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Corporate Governance

Corporate Governance Structure and Initiatives

Corporate Governance Structure

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1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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 the business strategies and deliberate on their appropriateness and the risks related to their realization and other matters in an objective and multidimensional fashion. They also supervise and audit the status of execution. To conduct these tasks, the Company considers it important for such individuals coming from inside and outside the Company with diverse knowledge, experience, and abilities to conduct constructive discussions.
With the mission of realizing an enriched lifestyle and culture, the Company delivers products and services that consumers and customers around the world want based on its advanced technological capabilities derived from extensive research and development, including fundamental research, while actively promoting ESG activities. In addition, Kao Group Mid-term Plan K25, sets forth the vision of "Sustainability as the only path" and aims to create new businesses that "saves future lives" by focusing on the global environment and human life and utilizing digital transformation. In order to realize the above, the Board of Directors considers it important for Inside and Outside Directors and Audit & Supervisory Board Members to complement each other with the following knowledge, experience, and abilities, and to be able to demonstrate high effectiveness as a whole.

- High level of expertise and experience in research and development, marketing, and sales related to Yoki-Monozukuri*, which is the foundation of our business, as well as knowledge and experience in technology to provide products and services effectively and efficiently
- Ability to drive innovation to create new businesses that is not an extension of the past, as the responsibilities and roles of companies are undergoing a major transformation
- Knowledge and experience in ESG to contribute to an "enriched sustainable world"
- Knowledge and experience in risk and crisis management to maximize opportunities for the Kao Group's business growth and minimize risk
- Management experience for overseeing a wide range of business areas existing in the Kao Group
- Global experience for dealing with the Kao Group's global business
- Knowledge and experience in accounting, finance, laws and regulations to properly supervise and audit the maintenance and operation of the internal control system and the execution status
 

In addition to knowledge, experience and ability, the Company recognizes the diverse perspectives that come from diversity of the Board of Directors in terms of genders, nationalities, races 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 of diverse personnel required to conduct the proper deliberations and supervision of execution, while aiming for 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 approximately half of the Board of Directors to ensure its diversity and influence and emphasizes the independence. In addition, the Company aims to have a majority of Outside Audit & Supervisory Board Members to meet the Standards for Independence.

  • * In Japanese, "yoki" means good or excellent, and "monozukuri" means making or craftsmanship. For us, Yoki-Monozukuri means an excellent creation process that is good for everyone involved and enriches the lives of consumers and customers.

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/
Gender		 Period of
appointment
(upon conclusion
of the March
2021 Shareholders
Meeting)		 Board of
Directors		 Audit &
Supervisory
Board		 Committee
for the
Examination
of the
Nominees
for
Directors
and Audit &
Supervisory
Board
Members		 Compensation
Advisory
Members		 Compensation
Advisory
Committee or
Audit &
Supervisory
Board
Members		 Attendance (FY2020)
Board of
Directors		 Audit &
Supervisory
Board
Directors
Michitaka Sawada
66/Male 12 years 9 months 〇 〇 14/14 ー
Yoshihiro Hasebe
61/Male 5 years 〇 〇 〇 14/14 ー
Toshiaki Takeuchi
62/Male 7 years 〇 〇 14/14 ー
Tomoharu Matsuda
62/Male 2 years 〇 〇 14/14 ー
Sonosuke Kadonaga
Outside/
Independent
69/Male 8 years 9 months ◎ ◎ ◎ 〇 14/14 ー
Osamu Shinobe
Outside/
Independent
69/Male 3 years 〇 〇 〇 14/14 ー
Chiaki Mukai
Outside/
Independent
69/Female 2 years 〇 〇 〇 14/14 ー
Nobuhide Hayashi
Outside/
Independent
64/Male 2 years 〇 〇 〇 14/14 ー
Board Members
Audit & Supervisory
Hideko Aoki
67/Female 2 years 〇 ◎ 14/14 8/8
Sadanao Kawashima
62/Male ー*1 〇 〇 ー ー
Hideki Amano
Outside/
Independent
68/Male 4 years 〇 〇 〇 〇 ◎ 14/14 8/8
Nobuhiro Oka
Outside/
Independent
58/Male 3 years 〇 〇 〇 〇 〇 14/14 8/8
Takahiro Nakazawa
Outside/
Independent
63/Male 1 year 〇 〇 〇 〇 〇 12/12*2 6/6*2
  • * 1 Appointed to and assumed the position at the March 2021 Shareholders Meeting.
  • * 2 The Board of Directors met 12 times, and the Audit & Supervisory Board met 6 times, since Mr. Nakazawa assumed the position.

Major Topics Discussed by the Board of Directors in FY2020

First Quarter Second Quarter Third Quarter Fourth Quarter
  • Evaluation of the effectiveness of the Board of Directors
  • Department of Internal Audit semi-annual reports
  • Audit & Supervisory Board Members' audit report summaries
  • Mid-term plans (K20 and K25)
  • Cosmetics Business strategy
  • Current status of Research & Development and topics
  • Compliance Committee annual reports
  • Mid-term plan (K25)
  • Department of Internal Audit semi-annual report
  • Deliberations relating to the appointment of a new President & CEO
  • Mid-term plan (K25)
  • Research & Development progress report
  • Internal Control Committee activities report
  • Cross-shareholdings status report
  • New employee empowerment system

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. Kao believes that it is effective for all of those who participate in meetings of the Board of Directors to perform evaluation by expressing their own opinions and engaging in free and open discussions, and so evaluation of Board effectiveness is performed using self-assessment. For the FY2020 evaluation, once again, a survey was conducted, and feedback on the survey results were provided before engaging in discussion and exchange of opinions.

Efforts to address issues pointed out in the FY2019's evaluation

  • Discussion of the broad direction of corporate strategy: While adequate discussion did take place, there was a need for further discussion of the company's global strategy, M&A strategy and human capital strategy.
  • Human capital development strategy: While a certain amount of discussion did take place, the board failed to engage in adequate discussion that was focused on specific issues. There was a need for more in-depth discussion of how to identify the types of human capital required in order to realize K25, of ways to clarify the state of utilization of the OKR new employee empowerment system, and of next-generation human talent cultivation, etc.
  • Internal controls to realize compliance: While improvement has been seen in terms of initiatives to ensure rapid reporting of bad news, realize in-depth exploration of the causes of problems, and expand the scope of investigation, etc., there is a need for further improvement in terms of systems and operation. There is also a need to clarify the relative importance of individual issues, and to engage in discussion regarding whether, currently, the functions for preventing major incidents in advance are operating at the desired level.

Current state of discussion regarding the Kao Group Mid-term Plans (K20 and K25)

  • Discussion and oversight regarding the achievement of K20
    The main focus of discussion in relation to the realization of the goals of K20 has been on oversight regarding the response to COVID-19 pandemic, with clear distinctions being made as to whether a particular issue derives from the COVID-19 pandemic or not.
  • Discussion regarding the formulation of K25
    The process of formulating K25 has involved a lively exchange of opinions, and adequate discussion, over an extended period of time, which deserves a positive evaluation. However, in the future there is still a need for more discussion regarding the specifics of the K25 plan.
  • The vision for future discussion and oversight of the implementation of K25
    There is a need for the putting in place of a framework to facilitate monitoring and for ongoing discussion. Discussion is also needed regarding decision-making in relation to the large-scale investment required for the implementation of K25, and the effectiveness of such investment, as well as regarding large-scale strategic initiatives and strategies to resolve issues that hinder implementation of K25. There is also a need to monitor the status of implementation of related activities by company employees.
  • Ensuring that the composition of the Board of Directors is oriented toward realization of K25
    While the Board of Directors is already reasonably well-balanced, with a composition that falls within an appropriate level, Kao needs to strive for further improvement based on ongoing discussion of diversity. In regard to executive officers as well, Kao needs to consider making more efforts to recruit from outside the company, and to do more to recruit younger people, women and people with a track record of successful performance in overseas businesses.

Issues to be addressed by the Board of Directors

  • To realize the achievement of K25, there is a need for timely sharing of concrete information regarding the current situation, as well as for ongoing discussion based on diverse viewpoints.
  • There is a need for ongoing discussion of the human capital strategy. What is required is an intensification of discussion regarding the strategic direction that Kao needs to be heading in, as well as discussion of how to retain and cultivate the types of human capital that are needed in order to realize K25.
  • With regard to internal controls, there is a need for ongoing monitoring of system establishment and of whether systems are operating properly, so that the control system can function more effectively throughout the group.
    In addition to the above, evaluation was also performed of the overall state of operation of the Board of Directors, and of its deliberations. Furthermore, operation of the Committee for the Examination of the Nominees for Directors and Audit & Supervisory Board Members, and of the Compensation Advisory Committee, including deliberation of matters relating to the appointment of a new President and Chief Executive Officer and the adjustment of the compensation system, was evaluated and deemed to be appropriate.

Corporate Governance

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