Corporate Governance System
Past Initiatives to Strengthen and Enhance Corporate Governance
To date, we have strengthened and improved our corporate governance system through initiatives covering many points, such as optimizing the size of the Board of Directors, setting term limits for the Chairman of the Board of Directors and the President and CEO, shortening the terms of Directors, establishing advisory bodies, strengthening the corporate auditors system, introducing an executive officer system, and appointing external advisors.
Our approach to corporate governance is embodied in the “Sumitomo Corporation Corporate Governance Principles,” which can be accessed from the following web page.
Corporate Governance Principles (125KB/PDF)
Features of Our Corporate Governance System
Even after companies could choose to adopt a corporation with a committees based system of corporate governance as a result of revisions to the Commercial Code in 2002, we have maintained our existing corporate auditor system while enhancing and reinforcing it through auditing from diversified external viewpoints and with opinions and advice from additional external advisors, which, we believe, is the most legitimate means of improving the effectiveness of our corporate governance. Based on “Sumitomo's Business Philosophy,” we have established the Sumitomo Corporation Group's Management Principles and Activity Guidelines, and work to enforce these principles and guidelines among all officers and employees, in order to share the basic values that must be respected by the Sumitomo Corporation Group, including compliance with laws and regulations. From the perspective of maintaining sound management, we have developed a system for ensuring compliance with laws and regulations by establishing a Compliance Committee and introducing a “Speak-Up System” for internal reporting, among other measures. Guided by the belief that management itself must conduct its duties with high ethical standards, we have clearly stated in the “Sumitomo Corporation Corporate Governance Principles” that in principle, the Chairman of the Board of Directors and the President and CEO are each limited to terms of up to six years.
We will monitor global trends and legislation concerning companies while preserving our corporate culture as a Japanese company. At the same time, we will observe the benefits of different corporate governance frameworks in other countries.
Thus, Sumitomo Corporation will continually study the most appropriate corporate governance system.
Framework for “Improving Management Efficiency” and “Maintaining Sound Management”
Directors and the Board of Directors
Optimization of Size of Board of Directors
We halved the number of Board members from 24 in 2003. As of July 2012, the Board has 12 members. Through this optimized Board of Directors, which oversees the operations of the business and serves as the Company's decision-making body concerning key management matters, we aim to facilitate substantial and active discussion as well as to promote greater efficiency and effectiveness in the decision-making process.
Limiting Terms of Directors
In June 2005, the terms of Directors were reduced from two years to one year. We aim to clarify the responsibility of management among members of management each fiscal year. This, in turn, helps ensure fast reaction times to changes in business conditions.
Limits on Terms of the Chairman of the Board of Directors and the President and CEO
In principle, the positions of Chairman of the Board of Directors and the President and CEO are clearly defined and separate in order to ensure mutual supervision and both positions cannot be held simultaneously by one person. In principle, the Chairman of the Board of Directors and the President and CEO are each limited to terms of six years. These limitations on the tenure of top management help minimize the possibility of governance problems.
Establishment of the Advisory Body to the Board of Directors
With the aim of enhancing the transparency and objectivity of decision-making processes with regard to the remuneration of Directors and Executive Officers, we established the Remuneration Committee. Functioning as an advisory body to the Board of Directors, no fewer than half of the Committee members are from outside the Company. The Remuneration Committee is in charge of studying remuneration and bonuses of Directors and Executive Officers, and reports the results of its studies to the Board of Directors.
Corporate Auditors and the Board of Corporate Auditors
Enhancement of Corporate Auditing Framework
To further strengthen external views within the corporate auditing framework, we added one external auditor in June 2003, bringing the number of external auditors to three out of the five members on the Board of Corporate Auditors. Of these three, two are legal experts (a former Public Prosecutor General and a former President of the Tokyo High Court) and one is an accounting expert—ensuring an auditing system that incorporates a diversity of perspectives. The three external auditors possess a high degree of independence, such as by satisfying the conditions for independent officers stipulated by the listing rules of Japanese stock exchanges.
Ensuring Audit Effectiveness
Corporate Auditors attend meetings of the Board of Directors and all other important internal meetings, to obtain the information necessary for proper auditing. Corporate Auditors also meet the Chairman of the Board of Directors and the President and CEO every month to exchange opinions on material issues regarding management policy and auditing. Moreover, the Corporate Auditor's Administration Department is assigned to assist Corporate Auditors, so that the auditing system functions effectively and without hindrance.
Reason for selection and the profile of the Outside Corporate Auditors are as follows.
AKIO HARADA
REASON FOR SELECTION
Akio Harada has a broad range of expertise and long years of experience as both a prosecutor and lawyer. He was selected and asked to perform audits from a broad perspective on the grounds his character and insight are most suited for the position.
PROFILE
| December 1999 | Chief Prosecutor, Tokyo High Prosecutors Office |
|---|---|
| July 2001 | Prosecutor General |
| October 2004 | Admitted to the Bar (incumbent) |
| June 2005 | Corporate Auditor of Sumitomo Corporation (incumbent) |
TSUGUOKI FUJINUMA
REASON FOR SELECTION
Tsuguoki Fujinuma has a broad range of expertise, including on matters of finance and accounting, and long years of experience as an accountant. He was selected and asked to perform audits from a broad perspective on the grounds his character and insight are most suited for the position.
PROFILE
| June 1993 | Representative Partner, Showa Ota & Co. (now Ernst & Young ShinNihon LLC) |
|---|---|
| May 2000 | Chairman, International Federation of Accountants |
| July 2004 | Chairman, The Japanese Institute of Certified Public Accountants |
| July 2007 | Advisor, The Japanese Institute of Certified Public Accountants (incumbent) |
| June 2008 | Corporate Auditor of Sumitomo Corporation (incumbent) |
MUTSUO NITTA
REASON FOR SELECTION
Mutsuo Nitta has a broad range of expertise and long years of experience as both a judge and lawyer. He was selected and asked to perform audits from a broad perspective on the grounds his character and insight are most suited for the position.
PROFILE
| December 2004 | President of the Tokyo High Court |
|---|---|
| April 2007 | Admitted to the Bar (incumbent) |
| October 2007 | Commissioner of the Tokyo Metropolitan Public Safety Commission |
| June 2009 | Corporate Auditor of Sumitomo Corporation (incumbent) |
Collaboration between Internal Auditing Department and Accounting Auditors
To ensure audit efficiency, Corporate Auditors interact closely with the Internal Auditing Department, receiving reports on internal audit plans and their results in a timely manner. In addition, Corporate Auditors exchange information with and monitor the auditing activities of the Accounting Auditors through regular meetings. By attending audit review meetings with the Accounting Auditors and observing inventory audits, the Corporate Auditors constantly work to improve audit efficiency and quality. Furthermore, Corporate Auditors attend meetings of the Internal Control Committee and request reports on the status of internal control systems from other departments responsible for internal control, along with their cooperation on audits.
Introduction of an Executive Officer System
We have introduced an executive officer system with the aim of clarifying the responsibilities and authority for execution and strengthening the monitoring function of the Board of Directors. We currently have 42 Executive Officers (as of July 31, 2012) selected by the Board of Directors. Of these, 11 Executive Officers also serve concurrently as Directors, including seven who are also General Managers of Business Units. In this way, we aim to prevent gaps between decisions made at Board of Directors meetings and the execution of those decisions.
Appointment of External Advisors
Management Council members meet with outside specialists employed as external advisors to incorporate outside perspectives into our management. In this way, external advisors provide us with advice from diverse perspectives on various themes related to management issues. External advisors also give speeches and lectures in their respective areas of expertise, such as leadership and career development, to employees at various levels within our organization.
For 40 years, I have worked at the courts as a judge or in the judicial branch, supporting trials and the courts, as a judicial officer. I was appointed as an outside corporate auditor of Sumitomo Corporation in 2009. When I was first appointed, I felt that my role as a judge, where I interpreted and judged past events in light of evidence and the law, was diametrically opposed to the role of Sumitomo Corporation, which aims to “constantly stay a step ahead in dealing with change and create new value.” However, I developed a deeper understanding of Sumitomo Corporation's Management Principles and its underlying foundation—the 400-year old “Sumitomo's Business Philosophy.” In the process, I began to realize that my past experience and Sumitomo Corporation have much in common in terms of “making judgments based on a proper assessment of matters.” At Sumitomo Corporation, Sumitomo's Business Philosophy and the Management Principles provide the basis for all activities and value judgments, and are deeply ingrained in the organization. I believe that they constitute the very foundation of corporate governance at Sumitomo Corporation.
Let me discuss an example of one of the systems that we are using to raise the effectiveness of corporate governance. The Company provides an opportunity every month for the outside corporate auditors to openly discuss a range of topics with the Chairman and President, ranging from current affairs to progress on important projects. At every meeting, the outside corporate auditors receive detailed explanations from the Chairman and President about how they view the changing business environment, as well as matters such as the background to key projects and how these projects are progressing. In response, we ask various questions and express opinions from an external perspective. In this manner, I believe that Sumitomo Corporation's corporate governance is functioning effectively by combining a sound basis for value judgments provided by Sumitomo's Business Philosophy and other principles with effective systems.
The courts are also similar to general trading companies in that both are organizations underpinned by people. In this sense, among the four key actions of the ƒ(x) plan, I am strongly interested in “Strengthening Human Resources Management.” How will Sumitomo Corporation nurture human resources that generate maximum value without straying? Although this is a difficult theme, Sumitomo Corporation has made steady progress with these measures. I am confident that this progress will ultimately lead to Sumitomo Corporation's sustained growth.
When I was working for a prominent think tank, I used to conduct consumer behavior analysis. However, once I came to the realization that the most powerful factor that moves markets is people, I have consistently focused on people in organizations. Based on that theme, in recent years, I have been working on how to energize middle management and building their organizations.
Just over a year has passed since I was inaugurated as an external advisor of Sumitomo Corporation. I perceive that a business approach based on “Sumitomo's Business Philosophy”—in other words, a culture that emphasizes sincerity and soundness while valuing trust, has become an integral part of this company. Meanwhile, I want to encourage even more internal communication within Sumitomo Corporation. Abundant communication between employees produces a variety of cultural exchange. This process will help the company to expand beyond its traditional business domains, and I expect that this will lead to the creation of new value.
Japanese integrated trading companies have had diverse values because their business models involve extensive business operations. Beginning this year, in my responsibility as a facilitator, I have intentionally provided forums from the perspective of linking people together for members of senior management to communicate across divisional boundaries. By having this dialogue, people have been inspired to think more expansively, deeply and outwardly. My goal is to lay the groundwork for a new drive to boldly create new value.
Today, the world is in the midst of a period of drastic structural change. From the Meiji era to the present day, Japan has transformed its industrial structure extremely skillfully under government leadership. From now on, however, the private sector must take the lead in transforming the nation's industrial structure. I believe that trading companies are uniquely positioned to fulfill this duty in Japan today. Therefore, I have extremely high hopes for Sumitomo Corporation going forward.
System for Ensuring Management Transparency
Basic Policy on Information Disclosure
To bring an accurate understanding of the Company's management policies and business activities to all our stakeholders, we shall strive to make full disclosure, not limiting ourselves to the disclosure of information required by law but also actively pursuing the voluntary disclosure of information.
Communicating with Shareholders and Other Investors
Encouraging the Execution of Voting Rights at the General Meeting of Shareholders
We send out a Notice of Convocation to shareholders three weeks prior to each regularly scheduled General Meeting of Shareholders. For the convenience of overseas shareholders, we also provide an English-language translation of the notice on our website. We have allowed our shareholders to exercise their voting rights via the Internet using personal computers since 2004 and via the Internet using mobile phones since 2005. In 2007, we introduced the Electronic Voting Platform operated by Investor Communication Japan, Inc. (ICJ), instituted by Tokyo Stock Exchange, Inc. and others. The new platform allows institutional investors sufficient time to thoroughly examine the propositions to be resolved at the meeting.
Disclosure of Various Information
Our corporate website endeavors to ensure the provision of proactive and timely disclosure of various documents and materials containing information that may be useful in making investment decisions. These documents and materials include financial results, yukashoken houkokusho (Japanese annual securities reports), and the Company's presentation materials. Moreover, the website provides Sumitomo Corporation's Annual Report, Report on Responsibility & Sustainability and SC NEWS, the Group's public relations news magazine. The website also presents features compiled to introduce Group-wide topics such as the projects the Company operates all over the world.
Investor Relations
In addition to working to enhance the disclosure of information on our website, in order to ensure direct communication with shareholders and other investors, we hold quarterly meetings attended by management to provide information on our financial results for analysts and institutional investors. For overseas investors, we periodically visit the United States, the United Kingdom, and other countries in Europe and Asia to hold one-on-one meetings with investors in each region. In addition, in fiscal 2004 we began regularly holding meetings with individual investors in Japan. In fiscal 2011, we held six such meetings in five cities, attended by a total of 1,500 individual investors.
While working to strengthen and enhance our corporate governance structure and systems, from the perspectives of “improving management efficiency” and “maintaining sound management,” we will continue to further strengthen internal auditing, risk management and compliance, to further improve the effectiveness of internal control.
Publications
- Annual Report
- Report on Responsibility & Sustainability
- SC NEWS