Governance Governance

Our basic approach to corporate governance is to continuously enhance corporate value and conduct business activities that are valued and trusted by all stakeholders based on our management philosophy of "creating new value centered on thermal technology, contributing to society through this value, and achieving corporate prosperity and the happiness of employees. Our basic approach to corporate governance is to continuously enhance corporate value and conduct business activities that are valued and trusted by all stakeholders.

In accordance with this basic approach, we will work to further enhance and strengthen corporate governance by practicing and complying with the Code of Conduct and Code of Conduct to ensure legality, increase management transparency, and improve management efficiency.

In our medium-term management plan for the five years from 2022, we have set forth "Management Vision 2026": "Transform ourselves and open the future with carbon-neutral technology! We will work on measures to achieve sustainable growth and increase corporate value, and invest in new and growing businesses that will contribute to the creation of a sustainable society.

As part of our financial strategy, we are aiming for an ROE of 10% or higher and are implementing initiatives to strengthen our management foundation and expand business revenue.

While we place a high priority on the decision-making functions of the Board of Directors—which is composed primarily of directors with extensive practical experience—regarding business operations, we have appointed outside directors to constitute at least one-half of the board in order to strengthen oversight of business operations.

Furthermore, by establishing a Nomination and Compensation Committee—an advisory body to the Board of Directors in which outside directors constitute a majority—we are enhancing transparency and objectivity in the nomination of directors and other officers, as well as in decisions regarding their compensation.

This system has been adopted because the management monitoring system has been established by having corporate auditors and the Board of Corporate Auditors conduct audits from a standpoint independent of the Board of Directors.

The Board of Directors is responsible for making decisions on basic management policies, matters required by law, and other important management matters, as well as for supervising the execution of business by directors and executive officers.

In addition, through the adoption of an executive officer system, we have delegated the necessary authority to speed up decision-making and clarify responsibilities, while directors concurrently serve as executive officers, depending on the situation, to ensure coordination between management and the field.

The Company conducts a self-assessment via a questionnaire administered by an external specialized organization for all directors and auditors, covering the following areas: “Composition and Operation of the Board of Directors,” “Effectiveness of the Board’s Functions,” “Support System for Outside Directors and Outside Auditors,” “Expectations Regarding the Role of Auditors,” and “Effectiveness of Engagement with Shareholders and Stakeholders.”

Based on the results of our analysis and evaluation, we have confirmed that the overall effectiveness of our Board of Directors remains assured for the fiscal year ending March 2026. In certain areas, such as “Board Composition” and “Nomination, Compensation, and Executive Training,” we observed improvements since the previous evaluation.

On the other hand, areas such as “board operations,” “discussions regarding capital efficiency and medium- to long-term value creation in management strategy and business plans,” and “internal controls and risk management” received relatively low ratings, clearly identifying areas for improvement.

We will address these issues one by one and continue to strive to enhance the effectiveness of the Board of Directors.

The Board of Auditors currently consists of three auditors, more than half of whom are outside auditors, and includes one auditor appointed for their expertise in finance and accounting. As a general rule, the Board meets once a month to receive reports from each auditor on important matters related to the audit of the directors’ performance of their duties, discuss these matters, and pass resolutions.

The auditors and the Board of Auditors shall proactively and actively exercise their authority to express their opinions at Board of Directors meetings and fulfill their roles and responsibilities regarding operational and financial audits.
Audit Committee members exchange views with directors, the President, and other executive officers as appropriate; participate in important internal meetings concerning management; and, based on insights gained through their audit duties and their own professional experience, objectively evaluate the status of business execution and the results regarding key management issues, providing advice to directors and the Board of Directors as necessary. Outside auditors attend all meetings of the Board of Auditors, which are generally held once a month, where they receive reports on audit results from other auditors and work to share information.

The Nomination and Compensation Committee consists of two outside directors, two inside directors, and one outside auditor, with outside directors and outside auditors comprising a majority of the committee members. Furthermore, the chair of the committee is an outside director or outside auditor, selected by resolution of the Board of Directors.

The amount of remuneration for each individual director shall be determined based on the basic policy that the remuneration system shall fully function as an incentive to continuously increase corporate value, and that the level of remuneration for each director shall be appropriate based on his/her position, duties, performance, social conditions, etc. The drafts shall be prepared and decided by the Board of Directors after deliberation and report by the Committee in order to enhance the independence and transparency of decisions made by the Board of Directors. In order to enhance the independence and transparency of decisions made by the Board of Directors, the Committee deliberates and reports to the Board of Directors before making a decision.

Our Internal Audit Department, which reports directly to the President and is organizationally independent, consists of three full-time staff members. The department conducts audits of the operational performance of each business division and group company, provides evaluations and recommendations, and reports to the Board of Auditors, thereby striving to maintain and strengthen internal controls and the functions of the Board of Auditors.

Our auditors (including outside auditors) receive detailed reports on a regular basis from the Internal Audit Department—our internal audit division—regarding audit plans and the status of audit implementation, and we have established a close system of cooperation that includes the exchange of opinions.

The Internal Audit Department receives regular reports from the management officers responsible for overseeing the development and operation of internal control systems in each business division regarding the status of those systems’ operation, and receives reports on an ad hoc basis whenever changes in the organizational structure of a business division occur or issues arise. The results of these discussions are reported to the Head of Internal Control, the Board of Auditors, and the Chief Internal Control Officer, and we strive to evaluate and improve the system accordingly.

The "Chugai Ro Group Code of Conduct" has been distributed to all officers and employees of the Chugai Ro Group to ensure thorough compliance and corporate ethics.
In addition, a "Compliance Consultation Desk" has been established outside the Company to ensure a reporting line from employees.

At meetings of the Risk and Compliance Committee and the Business Progress Review Committee, we identify the Company’s risks and work to prevent their occurrence. We also report the details and results of these efforts to the Board of Directors as appropriate.

Through this framework, under a group-wide risk management system, we are striving to build an organization capable of preventing the occurrence of risks—including major incidents—and minimizing losses should such risks occur. Furthermore, recognizing that climate change risks are expected to expand further over the medium to long term, we are working to incorporate them into our management plans and explore appropriate management methods.

In anticipation of major earthquakes and tsunamis—which we consider to pose the greatest threat to our business continuity—as well as wind and flood damage caused by typhoons and heavy rains, and large-scale infectious disease outbreaks, we are implementing a Business Continuity Plan (BCP) designed to minimize the impact on our customers and strive to mitigate these risks.