Basic Views on Corporate Governance
The Company defines corporate governance as a system that assures sustainable growth and maximization of corporate value by enhancing management efficiency so that the Company can leverage its innate capabilities to the fullest extent possible. To achieve this, the Company targets efficient and appropriate internal decision-making by clearly separating management monitoring and supervisory functions from functions related to their execution of duties. Furthermore, by establishing the relevant internal rules and building a system to administer them, the Company ensures appropriate operations across the entire Group.
The Company promotes constant improvement of its corporate governance, aiming to earn the trust and support of its shareholders and other stakeholders over the long term.
The Company will work to enhance its corporate governance in line with the following basic policies:
(1) Respect shareholders’ rights and ensure equal treatment
(2) Strive to cooperate appropriately with shareholders and other stakeholders
(3) Fulfill 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 fulfill their management monitoring and supervisory functions
(5) Conduct constructive dialogue with shareholders who have investment policies according with the medium-to long-term interests of shareholders
The Company has an Audit & Supervisory Board, which comprises 5 audit & supervisory board members (3 from outside) who audit the duties executed by directors.
The Board of Directors, which consists of 14 directors (4 from outside), makes decisions related to all important matters concerning the management of the Company and the Group, in addition to supervising directors in their business execution.
The Company has an executive officer system to facilitate and strengthen the decision-making and supervisory functions of the Board of Directors, as well as to improve the efficiency of business operations. Appointed by resolution of the Board of Directors, there are 25 executive officers, 8 of whom concurrently serve as directors. The Chief Executive Officer manages the duties of the executive officers, giving directions and supervision. The executive officers follow the Chief Executive Officer’s directions to execute their assigned duties.
The Management Committee, which consists of members appointed by the CEO, supports the CEO’s decision-making and business execution.
The Company established the Remuneration Advisory Committee and the Nomination Advisory Committee as the optional committees.
The details of these Committees are noted in items (3) and (4) of [Principle 3.1 Full Disclosure] under “[Disclosure Based on the Principles of Japan’s Corporate Governance Code]” within “I. Basic Views on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information.”
The Internal Audit Division shall be established as an internal audit department that reports directly to the President. The body audits all business divisions of the Company and its subsidiaries and affiliates on an ongoing basis to enhance internal control, in addition to inspection and guidance at the Company’s headquarters’ divisions and internal audits carried out by the internal audit departments of subsidiaries and affiliates.
Basic Views on Internal Control System and the Progress of System Development
To enhance the efficacy of the IHI Group’s corporate governance, thereby contributing to enhanced corporate value, the Company set out a basic policy for related systems prescribed in the Companies Act. The Companies Act prescribes systems to ensure that the performance of duties by directors complies with the laws and regulations and the articles of incorporation as well as other systems necessary to ensure the properness of operations of a stock company and operations of corporate group consisting of the stock company and its subsidiaries. Specific details of these systems are as follows.
1.1. System for ensuring compliance of performance of duties by directors and employees with laws and regulations and articles of incorporation
Directors of the Company shall establish rules to ensure that the performance of their duties is compliant with laws and regulations and articles of incorporation, and directors and employees shall observe such rules. Directors of the Company shall establish systems to ensure the appropriateness of operation activities throughout the Company, at each department, and at each subsidiary and affiliate company, and to audit such activities are properly pursued.
(1) Preparation of rules and regulations
Directors shall prepare group-wide, company-wide and departmental rules and procedures such as the “Basic Code of Conduct for the IHI Group” that all directors and employees of the Company must follow to perform their duties. Departments in charge of each operation must be specified clearly in each rule and regulation. A mechanism to update such rules and regulations in the event of amendment of applicable laws and regulations shall also be defined.
(2) Compliance activities
With respect to compliance activities, the “Compliance Committee” chaired by an officer in charge of compliance for the entire Company shall establish a company-wide compliance policy. The company-wide policy shall be applied to the plan for each department, and each department shall create its own rules and activity plans. In addition to the company-wide training organized and administered by the Corporate Social Responsibility Division, training for each level (such as managerial staff, mid-level staff, and new employees) and training for each competency (such as human resources, finance, and procurement) shall be conducted to ensure compliance by all employees.
(3) System to ensure and correct activities
An internal audit mechanism shall be created to monitor, inspect, and assess operation activities at each department to ensure the appropriateness of such activities. “Internal Audit Division,” shall be established as an internal audit department that is a department independent of all other departments. The Internal Audit Division shall report the results of audits to the Board of Directors as needed. A “Compliance Hotline” shall be established as an internal reporting system and separate from the organizational hierarchy, the Corporate Social Responsibility Division shall be made a point of contact to provide consultations and receive reporting to effectively act as a self-correcting function and prevent noncompliance before it occurs.
1.2. System for storing and managing information
Directors of the Company shall preserve information related to Directors’ exercise of their duties as a written document or in an electromagnetic form. Directors shall establish a basic policy for storing and managing documents and electromagnetic records, and shall manage information thereof. Amendment of such basic policy shall be subject to approval of the Board of Directors.
1.3. System for managing risks
Directors of the Company shall continuously assess, identify, and monitor business risks at each division of IHI group companies. Directors shall recognize the importance of assessing, identifying, and monitoring any of the following risks as various risks relevant to the execution of business of IHI group companies, and shall establish an appropriate system to manage such risks as well as a system to apply and evaluate it.
Operational risks relating to contracts/agreements such as competition, alliance/M&A with other companies, business integration, overseas operations, material procurement, and debt guarantee.
(2) Design, manufacturing, and technologies
Risks that manufacturing sites, quality assurance, technology agreements, and research and development perform below expectations.
(3) Laws and regulations
Risks of losses or loss of credibility due to violation of law.
(4) Information systems
Risks of leakage, theft, and loss of information assets, and damage thereto.
(5) Safety, health, and environment
Risks of problems with health and safety assurance and environmental conservation at offices and construction sites.
(6) Disaster and system failure
Risks of interruption of business activities due to disaster, accidents, and information system failures.
(7) Financial activities
Risks regarding financial activities such as exchange rate and interest rate trends.
(8) Financial reporting
Risks of fictitious financial reporting (whether due to fraud or negligence).
Directors of the Company shall continuously assess, identify, and monitor business risks at each division of IHI group companies and promptly appoint personnel to deal with risks in the event new risks arise, and shall report to the Board of Directors of the Company regarding such risks that may affect IHI group performance, financial condition, and share price.
1.4. System for ensuring that Directors exercise their duties efficiently
Directors of the Company shall clearly separate the function of management supervision from that of performance to ensure efficient performance of duties, and shall delegate most authorities to perform duties to executive officers for efficiency. To make appropriate decisions through multi-dimensional considerations, the Chief Executive Officer shall organize the Management Committee as an advisory body to discuss important matters of IHI group companies. Directors shall prepare profit plans including target profitability of each Business Area / SBU at the beginning of every financial period, verify the respective results each month, and perform management of the execution status of duties.
1.5. System for ensuring properness of operations within the corporate group
Directors of the Company shall establish a system to ensure governance that is accountable for the entire scope of the IHI Group’s business operations including those of the group companies by setting rules to manage group companies and appointing responsible departments to manage, control, and direct such companies. As for group company matters with high levels of importance, directors shall submit/report to the Board of Directors and the Management Committee of the Company. Directors of the Company shall monitor the business conditions of group companies on a routine basis by deploying part-time audit & supervisory board members to group companies or assigning other employees in charge of such operations for the respective company. If necessary, responsible department or related department shall provide support to secure the appropriateness of business operations. Directors also establish a group business management section within the Corporate Planning Division to create and develop a group-wide management mechanism and to supervise overall group company businesses.
1.6. Employees to assist audit & supervisory board members
Audit & supervisory board members of the Company shall establish an audit office to assist them in the performance of their duties. The audit office shall consist of several employees, including managerial staff, of the Company, and personnel matters regarding such employees shall be decided based on mutual consultation between audit & supervisory board members and related directors. The audit office employees shall follow the instructions of the audit & supervisory board members, and directors shall pay attention to maintaining independence of the audit office employees from the persons who execute business and to ensuring the effectiveness of instructions by the audit & supervisory board members to the audit office employees.