Evaluation of the Effectiveness of the Board of Directors

(1) Method of Evaluation

As it did in the previous fiscal year, the Company analyzed and evaluated the effectiveness of the Board of Directors by having individual directors and Audit & Supervisory Board members complete the “Self Evaluation Questionnaire,” which covers items related to the effectiveness of the Board of Directors, such as scale, composition, operation and 20 other items, and discussing the questionnaire results at Board of Directors meetings.

(2) Summary of Evaluation Results and Future Efforts

The Company confirmed that discussion at the Board of Directors was invigorated thanks to appropriate Board size and composition (in terms of getting the right balance of expertise, experience, competency and diversity) and that meetings were of an appropriate frequency and duration, as well as the provision of prior explanation of agenda items and other initiatives aimed at helping outside directors and outside members of the Audit & Supervisory Board better understand Denka’s operations and make proactive contributions at the Board of Directors meetings.

Concepts on the Appointment of Directors

With the aim of practicing The Denka Value, our corporate philosophy, we are promoting the Denka Value-Up management plan, to this end strengthening our management structure supported by directors and executive officers while upgrading our governance systems and supervisory functions.
Director candidates are nominated from among individuals who have abundant experience and a strong track record in Denka’s business divisions and are equipped with sufficient knowledge and specialist expertise for the position. Outside director candidates are nominated from among those who boast extensive knowledge backed by abundant business experience as well as distinctive strengths in their area of specialty so that they can bring their insights on how to achieve sustainable growth and enhance corporate value. With regard to the overall composition of board members, we focus on maintaining a diverse and well-balanced composition in terms of expertise, experience, competency, gender and nationality. We also aim to maintain a sufficient number of independent outside directors to ensure that they account for at least one third of director membership. Currently, the Company’s Board of Directors achieves this targeted composition.

Policies on Director Remuneration

We have set remuneration for each director based on their roles and responsibilities within the limit of the total amount approved by the General Meeting of Shareholders. The representative directors draft the remuneration plan and the Board of Directors decides on the content of remuneration after receiving advice and recommendations from the Nomination and Remuneration Advisory Committee.
Remuneration for directors consists of monthly basic compensation set at a fixed amount (paid to all directors) as well as performance-based compensation and share-based compensation (neither of which are paid to outside directors or in-house directors with concurrent membership in the Audit Committee).
The value of the performance-based compensation is determined in step with consolidated operating income for each fiscal year. However, this portion may be decreased or fully withheld in cases where consolidated operating income did not reach a certain amount or the Company was found to be involved in compliance violations and other significant misconduct.
Share-based compensation is intended to ensure that directors share shareholders’ interests and risks regarding stock price fluctuations. By doing so, we aim to instill a strong sense of purposefulness toward achieving medium- to long-term growth in corporate performance and corporate value in our directors.
In addition, remuneration paid to directors with concurrent membership in the Audit Committee consists only of monthly basic compensation with fixed amount. Total remuneration paid to such directors is determined within the upper limit approved by the General Meeting of Shareholders.

Transition to a Company with an Audit Committee

Acutely aware of the importance of securing solid corporate governance, Denka has introduced an executive officer system aimed at ensuring functional separation between personnel charged with supervision and decision making and those charged with business execution. Moreover, Denka appointed three outside directors and two outside members of the Audit & Supervisory Board. As such, Denka has strengthened functions of the Board of Directors and the Audit & Supervisory Board in terms of supervision and auditing, respectively, with the aim of establishing a robust foundation for fair and transparent business management.
In June 2019, Denka’s decision to transition to a Company with an Audit Committee was approved at the 160th Ordinary General Meeting of Shareholders. This transition entails appointing individuals who serve as Audit Committee members and are allowed to cast a vote at Board of Directors meetings in addition to being expected to help enhance the latter’s supervisory functions and secure an even more solid management structure.

Purposes of Transition to a Company with an Audit Committee

• ■Step up separation between supervisory and execution functions
  Improve the transparency and fairness of management while realizing speedier and dynamic decision making
• ■Increase the number of outside directors
  The number of outside directors grew from three to five, one of whom is female
• ■Promote diversity
  Ensure that the composition of Board members is diverse and well-balanced in terms of their expertise, experience, competency, gender and nationality