Basic approach to corporate governance

To increase the value of the company and gain the trust and support of the stakeholders including shareholders, customers, clients, and local communities, it is essential to establish a management structure that emphasizes sound management and allows for prompt and precise response to sudden changes in the management environment.

Corporate governance structure

• i) Board meeting

  Our Board of Directors, composed of nine members, including three external directors, is dedicated to fostering open and constructive discussions and making decisions on critical business executions based on a management strategy aimed at enhancing the company's long-term value. We consider a balance of knowledge, experience, and abilities among each director, as well as diversity in terms of gender and international representation. The skills matrix outlining this composition is disclosed. Furthermore, the Board of Directors consists of 10 male members and 2 female members, resulting in a female representation of 16.7%. To ensure agility in responding promptly to changes in the business environment, directors serve one-year terms.

• <Activity situation of board meeting>The attendance at the board meeting in March 2023 is shown below.

  A regular board meeting is held monthly as a general rule and an interim board meeting is held as occasion demands in each case. The board meeting makes important decisions based on the board meeting regulations in addition to matters stipulated in laws and articles of incorporation and supervises the status of business execution of each Director. All auditors attend the board meeting to supervise the status of business execution of Directors.

• *1Director Miyoko Namiki, Director Junichiro Oishi, Director Akira Takeda, Full-time Auditor Hiroo Wakaki, and Outside Auditor Taku Matsumoto attended all of the 14 board meetings held after the election at the 42nd Ordinary General Meeting of Shareholders held on June 29, 2022.
• *2Director Akihiro Sato, Outside Director Masaru Tamagawa, and Outside Auditor Hiroyuki Dairaku were elected at the 43rd Ordinary General Meeting of Shareholders held on June 29, 2023.
• *3Director Eiji Miyanaga retired from the position of director as of September 30, 2023.

• <Evaluation of effectiveness of board meeting>

  Ferrotec implemented the evaluation of effectiveness of the board meeting while receiving advice from external organizations in order to improve the functions of the board meeting and increase the corporate value as shown below.
  In January 2023, a questionnaire on configuration, management, and discussion of/at the board meeting, and dialogue with shareholders, etc. (hereafter, “questionnaire in March 2023”) was conducted for all Directors and Auditors, who were members of the board meeting. For how to answer, anonymity was secured through direct answering to an external agency. Analysis, discussion, and evaluation were implemented at the regular board meeting in April 2023 based on the report of aggregate results from the external agency.

  The major items of the questionnaire in March 2023 are shown below. For answering, a 5-step evaluation method and description method were adopted.

  1. -The board meeting system
  2. -Configuration, management, and discussion of/at board meeting
  3. -Monitoring function of board meeting
  4. -Performance of Outside Director
  5. -Director / Auditor support system
  6. -Training
  7. -Dialogue with shareholders
  8. -Your efforts
  9. -Management of nominating committee / compensation committee
  10. -Summary
• For the overview of the evaluation result in March 2023, mostly positive evaluation was received on the following: comprehensiveness and comprehensibility of documents as management of the board meeting, supervision / monitoring of the establishment and operation of internal control including subsidiaries as the monitoring function of the board meeting, appropriate remarks and indications from a broad perspective as performance of the Outside Director; therefore, we recognize that the effectiveness of the entire board meeting is ensured. On the other hand, the contents such as timely ESG, SDGs, sustainability management, and the medium- to long-term HR strategy were raised as themes to be discussed at the board meeting and the issues toward setting and activation of discussion at the board meeting were also shared.
  At Ferrotec’s board meeting, the activities for improving the functions of the board meeting will be continuously promoted to increase the medium- to long-term corporate value based on this evaluation of effectiveness.
• <Activity status of compensation committee>

  Ferrotec has set up the compensation committee as an advisory board for the board meeting to deliberate and decide monthly remuneration, performance-linked remuneration of Directors according to the decision policy related to the content such as the compensation of each Director, etc. to report it to the board meeting. In order to ensure validity and transparency of the decision process of the remuneration level and amount, the compensation committee is configured with 5 directors in total: 3 independent Outside Directors and 2 Internal Directors. In March 2023, the meeting was held 11 times (including written resolution) and each commissioner attended all meetings. Since March 2023, opportunities for external experts to attend were set up and an exchange of opinions was implemented while receiving advice on remuneration levels and the latest trends of domestic and overseas companies to promote the discussion about an appropriate executive compensation system and individual remuneration amount, etc. in the Ferrotec group in future.

• <Activity status of nominating committee>

  Ferrotec has set up the nominating committee as an advisory board for the board meeting to select candidates of Directors and Executive Officers, and deliberate and decide the appointment of Directors and Auditors of main subsidiaries to report it to the board meeting. The nominating committee is configured with 5 directors in total; there are 3 independent Outside Directors and 2 Internal Directors in order to ensure fairness, appropriateness, and management effectiveness in the selection of candidates, etc. In March 2023, the nominating committee was held 6 times and each commissioner attended all meetings.

• ii) Audit & Supervisory Board

  Ferrotec has adopted the Audit & Supervisory Board system. Ferrotec's Audit & Supervisory Board is configured with three auditors in total: one Full-time Auditor who is familiar with the business contents, business environment and internal situation of the Ferrotec group and two Outside Auditors who are familiar with law, finance / accounting. The Audit & Supervisory Board is stipulated in the regulations to be held at least eight times a year and an occasional Audit & Supervisory Board is held as needed. Incidentally, a Full-time Auditor attends important meetings of the Executive Committee in addition to the board meeting to make an opinion statement as occasion demands so that the business execution of Directors can always be supervised. In addition, they work closely with the Internal Audit Office and Accounting Auditors by exchanging information and opinions with them as occasion demands and holding a meeting periodically, for example, to improve the audit function.

• iii) Executive Committee

  Ferrotec has introduced an executive officer system and appointed each Executive Officer appointed at the board meeting as the responsible duty/department manager to clarify the division of roles in business execution in order to clarify functions and roles of the board meeting and executive body and enable prompt and flexible decision-making and business execution in a rapidly changing environment. The Executive Committee is held monthly to sufficiently table the matters to be discussed at the board meeting and to clarify the issues to discuss at the board meeting; it also plays a role in promoting flexible business execution for the matters for which authority on quick decision making has been transferred from the board meeting.

Basic concepts and current status of internal control systems

Ferrotec has established a basic policy for the establishment of an internal control system and has formulated various rules for all business operations, including “Compliance Guidelines”, “Rules on Duties and Authorities”, “Rules on Division of Duties”, “Internal Information Management Rules”, “Rules on Disclosure of Important Information”, “Rules on Management of Trade Secrets”, “Rules on Management of Confidential Information on Business Partners”, “Basic Rules on Protection of Personal Information”, “Policy on Response to Antisocial Forces”, “Rules on Business Continuity Management in the Event of Disasters”, “Security Export Management Rules”, “Risk Management Rules”, and “Internal Reporting Rules” to clarify the roles and responsibilities of each organization. Furthermore, in accordance with the amendment to the Corporation Law enacted on May 1, 2015, Ferrotec has revised its basic policy for the establishment of internal control systems, implemented internal checks based on the management control organization and other corporate governance systems for business execution and supervision, and developed a risk management system. With the legal advisory contract with Goto Law Office, we receive legal advice as necessary in the course of business. We also undergo accounting audits from EY Ernst & Young ShinNihon LLC, our accounting auditor, based on the audit contract, and receive reports on matters that are pointed out during and after the audit.

Chronological table of corporate governance