CSR Information

Corporate Governance

Basic Concepts of Corporate Governance

Sumitomo Forestry Co., Ltd. (the “Company”) seeks to ensure management transparency as well as appropriateness and legality of its business and strives to promote expeditious decision-making and business execution under the Sumitomo Forestry Group‘s corporate philosophy of “utilizing timber as a renewable and environmentally friendly natural resource, and contributing to a prosperous society through all types of housing-related services,” following one of our Action Guidelines that requires us to “conduct business that is beneficial to society based on the principles of integrity and sound management.”

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 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 23, 2017, 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

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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.

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 24 times in fiscal 2016.

Attendance of Directors at Meetings of the Board Directors (FY2016)
Name and Responsibility/Expertise Board of Directors
Attended Meetings Attendance Rate
Chairman of the Board and Representative Director Ryu Yano 14 93%
President and Representative Director Akira Ichikawa President and Executive Officer 15 100%
Representative Director Hitoshi Hayano Executive Vice President/ Executive Officer
In charge of Secretarial, Corporate Communications and CSR
15 100%
Representative Director Shigeru Sasabe Executive Vice President/ Executive Officer
Divisional Manager of Overseas Business Division
15 100%
Director Ken Wada Senior Managing Executive Officer
In charge of Environment and Resources Division, Lifestyle Service Division and TOP2020 Promotion
14 93%
Director Tatsuru Satoh Senior Managing Executive Officer
Supervisor of Corporate Planning and Finance and in Charge of General Administration, Personnel, Information Systems, Intellectual Property, Internal Auditing and the Tsukuba Research Institute
15 100%
Director Akihisa Fukuda Managing Executive Officer
Divisional Manager of Timber & Building Materials Division
15 100%
Director Toshiro Mitsuyoshi Managing Executive Officer
In Charge of Tohoku Reconstruction Support Department and Divisional Manager of the Housing Division
15 100%
Outside Director Junko Hirakawa Lawyer
Partner of City-Yuwa Partners
15 100%
Outside Director Izumi Yamashita
12 100%
  • *1 The areas each is in charge as well as their expertise is current as of April 1, 2017
  • *2 In addition to the above, Board of Directors approval in writing was executed once based on the terms and conditions in Article 370 of the Companies Act of Japan and the Articles of Incorporation (April 19, 2016)
  • *3 Since appointed Director at the 76th General Meeting of Shareholders held on June 24, 2016, Izumi Yamashita has attended all of the all Board of Directors meetings.
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.

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.

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 10 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

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.

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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 2016.

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 6 times during fiscal 2016.

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.

1. Company's operation 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 10 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.

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

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.

Attendance of Auditors at the Board of Directors and the Board of Auditors (FY2016)
Name and Expertise Board of Directors Board of Statutory Auditors
Attended Meetings Attendance Rate Attended 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 15 100% 14 100%
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. 12 100% 11 100%
  • *1 The expertise of each person is current as of April 1, 2017
  • *2 Since he assumed as auditor at the 76th General Meeting of Shareholders held on June 24, 2016, Yoshitsugu Minagawa has attended all Board of Directors and Board of Auditors meetings.

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 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.

CSR/Risk Management Committee

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

In fiscal 2016, the Risk Management Committee, Compliance Sub-Committee, and BCP Sub-Committee met four times, twice, and four times, respectively, while the Board of Directors received four sessions of reporting.

  • * The CSR/Risk Management Committee is 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 that includes the necessary promotion of CSR management.

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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 (FY2016)
Category Number of Personnel Total Amount (Yen)
Director 10 537 million
Auditors  6 76 million
Total 16 612 million
  • *1 One director who resigned at the conclusion of the 76th General Meeting of Shareholders held on June 24, 2016 is included in the above.
  • *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 77th General Meeting of Shareholders held on June 23, 2017.
  • *4 Total amounts of director’s remuneration includes the cost of 33 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 4 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.
    • (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 (FY2016)
Number of Personnel Total Amount (Yen)
6 52 million
  • * One director who resigned at the conclusion of the 76th General Meeting of Shareholders held on June 24, 2016 is included in the above.

Calculation Method of Remuneration for Directors

Remuneration for directors comprises three types: monthly remuneration as basic remuneration, shared-based payment type stock options, and bonuses tied to business performance.

(Monthly remuneration)
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. 4 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.
(Shared-based payment type stock options)
Subscription rights are allocated to directors as a form of shared-based payment type stock options. These subscription rights shall allow directors to exercises these rights after the stated fixed period passes for these subscription rights. The amount of remuneration for acquisition rights as shared-based payment type stock options shall be no more than 100 million yen for directors per year as approved at the 75th General Meeting of Shareholders held on June 23, 2015.
(Bonuses)
Bonuses are paid to directors (excluding outside directors) every year after receiving approval at the General Meeting of Shareholders.

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CSR Report2017