Corporate Governance

Corporate Governance Framework

Tokyo Electron upholds the vision of being “a truly global company generating high added value and profits in the semiconductor and flat panel display industries through innovative technologies and groundbreaking proactive solutions that integrate diverse technologies. ” With over 80% of our sales coming from overseas, we regard building governance structure as essential in order to achieve success in global competition, realize our vision and achieve sustainable growth. To that end, we have built a framework to maximize the use of worldwide resources, and have worked to incorporate a wide range of opinions to strengthen our management foundation and technology base, establishing a governance structure capable of ensuring that we attain global level earnings power.

We use the Audit & Supervisory Board System, which consists of a Board of Directors and an Audit & Supervisory Board, and has achieved effective governance based on the supervision of management by the Audit & Supervisory Board. Furthermore, in addition to the Board of Directors, whose role is to make major operational decisions and play a supervisory role in the executive management’s execution, and support appropriate risk-taking by them, we have established systems that will facilitate growth oriented governance directed at sustainable growth, including the following: (1) The Nomination Committee and Compensation Committee to ensure fair, effective, and transparent management; (2) The Corporate Senior Staff (CSS) to formulate and advance company strategy; and (3) The Business Execution Meeting, to play a role in deliberations of the executive management.

Composition and Results of the Bord of Directors, Nomination & Compensation Committee(In fiscal year 2021)

Sustainability of a Board of Directors Appropriate for Resolution of Management Issues

As a leading company in semiconductor and flat panel display (FPD) production equipment, we believe that proactive risk-taking and a risk management structure to support it are essential for achieving sustainable growth. The Board of Directors guides its discussions in an appropriate direction by incorporating a wide range of opinions that stem from the extensive knowledge and experience of independent outside directors and Audit & Supervisory Board members in addition to executive directors who are well-versed in the business.

We have also established the Nomination Committee and the Compensation Committee as discretionary advisory bodies to ensure fairness, effectiveness and transparency in management. Authorized to propose the appointment and dismissal of the CEO and corporate directors, the Nomination Committee has established guidelines on their required qualities and eligibility, as well as a trigger for considering the appointment and dismissal of the CEO, and strives to ensure the objectivity, timeliness and transparency of the procedures for appointment and dismissal. The Compensation Committee, on the other hand, reviews performance evaluations of the CEO and corporate directors along with the appropriateness of the amount of their compensation, with reference to advice from external experts. Under such a system, we strive to operate the Board of Directors in a way that is appropriate for resolving management issues.

In addition, in order to develop the next generation of human resources who will assume management of operations to support our sustainable growth, the CEO and Representative Directors play the primary role in constantly anticipating successor candidates, primarily from among executive officers, evaluating their skills, character, dignity and insight from multiple perspectives in the course of performing day-to-day duties, and continually supporting the education of the candidates through assignment, training and other opportunities.

Skills Matrix

In view of its Corporate Philosophy that “We strive to contribute to the development of a dream-inspiring society through our leading-edge technologies and reliable service and support,” we are engaged in enhancing our governance structure and in sustainability-focused management in order to respond to changes in the global environment, achieve success in global competition, realize sustainable growth and increased corporate value over the medium- to long-term to respond to the mandate from its stakeholders. We believe that our corporate directors and Audit & Supervisory Board members have the necessary qualifications to realize these initiatives. Described in detail below, all of them have knowledge of global business, governance, sustainability and so on. In addition to this matrix of individual skills, we also disclose the overall diversity of our Board of Directors in an easy-to-understand format.

Corporate Directors:Tetsuo Tsuneishi Expertise,experience:Corporate management,Semiconductor/FPD,Sales/marketing,Finance, accounting/engagement with capital markets,Toshiki Kawai Expertise,experience:Corporate management,Semiconductor/FPD,Manufacturing/development,Sales/marketing Sadao Sasaki Expertise,experience:Corporate management,Semiconductor/FPD,Manufacturing/development,Sales/marketing Yoshikazu Nunokawa Expertise,experience:Semiconductor/FPD,Manufacturing/development,Sales/marketing,Finance, accounting/engagement with capital markets Tatsuya Nagakubo Expertise,experience:Semiconductor/FPD,Finance,accounting/engagement with capital markets,Legal affairs/risk management Kiyoshi Sunohara Expertise,experience:Semiconductor/FPD,Manufacturing/development,Sales/marketing Seisu Ikeda Expertise,experience:Semiconductor/FPD,Manufacturing/development,Sales/marketing Yoshinobu Mitano Expertise,experience:Semiconductor/FPD,Manufacturing/development,Sales/marketing Charles Ditmars Lake II(Outside director) Expertise,experience:Corporate management,Semiconductor/FPD,Finance,accounting/engagement with capital markets,Legal affairs/risk management Michio Sasaki(Outside director) Expertise,experience:Corporate management,Manufacturing/development,Sales/marketing Makiko Eda(Outside director) Expertise,experience:Corporate management,Semiconductor/FPD,Sales/marketing Sachiko Ichikawa(Outside director) Expertise,experience:Finance,accounting/engagement with capital markets,Legal affairs/risk management  Audit & Supervisory Board members:Yoshiteru Harada Expertise,experience:Semiconductor/FPD,Finance,accounting/engagement with capital markets,Legal affairs/risk management Kazushi Tahara Expertise,experience:Corporate management,Semiconductor/FPD,Manufacturing/development,Sales/marketing Kyosuke Wagai(Outside director) Expertise,experience:Finance,accounting/engagement with capital markets,Legal affairs/risk management Masataka Hama(Outside director) Expertise,experience:Corporate management,Finance,accounting/engagement with capital markets Ryota Miura(Outside director) Expertise,experience:Legal affairs/risk management Expertise and experience of corporate directors and Audit & Supervisory Board members:Corporate management 8 Semiconductors/FPDs 12 Manufacturing development 8 Sales/marketing 10 Financial accounting/engagement with capital markets 8 Legal/risk management 6,Independence and diversity of corporate directors:Independent outside directors 4/12,Foreign national/female corporate directors 3/12(Foreign national corporate directors 1 Female corporate directors 2)

* The six categories of “expertise and experience” are defined as follows:
・Corporate management: Having experience in managing an enterprise (experience serving as a representative director or chairperson/president)
・Semiconductor/FPD: Having knowledge of semiconductor/FPD-related industries
・Manufacturing/development: Having knowledge/experience in manufacturing and development at Tokyo Electron and other manufacturers
・Sales/marketing: Having knowledge/experience in sales and marketing at Tokyo Electron and other manufacturers
・Finance, accounting/engagement with capital markets: Having knowledge in financial accounting and M&A, or knowledge/experience in engagement with capital markets
・Legal affairs/risk management: Having knowledge in legal affairs, compliance and risk management

Supervision and Evaluation of Strategic Decision-making

Setting the strategic direction of we are recognized as the main role of the Board of Directors. It engages in constructive debate of management strategy, management plans, and other matters. It serves as the venue for supervising progress on the Medium-term Management Plan and other matters. The Board of Directors also seeks reports and explanations on the status of deliberations at the Business Execution Meeting to monitor whether decision making by executive management functions properly in relation to matters for which approval authority has been delegated to executive management. At Board of Directors meetings, independent outside directors and Audit & Supervisory Board members actively provide advice and ask questions regarding the matters and reports made by executive directors well versed in business. The combined perspectives of both parties have enabled the Board of Directors meetings to achieve an appropriate sense of productive tension and constructive discussions that are essential for business execution decisions and supervision.

To obtain appropriate advice and questions from independent outside directors and Audit & Supervisory Board members, the administrative office provides them with explanations on proposals in advance of the Board of Directors meeting as needed. For matters of particular importance, we establish a venue for dialogue between independent outside directors and Audit & Supervisory Board members and executive management, striving to provide sufficient information to, and engage dialogue with, independent outside directors and Audit & Supervisory Board members.

Policies for Allocation of Earnings

Our basic stance is for the appropriate allocation of company earnings to all stakeholders. Our dividend policy to shareholders is to link dividend payments to business performance on an ongoing basis and maintain a payout ratio of around 50% based on net income attributable to owners of the parent company. Furthermore, we also set the minimum annual dividend at 150 yen per share in light of the stable distribution of dividends. We effectively use internal capital reserves to raise corporate value through earnings growth by concentrating investment in high-growth areas and provide returns directly to shareholders by linking dividend payments to business performance. Furthermore, we flexibly consider implementing repurchases of treasury stocks as part of returning earnings to shareholders.

Establishment of the Director Compensation System

As its basic policies on executive compensation, we emphasize (1) Levels and plans for compensation to secure highly competent management personnel with global competitiveness; (2) High linkage with business performance in the short term and medium- and long-term increase of corporate value aimed at sustainable growth; and (3) Securement of transparency and fairness in the decision process of compensation and appropriateness of compensation. Compensation for inside directors consists of fixed basic compensation, annual performance-linked compensation, and medium-term performance-linked compensation. Compensation for outside directors consists of fixed basic compensation and nonperformance-linked (stock-based) compensation. Compensation for Audit & Supervisory Board members consists solely of fixed basic compensation in consideration of their role being primarily the audit and supervision of management.

In order to secure transparency and fairness in management and appropriateness of compensation, the Compensation Committee, which an independent outside director chairs, utilizes advice from an external expert, compares compensation levels with those of industry peers in Japan and overseas, and analyzes the latest trends and best practices in Japan and overseas (such as reflecting ESG in compensation).The Committee then proposes to the Board of Directors a compensation policy for corporate directors, a compensation system that is globally competitive and the most appropriate for us, and individual compensation amounts for the representative directors.

Fixed Basic Compensation

Fixed basic compensation is determined in reference to the compensation standards of industry peers in Japan and overseas. For inside directors, it also depends on the scale of their responsibilities based on the job grade framework provided by the external specialist organization.

Annual Performance-linked Compensation

Annual performance-linked compensation consists of cash bonuses and stock compensation-based stock options at a ratio of approximately 1:1.The specific amounts paid and the numbers of stock options granted are determined based on the results of corporate business performance and individual performance evaluations for the relevant fiscal year.
Net income attributable to owners of the parent and consolidated ROE are adopted as evaluation indicators for corporate business performance. Evaluation items for individual performance include the degree of contribution to short-term and medium-term management strategy targets (including ESG).

Medium-term Performance-linked Compensation

Medium-term performance-linked compensation is a performance share (stock-based) compensation to motivate recipients to contribute to improving medium-term business performance and raise awareness for enhancing corporate value by sharing the perspective of shareholders through the holding of shares. The number of shares issued to each corporate director varies according to the payout rate based on their respective responsibilities and level of performance goal achievement over the relevant three-year period. Consolidated operating margin and consolidated ROE, have been adopted as indicators for measuring the levels of performance goal achievement which are linked to the Medium-term Management Plan.

Non-performance-linked (Stock-based) Compensation

Non-performance-linked stock-based compensation has been introduced for the purpose of making the compensation system for outside directors more consistent with their expected role of, in addition to supervising management, giving advice to management from the perspective of increasing corporate value over the medium- to long-term. Under this share-based compensation system, shares are granted after the expiration of the applicable period (three fiscal years), which is set each year.

Process for Evaluating the Effectiveness of the Board of Directors and Management Issues

To evaluate the effectiveness of the Board of Directors, including the Nomination Committee and Compensation Committee, we conduct questionnaire surveys of all Corporate Directors and Audit & Supervisory Board Members, as well as individual interviews with some Corporate Directors and Audit & Supervisory Board Members.
We also conduct opinion exchanges and deliberations with a group comprised mostly of Outside Directors and Audit & Supervisory Board Members.
The results of this questionnaire, summaries of interviews and the content of deliberations are then shared with the entire Board of Directors before deliberating and comprehensively evaluating the effectiveness of the Board of Directors.
We appoint a third party to provide advice on setting assessment items and to conduct, aggregate, and analyze the interviews in an effort to increase objectivity.

In terms of the evaluation results in fiscal year 2021, open and dynamic discussions were held at Board of Directors meetings and off-site meetings. We recognize that the Board of Directors, including the Nomination Committee and Compensation Committee, is functioning in an effective manner.

In light of the results of this evaluation, we will continue our efforts to have fuller discussions regarding medium- to long-term management strategies, promote diversity, strengthen group governance at a global level, and share appropriate information with the Nomination Committee, Compensation Committee and Board of Directors.

Engagement with Capital Markets

Our management actively engages in Investor Relations (IR) and Shareholder Relations (SR) activities to contribute to our sustainable growth and increase corporate value over the medium-to long-term. The Chairman of the Board, CEO and corporate director in charge of finance serve as spokespersons as required at IR conferences in and outside Japan and strive to engage directly with investors. In addition to holding quarterly earnings release conferences, we actively share our business strategies and growth story at the Medium-term Management Plan briefings and on IR day. The IR department, which was established under the direct control of the CEO, also discloses information as appropriate in individual interviews and regularly reports opinions from investors to management so that feedback can be of use in management.

As a part of our shareholder relations activities, company executives play a central role in active and constructive dialogue with our major institutional investors and proxy-advisory firms. In addition to explaining the Shareholders’ Meeting agenda, we continuously engage in dialogue on a wide range of topics, including the business environment, ESG and sustainability initiatives, and respond to business risks and opportunities, including social and environmental issues, in order to deepen mutual understanding. To encourage active discussion and facilitate smooth and efficient voting at Shareholders’ Meetings, we send convocation notices at an early stage and also post the notice in both Japanese and English on our website to provide information to shareholders in a timely manner. In addition, we analyze the results of the exercise of voting rights and report to the Board of Directors to further enhance engagement with investors.