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.

Basic Policy for Corporate Governance

(1) Ensuring shareholder rights and neutrality
So as to substantively ensure the rights of our shareholders, Azbil Corporation will adopt appropriate measures in accordance with the law and other regulations, and give due consideration to foreign and minority shareholders, thus creating an environment in which all shareholders can properly exercise their rights equally.
(2) Cooperation of stakeholders other than shareholders
As we aim to achieve sustainable growth and enhance enterprise value over the medium to long term, we are strongly aware of our corporate social responsibility and we believe that management should give due consideration to all stakeholders. That is why we have chosen “human-centered automation” as our corporate philosophy. Whilst helping to realize safety, comfort and fulfillment in people’s lives and work, we aim to contribute to the global environment. To meet these goals, we have embodied our principles for corporate behavior in a Code of Conduct that provides guidelines for all officers and employees of the company and throughout the azbil Group.
We also put great importance on human resources, regardless of gender, and believe that diversity in the workplace – among the employees themselves, their ideas and values – can contribute to achieving sustainable growth. We are, for example, actively promoting the advancement of female employees. The company has an internal reporting system, and we believe that it is important to encourage employees to freely make use of it, without holding back out of fear that reporting will put them at a disadvantage. We also believe that it is important to put information gained via this system to good use. For these reasons, we have instituted the CSR Hotline to make it easy for employees to discuss any matters or concerns they may have. This system ensures that the information received is reported to the president, the Audit & Supervisory Board and the outside directors.
(3) Ensuring appropriate disclosure of information and transparency
We are committed to disclosing information that will ensure transparency and fairness in decision-making and result in effective corporate governance. Specifically, we believe it is important that all stakeholders have a clear idea of financial information (the company’s financial condition, business results, etc.), non-financial information (management strategy, management plans, key issues, etc.), and other information (risks, governance, etc.). Therefore, in addition to the information that we are legally obligated to disclose, we strive to publish additional information. For example, we disclose such information as the way in which candidates for the Board are elected and the policy for deciding the directors’ remuneration. Going forwards, we will continually strive to provide more information to stakeholders and to ensure transparency. And, so as to ensure correct auditing by accounting auditors, the company provides adequate time for audits, and conducts regular interviews between accounting auditors and the president and director in charge of financial affairs. We also take such measures as implementing a quarterly report meeting attended by the accounting auditors, the Audit & Supervisory Board and the internal audit department.
(4) Responsibilities of the Board of Directors
The fundamental mission of the Board of Directors is to realize sustainable corporate growth while enhancing enterprise value over the medium to long term. As set forth in the Board Rules, important items for deliberation include our basic management strategy and plans; we reach appropriate management decisions through free, open-minded and constructive discussions. In addition, to ensure transparency and fairness in management, we implement timely disclosure, an internal control system and a risk management system. At the same time, there is a regular exchange of opinions between the Audit & Supervisory Board and the internal auditing department, allowing audits to be conducted properly and facilitating the expression of views on management.
We recognize the important role played by independent outside directors in ensuring that the Board of Directors fulfills its role and responsibilities. We have therefore appointed four independent outside directors with extensive experience and professional knowledge regarding corporate management and supervision. Drawing on their various fields of expertise and experience, these independent outside directors are fulfilling their responsibilities in a broad range of matters, advising on how to enhance enterprise value and overseeing management. In addition, so that the Board of Directors may effectively fulfill its role, as well as ensuring transparency and objectivity, we see it as important to promote diversity when appointing directors and Audit & Supervisory Board members; we thus take into consideration the overall balance of expertise and experience within the Board.
Regarding the planning for future appointments to management, the Nomination and Compensation Committee – the majority of whose members are independent outside directors – serves in an advisory role to the Board of Directors. The Committee deliberates matters relating to the preparation and selection of candidates, and keeps records of the course of these deliberations and the results. This ensures that the planning process for new appointments is impartial and objective. The Chair of the Nomination and Remuneration Committee, who is an independent outside director, duly reports on these deliberations to the Board of Directors. This systematic approach ensures that the Board is actively involved in the planning for new appointments, and that sufficient time and resources are allotted to the preparation of candidates.
As of June 26, 2018, there are ten members of the Board, with outside directors making up more than one third of the total. Women and non-Japanese nationalities are represented, making the Board truly diverse. Furthermore, the Chairman of the Board does not concurrently perform executive duties.
(5) Dialogue with shareholders
In addition to fulfilling corporate accountability, we strive to develop means and initiatives to promote a constructive dialogue with shareholders and investors in order to contribute to sustainable growth and the enhancement of enterprise value over the medium to long term. As regards the publishing of management strategy and plans, we disclose basic policies such as our profit plan, and we strive to provide clear explanations of the qualitative and quantitative targets (sales figures, operating income, ROE, etc.) in the medium-term plan and others, as well as how our strategy is designed to achieve those targets.

Corporate Governance Framework (As of June 26, 2018)

Changes to Improve Corporate Governance

We have been proactive in our efforts to strengthen corporate governance. Since fiscal year 2017, for example, we have been working to strengthen and upgrade corporate governance in order to ensure fairness, transparency, and impartiality in management. Recent initiatives include (1) abolishing the “counselor and advisor system,” (2) appointing a non-executive director to the post of Chairman of the Board, (3) appointing an independent outside director to the post of chairman of the Nomination and Remuneration Committee, and (4) increasing the number of outside directors.

Overall Balance and Diversity of the Board of Directors

The company appointed executive directors who have experience in our business and management, and outside directors with independence who have expertise, insight and broad experience in managing and directing companies on diverse backgrounds. In appointment of directors, the Board of Directors selects candidates after screening by the “Nomination and Remuneration Committee,” a voluntary advisory body which consists of independent outside directors (who constitute a majority) and representative directors, headed by an independent outside director. Also, as to the Audit & Supervisory Board, we are enhancing the supervisory function through appointing three independent outside members including one certified public accountant, as well as having members who have knowledge about finance, accounting and legal affairs, and at least one member with ample knowledge of finance and accounting. Thus, we maintain the Board of Directors with a good overall balance.
As of 26 June, 2018, we have five executive directors who have experience in our business and management, a chairman of the Board who does not concurrently perform executive duties and four outside directors with broad experience, expertise and knowledge who are independent and diverse in such areas as nationality and gender. Outside directors now account for more than one-third of the 10-member Board of Directors.

Improving the Effectiveness of the Board of Directors

An effective Board of Directors forms the cornerstone of good corporate governance. With this in mind, we collect and assess self-evaluations and opinions from all board meeting attendees and use this information to enhance the Board’s functionality. Regarding matters to be discussed by the Board of Directors, we provide opportunities for prior explanation, mainly for outside officers, before the Board of Directors meetings to ensure a full understanding of the details, in order to facilitate active debate and discussion on essential points by a fully informed Board of Directors.
The Board of Directors also receives proactive input from members of the Audit & Supervisory Board. Guided by Japan’s Corporate Governance Code, we have created conditions in which our Audit & Supervisory Board and its members exercise their authority effectively and actively, and convey their opinions appropriately at Board of Directors meetings. Outside officers play an important role in the operation of the Board of Directors. More than half of the remarks at board meetings are made by outside directors and outside Audit & Supervisory Board members.
In fiscal year 2017 (ended March 2018), the board stepped up discussions on important management topics, such as reviewing the company’s medium-term management plan and growth strategies. It also sought to strengthen the supervision of Group companies. During the year, it received detailed reports, mainly from domestic subsidiaries, on their business situations, medium-term management plans, and progress.
In fiscal year 2018 (ending March 2019), the Board of Directors will continue actively discussing management plans, business strategies, and the like in order to fulfill its role in providing direction for the Group’s overall management strategies. Board members together recognize the need to strengthen the oversight function with respect to monitoring the progress of annual plans and the operational status of domestic and overseas subsidiaries. We will continue striving to increase the effectiveness of the Board of Directors in order to achieve sustainable growth and enhance corporate value over the medium and long terms..

Executive Compensation

To strengthen corporate governance and to deliver sustainable increases in enterprise value by achieving Group management goals, we have established policies on the determination of officer remuneration. Remuneration for directors is commensurate with their roles, responsibilities, and accomplishments and is designed to contribute to sustainable growth and improvement in enterprise value.
We reassessed the executive remuneration system after the establishment of Japan’s Corporate Governance Code, and made a number of changes in 2017. These included stronger links to performance for top management, the introduction of medium-term performance perspectives, and the reinforcement of the stock ownership plan for officers.
Remuneration for directors who concurrently perform executive duties consists of basic and fixed remuneration commensurate with their roles, responsibilities, and other factors, as well as bonuses that are linked to business results and that also reflect the degree to which medium-term targets have been achieved. Directors who do not concurrently perform executive duties receive only basic remuneration to ensure that they perform their management supervision function without consideration of the effects on business results.
The Nomination and Remuneration Committee, a voluntary committee consisting of independent outside directors (constituting the majority) who oversee management and execution from an external perspective, and representative directors, was established in accordance with our Rules for Director Remuneration, in order to ensure transparency and objectivity in the process of determining remuneration. The committee is chaired by an outside director. The basic remuneration amounts paid to individual directors and the total amounts of bonuses paid to directors concurrently performing executive duties, as well as individual payments to concurrently performing directors, are kept within limits set at the General Shareholders’ Meeting, and are reviewed by the Nomination and Remuneration Committee. To encourage commonality of interest between directors concurrently performing executive duties and executive officers, on the one hand, and shareholders on the other, and to provide directors and executive officers with ongoing incentives to enhance enterprise value, we have an officer stock ownership plan to which they contribute set annual amounts. The plan purchases and continuously holds company shares for each of the directors and executive officers in amounts proportional to their roles and responsibilities.
The remuneration limit for Audit & Supervisory Board members as a group is also set at the General Shareholders’ Meeting, while remuneration paid to individual members of that board is determined on the basis of discussion among members.

Contribution of Outside Officers

In addition to the requirements for independent officers stipulated by the Tokyo Stock Exchange, we follow criteria for independence that we have formulated when appointing outside officers as prescribed by the Companies Act. Candidates deemed capable of providing constructive suggestions and accurate observations and advice concerning the company’s business and the improvement of enterprise value in the medium and long terms are appointed as outside directors. Candidates who are knowledgeable about key aspects of finance, accounting, and auditing and who are independent of company executives are appointed as outside members of the Audit & Supervisory Board. Our outside officers, from their diverse perspectives, are active in asking questions and giving suggestions at Board of Directors meetings, thereby contributing to sustainable corporate growth and the enhancement of enterprise value over the medium and long terms.

Reasons for Appointing Outside Directors and Their Attendance Record

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, as a result of his lengthy professional experience in Japan. He uses his experience in the management of global companies and advanced knowledge not only to monitor the execution of business as a member of the Board of Directors but also to make active suggestions aimed at increasing management transparency and fairness. In these ways, Mr. Lee fulfills his role of supervising and giving advice on business execution.
Attendance record: Board of Directors meetings 11 of 12

Katsuhiko Tanabe

As a lawyer who has held important positions of responsibility in the legal profession and who has a considerable record of achievement as an expert in corporate legal affairs, Mr. Katsuhiko Tanabe provides an expert viewpoint and deep insight into management. He utilizes his experience as an outside officer at multiple companies to monitor business execution as a member of the Board of Directors and also uses his extensive knowledge as a legal expert and deep insight into corporate governance to make active suggestions aimed at increasing management transparency and fairness. In these ways, Mr. Tanabe fulfills his role of supervising and giving advice on business execution.
Attendance record : Board of Directors meetings 12 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 the analysis of companies based on his lengthy experience of working overseas and financing business operations, and his consulting work related to M&As and other matters. He not only utilizes his experience as an executive of investment management companies in and outside of Japan to monitor business execution as a member of the Board of Directors but also utilizes advanced knowledge and experience as an expert in international finance and investment fields to make active suggestions aimed at increasing management transparency and fairness. In these ways, Mr. Ito fulfills his role in supervising and giving advice on business execution.

Attendance record: Board of Directors meetings 12 of 12

Waka Fujiso

Ms. Waka Fujiso brings a high level of expertise and a wealth of experience gained over many years as a prosecutor. After retiring from the Supreme Public Prosecutor’s Office, she taught at a graduate school and served as a committee member for government agency councils. The company believes she will utilize her knowledge and experience not only to monitor business execution as a member of the Board of Directors but also to provide impartial suggestions and advice from a variety of perspectives aimed at further solidifying compliance-driven management and increasing management transparency and fairness. In addition, Ms. Fujiso has played a pioneering role in the advancement of women among prosecutors, and we believe that she will help to promote better utilization of human resources and greater diversity at the company. The company concluded that she can play a valuable role in supervising and giving advice on business execution.

Reasons for Appointing Outside members of the Audit & Supervisory Board and Their Attendance Record

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 the viewpoint of his specialties, based on his knowledge and experience, and to further strengthen corporate governance by virtue of his independent position. Mr. Fujimoto uses his long experience as a certified public accountant and abundant knowledge concerning financial affairs and accounting to ask questions and provide suggestions to the Board of Directors from the perspective of overall business auditing.

Attendance record : Board of Directors meetings 12 of 12,the Audit & Supervisory Board meetings 14 of 14

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 further strengthen corporate governance by virtue of his independent position. Mr. Nagahama uses his experience and in-depth knowledge gained at financial institutions to ask questions and provide suggestions to the Board of Directors related to the appropriateness of the Company’s business strategies based on a global perspective, with the aim of further improving corporate governance and the control of Group companies.

Attendance record: Board of Directors meetings 12 of 12,the Audit & Supervisory Board meetings 14 of 14

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 further strengthen corporate governance by virtue of his independent position. Mr. Morita uses his experience and knowledge to ask questions and provide suggestions to the Board of Directors related to risk management, risk reduction measures, and improving the company’s CSR initiatives.

Attendance record: Board of Directors meetings 12 of 12,the Audit & Supervisory Board meetings 14 of 14

Comment by an Outside Director

The Status and Direction of Azbil’s Corporate Governance

Azbil Corporation has for some time worked to inculcate the compliance aspect of governance and foster a compliance- oriented corporate culture.
For example, our Nomination and Remuneration Committee, a voluntary advisory body, has held deliberations on executive appointments and other matters. The committee has so far not included various items, such as dismissal of representative directors, in its deliberations because the necessary circumstances have not arisen. Recently, however, we revised the rules of the committee so that dismissal of representative directors and other matters are now included in its deliberations. Therefore, we are currently working on the specification of reasons for dismissal and the like. In addition, we recently increased the number of outside directors by one person. Now, the Board of Directors, with 10 members in all, has four outside members, and the Audit & Supervisory Board, with five members, has three outside members. Accordingly, the seven outside officers account for nearly half of the sum of both boards, which have a total of 15 members. Moreover, the outside officers include a foreign national, a woman, a person with financial and accounting knowledge, and a person with legal knowledge, thus fully satisfying calls for diversity.
In order to deliver sustained growth in an increasingly severe business environment, it is highly advisable for the company to embrace strategies and supporting governance that emphasize fairness, objectivity, and transparency, so that it can advance its business resolutely while taking sound risks. As we can foster a compliance-oriented corporate culture, I am convinced that we can adequately deal with various future challenges.

Outside Director
Katsuhiko Tanabe