Basic ideas

Basic Approach to corporate governance

Tokai Carbon recognizes that enhancing medium to long-term corporate value is the most important management objective. We believe that responding to the expectations of all stakeholders, including customers and shareholders, and building favorable relationships, is essential in achieving this objective. To this end, we embrace the corporate philosophy of Strength in Trust.
Through this philosophy and through the policies and values outlined in our Guidelines and Global Code of Conduct, we are working to develop an effective corporate governance structure.

Structure

Corporate governance system

As a company with an Audit & Supervisory Board, Tokai Carbon focuses on enhancing the effectiveness of audits by Audit & Supervisory Board members and our internal audit functions. At the same time, we work to strengthen the management supervision functions of the Board of Directors by appointing multiple external directors and establishing voluntary committees in order to realize an appropriate corporate governance structure. Furthermore, to clarify the functions and responsibilities of corporate officers engaged in business execution, we have adopted an executive officer system and established a Managing Executives Meeting to enhance and strengthen the business execution functions of the organization.

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Board of Directors

The Board of Directors is responsible for making decisions on important management matters and overseeing business execution. In principle, the Board meets monthly. As of March 28, 2024, there are nine directors, including three external directors. The Nomination Committee and Compensation Committee, for which the majority of members are external directors, have been created as voluntary advisory committees for the Board of Directors. The Risk Management & Compliance Committee and Sustainability Committee also a voluntary advisory committees, has been established immediately under the Board of Directors.

【Voluntary advisory committees of the Board of Directors and their roles】

Audit & Supervisory Board members and the Audit & Supervisory Board

As a general rule, the Audit & Supervisory Board of the Company meets monthly. As of March 28, 2024, there are four Audit & Supervisory Board members, of whom two are External Audit & Supervisory Board members. Audit & Supervisory Board members perform audits based on the auditing policies and audit plan adopted by the Audit & Supervisory Board. Audit & Supervisory Board members attend Board of Directorsʼ meetings and other important meetings, and investigate the status of business operations and assets to confirm the status of business execution by directors.

Management Committee

The Company has established the Management Committee chaired by the President and CEO. This committee deliberates and makes decisions on important management matters in accordance with basic policies adopted by the Board of Directors. The Management Committee meets once a week, in principle, with participation by executive officers and Audit & Supervisory Board members, etc. To assist the Management Committee with its work, we have also established committees to deliberate particular types of matters and report their findings to the Management Committee for higher-level consideration.

Initiatives

Strengthening the Effectiveness of the Board of Directors

In 2016, Tokai Carbon established the Nomination Committee, Remuneration Committee, Management Committee, and Risk Management & Compliance Committee to ensure strong governance led by the Board of Directors. As a result, significant improvements were noted on various fronts. These improvements became apparent in the annual Board of Directors effectiveness evaluation.
What is distinctive is that with all the External Directors actively attending important meetings other than the Board of Directors and providing nonpartisan, objective opinions, it has greatly contributed to enhancing the oversight function of the Board of Directors, resulting in better understanding of important matters, This has been pointed out in effectiveness evaluations.
The current governance system has taken hold and its initial outcome has been appropriately maintained; however, it is being continuously enhanced, such as with the new establishment of the Sustainability Committee in 2022. In 2023, it has been evaluated that certain progress has been seen in the link between sustainability and management, as seen in the linkage between director remuneration and sustainability performance, etc.

Establishing an internal control system

To ensure that Tokai Carbon Group properly executes business operations in accordance with relevant laws, regulations and the Articles of Incorporation, the Company continuously improves its internal control system. Improvements are undertaken in accordance with the “Basic Policy for Establishing an Internal Control System,” which was adopted at the May 2006 meeting of the Board of Directors and is revised as necessary.

Management Appointment Process

The appointment of Directors, Audit & Supervisory Board Members, and Executive Officers begins with the formulation of recommendations by the Nomination Committee, which is an advisory committee to the Board of Directors and consists of one internal board member three external board members. The Nomination Committee prepares its recommendations by comprehensively considering the experience, knowledge, expertise, and other qualities of internal and external candidates. After approval by the Board of Directors, candidates for Director and Audit & Supervisory Board positions are submitted to the General Meeting of Shareholders for approval.
The Company discloses the reasons for nominating internal and external candidates for Director and Audit & Supervisory Board positions in reference materials provided for the General Meeting of Shareholders. To see an example, please refer to pages 24 to 33 of the Notice of FY2023 Annual Meeting of Shareholders.
“Notice of FY2023 Annual Meeting of Shareholders”(PDF: 98KB)

Executive remuneration

■Basic policy on executive remuneration

The policy to determine Director and Executive officer remuneration is a matter to be resolved at the Board of Directors, aimed at executives who are responsible for conducting business affairs to commit themselves to achieve high management targets and to maximize the corporate value, within the range of remuneration approved at the Shareholders Meeting. It is determined to correspond to the amount that matches the performance of the Company and the performance and outcome of the individual, while securing a level of satisfying the following requirements:


• Remuneration that encourages the commitment of executives for short-term and medium- to long-term management targets.
• Remuneration of a level that will not be below that of competitors and will function as motivation for current or future executive candidates.
• Remuneration that will secure transparency and rationality that will provide accountability to the executives, shareholders, and investors.

■Executive remuneration system overview

The Company’s executive remuneration consists of basic remuneration, which is fixed, performance-based remuneration, which will fluctuate depending on the level of achievement of performance targets, and stock-based remuneration. For Directors and executive officers responsible for conducting business affairs, in view of the responsibility of each executive, and the impact on the Company performance, the ratio of performance-based remuneration against fixed remuneration will increase the higher their executive position is.
Furthermore, the contents of remuneration, etc., of each individual is entrusted to the Remuneration Committee from the Board of Directors, where External Directors form a majority, in order to secure independence of the decision.
With the Remuneration Committee conducting a multilateral review including conformity with the determined policy when determining the remuneration, etc., it is judged that similar contents are being appropriately determined in the Board of Directors.
Remuneration for auditors is determined through consultation among the auditors, within the remuneration limit approved by the Shareholders Meeting.

【Basic remuneration】

To be determined by reflecting the assessment in the reference amount in line with the title position.

【Performance-based remuneration】

Performance-based remuneration consists of short-term incentive remuneration and medium- to long-term remuneration.
For the short-term incentive remuneration, a reference amount is determined in accordance with the title position, and the amount to be paid will be determined within the range of 10% to 200% of the reference amount in accordance with financial target index and individual target achievements (including sustainability target).
For medium- to long-term incentive remuneration, a reference amount is determined in accordance with the title position, and the amount to be paid will be determined within the range of 10% to 200% of the reference amount in accordance with financial target index, ESG evaluation organization score, degree of rating improvement, and individual target achievements.
Indices prioritized in the medium-term management plan will be used for the financial target index.
Only the basic remuneration shall be provided to non-business operating directors and auditors that are independent of business execution, as performance-linked remuneration is not appropriate.

【Stock-based remuneration】

With the aim of providing an incentive to continuously improve corporate value and to promote the sharing of value with the shareholders, remuneration to provide shares with a restriction on transfer is provided as a monetary claim within an annual amount of 100 million yen to directors excluding external directors. The period of restriction on transfer shall be 30 years from the day of allotment and the transfer restriction shall be lifted by the resolution of the Board of Directors upon expiry of the restriction period, expiration of the term of office, or resignation by death or other just reasons. Depending on the individual’s contribution to performance, a maximum of 15% of the total amount of basic and performance-based remuneration will be determined for stock-based remuneration.

■Remuneration structure

■Composition ratio of remuneration (based on standard remuneration)

As for the system regarding composition ratio of remuneration by title, the ratio of the President’s performance, etc.-based remuneration (“performance-based and stock-based remuneration” in this case, approximately 50%), shall be the highest-ranked, and the ratio of performance, etc.-based remuneration will decrease in order of the title towards executive officer (approximately 40%).

■Total amount of remuneration for Directors and Auditors for FY2023