- Basic Policy
- Management System
- Business Operation System
- Board of Directors
- Effectiveness of the Board of Directors: Evaluation Results
- Approach to the CEO Succession Plan
- Executive Officer Training
- Directors, Auditors, and Executive Officers
- Compensation for Directors
- Preventing Conflicts of Interest
- Internal Control
- Internal Control System Related to Financial Reporting
- SUBARU Group Governance
SUBARU has articulated the vision “Delivering happiness to all” and works on the enhancement of corporate governance as one of the top priorities of management in order to gain the satisfaction and trust of all its stakeholders by achieving sustainable growth and improving its corporate value over the medium to long term.
- Delivering happiness to all
- 〈Value Statement〉
- “Enjoyment and Peace of Mind”
- 〈Corporate Statement〉
- We aim to be a compelling company with a strong market presence built upon our customer-first principle.
SUBARU clearly separates the function of decision making and the oversight of corporate management from that of the execution of business operations, and aims to realize effective corporate management by expediting decision making. In addition, SUBARU seeks to ensure proper decision making and the oversight of corporate management and the execution of business operations as well as enhance its risk management system and compliance system through the monitoring of its management and operations and advice provided by outside officers. We also implement proper and timely disclosure of information in order to improve the transparency of management. SUBARU has created the Corporate Governance Guidelines with the objective of clarifying the basic concept, framework, and operating policy of its corporate governance.
- Corporate Governance GuidelinesPDF/547kB (June 30, 2023)
- Corporate Governance Report (Japanese version only)PDF/355kB (July 5, 2023)
SUBARU has chosen a structure with a board of corporate auditors. The Board of Directors (eight members, of which three are outside directors) and the Board of Corporate Auditors (four members, of which two are outside corporate auditors) decide, supervise, and audit the execution of important business.
This structure also enables us to achieve more sound and efficient business operations through increased effectiveness of management monitoring by involving highly independent outside directors and outside corporate auditors. At SUBARU, in order to enhance the practical governance structure based on our present organizational design, we have established two voluntary meetings: the Executive Nomination Meeting (consisting of five directors, of which three are outside directors) and the Executive Compensation Meeting (also consisting of five directors, of which three are outside directors).
As of the resolution of the 92nd Ordinary General Meeting of Shareholders held on June 21, 2023, SUBARU's corporate governance structure and the composition of the Board of Directors, Board of Corporate Auditors, Executive Nomination Meeting, and Executive Compensation Meeting are as follows.
Corporate Governance Structure
Composition of the Board of Directors (BoD), Board of Corporate Auditors, Executive Nomination Meeting, and Executive Compensation Meeting
|Position||Name||Board of Directors*||Board of Corporate Auditors*||Executive Nomination Meeting*||Executive Compensation Meeting*|
|Representative Director||Atsushi Osaki||〇||〇||〇|
|Representative Director||Fumiaki Hayata||〇|
|Independent Outside Director||Yasuyuki Abe||〇||〇||〇|
|Independent Outside Director||Miwako Doi||〇||〇||〇|
|Independent Outside Director||Fuminao Hachiuma||〇||〇||〇|
|Standing Corporate Auditor||Yoichi Kato||〇||◎|
|Standing Corporate Auditor||Hiromi Tsutsumi||〇||〇|
|Independent Outside Corporate Auditor||Yuri Furusawa||〇||〇|
|Independent Outside Corporate Auditor||Yasumasa Masuda||〇||〇|
Business Operation System
SUBARU has adopted a vice president system and delegates directors‘ business execution authority to vice presidents. By doing this, SUBARU clearly separates the function of decision making and the oversight of corporate management from that of the execution of business operations, expediting decision making.
Major Activities in FYE March 2023
The major activities of the BoD, the Executive Nomination Meeting, and the Executive Compensation Meeting during FYE March 2023 are as follows.
Board of Directors
Meetings of the Board of Directors are held in principle once a month, and as needed otherwise, deliberating important matters based on the rules of the Board of Directors.
In FYE March 2023, the Board of Directors consisted of nine directors, including three outside directors, and met 13 times*, chaired by Director and Chairman Kazuo Hosoya. The board's business during the fiscal year included overall oversight of Company management and determinations on important business execution.
In addition to the number of Board of Directors meetings held in the above table, one resolution was adopted in writing that was deemed to be a resolution of the Board of Directors in accordance with Article 370 of the Companies Act and the Articles of Incorporation.
Major Items Deliberated in FYE March 2023
- Determination of candidates for directors and corporate auditors as well as the CEO and other management team members
- Decision to delegate authority to the Executive Compensation Meeting to determine the individual compensation of directors and vice presidents in accordance with the Company''s executive compensation system
- Monitoring of impact on production and sales caused by semiconductor supply shortages, etc.
- Discussion on medium- to long-term management issues including electric vehicle strategy, IR/SR activities, and matters reported by the Sustainability Committee and Risk Management and Compliance Committee and other bodies
Executive Nomination Meeting
The committee is composed of three outside directors (Mr. Yasuyuki Abe, Mr. Natsunosuke Yago and Ms. Miwako Doi) and two internal directors (Mr. Tomomi Nakamura and Mr. Kazuo Hosoya). In order to ensure fairness and transparency of decisions on executive appointment, this voluntary committee, on request for consultation by the BoD, approves and submits the proposals to the BoD for the nomination of candidates for directors and corporate auditors and the selection and dismissal of vice presidents, including the Chief Executive Officer (CEO), after ample deliberation.
The Executive Nomination Meeting was held seven times in FYE March 2023, chaired by Director and Chairman Kazuo Hosoya.
Executive Compensation Meeting
The committee is composed of three outside directors (Mr. Yasuyuki Abe, Mr. Natsunosuke Yago and Ms. Miwako Doi) and two internal directors (Mr. Tomomi Nakamura and Mr. Kazuo Hosoya). In order to ensure objectivity and transparency of decisions on executive compensation, this voluntary committee, on the basis of delegation by the BoD, determines individual compensation amounts per director and other issues after ample deliberation.
With regard to revisions of the compensation system and other matters pertaining to compensation overall, proposals approved by the Executive Compensation Meeting are deliberated and decided on by the BoD.
The Executive Compensation Meeting was held four times in FYE March 2023, chaired by Director and Chairman Kazuo Hosoya.
Major Items Deliberated in FYE March 2023
- Verification of the compensation system for directors and vice presidents introduced from the current fiscal year
- Study of executive compensation levels using external survey data
- Determination of individual performance-linked compensation amounts for directors (excluding outside directors) and vice presidents based on performance evaluations
- Determination of individual base amounts and other matters for restricted stock compensation
Membership, Meetings Held, and Attendance for the Board of Directors, Executive Nomination Meeting, and Executive Compensation Meeting for FYE March 2023
|Position||Name||Board of Directors||Executive Nomination Meeting||Executive Compensation Meeting|
|Representative Director, President||Tomomi Nakamura||〇
100%(13 of 13 meetings)
100%(7 of 7 meetings)
100%(4 of 4 meetings)
100%(13 of 13 meetings)
100%(7 of 7 meetings)
100%(4 of 4 meetings)
100%(13 of 13 meetings)
100%(13 of 13 meetings)
100%(13 of 13 meetings)
100%(13 of 13 meetings)
|Independent Outside Directors||Yasuyuki Abe||〇
100%(13 of 13 meetings)
100%(7 of 7 meetings)
100%(4 of 4 meetings)
|Independent Outside Directors||Natsunosuke Yago||〇
100%(13 of 13 meetings)
100%(7 of 7 meetings)
100%(4 of 4 meetings)
|Independent Outside Directors||Miwako Doi||〇
100%(13 of 13 meetings)
100%(7 of 7 meetings)
100%(4 of 4 meetings)
|Standing Corporate Auditor||Yoichi Kato||〇
100%(13 of 13 meetings)
|Standing Corporate Auditor||Hiromi Tsutsumi||〇
100%(13 of 13 meetings)
|Independent Outside Corporate Auditors||Shigeru Nosaka||〇
84.6%(11 of 13 meetings)
|Independent Outside Corporate Auditors||Kyoko Okada||〇
92.3%(12 of 13 meetings)
|Independent Outside Corporate Auditors||Yuri Furusawa||〇
100%(10 of 10 meetings)*
Board of Corporate Auditors
The Board of Corporate Auditors, as an independent organization entrusted by shareholders, is responsible for ensuring the sound and sustainable growth of SUBARU and establishing a quality corporate governance system that can be trusted by society by performing audits of the execution of duties by directors, passing resolutions on the contents of proposal items regarding the appointment and dismissal, or non-reappointment, of accounting auditors that are to be submitted to the General Meeting of Shareholders, and performing business audits, accounting audits, and other matters prescribed by laws and regulations. The body consists of a maximum of five members in accordance with the Articles of Incorporation. It is now composed of four corporate auditors, including two outside corporate auditors, which was approved at the 92nd Ordinary General Meeting of Shareholders held on June 21, 2023. The body is chaired by the standing corporate auditor. In FYE March 2023, 12 meetings of the Board of Corporate Auditors were held.
Effectiveness of the Board of Directors: Evaluation Results
In accordance with Article 23 of the Guidelines, the Board of Directors (“BoD”), on an annual basis, analyzes and evaluates the effectiveness of the Board, considers and implements measures to improve any issues identified, and then discloses an overview of the results in a timely, appropriate manner. In the fiscal year ended March 31, 2023, aiming to apply the results of the evaluations toward enhancing the BoD's functions, the BoD confirmed efforts to address issues recognized in previous evaluations, reorganized the evaluation items on the survey and implemented interviews with certain directors, and assessed and analyzed the reasons and underlying factors behind differences in the recognition of issues. The results of this process are reported below.
Methods of evaluation and analysis
- Timing: December 2022–February 2023
- Methods: Self-evaluation survey created by a third-party body; interviews
(a) Survey respondents: Directors (9) and auditors (5) for a total of 14 respondents
(b) Interviewees: Chair of the BoD, Representative Director and President, and outside directors (3) for a total of 5 interviewees
(a) Third-party body conducts anonymous self-evaluation survey of directors and auditors
(b) Third-party body conducts interviews with the chair of the BoD, Representative Director and President, and outside directors
(c) Third-party body aggregates and analyzes survey responses and interviews
(d) BoD verifies and discusses reports received from third-party body
- Evaluation items on the survey
- (a) BoD roles and functions
- (b) BoD composition
- (c) BoD operation
- (d) BoD support system
- (e) BoD culture and communication
- (f) BoD risk management and internal control
- (g) Executive Nomination Meeting and Executive Compensation Meeting operation
- (h) Shareholder dialogue
- (i) Continued BoD improvements
Respondents evaluated themselves on a four-point scale in response to questions relating to the evaluation items. They were also free to add their own thoughts on the characteristics of the BoD and points that they felt would be necessary in enhancing the effectiveness thereof. Upon completing their responses, they then submitted their surveys directly to the third-party body.
Based on the third-party body's report detailing its aggregation and analysis, the BoD discussed and confirmed the following points.
- General evaluation
(a) The BoD is making solid, gradual progress on improvements by taking advantage of social gatherings of management personnel*, enhancing discussions on the Executive Nomination Meeting, and taking other steps.
(b) Improvements have been made in efforts aimed at “enhancing the quality of discussion of medium- to long-term management strategy” and “enhancing discussions on the establishment of a system to appropriately address newly identified risks,” two areas for improvement that emerged in last fiscal year's evaluation.
- Characteristics of the Subaru Corporation BoD
(a) A BoD with a focus on the monitoring function
Both inside and outside officers recognize that the roles of the BoD are to examine the execution of business and monitor the status of various initiatives.
(b) A framework conducive to open provision of information to the BoD
Business divisions appropriately provide information to outside officers through measures such as sharing internal information, offering opportunities for visits to factories and other sites, and utilizing social gatherings of management personnel. The company environment where outside officers can obtain access to internal materials and contact inside officers as necessary.
(c) A united commitment to enhancing the value of the Subaru brand
Outside officers share in Subaru employees' consistent commitment to pursuing the “Evolution of the SUBARU Difference.”
- Future points to examine for further enhancing the effectiveness of the BoD
(a) Discussing medium- to long-term management strategy (a continuing point for examination)
The BoD confirmed the need to establish common ground in approaching discussions of medium- to long-term management strategy in the automobile industry, where constant, rapid transformation contributes to a lack of clarity and certainty, so that it can optimally fulfill its supervisory responsibility.
(b) Further bolstering the support system for outside directors
The BoD confirmed the need to work on rolling out information via the BoD Secretariat in order to help outside directors perform their functions more effectively than before.
(c) Further improving the effectiveness of the Executive Nomination Meeting
The BoD confirmed that it has been making solid progress through various efforts, including discussions of succession plans for the CEO position and other posts as well as skills matrices for officers, and will strive to implement continuing initiatives and propel further evolution.
The figure above presents this year's results only without any comparison to the previous year's results, as this year's survey used a new, reorganized set of evaluation items.
|(a) BoD roles and functions||Recognition of the roles and functions of the Board of Directors|
|Delegation of authority to execution|
|Supervision of corporate management|
|(b) BoD composition||Size of the Board of Directors|
|Composition of the Board of Directors (ratio of inside to outside directors)|
|Composition of the Board of Directors (diversity and expertise)|
|(c) BoD operation||Frequency, length, and time allocation of meetings|
|Relevance of agenda items|
|Timing of proposals and discussions|
|Quality and quantity of documents|
|Timing of document distribution|
|Content of explanations and reports|
|Discussions by the Board of Directors|
|Leadership by the Chair|
|(d) BoD support system||Environment and systems for the provision of information|
|Provision of information to outside officers|
|Training of outside officers|
|Training of inside officers|
|(e) BoD culture and communication||Diverse values|
|Directors and business divisions|
|Inside and outside directors|
|Directors and corporate auditors|
|(f) BoD risk management and internal control||Risk management|
|Internal control and compliance|
|(g) Executive Nomination Meeting and Executive Compensation Meeting operation|
|(h) Shareholder dialogue||Supervision of proper disclosure of information to shareholders and investors|
|Sharing the views of shareholders and investors|
|Enhancing dialogue with shareholders and investors|
|(i) Continued BoD improvements||Status of improvements based on the previous fiscal year's effectiveness evaluation|
Approach to the CEO Succession Plan
SUBARU recognizes that decision making regarding top management changes and successor selection may have a critical influence on corporate value. Therefore, in order to ensure a successful succession at the right timing, we invest substantial time and resources to carefully develop and implement succession plans.
In order to hand over the business to the right person, the BoD, as part of its essential duties, develops succession plans that can convince all stakeholder groups. To ensure objectivity and transparency in the process for deciding on the replacement and selection of the CEO, the BoD appropriately supervises the preparation of proposals by the current CEO through discussions at the Executive Nomination Meeting.
To be able to implement succession plans appropriately, the CEO begins to prepare for selection and development of their successor candidates independently upon assuming office. Key processes for this purpose include providing information on candidates to outside directors on an ongoing basis, particularly by enabling the directors to monitor the candidates in person continuously in day-to-day business settings, as a measure to ensure appropriate and timely evaluation and selection down the road.
The BoD and Executive Nomination Meeting meet on a regular basis to review the list of essential qualities and skills required of the CEO, which may include removing and adding items, in consideration of perception of current trends, changes in the business environment surrounding the Company, and the future direction of the Group's business strategies.
To ensure the objectivity of the successor selection process and increase the effectiveness of its supervision by the Board of Directors and Executive Nomination Meeting, it is important to have effective selection criteria in place, particularly for use by outside directors. To this end, SUBARU discloses two sets of criteria: “Abilities required of the SUBARU Group's CEO” and “Five key qualities required of the SUBARU Group's CEO.” These criteria serve as a guide for evaluating candidates in light of quality, competency, experience, track record, specialized expertise, personality, and other factors, which have been discussed and decided on by the Board of Directors and Executive Nomination Meeting.
Abilities required of the SUBARU Group's CEO
The SUBARU Group's CEO must be able to: properly understand the business environment surrounding SUBARU, its corporate culture and philosophy, business growth stages, and medium- to long-term management strategies and challenges; facilitate collaboration appropriately with various stakeholders; and lead all executives and employees to work together to maximize corporate value.
Five key qualities required of the SUBARU Group's CEO
2. Broad perspective
4. Tireless spirit or revolutionary leadership skills
5. Person of action
Executive Officer Training
|Category||Training Policy / Major Ongoing Programs|
|PolicySUBARU provides its directors and corporate auditors on an ongoing basis with information and knowledge regarding its business activities that is necessary for them to fulfill their responsibilities to oversee and audit the management.|
・Refresher courses focusing on information regarding the Companies Act and other laws and regulations related to corporate governance
・Participation in seminars and programs hosted by government agencies, Japan Federation of Economic Organizations, Japan Association of Corporate Directors, Japan Audit & Supervisory Board Members Association, etc.
Outside corporate auditors
|PolicySUBARU provides its outside officers on an ongoing basis with information relating to the Company's corporate statement, corporate culture, business environment, and other matters, mainly through arranging appropriate opportunities, such as operations briefings from business divisions and factory tours, as well as creating an environment for officers to share information and exchange opinions more easily.|
・The following programs are provided to outside Board members at the time of appointment and subsequently to keep them updated
- Opportunities for discussions with and briefings from responsible vice presidents about the corporate statement, corporate culture, business environment, and the performance, situation, and issues of each business division/department
- Inspection tours at manufacturing/R&D/distribution sites
- Discussions with directors and corporate auditors on management issues
- Social gathering events with directors and corporate auditors
- Participation in company-wide business events, such as improvement activity debriefing sessions
|Vice Presidents||PolicySUBARU gives vice presidents similar opportunities as those given to directors and corporate auditors, for the purpose of developing human resources to lead its management in the future.|
・Participation in external programs aimed at fostering the mindset required for executive management and motivating self-improvement actions
・Lectures by invited experts in specified topics to share and increase literacy in the related field (legal affairs, compliance, IT, the SDGs, media response, etc.)
・Strategy-building camps for all vice presidents
・Recommendation and support for participation in appropriate external seminars and programs
|Category||Programs provided in FYE March 2023|
|All executives (including outside officers)||
・Newly appointed directors and vice presidents participated in external seminar programs
・Held a total of three classroom lectures by invited experts on management issues
Outside corporate auditors
・Operations briefings offered by vice presidents and others, and related discussions
・Held a total of four discussions with directors and corporate auditors on management issues
・Outside directors and outside corporate auditors participated in external presentations and exhibits about future technologies and quality solutions
Directors, Auditors, and Executive Officers
- The outside directors are expected to perform a monitoring function independent from the management team and provide appropriate advice on management on the basis of a wide range of sophisticated knowledge.
- The outside corporate auditors are expected to perform a management oversight function independent from the management team and undertake their role of auditing from the viewpoint of legality and appropriateness on the basis of broad and advanced knowledge.
- SUBARU has established criteria for independence of outside officers in addition to the criteria for independence established by the Tokyo Stock Exchange, and appoints outside directors and outside corporate auditors who meet those criteria.
|Independent Officer Status*||Reasons for Appointing||Significant Concurrent Positions
|Outside Directors||Yasuyuki Abe||〇||As representative director and senior managing executive officer of Sumitomo Corporation, Mr. Yasuyuki Abe has been involved in management in both a supervisory and executional capacity, possesses extensive experience and knowledge in business management, and has an advanced understanding of the IT field. Mr. Abe has served three years as an independent outside corporate auditor for the Company since June 2016. During his tenure, he has supervised the execution of duties conducted by directors, as well as understood the true nature of the problems facing the Company and offered his frank opinions to senior management in a timely and appropriate manner. In June 2019, Mr. Abe was also appointed to the position of independent outside director and has been providing beneficial advice to the Company's management. In light of this, the Company has appointed Mr. Abe with the expectation that he will appropriately perform the duties when he assumes office as an outside corporate director of the Company.||Outside Director, HOYA Corporation|
|Miwako Doi||〇||As a researcher and supervisor in the field of information technology at Toshiba Corporation, Ms. Miwako Doi has accumulated vast experience and made many achievements in this field over many years. In addition, she has held successive positions, mainly in government committees, owing to her high level of expertise and extensive experience and knowledge. In June 2020, Ms. Doi was appointed to the position of independent outside director and has been providing beneficial advice to the Company's management for the generation of new innovation. In light of this, the Company has appointed Ms. Doi with the expectation that she will appropriately perform the duties when she assumes office as an outside corporate director of the Company.||Auditor, National Institute of Information and Communications Technology (NICT) (part-time)
Executive Vice President, Tohoku University (part-time)
Executive Director, Nara Institute of Science and Technology (part-time)
Outside Director, Isetan Mitsukoshi Holdings Ltd.
Outside Director, NGK Spark Plug Co., Ltd.
|Fuminao Hachiuma||〇||Mr. Fuminao Hachiuma has abundant experience and knowledge acquired through his involvement in management in a broad range of fields including overseas business at Ajinomoto Co., Inc. and its group companies as well as promotion of strengthening of corporate governance and management reform of J-OIL MILLS, INC. as Representative Director and President. In light of this, the Company has appointed Mr. Hachiuma with the expectation that he will appropriately perform the duties when he assumes office as an outside corporate director of the Company.||Outside Director, Seven & i Holdings Co., Ltd.
Outside Audit & Supervisory Board Member, YKK AP Inc.
|Outside Corporate Auditors||Yuri Furusawa||〇||Ms. Yuri Furusawa has held key positions in the Ministry of Land, Infrastructure, Transport and Tourism, and has been involved in the promotion of work style reform, active participation by women and diversity in the Cabinet Secretariat, as well as in the overseas business development in the private sector, giving her a broad perspective and a high level of insight. In light of this, the Company has appointed Ms. Furusawa with the expectation that she will appropriately perform the duties when she assumes office as an outside corporate auditor of the Company.||Outside Audit & Supervisory Board Member, Kubota Corporation|
|Yasumasa Masuda||〇||Mr. Yasumasa Masuda has experience in corporate planning and served as CFO at Astellas Pharma Inc. and has deep insight in overall management with focus on financial and accounting. He has also served as Independent Non-Executive at Deloitte Tohmatsu LLC and Outside Director and Chairman of the Audit Committee at Olympus Corporation, giving him a broad perspective and a high level of insight. In light of this, the Company has appointed Mr. Masuda with the expectation that he will appropriately perform the duties when he assumes office as an outside corporate auditor of the Company.||Outside Director, Chairman of the Audit Committee, Olympus Corporation|
Compensation for Directors
Matters Concerning the Policy for Determining Details of Compensation for Individual Directors
SUBARU deliberated and decided on the proposal of the Policy for Determining Details of Compensation for Individual Directors approved by the Executive Compensation Meeting at the Board of Directors' meeting held on March 3, 2022. To the right is the summary of the policy.
Policy for Determining Details of Compensation for Individual Directors
1. Basic policy
As a basic policy, compensation for directors of the Company is determined in view of the following items:
(1) Compensation is at a level commensurate with the roles and responsibilities of directors and is appropriate, fair, and balanced.
(2) The compensation structure is determined by giving consideration to providing motivation for sustained improvement in corporate performance and corporate value and securing excellent human resources.
Specifically, for directors (excluding outside directors), compensation is composed of basic compensation, annual performance-linked bonus, and restricted stock compensation (for non-resident officers, phantom stock instead of restricted stock). For outside directors, the Company pays only basic compensation in view of their roles of fulfilling monitoring and oversight functions of corporate management from an independent position. The total amount of compensation for individual directors and the levels of each compensation item are set for every position depending on difference in responsibility by utilizing the research data compiled by outside specialized agencies.
2. Policy for determining the amount of monetary compensation excluding performance-linked compensation (hereinafter, the “Fixed Monetary Compensation”), performance-linked compensation, and non-monetary compensation (including the policy for determining the timing or conditions for granting such compensation)
(1) Policy for the Fixed Monetary Compensation
Directors receive the Fixed Monetary Compensation monthly as basic compensation. The amount for individual directors is determined based on their positions, taking into consideration elements such as the business environment.
(2) Policy for performance-linked compensation
For annual performance-linked bonus for directors (excluding outside directors), we have set a compensation table based on rank and the KPI of consolidated profit before tax for the fiscal year under review. Based on this table, cash compensation is paid at a certain time of each year. In addition, in order to encourage the achievement of goals in the Group's medium- to long-term strategy, a portion of restricted stock compensation (described in (3) below) to be granted as non-monetary compensation will be PSUs, where the number of shares granted is linked to the degree to performance target achievement. In addition to consolidated ROE, which is the financial indicator emphasized in our medium-term strategy, we will adopt employee engagement as a non-financial KPI for these PSUs.
The Company will review the KPIs for annual performance-linked bonus and PSUs as needed based on changes in the environment and reports from the Executive Compensation Meeting.
(3) Policy for non-monetary compensation
The Company grants restricted stock compensation to directors (excluding outside directors) for the purpose of providing them an incentive for sustained improvement of the Company's corporate value and further value sharing with the shareholders. For restricted stock compensation, a portion shall be provided as the fixed compensation type, with the rest as the variable compensation type. Both of these shall be prohibited from being transferred during the recipient's term of office, and this restriction on transfer shall be lifted upon their retirement.
For fixed compensation type restricted stock (RS) compensation, shares of the Company's common stock are granted at a certain time each year at an amount equivalent to a base amount determined in consideration of the Company's business performance, responsibilities of each director, and other factors.
For variable compensation type restricted stock compensation (PSUs), units (one unit = one share) are granted at a certain time each year at an amount equivalent to a base amount determined in consideration of the Company's business performance, responsibilities of each director, and other factors. After an evaluation period, shares of the Company's common stock are granted at an amount equivalent to the number of units multiplied by a payout ratio (50% to 100%) determined in accordance with achievement levels for performance indicator targets.
The maximum number of shares of the Company's common stock to be granted as restricted stock compensation to directors, for RS and PSUs combined, is 150,000 per year. In addition, the Company and its directors shall enter into a restricted stock allotment agreement that includes an overview and provisions that state (1) Company executives shall not, while they serve in their positions as executives and for a set period of time, transfer, create a security interest on, or otherwise dispose of the shares of the Company's common stock that have been allotted to them, and (2) the Company may acquire the said shares of its common stock without compensation if certain events occur. If a director is a non-resident of Japan at the time shares are granted, the Company shall grant phantom stock in place of and equivalent to the restricted stock compensation that would have been granted, and the stock shall also be treated in accordance with the restricted stock allotment agreement.
3. Policy for determining the proportion of the Fixed Monetary Compensation, performance-linked compensation, and non-monetary compensation to the total amount of compensation, etc., for individual directors
The Company has set the following as a general guideline for proportions of compensation by type for directors (excluding outside directors) in reference to the compensation levels and compensation mix of companies of a similar scale to the Company or industry peers obtained through an external research company, and in consideration of factors such as the Company's overall salary level and social situations (performance-based compensation is a proportion of the base amount).
|Basic compensation||Annual performance-linked Compensation||Restricted stock compensation||President||Directors other than the President|
|Fixed monetary compensation||●||45%||50%|
The Company shall appropriately review the compensation level and compensation mix in consideration of the Company's business environment, as well as the situation of companies of a similar scale to the Company or industry peers, and other circumstances based on reports from the Executive Compensation Meeting.
4. Matters concerning the determination of details of compensation, etc., for individual directors
The Executive Compensation Meeting, by a resolution of and upon delegation by the Board of Directors, determines specific amounts of compensation, etc., of individual directors, following sufficient deliberation by its members including outside directors. Its authorities include the determination of specific amounts of basic compensation, annual performance-linked bonus, and restricted stock compensation (includes phantom stock), and their payment schedule. With regard to revisions of the compensation system and other matters pertaining to compensation overall, proposals approved by the Executive Compensation Meeting are deliberated and decided on by the Board of Directors. The total amount of compensation for individual directors and the levels of each compensation item are set depending on their responsibilities, and whether he or she is an internal or outside director, by utilizing research data compiled by outside specialized agencies.
To ensure transparency and effectiveness of the executive compensation determination process, the Executive Compensation Meeting shall, by a resolution of the Board of Directors, be structured so that the majority of its members are outside directors, and its chairman shall be appointed by a resolution of the Board of Directors.
Overview of executive compensation system
Composition of compensation
The ratio of compensation for the Representative Director, President and CEO will be set as 45% for basic compensation, 30% for annual performance-linked compensation, and 25% for restricted stock compensation (15% for variable compensation type (PSU) + 10% for fixed compensation type (RS*)) upon achievement of the KPIs set forth in the STEP mid-term management vision.
As before, outside directors will only receive basic compensation.
Compensation System for Directors (excluding outside directors)
Total Compensation for Directors and Corporate Auditors for FYE March 2023
|Classification||Number||Total Compensation (Millions of yen)|
|Basic Compensation (Paid in fixed monthly installments)||Short-term Performance-linked Compensation||Restricted Stock Compensation|
(of which, outside directors)
(of which, outside corporate auditors)
Preventing Conflicts of Interest
The approval of the Board of Directors is obtained in advance where a transaction poses the risk of a conflict of interest. A report on the positions that each director has held concurrently over the past financial year is provided once a year at the April meeting of the Board of Directors (a report to confirm that there have been no improper transactions or positions held).
Auditing by Corporate Auditors
SUBARU has formulated internal rules to ensure the effectiveness of corporate auditors' audits (e.g., Standards for Corporate Auditor's Audit) and developed a whistleblowing system. In this way, the Company established a framework where the corporate auditors can gather information from directors and employees as needed in case of matters that may cause significant damages to the Company, significant violation of laws/the Articles of Incorporation, or other significant compliance matters. In addition, the framework ensures smooth performance of corporate auditors' duties by assigning employees independent from directors to support duties of corporate auditors and making them known to all employees.
Specific matters studied in FYE March 2023
1) Matters for resolution
Audit policy, audit plan and division of audit duties, consent to agenda items for the General Meeting of Shareholders (appointment of corporate auditors), evaluation and selection/dismissal of the accounting auditors, consent to the audit fee for the accounting auditors, preparation of the audit report, etc. for the current fiscal year
2) Matters for reporting
- Report on the results and findings of site visits to Company offices and affiliated companies
- Sharing of information from standing corporate auditors to outside corporate auditors on important company matters, including via the Executive Management Board Meeting and the Executive Meeting
- Status reporting from responsible departments on risk management issues that arise internally or within the industry from a preventive audit perspective
Individual opinions raised by the Board of Corporate Auditors are presented to relevant officers and others as appropriate to gain reference opinions for forming decisions on the execution of business.
Major corporate auditor activities
1) Confirming management monitoring and execution
In accordance with audit plans by corporate auditors, each corporate auditor attends important meetings, including those of the Board of Directors, Executive Management Board Meeting, and Risk Management and Compliance Committee. When in attendance, they monitor management decision-making processes, seek explanations as necessary, and actively express their opinions. Through exchanges of opinions with directors, vice presidents, and others, as well as site visits to major business establishments and Group companies, corporate auditors also confirmed the status of business execution including the maintenance and operation of internal controls, with a focus on priority audit items.
We also ensure the effectiveness of audits by utilizing remote methods, such as online meetings, as necessary and appropriate.
2) Meetings with departments related to internal controls
Corporate auditors receive regular monthly reports from the Legal Department and the Risk Management and Compliance Office on compliance concerns including the operation of the whistleblowing system, and receive regular reports from human resource departments on the status of issues such as disciplinary cases and industrial accidents.
In addition, corporate auditors receive reports from the departments in charge of managing subsidiaries on the status of governance and internal controls for subsidiaries as appropriate.
3) Cooperation in the three-party audit system
Corporate auditors hold regular audit report meetings with internal audit units, receive reports on all internal audit results, and exchange information and opinions on internal control issues, which are reflected in audits by corporate auditors.
Corporate auditors also receive quarterly reports from the accounting auditors on the status of accounting audits and exchange opinions with them as necessary so as to ensure effective and efficient audits, thereby establishing close mutual cooperation in the three-party audit system.
As part of these exchanges, corporate auditors harness opportunities provided by quarterly reports to engage with the accounting auditors from the beginning of the fiscal year with respect to Key Audit Matters (KAMs), including candidate matters, about concepts such as the suitability of audit targets and the state of audit actions.
In addition, corporate auditors of the Company hold meetings to exchange opinions and share information with corporate auditors of Group companies as appropriate, and also seek to collaborate with these corporate auditors by requesting their attendance at site visits of their respective Group companies.
Based on the findings confirmed through the above audit activities, we capture a range of opportunities to engage with the business execution side, including exchanges of opinions with all corporate auditors, the chair of the Board of Directors, and the representative directors, and at Group company presidents' meetings. Through these activities, we share information and provide necessary advice and recommendations for the resolution of important management issues, including the strengthening of Group governance.
The Internal Audit Department (15 members) has been established and reports directly to the President. This organization evaluates the state of the development and operation of internal controls with regard to business execution at SUBARU and its Group companies in Japan and overseas from an independent and objective standpoint, providing advice and proposals for improvement. As an initiative to ensure effective internal audits, the Internal Audit Department systematically conducts audits of business execution in accordance with an annual business audit plan prepared at the beginning of each fiscal year, taking into consideration the risks and internal control status of the entire Group. Audit reports on business execution are distributed to all directors, corporate auditors, and relevant departments at the same time as reports are directly made to the President at a monthly reporting meeting. In parallel with this, reports are also made at semi-annual meetings of the Board of Directors and quarterly at joint meetings consisting of all vice presidents.
SUBARU's Internal Audit Department and corporate auditors work together to strengthen audit functions, as described in 3.3) “Cooperation in the three-party audit system” above. In addition, we strive to strengthen audit functions by sharing information with the accounting auditors on audit plans and audit results on a quarterly basis. Furthermore, the Internal Audit Department regularly exchanges information with Group companies that have their own internal audit units, working toward greater cooperation. The Internal Audit Department carries out a yearly evaluation of its own activities and periodically undergoes an evaluation by external experts to confirm that the audit operations are being performed appropriately.
With the aim of increasing the effectiveness of internal controls and risk management, the Internal Audit Department was made independent of the Risk Management Group (overseen by the Chief Risk Management Officer (CRMO)) to ensure a higher level of independence of internal audit units in the organization and to enhance the effectiveness of internal controls.
Internal Control System
In accordance with the Companies Act and the Ordinance for Enforcement of the Companies Act, SUBARU's Board of Directors has adopted a basic policy on putting in place systems that ensure that the performance of duties by directors is in conformity with laws and regulations and with the Articles of Incorporation, and other systems prescribed in the ordinance of the Ministry of Justice as being necessary to ensure the appropriate operations of the Company and the corporate group consisting of the Company and its subsidiaries. The Board of Directors maintains and operates this basic policy, reviewing it as needed.
Internal Control System Related to Financial Reporting
Regarding internal control reporting systems pursuant to the Financial Instruments and Exchange Act, the evaluation of the internal control system related to financial reporting is dated the final day of the consolidated accounting period and is conducted in accordance with generally accepted assessment standards for internal control over financial reporting.
The President and Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) evaluated the status of the development of the internal control system related to financial reporting as of March 31, 2023 and affirmed that it has been established properly and functions effectively, and issued an internal control report audited by the accounting auditors to that effect.
SUBARU Group Governance
The SUBARU Group has established a Group-wide governance stance that contributes to the sound business operations of the Group's global companies in order to maintain and enhance brand value and enhance the overall strength of the Group in response to social demands, including for sound corporate governance.
Group Companies (Affiliates in Japan, Excluding SUBARU Dealerships)
In the SUBARU Group, the Business Administration Department of SUBARU manages each Group company and their businesses to promote more unified activities. In addition, we have created a system in which SUBARU's corporate departments support these activities, thereby enhancing the effectiveness of Group governance.
1. Initiatives in the new group collaboration system
1. Embedding the group collaboration system FYE March 2023 was positioned as a phase to solidify the new collaboration system initiated in the previous fiscal year. We deepened communication between the Business Administration Department and Group companies. We also enhanced coordination among SUBARU's corporate departments to accelerate support to Group companies, ensuring the effectiveness of Group governance activities.
■ Deepening communication with the Business Administration Department
We have introduced and implemented a new tool that allows Group companies and the Business Administration Department to review the goals and outcomes of the year's business activities and governance initiatives throughout the year. Through this, we are not only enhancing communication between both parties but also elevating the quality of governance.
■ Enhancing support for Group companies
Relevant corporate departments are working together to evaluate and gradually implement concrete support measures for Group companies. Specifically, SUBARU is continuing to explore and implement corporate-related measures, including activities in which staff from SUBARU's finance and administration departments share information and provide support in financial and accounting domains to each company in addition to enhancing education programs for Group employees.
2. Initiatives to enhance the effectiveness of governance
As basic governance activities, we continue to promote the development of forums for information sharing and exchange of opinions with Group companies and the creation of educational opportunities. We hold regular presidents' meetings as a platform for sharing and discussing governance-related topics aimed at enhancing Group unity. Moreover, our bi-monthly Management Department Steering Committee meetings play a vital role in sharing information on topics related to corporate matters. In FYE March 2023, these meetings covered 27 topics, enabling us to promptly address legal and regulatory compliance and various challenges. We also initiated review sessions to foster collaborative discussions between SUBARU and its Group companies regarding strategies to address key corporate challenges. The program commenced full operation in FYE March 2024.
In addition, we are extending SUBARU's employee education programs to cover Group company employees as part of efforts to enhance the quality of Group personnel. SUBARU also continues to dispatch its directors to Group companies and assigns standing corporate auditors appropriately.
Through these efforts, we are working to further improve the effectiveness of Group governance.
Initiatives in the SUBARU Group
- Held meetings of Group company presidents (three meetings in June and November , and March )
- Held Management Department Steering Committee meetings (six meetings from April and then every other month, covering 27 topics)
- Initiated review sessions to foster collaborative discussions between SUBARU and its Group companies regarding key corporate challenges (started in FYE March 2024)
- Information sharing through a dedicated portal site for Group companies
- Held workshops for newly appointed executives (once in April)
- Staff from finance and administration departments share information and provide support to individual companies
- Extended SUBARU's educational framework to Group company employees
- Dispatched personnel from the Business Administration Department of SUBARU to play a part in the management of Group companies by serving as part-time directors
- Enhanced the quality of auditing through appropriate assignment of standing corporate auditors (12)
Enhancing governance at SUBARU dealerships involves the Japan Sales & Marketing Division assuming the responsibilities of the Business Administration Department. This enables close communication between SUBARU and its dealerships, advancing initiatives that contribute to the Group's sustainable growth and medium- to long-term enhancement of corporate value.
Initiatives for SUBARU dealerships
- Established the Risk Management and Compliance Committee
- Developed regulations and established and enhanced operation of an internal control system for audits, etc., conducted by the auditing departments of dealerships
- Held General Meeting of Shareholders and Board of Directors' meetings
- Enhanced the quality of auditing through appropriate assignment of standing corporate auditors (introduced standing corporate auditors at two companies)
Efforts to deepen communication between SUBARU and its dealerships
- Held monthly Leadership Meetings with 10 key dealerships we have invested in
- Held Specialist Committee meetings in four areas (sales, service, pre-owned vehicles, and IT) (at least once every six months)
- Held meetings of the Internal Audit Department Liaison Committee (twice a year)
- Implemented dealership audits through SUBARU's Audit Department
- Dispatched part-time directors and corporate auditors from SUBARU to 10 dealerships
- Implemented training for newly appointed executives at SUBARU dealerships
- Implemented dealership controls based on J-SOX
(1) Policy for cross-shareholding
SUBARU holds listed stocks as cross-shareholdings and engages in dialogues with the companies in question. Each year, SUBARU's Board of Directors quantitatively measures and compares benefits from holding, using dividend yield, and the capital cost involved, using weighted average cost of capital (WACC), in order to verify each. The Company will maintain these holdings only if it deems, based on the results of this verification, that the shares will contribute to its medium- to long-term management and business strategies in a qualitative manner.
(2) Verification details for cross-shareholding
Based on the above policy, SUBARU has steadily reduced the number of listed stocks held as cross-shareholding. As a result, 60 issues held at the end of March 2015 decreased to two issues at the end of March 2021. We consider these two issues to be essential to hold at this time for the following reasons, but we will continue to hold dialogue with these companies at least once a year, and the Board of Directors will evaluate and scrutinize these issues annually to determine whether they should be held or not.
|Issues||Number of shares||Amount reported on the balance sheet
(Millions of yen)
|Purpose of holding, impact of holding,
and reason for increase in number of shares
|The Gunma Bank, Ltd.||2,850,468||1,263||The Gunma Bank, a local bank of the area where the Company's main factory resides, is supporting not only SUBARU but also local supplier sites in Japan and abroad through its financial services. As the is an important partner, the Company will continue to hold the bank's shares to promote fair and smooth financial transactions.|
|Mizuho Financial Group, Inc.||372,097||699||The Mizuho Financial Group firms have been supporting SUBARU with financial transactions and other services. In particular, the Mizuho Bank has long been the Company's most important financial partner, providing support in a broad area of management. The Company will continue to hold the group's shares to promote fair and smooth transactions.|
(3) Criteria for exercising voting rights for cross-shareholding
With regard to the exercise of voting rights for listed stocks held as cross-shareholding, the Board of Directors deliberates on and determines the criteria for exercise with evaluation items such as whether the company is consistently exhibiting poor performance, whether a sufficient number of independent outside directors are in place and if management is supervised appropriately, and whether there are any corporate governance issues present. Although these are our general principles, we hold dialogues at least once a year with companies whose stock we hold to avoid making blanket decisions. Accordingly, we exercise our voting rights appropriately in light of the performance, management policies, and medium- to long-term management plans of the companies in question, as well as from the perspectives of corporate value enhancement, corporate governance, and social responsibility.
In addition, we will continue to verify whether or not our criteria for exercise of voting rights warrant review.