Corporate Governance Structure and Initiatives

Corporate Governance Structure

Board of Directors

The Board of Directors deliberates from various perspectives, including the evaluation of risks, on the overall direction of management including management strategy, and monitors from multiple viewpoints whether the management strategy is being properly implemented. It also puts in place an environment conducive to aggressive management that also clearly identifies risks, by establishing an internal control system and risk management system.

Audit & Supervisory Board

Composed of Full-time Audit & Supervisory Board Members who are familiar with the company's internal matters, and Outside Audit & Supervisory Board Members who possess a high level of specialist expertise and know-how in the fields of finance, accounting or legal affairs, the Audit & Supervisory Board engages in in-depth discussion from an independent, objective viewpoint. The Audit & Supervisory Board Members realize effective auditing by attending important meetings, such as meetings of the Board of Directors and of the Management Board, as well as through coordination with the Accounting Auditor, the internal auditors of each division and the auditors of affiliated companies, and through the implementation of audits at individual divisions within the company and of surveys at affiliated companies.

Management Board

With a membership that consists mainly of personnel at Managing Executive Officer level or higher, the Management Board makes decisions relating to the execution of the mid- to long-term direction and strategy that has been deliberated on and decided on by the Board of Directors. Delegating wide-ranging authority to the Management Board helps to speed up decision-making and execution.

Committee for the Examination of the Nominees for Directors and Audit & Supervisory Board Members

Comprising all Outside Directors and Outside Audit & Supervisory Board Members, this committee examines and deliberates on the appropriateness and other qualities of Director nominees, including nominees for the positions of Chair, President and Chief Executive Officer and Representative Director, as well as Audit & Supervisory Board Member nominees, and submits its opinions to the Board of Directors. The committee also discusses issues relating to the scale, composition and diversity of the Board of Directors and the Audit & Supervisory Board, as well as the qualities and capabilities required by their members, and reports on its findings to the Board of Directors.

Compensation Advisory Committee

The Compensation Advisory Committee is composed of all Representative Directors, the Chair of the Board of Directors, all Outside Directors and all Outside Audit & Supervisory Board Members. The committee examines and deliberates on compensation systems and compensation levels for Directors and Executive Officers, and submits its opinions to the Board of Directors.

Compensation Advisory Committee for Audit & Supervisory Board Members

Comprising all Outside Audit & Supervisory Board Members, the President and Chief Executive Officer, and one Outside Director, this committee examines, from an external perspective, the appropriateness of the amount of compensation awarded to Audit & Supervisory Board Members by the decision of the Shareholders Meeting, and the transparency of the process by which this decision was made, and submits its opinions to the Board of Directors.

ESG Managing Committee

To gain the support and trust of all stakeholders, the ESG Managing Committee discusses and determines the direction of the group's activities pertaining to the ESG Strategy, aiming to contribute to the sustainable development of the Kao as a company with a global presence, and of society. The concrete embodiment of ESG Strategy is promoted by the ESG Promotion Meeting, and developed through activities carried out by individual divisions. The overall direction of ESG activity is confirmed and adjusted as necessary by the committee based on the current state of company-wide ESG activity promotion and the recommendations received from the ESG External Advisory Board.

Internal Control Committee

The Internal Control Committee oversees and promotes internal control activities throughout Kao, with the aim of ensuring the accuracy of financial reporting and enhancing the quality of internal control establishment and operation through cross-organizational integration of functions pertaining to internal control.

Department of Internal Audit

Conducts internal audits on management activities in general from the perspective of comply with laws and regulations, the appropriateness of financial reporting, and administrative effectiveness and efficiency. It also regularly makes reports to the Management Board and the Board of Directors. The Company also cooperates sufficiently with the Audit & Supervisory Board Members and the Accounting Auditor.

Accounting Auditor

Deloitte Touche Tohmatsu LLC is the audit firm appointed as the Accounting Auditor based on the Companies Act, and for accounting audits based on the Financial Instruments and Exchange Act.

Stance on Balance among Knowledge, Experience and Skills, and on Diversity and Size of the Board of Directors

The Directors and Audit & Supervisory Board Members who attend the Board of Directors meetings provide broad direction regarding business strategies and deliberate on their appropriateness and the risks related to their realization and other matters in an objective and multidimensional fashion.
The Kao Group Mid-term Plan 2025 “K25” includes the vision of “Protecting future lives.” To accomplish this, the Company’s management is executing business in line with the Company’s strategies of (1) becoming an essential company in a sustainable world, (2) transforming to build robust business through investment (a. revitalize existing businesses <Reborn Kao>; b. create new businesses <Another Kao>), and (3) maximizing the power and potential of employees.
The Board of Directors considers it important for Inside and Outside Directors and Audit & Supervisory Board Members to complement each other with each of their knowledge, experience, and abilities, and to be able to demonstrate high effectiveness as a whole, in order to supervise that management is implementing business execution in a framework for transparent, fair, prompt and decisive decision-making accordance with the above strategies.

As of March 24, 2023

Attributes Experience / Knowledge / Expertise Main reasons for marking "✓"
Term of office Gender Nationa
-lity
Manage
-ment
Global Consu
-mer
goods
industry
Chemi
-cal
industry
Human
capital
strategy
Resea
-rch
Environ
-ment/
society
IT/DX Legal/
risk
manage
-ment
Finance/
account
-ing
Directors 14 years and 9 months Male Japan - Experience as the Company's Representative Director, President and CEO
- Experience as the Company's officer responsible for Human Capital Development
- Experience in the Company's Research and Development (fundamental and applied technologies)
- Chair of Japan Clean Ocean Material Alliance (CLOMA)
7 years Male Japan - Experience in the Company's Research and Development (including experience in global operations, and knowledge of fundamental and applied technologies and matter cycle research)
- Experience at the Company's overseas business promotion projects
- Experience as the Company's Senior Vice President of Strategic Innovation Technology, Global as well as experience as the Company's officer responsible for Human Capital Development
Male Japan - Experience in the Company's Chemical Business and management experience at overseas subsidiaries (Chemical Business)
- Experience at the Company's Procurement, Global (including promotion of sustainability activities in procurement)
- Experience as the Company's officer responsible for Finance Department
Male Japan - - Experience in the Company's Consumer Products Business - Experience in management at the Company's overseas subsidiaries
1 year Male United States - Experience in research and business at the Company's overseas subsidiary - Experience in the Company's ESG, Global
5 years Male Japan - Experience as the top executive of a major international airline (including experience as Chairman of CSR and Environmental Management Committee)
4 years Female Japan - Knowledge of space science research (medicine and life)
- Experience with NASA
4 years Male Japan - Experience as the top executive of a major international financial institution
- Mostly worked on international assignments, including more than 13 years of work outside Japan
1 year Female Japan - - - - Experience as the head of a global division and the regional head of a major U.S. chemical company
- Experience in overall human resources strategy including compensation, development, and assignment in global businesses
- Knowledge of sustainability in the chemical field
Male Japan - - - - - - - Experience as the top executive of a major food company
- Experience in management of overseas subsidiaries
- Experience in the human resources department of such major food company
Audit & Supervisory Board Members Male Japan - Experience in the Company's Product Quality Management
- Experience at the Company's global production sites
- Experience in the Company's process engineering development and plant management
2 years Male Japan - Experience in the Company's Finance Department
- Experience in the Company's Department of Internal Audit
6 years Male Japan - Certified Public Accountant
- Served overseas and the head of the global audit network for the Asia-Pacific region
- Experience in human capital strategy, risk management, etc., as the COO of audit and consulting operations
5 years Male Japan - Attorney-at Law
- Professor at Keio University Law School
3 years Male Japan - Certified Public Accountant

(Scroll horizontal bar to view all items.)

  • * The areas of experience, knowledge, and expertise of each Director and Audit & Supervisory Board Member that are particularly expected of them are marked with a "✓."
Experience/
knowledge/expertise
Reasons for selection as experience/knowledge/expertise
Management In order to effectively supervise the business execution by management, it is useful for Directors to have their own experience as top management. We
believe that their experience as top management is necessary for the Company's management to realize appropriate risk-taking and aggressive
governance that encourages prompt and bold decision-making.
Global As part of its global strategies, the Company aims to provide one-of-a-kind value that is less likely to be involved in fierce competition with competitors
and price competition. We will also accelerate global growth by shifting to a local production for local consumption model based on local value, cost
performance, and manufacturing. In order to properly offer advice and supervise the execution of these activities, we believe that it is necessary to have
experience and insight in management positions outside Japan and at non-Japanese companies.
Consumer goods industry
Chemical industry
In order to effectively supervise business execution by management, it is necessary to discuss matters from a higher perspective with taking a bird's-eye
view of the Company's entire business domain. To this end, it is important to have a deep understanding of the business environment and market
characteristics in the consumer goods and chemical industries, which are the Company's business domains, as well as to gain insight into future
prospects.
Human capital strategy The Company has formulated a human capital strategy based on its corporate strategy, and has defined roles and human resource requirements that will
be necessary for future growth, rather than as an extension of existing strategies. The Company is working to secure human resources by systematically
developing and appointing them from outside organizations. We believe that it is necessary to supervise the adequacy and progress of this human capital
strategy from expert knowledge and experience.
Research The Company's research is the driving force behind generating constantly innovative and high-value products. The Company is committed to Essential
Research and uses its accumulated technological assets to create innovation. We believe that it is necessary to supervise whether we are able to maintain
and develop a research system that continues to generate innovation, and whether we are able to expand our business and increase our corporate value
while effectively using the created technological assets.
Environment/society In April 2019, the Company announced its ESG Strategy, the Kirei Lifestyle Plan, and began ESG management. In order to realize a Kirei World in which
all life lives in harmony, which is our purpose, we will implement the Kirei Lifestyle Plan based on corporate strategies that are integrated with the ESG
Strategy, in consideration of social changes and demands. We believe that it is necessary for the Board of Directors to supervise these matters
appropriately in light of public trends.
IT/ digital transformation (DX) In order to realize K25, we believe that innovative initiatives that actively utilize IT and digital transformation, such as new business creation, digital
marketing and digital communications, which are not an extension of existing initiatives, are essential. With regard to experience, knowledge, and
expertise related to IT/DX, we will utilize executive officers and external human resources to compliment supervision by the Board of Directors.
Legal/risk management Various risks are expected to arise in daily corporate activities, as well as in the creation of new businesses and business innovation. The Company
believes that it is an important challenge in management to recognize these risks, manage them appropriately, and respond strategically, proactively, and
ex post facto to legal matters.
Finance/accounting It is a natural responsibility to ensure the reliability of financial reporting that influences investment decisions. In order to achieve sustainable growth in
corporate value, it is essential to conduct management in consideration of the improvement of profitability and capital efficiency, based on appropriate
capital allocation from a company-wide perspective. For this reason, we believe that the Board of Directors needs experience,
knowledge, and expertise in finance and accounting.

In addition to knowledge, experience and ability, the Company recognizes that diverse perspectives that come from diversity of the Board of Directors in terms of gender, nationality, race and age contribute to the promotion of business, global expansion and proper supervision and auditing, and promotes the appointment of such diverse personnel as Directors and Audit & Supervisory Board Members. The Company's target for the ratio of women on the Board of Directors is 30% by 2025.
The Company sets the appropriate size of the Board of Directors in consideration of the balance between having diverse personnel required to conduct the proper deliberations and supervision of execution and a small Board of Directors to accelerate decision-making for dealing with business expansion and other matters, on the premise of the delegation of responsibility to appropriately placed Executive Officers. The Company aims to have Outside Directors comprise half of the Board of Directors to ensure its diversity and influence and emphasizes their independence. In addition, the Company aims to have a majority of Outside Audit & Supervisory Board Members who meet the Standards for Independence.

Attending Members for Meetings of the Board of Directors, the Audit & Supervisory Board and Other Committees

◎ Indicates Chairman of the Board or specified committee. ○ Indicates attending member.

Name Age
(as of March 24, 2023)
Board of
Directors
Audit &
Supervisory
Board
Committee
for the
Examination
of the Nominees
for Directors
and Audit &
Supervisory
Board
Members
Compensation
Advisory
Committee for
Directors and
Executive Officers
Compensation
Advisory
Committee
for Audit &
Supervisory
Board Members
Attendance
Board of
Directors
Audit &
Supervisory
Board
Directors 67 14/14
62 14/14
63 *1
61 *1
62 11/11*2
Outside/
Independent
70 14/14
Outside/
Independent
70 14/14
Outside/
Independent
65 14/14
Outside/
Independent
62 11/11*2
Outside/
Independent
63 *1
Board Members
Audit & Supervisory
63 *1 *1
63 14/14 9/9
Outside/
Independent
69 14/14 9/9
Outside/
Independent
59 14/14 9/9
Outside/
Independent
64 14/14 9/9
  • * 1 Assumed at the Shareholders Meeting in March 2023.
  • * 2 The Board of Directors met 11 times since Mr. Muenz and Ms. Sakurai assumed the position.

Activities of the Board of Directors in FY 2022 — Discussion and implementation of further strengthening supervisory functions and delegation of authority to executive organizations

In FY2022, the Board of Directors, the Committee for the Examination of the Nominees for Directors and Audit & Supervisory Board Members, and the Compensation Advisory Committee for Directors and Executive Officers deliberated with a focus on the following issues:

How the Board of Directors should function

The Board of Directors discussed the ideal functions of its meetings and the following directions were confirmed:
Kao's Board of Directors will conduct a substantial delegation of authority to the executive organizations, and further strengthen its monitoring function to encourage appropriate risk-taking by management and prompt and bold decision-making. In particular, the Board of Directors will effectively supervise the appropriate allocation of management resources, including human capital, and the adequate implementation of strategies by management. It also recognizes that it is the responsibility of the Board of Directors to develop internal controls and risk and crisis management systems, and will build and operate these systems appropriately.
Based on the direction we are aiming for, the Board of Directors also discussed the following issues.

  • Revision of the criteria for submission of agenda items to the Board of Directors
  • Monitoring the progress and issues of the Mid-term Plan
  • Discussion of knowledge, experience, and skills required by the members of the Board of Directors

Succession plans for the President and Chief Executive Officer

The Committee for the Examination of the Nominees for Directors and Audit & Supervisory Board Members reviewed the requirements for successors to the President and Chief Executive Officer, selected multiple candidates based on such requirements, and deliberated on the appropriateness of the training plan.

Evaluation and compensation

The Compensation Advisory Committee for Directors and Executive Officers deliberated on the evaluation of Directors and Executive Officers and their compensation. From FY2023, the individual evaluation of short-term incentive remuneration applied to all Directors except Outside Directors will be reflected to a greater extent. The Company has decided to introduce an evaluation confirmation process by Outside Directors and Outside Audit & Supervisory Board members. The Company has also decided to introduce an evaluation confirmation process by Outside Directors and Outside Audit & Supervisory Board members to ensure objectivity and transparency in the evaluation process. In terms of the overall structure of executive compensation as a support for Kao's future reforms, the Committee continue to discuss the state of compensation in general in FY2023.

Human capital strategy

Discussions were held on the portfolio of human resources and organizations to confirm whether strategies and plans for maximizing the power and potential of employees and maximizing the use of human resources are appropriately formulated and implemented. It was pointed out that the Company should define roles and human resource requirements that will be necessary for future growth, rather than as an extension of existing strategies, and secure human resources strategically by systematically developing employees and appointing them from outside organizations. We will continue to confirm that these measures are being implemented, leading to fruitful results. We also discussed the progress and the results of the Objectives and Key Results (OKR). We will confirm that members of the Group will increasingly take on a variety of challenges and that further collaboration will be promoted through dialogue.

M&A strategy

After indicating the direction of corporate strategy and business transformation based on the business environment and competitive situation, we discussed the areas, factors, and estimated scale that should be acquired through M&A to strengthen our business portfolio. We will continue to review the effectiveness of the strategy and progress of the plan.

Sustainability (Climate Change Risks/Human Rights, etc.)

The Board of Directors received reports on the latest trends and Kao Group's initiatives on major ESG issues, such as climate change risks and opportunities (TCFD compliance), sustainable palm oil procurement (including human rights), and biodiversity, and confirmed the status of their promotion. We also discussed the need for ESG to be included into growth strategies and profitability. We will continue to review issues related to sustainability.

Evaluation of the Effectiveness of the Board of Directors

On an annual basis, an evaluation is conducted at a meeting of the Board of Directors in order to make improvements aimed at enhancing the effectiveness of the Board of Directors. Based on the idea that the roles and responsibilities of the Board of Directors must be shared by the entire Board of Directors, the Company believes that it is effective for all members who participate in meetings of the Board of Directors, including Audit & Supervisory Board Members, to conduct an evaluation using a method that entails expressing their own opinions and engaging in free and open discussion. Accordingly, evaluation of the effectiveness of the Board of Directors is currently conducted through self-assessment by participating members at a Board of Directors meeting, without the evaluation of a third-party consultant from outside the Company. However, the Company recognizes the usefulness of an objective evaluation by a third party, and continues to consider the introduction of third-party evaluations with an eye to introducing activities that further enhance the effectiveness of the Board of Directors.
For the FY2022 evaluation, prior to the exchange of opinions for self-assessment at the meeting of the Board of Directors held in January 2022, a survey of the nine Directors and five Audit & Supervisory Board Members was conducted on the topics below. Feedback on the results was then provided before the meeting, during which the discussions and exchange of opinions were conducted. The Committee for Examination of Nominees for Directors and Audit & Supervisory Board Members and the Compensation Advisory Committee for Directors and Executive Officers were evaluated at the same time. The following is a summary.

FY2021 Issues FY2022 Initiatives Evaluation Future Initiatives
Structure, Status of
Operation and Deliberations
of the Board of Directors
Further improvements are
expected to ensure substantial
discussion at meetings of the
Board of Directors, including
using effective presentation
methods.
  • Sent materials before
    meetings and received
    questions in advance.
  • Allocated half of the available
    meeting time to presentations
    and the other half to Q&As.
  • The Board operated
    effectively in general.
  • There were times when the
    information in reports was
    too granular, resulting in
    unfocused discussion.
  • Participants engaged in free,
    open, and constructive
    discussion, but in some
    cases, there was not enough
    time for substantial
    discussion.
  • Use a report format to clarify
    the key points for discussion
    and reports.
  • Share Q&As with all
    participants in advance so
    that more time can be
    allocated to substantial
    discussion based on those
    Q&As.
Agenda Item Selection
and Discussion
Necessary measures will include
deepening discussions of issues
that impede the achievement of
Kao Group Mid-term Plan 2025
(“K25”), measures to resolve
those issues, and actions to be
prioritized, as well as
conducting regular verification
with greater awareness of PDCA
for the realization of K25.
  • Discussed M&A strategies
    and global strategies for
    achieving K25.
  • Created and distributed
    a table showing the status of
    progress of K25.
  • Had each of the businesses
    make reports.
  • Information on the progress
    of K25 was shared.
  • Issues to be addressed in
    achieving K25 and interim
    summaries needed to be
    discussed in greater depth,
    including quantitatively.
  • There was a need for
    stakeholder relations
    strategies.
  • Further visualize management
    indicators and deepen
    discussion of issues
    to be addressed
    in achieving K25
    and interim summaries.
  • Present reports at the Board
    of Directors meetings before
    and after IR activities.
Human capital strategy is a
management issue for ongoing
consideration, and it is
necessary to deepen
discussions of issues including
the allocation of human capital
needed for realizing K25,
promotion and training of
human capital for that purpose,
and the evaluation of executive
staff.
Discussed human capital
strategy reflecting business
environment changes and
business strategy (three times).
Human capital strategy was
thoroughly discussed in
FY2022. There was a need for
further discussion regarding
matters such as how human
capital strategy relates to
business strategy.
Have Executive Officers engage
in deeper discussion of human
capital strategy, present reports
at Board of Directors meetings
for discussion by the Board of
Directors.

Although ongoing initiatives and improvements are needed for continuing verification and discussion of internal control, the FY2022 evaluation concluded that internal control was being properly supervised. Some participants felt that there was a need for priority discussion of structural reforms under “Reborn Kao,” (revitalizing existing businesses) progress toward “Another Kao” (creating new businesses) including new business and M&A and other matters in addition to the verification of K25 and human capital strategy.

Results of the FY2022 Evaluation of Effectiveness of the Committee for Examination of Nominees for Directors and Audit & Supervisory Board Members

FY2021 Issues FY2022 Initiatives Evaluation Future Initiatives
  • To a certain extent, the committee was able to
    discuss the composition of the Board of Directors
    required for accomplishing K25 and the ESG
    strategy, but discussion of structural
    reinforcement must be further enhanced.
  • Ongoing discussion of the succession plan for
    the CEO is necessary.
  • Re-evaluated the skills needed by
    Directors and Audit & Supervisory
    Board Members based on the vision
    for the Board of Directors.
  • Confirmed the requirements of
    successors to the CEO, selected
    multiple candidates and discussed the
    suitability of candidate development
    plans using a skill matrix.
  • The committee needed to
    continue discussing the
    Company's vision for the Board
    of Directors, as well as the
    board's composition.
  • The CEO succession plan was
    confirmed to be operating
    properly. There was a need for
    ongoing verification and deeper
    discussion
  • Continue discussing the factors
    necessary for realizing the vision
    for the Board of Directors, as
    well as the board's composition.
  • Continue discussing succession
    plans.

Results of the FY2022 Evaluation of Effectiveness of the Compensation Advisory Committee for Directors and Executive Officers

FY2021 Issues FY2022 Initiatives Evaluation Future Initiatives
  • There should be ongoing proactive,
    objective and transparent discussion
    regarding overall compensation for
    Directors and Executive Officers, including
    performance-based compensation.
  • Discussed a clearly defined compensation
    system based on individual evaluation of
    Directors and Executive Officers, as well as
    how compensation should reflect these
    evaluations.
  • Discussed what form and direction the
    compensation system for Directors and
    Executive Officers should take to serve as
    a mechanism for supporting future
    transformation of the Kao Group.
  • Matters were discussed
    thoroughly from a variety of
    angles.
  • There was a need for ongoing
    discussion regarding the form of
    the compensation system for
    Directors and Executive
    Officers.
  • Further discuss policy concepts of
    overall compensation for Directors
    and Executive Officers and based
    on this, discuss designs for a
    detailed system.
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