CORPORATE GOVERNANCE REPORT UNICHARM CORPORATION

Transcription

1 [Translation for Reference and Convenience Purposes Only] CORPORATE GOVERNANCE REPORT UNICHARM CORPORATION Last Update: March 31, 2016 Unicharm Corporation Takahisa Takahara Representative Director, President & CEO Contact: Shigeru Asada Executive Officer, General Manager of Accounting Control and Finance Division Securities Code: The corporate governance of Unicharm Corporation (hereinafter Unicharm or the Company ) is described below. I Basic Views on Corporate Governance, and Basic Information on Capital Structure, Corporate Attributes, and Other Matters 1. Basic Views The Unicharm Group strives to pursue proper corporate management faithful to the Unicharm Ideals, in order to achieve sustainable growth and creation of corporate value over the medium to long term through business activities implemented by management and executive divisions in an integrated manner as well as appropriate collaboration with stakeholders with the aim of becoming an enterprise evaluated and trusted by society. The Company introduced the Executive Officer System in 1999 in order to separate management oversight from operational execution. In May 2015, the Company adopted a company with audit and supervisory committee structure to meet expectations of stakeholders worldwide from a global perspective by strengthening oversight of the executive functions of the Board of Directors and increasing transparency and efficiency of processes through involvement of outside directors in management. Under this management structure, independent Audit and Supervisory Committee members have voting rights at meetings of the Board of Directors, and the Audit and Supervisory Committee performs audits by proactively utilizing the internal control system. This will enable the Company not only to comply with the laws and regulations, but also to strengthen audit and supervisory functions of management monitored by the outside directors with aims to maintain appropriate collaborative relationships with stakeholders, and to foster organizational culture and climate that respects healthy and ethical business practices, which is the Company s basic policy in order to realize corporate activities that strike a balance between growth and discipline as a global enterprise. Reasons for Non-implementation of the Principles of the Corporate Governance Code [Supplementary Principle 2-5-1: Establishment of a Framework for Whistleblowing] The Company has established the Compliance Hotline and the Ring-ring employee hotline, which are contacts for whistleblowing in the event that an employee notices any fact that caused or may cause 1

2 significant damage to the Company, such as behavior that violates laws and regulations. In the event that an employee detects such a fact, he or she has a duty to immediately report it. The Corporate Ethics Office, which is responsible for the Compliance Hotline and the Ring-ring employee hotline, periodically reports the status of whistleblowing to the Board of Directors via the Corporate Ethics Committee while taking into account the anonymity of whistleblowers. The Company does not have a point of contact that is independent of the management based on the view that it would be more appropriate to conduct initial screening of collected information in house prior to investigation and assessment of facts concerning the reported information and suspicions. Disclosure Based on the Principles of the Corporate Governance Code [Principle 1-4: Cross-Shareholdings] The Company may hold shares of other companies with which the Company has transactions for the purpose of maintaining and strengthening the relationships. In such case, the Company shall judge whether it should invest or not based on whether such investment would contribute to an increase in corporate value of the Company, taking into consideration dividends, benefits that can be obtained through maintaining and strengthening the relationships, risks, capital cost, and other factors. The Board of Directors shall examine the mid- to long-term economic rationale and future outlook of major cross-shareholdings on an annual basis, taking into consideration both associated risks and returns. With respect to exercise of voting rights, the Company shall exercise voting rights appropriately by carefully examining proposals and judging whether they contribute to improvement of shareholder value. The Company shall not vote for any proposals that may damage shareholder value, regardless of whether they are proposed by the companies or their shareholders. [Principle 1-7: Related Party Transactions] When the Company engages in transactions (including indirect transactions) with its directors (including Audit and Supervisory Committee members) or their close relatives, the Company shall secure approval of the Board of Directors in advance. Regarding inter-group transactions, in the case of a material transaction, the Company shall make a decision based on thorough deliberation by the Board of Directors including several independent outside directors in addition to prior legal check of the appropriateness of the transaction conditions and the method of their determination. [Principle 3-1: Full Disclosure] i) Company objectives (e.g., management principles), business strategies and business plans The Group has established a corporate philosophy, which is disclosed. For details, please refer to the Company s website. The Company s Medium-Term Management Plan is disclosed in the Integrated Report. For details, please refer to the Company s website. ii) The Group s basic views and guidelines on corporate governance The Company s basic views and guidelines on corporate governance are described in 1. Basic Views of I. Basic Views on Corporate Governance, and Basic Information on Capital Structure, Corporate Attributes, and Other Matters above. iii) Policies and procedures of the Compensation Committee in determining the remuneration of directors and executive officers Policies 2

3 The remuneration of the Company s executive directors shall be determined to be a level suitable for their roles and responsibilities, taking into consideration motivation for improving the financial performance and enhancing corporate value and securing of excellent human resources. Procedures The remuneration of directors and executive officers shall be deliberated and determined by the Compensation Committee consisting of the Representative Director and other non-executive directors and independent outside directors. The Compensation Committee shall also deliberate on and determine the policy for the remuneration of directors and executive officers, as necessary. iv) Policies and procedures of the Board of Directors for the appointment of executive officers and the nomination of director candidates Policies Regardless of whether they are internal or outside, the Company shall select directors from among people who are of excellent character and have expertise in marketing, sales, development, etc. and are capable of fulfilling the duty of due care of a prudent manager and the duty of loyalty. For directors, emphasis shall be placed on abilities to contribute to the Company s sustainable growth and enhancement of corporate value. For outside directors, particular emphasis shall be placed on knowledge and experience of corporate management. The Company shall select executive officers from among people who are of excellent character and are well versed in the Group s business. For executive officers, emphasis shall be placed on abilities to appropriately execute the Group s business by practicing Our Five Great Pillars and employee conduct policy. Decisions on reappointment and non-reappointment of directors and executive officers shall be made, taking into consideration performance evaluation. Procedures Nomination and appointment of directors and executive officers shall be determined by the Board of Directors, reflecting the opinion of the Nomination Committee consisting of the Representative Director and other non-executive directors and independent outside directors. The Nomination Committee shall also deliberate on the policy on nomination and appointment of directors and executive officers, as necessary. Regarding candidates for director who will serve as Audit and Supervisory Committee members, the Nomination Committee shall prepare a draft through deliberation based on the policy of the Audit and Supervisory Committee and the Board of Directors makes a decision, securing prior consent of the Audit and Supervisory Committee. v) Explanations with respect to the individual appointments of executive management and the individual nominations of directors and auditor candidates based on iv). When proposing candidates for director (including a director serving as an Audit and Supervisory Committee member) to a General Meeting of Shareholders, the Company shall explain the reasons for nomination of such candidates in the notice of convocation of the General Meeting of Shareholders. [Supplementary Principle 4-1-1: Scope and Content of the Matters Delegated to the Management] The Company emphasizes ensuring transparency of decision-making and does not delegate decision-making of important business execution to directors. The Board of Directors shall make decisions on important business execution and other matters requiring resolution by the Board of Directors in accordance with the Rules of the Board of Directors and the Decision-making Rules. Responsibilities of executive officers and the division of roles between the Company s executive officers and managers of Group companies in Japan and abroad are also clearly defined by the resolutions of the Board of Directors and in accordance with the internal rules. 3

4 [Principle 4-9: Standards for Independence and Qualification of Independent Directors] Any person (including the business executors thereof) to whom any of the following items apply or recently applied or close relatives of such person or any other person who is likely to have a conflict of interest with general shareholders is deemed disqualified to be an independent outside director. (1) The Company or its subsidiary (2) A major business partner of the Company or its subsidiary (3) A person whose major business partner is the Company or its subsidiary (4) A consultant, an accounting professional, or a legal professional who receives a large amount of property from the Company (in the case of an organization, a person who is affiliated with such organization). The Company has appointed two independent outside directors who have sufficient capabilities to fulfill their roles and responsibilities in order to contribute to the Company s sustainable growth and enhancement of corporate value over the medium- to long-term. Going forward, the Company strives to select persons who are likely to contribute to frank, vigorous, and constructive discussion at the Board of Directors meetings as candidates for independent outside directors. [Supplementary Principle : View on the Balance Between Knowledge, Experience and Skills of the Board of Directors as a Whole, and also on Diversity and Size of the Board of Directors] In terms of its composition, the Board of Directors shall be well balanced with respect to knowledge, experience, and capabilities to effectively fulfill its roles and responsibilities, and it shall be constituted in such a manner as to accommodate diversity while keeping an appropriate size. At least one person with appropriate knowledge of finance and accounting shall be appointed to serve as an Audit and Supervisory Committee member. For policies and procedures for appointment of directors, please refer to Principle 3-1 (iv). [Supplementary Principle : Securing Time and Effort of Directors] Pursuant to the Company s Board of Directors Regulations, approval of the Board of Directors shall be required for directors to concurrently serve as directors, auditors or officers at other companies. If outside directors concurrently serve as directors, auditors or officers at other companies, the number of such positions shall be limited to a reasonable number so that they can secure sufficient time and energy to appropriately fulfill their roles and responsibilities as the Company s directors. Concurrent positions shall be disclosed in the Business Report, the Securities Report, and the Corporate Governance Report each year. [Supplementary Principle : Analysis and Evaluation of Overall Effectiveness of the Board of Directors] Each year, the Company shall have all directors perform self-evaluation about the overall effectiveness of the Board of Directors. Based on the results of self-evaluation, the Board of Directors shall have discussion to enhance effectiveness of the Board of Directors. The results of analysis and evaluation for fiscal 2015 are outlined below. 1. The Company s Board of Directors is functioning effectively. For example, based on sufficient information, the Board of Directors decides management strategies, reflecting views of directors, and shares them with divisions and subsidiaries. From now on, the Board of Directors should spend more time on analysis of country risks and discussion on risks relevant to projects and the impact on management in the event that a plan is not achieved. It is necessary to further strengthen the Board of Directors function for oversight of directors execution of duties. 2. Information materials for the Board of Directors should be focused on key points and the format should be improved to make risks more recognizable. Information materials should be distributed earlier than the current arrangement in order to enable directors to be sufficiently informed and understand the content of the agenda to facilitate effective discussion at meetings of the Board of Directors. 4

5 3. In order to further promote management that listens to the voice of shareholders, views of shareholders learned through IR activities and other dialogues should be relayed to the Board of Directors. [Supplementary Principle : Training Policy for Directors and Audit and Supervisory Board Members] When directors including outside directors newly assume their positions, the Company shall provide them with opportunities to acquire necessary knowledge about the Company s business, finance, organizations, etc. and sufficient understanding of roles and responsibilities (including legal responsibilities) of directors. The Company shall hold workshops for directors and executive officers during their terms of office. The Company shall also encourage them to vigorously participate in external seminars. [Principle 5-1, Supplementary Principle 5-1-2: Policy for Constructive Dialogue with Shareholders] The Company shall positively and to the extent reasonable, respond to the requests from shareholders to engage in dialogue (management meetings) so as to support sustainable growth and increase corporate value over the mid- to long-term. The Board of Directors shall establish and approve policies concerning the measures and organizational structures aimed at promoting constructive dialogue with shareholders. Policies i) Appointing an executive officer who is responsible for overseeing and ensuring that constructive dialogue takes place The executive officer who is responsible for overseeing and ensuring that constructive dialogue takes place shall be the executive officer responsible for the Accounting Control and Finance Division. ii) Measures to ensure organic coordination between internal departments such as investor relations, corporate planning, general affairs, corporate finance, accounting and legal affairs The IR department, the PR department, and the general affairs department shall periodically hold meetings about disclosure and briefing on financial closing and other matters. The corporate planning department, the accounting and finance department, the legal affairs department, and other departments shall participate in the meetings, as necessary, to ensure organic coordination. iii) Measures to promote opportunities for dialogue aside from individual meetings The Company shall implement measures to enable shareholders to deepen their understanding of the Company s management strategies and business environment, such as holding of investor meetings and meetings for presentation of the financial results and disclosure on the website, apart from individual meetings. iv) Measures to appropriately and effectively relay shareholder views At a meeting following the announcement of financial results, the Board of Directors shall share views expressed by shareholders and analysts and vigorously reflect them in reviewing the Company s management strategies. The Company shall include a questionnaire survey in the Business Report and relay the responses received to the Board of Directors. v) Measures to control insider information In principle, the Company prohibits communication of insider information to shareholders. If insider information is communicated to shareholders, permission of the insider information control manager or a person in charge of insider information control shall be obtained as well as consent of such shareholders. 5

6 2. Capital Structure Foreign Shareholding Ratio 30% or more [Status of Major Shareholders] Name / Company Name Number of Shares Owned (Shares) Percentage (%) Unitec Corporation 154,956, Takahara Fund Ltd. 28,080, The Master Trust Bank of Japan, Ltd. (Trust account) 19,961, State Street London Care of State Street Bank and Trust, Boston SSBTC Account UK London Branch Clients - United Kingdom (Standing proxy: The Hongkong and 18,005, Shanghai Banking Corporation Tokyo Branch) The Master Trust Bank of Japan, Ltd. (Retirement Benefit Trust Account/Hiroshima Bank Account) 17,287, Japan Trustee Services Bank, Ltd. (Trust account) 16,919, The Iyo Bank, Ltd. (Standing proxy: Trust & Custody Services Bank, Ltd.) 15,299, The Bank of New York Melon as Depositary Bank for Depositary Receipt Holders (Standing proxy: Mizuho Bank, 13,049, Ltd. Settlement Sales Department) Nippon Life Insurance Company 12,188, JP Morgan Chase Bank (Standing proxy: Mizuho Bank, Ltd. Settlement Sales Department) 7,734, Controlling Shareholders (excluding Parent Company) Parent Company None Supplementary Explanation 6

7 3. Corporate Attributes Listed Stock Exchange and Market Section Fiscal Year-End Type of Business Number of Employees (consolidated) as of the End of the Previous Fiscal Year Net Sales (consolidated) as of the End of the Previous Fiscal Year Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year Tokyo Stock Exchange, First Section December Chemical 1,000 or more 100 billion to less than 1 trillion 10 to less than Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholders 5. Other Special Circumstances Which May Have Material Impact on Corporate Governance 7

8 II Business Management Organization and Other Corporate Governance Systems Regarding Decision-making, Execution of Business, and Supervision of Management 1. Organizational Composition and Operation Organizational Form Company with Audit and Supervisory Committee [Directors] Maximum Number of Directors Stipulated in the Articles of Incorporation Terms of Office of Directors Stipulated in the Articles of Incorporation Chairperson of the Board of Directors 18 1 year President & CEO Number of Directors 11 Appointment of Outside Directors Appointed Number of Outside Directors 2 Number of Independent Directors 2 Relationship with the Company (1) Name Attribute Relationship with the Company (*) a b c d e f g h i j k Masahiko Hirata From other company Kimisuke Fujimoto From other company * Categories for Relationship with the Company * When the category currently applies to or recently applied to the person When the category applied to the person in the past * When the category currently applies to or recently applied to a close relative of the person When the category applied to a close relative of the person in the past a. Executive of the Company or its subsidiaries b. Executive director or non-executive of a parent company of the Company c. Executive of a fellow subsidiary company of the Company d. A party whose major client or supplier is the Company or an executive thereof e. Major client or supplier of the Company or an executive thereof f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director g. Major shareholder of the Company (or an executive of said major shareholder if the shareholder is a legal entity) h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) (the director himself/herself only) i. Executive of a company, between which the Company s outside directors/audit and Supervisory Committee 8

9 members are mutually appointed (the director himself/herself only) j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only) k. Others Relationship with the Company (2) Name Audit and Supervisory Committee Member Designation as Independent Director Supplementary Explanation of the Relationship Masahiko Hirata Outside Director of H.I.S. Co., Ltd. Outside Director of Integrex Inc. Reasons of Appointment Mr. Masahiko Hirata previously served as Executive Vice President of Matsushita Electric Industrial Co., Ltd. (current Panasonic Corporation) and held other important posts. The Company has designated Mr. Hirata, an outside Audit and Supervisory Committee member of the Company, as an independent director, because the Company judges that he is unlikely to have a conflict of interest with general shareholders since none of the disqualifying attributes for independent directors apply to him. Kimisuke Fujimoto Mr. Kimisuke Fujimoto served as Managing executive officer of The Sanwa Bank, Ltd. (current The Bank of Tokyo-Mitsubishi UFJ, Ltd.), President of Mitsubishi UFJ Securities Co., Ltd. (current Mitsubishi UFJ Securities Holdings Co., Ltd. and Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.), Advisor to the Board of Mitsubishi UFJ Securities Co., Ltd., and Auditor of 9

10 Name Audit and Supervisory Committee Member Designation as Independent Director Supplementary Explanation of the Relationship Reasons of Appointment Mitsubishi UFJ NICOS Co., Ltd. Although Mr. Fujimoto, an outside Audit and Supervisory Committee member of the Company, served as an executive officer of The Bank of Tokyo-Mitsubishi UFJ, Ltd. (then The Sanwa Bank, Ltd.), which is a principal lender to the Company, over 10 years have passed since his retirement from the said bank and his independence from the said bank is high. Moreover, the Company s borrowing from the said bank accounts for 29.1% of the Company s total borrowings and appropriate competition against other financial institutions is maintained for execution of transactions. Thus, the Company judges that the existence of the said director has no adverse impact on the Company s governance structure and he is unlikely to have a conflict of interest with general shareholders. Therefore, the Company has designated Mr. Fujimoto as an independent director. 10

11 [Audit and Supervisory Committee] Composition of the Committee and Attributes of the Chairman Audit and Supervisory Committee Total Number of Committee Members Number of Full-time Committee Members Number of Internal Directors Number of Outside Directors Committee Chairman Outside director Appointment of Directors and Employees Who Assist the Audit and Supervisory Committee with its Duties Appointed Matters relating to the Independence of Such Directors and Employees from Executive Directors The Company has appointed one full-time Audit and Supervisory Committee member and has established the Audit and Supervisory Committee Office to assist the Audit and Supervisory Committee with its duties to which one employee is assigned to concurrently serve as a support staff. In order to ensure independence of such director and employee, any decision on matters concerning personnel affairs, including appointment, transfer, and punishment, requires the prior consent of the Audit and Supervisory Committee. Cooperation between Audit and Supervisory Committee, Accounting Auditor, and Internal Audit Department The Audit and Supervisory Committee works closely with the Accounting Auditor (PricewaterhouseCoopers Aarata) to inspect execution of operations and assets at the head office, main business sites, and subsidiaries, and requests them to report on the statuses. In order to improve the reliability of financial statements, the Audit and Supervisory Committee and the Accounting Auditor hold periodic quarterly meetings and additional meetings as needed. At these meetings, they share information about their respective audit plans and audit results to increase the effectiveness and efficiency of audits. The Audit and Supervisory Committee and the internal audit department hold monthly Internal Audit Report Meetings. At these meetings, the Audit and Supervisory Committee receives reports on the results of internal audits of executive business divisions, examines the appropriateness of the internal control system from comprehensive and objective perspectives. It also provides recommendations for improvement concerning issues identified, recommendations for remediation, and follow-ups. [Voluntarily Establishment of Committees] Voluntary Establishment of Committees equivalent to Nomination Committee or Compensation Committee Established Voluntary Establishment of Committees, Composition of the Committee and Attributes of the Chairman 11

12 Committees equivalent to Nomination Committee Committees equivalent to Compensation Committee Committee s Name Nomination Committee Compensation Committee Total Number of Committee Members Number of Full-Time Committee Members Number of Internal Directors Number of Outside Directors Number of External Experts Number of Others Committee Chairman Internal director Internal director Supplementary Explanation Please refer to [Principle 3-1 (iv)] for procedures for nomination of candidates for director and appointment of executive officers and [Principle 3-1 (iii)] for procedures for determining the compensation of directors and executive officers. [Independent Directors] Number of Independent Directors 2 Matters relating to Independent Directors The Company has appointed all outside directors as independent directors, insofar as they meet the qualification thereof. [Incentives] Incentive Policies for Directors Introduction of the Stock Option System Supplementary Explanation The Company considers that the results of management are reflected in change in the Company s market capitalization and have a direct impact on shareholders benefits. Based on this, the Company grants subscription rights to shares as stock options to directors of the Company who do not serve as Audit and Supervisory Committee members, employees of the Company, and employees of wholly owned subsidiaries in Japan according to their positions and responsibilities within the limit approved by the General Meeting of Shareholders with conditions such that their rights will expire if the predetermined target stock price conditions are not met within a certain period of time. 12

13 Grantees of Stock Options Internal Directors, Employees, Employees of Subsidiaries Supplementary Explanation The stock option program allows directors of the Company who do not serve as Audit and Supervisory Committee members, employees of the Company, and employees of wholly owned subsidiaries in Japan to enjoy benefits linked with benefits of shareholders and other stakeholders when the target corporate value (market capitalization) is reached through realization of Unicharm Ideals. The Company grants stock options with the aim of enhancing motivation of every individual involved in the Company s business activities, cultivating a sense of unity based on shared recognition that achieving plans leads to an increase in the value of the Company as a whole, further increasing the probability of success. [Director s Compensation] Disclosure of Individual Directors Compensation Selected Directors Supplementary Explanation Information on directors who receive compensation totaling 100 million or more is disclosed in the Company s Securities Report. The Securities Report and the Business Report are posted on the Company s website. Policy on Determining Compensation Amounts and Calculation Methods Established Disclosure of Policy on Determining Compensation Amounts and Calculation Methods Please refer to [Principle 3-1 (iii)] for policies for determining the compensation of directors and executive officers. [System for Supporting Outside Directors] Support staff assigned to the Audit and Supervisory Committee Office, which has been established to assist the Audit and Supervisory Committee assist two outside directors who serve as Audit and Supervisory Committee members. Also, a secretary has been assigned to each of them and a framework for communication of information is put in place, including holding of periodic meetings with directors and executive employees, distribution of materials concerning monthly meetings of the Board of Directors in advance, and holding of meetings with relevant organizations in the case that prior briefing is required. 13

14 2. Matters on Functions of Business Execution, Auditing and Oversight, Nomination, and Determination of Compensation (Overview of Current Corporate Governance System) The Company operates as a Company with Audit and Supervisory Committee. The current management structure comprises eight directors, 20 executive officers (including seven concurrently appointed as directors) and three Audit and Supervisory Committee members (including two outside directors). The term of directors who are not Audit and Supervisory Committee members is one year to enhance management responsiveness and flexibility. The term of directors who are Audit and Supervisory Committee members is two years. The Company s business execution structure is headed by the Company s President & CEO. Executive officers are appointed annually to lead each executive business division. Business plans are deliberated at meetings of the Business Plan Advisory Board, which are attended by all directors, in order to strengthen the Board of Directors oversight of business execution. The Company has established the Business Execution Council to reinforce business execution in accordance with the determined business plans. The Business Execution Council, which is chaired by the Company s President & CEO, meets each month. At council meetings, the executive officers and related executive business divisions seek to effectively and promptly resolve key issues raised by the chairman each month in light of the status of operations of the Company. Directors who are Audit and Supervisory Committee members also attend meetings of the Business Execution Council to evaluate operating efficiency of executive business divisions and effectiveness of internal controls, as necessary. The Company has established the Management Audit Department as its internal audit department. The Management Audit Department, in cooperation with the Audit and Supervisory Committee, conducts internal audits of business divisions and creates internal audit reports in which findings and necessary remedial measures are described. These reports are submitted to the Company's President & CEO, the Audit and Supervisory Committee, and the business divisions that have been audited. In the event that issues requiring remediation and/or deficiencies are identified, remedial measures are formulated and implemented. The Management Audit Department monitors the outcomes of the remedial measures. Regarding ensuring of corporate ethics, quality assurance, environmental protection, compliance with pharmaceutical regulations, and ensuring of product safety, which are important issues for the Company s business activities, the Corporate Social Responsibility (CSR) Division is spearheading the Company s efforts to ensure proper corporate management, which brings together efforts to maximize customer satisfaction and reinforce business competitiveness and reports the progress and results of the initiatives to the CSR Committee and the Corporate Ethics Committee. Audit and Supervisory Committee members attend meetings of the CSR Committee and the Corporate Ethics Committee as full-time members and evaluate effectiveness of internal controls, as necessary. The Company has contracted with PricewaterhouseCoopers Aarata as its Accounting Auditor. As part of the accounting audit process, the Accounting Auditor provides advice that leads to improvements in the operations. There are no special conflicts of interest between the Company and the Accounting Auditor or between the Company and partners of the Accounting Auditor who are engaged in audits of the Company. <Certified Public Accountants who conducted audits of the Company> Hisashi Shirohata, Tsuyoshi Saito, Taisuke Shiino <Composition of accounting audit support team> Six Certified Public Accountants and eight other staff The Company receives advice on legal matters from corporate lawyers. 3. Reasons for Adopting the Current Corporate Governance System In June 1999 the Company introduced the executive officer system to promote separation of the Board of Directors management decision-making and oversight functions and executive officers business execution functions. In light of the recent circumstances where strengthening the corporate governance system is 14

15 becoming a social norm, the Company adopted a new governance system, a company with audit and supervisory committee, on the date of enforcement (May 1, 2015) of the Act for Partial Revision of the Companies Act (Act No. 90 of June 27, 2014). This governance structure contributes to strengthening the function of the Board of Directors concerning oversight of business execution and increasing transparency and efficiency of processes through involvement of outside directors in management and is suitable for striking a balance between growth and discipline and acceptable to overseas stakeholders. 15

16 III Implementation of Measures for Shareholders and Other Stakeholders 1. Measures to Vitalize the General Meeting of Shareholders and Smooth Exercise of Voting Rights Supplementary Explanation The notice of convocation of Ordinary General Meeting of Shareholders and reference documents for exercise of voting rights are posted on the Company s website. The Company is striving to visualize corporate information for communication to shareholders, such as use of PowerPoint for presentation of matters to be reported and proposals at the General Meeting of Shareholders. Other The Company is implementing measures to vitalize the General Meeting of Shareholders and smooth exercise of voting rights, including the change of the financial closing date to December 31 effective from fiscal 2014, the adoption of a system for exercise of voting rights via the Internet, and the participation in the electronic voting rights exercise platform for institutional investors. 2. IR Activities Regular Briefings for Analysts and Institutional Investors Regular Briefings for Overseas Investors Posting of IR Materials on the Website Supplementary Explanation In order to fulfill accountability and enhance management transparency, the Company is emphasizing IR activities in addition to appropriate disclosure in accordance with laws and regulations. The Company holds biannual meetings for analysts and institutional investors in the afternoons of the days of announcement of financial results for the first six-month period and financial results for the full year. At these meetings the President & CEO makes presentations on management information covering the financial position, the status of operations, policies and strategies from now on. The President & CEO visits overseas investors once a year both in Europe and the Americas. IR information materials, including financial results, securities reports, presentation materials for investors, notices of convocation of General Meetings of Shareholders, and Integrated Reports, are posted on the Company s website ( Their English translations are also posted on the Company s website. Presentation by Representatives Available Available 16

17 3. Measures to Ensure Due Respect for Stakeholders Supplementary Explanation The Company announced Beliefs and Pledges and Corporate Principles of Action and Five Great Pillars and Associate Principles of Action in Stipulation of Internal Rules for These clearly state the set of values that associates should share with Respecting the Position of the Unicharm Ideals and the code of conduct based on these values. The Stakeholders Company is striving to instill the five pledges, Pledge to our customers, Pledge to our shareholders, Pledge to business partners, Pledge to associates, and Pledge to society among associates. The Company has established a framework for environmental management in accordance with the Environmental Policy and the Environmental Action Guidelines. The Company s major business sites in Japan and overseas are ISO certified. The Company established the CSR Division in 2003 and is executing CSR activities throughout the Group. The Company aims to become a CSR-minded company that continues to make every effort to sincerely and stably contribute to society. At the Customer Service Center, operators who are qualified consumer advisers respond to customers and gather information from them. The Company was commended by the Minister of Economy, Trade and Industry as an excellent consumer-oriented corporation in In July 2006, the Company made a declaration of self-conformity to ISO10002 Complaint Correspondence Management System. This system has been applied to Customer Service Centers at the Company s major overseas sites as a Group-wide measure to enhance customer satisfaction. Implementation of The Company is striving to create employee-friendly workplaces and has Environmental Activities and put in place an in-house training program, a mental health program, the CSR Activities, etc. childcare leave system, and other systems that support work-life balance. The Company s initiatives to support childcare was highly regarded and the Company was certified as a company that supports child-rearing in 2007 and In order to establish fruitful relationships with business partners, the Company holds annual meetings with them Policy presentation meeting for business partners of the sales department and Management policy meeting for suppier for business partners of the procurement department. Moreover, the Company is promoting CSR procurement and CSR Procurement Guidelines are implemented at major overseas sites. The Company holds Dialogues with Stakeholders from the viewpoint of CSR and reflects views of stakeholders in management. In the event of a disaster etc., the Company provides support to the maximum extent, including provision of goods through administrative and industry bodies, as part of social contribution activities. To ensure fairness and transparency of disclosure of information on corporate activities, the Company prepares an annual CSR report, which receives third party assurance by an expert organization. Information is 17

18 Development of Policies on Information Provision to Stakeholders Other Supplementary Explanation also disclosed on the website so that many stakeholders can have access to it. In the Beliefs and Pledges and Corporate Principles of Action, the pledge to our shareholders states We will strive to vigorously disclose management information and promote reliable corporate management. Based on the Pledge to our shareholders, the Company is striving to ensure timely disclosure of accurate information to all the stakeholders, including shareholders and investors, and to enhance management transparency by disclosure of a wide range of information. <Policy and initiatives for enabling female workers to demonstrate their full potential> Under the corporate philosophy NOLA & DOLA: Necessities of Life with Activities & Dreams of Life with Activities, Unicharm supports female workers in the realization of their aspirations through work by reducing the double burden of managing home and work, and strives to offer opportunities for individuals to display their capabilities to the maximum extent. To foster female workers and enable them to continue to work for the Company, the Company has introduced various systems for female workers to meet their needs and circumstances. They include a leave system for receiving advanced infertility treatment. Maternity leave and childcare leave systems have been enriched. The Fresh-Mom Recruitment program allows women who are pregnant or plan to have children to delay joining Unicharm up until the age of 30. The Company also offers career training for female workers as an opportunity for them to consider their career plans. 18

19 IV Matters Related to the Internal Control System 1. Basic Views on the Internal Control System and the Progress of System Development (1) Systems to Ensure that Directors and Employees Perform Their Duties in Accordance with Laws and Regulations and the Articles of Incorporation and Other Systems to Ensure Appropriate Business Operations 1) Corporate Governance a) The Company is a company with audit and supervisory committee. The purpose is to strengthen the Board of Directors functions for overseeing business execution and to ensure appropriateness and transparency of the decision-making process through outside directors involvement in management. The Board of Directors shall determine important matters in accordance with laws and regulations, the Articles of Incorporation, Board of Directors Regulations and other internal rules and oversee directors execution of duties. b) Directors perform their duties based on the roles determined by the Board of Directors and in accordance with laws and regulations, the Articles of Incorporation, resolutions of the Board of Directors, and internal rules. c) The Company has adopted the executive officer system to separate management decision-making and oversight from business execution and to strengthen the Board of Directors oversight function, enhance efficiency of operations of organizations responsible for business execution, and accelerate decision-making. Based on the decisions made by the Board of Directors and entrusted by the Board of Directors and the representative director, executive officers perform their duties and execute business for which they are responsible. d) The Company has established the Decision-making Rules shared throughout the Group and operates business in accordance with the Decision-making Rules to ensure appropriateness of business operations. The decision-making process is designed in a manner to enhance efficiency of organizational operation and to accelerate decision-making, such as by Group-wide authorization and proposals. 2) Compliance a) The Company s mission statement says We strive to pursue proper corporate management principles which combine corporate growth, associate well-being and the fulfillment of our social responsibilities. This is an integral part of the Company s management policy. b) The Company has created a booklet titled The Unicharm Way, which contains the Unicharm Group s Action Guidelines etc. to guide directors and employees in their efforts to maintain high ethical standards and comply with laws and regulations and the Articles of Incorporation. The Unicharm Way is the basis of the Company s compliance system. c) The Company strives to enhance employees awareness of corporate ethics and inculcate the principles articulated in The Unicharm Way by having the President & CEO and executive officers continue to disseminate them among the associates all over the world. In this way, the Company emphasizes that ensuring compliance is a prerequisite for any corporate activities. d) The Company has established the CSR Committee that monitors activities relating to corporate social responsibility encompassing quality, safety, and the environment to ensure compliance, fairness, and soundness of corporate behavior. The CSR Division has been established as a dedicated organization for promoting CSR activities. e) As part of efforts to enhance the compliance system, the Company has established the Compliance Hotline, which is a point of contact for seeking advice and for reporting violations of laws and regulations, violations of internal rules, or significant violations of corporate ethics and the Ring-ring employee hotline, 19

20 which is a point of contact for seeking advice and for reporting workplace issues such as harassment and problematic personal relationships. The Corporate Ethics Office in the CSR Division is responsible for operating these points of contact. In the event of occurrence of a material problem, the President & CEO convenes a meeting of the Corporate Ethics Committee whose standing members are Audit and Supervisory Committee members and leads efforts to solve the problem as the committee chairman. f) In order to enhance awareness about compliance and prevent occurrence of problems, the Company s legal affairs department provides compliance education to directors and employees, periodically checks the status of compliance with laws and regulations etc., and implements improvement measures. g) In order to verify that business execution by divisions is appropriate and in accordance with laws and regulations and provide recommendations for improvement, as necessary, the Company has established an internal audit department, which is independent from executive business divisions and directly reports to the President & CEO. The internal audit department performs internal audit of the Company and its subsidiaries. h) The Company s policy and criteria for elimination of antisocial forces are specified in the Unicharm Group s Action Guidelines contained in The Unicharm Way. Moreover, a system is in place to collaborate with lawyers and the police and act systematically. (2) Systems to Store and Manage Information Related to Duties Performed by Directors In accordance with the Information Management Security Rules and other internal rules, the Company appropriately stores and manages important documents related to duties performed by directors together with the related information materials. Directors have access to these documents at any time. (3) Rules related to Managing Risk of Loss and Other Systems a) The Board of Directors analyzes and evaluates material risks periodically reported by divisions and deliberates on and determines measures for improvement. b) When performing their duties, employees take responsibility and manage risks in accordance with the segregation of duties and authority defined by internal rules. c) A system is in place to ensure performance of duties is in accordance with the segregation of duties and authority defined by internal rules. Duties shall be performed based on the recognition that directors and employees take responsibility and manage risks in accordance with their duties and authority. d) In the event that a material risk arises, the Company shall establish the Crisis Management Team in accordance with the Crisis Communication Manual, which was established as rules for crisis management, and strive to take swift and appropriate action and achieve early recovery. e) The internal audit department audits the status of daily risk management of each division in accordance with the relevant rules and manuals in cooperation with the departments concerned. (4) Systems to Ensure Directors Perform Their Duties Efficiently The Company implements the following measures to ensure efficient business operations by putting in place a system for appropriate division of responsibilities between directors and for oversight. a) The Company applies the Schedule-Action-Performance-Schedule (SAPS) Management Model, which is the Company s unique approach for devoting time and efforts to priority issues. All sites throughout the Group link up via a video conferencing system each and every week for decision-making using a specific thinking process so that directors and employees perform their duties efficiently. b) By adopting the executive officer system, the Company separates management and business execution and clarifies responsibilities of executive officers for business execution. Moreover, apart from the Board of Directors, the Business Execution Council, which has been established as a system for swift and flexible response to change in the business environment, meets every month. c) The Board of Directors determines the Group Policy Outline and executive officers responsible for divisions thoroughly communicate the policy throughout their divisions. Then, each division formulates a business plan and submits it to the Advisory Board. 20

21 d) To implement the business plan of each division, half-yearly budgetary targets are formulated for each business division and each Group company, which are submitted to the Board of Directors for approval. e) At monthly meetings of the Business Execution Council, executive officers report on the status of their performance and countermeasures are considered, as necessary. Important matters are reported to the Board of Directors. f) IT shall be used effectively and appropriately for communication of information throughout the Group and for business operations. (5) Systems to Ensure Appropriate Business Operations by the Unicharm Group 1) Systems for Reporting the Company Matters Related to the Performance of Duties by Directors etc. of the Company s Subsidiaries a) In accordance with the Rules for Management of Affiliated Companies, the Company requires subsidiaries to submit relevant information materials in order to accurately grasp the management status of subsidiaries. b) The Company requires subsidiaries to submit quarterly financial reports for the purpose of receiving reports on business results, financial position, and other important information. 2) Rules related to Managing Risk of Loss and Other Systems of the Company s Subsidiaries a) The Company analyzes and evaluates material risks pertaining to subsidiaries periodically reported to the Board of Directors and the Business Execution Council and deliberates on and determines measures for improvement. b) The Company requires subsidiaries to establish a system to ensure performance of duties is in accordance with the segregation of duties and authority. The Company also requires subsidiaries to take responsibility and manage risks. It is specified in the Regulations for Management of Subsidiary Companies that executive officers periodically report to the parent company about material risks pertaining to the subsidiaries for which they are responsible. c) In the event that a material risk arises at a subsidiary, the Company shall establish the Crisis Management of Team in accordance with the Crisis Communication Manual, which was established as rules for crisis management, and strive to take swift and appropriate action and achieve early recovery. d) The Company s internal audit department audits the status of risk management of divisions of subsidiaries in accordance with such manual etc. in cooperation with the internal audit department of each subsidiary and other departments concerned. 3) Systems to Ensure Directors etc. and Employees of the Company s Subsidiaries Perform Their Duties Efficiently While respecting managerial autonomy and independence of subsidiaries, the Company implements the following measures to ensure efficient business operations. a) The Company applies the Schedule-Action-Performance-Schedule (SAPS) Management Model, which is the Company s unique approach for devoting time and efforts to priority issues. All sites throughout the Group link up via a video conferencing system each and every week for decision-making using a specific thinking process so that directors and employees perform their duties efficiently. b) The Company s Board of Directors determines the Group Policy Outline and executive officers responsible for subsidiaries thoroughly communicate the policy throughout the subsidiaries. Then, each subsidiary formulates a business plan and submits it to the Company s Advisory Board. c) To implement the business plan, each subsidiary formulates half-yearly budgetary targets, which are submitted to the Company s Board of Directors for approval. d) In accordance with the Company s request, subsidiaries report on the status of their performance at a meeting of the Business Execution Council, and countermeasures are considered, as necessary. Important matters are reported to the Company s Board of Directors. e) IT shall be used effectively and appropriately for communication of information between the Company and 21

22 subsidiaries and for business operations. 4) Systems to Ensure that Directors etc. and Employees of Subsidiaries Perform Their Duties in Accordance with Laws and Regulations and the Articles of Incorporation a) The Company distributes The Unicharm Way to all directors etc. and employees of subsidiaries, which provides guidelines for them to comply with laws and regulations and the Articles of Incorporation. The Company strives to inculcate The Unicharm Way and ensure compliance with it. b) The Company shall establish the Compliance Hotline, which is a point of contact for seeking advice and for reporting violations of laws and regulations, violations of internal rules, or significant violations of corporate ethics concerning subsidiaries and the Ring-ring employee hotline, which is a point of contact for seeking advice and for reporting workplace issues such as harassment and problematic personal relationships. c) In order to enhance awareness about compliance and prevent occurrence of problems, the Company provides compliance education to directors etc. and employees of subsidiaries, periodically checks the status of compliance with laws and regulations etc., and implements improvement measures. d) The Company performs internal audits of subsidiaries to verify that business execution by subsidiaries is appropriate and in accordance with laws and regulations and to provide recommendations for improvement, as necessary. (6) Matters Regarding Employees Who Assist the Audit and Supervisory Committee with Its Duties a) The Company has established the Audit and Supervisory Committee Office to assist the Audit and Supervisory Committee with its duties. b) The Company secures approval of the Audit and Supervisory Committee before determining appointment, personnel changes and disciplinary action against such employees who assist the Audit and Supervisory Committee. (7) Systems for Reporting to the Audit and Supervisory Committee 1) Systems for Directors and Employees of the Company to Report to the Audit and Supervisory Committee a) When requested by the Audit and Supervisory Committee to report on the business, directors and employees shall swiftly report to the Audit and Supervisory Committee. Any fact detected that caused or may cause significant damage to the Company shall be immediately reported to the Audit and Supervisory Committee. b) In accordance with the request of the Audit and Supervisory Committee, directors and employees shall cooperate with any investigation of the status of operations and property. c) In the event that an employee detects any fact that caused or may cause significant damage to the Company, such as behavior that violates laws and regulations, he or she shall immediately report to the Compliance Hotline or the Ring-ring employee hotline. The Corporate Ethics Office, which is responsible for the Compliance Hotline and the Ring-ring employee hotline, shall periodically report the status of whistleblowing to the Board of Directors via the Corporate Ethics Committee while taking into account the anonymity of whistleblowers. 2) Systems for Directors and Employees of Subsidiaries to Report to the Audit and Supervisory Committee of the Company a) When requested by the Audit and Supervisory Committee of the Company to report on the business, directors and employees of subsidiaries shall swiftly report to the Audit and Supervisory Committee except for a justifiable reason. b) In accordance with the request of the Audit and Supervisory Committee of the Company, directors and employees of subsidiaries shall cooperate with any investigation of the status of operations and property except for a justifiable reason. c) In the event that a director or an employee of a subsidiary detects any fact that caused or may cause 22

23 significant damage to the Company or subsidiaries, such as behavior that violates laws and regulations, he or she shall immediately report to the Compliance Hotline or the Ring-ring employee hotline. The Corporate Ethics Office of the Company, which is responsible for the Compliance Hotline and the Ring-ring employee hotline, shall periodically report the status of whistleblowing to the Board of Directors via the Corporate Ethics Committee while taking into account the anonymity of whistleblowers. (8) Systems to Ensure that Persons Who Reported to the Audit and Supervisory Committee Will Not Receive Detrimental Treatment Because of the Reporting a) The Company shall prohibit detrimental treatment of persons who sought advice or reported to the Compliance Hotline or the Ring-ring employee hotline. b) The Company shall prohibit detrimental treatment of persons who reported to the Audit and Supervisory Committee because of the reporting. The Company shall put in place a strict information management system concerning persons who reported to the Audit and Supervisory Committee and the content of such reports to prevent detrimental treatment of such persons. (9) Matters Related to Policies Concerning the Treatment of Expenses Incurred by the Performance of Duties by Audit and Supervisory Committee Members When Audit and Supervisory Committee members request advance payment or reimbursement of expenses for their performance of duties, the Company shall make advance payment of or reimburse such expenses except in the case that such expenses or liabilities are proved to be unnecessary for the performance of duties by such Audit and Supervisory Committee members. (10) Other Systems to Ensure Effective Audits by the Audit and Supervisory Committee a) The Audit and Supervisory Committee shall periodically meet the Company s Accounting Auditor and internal audit department and subsidiaries audit and supervisory board members to share information and exchange views. b) The Audit and Supervisory Committee shall periodically meet the President & CEO to audit directors performance of duties and put in place the audit system c) The Audit and Supervisory Committee shall cooperate with external experts such as lawyers and certified public accountants, when necessary for performance of duties. 2. Basic Views on Eliminating Anti-Social Forces and the Progress of System Development Under its Beliefs and Pledges and Corporate Principles of Action (Pledge to Society), the Unicharm Group s Action Guidelines state that the Company has no dealings whatsoever with anti-social forces and stands firmly against any requests from anti-social forces. Progress of System Development for Eliminating Anti-Social Forces The Company believes that taking a firm stance in accordance with laws and regulations and corporate ethics is crucially important in eliminating the influence of anti-social forces. Based on this recognition, the Company ensures that directors and employees throughout the Group understand and observe the Group s Action Guidelines. Moreover, the Company works closely with the police and other external specialist organizations to gather and manage information about anti-social forces. The Company is committed to improving and strengthening internal systems in order to exclude the influence of anti-social forces through ongoing education and awareness-raising of employees, and development of manuals. 23

24 V Other 1. Adoption of Anti-Takeover Measures Adoption of Anti-Takeover Measures Not Adopted Supplementary Explanation The Company recognizes that enhancing corporate value is an important task for the Company. Based on this recognition, the Company strives to establish a system that enables enhancement of international competitiveness and earnings power by enhancing product development capabilities and technology development capabilities and committing to profit-oriented operation. The Company believes that enhanced earnings power and higher corporate value will lead to the benefit of shareholders, enable the Company to reach a wider range of investors, and bring about long-term stability of capital, and moreover, recognizes that they are the most effective anti-takeover measures. 2. Other Matters concerning Corporate Governance System The Company s internal system for timely disclosure of corporate information is described below. (1) Timely Disclosure Policy In The Unicharm Way, which sets action principles for all directors and employees of the Group consisting of the Company and affiliated companies, Beliefs and Pledges and Corporate Principles of Action (Pledge to Shareholders) is determined. Regarding disclosure of management information, the Company has declared: We will disclose corporate information, including financial conditions, the status of business activities, policies, and strategies, to shareholders and investors through IR activities, take their opinions on such information seriously, and strive to improve management. The Company strives to disclose corporate information in a timely manner to fulfill its accountability as a listed company. (2) Timely Disclosure System The Company has established a system by which important corporate information, including information concerning affiliated companies, is concentrated at the Company s corporate functional divisions. Based on discussion by the persons responsible for such divisions and after securing approval of the President & CEO, the information handling officer registered with the Tokyo Stock Exchange determines the content, timing, and method of disclosure of information subject to timely disclosure and instructs the division responsible for information handling and the IR Group to register the information on TDnet, post the information, arrange a press conference, etc. The system for integrated management of important corporate information is described below. Matters that have been determined (including financial closing information) The Unicharm Group Decision-making Rules shared throughout the Company and affiliated companies stipulates the decision-making body, the decision-maker, and persons to be consulted according to the nature of the determined matter and its materiality. By integrating internal control and information control, the Company has established a system by which important corporate information is concentrated at the Company s corporate functional divisions. In particular, regarding important matters to be determined by the Board of Directors, the division responsible for information handling or the secretariat of the Board of Directors is required to review the agenda in advance and judge whether it requires timely disclosure in light of laws and regulations, guidelines and case examples. 24

25 Matters that have occurred In the event that any fact that has a material impact on the Company and affiliated companies occurs, directors and employees of the Company and affiliated companies are required to act in accordance with the Crisis Communication Manual, which stipulates rules for crisis management. The Company has established a system by which departments or affiliated companies where such facts occurred notify information pertaining to such matters that have occurred to the Company s corporate functional divisions. 25

26 Diagram (Reference Material) Indicated below is a diagram of the corporate governance system of the Company (as of March 31, 2016) 26