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 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. To reinforce management oversight and enhance transparency toward this end, we have appointed outside directors and outside Audit & Supervisory Board members meeting the criteria for independent officers. Additionally, an executive officer system has been introduced to ensure rapid, efficient managerial decision-making and execution. 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.
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
  • Resolves key matters of business execution
  • Oversees directors' executive actions
  • Deliberates on medium- to long-term strategies and issues
Generally
monthly
Nine 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
  • Discusses and resolves issues based on reports of key auditing matters
  • Presents opinions based on the results to directors or the board of directors as necessary
Generally
monthly
Five auditors (including three outside auditors) Full-time Audit & Supervisory Board Member
Yasumasa Isetani
Nominating and Remuneration Committees
  • Deliberates on appointment and dismissal of officers, renumeration, etc.
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)
  • *In order to improve fairness and transparency, the majority of the committee consists of outside directors.
Chairman and CEO
Masayuki Sato
Group Steering Committee
  • Discusses the direction that the Group should take as well as steering matters such as management/business strategies for the Group as a whole and each operating company
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
  • Deliberates on holding company and group investment and lending projects
Generally
monthly
Standing members: Eight 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
Accounting Auditors
  • CPAs Takemitsu Nemoto, Atsushi Nagata, and Takashi Inoue of KPMG AZSA LLC audit JGC accounts.
  • Auditing support is provided by 10 other CPAs and seven assistants.

Corporate Governance System

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. 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. 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. 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 and are making steady efforts to further solidify our corporate governance.

【Content】

  1. 1.Implementation of all principles laid out in the CG Code
  2. 2.Disclosure according to all 11 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. 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. 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
Tadashi Ishizuka
Kiyotaka Terajima
Yutaka Yamazaki
Shoji Yamada
Shigeru Endo
Masayuki Matsushima
Kazuo
Ueda
Noriko
Yao
Auditors Yasumasa Isetani
Kazuyoshi Muto
Masao
Mori
Koichi
Ohno
Norio Takamatsu
  • *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 2020, 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

An internal control system for appropriate management and supervision of group companies was established and has been in operation since adoption of the holding company structure. Moreover, through formulation of the Group's long-term management vision and medium-term business plan (2040 Vision and Building a Sustainable Planetary Infrastructure 2025 (BSP 2025), respectively), active discussions have been held on strategies and issues relevant to enhancing corporate value and achieving sustainable growth of the JGC Group over the medium to long term. Thus, we have confirmed that Board functions in the holding company are greatly improved, as is overall board effectiveness, compared to the previous fiscal year.

Issues

Issues to address for greater effectiveness, response policy

  • Implementing measures established in the medium-term business plan, Building a Sustainable Planetary Infrastructure 2025 (BSP 2025)
  • DX and SDGs initiatives
  • Creating opportunities for free discussion and exchange of opinions beyond agenda items
  • Reporting to the Board, as at discussions of the Nominating and Remuneration committees

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), 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

  • Indexed to current-term net income attributable to owners of the parent, a target in the medium-term business plan, to incentivize attainment of business plan targets, and paid in July.
  • Performance-based compensation is determined from an evaluation of each director's professional duties and contribution to fiscal-year performance, acknowledging that in the JGC Group's main EPC operations, several years pass from when orders are sought until projects contribute to earnings, and accounting for whether the director contributed to gains in medium- to long-term corporate value.
  • As a greater incentive for each director in attaining performance targets, performance-based compensation will more directly reflect the extent that targets have been 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 11, 2020, some 17,828 restricted shares corresponding to 10% of base compensation (equivalent to ¥19 million) were allocated to five 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. 1.Deliberations of the Nominating Committee, which consists of a majority of outside directors, are focused on the following items.
    1. (1)Qualities such as character and views
    2. (2)Senior management and inside directors: Qualities such as performance and management capabilities
    3. (3)Outside directors: Qualities such as independence and expertise
  2. 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. (1)Wrongdoing, impropriety, or breach of faith
  2. (2)Violation of laws or articles of incorporation
  3. (3)Loss of the qualities and capabilities initially required for appointment

Succession Plan

In nominating a director or executive officer, the Nominating Committee addresses potential CEO succession by discussing whether the individual possesses the qualities required of a CEO, has demonstrated the requisite past performance, and can be viewed as a worthy successor. Only after this discussion will the Board proceed with nomination.
Moreover, in making the previously tacit succession plan more concrete and effective, we have held talks with current representative officers through a third-party organization to determine the personal qualities, experience, and other attributes required of a CEO. These criteria form the basis for concrete steps taken to formulate the succession plan.

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 of the shares are reviewed. Specifically, quantitative considerations include dividend yield and valuation gains, and aspects that are difficult to quantify include whether business benefits and risks are commensurate with capital costs. 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