Corporate Governance

Corporate Governance Basic Policy

The Morinaga Group will enhance its corporate governance with the aim of maximizing corporate value and achieving enduring corporate growth based on the basic policies of improving the health and efficiency of management, ensuring the reliability of its financial position, providing timely and appropriate disclosure of information, complying with laws and regulations, and strengthening the trust and relationships with all stakeholders.

(1) Positioning of Stakeholders

To enable us to fulfill our social responsibility in all areas of our business activities, we are committed to maintaining and further developing strong relationships with all stakeholders, who sustain our company, and achieving coexistence with society and sustainable growth in accordance with corporate principles and the code of conduct.

(2) Management Monitoring Functions

We are committed to building an effective internal control system by strengthening the management monitoring functions of the Board of Directors, appointing outside Directors and Statutory Auditors, requiring attendance by Standing Statutory Auditors at important meetings, and placing the Audit Division under the direct control of the President.

(3) Consistency in Thinking within the Entire Group

While respecting the independence of our subsidiaries, we endeavor to maintain close ties amongst the Group’s member companies.

Corporate Governance System

Management of Corporate Affairs

Morinaga’s “Rules on Decision-Making Criteria” states clear definitions of authority and responsibility for respective decision-making units, including the Board of Directors, Management Meetings, Directors, Executive Officers, and General Managers of individual divisions and departments.

Corporate Governance System

<Board of Directors>

The Board of Directors deliberately makes decisions on statutory matters and the execution of important business based on the business judgment principle and supervises the execution of business. The Board consists of ten Directors, out of which three are Outside Directors, seven are male, and three are female Directors.

Board of Directors

<Management Meetings>

Management Meetings, which is mainly comprised of Directors and Standing Statutory Auditors, deliberates and makes decisions on important management themes and other matters for which authority is delegated by the Board of Directors. To ensure the effectiveness and efficiency of deliberations at the Board of Directors and Management Meetings, sufficient prior discussions are made at various committees that serve as advisory bodies for the Boards. These committees include the IR Committee, which is concerned with information disclosure, and the Officer Appointment and Remuneration Committee, a forum to discuss matters concerning Directors’ personnel and remuneration matters.

<Executive Officer System>

With the aim of increasing the agility to respond to the changing business environment and accelerating the decision-making process, Morinaga has adopted an executive officer system. With this move, the Company delegated authority and responsibility for executing regular business relating to the implementation of strategies to Executive Officers, ensuring efficient management and a clarification of responsibilities for business execution.

Executive Officer System

CSR Issues Discussed at the Board of Directors

In FY2020/3, the Board of Directors discussed the following matters related to CSR:

- Donation to typhoon relief
The Board decided to donate 10 million yen to the areas hit by Typhoon Faxai and Typhoon Hagibis in 2019 via the Japanese Red Cross Society.
- Risk management
Implementation of risk management and challenges in FY2019/3; activity plan for the current year
- Compliance
Compliance efforts and challenges in FY2019/3; activity plan for the current year
- Customers’ voice and feedback
The Board discussed response to customers’ opinions and requests and associated issues
- Assessment of the Board’s effectiveness
The Board discussed whether it was functioning effectively based on third-party assessments and agreed on the issues towards improvement.
- Internal Control
The Board confirmed the effectiveness of internal control and approved the internal control report.

Auditing System

We have four Statutory Auditors, including three Outside Statutory Auditors. One of these three Outside Statutory Auditors is a Standing Statutory Auditor, and all of the four Statutory Auditors are male. In accordance with the Guidelines for Auditors, Statutory Auditors audit the Directors’ performance of their duties based on the Rules on Statutory Auditors’ Audit. Standing Statutory Auditors hold regular meetings with the Representative Director and attend management meetings of the Board of Directors and other important gatherings to audit the Directors’ performance of their duties. Audit Division, which is responsible for carrying out internal audit, directly reports to the President. Composed of five members, the Division audits all divisions (including subsidiaries) in a planned manner, and exchanges opinions with the divisions jointly with Standing Statutory Auditors. To ensure close cooperation, opinion exchange sessions are held regularly and as needed basis between all Statutory Auditors and the Accounting Auditor, as well as between Standing Statutory Auditors and the General Manager of the Audit Division. The General Manager of the Audit Division and the Standing Statutory Auditors attend the meetings of the Internal Control Steering Committee, which is composed of members selected from major divisions and departments, and exchange opinions with the Committee members on a regular basis. Morinaga appointed Deloitte Touche Tohmatsu LLC as its accounting auditor.

Auditing System

Basic Policy and Structure of Executive Remuneration System

(1) Basic Policy

Our Executive Remuneration Basic Policy stipulates that the Company shall establish and operate a system that prioritizes the strengthening of executives’ motivation for contributing to the enhancement of corporate value over the medium- to long-term and the achievement of sustainable growth, while discouraging excessive risk-taking. We are determined to continue pursuing a better remuneration system, ensuring the objectivity and transparency of the remuneration determination process and taking into account regulatory revisions and social trends in the future.

(2) Structure and Content of Remunerations

Under our executive remuneration system, a standard amount of total remuneration has been set for each title. To ensure competitiveness in the market, the standard amount is determined referring to the levels of executive remuneration paid by leading companies that are similar in size to Morinaga.
The standard amount of total remuneration for Executive Directors consists of fixed remuneration and performance-based remuneration.
Further, excluding non-residents in Japan, 10% of the total remuneration is paid in stock for the purpose of clarifying the linkage with the Company’s stock value and motivating them to make contributions to an improvement of medium- to long-term performance and corporate value. Considering their need to keep independence from management, Outside Directors and Outside Statutory Auditors only receive fixed remuneration, and excluded from the payment of performance-based remuneration.
The following shows the basic ratio of fixed and performance-based remunerations by title:

Structure of Executive Remuneration System

Assessment of the Board’s effectiveness

(1) Method of Analysis and Assessment

To analyze and assess the effectiveness of the Board of Directors as a whole, the Company conducted, during the period from February through March 2020, a survey and interviews of all (including Outside) Directors and Statutory Auditors regarding: 1) the composition, operation, and agendas of the Board; 2) appointment of, and remuneration for, management team members; 3) risk management; 4) dialogues with shareholders; 5) systems supporting the Board; and 6) matters pointed out in the past Board meetings. Based on the results, an opinion exchange session was held at a Board meeting and a self-assessment was undertaken by each member.
Moreover, in order to obtain objective opinions from experts, we engaged an independent law firm to analyze and assess the results of the survey. By referring to the law firm’s analysis and assessment, discussions were held at a Board meeting in May 2020, and the effectiveness of the Board of Directors was finally determined.

(2) Results of Assessment

As a result of the assessment, Morinaga’s Board of Directors for FY2020/3 was determined to be “functioning effectively” in light of the Companies Act and the Corporate Governance Code, as no significant malfunctions or lack of systems were identified. Based on the above, it was acknowledged that the Board of Directors was demonstrating its effectiveness in accordance with the Morinaga Group’s basic concept of corporate governance.

(3) Efforts for Improvement

There were some issues identified in the FY2019/3 assessment of the Board’s effectiveness. They included: 1) enhancement of the content of reports to the Board of Directors; 2) review and adjustment of the report’s scope; and 3) promotion of cross-functional discussions. While we believe that, with regard to these issues, a significant progress has been made based on the FY2020/3 effectiveness assessment, we are committed to making further improvements in the future by sharing newly arising issues and practical solution proposals at the meetings of the Board of Directors.

(4) Action to be Taken in the Future

On the other hand, we shared the recognition that the following issues must be resolved in the future to strengthen the functions of the Company’s Board and further improve its effectiveness and governance:

(i) The composition of the Board must be more balanced by, for example, increasing the ratio of Outside Directors;
(ii) Matters to be resolved or reported should be selected appropriately after providing the Board with sufficient information (including an enhancement of the report’s content and review/adjustment of the scope);
(iii) The processes to nominate Directors and determine their remuneration should be clarified further;
(iv) Sufficient discussions need to be held on the risk management;
(v) Discussions with a stakeholder’s perspective should be accelerated;
(vi) Cross-functional discussions should be accelerated further.

Based on the assessment of the Board’s effectiveness, we are determined to further improve the Board’s effectiveness and strengthen our corporate governance by making necessary improvements for the solution of issues listed above.

Changes in Our Response to the Corporate Governance Code

Changes in Our Response to the Corporate Governance Code

Internal Controls

The Morinaga Group is committed to maximizing corporate value and achieving an enduring corporate growth by strengthening our internal control system, increasing the management efficiency, operating its business properly, and ensuring effective supervisory and audit practices. To ensure appropriate execution of duties, the Board of Directors endeavors to establish an effective internal control system as well as a system of compliance to legal requirements and internal rules including the Articles of Incorporation, while Statutory Auditors are responsible for auditing the effectiveness and functionality of such systems. In addition, Morinaga and its subsidiaries home and abroad have introduced a helpline to collect a wide range of information about compliance issues take appropriate measures against them.