavorably for whistleblowing and shall make sure that this policy is known throughout the company.

(Ensuring diversity in the company, including active participation of women)

    Article 11:
  1. 1.For the SHI Group’s sustainable growth, SHI shall promote diversity management, aiming for an active organization that comprises diverse human resources and where individual employees may work actively and manifest their abilities.
  2. 2.For the purpose of encouraging the active participation of women, SHI shall continue to make efforts for, among other initiatives, a reform of awareness, the improvement of the work environment, the development of scopes of work, the expansion of opportunities for the participation of women and the appointment of women, and the promotion of work-life balance, including the establishment of a work-life balance support program, in the SHI Group.
  3. 3.SHI shall make efforts to secure employees who are capable of responding to global matters.

Chapter 4 Ensuring Appropriate Information Disclosure and Transparency

(Basic policy on information disclosure)

    Article 12:
  1. 1.To maintain and develop relationships of trust with all stakeholders, SHI shall disclose important information concerning the SHI Group timely and appropriately, focusing on transparency, fairness, and continuity.
  2. 2.SHI shall establish a Timely Disclosure Judgement Committee with the officer in charge of investor relations and public relations taking charge, and shall disclose information promptly pursuant to relevant laws and regulations, such as the Financial Instruments and Exchange Act, and the rules decided by the Tokyo Stock Exchange, among others.
  3. 3.SHI shall not only disclose information based on relevant laws and regulations and the rules decided by the Tokyo Stock Exchange, among others, but also actively and fairly disclose information that SHI has considered useful to deepen stakeholders’ understanding about the SHI Group’s management policy and business.

Chapter 5 Responsibilities of the Board of Directors, etc.

Section 1: Roles and Responsibilities of the Board of Directors

(Roles and responsibilities of the Board of Directors)

    Article 13:
  1. 1.SHI’s Board of Directors and senior management officials shall recognize the Medium-Term Management Plan, which includes SHI’s specific target figures for sales, operating profit, ROIC, dividend payout ratio, and the like, as one of their commitments to shareholders, and make their utmost efforts to realize the plan. When the plan are not realized, SHI’s Board of Directors and senior management officials shall analyze the reasons for this, provide an explanation to shareholders of the same, and then reflect such analysis in SHI’s plans for the terms thereafter.
  2. 2.SHI’s Board of Directors shall introduce an executive officer system to establish an environment that enables the prompt and resolute execution of business. By ensuring that important and risky management tasks are to be reported as appropriate from the management team at Board of Directors meetings, the Board of Directors shall perform highly effective supervision of the management team and directors.
  3. 3.SHI’s Board of Directors shall appropriately establish an internal control system and risk management system based on the Companies Act and other relevant laws and regulations, and the Board of Directors shall appropriately supervise the operation by receiving reports on their annual plan and operational status from the internal control division and giving necessary instructions.

(The scope of the matters delegated to executive officers)

    Article 14:
  1. 1.Regarding matters that are set as resolution matters of the Board of Directors under laws and regulations, and matters specified as important matters to be decided for management by the regulations of the Board of Directors, SHI shall decide such matters by resolution at Board of Directors meetings.
  2. 2.Regarding decisions on business execution other than the matters specified in the preceding paragraph, SHI’s Board of Directors shall delegate such decisions to the president and other executive officers and clearly specify the scope of such delegation in the decision-making authority regulations.

(Cooperation of the management team with outside directors and the accounting auditor)

    Article 15:
  1. 1.Based on the audit plans prepared by the accounting auditor, SHI’s accounting division shall confirm that sufficient audit time is secured to enable high-quality a
  2. 2.SHI shall offer opportunities for discussions between the accounting auditor and the management team, including the president, and shall establish a structure where standing corporate auditors can, as appropriate, exchange opinions with the accounting auditor and outside directors and, as necessary, share the details of such opinions with the accounting auditor or outside directors. SHI shall thereby ensure sufficient cooperation between the accounting auditor and directors necessary for appropriate audits.
Section 2: Effectiveness of the Board of Directors

(Composition of the Board of Directors)

    Article 16:
  1. 1.The number of SHI’s directors shall be no more than 12, the maximum number stipulated in its Articles of Incorporation. The board shall comprise an appropriate number of directors so that substantial discussions at Board of Directors meetings are ensured, and for which director diversity is considered.
  2. 2.As part of establishing a governance structure for the SHI Group’s sustainable growth and improvement of its corporate value over the medium- to long-term, SHI shall appoint several outside directors who satisfy the Independence Standards for Outside Officers stipulated in Article 28 of this basic policy to strengthen the Board of Directors’ management supervision function.

(Policies on and procedures for nominating director candidates)

    Article 17:
  1. 1.SHI’s director candidates shall be nominated from those who satisfy the matters specified in each of the following items:
    (1) a person who has excellent character, insights, and abilities, as well as a great sense of ethics;
    (2) a person who has the capability to view the overall management system of SHI, the intrinsic sense of risks, and extensive knowledge on management; and
    (3) a person who may understand and embody the Sumitomo's business philosophy and the SHI Group’s business principles, among others.
  2. 2.In nominating director candidates, SHI shall consider the balance of the expertise and experience (including management and business experience and experience in developing global business) of each director candidate, and diversity, among other factors, to be able to realize effective corporate governance by the Board of Directors as a whole.
  3. 3.Inside director candidates shall be nominated also in consideration of their association with SHI’s management strategy and business scope, and their past experience in management, business, and their specialized areas, among other fields.
  4. 4.Outside director candidates shall be nominated in consideration of not only their role to supervise SHI’s management independently from the management team and appropriately reflect stakeholders’ viewpoints, but also of their abundant experience as a manager or extensive knowledge on management, among other factors.
  5. 5.Director candidates shall be determined at a Board of Directors meeting following examination by and reporting of the Nomination Committee, an advisory body to the Board of Directors.

(Policies on and procedures for appointing executive officers)

    Article 18:
  1. 1.SHI’s executive officers shall be appointed from those who satisfy the matters specified in each of the following items:
    (1) a person who has excellent character, insights, and abilities, as well as a great sense of ethics;
    (2) a person who has the capability to view the overall management system of SHI, the intrinsic sense of risks, and extensive knowledge on management; and
    (3) a person who may understand and embody the Sumitomo's business philosophy and the SHI Group’s business principles, among others.
  2. 2.Executive officers shall be appointed from those in charge of business execution (including those who undertake such a responsibility as an assistant), such as SHI’s president, a general manager of SHI’s main business, the president of a main group company, and a general manager of a main division at SHI’s headquarters.
  3. 3.Executive officer candidates shall be reported to the Nomination Committee, an advisory body to the Board of Directors, and after receiving necessary advice, the executive officers shall be appointed at a Board of Directors meeting.

(Policies on and procedures for determining the remuneration of directors and executive officers)

    Article 19:
  1. 1.The remuneration of SHI’s directors and executive officers shall consist of basic remuneration and performance-linked remuneration, which shall reflect the performance of SHI and its divisions.
  2. 2.For the performance-linked remuneration outlined in the preceding paragraph, various management indicators shall be established to evaluate the performance of SHI and its divisions as performance evaluation indicators, and there shall be a structure to determine remuneration based on those management indicators. The remuneration of executive directors in charge of operational divisions shall reflect the performance of the operational division of which they are in charge.
  3. 3.The remuneration of outside directors shall consist only of basic remuneration as they shall assume the responsibility to supervise management independently from the business execution division.
  4. 4.The remuneration of directors and executive officers shall be determined at a Board of Directors meeting following reports on the remuneration system and standards by the Compensation Committee, an advisory body to the Board of Directors.

(Concurrent officer positions at other listed companies)

  1. Article 20:In reference documents for a General Meeting of Shareholders and in a business report, SHI shall disclose every year where its directors, corporate auditors, and their candidates are serving concurrently as an officer at another listed company, and other important details concerning jobs they concurrently have.

(Active deliberation at the Board of Directors)

    Article 21:
  1. 1.SHI’s Board of Directors shall determine its annual meeting schedule well in advance of the meeting dates and determine matters of deliberation in advance of each meeting.
  2. 2.SHI’s Board of Directors meetings shall be held once a month in principle, and the number of matters for deliberation for each meeting shall be fixed at an appropriate number to enable sufficient deliberation.
  3. 3.SHI’s Board of Directors shall endeavor to ensure sufficient deliberation time for proposals that should be given plenty of deliberation time through means such as allowing for a proposal to be deliberated on multiple times.

(Information gathering and support structure of directors)

    Article 22:
  1. 1.SHI shall endeavor to distribute to directors materials for Board of Directors meetings well in advance of the meeting date.
  2. 2.SHI shall endeavor to provide directors with sufficient information by providing them with necessary materials as appropriate at the Executive and Operating Officers Committee, the Management Strategy Committee, the Budget Deliberation Committee, and other important committees, and in individual reports, among other methods.
  3. 3.SHI’s outside directors shall gather necessary information on matters of deliberation of a Board of Directors meeting and other important matters through means such as attending the Executive and Operating Officers Committee. They shall receive explanations in advance from the management team about particularly important matters among the matters of deliberation of the Board of Directors, and then attend a Board of Directors meeting.

(Evaluation of effectiveness of the Board of Directors)

  1. Article 23:SHI's Board of Directors shall evaluate its effectiveness and disclose a summary of the results of the evaluation on an annual basis in order to ensure and improve the effectiveness of the Board of Directors.
Section 3: Roles and Responsibilities of Corporate Auditors and the Board of Corporate Auditors

(Roles and Responsibilities of Corporate Auditors and the Board of Corporate Auditors)

    Article 24:
  1. 1.SHI’s Board of Corporate Auditors shall comprise outside corporate auditors and standing corporate auditors. Outside corporate auditors shall fulfill their responsibilities as a corporate auditor by taking advantage of their strong independence.
  2. 2.SHI’s outside auditors shall take advantage of their great specialized knowledge and abundant experience in various fields, while its standing corporate auditors shall take advantage of their specialized knowledge and abundant experience regarding SHI’s management. Both shall perform highly effective audits and actively express their opinions to the management team at Board of Director meetings and the Executive and Operating Officers Committee, among others.
  3. 3.SHI’s corporate auditors shall hold an Information Meeting of Corporate Auditors and Outside Directors every month, aiming to share information and exchange opinions with outside directors and deepen their cooperation.

(Policies on and procedures for nominating corporate auditor candidates)

    Article 25:
  1. 1.SHI’s corporate auditor candidates (including substitute corporate auditor candidates; the same will apply hereinafter) shall be nominated from those who satisfy the matters specified in each of the following items and who have the ability to make appropriate judgements from an independent and objective standpoint:
    (1) a person who has excellent character, insights, and abilities, as well as a great sense of ethics;
    (2) a person who has the capability to view the overall management system of SHI, the intrinsic sense of risks, and extensive knowledge on management; and
    (3) a person who may understand and embody the Sumitomo's business philosophy and the SHI Group’s business principles, among others.
  2. 2.In nominating corporate auditor candidates, SHI shall consider the balance of the expertise and experience (including management and business experience) of each corporate auditor candidate, and diversity, among other factors, to be able to realize effective audits by the Board of Corporate Auditors. In addition, SHI shall nominate at least one candidate who has appropriate knowledge on finance and accounting.
  3. 3.Inside corporate auditor candidates shall be nominated also in consideration of their understanding about SHI’s management strategy, management, and business.
  4. 4.Outside corporate auditor candidates shall be nominated also in consideration of their abundant experience as a manager and extensive knowledge on finance, accounting, and legal affairs, among other areas.
  5. 5.Corporate auditor candidates shall be determined at a Board of Directors meeting following examination by and reporting of the Nomination Committee, an advisory body to the Board of Directors, and consent from the Board of Corporate Auditors.

(Information gathering and support structure of corporate auditors)

    Article 26:
  1. 1.SHI’s corporate auditors shall actively gather information necessary for the execution of their duties through means such as attending important meetings, such as Board of Directors meetings, gathering opinions from directors, executive officers, and the like, inspecting important documents, visiting offices, subsidiaries, and the like for audits, and cooperating with the accounting auditor, the supervisory division of SHI’s headquarters, and corporate auditors of affiliated companies.
  2. 2.SHI’s standing corporate auditors shall confirm cases concerning important decision-making in advance through means such as attending the Management Strategy Committee, and shall provide information to and exchange opinions with outside corporate auditors regarding such cases as necessary.
  3. 3.SHI’s corporate auditors shall seek opinions as necessary from external experts such as lawyers.
  4. 4.SHI shall establish a division to assist corporate auditors and place full-time staff for corporate auditors in order to support corporate auditors’ activities and provide information smoothly to corporate auditors.

(Appointment and evaluation standards of the accounting auditor)

    Article 27:
  1. 1.SHI’s Board of Corporate Auditors shall formulate and operate the standards for the appointment and evaluation of the accounting auditor to appropriately appoint and evaluate an accounting auditor candidate.
  2. 2.SHI’s Board of Corporate Auditors shall confirm that the accounting auditor has the required independence and expertise, based on reports on the implementation of audits from the accounting auditor and opinions from the executive division.

(Cooperation between corporate auditors and the accounting auditor)

  1. Article 28:SHI’s corporate auditors shall ensure sufficient cooperation with the accounting auditor necessary for appropriate audits by receiving reports, such as audits of financial statements, audits of internal control, and quarterly reviews, among other reports, from the accounting auditor, and exchanging opinions at Board of Corporate Auditors meetings.
Section 4: Outside Officers

(Independence standards for outside officers)

  1. Article 29:SHI shall establish Independence Standards for Outside Officers, as provided in Exhibit 1, to secure the practical independence of those who will serve as outside directors and outside corporate auditors.

(Specific Outside Director)

  1. Article 30:SHI’s outside directors shall appoint one of the outside directors as a Specific Outside Director by mutual election as a liaison with the management team, corporate auditors, and the Board of Corporate Auditors.

(Meeting of outside officers)

  1. Article 31:SHI shall hold a meeting with only members who are outside directors and outside corporate auditors at least twice a year to offer them an opportunity to freely exchange information and share their understandings from an independent and objective standpoint regarding SHI’s business and corporate governance matters, among other matters.
Section 5: The Nomination Committee and the Compensation Committee

(The Nomination Committee and the Compensation Committee)

    Article 32:
  1. 1.SHI’s Board of Directors shall establish a Nomination Committee and a Compensation Committee as its advisory bodies.
  2. 2.The Nomination Committee shall comprise members that shall include outside directors , and shall examine and report regarding the nomination of director and corporate auditor candidates, the dismissal of directors and corporate auditors, and the appointment and removal of the representative director and directors with a managerial position, among other matters, upon an inquiry from the Board of Directors.
  3. 3.The Compensation Committee shall comprise members that shall include outside directors and outside corporate auditors , and shall deliberate and report regarding the remuneration system and standards of directors and executive officers, among other matters, upon an inquiry from the Board of Directors.
Section 6: Training for Directors and Corporate Auditors

(Training for directors and corporate auditors)

    Article 33:
  1. 1.SHI shall provide its directors and corporate auditors with opportunities for the training necessary to fulfill their important roles and responsibilities in SHI’s corporate governance at SHI’s expense before and at the time when they assume their positions. Further, SHI shall continue to provide such opportunities after they assume their positions to improve and renew the knowledge and capability of them.
  2. 2.As opportunities for the training outlined in the preceding paragraph, SHI shall provide its directors and corporate auditors with necessary and useful knowledge, information, and the like on management, such as matters on the quality of directors and corporate auditors, on legal affairs under the Companies Act and the like, on compliance, and on corporate governance.
  3. 3.SHI shall provide its outside directors and outside corporate auditors with an explanation necessary for them to understand the Sumitomo's business philosophy, the SHI Group’s business principles and management strategy, and its business situation, among other matters, when they assume their positions. For the SHI Group’s main business, SHI shall offer opportunities to its outside directors and outside corporate auditors to visit factories and have relevant officers provide such an explanation, among other actions.
  4. 4.SHI’s Board of Directors shall confirm whether the provision of training opportunities for directors, corporate auditors and the like is being conducted appropriately.

Chapter 6 Dialogue with Shareholders

(Policies on constructive dialogue with shareholders)

  1. Article 34:For the purpose of promoting SHI’s dialogue with its investors, including shareholders, SHI shall establish Policies on Constructive Dialogue with Shareholders, as provided in Exhibit 2.

(Supplementary Provisions)

  1. 1.This basic policy will come into effect on November 27, 2015.
  2. 2.Any revision or abolition of this basic policy shall be decided by resolution at a Board of Directors meeting. However, the president may make minor amendments.
  • Effective from November 27, 2015
  • As revised on August 30, 2016

Investor Relations

  • Share Price (REUTERS)
  • Glossary
  • Manufacturing Excellence at SHI

Inquiry of Investor Relations

TEL

Procedures for Dealing with Shares
Corporate Legal Dept.
+81-3-6737-2380
Other Contacts Press Contacts
Corporate Communications Dept.
+81-3-6737-2331

Inquires via the Web site

Inquiries


Top