Corporate Governance
Basic Stance
The JGC Group remains aware that, in line with our purpose of "Enhancing planetary health," sound governance is the foundation for management in pursuit of higher medium- to long-term corporate value and sustained growth. We are therefore strengthening our corporate governance, which we view as a priority material issue.
Our central mechanism for corporate governance is the Board of Directors. Its governance structures, functions, and roles are continuously reviewed, with Board effectiveness analyzed and assessed each year as we seek progress through steady improvement.
In shareholder and investor engagement, we take a proactive stance in highly transparent information disclosure, and viewpoints from this dialogue are applied to strengthen governance and management. In regulatory compliance and other matters essential to appropriate corporate governance as well, our purpose and values call on each employee and officer to maintain high ethical standards in everything they do, so that the Group as a whole works to enhance medium- to long-term corporate value and achieve sustained growth.
Outline of Corporate Governance System
JGC Holdings maintains a board of directors and an audit and supervisory board. The JGC Group has adopted a holding company structure under which operating companies pursue the Group's core business.
Separating management from execution provides greater clarity on roles and responsibilities of the holding company and operating companies. The holding company's role is to formulate management policies and oversee the operating companies from a medium- to long-term Group perspective. Operating companies apply Group management policies and strategies to respond flexibly and rapidly to market characteristics and seek further business expansion. This is intended to maximize corporate value and ensure optimal allocation of management resources for the Group as a whole while enhancing transparency of corporate management and strengthening overall Group governance. Committees have been established to deliberate key Group matters, and an executive officer system has been introduced to ensure efficient managerial decision-making and execution. Main elements of the corporate governance system are as follows.
Outline of Corporate Governance System
| Body | Purpose | Meetings | Members | Head of organization |
|---|---|---|---|---|
| Board of Directors |
|
Generally monthly |
Eight directors (including four outside directors) Five auditors (including three outside auditors) (For fuller discussions, others also attend as needed, such as operating company officers, executive officers in charge of certain areas, and those in relevant divisions) |
Chairman and CEO Masayuki Sato |
| Audit & Supervisory Board |
|
Generally monthly |
Five auditors (including three outside auditors) | Full-time Audit & Supervisory Board Member Yasumasa Isetani |
| Nominating and Remuneration Committees |
|
Annually (and as needed) |
Chairman and CEO Masayuki Sato President and COO Tadashi Ishizuka Four outside directors* (Shigeru Endo, Masayuki Matsushima, Kazuo Ueda, and Noriko Yao)
|
Nominating Committee: Outside Director Shigeru Endo Remuneration Committee: Outside Director Masayuki Matsushima |
| Group Steering Committee |
|
Generally monthly |
Chairman and CEO Masayuki Sato President and COO Tadashi Ishizuka Auditors (rotating) (Consists of members such as group company officers appointed by the chairperson) |
Chairman and CEO Masayuki Sato |
| Group Investment and Loan Committee |
|
Generally monthly |
Standing members: Seven directors, executive officers, and auditors of the holding company and Group. Non-standing members: Two executive officers of the holding company may attend, depending on the agenda. |
Chairman and CEO Masayuki Sato |
| Sustainability Committee |
|
Generally annually |
Chairman and CEO Masayuki Sato Consists of members proposed by presidents and chairpersons of Group companies and approved by the president of their company |
Chairman and CEO Masayuki Sato |
| Accounting Auditors |
|
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Corporate Governance System
Improvement Status of Internal Control System
JGC's Board of Directors determines the basic principles of the internal control system and revises them as necessary.
【Improvement Status】
- 1.The Internal Auditing Office monitors, evaluates, and improves the effectiveness of the internal control systems of JGC and the JGC Group and conducts separate audits as necessary
- 2.Rules of Management Authority regulate the duties and authority of each role, and clarify the system of responsibilities in corporate management and business execution
- 3.Management rules for Group companies have been formulated and implemented to ensure efficient and appropriate operations across the Group
About JGC's Response to the Corporate Governance Code
Since the implementation of the Tokyo Stock Exchange's Corporate Governance Code in June 2015, we have consistently held discussions on appropriate corporate governance for JGC Holdings and are making steady efforts to further solidify our corporate governance.
A corporate governance report based on the revised Corporate Governance Code of June 11, 2021, is available on the JGC website.
【Content】
- 1.Implementation of all principles laid out in the CG Code
- 2.Disclosure according to all 14 general principles, principles, and supplementary principles required by the Tokyo Stock Exchange
Board of Directors
Board Functions
The Board of Directors is responsible for decision-making on medium- to long-term group strategy and issues, and it provides oversight regarding business execution of group companies. Board composition is intended to enable effective and efficient execution of these functions.
Basic Policy on Board Composition and Diversity
From the standpoint of further enhancing discussions on medium- to longterm group strategies and issues and of strengthening oversight regarding business execution of group companies, the board consists of the following members.
- 1.Consists mainly of directors with broad experience in business markets and directors with a high level of knowledge and expertise in engineering, procurement, and construction (EPC) operations, which is the primary group business.
- 2.Independent outside directors are appointed in order to incorporate outside perspectives in management, with the expectation that these directors will provide objective advice to the board and fulfill oversight functions from an independent viewpoint.
As a matter of policy respecting the importance of diverse perspectives, members are appointed not solely based on professional experience and expertise but also on competence, regardless of nationality, race, or sex.
In June 2021, Ms. Noriko Yao was appointed as an outside director, part of the Group's ongoing efforts to ensure Board diversity.
Skills Matrix for Directors and Auditors
| Background | |||||||
|---|---|---|---|---|---|---|---|
| Corporate Management | Technology, Project Management and IT | Global Business | Human Resoueces | Finance and Accounting | Legal and Risk Management |
||
| Directors | Masayuki Sato | 〇 | 〇 | 〇 | 〇 | 〇 | |
| Tadashi Ishizuka | 〇 | 〇 | 〇 | 〇 | |||
| Kiyotaka Terajima | 〇 | 〇 | 〇 | 〇 | 〇 | ||
| Yutaka Yamazaki | 〇 | 〇 | 〇 | 〇 | |||
| Shoji Yamada | 〇 | 〇 | 〇 | 〇 | |||
| Shigeru Endo | 〇 | 〇 | 〇 | ||||
| Masayuki Matsushima | 〇 | 〇 | 〇 | 〇 | 〇 | ||
| Kazuo Ueda |
〇 | 〇 | 〇 | ||||
| Noriko Yao |
〇 | 〇 | 〇 | ||||
| Auditors | Yasumasa Isetani | 〇 | 〇 | 〇 | 〇 | ||
| Kazuyoshi Muto | 〇 | 〇 | 〇 | 〇 | |||
| Masao Mori |
〇 | ||||||
| Koichi Ohno |
〇 | 〇 | |||||
| Norio Takamatsu | 〇 | 〇 | 〇 | 〇 | |||
- *the above list does not represent all the expertise that each director and auditor possesses.
Board Effectiveness Evaluation
Board effectiveness is analyzed and evaluated annually, efforts toward improvement are reviewed, and issues linked to further gains in effectiveness are discussed by the Board in pursuit of continuous improvement. Presented below are a summary of the process of evaluating Board effectiveness in fiscal 2021, the survey, results, and future issues to address, and main past efforts to enhance efficacy.
Process
- Directors and auditors complete a survey conducted by the Board secretariat
- Progress is reviewed, including progress in areas for improvement when effectiveness was last evaluated
- Opinions are collected on current Board effectiveness and ways to enhance Board effectiveness
- The Board reviews the results, focusing on key future issues
Content of Survey
- Checks compliance with principles of Section 4, "Responsibilities of the Board," of the Corporate Governance Code, including progress since the previous evaluation
- Main evaluation items: Board composition, management, discussion, oversight functions, dialogue with shareholders, own involvement, and management of Nominating and Remuneration committees
- Solicits open-ended responses on Board performance and areas for improvement
Evaluation Results and Future Issues to Address
Evaluation Results
Survey analysis and evaluation has indicated that overall, the Board is functioning effectively. Key issues identified for fiscal 2021, based on the fiscal 2020 Board effectiveness evaluation, included improving the framework for monitoring and review of the medium-term business plan, implementing DX and SDG initiatives, creating opportunities for a free exchange of opinions, and reporting to the Board on Nomination and Remuneration Committee discussions. A variety of measures were taken for these issues. Results confirmed that a majority considered all issues to have been addressed adequately or generally adequately.
Issues
Issues to address for greater effectiveness, response policy
- Effective monitoring and review of the medium-term business plan
- Discussing the Group business portfolio from the standpoints of sustainable profitability and cost of capital
- Spurring further deliberation at Board meetings
Policy in Responding
- Enhance board discussions and supervision on the issues listed above
Main Efforts to Date for Improving Board Effectiveness
Director Compensation
Policy on Determining Director Compensation Amounts or Calculation Methods
Basic Policy, General Share-Holders' Meeting Resolutions
- Under a basic policy to secure the management personnel needed for greater global competitiveness and higher medium- to long-term corporate value, a resolution made at the 113th general shareholders' meeting on June 26, 2009, set maximum annual director compensation at ¥690 million, with maximum auditor compensation at ¥88 million.
- As for the policy on determining the amount, calculation, and breakdown of compensation for individual directors, compensation shall not exceed the range resolved at the general shareholders' meeting, and details are discussed in advance by the Remuneration Committee (consisting of a majority of outside directors and is chaired by an outside director), whose report is considered by the Board to reach a decision.
Process for Determining Amount of Compensation
- The amount and breakdown of compensation for individual directors within the range set at the general shareholders' meeting is at the discretion of the chairman of the Board, who as the Company's chief executive officer is most familiar with the duties and responsibilities of each director, their performance, and the extent to which this performance contributes to higher corporate value.
- To ensure fairness, transparency, and consistency with this decision policy, decisions by the chairman and CEO reflect the results of comprehensive deliberation by the Remuneration Committee on evaluation of individual directors and the amount of remuneration.
- The Board has determined that final decisions have been consistent with this policy, and in making this determination, the Board has been informed of a summary and results of Remuneration Committee deliberations, as well as final decisions by the chairman and CEO.
Fixed, Performance-Based, and Restricted Stock Compensation
- Inside directors receive fixed compensation as well as performance-based and restricted stock compensation, with the former being a short-term incentive and the latter a medium- to long-term incentive.
- The compensation mix is designed to provide a higher proportion of variable compensation (performance-based and restricted stock compensation) for higher performance and rank.
Fixed Compensation
- Determined according to each director's position and the value of their duties, accounting for the capabilities required and the weight and impact of those duties.
- Consists of base compensation and an allotment for directors or representative directors, both paid monthly.
- Outside director compensation is limited to fixed compensation, to enable management oversight from a position independent of business execution.
Performance-Based Compensation
- Designed as a key incentive to meet performance figures each fiscal year and steadily improve corporate value over the medium and long term.
- Specifically, individual performance-based compensation is determined from a base amount (calculated for each position and indexed to operating income and net income attributable to owners of the parent, which are targets in the mediumterm business plan) and individual evaluation (accounting for responsibilities to fulfill in order to attain the long-term management vision and medium-term business plan) and paid in July of each year.
- As a performance indicator, net income attributable to owners of the parent is weighted, in view of the responsibility to shareholders for results. It is weighted higher for those in higher positions.
- Performance-based compensation does not apply when there is a net loss attributable to owners of the parent.
- Individual evaluations are discussed by the Remuneration Committee to ensure transparency and fairness.
- To secure outstanding management personnel, remuneration standards were reviewed in fiscal 2021 by referring to information including market data on remuneration provided by specialized external organizations. Also, the linkage between performance and remuneration was further reinforced to ensure that performance figures for each director are met.
Restricted Stock Compensation
- Introduced so that directors share the benefits and risks of stock price fluctuations with shareholders and conduct business accordingly, and to further incentivize a higher stock price and greater medium- to long-term corporate value.
- Restricted stock compensation is allocated in August, and on August 6, 2021, some 13,713 restricted shares corresponding to 10 % of base compensation (equivalent to \13 million) were allocated to three directors.
- The restricted stock compensation system is summarized below.
- Scope: Directors and executive officers of the holding company and directors of Group companies
- Maximum monetary compensation: ¥190 million per year
- Total shares of restricted stock (maximum): 149,300 shares per year (approximately 0.06 % of total issued shares)
- Restricted stock period: 3-30 years
Breakdown of Executive Remuneration
Policies and Procedures for Senior Management Appointment and Dismissal
Appointment process
Appointment of senior management and nomination of candidates for directors
- 1.Deliberations of the Nomination Committee, which consists of a majority of outside directors and is chaired by an outside director, are focused on the following items.
- (1)Qualities such as character and views
- (2)Senior management and inside directors: Qualities such as experience, performance, and management capabilities, as defined in succession planning
- (3)Outside directors: Qualities such as independence and expertise
- 2.After comprehensive deliberation by the Nominating Committee, a decision is made by the Board.
Appointment of senior management and nomination of director candidates follows this process and involves ample discussion before decisions are made, with the understanding that these individuals may one day be candidates to succeed the CEO.
Dismissal process
Dismissal of senior management
In the event of any of the following, the Board decides on dismissal after deliberation by the Nominating Committee.
- (1)Wrongdoing, impropriety, or breach of faith
- (2)Violation of laws or articles of incorporation
- (3)Loss of the qualities and capabilities initially required for appointment
Succession plan
The following succession plan in place informed by discussions of the Nominating Committee and Board is beginning to be initiated, reflecting the Group's recognition of the importance of succession planning in sustainable growth of corporate value.
Purpose
- Toward attainment of BSP 2025 and the 2040 Vision, and for lasting enhancement of corporate value beyond this, we recognize the necessity of appointing optimal directors and executive officers for the current business environment and management strategies.
- Based on the business environment and management strategies, the plan clarifies the knowledge, experience, abilities, and personal qualities sought in top management, guiding development and selection of the Group's next leaders and enabling continuous appointment of these leaders whenever needed.
Stance on leadership criteria
- Leadership criteria are determined through talks with current top management facilitated by a third-party organization, and future needs in leaders are defined from a medium- to long-term management vision.
- These criteria are classified on minimum essential attributes and ideal attributes (3-level scale), and candidates are assigned to groups with specific level requirements.
Stance on succession planning
- The basic stance taken on succession planning involves defining leadership criteria, selecting several individuals for near- and far-term candidate groups, providing opportunities to develop required attributes and gain experience, and monitoring progress each year as candidates are groomed over the medium to long term.
Cross-Shareholdings
1. Purpose
Following revision in June 2018, the Corporate Governance Code now includes guidance on topics such as reduction of cross-shareholdings and the cost of capital. The Group refrains from cross-shareholdings except in cases where maintaining and strengthening relationships with clients and business partners will contribute to higher medium- to long-term corporate value for the Group. Moreover, each year, the Board of Directors reviews the significance of maintaining each cross-shareholding. Both quantitative and qualitative aspects are reviewed. Quantitatively, total shareholder return and ROE are checked for each company. Aspects that are difficult to quantify include whether business advantages and the like are commensurate with the cost of equity. Sale of shares deemed to have lost their significance is investigated accounting for the market environment and changes in stock prices. The review process is described below, along with a record of past sales and reductions.
2. Basis for exercising voting rights
In exercising voting rights for cross-shareholdings, advantages and disadvantages are weighed based on whether the decision will contribute to sustained growth of the company involved, and thus, higher group corporate value over the medium to long term.
Review Process of Holding Objective and Stock to be Sold
History of Sales and Reductions in Cross-Shareholdings since the Introduction of the Corporate Governance Code
