Tokyo Electron's Basic Principles of Corporate Governance
Against a backdrop of ongoing business globalization, Tokyo Electron maintains a management philosophy that puts emphasis on improving corporate value for its shareholders and all other stakeholders. To this end, the Company considers it is important to strengthen corporate governance. In line with the following three basic principles, the Company is building a highly effective corporate governance structure, and upgrading and strengthening its internal control systems and risk management system.
The Corporate Governance Framework
Tokyo Electron uses the audit & supervisory board member system based on the Companies Act, and furthermore has established its own Compensation Committee and Nomination Committee to increase the transparency and objectivity of management. Also, Tokyo Electron has adopted the executive officer system to separate the business execution function from the Board of Directors. Moreover, Tokyo Electron has been disclosing the individual remunerations of representative directors since 1999 in recognition of the importance of managerial transparency for shareholders.
The Board of Directors
The Board of Directors consists of 14 directors, two of whom are outside directors. In principle, the Board of Directors meets once a month, with additional meetings if necessary. (During fiscal 2012, the Board of Directors met on 12 occasions.) In order to ensure that the Company can respond quickly to changing business conditions, and to more clearly define management accountability, the term of office for directors is set at one year.
Furthermore, Tokyo Electron has set up two committees whose activities are intended to ensure the transparency of management: the Compensation Committee and the Nomination Committee. The members of both these committees are directors and audit & supervisory board member, excluding the representative directors.
| Compensation Committee: | This committee proposes the system for the remuneration to be paid to corporate directors, and the remuneration amounts for individual representative directors, to be approved at a Board meeting. |
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| Nomination Committee: | This committee nominates candidates for directors to be selected at the annual shareholders' meeting, and nominates a candidate for CEO to be selected by the Board, which it submits at the Board meeting for approval. |
The Audit & Supervisory Board
The Company has four Audit & Supervisory Board Members, two of whom are outside Audit & Supervisory Board Members. The Audit & Supervisory Board Members not only attend meetings of the Board of Directors, the Top Management Conference and other important business meetings, but also conduct operations audits and accounting audits, and evaluate risk management, in addition to auditing the performance of duties by directors. During fiscal 2012, the Audit & Supervisory Board met seven times.
Outside Directors and Outside Audit & Supervisory Board Members
From the viewpoint of objectively ensuring the effectiveness of the decision-making of the Board of Directors, Tokyo Electron has appointed two outside directors to the Board: Mr. Hiroshi Inoue, who is Chairman of the Board, Tokyo Broadcasting System Holdings, Inc., and Mr. Masahiro Sakane, who is Chairman of the Board, Komatsu Ltd. From the viewpoint of objectively ensuring the reasonableness of the audits, Tokyo Electron has appointed two outside Audit & Supervisory Board Members: Mr. Togo Tajika, and Mr. Ryuji Sakai, who is a Partner at Nagashima Ohno & Tsunematsu. Mr. Togo Tajika conducts audits of the Tokyo Electron Group as a full-time company Audit & Supervisory Board Member.
The Executive Officer System
In order to further clarify the roles of the Board of Directors and executives in charge of business operations, Tokyo Electron has adopted the executive officer system. This system promotes fast decision-making and the quick establishment and execution of business strategies.
Compensation for Corporate Directors and Audit & Supervisory Board Members
Tokyo Electron has adopted the following executive compensation program with the intention of tying compensation more closely to financial results and shareholder value, raising corporate competitiveness, and enhancing management transparency.
- The compensation for corporate directors is composed of two elements: a fixed monthly salary, and performance-linked annual compensation which is linked to earnings performance.
- The performance-linked compensation system for corporate directors is designed to align compensation more clearly with financial results and increases in shareholder value. It takes into account consolidated return on equity (ROE) and consolidated net income, two performance indicators of consolidated business results. Necessary adjustments are then made when there are special factors that should be taken into account, such as principal performance indicators for the term under review, including profits and losses, and so on. Performance-linked compensation comprises cash bonuses and stock-based compensation. The ratio of cash bonuses to stock-based compensation has generally been one to one. Stock-based compensation consists of granting share subscription rights with a set strike price of one yen per share and setting unexercisable period for three years. Performance-linked compensation is limited to five times the fixed compensation.
- The performance-linked compensation of outside directors does not include stock-based compensation.
- The compensation for Audit & Supervisory Board Members consists only of a monthly fixed remuneration, to maintain independence from management.
- Retirement allowances systems for corporate directors and Audit & Supervisory Board Members have been abolished in and after the end of fiscal 2005, as part of the revisions to Tokyo Electron's executive compensation program.
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