Corporate Governance

Basic Approach

Under the revised Medium-term Management Plan announced in May 2021, we set forth “Your Reliable Partner for a Brighter Future” as our Vision for 2030. When establishing this Medium-term Management Plan (FY2023-2025), we determined that it would be necessary to adopt an extended timeline for the realization of carbon-neutral and circular society by 2050 as well as the future of energy and our vision for Idemitsu. Based on this, we established our Vision for 2050. We expressed the steady realization in 2040 and 2050 of the measures promoted as “Your Reliable Partner for a Brighter Future” and their social implementation looking ahead to 2030 as “Shaping Change.”

As moves toward global carbon neutrality accelerate, we believe it is very likely that the energy system and social structure will be significantly different in 2050. Within that process, many challenges wil arise, including discontinuous technological innovation, and there will be demand for leaders that can deliver new technologies in a form that society can accept.

In response to these social issues and environmental changes, we will fulfill our responsibilities to support people and their daily lives and to protect the global environment now and in the future by promoting social implementation based on the knowledge we have cultivated in the stable supply of energy and the relationships of trust we have built with local communities.

We will place emphasis on building good relationships with all stakeholders, including customers, shareholders, business partners, local communities, and employees by improving management transparency and promoting sound and sustainable growth. Japan’s Corporate Governance Code is aimed at achieving sustainable corporate growth and increasing medium- to long-term corporate value by maintaining dialog with shareholders. We strive to be both socially respected and highly trusted and believe that we must comply with the code in principle.

In addition, we openly discuss our business status and management circumstances with Independent Outside Directors and Independent Outside Audit & Supervisory Board Members who bring to bear a wide range of knowledge and backgrounds. We sincerely take heed of their views as we endeavor to continue operating in a transparent and fair manner.

出光興産, DFF Inc.

Outline of Corporate Governance System

The Board of Directors of Idemitsu shall make important business decisions and supervise the execution of business. As a company with an Audit & Supervisory Board, we shall ensure that the execution of duties by officers and employees is audited by Audit & Supervisory Board Members and the Audit & Supervisory Board, which remain independent of the Board of Directors. The Board of Directors shall, in accordance with laws, regulations, the Articles of Incorporation, and other rules set down by Idemitsu, make decisions on business strategy, business planning, and other key business matters for Idemitsu and supervise the execution of business. In order to increase the objectivity of the Board of Directors, we have made it possible to separate the roles of the chair and the President & Representative Director through the April 2019 revision of a clause in the Articles of Incorporation, which previously stipulated that the President & Representative Director serve as the chair of the Board of Directors, to instead mandate that the chair will be determined by the Board of Directors. As of FY2021, an Outside Director serves as chair of the Board of Directors.

With regard to matters other than those mentioned above, we shall delegate authority for business execution to the President & Representative Director as well as the heads of departments and other business units with a view to facilitating speedier decision making.

Corporate governance structure
Figure
Overview of the Board of Directors
Chairman Takeo Kikkawa (Outside Director)
Number of Directors 11
  Number of Independent Outside Directors (percentage) 4 (36%)
Number of female Directors (percentage) 2 (18%)
Term 1 year
Number of Board of Directors meetings held in FY2022 15
Overview of the Audit & Supervisory Board
Number of Audit & Supervisory Board Members 4
  Number of Outside Audit & Supervisory Board Members (percentage) 2 (50%)
Term 4 years
Number of Board of Directors meetings held in FY2022 16
Changes in corporate governance system
Graph
出光興産, DFF Inc.

Each Committee

(1) Nomination and Compensation Advisory Committee

To enhance the transparency and objectivity of its nomination and compensation functions, as an advisory body to the Board of Directors, we have in place the Nomination and Compensation Advisory Committee consisting of only Independent Outside Directors. This committee was created in July 2021 by merging the Nomination Advisory Committee and the Compensation Advisory Committee with an eye to facilitating consistent discussions regarding agenda items associated with nomination and compensation.

It issues recommendations on proposals for the General Meeting of Shareholders on the appointment and dismissal of Directors and Audit & Supervisory Board Members, appointment and dismissal of executive officers with titles, and other matters concerning nomination in response to inquiries from the Board of Directors.

It also issues recommendations on the amount of Director compensation, revisions to the compensation system, and other matters related to compensation in response to inquiries from the Board of Directors.

In FY2022, the Nomination and Compensation Advisory Committee met a total of seven times.

Composition and attendance of the Nomination and Compensation Advisory Committee (FY2022)
  Position Name Attendance
 Chaireman Outside Director Mitsunobu Koshiba 7 / 7 times
  Outside Director Takeo Kikkawa 7 / 7 times
  Outside Director Yumiko Noda 7 / 7 times
  Outside Director Maki Kado 6 / 7 times
Main Contents of Deliberations and Findings in FY2022
Nomination Compensation
  • Director and Audit & Supervisory Board Member candidate and Executive Officer with titles election proposals
  • Review of the official post structure
  • Review of the skill matrix
  • Executive Officer with titles regulations revision proposal
  • Succession plans etc.
  • Director evaluation and compensation in FY2021
  • Extension of the share trust period
  • Non-financial targets of the Representative Director and targets in the field of responsibility of Directors in FY2022
  • Revision of the executive compensation system (compensation level, composition, performance-linked compensation indicators and stock compensation plan, etc.)
Composition of the Nomination and Compensation Advisory Committee (FY2023)

Outside Director Takeo Kikkawa
  Outside Director Yumiko Noda
  Outside Director Maki Kado
 Chairman Outside Director Jun Suzuki
(2) Safety & Security Assurance Advisory Committee / (3) Advisory Board

To maintain the transparency and soundness of business management, we have established the “Safety and Security Assurance Advisory Committee” and the “Advisory Board,” both of which serve as advisory bodies to the Board of Directors and the President & Representative Director. With the inclusion of outside experts into their membership, these bodies are designed to ensure the reception of frank opinions on Idemitsu from a third-party perspective and reflect said opinions in management improvements.

The Safety and Security Assurance Advisory Committee was established as an advisory body to the Board of Directors for the purpose of preventing major disasters at refineries and complexes. It is in place as an advisory body for security enhancement issues, technical ones in particular. In addition, recent changes in the business environment have increased the importance of safety and security assurance in business expansion, new businesses, and setting up operations overseas. Therefore, we have set up a working group within the Safety & Environmental Protection Headquarters to select themes appropriate to business development and field outside experts’ recommendations on various themes.

The Advisory Board is designed to act as an advisory body to the President & Representative Director, with members consisting of Outside Directors and other outside experts, and has led to ample opportunity to contribute recommendations on management issues.

(4) Personnel Committee

The Personnel Committee was established as an advisory body to the President & Representative Director, with the aim of facilitating the optimal allocation of human resources, including Executive Officers, to optimal positions. It also aims to ensure fair and impartial evaluation and enhance the transparency of relevant decision-making processes. The members are the President & Representative Director, Vice President, the Officer in charge of personnel, and other officers appointed by the President to discuss and issue recommendations on such matters as the appointment and dismissal of Executive Officers and the selection of members of the Management Committee.

(5) DE&I Promotion Committee

We have established the DE&I Promotion Committee as an advisory body to the President to create new value together with diverse employees by building an environment where they can work enthusiastically and play an active role. In addition to Directors and the Executive Officer Responsible for HR, the DE&I Promotion Committee includes a diverse range of executives with differing attributes in terms of gender and job title. Outside Directors also participate in the committee as advisors. This committee identifies issues related to the promotion of DE&I promotion and makes recommendations to management, provides periodic reports to the Board of Directors, and plans and promotes company-wide initiatives.

(6) Management Committee / (7) Enterprise Risk Management Committee

The Management Committee and the Enterprise Risk Management Committee are charged with deliberating management strategies for the entire Group as well as for each executive department in addition to discussing and reviewing management issues. The Management Committee formulates and discusses strategies related to Group management and is a deliberative body that seeks to ensure smooth and appropriate decision making on important matters associated with business execution. The Enterprise Risk Management Committee is a body that determines and monitors risk management policies related to Group management.

The Management Committee and the Enterprise Risk Management Committee are both chaired by the President & Representative Director, with their membership primarily comprising individuals specializing in and/or supervising diverse business fields. This ensures that these committees are able to engage in comprehensive and effective discussions when addressing cross-departmental issues and risks. Specialized subcommittees are established under the Management Committee and the Enterprise Risk Management Committee to deliberate on business execution and risk management issues from a more practical and specialized standpoint.

In April 2022, the Risk Management Committee and the Compliance Committee were merged to form the Risk Management and Compliance Committee to further improve the consistency and effectiveness of discussions.

List of committees
Committee name Chairman Members Meeting frequency Roles
Management
Committee
President Individuals appointed by the committee chair based on deliberation by the Human Resource Committee In principle,
three times a month
To discuss and consider management strategies and issues for the entire Group and for each division
To deliberate the execution of business
Enterprise
Risk Management
Committee
President Individuals appointed by
the committee chair
In principle,
twice a year
To discuss and consider management strategies and issues for the entire Group and for each division
To determine policies for and monitor the status of risk management
Risk Management and Compliance

Committee

Officer in charge of general affairs

General managers of
relevant departments
In principle,

four times a year

To deliberate and prepare important policies to promote business risk management

To address compliance concerns and to formulate compliance promotion plans

To monitor the status of compliance activities

Information Disclosure Committee
Officer in charge of public relations Directors of relevant that, Executive Officers, and general managers As needed To make decisions regarding information disclosure including internal systems
Investment and Finance Committee
General manager of Corporate Planning Department
General managers of relevant departments As needed To deliberate and report on investment and finance-related matters and to establish investment standards
Derivatives Committee General manager of General Affairs Department General managers of relevant departments As needed To audit derivatives and confirm and report on the status of risk management for the entire Group
Procurement Committee
General manager of Procurement Department General managers of
relevant departments
As needed To deliberate and consider matters related to the procurement of services and raw materials, etc.
Credit Committee
General manager of General Affairs Department General managers of
relevant departments
In principle,
once a month
To deliberate and consider basic policies on credit management for the entire Group and measures to collect non-performing loans
Research & Development Committee Officer in charge of IP and R&D General managers of relevant departments In principle, four times a year To consider matters related to the direction, strategies, and issues pertaining to company-wide esearch and development
Personnel Committee President President, Vice Presidents, Directors in charge of human resources, and officers appointed by the President and Representative Director As needed To increase transparency, fairness, and impartiality in the decision-making process with respect to the election, dismissal, assignment, and evaluation of officers and the appointment of Management Committee members
DE&I Promotion Committee Vice President Comprised of Directors, Executive officers in charge of human resources, and a variety of other managers with different gender, job titles, and other attributes
Outside Directors also participate as advisors
In principle,
once a month
Identifying issues related to DE&I promotion and making recommendations to management, reporting regularly to the Board of Directors, and planning and promoting other company-wide cross-functional initiatives
出光興産, DFF Inc.

Overview of Board of Directors / Assessment of the Effectiveness of the Board of Directors

Overview of Board of Directors

In FY2022, we announced our Medium-term Management Plan for FY2023-2025. When formulating this plan, the Board of Directors held intensive discussions from the initial stage of planning consideration and established the course of action in terms of setting important themes. Furthermore, the Board of Directors utilized meetings of outside officers and Advisory Board while also working with the Management Committee to deepen its discussions and to then lead to the formulation of the Medium-term Management Plan.

Main agenda items discussed by the Board of Directors
Management and business strategies
  • Impact on sanctions related to the invasion of Ukraine on our business and our response
  • Establishment of the Advanced Materials Company mainly to build a technology-driven management structure and to ensure quick and accurate decision-making
  • Efforts to help Nghi Son Refinery and Petrochemical Limited Liability Company (NSRP) contribute to profit
  • Establishment of our Medium-term Management Plan (FY2023-2025)
  • Turning TOA Oil Co., Ltd. and Seibu Oil Co., Ltd. into wholly-owned subsidiaries
  • Business structure reforms of our coal business
  • Course of action for the future of our existing businesses
Governance
  • Establishment of the Risk Management and Compliance Committee to further improve the consistency of discussions on the internal controls system (integration of the Risk Management Committee and Compliance Committee)
  • Revision of the amount and contents of performance-linked stock compensation for Directors, etc.
  • Organization of the overall picture of D&I promotion linked to our Management Philosophy, KPI setting and measures to strengthen initiatives
  • Analysis of the causes of the misconduct in the oil quality test by TOA Oil Co., Ltd. and Showa Yokkaichi Sekiyu Co., Ltd. and measures to prevent that from reoccurring
  • Economic security guarantee
  • Future response to further improve the effectiveness of the Board of Directors
IR, General Meeting of Shareholders, and shareholder returns
  • Policy for dealing with strategic holdings of listed shares
  • Market reaction after our earnings announcement
  • Review of the Annual General Meeting of Shareholders and future direction
  • Acquisition and cancelation of treasury stock in line with our shareholder returns policy
  • Measures for individual shareholders and institutional investors
  • Note: The above is only a partial list of agenda items. The Board of Directors has also deliberated on other matters deemed necessary under laws, regulations, and the Idemitsu Articles of Incorporation and passed resolutions on these matters.
Meetings of outside officers

In order to further enhance discussions at meetings of the Board of Directors, we hold meetings of outside officers five times a year. These meetings are comprised only of Independent Outside Directors and Independent Outside Audit & Supervisory Board Members. The meeting participants exchanged information and shared awareness about the following matters.

  • Review of FY2021 internal audits and FY2022 initiative policy
  • Examination of CO2 emission targets toward the formulation of the Medium-term Management Plan
  • Human resource strategy for 2050
  • Medium- to long-term strategies for the Advanced Materials Company
  • Course of action and initiatives which we should take as we aim for digital transformation
Assessment of the effectiveness of the Board of Directors

In January 2023, we conducted a questionnaire survey of all Directors and Audit & Supervisory Board Members. Based on the results, we evaluated the initiatives carried out in the FY2022 to address the issues identified in the previous fiscal year. After three rounds of discussion at the Board of Directors, the future issues were identified, and the details of the initiatives were confirmed.

The questionnaires were designed to verify conformity with Japan’s Corporate Governance Code while incorporating items aimed at qualitative improvement. We received advice from an expert third-party organization to determine the content of these items and analyze the responses.

Process for the assessment of the Board of Directors’ effectiveness
Figure
Issues identified in FY2021 Details of initiatives
Setting issues with a focus on the medium- to long-term Starting with discussions on our Medium-term Management Plan, we continued to discuss and share opinions on medium- to long-term strategic issues including the Medium-term Management Plan and the direction of new businesses for business structure reforms to achieve carbon neutrality by 2050.
Further enhancement of information provision to contribute to future management decisions We confirmed the progress of our digital transformation strategy and implemented a growth strategy for our Advanced Materials Company based on proposals from outside officers at meetings of outside officers in regards to the item of “further enhancement of information provision to contribute to future management decisions.” Furthermore, we made steady progress in preparing for the environmental changes which are expected to occur in the future in regards to the latest geopolitical and economic security trends which are becoming increasingly important due to the situation in Ukraine. For example, we have been inviting external experts to provide officer training since FY2021.
Future issues and initiatives
Issues identified in FY2022 Future initiatives
Response to management issues We will deepen discussions toward achieving our medium- to long-term management issues through debate on strategy issues while confirming progress on our Medium-term Management Plan. As a part of this process, we will share information which contributes to strategy discussions more than ever before in meetings of outside officers. We will then continue to move forward while obtaining even more guidance and advice from diverse specialist knowledge of outside officers.
Shareholder and investor relations We will further improve our ability to convey information to deepen understanding of our businesses. For example, we will establish a platform for individual shareholders. At the same time, we will enhance both the quality and quantity of communication with shareholders and investors to improve our medium- to long-term corporate value. We will achieve this through initiatives such as those to increase discussions between Outside Directors and analysts and institutional investors.
出光興産, DFF Inc.

Nomination of Director and Audit & Supervisory Board Member Candidates by the Board of Directors / Training

Nomination of Director candidates

In addition to establishing human resource standards for director candidates, we have created a Skill Matrix as one of the criteria for selection to ensure diversity of the required knowledge, experience, and abilities in the composition of the Board of Directors.

Prior to the election of Director candidates, the President & Representative Director submits a draft to the Nomination and Compensation Advisory Committee with a full assessment of the abilities, knowledge and performance of individual candidates, regardless of whether they are from inside or outside of Idemitsu. The Board of Directors then finalizes its decision on the selection based on recommendations of the Nomination and Compensation Advisory Committee.

In addition, the Nomination and Compensation Advisory Committee deliberates on the dismissal of Directors, including Representative Directors, based on an evaluation of their performance and reports its conclusions to the Board of Directors.

Nomination of candidates for Audit & Supervisory Board Members

We select candidates for Audit & Supervisory Board Member who have appropriate experience and abilities as well as the necessary financial, accounting or legal knowledge. As for candidates for full-time Audit & Supervisory Board Member, we select those who are familiar with Idemitsu’s business and the issues we face, and who are able to carry out auditing and supervision in an accurate, fair, and efficient manner. Furthermore, based on the fact that diversity of knowledge, experience, and abilities is also required of the Audit & Supervisory Board, a Skill Matrix is also disclosed for Audit & Supervisory Board Members as of FY2022.

In the selection of candidates for Audit & Supervisory Board Members, the President & Representative Director discusses the matter with all representative directors and, based on the recommendations of the Nomination and Compensation Advisory Committee, submits to the Board of Directors a draft that sufficiently evaluates the abilities, knowledge and performance of each candidate, regardless of whether they are from inside or outside of Idemitsu, after obtaining the consent of the Audit & Supervisory Board.

Succession plan

The Nomination and Compensation Advisory Committee, which is comprised of Independent Outside Directors, has adopted a mechanism for deliberating on the selection and training of next-generation officer candidates based on the long-term plan and reporting to the Board of Directors. Currently, it is working on selection and training of candidates starting with a succession plan for the President & Representative Director.

Independence requirements for Outside Officers

In order for the Board of Directors to fulfill its supervisory function, we appoint outside officers who have the knowledge and experience to provide useful advice to management, taking into consideration their diverse knowledge and background, from among those who meet our Independence Requirements for Outside Officers. Our basic policy is to have Independent Outside Directors account for at least one-third of all Directors and for Independent Outside Audit & Supervisory Board Members account for at least half of all Audit & Supervisory Board Members.

Skill Matrix

While fulfilling its social mission of providing a stable energy supply, the Company wishes to contribute to the realization of a carbon neutral society in 2050, and to utilize this as a business opportunity and improve to become a corporate entity that continue to grow sustainably. To this end, it is very important for Directors and Audit & Supervisory Board members, who have various knowledge and experience, to actively discuss matters at the Board of Directors meetings, and enhance the quality of discussions regarding overall management strategies including human resources strategies.

After preparing and disclosing the skills matrix concerning Directors in 2020, the Company continued to review it as necessary in light of the management issues it is facing.

In 2023, the Company reviewed the areas in which contribution of Directors and Audit & Supervisory Board Members (the “Officers”) are expected based on the Medium-term Management Plan (FY2023-2025), selected the areas listed below, and elected Officers who have skills, such as knowledge and experience in those areas, while also paying attention to diversity.

For the areas that the Board of Directors members do not have sufficient skills (issues concerning economic security or other areas for which high expertise is required), the Company supplements them by inviting outside experts to Advisory Board meetings and Officer training sessions.

Perspective Areas of expected contribution Reason for selection of areas of expected contribution
To lead change Corporate philosophy / business strategy The Officers are required to deeply understand and implement the Company’s business objectives and the purpose of its existence, and lead the management to realize the Vision for 2050 based on perspectives such as economic security, SDGs, and DX in the context of a discontinuous management environment.
Human resources development / DE&I The Officers are required to promote the development of human resources and increase DE&I in order to realize “A strong and flexible team that can shape the future, no matter what the future has in store,” which the Company aims to incorporate in its human resources strategy.
Co-creation / international business The Officers are required to build a co-creation relationship with diverse partners based on an international perspective in order to enhance its social implementation capabilities toward the realization of the Vision for 2050.
To support business management Manufacturing / research The Officers are required to have knowledge of safety in manufacturing and technology, knowledge of trends in innovative advanced technologies, and knowledge of research areas.
Marketing / supply The Officers are required to have knowledge of marketing and sales in each field of business, knowledge of retail marketing, and knowledge of procurement and supply.
Governance / legal affairs The Officers are required to have knowledge of governance from a shareholder’s perspective, knowledge of risk management related to business operations, and knowledge of legal affairs.
Finance / accounting / tax The Officers are required to have knowledge of finance, accounting, and tax affairs that contribute to ensuring capital efficiency and profitability.
Skill Matrix : Director
Name Terms
in
office
(years)
Areas in which the Company particularly expects Audit & Supervisory Board Member to contribute Reason for selection of areas of expected contribution
Corporate
philosophy
/business
strategy
Human
resources
development
/DE&I
Co-creation/
international
business
Manufacturing
/research
Marketing
/supply
Governance
/legal
affairs
Finance/
accounting
/tax
Shunichi Kito
Reelection
10       The Company expects him to lead the establishment and implementation of growth strategies for the realization of the Vision for 2050 based on his record of leading the management integration as President of the Company and his insights from his experience as Director in charge of Accounting, Human Resources, and Fuel Business.
Susumu Nibuya
Reelection
3         The Company expects him to lead the execution of strategies based on his management experience as Vice President of the Company, his insight as officer in charge of Sustainability, Mobility, and Community Strategy, his expertise from his experience as chair of the D&I Promotion Committee and manager of the Internal Audit Department at a listed company, and his familiarity with its business and the issue it faces.
Atsuhiko Hirano
Reelection
3         The Company expects him to promote business structure reforms, including establishment of a co-creation relationship based on his experience as president of an operating company, his insight from being an officer in charge of corporate planning, and his extensive international business experience in key positions in the solar and petroleum departments.
Noriaki Sakai
Reelection
2         The Company expects him to promote strengthening of the management foundation for its sustainable development, including business structure reforms and human capital investment based on his deep knowledge and expertise from past positions in accounting and finance and his insight from his experience in the Human Resources Department.
Masahiko Sawa
Reelection
1         The Company expects him to promote business structure reforms as a technical manager based on his insight from drafting medium- to longterm management strategies, experience in the international gas business, and management related to technological trends and R&D, his knowledge related to the environment (CCS) and recycling of resources, and his advanced expertise in manufacturing and supply, and his insight into the establishment of a supply chain toward social implementation.
Masakazu Idemitsu
Reelection
4           The Company expects him to strengthen its sustainable development and management foundation in accordance with its Management Philosophy based on his deep understanding of The Origin of Management and the purpose of its existence as a member of the founding family and his long-term perspective on governance as a major shareholder.
Kazunari Kubohara
Reelection
4           The Company expects him to strengthen its management foundations from a multifaceted governance perspective based on his expertise related to corporate law and social problems as an attorney and his familiarity with the real estate business.
Takeo Kikkawa
Reelection
Outside
Independent
6         The Company expects him to strengthen its management foundations and supervise business structure reforms as an Outside Director based on his insight related to energy transition trends both in and outside Japan and related advanced technologies and his sufficient insight related to corporate management as an expert in business administration, particularly energy industry theory.
Yumiko Noda
Reelection
Outside
Independent
2         The Company expects her to provide supervision for strengthening its management foundation and international business and implementing business structure reforms as an Outside Director based on her management experience and broad-based insight at a global environmental company, and her insight related to finance at financial institutions in Japan and overseas.
Maki Kado
Reelection
Outside
Independent
2         The Company expects her to provide supervision for strengthening its human capital investments and implementing business structure reforms as an Outside Director based on her management experience and broad-based insight in DE&I and retail marketing from her past key positions at global beverage companies.
Jun Suzuki
New election
Outside
Independent
-       The Company expects him to provide supervision for strengthening its management foundations and implementing business structure reforms as an Outside Director based on his knowledge of corporate management and governance from his experience as president and chairperson of a global chemical company, and his knowledge of a wide range of businesses, such as chemicals and pharmaceuticals and related technologies.
  • * The cells marked by ● indicate areas in which we particularly expect the relevant Director to contribute and do not represent all of his/her knowledge and experience.
Skill Matrix : Audit & Supervisory Board Member
Name Terms
in
office
(years)
Areas in which the Company particularly expects Audit & Supervisory Board Member to contribute Reason for selection of areas of expected contribution
Corporate
philosophy
/business
strategy
Human
resources
development
/DE&I
Co-creation/
international
business
Manufacturing
/research
Marketing
/supply
Governance
/legal
affairs
Finance/
accounting
/tax
Tsutomu Yoshioka 2         The Company expects him to provide review in the areas of management foundation and DX to support its strategies based on his experience as president of an operating company, Audit & Supervisory Board member at a listed company, business execution in the Information Systems Department, and as a person responsible in the Sales Department.
Hidefumi Kodama 1         The Company expects him to provide review from finance, accounting, and international business perspectives based on his experience drafting medium- to long-term management strategies, serving as a person responsible for financial management, and management of the international resources and the coal businesses
Taigi Ito
Outside
Independent
11         The Company expects him to provide review from the perspective of its management foundation supporting its strategies and international business as an Outside Audit & Supervisory Board Member based on his extensive experience as an outside Audit & Supervisory Board member of a listed company, his familiarity with tax and finance matters at listed companies as a certified public accountant, and his experience auditing global businesses.
Yumiko Ichige
Outside
Independent
1           The Company expects her to provide review in the areas of management foundation supporting its strategies as an Outside Audit & Supervisory Board Member based on her familiarity with governance at a listed company as an attorney and her experience actively promoting women’s advancement, and her familiarity with the fields of intellectual property from her experience serving as a member of the Patent Office Council.
  • * The cells marked by ● indicate areas in which we particularly expect the relevant Audit & Supervisory Board Member to contribute and do not represent all of his/her knowledge and experience.
Training

The Company provides training to its Directors and Audit & Supervisory Board Members on their roles and responsibilities as well as the level of compliance literacy expected of them when they assume these positions at a listed company.

In addition, the Company explains its business, finance, and organization to newly appointed Independent Outside Directors and Independent Outside Audit & Supervisory Board Members of the Company, so that they can fulfill their roles and responsibilities.

The Company also encourages Directors and Audit & Supervisory Board Members to spontaneously strive for skill improvement and, to this end, provides them with training opportunities tailored to their individual needs, while at the same time offering a broad range of support for necessary expenses.

出光興産, DFF Inc.

Compensation for Executives

Basic policy on executive compensation

Our basic policies regarding compensation for our Directors and Executive Officers (at Senior Executive Officer level or above) are to increase corporate performance and corporate value over the medium to long term to realize the Group’s management vision and to establish a compensation system and decision-making process that is transparent, rational, and fair so that we can fulfill our accountability to customers, society, the environment, shareholders, business partners, employees, and other stakeholders. Based on this policy, our executive compensation system is as follows:

Revision of executive compensation system

We reviewed the compensation system to further raise the awareness of Directors, etc. to contribute to improving our medium- to long-term business performance and corporate value. We revised the system to strengthen the linkage between the Medium-term Management Plan and the compensation for Directors, etc.

We have lowered the fixed compensation ratio. In addition, we have linked performance-linked compensation indicators to the transformation of our business portfolio, enhancement of our capital efficiency, and further development of environmental, social and governance initiatives. (We revised the performance-linked stock compensation system at the General Meeting of Shareholders in June 2023.)

Figure
Compensation standard

Compensation levels for Directors, etc. shall be reviewed as appropriate in light of changes in the business environment and external survey data, for the purpose of utilizing and securing high quality personnel who contribute to the realization of the medium-to-long term management vision, and offering appropriate incentives.

Process for determining compensation

We have established the Nomination and Compensation Advisory Committee, which consists of Independent Outside Directors, as an advisory body to the Board of Directors. The Board of Directors receives the committee’s findings and then determines the amount of compensation for Directors and the method of calculating that. In addition, individual compensation, etc. of auditors is determined through consultation among auditors. Compensation, etc. of Officers will be paid within the upper limit of compensation, etc. resolved at a shareholders’ meeting.

Compensation structure

Compensation system for our Directors (excluding part-time Directors and Outside Directors) and Executive Officers at Senior Executive Officer level or above consists of (1) fixed compensation, (2) performance-linked bonuses, and (3) performance-linked stock compensation, so that the link with performance in the short term and the medium-to-long term will be emphasized respectively and the management’s efforts toward improvement of corporate value over the medium-to-long term will be evaluated appropriately. Compensation for part-time Directors and Outside Directors consists solely of fixed compensation from the perspective of ensuring appropriate supervisory functions for assessing the appropriateness of business execution from an objective standpoint.

Compensation category

Inside Directors / Executive Officers at Senior Executive Officer level or above Part-time / Outside Directors
Fixed
Performance-linked (bonuses) -
Performance-linked (stock) -
Compensation structure image for Inside Directors / Executive Officers at Senior Executive Officer level or above
Figure
Compensation systems and performance-linked compensation systems
Type of
compensation
KPI Outline
Indicator Evaluation
weight
Fixed Fixed
compensation
- - It shall be paid on a monthly basis in an amount determined according to the role and responsibilities for their duties.
Variable Short-term Performance-linked bonuses Indicators concerning profitability* 40% It is designed to fluctuate within a range of 0 - 50%. It will be granted in June every year.
Personnel and capital-related indicators 20%
Behavioral targets (Directors) / targets for responsible areas (Executive Officers at Senior Executive Officer level or above) 40%
Medium-to-long term Performance- linked stock compensation Indicators for capital efficiency (ROIC, ROE) 40% From the perspective of sharing value with shareholders and continued improvement of corporate value, it places a particular emphasis on the link with the 2030 vision and the Medium-term Management Plan.
It is designed to fluctuate within the range of 0 - 50% in accordance with the degree of achievement concerning the financial indicators related to business portfolio transition, and non-financial indicator determined in accordance with materiality to the Company.
Stock points are granted to Directors, etc. in June every year from the perspective of serving as an incentive to improve corporate value with a medium- to long-term point of view. The shares are then given to the Directors after they retire.
Fossil fuel business return rate 20%
CO2 reduction
(essential for the realization of carbon neutrality and a circular society)
20%
Engagement of employees
(evaluating efforts toward maximization of employees’ growth and fulfillment)
20%
  • * current net income attributable to shareholders of the parent company, excluding inventory impact, consolidated operating income + equity income
Clawback system

If any Director, etc. commits an act of material misconduct, violation, etc., we may confiscate the beneficial rights to the shares to be delivered under the performance-linked stock compensation (malus) or demand the return of money equivalent to the shares, etc. delivered (clawback), from the Director, etc.

Total amount of compensation, etc. by executive category

Total amount of compensation and other wages paid to Directors in FY2022, their breakdown by type and the number of recipients is as presented below.

Category Number of people Fixed
compen-sation
(Millions of yen)
Performance-linked
compensation
(Millions of yen)
Total
compen-sation
(Millions of yen)
Cash
compen-sation
Stock
compen-sation
Directors (excluding Outside Directors) 8 326 112 129 568
Audit & Supervisory Board Members
(excluding Outside Audit & Supervisory Board Members)
3 62 - - 62
Outside Directors and Outside Audit & Supervisory Board Members 7 92 0 - 92
Total 18 481 113 129 723
  • * The above table contains one Director (none of which is an Outside Director) and two Audit & Supervisory Board Member (one of which is an Outside Statutory Auditor), who resigned as of the conclusion of the 107th Ordinary General Meeting of Shareholders held on June 23, 2022.
Total amount of compensation, etc. of persons whose total amount of compensation, etc. is 100 million yen or more
Name Executive
category
Company
category
Fixed
compensation
(Millions of yen)
Performance-linked
compensation
(Millions of yen)
Total
compensation
(Millions of yen)
Cash
compensation
Stock
compensation
Shunichi Kito Director Submitting
company
90 33 38 162
Susumu Nibuya Director Submitting
company
62 23 26 111
出光興産, DFF Inc.

Management Monitoring / Audits by Audit & Supervisory Board Members

Management monitoring system

Along with supervisory functions provided by the Board of Directors as well as audits undertaken by the Audit & Supervisory Board Members and accounting auditors, our management monitoring system is supported by the “Internal Audit Department,” which operates independently of all executive departments and is run by dedicated staff directly under the President & Representative Director. This arrangement ensures that the department performs audits in accordance with “Internal Audit Rules” and evaluates internal control based on “Rules on the Evaluation of Internal Controls over Financial Reporting.” The scope of internal audits undertaken by the Internal Audit Department encompasses business sites and affiliates at home and abroad. The results of audits are reported to the President & Representative Director, the Audit & Supervisory Board Members, the heads of the executive departments in question, and the Executive Officers in charge. In addition, we report our policies and the results of internal audit and internal control evaluation initiatives to Independent Outside Directors and Independent Outside Audit & Supervisory Board Members at meetings of outside officers. Recommendations regarding matters specified via internal audits as requiring improvement and consideration of improvement are communicated to the executive departments concerned, which, in turn, prepare and submit improvement plans to the head of the Internal Audit Department and execute improvements accordingly. Moreover, the Internal Audit Department provides follow-up audits as necessary.

In-house training results
Dates Training name Scope Notes
June 2020
J-SOX (internal control) evaluation workshop Persons in charge or responsible for J-SOX in our group
Approx.111 people
Held annually to provide an overview of J-SOX and basic knowledge of the Company's J-SOX practices, as well as to promote understanding of the Company's response to recent fraud cases
February 2020
The 2nd departmental training on internal audit Persons in charge of internal audit department of 10 affiliated companies Held to strengthen internal controls over compliance and risk management
Audits by Audit & Supervisory Board Members

Audit & Supervisory Board Members (four members) attend meetings of the Board of Directors and audit business reports, financial statements, and consolidated financial statements that are submitted to the annual general meeting of shareholders. They also audit the execution of business operations by Directors on a daily basis. Full-time Audit & Supervisory Board Members attend important internal meetings, such as those of the Management Committee, and meet with general managers, overseas managers, and the presidents of subsidiaries. Outside Audit & Supervisory Board Members strive to enhance auditing by visiting key departments. As a general rule, these individuals hold quarterly meetings with the representative director to discuss issues.

出光興産, DFF Inc.

Strategic Holdings of Listed Shares

Policy on strategic holdings of listed shares

Our strategic holdings of listed shares, which have been maintained with the objective of securing and expanding medium- to long-term transactions, are currently being reduced via the annual verification of rationale for such shareholdings. This verification involves both quantitative and qualitative assessments. The former focuses on examining the benefits and risks arising from each shareholding and confirming its propriety vis-à-vis capital cost. The latter focuses on examining such factors as improvement in the stability of the investee business. Results of this verification are discussed by the Board of Directors to decide on whether or not to divest certain shareholdings. We also engage in sufficient dialog with business partners whose shares are earmarked for divestment from its shareholding portfolio. Upon securing their understanding, we execute divestment while giving due consideration to its impact on share prices.

As of the end of FY2021, the number of strategic holdings of listed shares decreased by five from the end of FY2020 to 13 stocks.

Criteria for the exercise of voting rights associated with strategic holdings of listed shares

With regard to voting rights associated with strategic holdings of listed shares, our company maintains a policy of casting its vote in a way that leads to sustainable improvement in the corporate value of both our company and the investee. To this end, we have made it a rule to judge whether or not an investee is able to sustainably improve its corporate value based on the assessment of such factors as its management strategies and operating results.

Furthermore, depending on the content of a ballot proposal, we may request a detailed explanation on each matter prior to casting a vote. Should a ballot proposal by an investee be deemed to constitute a conflict of interest between Idemitsu and said investee, we exercise our voting rights on an as-necessary basis after consulting with Independent Outside Directors and external specialists.

出光興産, DFF Inc.