Basic Policy on Corporate Governance

Ⅰ. Basic Policy on Corporate Governance

1. Current System

Toray is a company with Board of Corporate Auditors, and the members of the Board and corporate auditors are elected at the general meeting of shareholders. A summary of the system is illustrated in the figure <Governance Structures>.
Members of the Board and corporate auditors, as officers directly elected at the general meeting of shareholders, clearly recognize fiduciary responsibility to shareholders who have entrusted the management and appropriately fulfill their respective roles while discharging accountability about management status to shareholders and other stakeholders.
As Toray Group supplies a wide range of industries with basic materials and globally plays an active part in a broad scope of business fields, it is necessary to evaluate various risks multilaterally based on expertise relevant to the worksites, not only for management judgment and decision-making but also for oversight. To that end, the Board of Directors formulates a structure in which members of the Board familiar with the Toray Group businesses oversee management and make decisions from various viewpoints.
Furthermore, the Board of Corporate Auditors oversees the execution of operations by the members of the Board based on professional knowledge in fields such as finance, accounting and law in addition to an understanding about businesses, from a standpoint entirely independent of the Board of Directors as a system to secure transparency and fairness of oversight and decision-making.

Governance Structures

Governance Structures

2. Members of the Board and the Board of Directors

  1. (1) Roles of the Board of Directors
    The Board of Directors oversees management and makes decisions on important managerial matters toward the sustainable growth and increased corporate value of Toray Group for the mid- to long-term.
  2. (2) Structure of the Board of Directors
    Toray Group globally plays an active part in a broad scope of business fields and should appropriately respond to various risks surrounding each business in order to realize sustainable growth and increase corporate value. The Board of Directors has to evaluate the risks multilaterally to fulfill its roles of oversight and decision-making. To that end, the Board of Directors strives for appropriate balance in the number of members and structure, with members who widely cover the fields of the corporate activities of the Group in terms of knowledge, experience and ability, and appropriately ensures diversity as a whole.
  3. (3) Delegation of decision-making authority
    The Board of Directors establishes the Authority of Top Management, an internal rule that expressly stipulates important matters with respect to which decision-making authority is reserved by the Board of Directors and matters with respect to which decision-making is delegated to the management, including the President.
    For matters with respect to which decision-making authority is reserved by the Board of Directors, a specific guideline for importance is established based on the degree of impact on the Company’s financial status and other factors, in order to ensure that the business operation of the whole of the Toray Group, including Group companies, is included appropriately according to importance, in addition to the matters set forth in laws and regulations.
  4. (4) Committee assisting the Board of Directors
    Toray establishes the Governance Committee as an advisory organ to the Board of Directors in order to report to the Board of Directors on important issues regarding the Company’s corporate governance over the mid- to long-term. The Governance Committee consists of the Chairman of the Board, President, and all of the outside directors, and an outside director serves as a chairperson. Deliberation at the Governance Committee encompasses matters regarding the Company’s overall corporate governance matters, including the following.
  • Structure of the Board of Directors and the Board of Corporate Auditors
  • Evaluation of the management and operation of the Board of Directors
  • Policy on nominating candidates for members of the Board and corporate auditors
  • Remuneration system for members of the Board and corporate auditors
  • Basic policy on electing the senior management, including the President
  1. (5) Nomination of candidates for members of the Board
    As Toray Group supplies a wide range of industries with basic materials, an ability to make appropriate management judgments based on rich experience at the worksites and deep expertise and an ability to oversee management based on fiduciary responsibilities from an objective standpoint independently of business operations are set as the criteria for nominating candidates for members of the Board.
    For promotion from within the Company, it is important to systematically train and nurture candidates for members of the Board in advance in consideration of their potential to serve as future Presidents or other members of the senior management. With respect to key positions for business operations, the main criterion for selecting candidates is an ability to make appropriate judgments based on experience at the worksites and deep expertise, according to criteria similar to those for nominating candidates for members of the Board. Meanwhile, mid- to long-term succession plans for key positions are periodically created and approved by the Board of Directors.
    For outside directors, the criteria for nominating candidates are an ability to oversee management from broader perspectives to further improve the transparency and fairness of management and an ability to provide appropriate advice to the management from a mid- to long-term perspective, based on sympathy with Toray’s Management Philosophy and a profound understanding of the basic materials business.
    When nominating candidates for members of the Board, the Board of Directors nominates persons who meet the abovementioned criteria, have superior character and knowledge, and are judged to be appropriate as members of the Board through conference among the senior management, including the President.
    The standards for the independence of outside directors are established as shown in <Standards for Judging the Independence of Outside Directors/Corporate Auditors>.
  2. (6) Remuneration for members of the Board
    Given their roles, remuneration for internal members of the Board consists of monthly remuneration, a bonus and stock acquisition rights as stock options.
    Remuneration is set at a level that enables the Company to secure superior human resources and further motivate them to improve performance, referring to the results of a survey of other companies’ remuneration by an external third-party organization. With respect to monthly remuneration, the maximum limit of total remuneration is determined at general meetings of shareholders. Within the scope of the maximum limit, monthly remuneration to each member of the Board is determined by the President based on the Company’s internal regulations with a resolution at a Board of Directors meeting.
    The provision and the total amount of bonuses are determined each time at a general meeting of shareholders. Particulars of the agenda at the general meeting of shareholders are resolved by the Board of Directors through conference among the senior management, including the President, in consideration of the consolidated and non-consolidated business results for each fiscal year plus the historical record. A bonus to each member of the Board is determined by the President according to each member’s performance based on the Company’s internal regulations with a resolution at a Board of Directors meeting.
    The maximum limit of total number of Stock Acquisition Rights as well as the limit of remuneration relating to the granting of the Stock Acquisition Rights as stock options to members of the Board is resolved at the general meeting of shareholders, and within that limit, the total number of Stock Acquisition Rights to be allocated to the members of the Board shall be decided at the Board of Directors meeting based on the Company’s internal regulations.
    Given their roles, remuneration for outside directors consists of monthly remuneration only.
  3. (7) Related party transactions
    With respect to any transaction between a member of the Board and the Company that involves a conflict of interest, the Board of Directors stipulates internal procedures therefor pursuant to laws and regulations and administers them appropriately so as not to damage the interests of the Company or common interests of shareholders. If a stockholder holds 10% or more of the Company’s stock and engages in a transaction with the Company, the Board of Directors will take appropriate procedures and appropriately administer the transaction.
  4. (8) Measures for the effective function of the Board of Directors
  1. A. Training for members of the Board
    Toray provides members of the Board with training opportunities so that they can acquire knowledge necessary for their duties and appropriately fulfill their roles. Specifically, the Company holds internal training sessions for the members of the Board and encourages them to participate in seminars and training outside the Company. As outside directors significantly vary in their fields of specialization and degree of experience in corporate management, the Company individually handles them mainly in light of their individual backgrounds.
  2. B. System for assisting outside directors
  • Toray designates a department in charge of assisting the execution of duties by outside directors.
  • When convening Board of Directors meetings, the Company provides its outside directors with timely and appropriate information by sending materials relating to agenda items prior to each meeting of Board of Directors.
  • Toray formulates an annual schedule for Board of Directors meetings in advance and pays the utmost attention to enable the attendance of outside directors.
  • If an outside director intends to hold meetings with other outside directors or outside corporate auditors, etc. separate from the Board of Directors meeting, the abovementioned department shall provide required assistance in cooperation with the relevant departments.
  1. C. Evaluation of effectiveness of the Board of Directors
    Each year the Board of Directors analyzes and evaluates whether the Board of Directors effectively functions and appropriately fulfills its roles, mainly based on a self-evaluation by each member of the Board and the evaluation by corporate auditors. The Board of Directors strives to improve its operations, etc. based on the results of its evaluations.

3. Corporate Auditors and the Board of Corporate Auditors

  1. (1) Roles of the corporate auditors and the Board of Corporate Auditors
    Corporate auditors and the Board of Corporate Auditors audit the execution of duties by members of the Board and implement other matters set forth in laws and regulations, etc. from a standpoint entirely independent of the Board of Directors, and strive to establish an effective governance structure through their activities.
    Corporate auditors and the Board of Corporate Auditors cooperate with an independent auditor to perform appropriate audits, and select and evaluate an independent auditor based on an appropriate standard.
  2. (2) Structure of the Board of Corporate Auditors
    Not less than half of the corporate auditors shall be composed of outside corporate auditors. In addition, at least one person who has appropriate expertise on finance and accounting shall be appointed as corporate auditor.
  3. (3) Nomination of candidates for corporate auditors For corporate auditors, the main criterion for nominating them is an ability to appropriately carry out their roles while keeping objectivity and neutrality, either from a viewpoint with profound knowledge of Toray Group businesses in the case of internal corporate auditors or from a professional viewpoint in the case of outside corporate auditors. When nominating candidates for corporate auditors, the Board of Directors nominates persons who meet the abovementioned criterion, have superior character and knowledge, and are judged to be appropriate as corporate auditors through conference among the senior management, including the President. The standards for the independence of outside corporate auditors are established as shown in <Standards for Judging the Independence of Outside Directors/Corporate Auditors>.
  4. (4) Remuneration for corporate auditors
    Given their roles, remuneration for corporate auditors consists of monthly remuneration only.
    Remuneration is set at a level that enables the Company to secure superior human resources, referring to the results of a survey of other companies’ remuneration by an external third-party organization.
    With respect to monthly remuneration, the maximum limit of total remuneration is determined at general meetings of shareholders. Within the scope of the maximum limit, monthly remuneration to each corporate auditor is determined through consultation by corporate auditors based on the Company’s internal regulations.
  5. (5) Training for corporate auditors
    Toray provides corporate auditors with training opportunities so that they can acquire knowledge necessary for their duties and appropriately fulfill their roles.
    Specifically, the Company holds internal training sessions for corporate auditors and encourages them to participate in seminars and training outside the Company.
    As outside corporate auditors significantly vary in their fields of specialization and degree of experience in corporate management, the Company individually handles them mainly in light of their individual backgrounds.

4. Relationship with Stakeholders including Shareholders

  1. (1) Responsibility to stakeholders including shareholders
    Toray recognizes that corporate activities are supported by cooperation with various stakeholders and places great importance, from a managerial standpoint, on appropriately returning its fruits to stakeholders and thereby creating a long-term relationship of trust with stakeholders.
  2. (2) Securing the rights of shareholders
    To substantially secure shareholders’ rights, the Company takes necessary steps pursuant to laws and regulations and develops an appropriate environment. Especially, the Company pays due attention to ensure that foreign shareholders and minority shareholders will not be treated disadvantageously without reasonable cause upon exercising their rights.
  3. (3) General meeting of shareholders
    Toray develops circumstances under which shareholders can appropriately exercise their voting rights at the general meeting of shareholders.
    sincerely accepts the results of voting rights exercised for or against proposals at the general meeting of shareholders at all times, and when a considerable number of votes are cast against a proposal, the Board of Directors takes necessary measures after analyzing their causes.
  4. (4) Strategic holdings
    To lead to improvements in the Toray Group’s mid- to long-term corporate value, the Company holds the shares of business partners mainly for the purposes of strengthening transaction relations, smoothing business alliances, and reinforcing joint research and technology development.
    For such strategic holdings, the Company periodically reviews the purposes and reasons for holding shares at the Board of Directors meetings and sells shares that have become less meaningful to hold primarily due to changes in transaction relations.
    When exercising the voting rights as to the strategic holdings, the Company decides to approve or disapprove each agenda based on its conviction that the mid- to long-term improvement of the corporate value of business partners will also lead to the enhancement of Toray Group’s corporate value.
  5. (5) Dialogue with shareholders
    Toray positions the sharing of its basic policy of managing the Company from a mid- to long-term perspective with more shareholders and the promotion of the continuous holding of Company shares over the mid- to long-term as important managerial issues. To that end, from the viewpoint that secured management transparency should serve as a basis for dialogue with shareholders, the Company established the Information Disclosure Principles as shown in <Information Disclosure Principles> to improve the structure of its system for appropriate and timely information disclosure. For shareholders and investors with which the Company strives for constructive dialogue from a mid- to long-term perspective, the members of the Board and the senior management will respond to them within a reasonable range and otherwise will work on constructive dialogue for both parties in a manner conducive to sustainable growth and increased corporate value for Toray Group over the mid- to long-term while keeping the scope of fair and equitable information disclosure.
    Specifically, Toray Group will establish the following systems.
  • Appoint a member of the Board in charge of IR
  • Promote IR activities in an appropriate and effective manner at a full-time department for IR (Investor Relations Department)
  • System to share internal information centered on the Investor Relations Department
  • System to share feedback on information and opinions acquired through dialogue with the members of the Board and management
  • System to control internal information

Ⅱ. Basic Policy on Internal Control

To realize the Management Philosophy, the Company shall establish a structure to execute its business legally and effectively by improving its internal control system according to the following basic policy as a structure to enable it to appropriately establish organization, formulate regulations, communicate information, and monitor the execution of operations.

1. System to ensure that the execution of duties by members of the Board and employees complies with laws and regulations and the Company’s Articles of Incorporation

  1. (1) Toray shall establish the Corporate Ethics Committee, as one of the company-wide committees to promote observance of corporate ethics and legal compliance, and shall take other measures to improve the required internal systems, including the establishment of dedicated organizations.
  2. (2) Toray shall establish the Corporate Ethics and Legal Compliance Code of Conduct as specific provisions to be observed by members of the Board and employees, and shall take other measures to improve the required guidelines, etc. Especially with regard to eliminating relations with antisocial forces, the Company shall act as one to stand firmly against them.
  3. (3) Toray shall establish an internal reporting system (whistle-blowing system) for the reporting of the discovery of violation of laws, regulations, or the Company’s Articles of Incorporation.
  4. (4) Toray shall establish Security Trade Control Program, one of the most important legal compliance issues, and establish an organization dedicated to security export control.

2. System to ensure the efficient execution of duties by members of the Board

  1. (1) Toray shall establish the Authority of Top Management to stipulate matters with respect to which decision-making authority is reserved by the Board of Directors and matters with respect to which decision-making is delegated to the President, General Managers, etc., from among matters necessary for decision-making.
  2. (2) Toray shall establish the Executive Committee and Board of Senior Vice Presidents as deliberative organs for important matters decided by the Board of Directors or the President. The Executive Committee shall be responsible for the general direction of policy, while the Board of Senior Vice Presidents shall be in charge of issues related to implementation.

3. System for preserving and managing information pertaining to the execution of duties by the members of the Board

  1. (1) Toray shall establish regulations for important documents and important information related to management, confidential information and personal information, and appropriately preserve and manage them in accordance with the rules.

4. Regulations and other systems pertaining to controls over risks of loss

  1. (1) Toray shall identify potential risks in business activities, promote company-wide risk management to strive to reduce the level of risk under normal business conditions, and prevent future crises, as well as improve regulations and establish an internal committee to enable immediate implementation in the event of a major crisis.
  2. (2) Toray shall establish an internal control system for financial reporting that ensures the reliability of financial reporting.

5. System for ensuring appropriate business operations within subsidiaries

  1. (1) To establish a system under which subsidiaries report to the Company on matters regarding the execution of duties by members of the Board, etc. of the subsidiaries, the Company shall provide regulations on the regular reporting of important management information to the Company and regularly hold conferences at which the Company’s management receives direct reports on the status of the management of the subsidiaries.
  2. (2) To establish regulations and other systems pertaining to controls over risks of loss for subsidiaries, the Company shall provide subsidiaries with guidance to help them to establish risk management systems appropriate for their respective business forms and business environments, and shall receive regular reports on the status of their activities.
  3. (3) To establish a system for ensuring that members of the Board, etc. of subsidiaries effectively execute their duties, the Company shall provide regulations on the scope under which the Company can reserve its authority over the execution of business operations. In addition, the Company shall endeavor to grasp management information in a unified manner and provide assistance and guidance necessary for subsidiaries by determining divisions, etc. with control over its respective subsidiaries.
  4. (4) To establish a system for ensuring that the execution of duties by members of the Board, etc. and employees of subsidiaries complies with laws and regulations and the Articles of Incorporation, the Company shall thoroughly familiarize its subsidiaries with the Company’s Corporate Ethics and Legal Compliance Code of Conduct as a code of conduct in common for the Toray Group. At the same time, the Company shall request the subsidiaries to establish their own codes of conduct, guidelines, etc. in consideration of the laws and regulations, business practices, business forms, and other factors in their respective countries. In addition, the Company shall direct its subsidiaries to establish systems under which the status of internal whistle-blowing by members of the Board, etc. and employees of the subsidiaries is appropriately reported to the Company.

6. System for reporting to corporate auditors and systems for ensuring that persons who report to corporate auditors are not treated disadvantageously because of their reporting

  1. (1) Members of the Board, etc. and employees of Toray Group and corporate auditors of subsidiaries shall report matters regarding the execution of duties to corporate auditors in response to requests from the corporate auditors.
  2. (2) Department in charge of the internal reporting system (whistle-blowing system) shall regularly report the status of internal whistle-blowing in the Toray Group to the corporate auditors.
  3. (3) Toray shall stipulate regulations to the effect that members of the Board and employees who report to corporate auditors shall not be subjected to any disadvantageous treatment because of the said reporting, and shall provide subsidiaries with guidance to help them stipulate the same regulations.

7. Items pertaining to the handling of expenses and liabilities arising from the execution of duties by corporate auditors

  1. (1) Toray shall pay expenses, etc. incurred from the execution of duties by corporate auditors.

8.Items pertaining to employees assisting with corporate auditors’ duties, items pertaining to the independence of said employees from members of the Board, and items pertaining to the assurance of effectiveness of instructions from the corporate auditors to said employees

  1. (1) Toray shall assign a full-time employee to provide assistance if and when corporate auditors request assistance. The said employee shall exclusively follow the corporate auditors’ commands and instructions, and the Company shall consult with corporate auditors in advance with respect to the personnel arrangements for the said employee.

9. Other systems for ensuring effective implementation of audits by corporate auditors

  1. (1) Corporate auditors shall attend Board of Directors meetings and other important meetings so that they may ascertain important decision-making processes and the execution of operations.
  2. (2) Corporate auditors shall hold regular meetings with members of the Board and management and conduct regular visiting audits of Toray offices, plants, and subsidiaries.