Basic Concepts of Corporate Governance

The Sumitomo Forestry Group utilizes timber friendly to people and the global environment and contributes to a prosperous society through all types of housing-related services according to the Sumitomo Spirit to be beneficial to society based on the principles of integrity and sound management. Therefore, we strive to ensure management transparency, sound and legal business practices as well as rapid decision-making and business execution.

By further enhancing and strengthening its corporate governance through these efforts, the Company aims to continuously increase its corporate value and conduct management that lives up to expectations of various stakeholders around the Group.

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Corporate Governance and Internal Control

Sumitomo Forestry introduced the executive officer system to separate decision making and management oversight from operational execution functions. Comprised of ten directors (nine male, one female) including two outside directors (one male, one female), the Board of Directors is structured to take quick decisions. The oversight function of the Board of Directors has been strengthened, the lines of operational responsibility clarified, and the Chairman of the Board of Directors no longer serves as an executive officer. Nomination and Remuneration Advisory Committee has been established to provide advice to the Board of Directors on selecting director and auditor candidates and executive officers as well as compensation of directors and executive officers, for the purpose of ensuring transparency and fairness of decision-making. Sumitomo Forestry has a board of company auditors.

In addition to attending important meetings within the Company, the auditors provide oversight for the directors' execution of duties, through sharing information and opinions with auditors at Group companies and the staff in the Internal Audit Division, and by supervising staff assisting auditing operations.

As of June 22, 2018, ten directors (including two outside directors), five auditors (including three outside auditors) and 20 executive officers had been appointed to the Company. The Company notified Tokyo Stock Exchange, Inc. of the designation of the two outside directors and three outside statutory auditors as independent officers as required by its regulations.

Corporate Governance Structure

Corporate Governance Structure

Board of Directors and Executive Committee

In principle, the Board of Directors meets once a month, making decisions and carrying out its supervisory function for important issues in accordance with its discussion standards. In addition to making decisions on all important items and confirming business results, it supervises the directors' execution of their duties. Directors and statutory auditors are required to maintain an attendance rate of 75% or higher as a general rule.

The Executive Committee, which is an advisory body for the President, holds meetings twice a month, before the Board of Directors meeting to ensure that there is sufficient prior discussion on important issues. It is attended by those directors who also serve as executive officers, as well as the full-time statutory auditors as a general principle.

The Company ensures prompt decision-making and separation of supervision and operational execution functions, for effective performance of the Board of Directors. Board of Directors meetings were held 15 times while Executive Committee meetings were held 25 times in fiscal 2017.

Attendance of Directors at Meetings of the Board of Directors (FY2017)

Name and Responsibility/Expertise Board of Directors
Attended Meetings (meetings) Attendance Rate (%)
Chairman of the Board and Representative Director Ryu Yano - 15 100
President and Representative Director Akira Ichikawa President and Executive Officer 15 100
Representative Director Shigeru Sasabe Executive Vice President and Executive Officer
Overseeing of Environment and Resources Division, and Divisional Manager of Overseas Housing and Real Estate Division
15 100
Representative Director Tatsuru Satoh Executive Vice President and Executive Officer
In charge of General Administration, Personnel, Information Systems, Intellectual Property, Internal Audit, Tsukuba Research Institute, and Overseeing of Corporate Planning, Finance, Corporate Communications, CSR
15 100
Director Ken Wada Senior Managing Executive Officer
Supervisor of Lifestyle Service In charge of TOP (Tokyo Olympics Paralympics) 2020, Secretarial, External Relations, and Lifestyle Service Division
15 100
Director Toshiro Mitsuyoshi Senior Managing Executive Officer
In Charge of Tohoku Reconstruction Support Department and Divisional Manager of the Housing and Construction Division
15 100
Director Akihisa Fukuda Managing Executive Officer
Divisional Manager of Timber & Building Materials Division
15 100
Director Hitoshi Hayano Executive Officer
Supervisor of Internal Auditing
15 100
Outside Director Junko Hirakawa Lawyer
Partner of City-Yuwa Partners
15 100
Outside Director Izumi Yamashita 14 93

* The areas each is in charge as well as their expertise is current as of April 1, 2018

Structure of the Board of Directors

The Board of Directors is composed of 17 individuals in a structure built on expertise, such as knowledge, experience, skill, and diversity. Sumitomo Forestry considers diversity such as gender and nationality as well as expertise which includes those who have a wealth of experience and success in the operations of the Sumitomo Forestry Group, those who have a wealth of experience and success in business such as corporate management, industry and policy and those who have specializations such as law and accounting.

Nomination Procedure for Directors

Director candidates are selected at the Board of Directors from the pool of personnel with superior personality trait and acumen, and potential value to the Company, consulting with the Appointment and Remuneration Advisory Committee. Summaries of background and interlocking status of the directors are available on the website.

Outside Directors

In the selection procedure of outside directors, candidates must not be applicable to any of the below listed criteria to insure their independence to the Company.

Two of our current outside directors are considered independent based on the above list of independency criteria, not to pose a conflict of interest with general shareholders.

  1. Company’s operations executives
    Executive director, executive officer, operating officer, manager, or other directly hired person by the Company, its subsidiary, or its affiliate (herein; “operations executives”).
  2. Consultants
    (1) Employee, partner, or any other staff hired by an auditing firm who provide auditing services for the Company or its subsidiaries.
    (2) lawyer, certified accountant, tax accountant, or other consultant whose annual compensation and other forms of monetary benefits given by the Company or its subsidiaries, exclusive of director’s remuneration, has exceeded ten million yen in the past three years.
    (3) employee, partner, associate, or other staff hired by a law, auditing, tax law, consulting or any other advisory firm whose major client is the Company or its subsidiaries. (The major client means a company’s received payment in a year by the Company or its subsidiaries has exceeded 2% of its consolidated total sales in the past three years.)
  3. Major shareholder (non-owner)
    Person who directly and or indirectly holds 10% or more of the voting power of the Company; i.e. operations executive if a holder is a company.
  4. Major shareholder (owner)
    Operations executive of a company which holds 10% or more of the voting power of the Company or its subsidiaries.
  5. Business Partners
    (1) Client (major clients): person or operations executive of a client whose purchase exceeds 2% of the consolidated total sales of the Company
    (2) Supplier (of which the Company is a major client): person or operations executive of a supplier of which the Company’s purchase exceeds 2% of the consolidated total sales of the supplier
  6. Lender
    Lender from which the Company’s borrowing exceeds 2% of the consolidated total asset of the company; i.e. operations executive in case of a company
  7. Recipient of contribution
    Individual or operations executive of a corporate recipient of a donation from the Company or its subsidiaries whose annual average amount exceeds ten million yen or 2% of total income of the recipient in the last three years.
  8. Family
    Spouse, next of kin within the second degree, or live-in member of a family of the person whose independency is rejected by this list of criteria
  9. Background Item
    1 is applicable in at any time in the past 10 years, or Item 2 or 7 is applicable at any time in the past 5 years.
  10. Inter-assumption of outside executive officer
    Executive director or statutory auditor of a company whose executive directors or statutory auditors include the Company or its subsidiary’s

The appointment of outside directors and outside statutory auditors will be determined based on standards to determine independence and standards of concurrent board positions, as follows:

Standards of Concurrent Board Positions

  • (i) When concurrently holding a board or statutory board member position of another publicly listed     company, the number of concurrent board or statutory board member positions will be follows:
    • (a) When servin as an executive director at another company exercising relevant execution of operations, only one company other than this Company;
    • (b) In situations other than (a), up to four companies other than this Company.
  • (ii) An attendance rate at the meetings of the Board of Directors or Board of Statutory Auditors of at      least 75%.

Analysis, Assessment and Results for the Effectiveness of the Board of Directors

We assessed the effectiveness of the Board of Directors by conducting an analysis of each Director through deliberation at the Board of Directors meeting while exchanging opinions between the outside Directors and outside Auditors about the Board of Directors.

As a result, to facilitate active discussions at the Board of Directors meetings, we have been able to maintain a full-fledge support system for outside executive officers which leads to lively debate leveraging diverse experience and expertise, such as implementing advanced explanation of matters and opportunities to observe operations both in Japan and overseas. Furthermore, thanks to the identification of an issue in our efforts to assess the effectiveness of the Board of Directors in fiscal 2016, we were able to ensure success of the Board of Directors meetings as a whole for initiatives that included establishing opportunities for an exchange of ideas with outside executive officers about medium to long-term business strategies.

On the other hand, we have received feedback for the need to discuss governance to protect our actions (stronger risk management, internal controls, etc.) as well as further debate about medium to long-term business strategies in accordance with active new investments for growth.

We will strive to further improve the effectiveness at Board of Directors meetings by continually working to heighten the level of discussion with awareness toward highlighted topics in the future.

Board of Statutory Auditors

The Board of Statutory Auditors meets to discuss and make decisions on important matters regarding audits. The five auditors, including the three outside auditors, utilize the deep insights and diverse perspectives they have acquired from their various business backgrounds to provide oversight for the directors' execution of duties. The Board of Statutory Auditors met 14 times during fiscal 2017.

The appropriate human resources are also appointed as auditors at our main subsidiaries for the purpose of improving the effectiveness of auditing and informational exchange at these companies. Meetings of Statutory Auditors of Sumitomo Forestry and its subsidiary companies are held with members composed of full-time statutory auditors of Sumitomo Forestry as well as auditors of our main subsidiaries. The Board of Statutory Auditors met five times during fiscal 2017.

Outside Auditors

In the selection procedure of outside auditors, candidates must not be applicable to any of the below listed criteria to insure their independence to the Company.

Three of our current outside auditors are considered independent based on the above list of independency criteria, not to pose a conflict of interest with general shareholders.

  1. Company’s operations executives
    Executive director, executive officer, operating officer, manager, or other directly hired person by the Company, its subsidiary, or its affiliate (herein; “operations executives”).
  2. Consultants
    (1) Employee, partner, or any other staff hired by an auditing firm who provide auditing services for the Company or its subsidiaries.
    (2) lawyer, certified accountant, tax accountant, or other consultant whose annual compensation and other forms of monetary benefits given by the Company or its subsidiaries, exclusive of director’s remuneration, has exceeded ten million yen in the past three years.
    (3) employee, partner, associate, or other staff hired by a law, auditing, tax law, consulting or any other advisory firm whose major client is the Company or its subsidiaries. (The major client means a company’s received payment in a year by the Company or its subsidiaries has exceeded 2% of its consolidated total sales in the past three years.)
  3. Major shareholder (non-owner)
    Person who directly and or indirectly holds 10% or more of the voting power of the Company; i.e. operations executive if a holder is a company.
  4. Major shareholder (owner)
    Operations executive of a company which holds 10% or more of the voting power of the Company or its subsidiaries.
  5. Business Partners
    (1) Client (major clients): person or operations executive of a client whose purchase exceeds 2% of the consolidated total sales of the Company
    (2) Supplier (of which the Company is a major client): person or operations executive of a supplier of which the Company’s purchase exceeds 2% of the consolidated total sales of the supplier
  6. Lender
    Lender from which the Company’s borrowing exceeds 2% of the consolidated total asset of the company; i.e. operations executive in case of a company
  7. Recipient of contribution
    Individual or operations executive of a corporate recipient of a donation from the Company or its subsidiaries whose annual average amount exceeds ten million yen or 2% of total income of the recipient in the last three years.
  8. Family
    Spouse, next of kin within the second degree, or live-in member of a family of the person whose independency is rejected by this list of criteria
  9. Background Item
    1 is applicable in at any time in the past 10 years, or Item 2 or 7 is applicable at any time in the past 5 years.
  10. Inter-assumption of outside executive officer
    Executive director or statutory auditor of a company whose executive directors or statutory auditors include the Company or its subsidiary’s

Attendance of Auditors at the Board of Directors and the Board of Auditors (FY2017)

Name and Expertise Board of Directors Board of Statutory Auditors
Attended Meetings (meetings) Attendance Rate (%) Attended Meetings (meetings) Attendance Rate (%)
Statutory Auditor Hidekazu Tanaka 15 100 14 100
Statutory Auditor Noriaki Toi 15 100 14 100
Outside Auditor Satoshi Teramoto Certified Public Accountant 13 87 13 93
Outside Auditor Katsuhide Kurasaka Senior Advisor of Sumitomo Electric Industries, Ltd. 15 100 14 100
Outside Auditor Yoshitsugu Minagawa Chief Counselor, Norinchukin Research Institute Co., Ltd. 14 93 14 100

* Their expertise is current as of April 1, 2018

Nomination and Remuneration Advisory Committee

The board of directors will set up a Nomination and Remuneration Advisory Committee as an advisory body to the board to develop a fair and transparent corporate governance system. The Committee will consist of the Chairman, the President, and all outside executives (two outside directors and three outside auditors) where the majority must be outside executives, and the chairperson must be an outside director.

The Board of Directors determines the directors and executive officers’ remunerations within the amount specified by resolution of the general meeting of shareholders, taking into consideration the opinions stated by the Nomination and Remuneration Advisory Committee.

Risk Management Committee

Information regarding the Risk Management Committee is found in “Risk Management/ Risk Management Structure.”

In fiscal 2017, the CSR and Risk Management Committee* , the Compliance Subcommittee, and the BCP Subcommittee met four times, twice, and four times, respectively, while the Board of Directors received four sessions of reporting.

* Since fiscal 2017, the CSR and Risk Management Committee has been a place of cooperation and informational sharing from a CSR perspective not only from the perspective of conventional risk management but also issues such as the management progress of challenges in CSR initiatives that is organized as a traditional risk management committee which includes the necessary promotion of CSR management. As of fiscal 2018, the conventional name was revised following the establishment of the Sustainability Committee.

Sustainability Committee

The new Sustainability Committee was established in fiscal 2018 based on the growing requirements for medium to long-term initiatives and informational disclosure about the Environment, Society and Governance (ESG).

The Sustainability Committee is made up of executive officers, directors and divisional mangers with the President acting as the Committee chairperson. The Committee is convened four times a year to formulate and promote initiatives for medium to long-term ESG challenges related to the sustainability of the Sumitomo Forestry Group in addition to conducting progress management of the Mid-Term CSR Management Plan, which incorporates business strategies toward achieving the SDGs, including monitoring of work operations and the effectiveness from the Corporate Philosophy and Action Guidelines to the Code of Conduct.

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Internal Audits

Sumitomo Forestry's Internal Audit Department draws on risk assessments in selecting about 60 business sites from among the roughly 200 business sites, including subsidiaries, each year to conduct internal audits. The sites are selected by specifying an order of priority based on the two perspectives of operational risk (business results, size, complexity of business, etc.) and control risk (risk management framework).

In the internal audits, the department checks on how a site is executing its operations and managing its office work, including its compliance with laws and regulations, and it reports its findings to the President, the executive officer in charge of internal audits and to internal auditors, as well as to the manager responsible for the site and the executive officer or director in charge of the business site. Furthermore, if any indications have been made, the department checks the improvement efforts implemented at the site, such as by examining documents and conducting quarterly follow-up reviews, in accordance with the necessary compliance to laws and internal regulations and reports on these to the President and to the executive officer in charge.

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Executive Remuneration

In accordance with laws and regulations, Sumitomo Forestry discloses the remuneration paid to officers (directors and auditors) each fiscal year.

Total Remuneration Paid to Directors and Auditors (FY2017)

Category Number of Personnel Total Amount
(Million yen)
Director 10 540
Auditors 5 76
Total 15 616

*1 It is a requirement in Japan to indicate the names and the amounts of directors who receive ¥100 million or more in remuneration in the annual securities report. However, there are no applicable individuals at this Company.

*2 Total amounts of director’s remuneration does not include a compensation as an employee or a compensation for the execution of other duties.

*3 Total amounts of director’s remuneration includes the total bonus of 146 million yen as resolved by the 78th General Meeting of Shareholders held on June 22, 2018.

*4 Total amounts of director’s remuneration includes the cost of 34 million yen allocating stock options for eight directors (excluding outside directors).

*5 Upper limits of directors and auditors’ remunerations are as below.

(1) The amount of remuneration for directors of no more than 40 million yen per month (no more than 5 million yen per month for outside directors) was approved at the 76th General Meeting of Shareholders held on June 24, 2016.

(2) The amount of remuneration concerning stock acquisition rights as stock-based compensation stock option of no more than 100 million yen for directors (excluding outside directors) per year was approved at the 75th General Meeting of Shareholders held on June 23, 2015.
In addition, the abolishment of share-based payment type stock options for the transition to shares with restriction on transfer as remuneration of no more than 100 million yen was approved at the 78th General Meeting of Shareholders held on June 22, 2018.

(3) The amount of remuneration for auditors of no more than 8 million yen per month was approved at the 74th General Meeting of Shareholders held on June 20, 2014.

*6 Of the total remuneration of directors and auditor, the total amount paid to outside executives are shown in the table below

Total Remuneration Paid to Outside Executives (FY2017)

Number of Personnel Total Amount
(Million yen)
5 55

Calculation Method of Remuneration for Directors

Remuneration for directors comprises three types: monthly remuneration as basic remuneration, shares with restriction of transfer, and bonuses tied to business performance.

Remuneration for directors is determined within the monetary amount approved at the General Meeting of Shareholders by considering the level of consolidated recurring income and other management indicators.

In addition, policy decisions about the remuneration for directors and executive officers will be published in “Basic Policy on Corporate Governance”.

(Monthly remuneration)
40 million yen per month (no more than 5 million yen per month for outside directors) was approved at the 76th General Meeting of Shareholders held on June 24, 2016, and this fixed amount is paid every month.

(Share-based remuneration with restriction of transfer)
The adoption of a remuneration system to allot restricted shares of transfer in addition to share-based payment type stock options was approved at the 78th General Meeting of Shareholders held on June 22, 2018. The amount of remuneration through monetary claims for the allocation of restricted shares of transfer of no more than 100 million yen for directors (excluding outside directors) per year was approved. In addition, following the approval of this proposal, the amount of remuneration for acquisition rights as share-based payment type stock options excluding shares already issued was abolished.

(Bonuses)
Bonuses are paid to directors (excluding outside directors) every year after receiving approval at the General Meeting of Shareholders.

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Tax Strategies

All of the officers and employees of the Sumitomo Forestry Group adhere to laws and regulations, social norms of behavior and corporate regulations to act with the highest regard for ethics. We have put in place policies even for tax practices and strive to maintain and enhance tax compliance through efforts that include awareness raising for employees.

The Group properly and effectively takes steps to reduce the tax burden while striving to optimize tax payments. In business dealings which may present a high tax risk, we make efforts to reduce the tax risk by preparing systems for sufficient prior examination as well as request advice and guidance such as that from tax experts as necessary. Moreover, we do not engage in any tax strategies through interpretations or applications which stray from the meaning of the law.

Our Group strives to maintain favorable communication with the tax authorities and remains sincere and honest in all of our correspondences based in facts. In the event an issue is pointed out by the tax authorities, we investigate the cause of the problem immediately and take the appropriate measures to properly correct or improve the problem to prevent recurrence, except in cases involving a formal objection or appeal related to the measures or view of the tax authorities.

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CSR