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

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

SMM has adopted a Company with Audit & Supervisory Board system and an executive officer system to ensure effective execution, monitoring, and supervisory functions within management.

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 relationship with stakeholders.

Corporate Governance Framework

Decision-Making and Supervisory 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 functions of the Board of Directors and conducts an evaluation of its effectiveness every year in order to verify whether it functions appropriately and, based on the findings, to enact appropriate measures, such as ameliorating problems.

Governance Committee

The Governance Committee is composed of the chairman of the Board of Directors, who is not an executive officer, and independent outside directors and it was established to provide the president with advice from an objective standpoint with regard to particularly important matters relating to corporate governance, including the nomination and compensation of directors, executive officers, and others.

In September 2019, outside director Kazuhisa Nakano was appointed as chair of the Governance Committee.

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 executive 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.

All SMM outside directors and Audit & Supervisory Board members meet the criteria for independence established by the Tokyo Stock Exchange, Inc. as well as our own internal independence standards, and all outside directors and Audit & Supervisory Board members have been declared as independent officers, pledging that there is no conflict of interest with that of shareholders. We also publish our standards governing the independence of outside officers in Corporate Governance Guidelines.

Reason for Appointment Attendance at Meetings
Outside Director
Kazuhisa Nakano
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. In FY2019, the Board of Directors convened 14 times (12 regular meetings and 2 extraordinary sessions). He attended all meetings.
Outside Director
Taeko Ishii
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. In FY2019, the Board of Directors convened 14 times (12 regular meetings and 2 extraordinary sessions). She attended all meetings.
Outside Director
Manabu Kinoshita
He has abundant knowledge and experience in managing a company and in relation to digital business. He was appointed as an outside director so that he may utilize his knowledge and experience to fulfill a role in strengthening corporate governance. He was newly appointed as an outside director at the Ordinary General Meeting of Shareholders held in June 2020.
Outside Audit &Supervisory Board Member
Yuichi Yamada
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. In FY2019, the Board of Directors convened 14 times (12 regular meetings and 2 extraordinary sessions), and the Audit & Supervisory Board convened 15 times. He attended all meetings of both.
Outside Audit & Supervisory Board Member
Wataru Yoshida
He offers a wealth of experience in financial institutions and has abundant knowledge of managing a company. He was appointed as an outside Audit & Supervisory Board member with the expectation that he will utilize his knowledge and experience to fulfill the role. He was newly appointed as an outside Audit & Supervisory Board Member at the Ordinary General Meeting of Shareholders held in June 2020.

Business Execution Structures and System

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 president, executive officer of the Corporate Planning Department, 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 authority assigned to each position.

Auditing System

Audit & Supervisory Board

The Audit & Supervisory Board has four members (two standing Audit & Supervisory Board members and two outside Audit & Supervisory Board members). Internal Audit & Supervisory Board members are able to conduct rigorous audits by their ability to collect information within the Company in an appropriate and timely manner. Outside Audit & Supervisory Board members conduct independent audits by utilizing their specialized knowledge in various fields and multilateral viewpoints.

In order to ensure managerial soundness and increase the corporate value of SMM, and in accordance with the audit policies, 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.

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, accompany staff of the Internal Audit Department as required when conducting internal audits, and attend meetings when reports on the results of internal audits are delivered to executive officers and the heads of operational divisions. In FY2019, Audit & Supervisory Board members attended such meetings 16 times. 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 and reports reviewing each quarter from the independent public accountant. In this manner, close collaboration is maintained between the independent public accountant and Audit & Supervisory Board members.

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.

FY2019 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 ¥262 million ¥220 million ¥42 million
Audit & Supervisory Board members (excluding outside Audit & Supervisory Board members) 2 ¥65 million ¥65 million -
Outside directors 3 ¥41 million ¥41 million -
Outside Audit & Supervisory Board members 2 ¥23 million ¥23 million -

(Note)

  1. In addition to the aforementioned, an employee salary portion totaling ¥21 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 business execution.

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 members.
To achieve even better corporate governance going forward, 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 started 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.
June 2018
Appointment of a female director [J]
Appointed the Company’s first female director (outside).
September 2019
Appointment of the chair of the Governance Committee
Appointed an outside director as the chair of the Governance Committee

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 targeting the directors and Audit and Supervisory Board members 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

FY2019 Evaluation Results and Initiatives Going Forward

The FY2019 analysis and evaluation of the Board of Directors’ effectiveness found that with reference to “what the Board of Directors should ideally be,” the Board of Directors exercises its supervisory functions through its decision making, and it was confirmed that no serious problems were perceived in the effectiveness of the Board of Directors. Additionally, although the FY2019 questionnaire surveyed the necessity of a review of “what the Board of Directors should ideally be,” as three years had passed since the formulation of this policy, all directors were in agreement that the review of policy was not required. Many questionnaire responses stated that discussion was conducted from diverse perspectives, with outside directors and Audit & Supervisory Board members actively stating their opinions based on their experience and respective fields of specialty. Overall, the evaluation confirmed that the Board of Directors conducted appropriate discussion and deliberation. Meanwhile, regarding the need to establish opportunities for discussion and deliberation of important management issues, an area for improvement identified in the FY2017 and FY2018 evaluations, it was confirmed that although the Board of Directors worked to create such opportunities, it was not able to discuss each of SMM’s three business segments in a balanced manner. Also, there was a need for the Board to take the perspective of a Board of Directors, which focuses on decision-making function, to revisit and check the implementation progress and results of investment projects that it previously resolved. The Board of Directors also confirmed that in addition to steps that include reviewing items for report and checking the affiliation of the chairperson, reports on the latest trends in corporate governance will also be made to the Board of Directors as part of initiatives to increase training opportunities for officers. Through the discussion and deliberation outlined above, in FY2019 the Board of Directors confirmed it was taking steps to 1) deliberate on important management issues and monitor investment projects resolved by the Board of Directors, 2) have reports on current issues (securing personnel, etc.) made to the Board of Directors and carry out related discussion, and 3) have reports on recent trends in corporate governance made to the Board of Directors. It also confirmed that these steps are being taken in ongoing manner. Going forward, we will make further efforts to enhance the efficiency of the Board of Directors.

Takeover Defense Measures

SMM has introduced takeover defense measures in the event that it receives a proposal for a large-scale acquisition of its shares. The aim of these measures is to enable the Board of Directors to present an alternative proposal to shareholders or ensure necessary time and information for shareholders to decide whether or not to accept the large-scale acquisition proposal, to deter large-scale acquisitions that are detrimental to the corporate value of the Company and the common interests of its shareholders, or to take other actions as necessary.
In 2019, SMM renewed its Countermeasures to Large-Scale Acquisitions of Sumitomo Metal Mining Co., Ltd. Shares (Takeover Defense Measures) to put in place the procedures necessary for realizing the above aims, such as requiring that an acquirer provides information in advance in the case that said acquirer intends to make an acquisition of 20% or more of the Company’s share certificates or other equity securities.

For further details, please refer to the relevant news releases for February 14 and 15, 2019.
https://www.smm.co.jp/E/news/release/2019/02/post-1558.html
https://www.smm.co.jp/E/news/release/2019/02/post-1566.html

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