Evaluation of the Effectiveness of the Board of Directors

Method of Evaluation

As we did in the previous fiscal year, Denka analyzed and evaluated the effectiveness of the Board of Directors by having individual directors 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 discusses the questionnaire results at Board of Directors meetings.

Summary of Evaluation Results and Future Efforts

Results confirmed that the Board of Directors have made progress in the optimization of the frequency and duration of Board of Directors meetings and its composition (in terms of achieving the right balance of knowledge, experience, competency and diversity). Moreover, we have determined that our Board of Directors, which includes independent outside directors who account for 44% of its membership, is capable of the proper monitoring and supervision of management. In addition, the Board of Directors evaluated initiatives being undertaken to address issues identified via the previous fiscal year’s evaluation by employing the PDCA cycle as depicted below. It also ensures that all directors share a common understanding of initiatives to be executed going forward.

Concepts on the Appointment of Directors

With the aim of embodying 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 areas 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 proportion of such directors is in excess of the targeted composition.

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 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 in a fixed amount. Total remuneration paid to such directors is determined within the upper limit approved by the General Meeting of Shareholders.

[FY2021 Director Remuneration]