Corporate Governance

Basic Stance

IHI Corporation defines corporate governance as a system that assures sustainable growth and maximization of corporate value by enhancing management efficiency so that the corporation can leverage its innate capabilities to the fullest extent possible. To achieve this, IHI Corporation targets efficient and appropriate internal decisionmaking by clearly separating management monitoring and supervisory functions from functions related to their execution of duties. Furthermore, by establishing relevant internal rules and building a system to administer them, IHI ensures appropriate operations across the entire Group.
IHI Corporation promotes constant improvement of its corporate governance, aiming to earn the trust and support of its shareholders and other stakeholders over the long term.

Basic Policies for Enhancing Corporate Governance

The company will work to enhance its corporate governance in line with the following basic policies.Basic Policies for Enhancing Corporate Governance

  1. Respect shareholders’ rights and ensure equal treatment
  2. Strive to cooperate appropriately with shareholders and other stakeholders
  3. Fulfi ll our responsibility to be accountable to stakeholders and ensure transparency by appropriately and proactively disclosing information relating to the company
  4. Clarify the roles and responsibilities of the board of directors, the audit & supervisory board members and the audit & supervisory board to enable them to adequately fulfi ll their management-monitoring and supervisory functions
  5. Conduct constructive dialogues with shareholders whose investment policies accord with the mediumto long-term interests of shareholders

Corporate Governance System

  1. (1) Board of Directors
    The board of directors, which consists of 14 directors (4 from outside), makes decisions related to all important matters concerning the management of IHI Corporation and its Group, in addition to supervising directors in their business execution.
  2. (2) Audit & Supervisory Board
    IHI Corporation has an audit & supervisory board, which comprises 5 audit & supervisory board members (3 from outside) who audit the duties executed by directors.
  3. (3) Business Execution Framework
    IHI Corporation has an executive officers system to facilitate and strengthen the decision-making and supervisory functions of the board of directors, as well as to improve the effi ciency of business operations. Appointed by resolution of the board of directors, there are 25 executive officers, 8 of whom concurrently serve as directors.
  4. (4)Compensation Advisory Committee
    To ensure that directors and audit & supervisory board members are remunerated appropriately, IHI Corporation has the Compensation Advisory Committee, a voluntarily established body consisting of six members: three outside directors, one outside audit & supervisory board member, one director in charge of human resources, and one director in charge of fi nance and accounting. The chair is an outside director.
  5. (5) Nomination Advisory Committee
    IHI Corporation established a Nomination Advisory Committee to supervise the IHI representative director’s nomination of candidates for directors and corporate auditors, checking that such appointments are conducted appropriately and offering related advice. The committee has fi ve members: IHI’s President and epresentative Director, and four outside directors, with the President and Representative Director serving as chair.

Corporate Governance Structure

Corporate Governance Structure

Corporate Officers

https://www.ihi.co.jp/en/company/executivelist/

Organization of officers

2016
Directors Audit & supervisory board members Total
Inside 10 2 12
Outside(ratio) 3(23.1%) 3(66.7%) 6(33.3%)
Total 13 5 18
2017
Directors Audit & supervisory board members Total
Inside 10 2 12
Outside(ratio) 4(28.6%) 3(66.7%) 7(36.8%)
Total 14 5 19

Policies Relating to Appointment of Officers

The board of directors decides on ideal attributes for officers and draws up standards of independence for outside directors and outside audit & supervisory board members. These standards are based on the requirements for independent directors/auditors stipulated by the Tokyo Stock Exchange. The emphasis is to assure that outside directors and outside audit & supervisory board members are genuinely independent.
The board of directors sets the basic policy of appointing the most appropriate officers according to ideal attributes and independence standards for outside directors and outside audit & supervisory board members. The aim is to ensure sustainable growth and increased corporate value for the IHI Group over the medium to long term.

Ideal Attributes for Officers

IHI Corporation appoints officers who are healthy in mind and body and have all of the following attributes:

  • Deep understanding of, and empathy for, IHI Group’s corporate philosophy and vision
  • The ability to contribute to sustainable growth and medium- to long-term increases in corporate value by addressing societal issues in accordance with the IHI Group’s vision
  • Outstanding foresight, penetrating discernment, and ability to make appropriate decisions with regard to the management of the IHI Group
  • Good character with a strong sense of ethics
  • Ample experience as a corporate manager, or a high degree of specialist knowledge, combined with broad, global perspective and insight

Independence Standards and Qualification for Independent Outside Directors

In addition to the requirements for independent directors/auditors stipulated by the Tokyo Stock Exchange, the Company uses the standards below to determine independence.

  1. .Major shareholders
    The director should not be a major shareholder with 10% or more of the voting rights in the Company, or serve as a director, corporate auditor or executive officer at a company with committees, executive officer or employee of a corporation that is a major shareholder.
  2. .Major clients, suppliers, etc.
    The director should not currently serve as a director, corporate auditor, executive officer at a company with committees, executive officer or employee of any of the Company's major clients, suppliers, etc. detailed below, nor have served as an executive director, executive officer at a company with committees, or executive officer of a major client, supplier, etc. in the past.
    • Major clients of IHI (with transactions valued at 2% or more of the Company's consolidated net sales in the most recent fiscal year)
    • Major suppliers to IHI (with transactions valued at 2% or more of the supplier's consolidated net sales in the most recent fiscal year)
    • Major lenders to the Company (as listed in the business report for the most recent fiscal year)
  3. Providers of specialist services (attorneys at law, certified public accountants, or consultants, etc.)
    The director should not be an attorney at law, certified public accountant, or consultant, etc. who receives ¥10 million or more of monetary consideration or other property from the Company annually besides compensation as a director/corporate auditor.
  4. Accounting auditor
    The director should not be a representative partner or partner of the Company's accounting auditor.
  5. Mutual exchange of officers, etc. with the Company
    The director should not be assigned to a corporation with which the Company mutually exchanges directors or corporate auditors.
  6. Close relatives
    The director should not be the spouse or first- to second-degree relative of a director, corporate auditor, executive officer or equivalent executive-level employee of IHI.
    In addition, the director should not be the spouse or first- to second-degree relative of any person* referred to in (1) through (4) above.
    * If a major shareholder or a major client, supplier, etc. is a corporation, this applies only to directors, corporate auditors, executive officers at companies with committees, executive officers, or equivalent executive-level employees of the corporation in question.

In addition to the above, the Company also considers age, concurrent positions, period in office, and related matters when nominating candidates as outside directors.

Policies and procedures in determining officer remuneration

In May 2017, IHI Corporation’s board of directors revised the policy for determining the remuneration, etc. of officers as follows.

Basic policy on determining remuneration of directors (excluding outside directors) and executive officers

  1. Remuneration shall be aimed at fully encouraging directors and executive officers to perform their duties in line with corporate philosophy, Group vision, and Group Management Policies, as well as strongly motivating them to achieve specific goals for the company’s and the IHI Group’s sustainable growth and improve medium- and long-term corporate value.
  2. Remuneration shall be structured with the appropriate allocation of an annual incentive (performance-based bonus) linked to each fiscal year’s operating performance, and medium- and long-term incentive (performance-based sharedenominated remuneration) linked to medium- and long-term operating performance and corporate value. The aim is for them to broadly share a sense of value with stakeholders and thereby perform their duties with a sound entrepreneurial spirit.
  3. Under the corporate philosophy, “Human resources are our single most valuable asset,” appropriate treatment shall be provided to officers of the company in consideration of its business environment, roles in society, responsibilities and other factors.

Remuneration level and allocated ratios of remuneration

  1. IHI Corporation shall regularly survey objective market data on remuneration researched by an specialized external institution, and set appropriate remuneration levels.
  2. In consideration of IHI Corporation’s business, effectiveness of incentives, etc., the total amount of remuneration shall be allocated in the approximate proportions of 60%, 20%, and 20% to (i) a fixed base amount, (ii) an annual incentive (performance-based bonus) to be provided upon the achievement of the targeted performance, and (iii) a medium- and longterm incentive (performance-based share-denominated remuneration) to be delivered upon the achievement of the targeted performance, respectively.

Framework of incentive remuneration

  1. The monetary amount of an annual incentive to be provided every fiscal year shall vary, depending on the achievement level, within an approximate range of from 0 to 200 under the assumption of providing the amount of 100 upon the achievement of the targeted performance. Performance evaluation indicators shall be those such as consolidated profit attributable to owners of parent, which is aimed at sharing the interests with shareholders, profitability emphasized in Group Management Policies 2016 (consolidated operating profit margin and operating profit margin of responsible business areas), and individual evaluation indicators corresponding to tasks assigned to each officer. The indicators shall be reviewed as necessary in response to changes in the business environment, officers’ duties, etc.
  2. The number of shares to be delivered every fiscal year as a medium- and long-term incentive shall vary, depending on the achievement level, within an approximate range from 0 to 150 under the assumption of delivering 100 shares upon the achievement of the targeted performance. The performance evaluation period shall be the coming three fiscal years. Performance goals for the final fiscal year shall be established in the initial fiscal year. The performance evaluation indicator shall be consolidated ROIC (return on invested capital), as emphasized in Group Management Policies 2016, and changes in the indicator, if necessary, shall be taken into consideration when reviewing Group policies.

Procedures for determining remuneration

To ensure appropriateness and objectivity in determining the remuneration of directors and executive officers, the company has the Compensation Advisory Committee, a voluntarily established body consisting of six members: three outside directors, one outside audit & supervisory board member, one director in charge of human resources, and one director in charge of finance, with an outside director serving as the chair. The committee shall examine and report remuneration related to directors and executive officers, and the board of directors shall make final decisions.

Remuneration of outside directors and audit & supervisory board members

Remuneration for outside directors shall consist only of a base amount reflecting their duties. Remuneration for audit & supervisory board members shall consist only of a base amount as compensation for their responsibilities in auditing the execution of business throughout the IHI Group. The amount shall be determined through discussions among the audit & supervisory board members.

Remuneration of officers in 2016

(millions of yen)

Position Number of recipients Break down Total Amount Paid
Basse amount Share-denominated compensation Performance based bonus
Directors 19 479 66 0 546
Audit & supervisory board members 7 108 - - 108
Total
(of which,outside officers)
26
(8)
587
(72)
66
(-)
0
(-)
654
(72)

Notes

  1. Remuneration of directors does not include salaries of those who are also company employees.
  2. The maximum total amount of each director’s annual remuneration is set at 1,090 million yen (excluding employee salaries), as resolved at the 198th Ordinary General Meeting of Shareholders held on June 25, 2015. The maximum total amount of each audit & supervisory board members’ remuneration is set at 120 million yen, as resolved at the 197th Ordinary General Meeting of Shareholders held on June 27, 2014.
  3. The numbers of directors and audit & supervisory board members as of March 31, 2017 are respectively 13 (including 3 outside directors) and 5 (including 3 outside audit & supervisory board members). The reason for the discrepancy from the above is that figures in the chart include 6 directors and 2 audit & supervisory board members who retired at the conclusion of the 199th Ordinary General Meeting of Shareholders held on June 24, 2016.

Topics in FY 2016

Evaluating the Board of Directors

IHI has evaluating its board of directors annually since FY2015 to raise the board’s effectiveness. The same evaluation will be carried out in FY2017 as well.
The evaluation is performed as follows:

  • An external consulting company administers an anonymous questionnaire to all directors and audit & supervisory board members. Items covered by the questionnaire include the board’s composition and operation, risk management, and culture.
  • The external consulting company collects and analyzes the questionnaire responses.
  • All relevant officers are interviewed regarding the questionnaire and the analyzed responses. Furthermore, a panel comprising mainly outside officers exchange views.
  • The results of the above process are brought together in the form of a selfevaluation by the board of directors to identify points for improvement.

Board of Directors Evaluation and Future Initiatives

Response to FY2015 evaluation

The FY2015 evaluation recognized issues such as the need to discuss risk more thoroughly and to increase the time available for deliberating key agenda items at board of directors meetings.
In response, besides enhancing business-execution reporting, in October 2016 IHI Corporation revised the items to be resolved/reported at board meetings and developed a new discussion agenda.

FY2016 evaluation and policy for response

The aspects recognized as strongpoints in the FY2015 evaluation, such as the transparency of board operations and discussions as well as adherence to compliance-related requirements, were recognized to have maintained their high level in the FY2016 evaluation. In addition, the board was evaluated to have effectively resolved the FY2015 key issues, such as specifically targeted improvements.
However, it was recognized that the board needs to enhance discussions by securing time for crucial measures and effectively using written proposals and explanatory materials, etc.
The IHI Corporation’s board of directors will continue to enhance its effectiveness by implementing measures to resolve such issues.

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