Corporate Governance

One of our most important management tasks is to consistently increase enterprise value by means of highly efficient and transparent management, while fulfilling our social responsibility and contributing to the welfare of the community based not only on compliance with laws, regulations, and our articles of incorporation, but also on corporate ethics. Achieving this will enable the azbil Group to live up to the trust placed in us by shareholders and all other stakeholders.

We have built a system that facilitates the prompt implementation of policy initiatives by separating decision making by the Board of Directors from the actual execution of company policy by executive officers. In addition, highly independent outside directors provide oversight of the company’s management and execution of business, helping to raise the level of fairness, neutrality, and transparency in the company’s management. We are working to perfect a governance framework that ensures highly fair, neutral, and transparent management.

Our Approach to Corporate Governance

Contributing to the welfare of the community is part of our management policy, along with compliance with laws and regulations and fulfilling our social responsibility based on corporate ethics. We are strengthening our systems and initiatives to ensure highly efficient and transparent management, with the aim of consistently increasing enterprise value for all of our shareholders and other stakeholders.

Corporate Governance Framework (As of June 28, 2016)

Efforts to Strengthen Corporate Governance

Azbil Corporation has long considered corporate governance to be of the utmost importance. The entry into force of Japan’s Corporate Governance Code in our fiscal year ended March 2016 provided us with an opportunity to further enhance and strengthen our governance framework. For a number of years, we have had three independent outside directors, who have played a major role in the nomination and remuneration of directors. When the Code was established, we renamed the existing body the Nomination and Remuneration Committee and augmented the role of the outside directors, as well as specifying that they must constitute a majority of this committee. We also established and published our own standards for the independence of outside executives. We have sought to further enhance the effectiveness of the Board of Directors through debate on the areas that should be tackled, based among other things on self-appraisal of the Board by its members and the Board. In addition, we have revised the regulations of the Board of Directors and its rules of operation. We are implementing all of the principles stipulated in the Code, the details of which are disclosed in our separately issued Corporate Governance Report.

Overall Balance and Diversity of the Board of Directors

Nine directors are appointed to our Board of Directors: six directors who have ample in-depth experience of business and management at Azbil Corporation and are involved in the execution of duties, and three highly independent outside directors with outstanding experience, knowledge, and expertise in corporate management. Moreover, we are enhancing the supervisory function of our corporate auditors by appointing three outside auditors, one of whom is a certified public accountant, as well as having several corporate auditors who are knowledgeable about finance and accounting. Thus, we maintain the Board of Directors with a good overall balance.

Overall Effectiveness of the Board of Directors

We have gathered and assessed self-appraisals and views concerning the overall effectiveness of the Board of Directors from all those who participate in board meetings, in order to enhance its effectiveness. As a result, we have ascertained that the scale,composition, and running of our Board of Directors is generally appropriate and that the systems required for making important business decisions and supervising the execution of duties have been put in place. We have also confirmed that the overall effectiveness of the Board of Directors is appropriately ensured by the fact that all members have an in-depth understanding of the roles that they should play, and that they engage in open, lively, and constructive discussion, including the outside directors, who have a diverse array of experience and expertise. At the same time, we ascertained that improvement in the efficiency of meetings is required, so that more time is devoted to discussion of matters such as company strategy and key decisions, as well as devising and improving explanatory materials and methods. We have already begun working on these improvements, and will continue to implement innovations and improvements to further enhance the overall effectiveness of the Board of Directors.

Executive Compensation

Azbil Corporation has established policies on executive compensation as part of its efforts to strengthen corporate governance and achieve sustained improvement in corporate value by meeting the azbil Group’s management targets. The remuneration of executives clearly reflects the results of business performance during the period in question, based on a compensation system that takes into account each officer’s role, responsibilities, and accomplishments. The remuneration limit for the directors as a group (a maximum of ¥450 million annually) is set at the annual shareholders’ meeting. The Nomination and Remuneration Committee, which consists of outside directors (who constitute a majority) and representative directors, reviews and determines the remuneration of each director, including the representative directors, based on our internal rules for director remuneration. The remuneration limit for corporate auditors as a group (a maximum of ¥120 million annually) is also set at the annual shareholders’ meeting, while the remuneration of individual corporate auditors is determined on the basis of discussions among the corporate auditors.

Utilization of Outside Directors

In addition to the requirements for independent directors stipulated by the Tokyo Stock Exchange, Azbil Corporation, when appointing outside directors as prescribed in the Companies Act, follows criteria that it has formulated and published for determining their independence. Candidates believed to have the ability to provide constructive suggestions and accurate observations and advice concerning Azbil Corporation’s business issues and the improvement of corporate value in the medium to long term are appointed as outside directors. Candidates who are knowledgeable about finance, accounting and/or key aspects of auditing and are independent of company executives are appointed as outside corporate auditors.

Reasons for Appointing Outside Directors and Outside Auditors and Their Attendance Record

Outside Directors

Eugene H. Lee

Mr. Eugene H. Lee brings a high level of expertise in international law and international business, as well as a wealth of experience and achievement in the management of global companies. In addition, he has an in-depth knowledge of Japan, Japanese business practices, and Japanese companies derived from his lengthy professional experience in Japan. The company secured his services in order to benefit from his advanced knowledge, business experience, and global perspective, and in order that corporate governance might be strengthened by virtue of Mr. Lee’s independent position.
Attendance record: Board of Directors 11 of 12

Katsuhiko Tanabe

Mr. Katsuhiko Tanabe brings an expert viewpoint and deep insight into management as a lawyer who has held important positions of responsibility in the legal profession and has a considerable record of achievement as an expert in corporate legal affairs. The company secured his services in order to benefit from his expert legal knowledge and deep insight into corporate governance, and in order that corporate governance might be strengthened by virtue of Mr. Tanabe’s independent position.
Attendance record : Board of Directors 11 of 12

Takeshi Ito

Mr. Takeshi Ito brings experience as an executive and analyst at Japanese and overseas investment banks and investment advisory companies. In addition, he has a substantial record of achievement in advanced analysis of companies and economic outlook, based on his lengthy experience of working overseas and financing business operations, and his consulting work related to M&A and other matters. The company secured his services in order to benefit from his advanced knowledge as an expert in international finance and investment, and in order that corporate governance might be strengthened by virtue of Mr. Ito’s independent position.

Attendance record: Board of Directors 12 of 12

Outside Auditors

Kinya Fujimoto

As a certified public accountant, Mr. Kinya Fujimoto has a wealth of knowledge and experience concerning financial affairs and accounting. He was appointed to audit all aspects of the company’s business from his specialist viewpoint, based on his knowledge and experience, and to strengthen corporate governance by virtue of his independent position.

Attendance record : Board of Directors 12 of 12,Board of Corporate Auditors 16 of 16

Mitsuhiro Nagahama

Mr. Mitsuhiro Nagahama has held a succession of important posts at financial institutions, and has wide-ranging knowledge and abundant global experience in the areas of finance and securities. He was appointed to audit all aspects of the company’s business from the perspective of capital markets, based on his wide-ranging insight into corporate management and the business world, and to strengthen corporate governance by virtue of his independent position.

Attendance record: Board of Directors 10 of 10,Board of Corporate Auditors 11 of 11

Shigeru Morita

Mr. Shigeru Morita has held a succession of important posts at life insurance companies, as well as real estate and facility management companies, and has abundant knowledge and experience in these fields. He was appointed to audit all aspects of the company’s business from the perspective of reducing and managing risks arising from business operations, and to strengthen corporate governance by virtue of his independent position.

Attendance record: Board of Directors 10 of 10,Board of Corporate Auditors 11 of 11

*Outside auditor Mitsuhiro Nagahama and outside auditor Shigeru Morita were appointed at the 93rd Ordinary General Meeting of Shareholders on June 25, 2015,so only meetings of the Board of Directors and Board of Corporate Auditors held after their appointment are included.

Comment by an Outside Director

The Status and Direction of Azbil’s Corporate Governance

Japan’s Corporate Governance Code has now come into effect. Azbil Corporation has scrutinized it in detail and confirmed that we have already incorporated its contents into our basic policies. We believe that this is because our management team has strived for many years to develop an environment in which we are ahead of the times, and this spirit has permeated the company. We regard the composition of our Board of Directors as one outcome of this fact. Our outside directors have all had diverse careers and hope to be able to contribute to the company’s future development from their respective standpoints. In a world in which technology, society, and the competitive environment are changing at a dizzying pace, an aggressive management style is essential to the long-term prosperity of a company. Corporate governance is nothing less than a model for achieving this. We would like to assist in realizing the azbil Group’s potential on the global stage, by using it’s technical abilities, competitiveness, and systems that the Group has established and built up.

Outside Director
Takeshi Ito