Corporate Governance

Basic Approach

SMM views corporate governance as a disciplinary framework both for maximizing the corporate value of the SMM Group and for ensuring sound management practices. As such, it is one of the most important management issues.
SMM has established the following SMM Group Corporate Philosophy based on the Sumitomo Business Spirit.

(1) Sumitomo Metal Mining Co., Ltd. (SMM) in accordance with the Sumitomo Business Spirit, shall, through the performance of sound corporate activities and the pro-motion of sustainable co-existence with the global environment, seek to make positive contributions to society and to fulfill its responsibilities to its stakehold-ers, in order to win ever greater trust.
(2) SMM shall, based on respect for all individuals and rec-ognizing each person’s dignity and value, seek to be a forward-minded and vibrant company.

Through striving to enhance our corporate governance, SMM will conduct efficient and sound business activities, make positive contributions to society, and fulfill our respon-sibilities to our shareholders and all other stakeholders in order to realize the SMM Group Corporate Philosophy.

Governance Framework

SMM has adopted Audit & Supervisory Board and executive officer systems to ensure effective execution, monitoring, and supervisory functions within management. The Company is managed by three systems, namely (1) the Board of Directors, in charge of major decisions and supervision; (2) representa-tive directors and executive officers, in charge of the execu-tion of business; and (3) the Audit & Supervisory Board members and independent public accountant, in charge of auditing.

Corporate Governance Framework

Decision-Making and Business Execution Structures and System

Directors and the Board of Directors

SMM’s Articles of Incorporation provide for a Board of Directors of up to ten members, each appointed for one year, and the “Chairman and Representative Director” is the Chairman of the Board. Furthermore, our policies stipulate that one-third or more of directors shall be independent outside directors. Currently, SMM has three outside directors among our eight directors. With regard to our directors being eight in number, we have determined that this is an appropriate number for ensuring agility and active discussion by the Board.
SMM works toward continuous improvement of the func-tions of the Board of Directors and conducts an evaluation of its effectiveness every year in order to verify whether it func-tions appropriately and, based on the findings, to enact appropriate measures, such as ameliorating problems.

System of Internal Memorandums for Approval and the Management Committee

The basic method for making decisions on business execution is to examine and approve such matters through the system of internal memorandums. The Management Committee holds meetings for important management matters that require deliberation, thereby conducting careful decision-making and rational business judgment based on diverse perspectives.
The Management Committee is composed of the presi-dent, senior managing executive officers, and other executive officers. The Chairman of the Board as well as the outside directors, and Audit & Supervisory Board members may attend Management Committee meetings. Among matters to be resolved by the Board of Directors and matters to be approved by the president, the Management Committee will deliberate from a broad perspective on matters determined to require deliberation and then will determine whether those matters will be referred to the Board of Directors. The Committee also fulfills the function of supporting approval granted by the president.

Executive Officer System

Substantial authority has been delegated to executive officers whose authority and responsibilities have been clearly defined to reinforce their executive function. Appointed by the Board of Directors, executive officers are entrusted with important positions (such as heading a business division, or heading a division or department at SMM’s head office) and are expected to perform their duties with the specific author-ity assigned to each position.

Auditing System

Audit & Supervisory Board

At least half of the Audit & Supervisory Board members will be outside Audit & Supervisory Board members with a variety of expertise and diverse perspectives. Audit & Supervisory Board members from within SMM will conduct audits based on the particular characteristics of full-time members, such as by collecting information within the Company, and outside Audit & Supervisory Board members will conduct audits that make use of their areas of expertise.
In order to ensure managerial soundness and increase the corporate value of SMM, and in accordance with the audit poli-cies, audit plans, and other such matters prescribed by the Audit & Supervisory Board, each Audit & Supervisory Board member will attend meetings of the Board of Directors, the Management Committee, and other important meetings, receive reports and, when necessary, request explanations from directors, executive officers, and employees regarding the status of the performance of their duties, inspect important approval and other such documents, and examine the status of operations and assets at the head office and other major business sites. At meetings of the Audit & Supervisory Board, standing Audit & Supervisory Board members shall report the details of onsite audits that have been conducted solely by standing Audit & Supervisory Board members as well as of meetings that were not attended by outside members.

Collaboration between the Internal Audit Department, Independent Public Accountant and Audit & Supervisory Board Members

The Internal Audit Department regularly undertakes internal audits on the status of business execution across the SMM Group. The Department provides an explanation of its audit plans to Audit & Supervisory Board members while passing on all relevant information. At the same time, Audit & Supervisory Board members provide details of audit plans determined at meetings of the Audit & Supervisory Board to the Internal Audit Department, attend meetings when reports on the results of internal audits are delivered to executive officers and the heads of operational divisions and, when required, accompany staff of the Internal Audit Department when conducting internal audits. KPMG AZSA LLC, an independent registered public accounting firm, audits the consolidated financial statements and the effectiveness of the internal control over financial reporting. Audit & Supervisory Board members provide details of audit plans to the independent public accountant. Audit & Supervisory Board members in turn receive explanations regarding audit plans and reports on audit results from the independent public accountant. In this manner, close collabo-ration is maintained between the independent public accoun-tant and Audit & Supervisory Board members.

Outside Directors and Outside Audit & Supervisory Board Members

At important meetings such as those of the Board of Directors, outside directors are expected to express their views from a broad perspective based on their knowledge, experience, abilities, and insight and are expected to fulfill the function of providing objective supervision from a standpoint independent from the representative directors and the exec-utive directors. Outside Audit & Supervisory Board members use their specialized expertise and diverse perspectives to offer supervision, provide valuable comments at Board of Directors and other meetings, and exercise oversight.

Director and Audit & Supervisory Board Member Compensation

Maximum limits on the total amounts of basic compensation for directors and compensation for Audit & Supervisory Board members will be determined by resolution of the General Meeting of Shareholders. If bonuses are paid to directors, then the total amount of bonuses to directors, excluding out-side directors, will be determined in the same way.

1) Details of Procedures for Determining the Amount of Director Compensation
The president & representative director, with the authori-zation of the Board of Directors, will determine the amount of director compensation as outlined below. Meeting of Shareholders.

The specific amount of basic compensation for the Chairman of the Board and each director who also serves as an executive officer will be calculated by reflecting the indi-vidual performance of the director (calculated with posi-tion-specific evaluation items such as division performance, the degree to which individual targets set in accordance with medium- to long-term business strategies are being achieved, and safety results (number of labor accidents), etc. as standards) on a base compensation amount determined in consideration of the consolidated performance of the SMM Group; the compensation amount will then be determined after receiving the advice of the Governance Committee. The specific amount of each director’s bonus will be calculated by reflecting the individual performance of each director, which is calculated with the same position-specific evaluation items as the above standards, on a base bonus amount determined in consideration of the consolidated performance of the SMM Group; the bonus amount will then be determined after receiving the advice of the Governance Committee.
However, because of the importance placed on the outside directors fulfilling a supervisory function from a standpoint independent from business execution, individual performance will not be reflected and only the base compensation amount with no bonuses will be paid to outside directors.

2) Details of Procedures for Determining the Amount of Audit & Supervisory Board Member Compensation
The amount of basic compensation for each individual Audit & Supervisory Board member will be determined by consultation among the Audit & Supervisory Board members at the Audit & Supervisory Board within the total compensation amount approved by the General Meeting of Shareholders.

FY2018 Director and Audit & Supervisory Board Member Compensation

Officer Classification Number of Officers Total Compensation Total Compensation by Type
Basic Compensation Bonus
Directors (excluding outside directors) 6 ¥298 million ¥248 million ¥50 million
Audit & Supervisory Board members (excluding outside Audit & Supervisory Board members) 2 ¥64 million ¥64 million -
Outside directors 4 ¥40 million ¥40 million -
Outside Audit & Supervisory Board members 2 ¥23 million ¥23 million -

(Note)

  1. In addition to the aforementioned, an employee salary portion totaling ¥6 million was paid to one person who serves concurrently as a director and executive officer.

Procedures for Determining the Amount of Compensation for Directors and Audit & Supervisory Board Members

  • Takes into consideration the consol-idated performance of the Group.
  • Calculated reflecting the following position-specific evaluation items: Division performance, the degree to which individual targets set in accordance with medium- to long-term business strategies are being achieved, safety results (number of labor accidents), etc., and other individual items for evaluating each position.
  • Stipulated due to SMM’s emphasis on oversight functions from a standpoint independent of busi-ness execution.

Takeover Defense Measures

Takeover Defense Measures SMM has renewed our Countermeasures to Large-Scale Acquisitions of Sumitomo Metal Mining Co., Ltd. Shares (takeover defense measures) through partial revisions which received approval at the 94th Ordinary General Meeting of Shareholders held in June 2019. The effective period for the renewed measures is three years, up to the conclusion of the 97th Ordinary General Meeting of Shareholders to be held in June 2022.
The takeover defense measures have been introduced with the aim of deterring large-scale acquisition that have the potential to harm corporate value and the common interests of shareholders, and in the event of a large-scale acquisition of the Company’s shares, enabling the SMM Board of Directors to offer an alternative proposal to shareholders or ensure that shareholders have the information and time required to decide whether to accept said large-scale acquisition.
The takeover defense measures set out procedures that acquirers must adhere to in advance and include requirements for acquirers to furnish information. Under the Japanese legal system, a party making an acquisition propos-al does not have a duty to furnish information. Having take-over defense measures in place guarantees that a party making an acquisition proposal will furnish information and allows shareholders to compare statements by the acquirer and SMM management before deciding which course of action is preferable.
In cases in which the acquirer fails to follow the stipulated procedures, or if the large-scale acquisition of the Company’s shares meets certain conditions stipulated in advance and approval is gained through a general meeting of the Company’s shareholders, the gratis allotment of Stock Acquisition Rights will be exercised and the ratio of voting rights in the Company held by the acquirer will be diluted. Exercise of this measure requires the decision by an Independent Committee comprised of outside directors (independent officers), etc. in order to guarantee fairness and objectivity.

Formulating Corporate Governance Guidelines

SMM has established Corporate Governance Guidelines which cover our basic philosophy on corporate governance and our corporate governance framework, including our rela-tionship with stakeholders.

Outside Directors and Outside Audit & Supervisory Board Members

Outside Director
Hitoshi Taimatsu
Reason for Appointment: In light of his specialized knowledge as a researcher in materials engineering specializing in metals and his organizational management experience at his university, he was appointed as an outside director to continue fulfilling his role in strengthening corporate governance.
Attendance at Meetings: In FY2018, the Board of Directors convened 18 times (12 regular meetings and 6 extraordinary sessions). He attended all meetings.
Outside Director
Kazuhisa Nakano
Reason for Appointment: He offers a wealth of knowledge and experience in company management and natural resources business and was appointed as an outside director to continue fulfilling his role in strengthening corporate governance.
Attendance at Meetings: In FY2018, the Board of Directors convened 18 times (12 regular meetings and 6 extraordinary sessions). He attended 17 meetings (12 regular meetings and 5 extraordinary sessions).
Outside Director
Taeko Ishii
Reason for Appointment: Based on her specialist knowledge and wealth of experience as a lawyer, she was appointed as an outside director to provide advice to SMM on business matters, particularly from a compliance perspective.
Attendance at Meetings: In FY2018, the Board of Directors convened 13 times since she joined (9 regular meetings and 4 extraordinary sessions). She attended 12 meetings (8 regular meetings and 4 extraordinary sessions).
Outside Audit & Supervisory Board Member
Junichi Kondo
Reason for Appointment: He was appointed as an outside Audit & Supervisory Board member in order to exercise oversight that leverages his wealth of financial institution experience.
Attendance at Meetings: In FY2018, the Board of Directors convened 18 times (12 regular meetings and 6 extraordinary sessions), and the Audit & Supervisory Board convened 16 times. He attended all meetings of both.
Outside Audit & Supervisory Board Member
Yuichi Yamada
Reason for Appointment: He was appointed an outside Audit & Supervisory Board member in order to exercise oversight that leverages his auditing experience accumulated over many years at audit firms as well as his extensive knowledge of accounting.
Attendance at Meetings: In FY2018, the Board of Directors convened 18 times (12 regular meetings and 6 extraordinary sessions), and the Audit & Supervisory Board convened 16 times. He attended all meetings of both.

Initiatives to Strengthen Governance at SMM

SMM positions corporate governance as one of the most important issues in our management, and is taking steps to strengthen governance.
In FY2016, we conducted discussions on what our Board of Directors should ideally be, and shared this understanding within the Board. We also convened an Outside Directors Council meeting as a venue for exchanging ideas among outside directors and outside Audit & Supervisory Board mem-bers.
To achieve even better corporate governance going for-ward, we will appropriately review our corporate governance framework in accordance with revisions to laws, changes in social conditions, and other external factors.

Transitions in Governance at SMM

June 2001
Introduction of the executive officer system [A]
Introduced the executive officer system with the aim of separating decision-making and supervisory functions in management, and revised the management system with the aim of further enhancing and strengthening the functions of each of these.
February 2007
Introduction of takeover defense measures [B]
Introduced countermeasures to large-scale acquisitions of the Company’s shares (takeover defense measures).
June 2007
Appointment of an outside director [C]
Appointed one outside director in order to strengthen corporate governance through objective management decisions by an independent, external director. Shortened the term of directors from two years to one year to clarify management responsibilities.
June 2015
Board of Directors composition changed to include two outside directors [D]
November 2015
Establishment of a Governance Committee and evaluation of the effectiveness of the Board of Directors [E]
Established a Governance Committee, which is not based on legal direction or necessity, for the purpose of obtaining objective advice from the Chairman of the Board and outside directors, who are not executive officers. Started analyzing and evaluating the effectiveness of the Board of Directors in FY2015.
February 2016
Establishment of Corporate Governance Guidelines [F]
Established the SMM Corporate Governance Guidelines which cover our basic philosophy on corporate governance and our corporate governance framework.
June 2016
Board of Directors composition changed to include three outside directors [G]
Appointed three outside directors in order to have one third or more of the directors in the Board of Directors be outside directors.
August 2016
Outside Directors Council meeting held [H]
Started convening Outside Directors Council meetings as a venue for discussion attended only by outside directors and outside Audit & Supervisory Board members, providing an opportunity for outside directors and outside Audit & Supervisory Board members to exchange information and share understanding.
December 2016
Discussion of what the Board of Directors should ideally be [I]
The Board deliberated what SMM’s Board should ideally be, reaffirming that the Board make a point of making decisions.
February 2017
Evaluation of the effectiveness of the Board of Directors [J]
After discussions on the effectiveness evaluation, the following initiatives were implemented.
•On April 1, 2017, standards for putting items on the agenda for the Board of Directors meetings were revised and the number of agenda and reporting items was reduced, especially those that are formalities.
•Site visits by outside directors were strengthened and systemized.
February 2018
Evaluation of the effectiveness of the Board of Directors [K]
After discussions on the effectiveness evaluation, decided to establish opportunities to discuss management issues and policies at Board of Directors meetings twice a year from FY2018.
June 2018
Appointment of a female director [L]
Appointed the Company’s first female director (outside).
February 2019
Evaluation of the effectiveness of the Board of Directors [M]

Evaluation of the Effectiveness of the Board of Directors

According to the Corporate Governance Code formulated by the Financial Services Agency and the Tokyo Stock Exchange, Inc., the effectiveness of the entire board of directors should be analyzed and evaluated and a summary of those results should be disclosed. Referring to each director’s self-evaluation is a large pillar of this evaluation of the effectiveness of the board of directors. Also, the same is stipulated in SMM’s Corporate Governance Guidelines, and the Board has been carrying out evaluations of itself, regarding appropriate decision-making and supervisory functions, since FY2015.

Overview of the Evaluation of Effectiveness

For the analysis and evaluation of the effectiveness of the Board of Directors, the Board carries out a questionnaire tar-geting the directors and Audit and Supervisory Board mem-bers every year. To make sure the responses are not seen by administrative staff, the responses are sent to an external law office, where the results are analyzed. The questionnaire covers mainly the supervisory function of the Board of Directors, its size, composition, and overall operation, training of the directors, the provision of information such as the site visits by outside directors, and self-evaluations. The Board analyzes and evaluates the effectiveness of itself based on external evaluation by the law office.

The Process of Evaluating the Effectiveness of the Board of Directors

FY2018 Evaluation Results and Initiatives Going Forward

The response on the FY2018 self-evaluations done by each director was that overall, initiatives are being undertaken at an acceptable level. The Company’s Board of Directors com-pared this to what the Board of Directors should ideally be, which was discussed in FY2016, and confirmed that there were no major issues with their effectiveness, and that they are demonstrating their supervisory function through deci-sion-making. Regarding the revision of various reporting items to secure time for more in-depth deliberations that was undertaken based on the FY2016 and FY2017 evaluations of effectiveness of the Board of Directors, it was evaluated as being appropriately improved. Also, regarding opportunities to discuss management issues and policies, discussions con-cerning policy for drawing up the 3-Year Business Plan and the necessity of takeover defense measures were discussed at Board of Directors meetings, and discussions were also held regarding separate projects. Furthermore, in the survey, many respondents answered that the overall operation of the Board of Directors enabled serious and dynamic deliberation that provided sufficient opportunities to speak, showing proceed-ings are being managed appropriately. In FY2018, with a view to enabling in-depth deliberation regarding important man-agement items at Board of Directors meetings, discussions were held to consider way monthly business reports are han-dled and further narrow down the agenda, and it was con-firmed that improvements are ongoing. Going forward, we will strive to continually improve the effectiveness of the Board of Directors.

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