Basic Policy

The Sumitomo Forestry Group utilizes wood as a healthy and environmentally friendly natural resource to provide a diverse range of lifestyle-related services that contribute to the realization of a sustainable and prosperous society. All our efforts are based on Sumitomo’s Business Spirit, which places prime importance on fairness and integrity for the good of society. 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 functions from operational execution functions. Comprised of nine directors (seven male, two female) including three outside directors (one male, two female), the Board of Directors is structured to make 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. The Nomination and Remuneration Advisory Committee has been established to provide opinion to the Board of Directors on selecting director and statutory 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 statutory auditors. In addition to attending important meetings within the Company, the statutory 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 March 30, 2021, nine directors (including three outside directors), five auditors (including three outside auditors) and 19 executive officers were appointed to the Company. The Company notified Tokyo Stock Exchange, Inc. of the designation of the three outside directors and three outside statutory auditors as independent officers as required by its regulations.

To strengthen the supervisory functions of the Board of Directors, the 81st General Meeting of Shareholders held on March 30, 2021 added one additional outside director so that at least one third of the Board of Directors is comprised of outside directors.

Corporate Governance System

Corporate Governance System

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 10 times while Executive Committee meetings were held 17 times in the fiscal year ended December 31, 2020 (9 months from April 2020 to December 2020 due to the change in the accounting period).

List of Directors

Position*1 Name Responsibility and Significant Concurrent Positions*1 Board of Directors*2
Attended Meetings (meetings) Attendance Rate (%)
Chairman of the Board and Representative Director Akira Ichikawa 10 100
President and Representative Director
President and Executive Officer
Toshiro Mitsuyoshi 10 100
Representative Director
Executive Vice President and Executive Officer
Shigeru Sasabe Administering Timber and Building Materials Division and Environment and Resources Division 10 100
Representative Director
Executive Vice President and Executive Officer
Tatsuru Satoh Administering Lifestyle Service Division
In charge of General Administration, Secretary, External Relations, Personnel, IT Solutions, Intellectual Property, Internal Audit, and Tsukuba Research Institute
Statutory Auditor of Kumagai Gumi Co., Ltd.
10 100
Director
Managing Executive Officer
Tatsumi Kawata Administering Housing and Construction Division
In charge of Corporate Planning, Finance, Corporate Communications, and Sustainability
10 100
Director
Managing Executive Officer
Atsushi Kawamura Divisional Manager of Overseas Housing and Real Estate Division 9*3 100*3
Outside Director Junko Hirakawa Attorney at Law
Outside Director of Tokyo Financial Exchange Inc.
Outside Director of Hitachi Construction Machinery Co., Ltd.
10 100
Outside Director Izumi Yamashita Outside Director of AEON Bank, Ltd. 10 100
Outside Director Mitsue Kurihara Chairman and Representative Director of Value Management Institute, Inc.
Outside Director of Chubu Electric Power Co., Inc.
- -

*1 Position, responsibility and significant concurrent positions as of March 30, 2021

*2 Attended meetings and the attendance rate to Board of Directors meetings are for the fiscal year ended December 31, 2020

*3 Attended meetings and attendance rate of Board of Directors meetings are after appointment as a director on June 23, 2020

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 a pool of personnel with superior personality traits and acumen, and potential value to the Company through consultation with the Appointment and Remuneration Advisory Committee. Summaries of background and interlocking status of the directors are available on the website.

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

  1. Assessment Method
    We assessed the effectiveness of the Board of Directors in the current fiscal year by checking whether the Board has been fulfilling its role with respect to our Basic Policy on Corporate Governance (hereinafter “progress check”), and exchanging opinions with the outside directors and outside statutory auditors about the Board of Directors, in addition to conducting questionnaires for all directors and statutory auditors (anonymous questionnaire conducted directly by a third-party agency to ensure anonymity) while receiving advice from external bodies on self-assessments and analysis.
  2. Assessment Results
    • The results of the questionnaires, progress check, and exchange of opinions with outside officers found that the functions of the Board of Directors were effective overall.
    • As efforts to address issues discovered as a challenge in the assessment last fiscal year, we verified the progress of work such as that to develop and employ human resources for management pointed out by the Nomination and Remuneration Advisory Committee, in addition to confirmation through debate at the informal meeting of executive officers on future business strategies according to the next mid-term management plan and in light of the coronavirus disease (COVID-19)to enhance deliberations by Board of Directors.
    • As future challenges, feedback requested such measures as those to further strengthen cooperation between outside officers and the internal auditing departments as well as to improve Board of Directors materials and formulate rules for reappointment of outside Directors.

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 statutory auditors, including the three outside statutory 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 10 times during fiscal 2020.

The appropriate human resources are also appointed as statutory 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. Board of Statutory Auditors meetings were held 4 times in the fiscal year ended December 31, 2020 (9 months from April 2020 to December 2020 due to the change in the accounting period).

List of Auditors

Position*1 Name Responsibility and Significant Concurrent Positions*1 Board of Directors*2 Board of Statutory Auditors*2
Attended Meetings (meetings) Attendance Rate (%) Attended Meetings (meetings) Attendance Rate (%)
Senior Statutory Auditor Akihisa Fukuda 9*3 100*3 8*3 100*3
Statutory Auditor Noriaki Toi 10 100 10 100
Statutory Auditor (Outside) Yoshitsugu Minagawa Chief Counselor of Norinchukin Research Institute Co., Ltd.
Supervisory Committee Member of The Norinchukin Bank
9 90 9 90
Statutory Auditor (Outside) Yoshimasa Tetsu Certified Public Accountant
External Auditor, Daiwa Motor Transportation Co., Ltd.
10 100 9 90
Statutory Auditor (Outside) Makoto Matsuo Attorney at Law
Outside Director of CAPCOM Co., Ltd. (Member of the Audit and Supervisory Committee)
Outside Statutory Auditor of Solasia Pharma K.K.
Outside Statutory Auditor of Taisho Pharmaceutical Holdings Co., Ltd.
9 90 10 100

*1 Position, responsibility and significant concurrent positions as of March 30, 2021

*2 Attended meetings and the attendance rate to Board of Directors meetings and Board of Statutory Auditors meetings are for the fiscal year ended December 31, 2020

*3 Attended meetings and the attendance rate to Board of Directors meetings and Board of Statutory Auditors meetings after appointment as senior statutory auditor on June 23, 2020

Outside Directors

In the selection procedure for outside directors and statutory auditors, determinations are based on the following standards of independence and professional criteria.

(1)Standards of Independence

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 whose purchase exceeds 2% of the consolidated net sales of the Company (operations executive if a holder is a company).
    • (2) Supplier (of which the Company is a major client): person of a supplier of which the Company's purchase exceeds 2% of the consolidated net sales of the supplier (operations executive if a holder is a company).
  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 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 (operations executive in case of a company).
  8. Family
    Spouse or relatives within the second degree of kinship of the person whose independency is rejected by this list of criteria (except non-essential individuals*).
  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

*A non-essential individual shall refer to the persons below based on the independence criteria prescribed by Tokyo Financial Exchange Inc.:
- Any person other than executive directors, executive officers, managers and employees of a general manager level at each company.
- Any person other than the employees, partners and associates of law, auditing or any other advisory firm.

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

(2) 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 serving 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%.

Nomination and Remuneration Advisory Committee

The Board of Directors establishes a Nomination and Remuneration Advisory Committee as an advisory body from which it seeks opinions to ensure fairness and transparency in matters including the selection of candidates for the Board of Directors and auditing posts, the selection of executive officers, the dismissal of board members, statutory auditors or executive officers, evaluations of the chief executive officer and other executive officers, and remuneration for board members and executive officers. The Nomination and Remuneration Advisory Committee will consist of the Chairman, the President, and all outside executives (three outside directors and three outside statutory 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.

List of Nomination and Remuneration Advisory Committee Members

Position*1 Name Nomination and Remuneration Advisory Committee*2
Attended Meetings (meetings) Attendance Rate (%)
Chairman of the Board and Representative Director Akira Ichikawa 2 100
President and Representative Director Toshiro Mitsuyoshi 2 100
Outside Director Junko Hirakawa 2 100
Outside Director Izumi Yamashita 2 100
Outside Director Mitsue Kurihara - -
Statutory Auditor (Outside) Yoshitsugu Minagawa 2 100
Statutory Auditor (Outside) Yoshimasa Tetsu 2 100
Statutory Auditor (Outside) Makoto Matsuo 2 100

*1 The position as of March 30, 2021.

*2 Attended meetings and the attendance rate to Nomination and Remuneration Advisory Committee meetings are for the fiscal year ended December 31, 2020.

Risk Management Committee

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

In fiscal 2020 (nine months from April to December 2020 due to the change in the accounting period), the Risk Management Committee, Compliance Subcommittee, and BCM Subcommittee met three times, one time, and two times, respectively, while the Board of Directors received three sessions of reporting.

Sustainability Committee

In response to matters including SDGs, final recommendations of TCFD and human rights issues, the 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 also appointed as director, and divisional mangers with representative director president and executive officer 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 including climate change in addition to analyzing risks and opportunities, conducting progress management of the Mid-Term Sustainability Targets, which incorporate business strategies toward achieving the SDGs, including monitoring of implementation and effectiveness of the Our Values and Code of Conduct.

The content of all committee proceedings is reported to the Board of Directors to enable our business operations to become part of the solution for social issues.

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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 in the Group every 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). As a general rule, we verify and assess documents and other evaluation items in-person on site. As a measure to prevent the spread of COVID-19 in fiscal 2020, we also incorporated paper and data audits focusing on overseas affiliates.

In the internal audits, the department checks on how a business 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 statutory auditors, as well as to the manager responsible for the business 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 business site, such as by examining documents and conducting quarterly follow-up reviews, and reports on these to the President, executive officer in charge of internal audits and statutory auditors.

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Executive Remuneration

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

Total Remuneration Paid to Directors and Statutory Auditors
(Fiscal Year ended December 31, 2020; Nine Months Due to the Change in the Accounting Period).

Category Number of Personnel Total Amount (Million yen)
Director 11 360
Auditors 6 59
Total 17 419

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

*2 The above includes three directors and one statutory auditor who retired at the conclusion of the 80th General Meeting of Shareholders held on June 23, 2020.

*3 The total amount of director remuneration does not include compensation as an employee or a compensation for the execution of other duties.

*4 The total amount of director remuneration includes the total bonus of 106 million yen as approved at the 81st General Meeting of Shareholders held on March 30, 2021.

*5 The total amount of director remuneration includes 24 million yen for allocating shares with restriction of transfer to nine directors (excluding outside directors).

*6 Of the total remuneration of directors and statutory auditors, the total amount paid to outside executives is shown in the table below.

Total Remuneration Paid to Outside Executives
(Fiscal Year ended December 31, 2020; Nine Months Due to the Change in the Accounting Period)

Number of Personnel Total Amount (Million yen)
5 42

Executive Remuneration

a. Determination policy and determination methods for the amount of executive remuneration and the calculation methods

The Sumitomo Forestry Group regards the establishment of an executive remuneration system as fundamental for directors and statutory auditors to fulfill the duty expected of them by all of its stakeholders toward achieving the Group's Corporate Philosophy.
With the exception of outside directors, remuneration for directors comprises basic remuneration and bonuses tied to business performance. Basic remuneration comprises monthly remuneration and remuneration provided by allocating shares with restriction of transfer (hereinafter “share with restriction of transfer”).
We determine the amount of basic remuneration for each directorship position according to roles and responsibilities. While the monthly remuneration which is part of the basic remuneration is paid as a fixed cash amount, 10% of the amount of basic remuneration is paid in shares with restriction of transfer. The cash payment amount is no more than 40 million yen per month (no more than 5 million yen per month for outside directors) according to a resolution by the General Meeting of Shareholders, while the monetary amount to be paid in the form of shares with restriction of transfer is to be determined by the General Meeting of Shareholders at no more than 100 million yen per year.
The purpose of remuneration in the form of shares with restriction of transfer is to provide medium to long-term incentive that heightens the desire to increase our corporate value and the sense of pride and motivation, while establishing a sense of values held in common with shareholders.
Remuneration tied to business performance is determined comprehensively based on a fixed formula (calculation formula in which the amount of bonuses fluctuates proportionality to profits) and with the approval of the General Meeting of Shareholders, with consideration given to consolidated recurring income excluding differences in actuarial calculations used in retirement benefits accounting, and current net income levels for parent company shareholders.
Remuneration for outside directors comprises only basic monthly remuneration determined according to their roles and responsibilities.
Remuneration for statutory auditors comprises only basic monthly remuneration.
We use the results of a survey conducted by a third party of directorship remuneration at domestic corporations in order to set director's remuneration at levels that are appropriate from the perspective of ensuring objectivity and appropriateness, including the director remuneration for outside officers

b. Determination policy regarding the payout ratio for bonuses tied to business performance and remuneration not tied to business performance

We do not determine a payout ratio for bonuses tied to business performance and the basic remuneration of directors excluding outside directors in advance. The method described in c. below decides the amount for bonuses tied to business performance, which accordingly determines the payout ratio for bonuses tied to business performance and the basic remuneration. The payout ratio for bonuses tied to business performance in the fiscal year ended December 31, 2020 was an average of 32.8% for all directors, excluding outside directors.

c. Factors related to bonuses tied to business performance, reasons for selecting these factors, and the method to determine the bonuses tied to business performance

We comprehensively determine the standard level for the amount of bonuses tied to business performance paid to each director based on a fixed formula (calculation formula in which the amount of bonuses fluctuates proportionality to profits), with consideration given to consolidated recurring income excluding differences in actuarial calculations used in retirement benefits accounting for the eligible accounting period, and current net income levels for parent company shareholders.
Because differences in actuarial calculations used in retirement benefits accounting each fiscal year is all amortized, the determination method has a characteristically large impact on business performance if the differences in the actuarial calculations fluctuate significantly due to stock price fluctuations, interest rate conditions and other such factors at the end of fiscal year. Therefore, the consolidated recurring income excluding differences in actuarial calculations used in retirement benefits accounting is used when determining the standard level of director bonuses.

d. Date and contents of resolutions on remuneration for directors at the general meeting of shareholders

The 81st General Meeting of Shareholders held on March 30, 2021 set bonuses tied to business performance for the fiscal year ended December 31, 2020 to a total of 106 million yen for six directors, excluding outside directors.
The resolution on the amount to limit remuneration for directors and statutory auditors approved by the General Meeting of Shareholders is as follows:

  • 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.
  • A limit on remuneration for directors (excluding outside directors) through the allocation of shares with restriction of transfer of no more than 100 million yen per year was approved at the 78th General Meeting of Shareholders held on June 22, 2018.
  • The amount of remuneration for statutory auditors of no more than 8 million yen per month was approved at the 74th General Meeting of Shareholders held on June 20, 2014.

The retirement bonus system for directors was abolished at the conclusion of the 65th General Meeting of Shareholders held on June 29, 2005.
The amount of remunerations for new stock acquisition rights as stock options for share-based remuneration was abolished at the conclusion of the 78th General Meeting of Shareholders held on June 22, 2018. Excluding shares already issued, no new stock acquisition rights have been allocated as stock options for share-based remuneration as of March 31, 2019.

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Sustainability Report