Organizational Governance

Corporate Governance

Epson strives to continuously strengthen corporate governance to ensure transparent, fair, timely and decisive decision-making so as to achieve the goals declared in the Management Philosophy, to promote sustainable growth, and to increase corporate value over the long-term. Toward this end, we have appointed multiple outside directors. We have also established a Director Nomination Committee and a Director Compensation Committee to serve as discretional advisory bodies for the Board of Directors.

Epson will continue to enhance the effectiveness of its corporate governance by further improving the supervisory function of the Board of Directors and by enhancing discussions at board meetings, as well as by speeding up decision-making in management as a company with an Audit & Supervisory Committee.

Principles of Corporate Governance

  1. Respect the rights of shareholders, and secure equality.
  2. Keeping the interests of shareholders, customers, communities, business partners, employees and other stakeholders in mind, work in an appropriately cooperative manner with them.
  3. Disclose company information as appropriate and ensure transparency.
  4. Directors, Executive Officers, and Special Audit & Supervisory Officers shall be aware of their fiduciary responsibilities and shall fulfill the roles and responsibilities expected of them.
  5. Epson shall engage in constructive dialogue with shareholders.

Corporate Governance Structure

Seiko Epson ("the Company") has established itself as a company with an Audit & Supervisory Committee with the aim of strengthening the supervision and monitoring of management and of speeding up decision-making by separating the management supervision and execution of operations.

The main corporate management bodies and their aims are described below.

Board of Directors

The Board of Directors, with a mandate from shareholders, is responsible for realizing efficient and effective corporate governance, through which the Company will accomplish its social mission, sustain growth, and maximize corporate value over the medium and long terms. To fulfill its responsibilities, the Board of Directors supervises general operations to ensure that operations are fair and transparent. The Board of Directors also makes decisions on important business affairs of the Company, such as decisions on the formulation of important business matters, such as the establishment of management plans and business plans and decision on investment projects that exceed a certain fixed amount of money.

The Board of Directors is composed of 12 directors, including five Outside Directors. Meetings of the Board of Directors are, as a rule, held once per month and as needed. The Board of Directors makes decisions on basic business policies, important business affairs, and other matters that the Board of Directors is responsible for deciding as provided for in internal regulations. Business affairs that the Board of Directors is not responsible for deciding are delegated to executive management, and the board monitors these. The Company is speeding up business decision-making as a company with an Audit & Supervisory Committee. To increase the agility of business, the scope of business affairs delegated by the Board of Directors to executive management has been expanded, so that the Board of Directors focuses only on the most important measures. The Company has further improved the supervisory function of the Board of Directors by specifying in the Corporate Governance Policy that at least one third of the members of the board should be Outside Directors.

Audit & Supervisory Committee

The Audit & Supervisory Committee, with a mandate from shareholders, is responsible for independently and objectively auditing and monitoring the execution of Director duties and for ensuring the sound and sustained growth of the Company. The Audit & Supervisory Committee establishes criteria for properly evaluating potential External Financial Auditors. After selecting External Financial Auditors, the Audit & Supervisory Committee verifies whether External Financial Auditors possess the necessary independence and expertise. In addition, the Audit & Supervisory Committee conducts audits in cooperation with internal audit departments and Financial Auditors.

The Audit & Supervisory Committee is composed of four Audit & Supervisory Committee members, three of whom are Outside Directors. It is chaired by a full-time member of the Audit & Supervisory Committee. Meetings are generally held once per month and as needed.

Compliance Committee

The Compliance Committee hears and discusses important matters concerning the Company's compliance program in order to supervise whether the compliance program is being properly implemented along the executive line. It reports its findings and offers opinions to the Board of Directors.

As an advisory body to the Board of Directors, the Compliance Committee is composed of Outside Directors and Directors who are Audit & Supervisory Committee members. It is chaired by the full-time member of the Audit & Supervisory Committee, and meetings are held once every six months and as needed.

A Chief Compliance Officer ("CCO") is chosen by the Board of Directors to oversee and monitor the execution of all compliance operations. The CCO periodically reports the state of compliance affairs to the Compliance Committee.

Director Nomination Committee & Director Compensation Committee

A Director Nomination Committee and a Director Compensation Committee, in which Outside Directors make significant contributions, serve as advisory bodies to the Board of Directors. The purpose of these committees is to ensure the transparency and objectivity of selections for Director, Executive Officer, and Special Audit & Supervisory Officer, as well as their compensation. Outside Directors comprise the majority of both committees, which also include the Representative Director/President and the Director in charge of human resources. Directors who are full-time members of the Audit & Supervisory Committee can attend meetings of either Committee as observers.

Corporate Strategy Council

The Corporate Strategy Council is an advisory body to the President. It was created to help ensure that the right decisions are made based on the advice and views of executive management. Meetings of the Corporate Strategy Council are held to discuss important matters that affect the entire Epson Group and matters brought up before the Board of Directors. The Corporate Strategy Council is composed of Directors, Executive Officers, and Special Audit & Supervisory Officers.

General Shareholders' Meeting

Policies and Procedures for Determining Compensation of Officers

With an aim to ensure transparency and objectivity, compensation of officers is determined by the General Meeting of Shareholders, the Board of Directors or Audit & Supervisory Committee after going through a fair, transparent, and rigorous reporting by the Director Compensation Committee in which Outside Directors make significant contributions.

Policies:
(Compensation for Officers who have executive duties)

  1. Compensation shall be incentive to improve business performance in order to increase corporate value in both the near and long terms.
  2. Compensation shall be sufficient to secure qualified persons both from within the Company and from outside.
  3. Compensation shall be commensurate with the business performance so that they can demonstrate their management capabilities to the fullest during their terms of offices.

(Compensation for Officers who do not have executive duties)

  1. The composition of compensation shall guarantee independence so that these Officers can suitably demonstrate their general management supervisory function, etc.
  2. Compensation shall be sufficient to secure qualified persons both from within the Company and from outside.

Procedures:
Officer compensation shall consist of the following components: basic compensation, bonuses, and stock compensation.

  1. Basic compensation Monetary compensation that is paid monthly in an amount decided by taking into account all factors such as the Officer's position and responsibilities.
  2. Bonuses Monetary compensation that is paid once per year in an amount decided in accordance with considerations such as the levels of achievement with respect to annual operating performance targets, etc.
  3. Stock compensation Stock-based compensation system wherein Company shares are delivered using a trust scheme, based on share delivery points awarded in accordance with considerations such as the levels of achievement with respect to the mid-to long-term operating performance targets.

Compensation to Directors (Fiscal year ended March 2018)

(Millions of yen)

Category Number of individuals (Persons) Fixed compensation Variable compensation Total
Base compensation Bonuses Stock compensation
Directors who are not Audit & Supervisory Committee Members
(of which, Outside Directors)
8
(2)
239
(28)
9
(-)
89
(-)
35
(-)
373
(28)
Directors who are Audit & Supervisory Committee Members
(of which, Outside Directors)
4
(3)
81
(48)
-
-
-
-
-
-
81
(48)
Total 12 321 9 89 35 454

Notes

  1. The base compensation for Directors who are not Audit & Supervisory Committee Members (excluding Outside Directors) consists of fixed compensation and variable compensation. Of which, variable compensation refers to the monetary compensation that reflects the results of annual performance evaluations based on criteria set according to their respective roles.
  2. The Company has introduced an officers' shareholding association system to link compensation more closely to shareholders' value. A portion of the base compensation is discretionally allotted for the acquisition of the Company's shares.
  3. Upon the resolution at the Ordinary General Meeting of Shareholders of June 28, 2016, the maximum base compensation was set to at 62 million yen per month for Directors who are not Audit & Supervisory Committee Members (including 10 million yen per month for Outside Directors) and at 20 million yen for Directors who are Audit & Supervisory Committee Members.
  4. Upon the resolution at the Ordinary General Meeting of Shareholders of June 27, 2018,the amount above includes bonuses to be paid to Directors in the amount of 89 million yen (amount to be paid to five Directors excluding Outside Directors and Directors who are Audit & Supervisory Committee Members).
  5. The Company introduced a performance-linked stock compensation plan (stock compensation) by employing a framework referred to as the officer compensation BIP (Board Incentive Plan) trust, for the purpose of showing its commitment to promoting sustainable growth and increasing its medium to long-term corporate value, in addition to strengthening the sense of sharing common interests with its shareholders.
  6. The number of individuals above includes one Director who is not Audit & Supervisory Committee Member who retired at the conclusion of the Ordinary General Meeting of Shareholders held on June 28, 2017.
  7. Stock options are not granted.

Policy and Independence Criteria for Appointing Directors

Policy for Appointing Directors

  1. Officers must be impartial and possess high integrity and ethical standards.
  2. Outside Directors must satisfy criteria concerning the independence of Outside Directors in order to guarantee their independence. The Board of Directors established "Criteria for Independence of Outside Directors".

Procedures for Appointing Directors

  1. After passing a fair, transparent, and rigorous screening and reporting by the Director Nomination Committee, Executive Director candidates and Executive Officers are selected by the Board of Directors in addition to the foregoing policy and on nomination criteria, such as broadness of insight, extensiveness of experience, sense of mission, sense of responsibility, leadership, and the ability to drive change.
  2. The Director Nomination Committee screens Non-Executive Director candidates and Special Audit & Supervisory Officers in a fair, transparent, and rigorous screening in line with the foregoing policy and on the basis of nomination criteria, including but not limited to broadness of insight, extensiveness of experience, sense of mission, sense of responsibility, management knowledge and specialized knowledge. The Director Nomination Committee reports its opinions to the Board of Directors, which finalizes the selections. The consent of the Audit & Supervisory Committee is required for nominating Director candidates who are Audit & Supervisory Committee Members and for appointing Special Audit & Supervisory Officers

Criteria for Independence of Outside Directors

The Company has established the criteria below to objectively determine whether potential Outside Directors are independent.

  1. A person is not independent if:
    1. The person considers the Company to be a major business partner1, or has served as an executive2 within the past five years in an entity for which the Company is a major business partner;
    2. The person is a major business partner3 of the Company or has served as an executive within the past five years in an entity that is a major business partner of the Company.
    3. The person is a business consultant, certified public accountant, or lawyer who has received a large sum of money or other forms of compensation4 (other than remuneration as an officer) from the Company or has, within the past three years, performed duties equivalent to those of an executive as an employee of a corporation or group, such as a union, that has received a large sum of money or other forms of compensation from the Company;
    4. The person is a major shareholder5 of the Company or has, within the past five years, been an executive or Audit & Supervisory Board Member of an entity that is a major shareholder of the Company;
    5. The person is an executive or Audit & Supervisory Board Member of an entity in which the Company is currently a major shareholder;
    6. The person is a major lender6 to the Company or has been an executive of a major lender to the Company within the past five years;
    7. The person has been employed by an auditing firm that has conducted a legal accounting audit of the Company within the past five years;
    8. The person has been employed by a leading managing underwriter of the Company within the past five years;
    9. The person has received a large donation7 from the Company or, within the past three years, has performed duties equivalent to those of an executive as an employee of a corporation or a group, such as a union, that has received a large donation from the Company;
    10. The person came from an entity that employs someone from the Company as an Outside Director; or
    11. A spouse or relative within the second degree of kinship of a person having the interests listed in (1) through (9) above.
  2. Even if any of the foregoing criteria apply to a potential Outside Director, the Company can elect that person as an Outside Director if that person satisfies the requirements for Outside Directors set forth in the Companies Act, and the Company deems the person suitable as an Outside Director of the Company in light of his or her personality, knowledge, experience, or other qualifications upon explaining and announcing the reasons thereof.

Notes

  1. A person (usually a supplier) considers the Company to be a major business partner if 2% or more of its consolidated net sales (consolidated revenue) has come from the Company in any fiscal year within the past three years.
  2. "Executive" means an executive officer, executive director or operating officer, or an employee occupying a senior management position of department manager or higher.
  3. A person (usually a buyer) is a major business partner if 2% or more of the Company's consolidated revenue has come from that partner in any fiscal year within the past three years.
  4. "A large sum of money or other forms of compensation" means an average annual amount for the past three years that is:
    1. no less than 10 million yen for an individual; or
    2. no less than 2% of the annual revenues in any fiscal year for a group.
  5. "Major shareholder" means a shareholder who directly or indirectly holds 10% or more of the voting rights.
  6. "A major lender" means a financial institution or other major creditor that is indispensable for the Company's financing and on which the Company depends to the extent that it is irreplaceable in any fiscal year within the past three years.
  7. "Large donation" means a donation whose annual average amount for the past three years exceeds either:
    1. 10 million yen or
    2. 30% of the annual expense of the group, whichever is higher.

Reason for appointed as Outside Directors, and Attendance at meetings of the Board of Directors

Name Reason for Appointment Attendance at meetings of the Board of Directors
Hideaki Omiya Mr. Omiya has served as a Chairman of the Board of Mitsubishi Heavy Industries, Ltd. and has a wealth of experience and insight as a corporate manager and engineer.
He has monitored corporate management by expressing opinions actively including findings and proposals regarding overall managerial issues from a perspective of a corporate manager well-versed in the global corporate management in the heavy industry, a difference business field.
We have appointed him as an independent Outside Director with the expectation that he will monitor corporate management appropriately aimed at achieving sustainable growth and improving the Company's corporate value over the medium-to long-term.
12 / 13 meetings
(92.3%)
Mari Matsunaga Ms. Matsunaga has created new business models and has a wealth of experience and considerable insight through her involvement in the management of multiple companies as Outside Officers. She has monitored corporate management by expressing actively opinions including findings and proposals regarding managerial issues from the viewpoints of collaboration with external parties and human resources strategy, etc.
We have appointed her as an independent Outside Director with the expectation that she will monitor corporate management appropriately aimed at achieving sustainable growth and improving the Company's corporate value over the medium- to long-term.
13 / 13 meetings
(100%)
Michihiro Nara Mr. Nara has a high level of expertise as an attorney. He has considerable insight and experiences through his involvement in the management of multiple companies as an independent outside officer and achievements as an Outside Director who is Audit & Supervisory Committee Member of the Company. We have appointed him as an Outside Director who is Audit & Supervisory Committee Member with the expectation that he will appropriately supervise and contribute to the soundness of the Company's management aimed at achieving sustainable growth and improving the Company's corporate value over the medium- to long-term. 13 / 13 meetings
(100%)
Chikami Tsubaki Ms. Tsubaki has a high level of expertise as a certified public accountant. She has a considerable insight and experiences through her involvement in the management of multiple companies as an independent outside officer, and achievements as an Outside Director who is Audit & Supervisory Committee Member of the Company. We have appointed her as an Outside Director who is Audit & Supervisory Committee Member with the expectation that she will appropriately supervise and contribute to the soundness of the Company's management aimed at achieving sustainable growth and improving the Company's corporate value over the medium- to long-term. 13 / 13 meetings
(100%)
Yoshio Shirai Mr. Shirai has served as Directors at Toyota Motor Corporation, Hino Motors, Ltd. and Toyota Tsusho Corporation, and has considerable insight and a wealth of experience as a corporate manager, and achievements as an Outside Director who is Audit & Supervisory Committee Member of the Company. We have appointed him as an Outside Director who is Audit & Supervisory Committee Member with the expectation that he will appropriately supervise and contribute to the soundness of the Company's management aimed at achieving sustainable growth and improving the Company's corporate value over the medium- to long-term. 13 / 13 meetings
(100%)

Policy of Training of Officers

Training of Internal Directors, Full-Time Audit & Supervisory Committee Members, Executive Officers, and Special Audit & Supervisory Officers

Training shall be provided to new appointees so that they acquire the knowledge, including about corporate governance that they will need as officers of a publicly listed company. The Company will invite businesspeople, lawyers, and other outside professionals to provide ongoing management, compliance, and other training to these officers after they assume their posts. They shall also seek to acquire the knowledge they need to fulfill their individual roles and responsibilities, and toward that end will undergo training appropriate for their roles at outside institutions.

Training of Outside Directors

The Company will explain Epson's businesses, strategies and the like to new appointees. To enable them to deepen their understanding of Epson's businesses, strategies, and the like after they assume their posts, Epson will provide ongoing learning opportunities. Epson will, for example, have the heads of the various businesses explain their operations, take the Outside Directors on tours of Epson's various offices and sites, and support their efforts to acquire the knowledge they will need to execute their roles and responsibilities.

Actions to Ensure Board Effectiveness

Seiko Epson seeks to continuously enhance the effectiveness of its board of directors pursuant to its Corporate Governance Policy. Toward this end, Seiko Epson has been analyzing and evaluating the effectiveness of its board of directors every year since FY2015 based on a self-evaluation questionnaire that all board members were asked to complete.

Evaluation Process

FY2018 Evaluation Results (results released in June 2018 for the 2017 fiscal year)

In FY2018, to make the evaluation more objective, we asked an independent firm to evaluate and provide feedback about each step in the process, from creating the questionnaire to analyzing and evaluating the answers.

Evaluation topics
  1. Board composition, functioning, and operation
  2. The function of the Audit & Supervisory Committee
  3. The function and operation of advisory bodies to the board
  4. Management team evaluation, compensation, and succession planning
  5. Dialog with shareholders
  6. Other
Summary of results

The board of directors as a whole was found to be functioning effectively, as was the case in FY2016. The board is of an appropriate size and diversity, the members engage in constructive debate and exchange of ideas under the fair and efficient operation of the chairman of the board, and authority is delegated appropriately by the board to the management team.

At the same time, it was noted that there are opportunities to further enhance board effectiveness by, for example, strengthening policies and systems for better mirroring the opinions expressed in constructive dialog with shareholders and by reinforcing the risk management in respect of the business strategy.

We will strive to further improve the effectiveness of the board by addressing these opportunities going forward.