Compliance with Corporate Governance Codes

Basic Policy

The Shimadzu Group will establish and enhance systems for corporate governance as a core basis for our business management practices used to earn the trust of our stakeholders, achieve sustained growth for the Shimadzu Group, increase the corporate value in the medium and long term, ensure management transparency and fairness, and promote management dynamism by increasing the speed and boldness of decision-making and by implementing measures.

Compliance with Corporate Governance Codes

Regarding the Corporate Governance Code (CG Code) revised in June 2021, we continue to ensure full compliance, including   revised/newly established items. Also, in September 2021, we resolved to select the Prime Market of the Tokyo Stock Exchange and disclosed the corresponding CG policy and CG report, including codes applicable only applicable to the prime market.

Cross-Shareholdings

1. Policy on Cross-Shareholding

The Board of Directors' meeting held during the fiscal year under review confirmed the qualitative significance and the quantitative comparison between total shareholder yield and the cost of capital for each individual stocks.
As a result of reviewing our cross-shareholdings, some stocks were sold in the fiscal year ended March 2022, because we judged that holding the shares was not sufficiently meaningful. We also donated some of our brands to Kyoto College of Medical Science.

2. Our Holding of Shares Excluding Net Investment purpose

As of March 31, 2022, our holding of shares excluding net investment purpose is 2.1% of consolidated total assets and 3.2% of consolidated net assets. The number of brands and the amount recorded on the balance sheet are as follows.

Number of Brands(銘柄)

  FY2019 FY2020 FY2021
Unlisted Stocks 30 30 30
Stocks except for Unlisted Stocks 36 30 24

Amount Recorded on the Balance Sheet(百万円)

  FY2019 FY2020 FY2021
Unlisted Stocks 525 519 612
Stocks except for Unlisted Stocks 10,418 11,907 11,405

3. Shareholder Voting Criteria

For all issues regarding cross-shareholdings that are subject to a vote, we will exercise our voting rights if we judge that it would increase shareholder value. To ensure we exercise our voting rights appropriately, we check the content of each proposal being voted on based on decision criteria specified for each proposal, such as appropriation of retained earnings, appointment of Directors or Audit & Supervisory Board Members, or establishment of measures to defend against a takeover. For issues involving particularly serious concerns, such as a social scandal, we consider our vote very carefully.

Appointment and Compensation Committee

Shimadzu established the Appointment and Compensation Committee as an optional advisory body to the Board of Directors for the purpose of strengthening the independence, objectivity, and accountability of the Board of Directors. Through the activities indicated below, the committee strengthens governance by increasing the transparency and objectivity of processes involved in appointing and compensating directors and Audit & Supervisory Board members.

The commitee met six times in FY2021.

 

■Composition of Appointment and Compensation Committee

Name Appointment and Compensation Committee
Outside Directors 4
Internal Directors 2
Members 6
Chairperson Outside director

■Main Activities of the Appointment and Compensation Committee during the Last 12 Months

Appointment Activities
  • Deliberated candidates for the next president and CEO
  • Deliberated candidates for outside directors and Audit & Supervisory Board members
  • Deliberated transfers of directors and Audit & Supervisory Board members
Compensation Activities
  • Deliberated and recommended revisions for policies related to compensation and other amounts and their calculation methods due to legal changes
  • Deliberated fixed compensation and short-term performance-linked compensation amounts for the current fiscal year
  • Deliberated issues regarding director and Audit & Supervisory Board member compensation

Director and Audit & Supervisory Board Member Compensation System

Compensation for directors (excluding outside directors) and executive officers with specific duties (collectively referred to as “Director or Officer” below) comprises a fixed base compensation amount plus a variable amount linked to variations in short-term performance and stock compensation linked to variations in medium/long-term performance, while also taking into consideration the management duties of the Director or Officer with respect to expanding our business results during each fiscal year and increasing medium- and long-term corporate value.

Compensation levels are decided based on the expected roles and duties of the Outside Director.

Compensation for Audit & Supervisory Board members only includes a fixed compensation amount decided based on their expected roles and duties.

 

■Director and Audit & Supervisory Board Member Compensation System and Method for Deciding Compensation

Classification

Directors (Internal)

Outside Directors

Audit & Supervisory Board Members

Remarks

Fixed Compensation

From the perspective of deciding compensation based on objective information, while also providing a level that is sufficient to enable recruiting talented human resources, compensation is decided based on the candidate’s current position and intended role, using the compensation offered by similar companies (group of benchmark companies of a similar size and in a similar type of business), to be determined by a survey performed by an outside specialist company, as an important reference level.
Short-Term Performance-Linked Compensation

Compensation is decided based on overall consideration of the year-on-year growth rate of consolidated net sales and operating income, an evaluation of the performance of the specific department the executive officer with specific duties is in charge of, and a personal evaluation.
Medium/Long-Term Performance-Linked Stock Compensation For directors, for example, the number of shares provided for each position is decided in the final year of the medium-term management plan based on the degree to which performance targets specified were achieved. Compensation can vary within the 50 to 200 % range, given the target achievement degree is determined based on target values for consolidated net sales and operating income as performance indicators. If a director or other employee commits a serious violation of their job duties or company regulations, they will forfeit their right to benefit from scheduled issues of stock and a system is established to charge a monetary amount equivalent to the stock value provided.

■Director and Audit & Supervisory Board Member Compensation Status (FY2020) 

Classification Number of Applicable Directors and Audit & Supervisory Board Members Fixed Compensation (million yen) Compensation Linked to Performance (million yen) Total (million yen)
Compensation Linked to Short-Term Performance Stock Compensation Linked to Medium/Long-Term Performance*
Recorded as Expense
Directors (Internal) 5 231 197 29 458
Audit & Supervisory Board Members (Internal) 2 53 - - 53
Outside Directors 4 36 - - 36
Outside Corporate Auditors 3 20 - - 20
Total 13 341 197 29 568

Evaluating the Effectiveness of the Board of Directors

Shimadzu analyzes and evaluates the effectiveness of the Board of Directors for the purpose of making continuous organizational or operational improvements and ensures it functions properly.

The seventh such evaluation involved conducting a survey in FY2021 about the Board of Directors’ effectiveness. An analysis and evaluation of the survey results were then deliberated at a Board of Directors meeting. An overview of that process is provided in the Corporate Governance Report.

 

■Results from Evaluating the Effectiveness of the Board of Directors

Criteria for Evaluating Effectiveness FY 2021(Applicable Year: FY 2020) FY 2022(Applicable Year: FY 2021)
Composition of Board of Directors Meetings Evaluation results for the current size and composition were positively high, similar to the previous year. In the future, we intend to consider increasing the number of outside directors and increase diversity, while also ensuring an appropriate size. Evaluation results for the current size and composition were positive. In order to reinforce the monitoring function of the Board of Directors, we continue to discuss the member composition by utilizing the skill matrix.
Operation of Board of Directors Meetings Evaluation results were positive, such as indicating an appropriate frequency and length of meetings and an atmosphere and environment that allowed all members to freely express their views. The active use of remote meetings during the COVID-19 pandemic also received high marks. An atmosphere and environment allowed every member to speak freely. The number of topics discussed and the time allocation received overall positive remarks. On the other hand, presentation materials have a room to be fixed. We intend to create materials that are simple and to the point. We also continue to create reference materials for technical terms.
Roles and Responsibility of the Board of Directors Results were positive in terms of evaluating whether adequate time was provided for assessing and discussing the progress on issues and measures specified in the medium-term management plan and other matters. On the other hand, we intend to increase the opportunities for specifying and discussing topics in a manner that leads to a more dynamic deployment of business activities with personnel executing the measures taking appropriate risk. The reporting frequency and timing regarding risk management topics have been improved, but the systematic reporting and discussion such as global risk assessment have not been adequate yet. We consider the business portfolio, the group governance, and human development as crucial themes for the future, and we intend to implement them.

Status of Measures to Address Issues Identified in the Effectiveness Evaluation Results Last Year

Evaluation results indicated that the content and reporting methods of presentation materials submitted for meetings were improved to promote deeper discussions, which had been an issue in the past. On the other hand, we intend to implement measures to ensure there is adequate time for considering the business portfolio, important business strategies, and so on.

Discussions of medium-to-long-term strategies and important segment strategies were repeadtedly discussed. This year, we intend to mainly discuss the next medium-term management plan.

Self-Assessment by Directors All directors adequately understood the basic philosophy of the company, endeavored to achieve that philosophy, and had spent adequate time and effort fulfilling their roles and responsibilities as directors, which is a better result than in the previous year. All directors adequately understood the basic philosophy of the company and endeavored to achieve that philosophy. Also, they actively discuss from a perspective of various backgrounds, which is a positive result.
Support for and Cooperation with Directors and Audit & Supervisory Board Members Evaluation results indicated improvement since last year regarding earlier briefing of outside directors about the agenda before Board of Directors meetings and ensuring information is exchanged and shared appropriately among outside directors and Audit & Supervisory Board members. The cooperation between outside directors and Audit & Supervisory Board members received a positive result. On the other hand, the cooperation between outside directors and accounting auditors needs further improvement this year, because an opportunity of exchanging honest opinions was not sufficient.

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