Organizational Governance

Corporate Governance

To achieve our goals, promote sustainable growth, and increase long-term corporate value, Seiko Epson continuously improves corporate governance to ensure transparent, fair, and fast decision-making, including by ensuring that independent outside directors comprise at least one-third of the board, and by establishing committees to nominate officers and determine compensation.

Epson will continue to enhance the effectiveness of its corporate governance by further improving the supervisory function of the Board of Directors and by enhancing discussions at board meetings, as well as by speeding up decision-making in management as a company with an Audit & Supervisory Committee.

Principles of Corporate Governance

The general principles of corporate governance at Epson are as follows:

  1. Respect the rights of shareholders, and secure equality.
  2. Keeping the interests of shareholders, customers, communities, business partners, employees and other stakeholders in mind, work in an appropriately cooperative manner with them.
  3. Disclose company information as appropriate and ensure transparency.
  4. Directors, Executive Officers, and Special Audit & Supervisory Officers shall be aware of their fiduciary responsibilities and shall fulfill the roles and responsibilities expected of them.
  5. Epson shall engage in constructive dialogue with shareholders.


Corporate Governance Structure

Seiko Epson ("the Company") has established itself as a company with an Audit & Supervisory Committee with the aim of strengthening the supervision and monitoring of management and of speeding up decision-making by separating the management supervision and execution of operations.

The main corporate management bodies and their aims are described below.

Board of Directors

The Board of Directors, with a mandate from shareholders, is responsible for realizing efficient and effective corporate governance, through which the Company will accomplish its social mission, sustain growth, and maximize corporate value over the medium and long terms. To fulfill its responsibilities, the Board of Directors supervises general operations to ensure that operations are fair and transparent. The Board of Directors also makes decisions on important business affairs of the Company, such as decisions on the formulation of important business matters, such as the establishment of management plans and business plans and decision on investment projects that exceed a certain fixed amount of money.

The Board of Directors is composed of 12 directors*1, including five Outside Directors. Meetings of the Board of Directors are, as a rule, held once per month and as needed. Meetings of the Board of Directors are chaired by the Chairperson of the Board per the Board of Directors Regulation. The Board of Directors makes decisions on basic business policies, important business affairs, and other matters that the Board of Directors is responsible for deciding as provided for in internal regulations. Business affairs that the Board of Directors is not responsible for deciding are delegated to executive management, and the Board monitors these. Under the company with an Audit & Supervisory Committee structure, the scope of business affairs delegated by the Board of Directors to executive management, such as making decisions on investment projects that are less than a certain fixed amount of money, has been expanded. As such, matters discussed by the Board of Directors are limited to motions of the highest importance (e.g., governance, capital policy, compliance, risk management, deliberations on megatrends and mid- to long-term strategies), thereby speeding up business decision-making and increasing the agility of business. The Company has specified in the Corporate Governance Policy that at least one-third of the members of the Board of Directors shall be Outside Directors.
*1 As of June 30, 2020

Audit & Supervisory Committee

The Audit & Supervisory Committee, with a mandate from shareholders, is responsible for independently and objectively auditing and monitoring the execution of Director duties and for ensuring the sound and sustained growth of the Company. The Audit & Supervisory Committee establishes criteria for properly evaluating potential External Financial Auditors. After selecting External Financial Auditors, the Audit & Supervisory Committee verifies whether External Financial Auditors possess the necessary independence and expertise. In addition, the Audit & Supervisory Committee conducts audits in cooperation with internal audit departments and Financial Auditors.

The Audit & Supervisory Committee is composed of four Audit & Supervisory Committee members*2, three of whom are Outside Directors. It is chaired by a full-time member of the Audit & Supervisory Committee. Meetings are generally held once per month and as needed.
*2 As of June 30, 2020

Compliance Committee

The Compliance Committee hears and discusses important matters concerning the Company's compliance program in order to supervise whether the compliance program is being properly implemented along the executive line. It reports its findings and offers opinions to the Board of Directors.

As an advisory body to the Board of Directors, the Compliance Committee is composed of Outside Directors and Directors who are Audit & Supervisory Committee members. It is chaired by the full-time member of the Audit & Supervisory Committee, and meetings are held once every six months and as needed.

A Chief Compliance Officer ("CCO") is chosen by the Board of Directors to oversee and monitor the execution of all compliance operations. The CCO periodically reports the state of compliance affairs to the Compliance Committee.

Director Nomination Committee & Director Compensation Committee

A Director Nomination Committee and a Director Compensation Committee have been established as advisory bodies to the Board of Directors, with the aim of ensuring the transparency and objectivity regarding selections for and compensation of Directors, Executive Officers and Special Audit & Supervisory Officers. Outside Directors are the main members and the human resources department is the secretariat.

The outline of each Committee is as follows:

Composition

Based on the internal rules established by the Board of Directors, in each of the Committees, the chairman is the President and the other members are all Outside Directors and the Director in charge of human resources. The current members*3 are as follows:

    Chairman: Yasunori Ogawa, President
    Members: Outside Directors Hideaki Omiya, Mari Matsunaga, Yoshio Shirai, Susumu Murakoshi, Michiko Ohtsuka
                       Masayuki Kawana, director in charge of human resources

Directors who are full-time members of the Audit & Supervisory Committee can attend either meeting as observers.
*3 As of June 30, 2020

Activities of the Director Nomination Committee

The committee met four times from April 2019 to the June 2020 Ordinary General Meeting of Shareholders to deliberate things such as Officer (Director, Executive Officer, and Special Audit & Supervisory Officer) selection policies and candidate proposals, succession plans, bylaws concerning the Chairperson of the Board, and areas where there are particularly high expectations for Directors. Most notably, the committee went through the process of selecting a new President and Representative Director in advance of the April 2020 succession date, with the Outside Directors, who make up the majority of the Director Nomination Committee, interviewing multiple succession candidates and holding exhaustive discussions at meetings of the Director Nomination Committee before tendering the Committee's recommendation to the Board of Directors.

Activities of the Director Compensation Committee

The committee met five times from April 2019 to the June 2020 Ordinary General Meeting of Shareholders to deliberate things such as base compensation, individual bonuses, the extension of the performance-linked stock compensation plan, and the performance-based coefficient.

Corporate Strategy Council

The Corporate Strategy Council is an advisory body to the President. It was created to help ensure that the right decisions are made based on the advice and views of executive management. Meetings of the Corporate Strategy Council are held to discuss important matters that affect the entire Epson Group and matters brought up before the Board of Directors. The Corporate Strategy Council is composed of Directors, Executive Officers, and Special Audit & Supervisory Officers.


Nomination of Officers

With an aim to ensure transparency and objectivity, Director candidates who are submitted for their appointments to the General Meeting of Shareholders are determined by the Board of Directors after going through a fair, transparent, and rigorous screening and reporting by the Director Nomination Committee in which Outside Directors make significant contributions.

Policies

  1. Officers must be impartial and possess high integrity and ethical standards
  2. Outside Directors must satisfy criteria concerning the independence of Outside Directors in order to guarantee their independence. The Board of Directors established "Criteria for Independence of Outside Directors."

* Epson's Board of Directors is well-balanced and composed of persons who combine a broad spectrum of knowledge, experience, and skill in their respective areas of expertise, without regard to things such as gender, race, ethnicity, country of origin, nationality, cultural background, or age.
* As a general rule, Outside Directors shall not concurrently serve as either a Director or a Kansayaku of more than three publicly listed companies other than Epson per the bylaws established by resolution of the Board of Directors.
* Per Epson policy, Directors shall attend at least 75% of the meetings of the Board of Directors per year.

Procedures

  1. After passing a fair, transparent, and rigorous screening and reporting by the Director Nomination Committee, Executive Director candidates and Executive Officers are selected by the Board of Directors in addition to the foregoing policy and on nomination criteria, such as broadness of insight, extensiveness of experience, sense of mission, sense of responsibility, leadership, and the ability to drive change.
  2. The Director Nomination Committee screens Non-Executive Director candidates and Special Audit & Supervisory Officers in a fair, transparent, and rigorous screening in line with the foregoing policy and on the basis of nomination criteria, including but not limited to broadness of insight, extensiveness of experience, sense of mission, sense of responsibility, management knowledge and specialized knowledge. The Director Nomination Committee reports its opinions to the Board of Directors, which finalizes the selections. The consent of the Audit & Supervisory Committee is required for nominating Director candidates who are Audit & Supervisory Committee Members and for appointing Special Audit & Supervisory Officers.


Criteria for Independence of Outside Directors

The Company has established the criteria below to objectively determine whether potential Outside Directors are independent.

  1. A person is not independent if:
    1. The person considers the Company to be a major business partner1, or has served as an executive2 within the past five years in an entity for which the Company is a major business partner;
    2. The person is a major business partner3 of the Company or has served as an executive within the past five years in an entity that is a major business partner of the Company.
    3. The person is a business consultant, certified public accountant, or lawyer who has received a large sum of money or other forms of compensation4 (other than remuneration as an officer) from the Company or has, within the past three years, performed duties equivalent to those of an executive as an employee of a corporation or group, such as a union, that has received a large sum of money or other forms of compensation from the Company;
    4. The person is a major shareholder5 of the Company or has, within the past five years, been an executive or Audit & Supervisory Board Member of an entity that is a major shareholder of the Company;
    5. The person is an executive or Audit & Supervisory Board Member of an entity in which the Company is currently a major shareholder;
    6. The person is a major lender6 to the Company or has been an executive of a major lender to the Company within the past five years;
    7. The person has been employed by an auditing firm that has conducted a legal accounting audit of the Company within the past five years;
    8. The person has been employed by a leading managing underwriter of the Company within the past five years;
    9. The person has received a large donation7 from the Company or, within the past three years, has performed duties equivalent to those of an executive as an employee of a corporation or a group, such as a union, that has received a large donation from the Company;
    10. The person came from an entity that employs someone from the Company as an Outside Director; or
    11. A spouse or relative within the second degree of kinship of a person having the interests listed in (1) through (9) above.

  2. Even if any of the foregoing criteria apply to a potential Outside Director, the Company can elect that person as an Outside Director if that person satisfies the requirements for Outside Directors set forth in the Companies Act, and the Company deems the person suitable as an Outside Director of the Company in light of his or her personality, knowledge, experience, or other qualifications upon explaining and announcing the reasons thereof.

Notes

  1. A person (usually a supplier) considers the Company to be a major business partner if 2% or more of its consolidated net sales (consolidated revenue) has come from the Company in any fiscal year within the past three years.
  2. "Executive" means an executive officer, executive director or operating officer, or an employee occupying a senior management position of department manager or higher.
  3. A person (usually a buyer) is a major business partner if 2% or more of the Company's consolidated revenue has come from that partner in any fiscal year within the past three years.
  4. "A large sum of money or other forms of compensation" means an average annual amount for the past three years that is:
    1. no less than 10 million yen for an individual; or
    2. no less than 2% of the annual revenues in any fiscal year for a group.
  5. "Major shareholder" means a shareholder who directly or indirectly holds 10% or more of the voting rights.
  6. "A major lender" means a financial institution or other major creditor that is indispensable for the Company's financing and on which the Company depends to the extent that it is irreplaceable in any fiscal year within the past three years.
  7. "Large donation" means a donation whose annual average amount for the past three years exceeds either:
    1. 10 million yen or
    2. 30% of the annual expense of the group, whichever is higher.

Reason for Appointed as Outside Directors, and Attendance at Meetings of the Board of Directors

Name Reason for Appointment Attendance at meetings of the Board of Directors
Hideaki Omiya Mr. Omiya has served as the President and a Chairman of the Board of Mitsubishi Heavy Industries, Ltd. and has considerable experience and insight as a chief executive and engineer.
He has monitored corporate management by expressing opinions actively including findings and proposals regarding overall managerial issues from a perspective of a corporate manager well-versed in the global corporate management in the heavy industry, a different business field.
We have nominated him as a candidate for independent Outside Director with the expectation that he will monitor corporate management appropriately aimed at achieving sustainable growth and improving the Company’s corporate value over the medium- to long-term.
13 / 13 meetings
(100%)
Mari Matsunaga Ms. Matsunaga has created new business models and served as an Outside Officer in multiple companies, has a wealth of experience and considerable insight.
As an Outside Director of the Company, she has appropriately monitored management, actively pointing out business issues and offering recommendations particularly from the viewpoint of promoting open innovation.
We have nominated her as a candidate for independent Outside Director with the expectation that she will monitor corporate management appropriately aimed at achieving sustainable growth and improving the Company’s corporate value over the medium- to long-term.
12 / 13 meetings
(92.3%)
Yoshio Shirai Mr. Shirai has served as Directors at Toyota Motor Corporation, Hino Motors, Ltd. and Toyota Tsusho Corporation, and has considerable insight and a wealth of experience as a corporate manager, and achievements as an Outside Director who is Audit & Supervisory Committee member of the Company. We have nominated him as a candidate for Outside Director who is an Audit & Supervisory Committee member with the expectation that he will appropriately supervise and contribute to the soundness of the Company’s management aimed at achieving sustainable growth and improving the Company’s corporate value over the medium- to long-term. 13 / 13 meetings
(100%)
Susumu Murakoshi Mr. Murakoshi possesses a high level of professional knowledge and insight as an attorney. Given his extensive experience in the legal community, which has included stints as the Chairman of the Japan Federation of Bar Associations and the Chairman of the Political Federation of Japan Patent Attorneys, the Company believes that Mr. Murakoshi can be expected to contribute to the effective supervision and soundness of management so as to help ensure sustained growth and enhance long-term corporate value. New appointment
Michiko Ohtsuka Ms. Ohtsuka possesses a high level of professional knowledge and insight as a certified public accountant. Given that she has experience and considerable insight as an Outside Officer in a public company, the Company believes that Ms. Ohtsuka can be expected to contribute to the effective supervision and soundness of management so as to help ensure sustained growth and enhance long-term corporate value. New appointment

Succession Plans

The Company's Director Nomination Committee, which is composed primarily of Outside Directors, discusses enhancements to succession plans and the Director appointment process, reviews the roadmap, selects Director candidates, establishes and implements development plans, and reviews the process for evaluating, narrowing down, and replacing candidates.

The Company selects candidates for senior management positions in order to systematically develop these individual as future executives. After their development is assessed, the HR Development Strategy Council, an advisory body to the President, devises and implements a concrete development plan. The state of development and issues are reported to the Director Nomination Committee, and development activities are further enhanced under the supervision and advice of the Outside Directors. Candidates to succeed the President are identified through the aforesaid process and developed by appointing them to key management roles and by providing them with other essential training opportunities.

Matrix of Areas of Expertise Particularly Expected for Directors

Epson clarifies a management system toward achieving the Management Philosophy and Corporate Vision by utilizing a matrix as below.

Name Title Areas of expertise particularly expected by the Company Diversity
Corporate management Collaboration Openinnovation IT Digital Finance Accounting HR Personnel development Legal affairs Compliance Global (Internationality) Gender
Minoru Usui Chairman and Director ? ? ? ? ? ? ? Male
Yasunori Ogawa President and Representative Director ? ? ? ? ? ? ? Male
Koichi Kubota Representative Director Senior Managing Executive Officer ? ?       ? ? Male
Tatsuaki Seki Director Managing Executive Officer ?   ? ?   ? ? Male
Masayuki Kawana Director Executive Officer ?       ? ? ? Male
Toshiya Takahata Director Executive Officer ? ? ?     ? ? Male
Hideaki Omiya Outside Director ? ? ? ? ? ? ? Male
Mari Matsunaga Outside Director ? ? ?   ? ? ? Female
Taro Shigemoto Director Full-Time Audit & Supervisory Committee Member ?     ?   ? ? Male
Yoshio Shirai Outside Director Audit & Supervisory Committee Member ? ?   ? ? ? ? Male
Susumu Murakoshi Outside Director Audit & Supervisory Committee Member ?     ? ? ? ? Male
Michiko Ohtsuka Outside Director Audit & Supervisory Committee Member ? ?   ? ? ? ? Female


Compensation of Officers

With an aim to ensure transparency and objectivity, compensation of officers is determined by the General Meeting of Shareholders, the Board of Directors or Audit & Supervisory Committee after going through a fair, transparent, and rigorous reporting by the Director Compensation Committee in which Outside Directors make significant contributions.

Policies

The Company has established the basic policies regarding the Officer compensation in its internal rules decided by the Board of Directors.

Compensation of Officers Who Have Executive Duties

  1. Compensation shall provide incentive to improve business performance in order to increase corporate value in the near, medium, and long terms.
  2. Compensation shall be sufficient to attract qualified persons both from within the Company and from outside.
  3. Compensation shall be commensurate with period performance so that Directors and Executive Officers can demonstrate their management capabilities to the fullest during their tenure.

Compensation Policies for Officers Who Do Not Have Executive Duties

  1. The composition of compensation shall guarantee independence so that these Officers can suitably exert their general management supervisory function, etc.
  2. Compensation shall be sufficient to attract qualified persons both from within the Company and from outside.

Compensation System

The Officer compensation system consists of the following components: base compensation, bonuses, and stock compensation. Non-Executive Officers receive base compensation only, a fixed amount, because their role is to supervise general management. They do not receive bonuses and stock compensation, which are forms of compensation that are linked to performance and share price.

Base Compensation (fixed and variable)

Base compensation is a monthly monetary amount that is determined by taking into account factors such as the individual’s position and responsibilities. The variable compensation component of base compensation for Officers who have executive duties reflects the results of annual performance evaluations based on criteria set according to the individual’s role. (Variable range: 20%)

Bonuses (variable)

Monetary compensation is paid as a bonus once per year to Officers who have executive duties in an amount determined in accordance with considerations such as the level of achievement with respect to annual operating performance targets. It is possible that bonuses may not be paid if business profit does not reach a certain amount. Bonuses reflect the results of annual performance evaluations based on criteria set according to the individual’s role. (Variable range of bonuses in months' worth of salary: ±1.2 months)
Bonuses are calculated based on a calculation standard that the Board of Directors has determined in advance. However, due to the nature of the short-term incentive bonus, non-recurring losses and other factors are taken into account based on the business profit of a single fiscal year. The final payment amount is decided at the Ordinary General Meeting of Shareholders to ensure transparency.

Stock Compensation (variable)

Officers who have executive duties are compensated with Seiko Epson shares under a trust scheme. The number of shares issued is dependent on the level of achievement with respect to medium-term financial performance targets, such as ROS and ROE. (Variable range: 20%)
The ratio of stock compensation to base compensation increases or decreases from 10% to 22% depending on position, while the number of shares delivered is linked to the achievement level of the performance indicators during the target period (3 years).
The Company has introduced provisions (malus and clawback provisions) under this stock compensation system that will cause Officers to lose their right to receive stock and require them to pay back an amount equal to the value of the stock already issued if they are found to have violated any laws, ordinances, or company regulations, standards, or other policies.


Compensation to Directors (Fiscal year ended March 2020)

(Millions of yen)

Category Number of individuals (Persons) Fixed compensation Variable compensation Total
Base compensation Bonuses Stock compensation
Directors who are not Audit & Supervisory Committee members
(of which, Outside Directors)
8
(2)
250
(28)
17
(-)
85
(-)
37
(-)
389
(28)
Directors who are Audit & Supervisory Committee members
(of which, Outside Directors)
4
(3)
81
(48)
-
-
-
-
-
-
81
(48)
Total 12 331 17 85 37 471

Notes

  1. The base compensation for Directors who are not Audit & Supervisory Committee members (excluding Outside Directors) consists of fixed compensation and variable compensation. Variable compensation refers to the monetary compensation that reflects the results of annual performance evaluations based on criteria set according to their respective roles.
  2. The Company has introduced an officer stock ownership plan to link compensation more closely to shareholders' value. A portion of the base compensation is discretionally allotted for the acquisition of the Company's shares. Epson has established the criteria for shareholding by its officers based on internal regulations defined by the Board of Directors to demonstrate its commitment to and responsibilities for business operations to all shareholders.
  3. Upon the resolution at the Ordinary General Meeting of Shareholders held on June 28, 2016, the maximum base compensation was set to at 62 million yen per month for Directors who are not Audit & Supervisory Committee members (Outside Directors account for 10 million yen of this amount) and at 20 million yen per month for Directors who are Audit & Supervisory Committee members.
  4. The amount above includes 85 million yen in bonuses to be paid to six Directors (excluding Outside Directors and Directors who are Audit & Supervisory Committee members), as resolved at the Ordinary General Meeting of Shareholders held on June 25, 2020.
  5. The Company introduced a performance-linked stock compensation plan (stock compensation) by employing a framework referred to as the officer compensation BIP (Board Incentive Plan) trust, for the purpose of showing its commitment to promoting sustainable growth and increasing its medium- to long-term corporate value, in addition to strengthening the sense of sharing common interests with its shareholders. The stock compensation stated above represents the amount recorded for the current fiscal year based on Japanese Generally Accepted Accounting Principles (JGAAP).
  6. Stock options are not granted.


Actions to Ensure Board Effectiveness

The Board of Directors of Epson analyzes and evaluates the effectiveness of the entire Board of Directors every year based on Article 28 of the Corporate Governance Policy.

FY2018 Evaluation Results

In the 2018 fiscal year, the Company analyzed and evaluated the effectiveness of its Board of Directors by asking all Board Members to complete a questionnaire that covered the topics listed below. The results showed that the Board of Directors as a whole is functioning effectively.

  1. Board composition, functioning, and operation
  2. The function of the Audit & Supervisory Committee
  3. The function and operation of advisory bodies to the Board
  4. Management team evaluation, compensation, succession planning, and training
  5. Dialogue with shareholders
  6. Other


The Company identified and addressed the issues below to improve Board effectiveness in the future.

  1. Improvement of succession plans and further improvement of the Officer selection process
    1. The Director Nomination Committee, which is composed primarily of Outside Directors, discussed further enhancements to succession plans and the director appointment process, reviewed the roadmap, selected director candidates, established and implemented development plans, and reviewed the process for evaluating, narrowing down, and replacing candidates.
      After going through these procedures, the Company replaced the President and Representative Director, effective April 1, 2020.
      In anticipation of the replacement in the future of the current President and Representative Director, the Director Nomination Committee has begun working on a new succession plan to ensure that there is ample time for examination.
  2. Clarification of the management framework for realizing the Management Philosophy and long-term corporate vision
    1. The Company clarified the management framework for realizing the Management Philosophy and long-term corporate vision chiefly by identifying the areas where there are particularly high expectations for Directors.
      For details, please see " Matrix of Areas of Expertise Particularly Expected for Directors” under "Nomination of Officers" in this website.
  3. Sharing of the effectiveness evaluation results of the Audit & Supervisory Committee in the Board of Directors meetings, and implementation of recommendations from the Audit & Supervisory Committee to the Board of Directors based on the audit results
    1. It has been made standard practice for the Audit & Supervisory Committee to share the results of effectiveness evaluations of the Audit & Supervisory Committee with the Board of Directors.
      In the 2019 fiscal year, the evaluation results, which showed that the Audit & Supervisory Committee is operating effectively, were shared with the Board of Directors, and recommendations were made on issues found in the effectiveness evaluation regarding improvements to the Company's internal controls and governance system.


FY2019 Evaluation Results

The questionnaires conducted in the 2017 and 2018 fiscal years were comprehensive. The questionnaire conducted in the 2019 fiscal year was likewise comprehensive and showed that the Board of Directors as a whole is functioning effectively.

In addition, the Company dug deeper based on recent corporate governance trends (such as the interests of institutional investors) and identified the following issues in order to improve effectiveness in the future:

  1. further improving the organization and disclosure of business strategy risks and opportunities; and
  2. further improving the organization and disclosure of the thinking with regard to business portfolio management.


* A third-party evaluation such as that conducted in fiscal 2017 was not conducted in fiscal 2019, because it is the Company’s policy to implement it once every three years.

In the future, we will work to further improve effectiveness by addressing these issues.


Responding to Large-Scale Acquisitions of Seiko Epson Shares

Epson's Corporate Governance Policy stipulates the following:

  1. Whether to accept a bid to purchase a number of shares that would give the acquirer control over the Company's financial and business policies ("large-scale acquisition" hereafter) should ultimately be decided by the shareholders.
  2. Epson shall ask persons who attempt to make large-scale acquisitions of Company shares to provide a sufficient amount of the information needed to determine the desirability of the large-scale acquisition from the perspective of ensuring and enhancing corporate value and the common interests of shareholders, after which Epson shall disclose the opinions of the Company’s Board of Directors regarding the proposed large-scale acquisition, thereby doing its due diligence to provide shareholders with the time and information they need to consider the desirability of the large-scale acquisition. The Company shall also take appropriate actions based on the Financial Instruments and Exchange Act, the Companies Act, and other applicable laws and regulations.