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Corporate Governance

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Basic Stance on Corporate Governance

The TOTO Group strives to be a great company, trusted by people all around the world, contributing to the betterment of society. In addition to being a corporate entity engaged in the pursuit of profit through fair competition, the Group conducts its business in such a way as to continue to benefit society broadly. In order to realize this target, we believe it is important to build a system for pursuing and supervising fair and equitable management, and clearly define a philosophy that serves as the basis of such a system.

(1) The TOTO Group has developed a philosophy system for TOTO Group management. This includes a common Group philosophy, representing the inherited values of TOTO that will be carried forward into the future. This represents the "heart" of our philosophy. Also, our philosophy system includes visions for business activities representing the direction of our action to be reviewed in accordance with the demands of the times. This is positioned as the "body in action." All of our business activities are based on this philosophy system.

(2) To ensure operational decisions and business execution in compliance with relevant laws and regulations and TOTO’s Articles of Incorporation, TOTO has a Board of Directors and an Audit & Supervisory Board, and retains independent accounting auditors.
The Board of Directors, emphasizing fairness, objectivity, and transparency, has appointed three Outside Directors who are independent of the TOTO Group. The Outside Directors give various advice and make proposals on our overall management.
The Audit & Supervisory Board audits the business execution of Directors and consists of four members, including two outside members. We have built a system to ensure their effective audits through their attendance of major meetings, including meetings of the Board of Directors , and the exchange of opinions with Directors on a regular basis.

(3) To complement audits by Audit & Supervisory Board Members and independent accounting auditors and to build a stronger internal control system, we have established the Internal Audit Office in-house, which is independent of operational divisions. With the establishment of the Internal Audit Office, we have strengthened our internal audits under the direction of the President.
Audit & Supervisory Board Members, independent accounting auditors and members of the Internal Audit Office carry out audits as a three-party audit team. In addition, we strive to enhance the quality and effectiveness of audits through close collaboration among the three parties, which involves reviewing audit results by Audit & Supervisory Board Members and exchanging information at meetings, among other activities.

Promoting Stronger Corporate Governance

In order to strengthen corporate governance, TOTO has made the following changes to its system.

2004 Establishment of the Nominating Advisory Committee
Establishment of the CSR Committee
Establishment of the philosophy system for TOTO Group management
2005 Establishment of the Compensation Advisory Committee
Establishment of the Risk Management Committee
2006 Appointment of the Outside Director
Establishment of the Internal Audit Office
Establishment of the Special Committee
2007 Introduction of the stock options system
2010 Establishment of the Requirements for Independent Directors/Audit & Supervisory Board Members and appointment of Independent Directors/Audit & Supervisory Board Members
2011 Reduction of the maximum number of Directors stipulated in Articles of Incorporation (from 20 to 14)
Participation in the United Nations Global Compact
2012 Enhancement of the Executive Officer system (Creation of a new post of Senior Executive Officer)
2013 Establishment of TOTO Group Business Conduct Guidelines
2014 The half or more of the Nominating Advisory Committee members shall be outside members

Corporate Governance and Business Operations

Corporate Governance and Business Operations

Directors and the Board of Directors

The Board of Directors, which consists of all Directors, makes decisions from the most appropriate company-wide, group-wide and stakeholder perspectives and conducts mutual supervision of the duties of Directors.
Directors other than the Chairman of the Board or Outside Directors concurrently hold positions as Executive Officers in order to perform their own business duties as well (Directors and Executive Officers).
TOTO invites Outside Directors, well versed in the management of leading companies respected for their management practices to which the TOTO Group aspires, to receive advice and suggestions on general management issues based on their in-depth knowledge as experienced managers.
The term of office of Directors is one year, which is designed to clearly define their responsibilities.

Audit & Supervisory Board Members and the Audit & Supervisory Board

The Audit & Supervisory Board, which consists of all Audit & Supervisory Board Members, oversees the Directors’ execution of duties from the perspectives of legality and appropriateness.
The Audit & Supervisory Board Members attend Meetings of the Board of Directors and other major meetings to state their opinions as required and visit each business site to conduct operating audits in line with the relevant auditing policies.
In addition, the Audit & Supervisory Board Members regularly exchange opinions with Directors and streamline the system to ensure the effectiveness of audits. TOTO calls upon Outside Members of the Audit & Supervisory Board specializing in such matters as corporate finance and legal issues, or having deep insight and extensive experience in corporate management, to evaluate decisions made by the Board of Directors and monitor Directors’ execution of their duties from an objective and fair perspective.

Compensation Advisory Committee

The Compensation Advisory Committee has been set up to confirm that the process to determine base compensation, annual bonuses, and the stock compensation-type stock options for Directors, and their allocation balance are in line with the Articles of Incorporation, the resolutions of the General Meeting of Shareholders, and the Basic Policy for Directors’ Compensation, in order to contribute to the ensuring of the appropriateness and objectivity of Directors’ compensation through its activities.
The majority of Committee members shall be outside members and the chairperson and members have been appointed by the Board of Directors.
The Committee members consist of six outside members including five Independent Directors/Audit & Supervisory Board Members and one Director without the right of representation as an inside member, and the chairperson shall be elected from among the outside members.

Nominating Advisory Committee

The Nominating Advisory Committee has been established to help ensure the objectivity and transparency of TOTO’s management through activities such as deliberation on and confirmation of the appointment of TOTO’s Board of Directors and Audit & Supervisory Board Members. The Committee shall make reports to the Board of Directors on proposals to the General Meeting of Shareholders related to the appointment and dismissal of Directors and Audit & Supervisory Board Members, including Outside Directors and Outside Members of the Audit & Supervisory Board.
Half or more of Committee members shall be outside members, and the chairperson and members have been appointed by the Board of Directors. The Committee members consist of five Independent Directors/Audit & Supervisory Board Members as outside members and Representative Directors as inside members, and the chairperson shall be the President and Representative Director of TOTO.

Special Committee

The Special Committee has been established with the introduction of the Policy for Dealing with Large-Scale Acquisitions of TOTO Ltd. Shares (Takeover Defense Measures; the "Plan"). The purpose of the Special Committee is to make recommendations for the implementation or non-implementation of countermeasures under the Plan in response to the Board of Directors' inquiries. In order to ensure the fairness and neutrality of the Board of Directors' decisions, the Committee consists of the Outside Directors of TOTO and the Outside Members of the Audit & Supervisory Board of TOTO.

Internal Audits

The Internal Audit Office, which is independent of the operational divisions, examines under the direction of the President whether TOTO and the Group companies are performing their operations appropriately and efficiently in compliance with laws and regulations, the Articles of Incorporation, the corporate philosophy and internal regulations.

Executive Officers

To implement decisions made by the Board of Directors effectively and efficiently, TOTO has introduced an Executive Officer system.

Management Committee

TOTO makes important decisions regarding its operations through deliberations at meetings of the Management Committee, which comprises Directors who are also Executive Officers. The meetings of the Committee are, in principle, held twice a month.

Composition of the Board of Directors and Audit & Supervisory Board in Fiscal 2016

We believe that in order to supervise business operations and to make important decisions, TOTO’s Board of Directors must be composed of members with diverse perspectives, experience and highly professional skills. Meanwhile, for the purpose of performing the double-check function of supervision by the Board of Directors and of audits by Audit & Supervisory Board Members, Outside Directors need to include not only auditors required by law, but also Directors with voting rights at Meetings of the Board of Directors; and both Audit & Supervisory Board Members and Directors must have considerable independence.
As of the end of June 2016, we have 13 Directors with voting rights at Meetings of the Board of Directors, of whom 10 are Inside Directors with careers in the TOTO Group and three are highly independent Outside Directors.
These members use their respective skills in discussions to make legal and business management decisions and supervise business operations.
The Audit & Supervisory Board consists of two standing members with careers in the TOTO Group and two outside members with a high level of independence, and conducts audits from the perspectives of legality and appropriateness.

Composition of the Board of Directors

Title Name Outside Compensation Advisory Committee Nominating Advisory Committee Special Committee
Representative Director Kunio Harimoto - - × -
Representative Director Madoka Kitamura - - × -
Representative Director Kiyoshi Furube - - × -
Representative Director Noriaki Kiyota - - × -
Director Nozomu Morimura - × - -
Director Soichi Abe - - - -
Director Yuichi Narukiyo - - - -
Director Ryosuke Hayashi - - - -
Director Kazuo Sako - - - -
Director Taiichi Aso - - - -
Director Hiroki Ogawa × × × ×
Director Kazuhiko Masuda × × × ×
Director Masatsugu Shimono × × × ×

Composition of the Audit & Supervisory Board

Title Name Outside Compensation Advisory Committee Nominating Advisory Committee Special Committee
Audit & Supervisory Board Member, Standing Satoshi Miyazaki - - - -
Audit & Supervisory Board Member, Standing Motohiro Oniki - - - -
Audit & Supervisory Board Member Masamichi Takemoto × × × ×
Audit & Supervisory Board Member Akira Katayanagi × × × -

(Note) Compensation Advisory Committee members include an external expert who is appointed as an outside member.

Reasons for Adoption of Current Corporate Governance System

The TOTO Group considers that an essential aspect of corporate management is ensuring the satisfaction of stakeholders and constantly expanding corporate value by improving objectivity and transparency in management and by clarifying management responsibilities. To achieve this, for matters requiring management decisions, TOTO recognizes the importance of systematizing "who makes decisions about what and where" as well as "what checks are implemented" in a fair and honest manner.

TOTO has adopted the Audit & Supervisory Board system and is building a structure of decision-making, supervision, and more efficient and effective business execution, with the aim of continuously increasing corporate value.
  1. Clarifying the allocation of management responsibility (introduction of the Executive Officer system and the like)
  2. Enhancing management transparency and soundness (establishment of the Compensation Advisory Committee and the Nominating Advisory Committee)
  3. Reinforcing supervisory and auditing functions (nomination of highly independent Outside Directors and Outside Members of the Audit & Supervisory Board)
  4. Strengthening decision-making functions (establishment of the Management Committee and the like)
In order to strengthen these functions, TOTO has adopted the framework of a company with an Audit & Supervisory Board system as its base while integrating the superior functions of a company with Nomination Committee, etc.

Corporate Governance Report

Here you can view the Corporate Governance Report of TOTO Group

Penetration of Common Group Philosophy

The TOTO Group has developed a philosophy system for TOTO Group management. This includes a common Group philosophy, representing the inherited values of TOTO that will be carried forward into the future. Also, our philosophy system includes visions for business activities representing the direction of our action to be reviewed in accordance with the demands of the times. All of our business activities are based on this philosophy system.
(*For more details, please refer to the "Philosophy System" section of "About TOTO".)
In order to strengthen our corporate governance, we are putting especial effort into ensuring the penetration of our Common Group Philosophy.

PDCA cycle for Penetration of Common Group Philosophy

Tap to zoom.

PDCA cycle for Penetration of Common Group Philosophy

* Common Group Philosophy: Company mottos, TOTO Group Corporate Philosophy,
Charter of TOTO Group Corporate Behavior

Establishment of TOTO Group Business Conduct Guidelines (*1)

The Business Conduct Guidelines, which state the concrete policy directions for the realization of the company's management philosophy, were published in 13 languages and are applicable to each and every employee working at the TOTO Group.
In addition, in order to ensure all employees abide by these Business Conduct Guidelines, relevant education and training programs are being promoted within the Group.

TOTO Group Business Conduct Guidelines

Implementation of Employee Awareness Survey (*2)

An employee awareness survey targeted at employees of TOTO and Group companies in Japan is conducted every year with the aims of keeping track of employee motivation and the level of organizational activity, and using that information to improve the operations of organizations within the Group.
The awareness survey involves the anonymous collation of responses by organization and employment type to questions related to "Penetration of philosophy," "motivation of employees," "level of interconnection and solidarity between individual expectations and company's management goals", "degree of developing environment to activate employees". The survey results at the entire Group and organizational level are then shared with the employees to facilitate the creation of action plans to reinvigorate the workplace.
We will continue to bolster the dissemination of our management strategy, and maintain and reinforce the organizational culture of the TOTO Group through the implementation of this survey.

Compensation for Directors and Audit & Supervisory Board Members

(1) Policy for determining compensation, etc. for Directors and Audit & Supervisory Board Members

The maximum amount of compensation for Directors and Audit & Supervisory Board Members is determined respectively for Directors, Outside Directors, and Audit & Supervisory Board Members by resolutions of General Meetings of Shareholders.

  1. Compensation for Directors of TOTO comprises fixed compensation in the form of base compensation, and performance-linked compensation, which varies with the business performance and stock price of the company. Performance-linked compensation comprises bonuses (short­term performance-linked compensation), which are tied to business performance and limited to 0.8% of consolidated operating income, and stock­compensation type stock options (medium- to long-term performance-linked compensation), which are aimed at having Directors share the common interests of our shareholders and incentivizing contributions towards increasing the corporate value and stock price of the company, and is designed to motivate Directors to not only consider the current business year, but also take a medium to long term perspective in their management of the company. In addition, the Compensation Advisory Committee was set up to help ensure that the compensation for Directors is reasonable and objective. The Board of Directors decides the compensation after confirming through the Compensation Advisory Committee that the compensation system and allocation balance are in line with the Articles of incorporation, the resolutions of the General Meeting of Shareholders, and the Basic Policy for Directors' Compensation.
    Note that Outside Directors, who are independent from the business operations, are entitled to only fixed compensation.

    Schematic of Compensation for Directors (Excluding Outside Directors)

    Fixed compensation Performance-linked compensation
    Linked to short-term performance Linked to medium- to long-term performance
    Base compensation Bonus Stock-compensation type stock options
  2. The base compensation for individual Audit & Supervisory Board Members is determined depending on his/her duties and responsibilities upon consultation with Audit & Supervisory Board Members.

(2) Total amount of compensation by type for Directors and Audit & Supervisory Board Members

  Number of officers Base compensation Bonus Stock-compensation type
stock options
Total
Directors person
13
million yen
390
million yen
276
million yen
56
million yen
724
(Outside Directors included above) (2) (19) - - (19)
Audit & Supervisory Board Members 4 55 - - 55
(Outside members of Audit & Supervisory Board included above) (2) (19) - - (19)
Total 17 446 276 56 779

(Note) The total amount of compensation approved at the General Meeting of Shareholders is shown below.
(Approved at the 145th Ordinary General Meeting of Shareholders held on June 29 2011)

  Fixed compensation Performance-linked compensation
Linked to short-term performance Linked to medium- to long-term performance
Base compensation Bonus Stock-compensation type stock options
Director Up to 500 million yen per annum(*1)
(including an amount up to 30 million yen in total for Outside Directors)
Up to 0.8% of the previous fiscal year's consolidated operating income Up to 200 million yen or 200 units per annum
Audit & Supervisory Board Member Up to 150 million yen per annum (*2)

(*1)The employee salaries of director-employees are not included.

(*2)Bonuses and stock-compensation type stock options are not paid out to Audit & Supervisory Board Members.

(3) Amounts of compensation, etc. of Directors whose total amount of compensation, etc. exceeds 100 milliom yen, by type of payment

Directors of 100 million yen or more are as the following in Fiscal 2015.

  Base compensation Bonus Stock-compensation type
stock options
Total
Representative Director
Kunio Harimoto
million yen
63
million yen
49
million yen
9
million yen
122
Representative Director
Madoka Kitamura
62 49 9 121

Outside Directors and Outside Members of the Audit & Supervisory Board

Since all Outside Directors and Outside Members of the Audit & Supervisory Board are invited to join their respective boards as members who can make decisions materially independent of the management of TOTO and all other specific stakeholders, we designate all Outside Directors and Outside Members of the Audit & Supervisory Board as Independent Directors/Audit & Supervisory Board Members.
We nominate candidates for Outside Directors and Outside Members of the Audit & Supervisory Board who fully satisfy the Nominating Advisory Committee’s Requirements for Independent Directors/Audit & Supervisory Board Members [see (Note) below], the satisfaction of which is set forth by TOTO as a mandatory requirement.

(Note)Requirements for Independent Directors/Audit & Supervisory Board Members

  1. a person who has experience in business management above a certain level, or a professional or an external expert in business management (a company owner with significant past achievements, a specialist in the investment banking business, a lawyer, a certified public accountant, a researcher who mainly studies the Companies Act or other acts, or any similar person);
  2. a person who is not or has not been a Director (except for an Outside Director; the same is applied hereinafter), an Audit & Supervisory Board Member (except for an Audit & Supervisory Board Member, Outside; the same is applied hereinafter), an accounting advisor, an Executive Officer, a manager or any other employee (collectively, the "Director") of the Company, its Subsidiary or Affiliate Companies (collectively, the "Company Group");
  3. a person who is not the spouse or a relative within the third degree of relationship of a current or former Director of the Company Group (except for a person who is not a principal of the Company);
  4. a person who, during the most recent five years, has not served as a Director in a financial institution that is a major loan provider for the Company Group;
  5. a person who, during the most recent five years, has not served as a Director in a business associate that has business with the Company Group of 2% or more of the consolidated sales of either such business associate or the Company Group in any fiscal year during the recent five fiscal years;
  6. a person who is not a lawyer, a certified public accountant, or a consulting or other professional service provider (if such service provider is a corporation, association or other entity, a person who belongs to such entity and a person who belonged to such entity during the most recent five years) who received from the Company Group a compensation totaling 10 million yen or more in any fiscal year during the most recent five fiscal years; or
  7. a person who is not a Director of a company which is the Company's major shareholder or whose major shareholder is the Company, or who is not a Director of a parent company, subsidiary or affiliate of such company.

(1) Current Independent Directors/Audit & Supervisory Board Members

Position Name Reason for appointment as Independent Director/Audit & Supervisory Board Member
Outside Director Hiroki
Ogawa
Mr. Hiroki Ogawa has been involved in the management of Saibu Gas Co., Ltd. for many years and has expertise in the housing industry. He provides valuable opinions at Meetings of the Board of Directors based on the expertise he has developed in his career as a professional corporate manager and displays outstanding supervision skills by reflecting his views unfettered by the conventional way of doing things in the Company's management. He has experience and knowledge of general management and corporate governance as well as of management closely tied to local communities, and therefore the Company proposed his reappointment as Outside Director.

He has held office as Outside Director for three years as of the close of the 150th ordinary general meeting of shareholders.
Kazuhiko
Masuda
Mr. Kazuhiko Masuda has been involved in the management of Sumitomo Light Metal Industries, Ltd. (currently, UACJ Corporation) for many years. He provides valuable opinions at Meetings of the Board of Directors based on the expertise he has developed in his career as a professional corporate manager and displays outstanding supervision skills by reflecting his views unfettered by the conventional way of doing things in the Company's management.
He has experience and knowledge of general management and corporate governance as well as of the production technology of manufacturers, and therefore the Company proposed his reappointment as Outside Director.

He has held office as Outside Director for two years as of the close of the 150th ordinary general meeting of shareholders.
Masatsugu
Shimono
Mr. Masatsugu Shimono has been involved in the management of IBM Japan, Ltd. for many years and has experience and knowledge of general management and corporate governance of a global company, which he has developed in his career, as well as experience and knowledge of general ICT and the promotion of diversity.
TOTO believes that he is highly capable of providing valuable opinions at Meetings of the Board of Directors based on his expertise as a professional and global corporate manager and will display outstanding supervision skills by reflecting his views unfettered by the conventional way of doing things in the Company's management, and therefore TOTO proposed his appointment as Outside Director.
Audit & Supervisory Board Member, Outside Masamichi
Takemoto
Mr. Masamichi Takemoto has been involved in the management of Nitto Denko Corporation for many years. He properly performs his duties as an outside member of Audit & Supervisory Board and provides valuable opinions at Meetings of the Audit & Supervisory Board and Board of Directors based on the expertise he has developed in his career as a professional corporate manager. He displays outstanding supervision skills unfettered by the conventional way of doing things in the Company's management.
He has experience and knowledge of general management and corporate governance as well as operation of overseas projects, and therefore TOTO proposed his reappointment as Outside Member of Audit & Supervisory Board at the 149th Ordinary general meeting of shareholders.

He has held office as Outside Member of Audit & Supurvisory Board for five years as of the close of the 150th ordinary general meeting of shareholders.
Akira
Katayanagi
Mr. Akira Katayanagi has been involved in the management of financial institutions for many years. He properly performs his duties as an outside member of Audit & Supervisory Board and provides valuable opinions at Meetings of the Audit & Supervisory Board and Board of Directors based on the expertise he has developed in his career as a professional financial and management manager. He displays outstanding supervision skills unfettered by the conventional way of doing things in the Company's management.
He has experience and knowledge of general management and corporate governance as well as in finances, and therefore TOTO proposed his appointment as Outside Member of Audit & Supervisory Board at the 147th Ordinary general meeting of shareholders.

He has held office as Outside Member of Audit & Supurvisory Board for three years as of the close of the 150th ordinary general meeting of shareholders.

(Note) When nominating Independent Directors/Audit & Supervisory Board Members, after confirming that the Judging Criteria Regarding Independence stipulated by the stock exchange is not contradicted and that the Requirements for Independent Directors/Audit & Supervisory Board Members stipulated by TOTO are met, the Independent Directors/Audit & Supervisory Board Members are decided upon at the Meeting of the Board of Directors.

(2) Main Activities in Fiscal 2015

1. Outside Director

Name Attendance of the Meetings of the Board of Directors Main activities
Hiroki
Ogawa
Attended 10 of the 12 meetings Hiroki Ogawa provided valuable advice at the Meetings of Board of Directors based on the knowledge as the expert of the management he cultivated through his career mentioned in the preceding paragraph (1) "Reason for appointment as Independent Director", and conducted supervision by reflecting in our management his views.
Particularly, at the Meetings of Board of Directors, he provided a wide variety of opinions on sales activities in japan and overseas.
Kazuhiko
Masuda
Attended 11 of the 12 meetings Kazuhiro Masuda provided valuable advice at the Meetings of Board of Directors based on the knowledge as the expert of the management he cultivated through his career mentioned in the preceding paragraph (1) "Reason for appointment as Independent Director", and conducted supervision by reflecting in our management his views.
Particularly, at the Meetings of Board of Directors, he provided a wide variety of opinions on distribution of management resources, business management, etc.

2. Audit & Supervisory Board Member, Outside

Name Attendance of the Meetings of the Board of Directors Attendance of the Meetings of the Audit & Supervisory Board Main activities
Masamichi
Takemoto
Attended 12 of the 12 meetings Attended 14 of the 14 meetings Masamichi Takemoto appropriately conducted his duties as Outside Member of Audit & Supervisory Board based on the knowledge as the expert of the management he cultivated through his career mentioned in the preceding paragraph (1) "Reason for appointment as Independent Audit & Supervisory Board Member".
Particularly, at the Meetings of Board of Directors and the Meetings of Audit & Supervisory Board, he provided a wide variety of opinions from a global view point on business management system, human resources, risk management, etc.
Akira
Katayanagi
Attended 11 of the 12 meetings Attended 13 of the 14 meetings Akira Katayanagi appropriately conducted his duties as Outside Member of Audit & Supervisory Board based on the knowledge as the expert of the management he cultivated through his career mentioned in the preceding paragraph (1) "Reason for appointment as Independent Audit & Supervisory Board Member".
Particularly, at the Meetings of Board of Directors and the Meetings of Audit & Supervisory Board, he provided a wide variety of opinions from a global view point on financial aspect, human resource development, management of the group companies, etc.