Corporate Governance

Based on the Our Philosophy (Purpose, Vision, Value Creation Process) and the Corporate Code of Conduct, we recognize that it is essential to earn the trust of all stakeholders, including shareholders, customers, business partners and employees, in order to simultaneously create social value and enhance sustainable corporate value. As such, we will continue to strengthen corporate governance to ensure the transparency, soundness and effectiveness of management.

We have established Corporate Governance Policy of The Japan Steel Works, Ltd. for the purpose of indicating the basic approach to corporate governance.

▼Corporate Governance Policy of The Japan Steel Works, Ltd.

Overview of Corporate Governance Structure

The Japan Steel Works, Ltd. (“the Company”) has adopted the structure of a company with an audit and supervisory board. The Board of Directors consists of nine directors (four of whom are outside directors) and the Audit & Supervisory Board consists of four Audit & Supervisory Board members (two of whom are outside Audit & Supervisory Board members).
The term of office for directors is set at one year. The Company has also introduced an executive officer system that separates management decision-making and supervisory functions from business execution functions conducted by executive officers, thereby speeding up decision-making, strengthening supervision and improving business execution. Since April 1, 2023, the Company has implemented a system that, in principle, ensures that in the case of head office divisions directors and executive officers, and for business divisions executive officers and other employees, are each responsible for oversight and business execution for the tasks they are delegated or assigned by the Board of Directors. This clearly delineates business execution of the business divisions from supervision by the Board of Directors.
Audit & Supervisory Board members attend important meetings including those of the Board of Directors, the Executive Board and the Management Council. Once every fiscal half in principle they visit plants, sales locations and Group companies, and receive reports on necessary information from each division. They also exchange opinions with directors, executive officers and other keypersons, and based on these exchanges, advise management from an objective and impartial standpoint, while strictly monitoring the execution of duties by directors.

Reasons for adopting a corporate governance structure

Each director reports the status of business execution at important meetings such as the Board of Directors Meeting, Management Strategy Meetings, and Division Performance Report Meetings, thereby ensuring mutual supervision among directors. Executive officers (9, including 3 concurrently serving as directors) are appointed by the Board of Directors and are responsible for business execution and decision-making related to business execution within the scope of their mandate, and report on the status of business execution at the aforementioned Management Strategy Meetings and Division Performance Report Meetings, etc. The directors' supervision of the executive officers' business execution is ensured. In addition, outside directors attend meetings of the Board of Directors and Liaison Councils of outside officers to participate in management decision-making and provide opinions on management from an objective and neutral standpoint.

Each corporate auditor may attend the important meetings mentioned above and other meetings, and regularly conducts audits of head office divisions, business divisions, and group subsidiaries. In addition, each corporate auditor receives reports from each division on risk management, compliance, etc., as necessary, and exchanges opinions with each director, executive officer, and key employees as appropriate, in order to gain an understanding of the directors' execution of their duties and to provide opinions to the directors at the above meetings from an objective and neutral standpoint.

Based on the above, we have adopted the current corporate governance system because we have a system that can adequately fulfill the monitoring function of management.

Corporate Governance Structure

• The Liaison Council of Outside Officers was established as a venue to provide outside officers with advance explanations about the agenda for Board of Directors meetings, and as a forum for outside directors and executive officers to verify, report on, and exchange opinions about business execution.

Building a Stronger Governance System

Role and Composition of Governance Bodies

Board of Directors

Executive Board

Remuneration Advisory Committee

Nomination Advisory Committee

Management Council

Audit & Supervisory Board

Liaison Council of Outside Directors and Outside Corporate Auditors

Major Matters Discussed at the Board of Directors Meetings in FY2022

• • Medium-term management plan JGP2025
  • Evaluation of the effectiveness of the Board of Directors
  • Agreement with the TCFD's recommendations and disclosure of information
  • Business portfolio
  • Review of the rationality of cross-shareholdings
  • Digital Transformation Promotion
  • Measures to prevent recurrence of inappropriate conduct
• • Feedback on IR/SR activities
  • Formulation of the Purpose
  • Report on the status of compliance line operations
  • Executive structure
  • R&D Framework
  • Quality Control Framework
  • Talent development strategy
  • Identification of Materiality
  • Status of operations of internal control systems
  • Risk Management

Reasons for Appointment of Outside Directors

JSW believes that the function and role of outside directors in corporate governance is to strictly supervise the execution of duties by directors and to make management judgments and decision-making from a neutral and objective standpoint with no conflict of interest with the Company, and from an independent standpoint with no risk of conflict of interest with general shareholders. To that end, the Company has appointed four outside directors.
The roles expected of outside directors are stipulated in the Corporate Governance Policy.

Succession Planning for the President and Procedures for Selection and Dismissal

• Formulation and Implementation of Succession Plan for the President

  With respect to the formulation and implementation of the succession plan for the president, the Nomination Advisory Committee holds appropriate discussions, considering the qualities of the candidate, such as experience, ability and character, based on the JSW Philosophy and management strategies, and reports to the Board of Directors as necessary.

• Appointment Criteria and Procedures

  The appointment of the president is decided by the Board of Directors after receiving a report from the Nomination Advisory Committee based on the succession plan.

• Dismissal Criteria and Procedures

  Dismissal of the president is decided by the Board of Directors if circumstances make it difficult for the president to carry out his or her duties, or if his or her suitability comes into question, after receiving this recommendation from the Nomination Advisory Committee.

Support for Outside Directors and Officer Training

• Support for Outside Directors

  For the purpose of deepening their understanding of JSW Group, outside directors are provided with information on the Group's business, finances, organization and other topics at appropriate times after assuming office. In addition, the General Affairs Division at the head office serves as the secretariat for the monthly meeting of the Liaison Council of Outside Officers, which provides outside officers including Outside Audit & Supervisory Board members, with advance briefings on matters to be resolved or deliberated at meetings of the Board of Directors, reports on the state of operations and important management matters of the Company and its Group, and provides opportunities for question-and-answer sessions.
  They also attend the president's report meetings at each plant twice a year where they are given the opportunity to observe work on-site and meet with plant management. Moreover, outside officers also receive materials at least three days prior to Board of Directors meetings, separate to the aforementioned advance briefings provided at meetings of the Liaison Council of Outside Officers.

• Officer Training

  In order to deepen the understanding of the roles and responsibilities required of directors and Audit & Supervisory Board members, the Company invites outside experts to lead study sessions as needed.
  In addition to the above, opportunities for inside officers to participate in external training, workshops, and programs are provided as-needed on an ad hoc basis.

Evaluation of Board of Directors' Effectiveness

The Board of Directors continues to enhance its functions by conducting an annual questionnaire-based analysis and evaluation.
The following is a summary of the analysis and evaluation for fiscal 2022.

• Analysis and Evaluation Methodology
  • (1) During February 2023, an anonymous questionnaire was administered to all directors and Audit & Supervisory Board members. As well as reorganizing and revising the questions of the questionnaire around strengthening monitoring functions, we plan to identify issues from the comments we receive, and so we increased the number of open-ended questions. The planning of the subjects covered and the collection and tabulation of the survey results were outsourced to a third-party organization.
  • (2) The Board of Directors Secretariat compared the results of the questionnaire with previous evaluations, and recompiled and analyzed the results, including identifying subjects given low evaluations and extracting important comments from the open-ended responses. In addition, the secretariat compiled and analyzed data on discussion times in fiscal 2022 and verified differences between annual activity plans and actual results.
  • (3) At the April and May 2023 Board of Directors meetings, the board discussed its effectiveness from the perspective of improving the medium-to-long-term corporate value of the entire Group, based on the compiled results of the questionnaire, the re-tabulation and analysis of those results by the Board of Directors Secretariat, and advice from a third-party organization.

  [ Questionnaire content ]

  • Purpose of the Board of Directors
  • Composition, discussion, and monitoring functions of the Board of Directors
  • Performance of inside and outside directors
  • Management of the Nomination Advisory Committee and Remuneration Advisory Committee
  • Miscellaneous (pertaining to the Board of Directors in general)
• Results of the FY2021 Analysis and Evaluation Results and an Overview of the Resultant FY2022 Initiatives

  In response to the three issues identified in the fiscal 2021 effectiveness evaluation, the Board of Directors proceeded forward with the following actions in fiscal 2022. As a result, the effectiveness evaluation for fiscal 2022 confirmed that improvements have been steadily made for each of the issues and that effectiveness has been generally ensured.

  

• Future Initiatives Based on the FY2022 Analysis and Evaluation Results

  Based on the fiscal 2022 effectiveness evaluation and the Group's Materiality, we identified the following as major issues to be addressed in fiscal 2023.

  

Evaluation of the Audit & Supervisory Board's Effectiveness

The Audit & Supervisory Board evaluates its own effectiveness so as to clarify areas of its activities that require consideration or improvement. These are then reflected in audit plans for the following fiscal year. By doing so, the board aims to improve the quality of its audits and its effectiveness overall.
As part of the evaluation, the four Audit & Supervisory Board members, the president, one outside director, and the general manager of the Internal Auditors Office, answer a questionnaire about the effectiveness of the board's responsibilities, composition, and operations; Group audits; interaction with the Board of Directors; its three-way audits; and internal controls.

The evaluation for fiscal 2022 showed that improvements had been made in areas identified in the previous fiscal year as needing improvement namely, (1) greater diversity in the selection of Audit & Supervisory Board members, (2) cooperation with outside directors, (3) cooperation with the Internal Auditors Office, and (4) involvement in company-wide risk management—and was determined to be largely carrying out its auditing activities appropriately and functioning effectively.
The following four areas of improvement were identified for the following fiscal year: (1) more effective operations through a more suitable composition for the Audit & Supervisory Board, (2) stronger cooperation with auditors at subsidiaries for better Group governance, (3) opportunities for periodic discussions with outside directors, and (4) enhanced auditing with regards to company-wide risk management activities and compliance.

To reflect these, the fiscal 2023 auditing policy that the board follows in its auditing activities is as follows: (1) carrying out audits of the Group's internal controls from the perspective of Group governance; (2) auditing the status of appropriate risk controls, that follow the three lines of defense model, in company-wide risk management activities; and (3) placing greater importance on internal controls audits during the fiscal year and year-end follow-up audits to achieve more effective auditing activities.

Officers' Remuneration

• Basic Policy for Directors' Remuneration

  The maximum amount of directors' remuneration is decided by resolution of the General Meeting of Shareholders.
  The basic policy is to set remuneration that provides sound incentives for sustainably enhancing corporate value, at a level corresponding to respective roles and responsibilities, and that ensures fairness and transparency in remuneration-related decision processes.
  Specifically, remuneration for directors (excluding outside directors) shall consist of fixed remuneration (the basic portion of annual remuneration), variable remuneration (the company-wide performance-linked portion of annual remuneration and the performance/performance-linked portion of divisional remuneration plus bonuses) and stock-based remuneration, with outside directors, who have supervisory functions, paid only fixed remuneration (the basic portion of annual remuneration), in consideration of their duties.

• Procedures for Determining Directors' Remuneration

  The remuneration of directors is determined by the Board of Directors after receiving a report from the Remuneration Advisory Committee.
  However, the allocation of annual remuneration by position and by individual and the allocation of bonuses by individual may be delegated to the president by resolution of the Board of Directors. In this case, the president makes decisions in accordance with the content of the report.

• Composition of Remuneration for Directors and Corporate Auditors

  The composition of directors' remuneration and its percentage are as follows.

  • (1) President and Representative Director and Executive Vice President The composition shall be annual remuneration ((1) base portion, (2) company-wide performance-linked portion) and stock-based remuneration.
    The ratio shall be "fixed remuneration ((1) Basic portion): variable remuneration (2) Company-wide performance-linked portion): stock remuneration = 55:35:10" for the President, and "fixed remuneration (1) Basic portion): variable remuneration (2) Company-wide performance-linked portion): stock remuneration = 60:30:10" for the Vice Presidents.
  • (2) Inside directors
    The structure shall consist of annual compensation ((1) base portion, (2) company-wide performance-linked portion, (3) divisional performance/results-linked portion), bonuses, and stock-based compensation.
    The ratio shall be "fixed remuneration (1) basic portion: variable remuneration (2) company-wide performance-linked portion, 3) divisional performance/results-linked portion, and bonus): stock-based remuneration = 60:30:10" as a guide.
  • (3) Remuneration for outside directors will consist solely of fixed remuneration (the basic portion of annual remuneration).
    The Company will periodically verify the appropriateness of the level and composition ratio of Directors' remuneration based on the remuneration levels of companies of the same business size and related industries and business categories as those of the Company, which are used as benchmarks, as well as the salary levels of the Company's employees.
  • (4) Remuneration for Corporate Auditors
    Remuneration for corporate auditors consists only of fixed remuneration (the basic portion of annual remuneration) from the perspective of emphasizing independence and objectivity with respect to management, and the remuneration for each corporate auditor is determined through discussions among the corporate auditors.
• Matters related to the calculation method of remuneration, etc. for directors
  • (1) Annual remuneration
    
    • (1) Basic portion
      The basic portion is determined as a fixed remuneration based on position and years in office.
    • (2) Company-wide performance-linked portion
      The Company-wide performance-linked portion is determined based on the consolidated performance for each fiscal year as variable remuneration. It consists of a net income portion attributable to shareholders of the parent company and a consolidated operating income portion.
      The reason for selecting this indicator is that it is a key indicator directly linked to the company-wide performance targets in the medium-term management plan.
      a. Net income attributable to shareholders of the parent company
      
      This is determined by multiplying 50% of the base amount of the Company-wide performance-linked portion in accordance with the director's position by the percentage of achievement of the net income attributable to owners of the parent at the end of the previous fiscal year against the net income attributable to owners of the parent target set in the medium-term management plan.
      
      b. Consolidated operating income portion
      
      The consolidated operating income portion is determined by multiplying 50% of the base amount of the portion linked to the performance of the entire Company in accordance with the director's position by the rate of achievement of the consolidated operating income target.
    • (3) Division performance/results-linked portion
      The portion linked to divisional performance and results is determined as variable compensation based on the performance evaluation of the division for which the director is responsible.
      The amount is determined by multiplying the base amount of the division performance/performance-linked portion in accordance with the director's position by a coefficient based on the division performance evaluation (ranked S, A, B, C, or D) determined by the Corporate Strategy Committee.
      The performance evaluation of each division is determined based on the achievement rate of the evaluation criteria (performance indicators and qualitative evaluation items, etc.) set at the beginning of each fiscal year by the Corporate Strategy Meeting with the goal of achieving the fiscal year's business budget.
      The evaluation items (performance indicators) in the divisional performance evaluation for the current fiscal year were "orders received" and "operating income" in order to emphasize the early recovery of business performance.
  • (2) Bonuses
    Bonuses are determined as variable compensation based on the performance evaluation of the division and individual performance results of the director in charge. The ratio of the performance evaluation portion for each division and the performance portion for each individual is 50%:50%. However, directors in charge of head office divisions receive only the individual performance portion.
    The evaluation items (performance indicators) for the divisional performance evaluation portion and the individual performance results portion are as follows.
    The reason for selecting these indicators is that they are important indicators that are directly related to the divisional performance targets in the mid-term management plan.
    
    • (1) Division performance evaluation portion
      The base amount of bonuses based on the director's position is multiplied by the percentage of achievement as of the end of the previous fiscal year of the consolidated operating income target for each division as defined in the medium-term management plan.
    • (2) Individual performance results
      Ranks A through E are determined based on the following three indices: the ratio of orders, sales, and operating income of the division in charge to the actual results for the fiscal year; progress in the medium-term management plan; new market development; quality, safety, and compliance performance; and the base amount for the bonus is multiplied by a factor corresponding to the rank.
  • (3) Stock Compensation
    Stock-based compensation is provided for the grant of restricted transferable shares for the purpose of providing medium- to long-term incentives to increase corporate value and to further share value with shareholders.
    The Company enters into a restricted stock allotment agreement with directors, excluding outside directors, which stipulates a restricted transfer period (a period predetermined by the Board of Directors ranging from three to five years), under which the Company issues or disposes of shares of common stock of the Company to such directors.
    The number of shares to be allocated shall be the number of shares obtained by dividing the standard amount by position according to the director's position by the closing price of the Company's shares on the Tokyo Stock Exchange on the day before the date of resolution by the Board of Directors regarding the execution of the restricted stock compensation allocation agreement.
    The specific allocation shall be decided by the Board of Directors after deliberation by the Compensation Advisory Committee.

Group Governance

JSW Group consists of The Japan Steel Works, Ltd. and 45 subsidiaries (33 consolidated, 12 non-consolidated). The Group operates the Industrial Machinery Products Business, Material and Engineering Business, and other businesses in Japan and around the world.
For Group companies, the JSW business division with primary responsibility leads the formulation of management policies and short- and medium-term management plans, and monitors their progress. In order to enhance the effectiveness of these efforts, we assign full-time or part-time directors or Audit & Supervisory Board members with the responsibility of supervising and auditing the execution of duties at Group companies, in principle, thereby ensuring that the execution of duties by directors, etc., and employees at Group companies comply with laws and regulations and the Articles of Incorporation. In addition, regarding risks relating to specific functions, such as health and safety, environmental management, and export control administration, each Group company participates in the various committees formed by the relevant divisions of the Company, or follows the regulations developed by the Company, and appropriately manages these risks.

Each company in the Group also appoints individuals to be in charge of general affairs, accounting, and IT matters related to internal control. The appointed individuals receive guidance and training from the Internal Control Committee Office and conduct self-assessment of implementation and operation of internal control in step with risk assessment. The status and results of the self-assessment of internal control operations are reported to the Office and each company. In response, the Internal Audit Division of the Company, which also serves as the Office of the Internal Control Committee, monitors the governance and risk management status of each company by directly or indirectly auditing the status of each company and the methods and results of self-assessments.
With regard to internal control over quality assurance processes at Japan Steel Works M&E, Inc., the Company is promptly implementing its reorganization, including organizational reforms to strengthen mutual checks and balances among divisions and eliminate the concentration of authority, moving ahead with operations and assessments under the guidance and management of the Company.

Cross-Shareholdings

• Policy on Cross-Shareholdings

  The Company holds shares that it judges, through regular confirmation and review, to be necessary for policy purposes, and that contribute to the Company's businesses over the medium to long term in ways such as maintaining and strengthening sound, ongoing relationships with business partners, forming business alliances, and supporting the sound development of investee companies.

• Regular Confirmation and Review of Shareholdings

  Each year, the Company confirms the purpose of individual cross-shareholdings and current transaction status, etc., and the Board of Directors verifies whether shareholdings are appropriate by comprehensively considering the significance and purpose of the Company's acquisition and holding of the shares, as well as the safety, profitability, economic viability, risks and other factors associated with the shareholdings.

• Policy on Exercise of Voting Rights

  The Company makes decisions on the exercise of voting rights based on factors including the business conditions of the investee company and its business relationship with the Company, having confirmed the details of each proposal from the standpoint of increasing the investee company's corporate value over the medium to long term and fulfilling that company's social responsibilities.

• Initiatives to Reduce Cross-Shareholdings

  • Number of Listed and Unlisted Stocks Held; Market Value of Cross-Shareholdings on Balance Sheet ÷ Consolidated Net Assets

    

  • Based on the Corporate Governance Policy of The Japan Steel Works, Ltd., we regularly confirm and review the significance of our cross-shareholdings, and we are gradually selling shares whose significance has diminished.
    
    In addition, setting forth in our medium-term management plan JGP2025 the financial strategy of ensuring an appropriate balance between investment in growth and shareholder returns in order to sustainably increase corporate value, the Company plans to reduce its cross-shareholdings to less than 10% of net assets by the end of fiscal 2024, and to allocate the funds obtained from the sale of cross-shareholdings into areas such as investment growth and shareholder returns.