Governance
Corporate Governance
Under the management principle of “Always Putting the Customer First,” ITO EN provides in the ITO EN Group Founding Charter that“ the ITO EN Group has developed the basics for management to continually grow and develop as an enterprise and enhance corporate value: cooperate with its stakeholders, including the government, local communities, consumers, shareholders, retailers, suppliers, and financial institutions, and fulfill its corporate social responsibility (CSR).”
The management principle above is the basic concept of ITO EN’s corporate ethics and the foundation that supports our corporate governance. Based on this principle, every officer and employee of ITO EN is active in promoting concerted efforts to achieve a sustainable society in line with the interests of all stakeholders, and strives to repay their trust.
Under this management principle, the Group aims to be a Health Creation Company which creates healthy and fulfilling lifestyles for customers and a sustainable society and fulfil our long-term vision of becoming “Global Tea Company.” Further, the Group aims to translate its contribution to the health of customers around the world into sustainable growth and medium-to-long-term improvement in its corporate value and is committed to further strengthening corporate governance.
System
Corporate Governance Structure
System overview (since July 28, 2022)
| Organization Form | Company with an Audit & Supervisory Board |
|---|---|
| Number of Directors | 13 (of which Outside Directors: 5) |
| Number of Audit & Supervisory Board Members | 4 (of which Outside Audit & Supervisory Board Members: 3) |
| Number of Independent Directors/Audit & Supervisory Board Members | 7 |
| State of Voluntary Establishment of Committees | Nomination & Remuneration Com |
| Accounting Auditor | KPMG AZSA LLC Nomination & Remuneration |
Board of Directors
The composition of the Board of Directors must be well balanced as a whole taking knowledge, experience and skills into consideration in accordance with management strategies, etc. and the Board of Directors must consist of the necessary and appropriate number of members to ensure effective decision-making and substantive discussions. The Company determines the composition giving due consideration to ensuring diversity in terms of gender, internationality, career history, age and other characteristics.
Directors (excluding Outside Directors)
Persons who are well versed in the Company’s business management, have abundant knowledge and experience and are morally qualified for being involved in the Company’s management
Outside Director
Persons who have good insight into the Group’s management principle, social responsibility and roles
Persons who have abundant experience and extensive insight in corporate management, professional knowledge in legal affairs, financial accounting, tax affairs, finance and so forth and are expected to provide general advice and supervision over the Company’s management from objective and professional perspectives
Persons who meet the Company’s standards for the independence of Outside Directors and are deemed unlikely to cause conflicts of interest with general shareholders
Audit & Supervisory Board
A majority of Audit & Supervisory Board Members shall be Outside Audit & Supervisory Board Members and a standing Audit & Supervisory Board Member shall be appointed. Audit & Supervisory Board Members shall be persons with appropriate experience and skills and necessary knowledge of finance, accounting and law, with at least one person with a considerable level of knowledge of finance and accounting being appointed.
Audit & Supervisory Board Members (excluding Outside Audit & Supervisory Board Members)
Persons who have abundant knowledge of and experience in the Company’s business management
Persons who can audit the status of the execution of duties of Directors from a fair and objective standpoint and contribute to the improvement of soundness and transparency of management
Outside Audit & Supervisory Board Member
Persons who have good insight into the Group’s management principle, social responsibility and roles
Persons who are thoroughly aware of their roles as Outside Audit & Supervisory Board Members, can audit the status of the execution of duties of Directors from neutral and objective perspectives by using their knowledge of and experience in corporate management, economy, legal affairs, accounting, tax affairs, audits and other areas, and can contribute to the improvement of soundness and transparency of management
Persons who meet the Company’s standards for the independence of Outside Directors and are deemed unlikely to cause conflicts of interest with general shareholders
Reasons for electing Outside Directors and Outside Audit & Supervisory Board Members
| Morikazu Taguchi | Mr. Morikazu Taguchi has engaged in the study of legal affairs for many years and offers appropriate advice from a professional viewpoint. The Company appointed him as Outside Director to have him utilize his abundant experience and extensive insight in objectively supervising the management of the Company. While Mr. Taguchi is a brother of Mr. Hiroshi Taguchi, a former Managing Director of the Company, the Company has decided that there is no issue in the independence of Mr. Taguchi, because Mr. Hiroshi Taguchi left office in July 2012. In addition, because the appointment of Mr. Taguchi does not fall under matters that the Tokyo Stock Exchange defines as those that could give rise to conflicts of interest with general shareholders, he is independent from the Company. |
|---|---|
| Yuichi Usui | Mr. Yuichi Usui has considerable experience and a wide range of insight as a police officer for many years and also has experience in being directly involved in company management in a logistics company. The Company appointed him as Outside Director to have him utilize his diverse experience and insight in supervising and monitoring the management of the Company. In addition, because the appointment of Mr. Usui does not fall under matters that the Tokyo Stock Exchange defines as those that could give rise to conflicts of interest with general shareholders, he is independent from the Company. |
| Yutaka Tanaka | Mr. Yutaka Tanaka has expertise as well as extensive knowledge and experience as a certified tax accountant and also has an experience as an Outside Audit & Supervisory Board Member. The Company has appointed him as Outside Director to have him utilize his diverse experience and knowledge in supervising the management of the Company. In addition, because the appointment of Mr. Usui does not fall under matters that the Tokyo Stock Exchange defines as those that could give rise to conflicts of interest with general shareholders, he is independent from the Company. |
| Hideo Takano | Mr. Hideo Takano has deeply participated in business support for a variety of companies at the Tokyo Chamber of Commerce and Industry for many years. The Company has appointed him as Outside Director to have him utilize his abundant experience and extensive insight in objectively supervising the management of the Company. In addition, because the appointment of Mr. Usui does not fall under matters that the Tokyo Stock Exchange defines as those that could give rise to conflicts of interest with general shareholders, he is independent from the Company. |
| Keiko Abe (New appointment) |
Ms. Keiko Abe has extensive experience and expert knowledge as a professor at the University of Tokyo's Graduate School of Agricultural and Life Sciences and has been actively involved in research in the field of food functionality for many years. The Company has appointed her as Outside Director because it has judged that she will be able to offer useful opinions and advice in the field of R&D relating to future medium- to long-term management based on her extensive experience and knowledge. In addition, because the appointment of Mr. Usui does not fall under matters that the Tokyo Stock Exchange defines as those that could give rise to conflicts of interest with general shareholders, he is independent from the Company. |
| Yoshiaki Takasawa | The Company has appointed Mr. Yoshiaki Takasawa with an emphasis on his expertise. The Company has appointed Mr. Takasawa, who is an attorney at law, as Outside Audit & Supervisory Board Member to strengthen the auditing system from a legal perspective. |
| Takashi Miyajima | The Company has appointed Mr. Yoshiaki Takasawa with an emphasis on his expertise. Mr. Miyajima has many years of experience at a financial institution and in being involved in company management as well as extensive knowledge and insight on financial and monetary affairs. |
| Hitoshi Yokokura | The Company has appointed Mr. Yoshiaki Takasawa with an emphasis on his expertise. Mr. Hitoshi Yokokura has expert insights and extensive knowledge and experience as a certified public accountant and an attorney, and the Company has appointed him as an Outside Audit & Supervisory Board Member based on its judgment that he will be able to utilize his advanced expertise and insight in accounting and legal affairs for monitoring and auditing the Company's management. In addition, because the appointment of Mr. Usui does not fall under matters that the Tokyo Stock Exchange defines as those that could give rise to conflicts of interest with general shareholders, he is independent from the Company. |
Nomination & Remuneration Committee
The Company has established the Nomination & Remuneration Committee to enhance the independence and objectivity of the functions of the Board of Directors and its accountability through the appropriate involvement and consultation of Independent Outside Directors on particularly important matters such as the nomination and remuneration of Directors and others. The Nomination & Remuneration Committee shall be composed of three or more Directors including Outside Directors as members and shall consist of a majority of Independent Outside Directors. Members shall be elected by resolution of the Board of Directors, and the chairperson shall be elected from among the members who are Independent Outside Directors by resolution of the Nomination & Remuneration Committee.
Upon request from the Board of Directors, the Nomination & Remuneration Committee shall deliberate on the following matters and report the results to the Board of Directors.
1. Policy concerning composition of the Board of Directors
2. Matters relating to the election and dismissal of Directors, executive officers, and Audit & Supervisory Board Members, and the proposal of candidates for Directors, executive officers, and Audit & Supervisory Board Members
3. Matters relating to proposals for the election or dismissal of Representative Directors and Directors and executive officers with special titles
4. Matters relating to president succession planning
5. Matters relating to the remuneration limit, remuneration system and remuneration amount for Directors and executive officers and the remuneration limit for Audit & Supervisory Board Members
6. Matters relating to the personnel affairs and remuneration of officers of major subsidiaries and affiliated companies
7. Other matters relating to corporate governance
Evaluation of the Effectiveness of the Board of Directors
The Company has been analyzing and evaluating the effectiveness of the Board of Directors every year since FY2015, in an effort to improve its functioning. In FY2021, certain evaluation items were revised, and an evaluation was conducted using the following method.
Evaluation method in FY2021
Self-assessment by questionnaire
Individual interviews based on the results of the questionnaire
Tabulation and analysis of questionnaire and interview results
Evaluation items in FY2021
1. Size and composition of the Board of Directors
2. Discussions of the Board of Directors
3. State of operation of the Board of Directors
4. Relationship with shareholders
5. Structure of, deliberations at, etc. of Nomination & Remuneration Committee
6. Self-assessment
Results of evaluation in FY2021
Regarding the size and operation method of the Board of Directors, it was confirmed that the Board is sufficiently functioning in terms of its fulfillment of its managerial decision-making and supervision. On the other hand, regarding its composition, the appointment of female Directors was identified as a future issue from the perspective of ensuring diversity.
The necessity of active discussion about medium- to longterm management strategies from ESG and sustainability perspectives, and of sharing and discussing the status of efforts toward the aim of becoming a Global Tea Company with domestic and overseas group companies has been pointed out.
At the same time, the enhancement of opportunities to share information with Outside Directors and Audit & Supervisory Board Members was recognized to be an issue regarding ensuring more active discussions.
The Company will seek to improve the effectiveness of the Board of Directors by continuing working to solve issues.
Remuneration for Corporate Officers
Remuneration for Directors is deliberated by the Nomination & Remuneration Committee, a majority of which is composed of Independent Outside Directors, to ensure objectivity and transparency in accordance with the Company's basic views on corporate governance and basic views on remuneration. The Board of Directors determines the remuneration for Directors, respecting to the report by the Nomination & Remuneration Committee. The Nomination & Remuneration Committee deliberates the individual remuneration for Directors, including whether it is consistent with the policy for determining remuneration and whether it has been evaluated based on the remuneration standards, and the Board of Directors determines the individual remuneration, etc. of Directors giving due respect to the report by the Nomination & Remuneration Committee.
Basic policy
1. Remuneration shall be in compliance with the management principle of the ITO EN Group, “Always Putting the Customer First,” and will contribute to sustained corporate growth and development and the enhancement of corporate value.
2. Remuneration shall be determined in proportion to the significance of Directors’ roles and responsibilities and their contribution to the Company’s business performance.
3. Remuneration shall be closely linked to the share price of the Company’s stock, so that Directors share the impact of share price fluctuations with the Company’s shareholders and the remuneration serves as an incentive for management.
4. Remuneration shall be determined based on objective and fair deliberations and with references to external data.
Executive remuneration amounts
Remuneration for Inside Directors of the Company comprises fixed remuneration and performance-linked remuneration, and fixed remuneration comprising approximately 70% and performance-linked remuneration approximately 30%.
Remuneration for Outside Directors and Audit & SupervisoryBoard Members shall consist of fixed remuneration only.
Fixed remunerations
The amount of fixed remuneration shall be not more than the maximum amount of the remuneration resolved by the General Meeting of Shareholders (100 million yen per month for Directors and 6 million yen per month for Audit & Supervisory Board Members), paid, in principle, on a monthly basis. Remuneration for Inside Directors is determined the by considering business performance and the degree to which the Company has achieved its plan.
Performance-linked remuneration
- (1) Reasons for the adoption of performance-linked remuneration
- Performance-linked remuneration shall be composed of performance-based remuneration and share based remuneration, which makes part of the remuneration closely linked to the Company’s share price and puts Directors in a position where they share the impact of share price fluctuations with shareholders, to enhance interest in its share price and business performance and further raise their motivation and morale for achieving higher share prices and better business performance of the Company. Performance-based remuneration shall be monetary remuneration based on business results, and shall be paid monthly in principle. The Company determines granted share acquisition rights once a year by means of performance-linked, share remuneration-type share options by rigorously evaluating the business performance.
- (2) Determination of the performance-linked remuneration
- The Company determines performance-linked remuneration through comprehensive performance evaluation in which, in order to link the business performance and remuneration, the Company designates some of the Company’s business performance indicators as measures for Directors’ individual performance, sets the standard ratio of consolidated performance to nonconsolidated performance for each position, considers each Director’s responsibilities, and awards points to each Director with respect to each business performance indicator.
- (3) The Company’s business performance indicators used as Directors’ performance measures
- The Company’s primary business performance indicators used as performance measures for Directors include “net sales (growth),” “operating income (profitability),” “cash flows from operating activities (stability),” “earnings per share (profitability),” “return on equity (efficiency)” and “dividend on equity ratio (shareholder return).”
Internal Control System
Basic views
In accordance with a resolution of the Board of Directors concerning the Company’s basic policy regarding the development and operation of an internal control system, various systems have been developed to increase the transparency of business operations and the effectiveness and efficiency of the Group’s internal management system based on the policy of earning the trust of all stakeholders by serving their interests, based on the management principle of “Always Putting the Customer First.”
Operation of internal control system
The Internal Auditing Department, which is independent from other administration and operation departments as an organization under the direct control of the President, conducts audits of internal control systems, and the audit results are deliberated by the Internal Control Promotion Committee chaired by a Director in charge of internal control and resolved as an internal control report by the Board of Directors.
In addition, the Compliance Department and the Internal Auditing Department check the adequacy of business operations by working to increase awareness of compliance in a wide scope, including laws and regulations, social norms and corporate ethics and conduct compliance education on an ongoing basis. Furthermore, they improve inadequate operations in a timely manner. Moreover, the Company tries to operate the internal control system by adopting a system to report important matters to the Board of Directors or the Executive Board.
Risk management system
Recognizing risks concerning its business operations as follows, the Company has established a department in charge of risks, formulated regulations, rules and guidelines and built a cross-sectional risk management system.
- (1) Risks related to compliance
- To fully enforce compliance based on the ITO EN Group Code of Conduct and Code of Behavior, the Company implements company-wide compliance education with the Compliance Department playing a central role.
- (2) Risks related to information security
- For information protection, the Company has established the personal information protection policy to prevent the leakage of personal information, and for business information management, the Company prevents the leakage of information and unauthorized access by strengthening computer security.
- (3) Risks related to quality and the environment
- The Company has built a systematic management system, including the improvement of quality and product safety, and response to product liability, etc. by establishing the ITO EN Group Quality Policy.
The Company works to address environmental risks as company-wide environmental issues based on the approach of the environmental management system.
- (4) Risks related to property preservation
- The Company makes efforts to prevent the occurrence of credit losses due to the bankruptcy of business partners by fully enforcing credit management and receivables collection management according to the credit management standards. The Company also works to develop a system to prevent the occurrence of dead stock by making efforts for the management of inventories such as products, raw materials and materials.
- (5) Risks related to disaster and accident
- The Disaster Prevention Committee strives to minimize damages at the time of a disaster by reviewing the business continuity plan (BCP).
The Company has organized a system to minimize damages when an unforeseen situation occurs by establishing a task force headed by the President to prevent the expansion of damages by taking prompt measures.
Intellectual Property
Intellectual property system
In accordance with its intellectual property policy and important strategies defined in the medium- to long-term management plan, the Company promotes intellectual property management that contributes to solving social issues and improving corporate value. The Company has in-house patent attorneys and lawyers and also has an Intellectual Property Department dedicated to IP matters, as well as consulting outside experts. Moreover, the members of the Intellectual Property Department are assigned to the research and development section of the Production Headquarters, thereby ensuring systems that proactively provide support to the research and development sections exist.
In cooperation with each department, the Intellectual Property Department provides support for strategies for research and development and brand and intellectual property-related education. Moreover, the Intellectual Property Department began IP Landscape activities last year and provides recommendations at research and development strategy meetings and business planning meetings. Details of these activities and the risk management issues related to intellectual property are reported by the executive officers in charge to the Board of Directors, and feedback is obtained.
Support for management strategies
ITO EN Group mission of being a Health Creation Company
The Group provides unique products that have significant health value and contributes to customers’ healthy lives through its support of research and development by intellectual property activities regarding the functionality of food, including the impact of green tea and matcha on cognitive functions.
Long-term vision of becoming a Global Tea Company
In its core tea-related business, the Company also helps address environmental and social issues through its business activities by protecting intellectual property rights in the supply chain, starting with tea farms through to tea products and used tea leaves recycling.
To support the strengthening of overseas operations, the Group started to provide education regarding intellectual property to overseas human resources in the current fiscal year. In addition, the Company aims to acquire IP rights and avoid IP infringement risks around the world and, to this end, will gather data on disputes and examinations around the world and acquire rights in an appropriate and effective manner.
Investment for the development of human resources and encouragement of innovation
The Company’s growth has been driven by a range of innovations, such as the creation of beverages from unsweetened tea which had previously been considered impossible. Innovation is the Company’s source of growth.
The Intellectual Property Department works to develop personnel for the creation of intellectual property by providing education to promote knowledge and skills acquisition within the research and development departments and other sections engaging in the creation of intellectual property. On a systemic level, the Company is also working to contribute to the development of business through the establishment and operation of the Employee Invention Compensation System with the aim of encouraging employees to create intellectual property. Ad Hoc Compensation has also been introduced to provide a special reward to inventions that noticeably contribute to the Company’s business. A one million yen bonus will be awarded per invention, in principle, with no upper limit set regarding bonuses for inventions whose contribution to the Company is extremely high.
Appropriate tax management
The ITO EN Group complies with laws and regulations both in Japan and overseas and ensures the development and appropriate application of internal rules based on the Group management principle of "Always Putting the Customer First." The Group also seeks to comply with tax-related laws and regulations both in Japan and overseas and to properly file tax returns and pay taxes in accordance with legal requirements.
Furthermore, by ensuring tax transparency and reliably meeting its tax obligations in a timely and appropriate manner, the Group contributes to the economic and social development of all the countries and regions in which it operates.
Information disclosure system
Fundamental Approach
The Company has established the Inside Information Management Regulations for the purpose of preventing insider trading that violates the Financial Instruments and Exchange Act by setting management standards and other rules for inside information.
Based on the Inside Information Management Regulations, the Company has built a system to report and disclose facts about changes in the operation, business and assets of the Company and facts that could have a significant impact on the investment decisions of investors.
System
