A Tripartite Discussion on Corporate Governance

Examining the roles that Board of Directors should play in reforms for the 100th anniversary of our founding and for a strong future beyond 

Naoki Tamura, Chairperson of the Board of Directors, Takeo Minomiya, Lead Outside Director, and Haruko Shibumura, Outside Director who is also an attorney, discussed the roles required of the Board of Directors of Tamura Corporation, which will soon celebrate its 100th anniversary in this rapidly changing era. There was a frank and constructive exchange of opinions on the newly established long-term vision “Aspiration for 2050”, the Medium-Term Management Plan, sustainability initiatives, risk management, and corporate governance. 

Impressed by efforts ahead of the times 

Tamura: Prior to your appointment as Outside Directors, what was your impression of Tamura Corporation? 

Minomiya: Around 1985 when I was still at Sony when the Betamax system was in its prime, we decided to build a video factory in Malaysia. As a manager, I would often go there on business trips. At that time, I heard that Tamura had established a factory in Malaysia in the early 1970s, so I got the impression that Tamura was a company that had been working on overseas expansion quite early on. In addition, as a component manufacturer, Tamura is far ahead of set manufacturers in terms of the speed at which we can take measures based on the current trends in the world and the ability to respond to cost reductions. So, when I was later approached about becoming an Outside Director, I was delighted to accept the offer because I thought the Company was worth learning about. 

Shibumura: Around 2006, Tamura was the first to establish a system called “Alarm Escalation,” which allows information to be immediately presented and shared with management when a risk event occurs in the field or when a very small risk is discovered. At a time when the terms CSR and compliance were not yet widely used, I was very impressed by President Tamura’s enthusiasm and earnest commitment to risk management ahead of other companies. 

The roles that an Outside Directors should play 

Tamura: Currently, our Company has three outside directors, including the two of you. If we only have internal directors, they tend to prioritize sales and profits. From your position as an Outside Director, we expect you to give us your opinions from the same non-financial perspective as our shareholders, such as how a company should be in society, but what are your own thoughts on each of these issues? 

Shibumura: I believe that my role is to provide advice from two perspectives based on my expertise and experience as a lawyer. The first is that I have a sense of the important points that I need to be aware of on a daily basis regarding governance and risk management, so I would like to express my opinions from that perspective. The other is to give advice from an objective point of view, taking a step back to see what Tamura is doing well in, what it is lagging behind in, and what its future direction should be, based on the trends of other companies and society in general (within the bounds of attorney confidentiality) as the times change rapidly. 

Minomiya: I think my role is to contribute to creating a place where employees can feel energized and enjoy coming to in the morning. In addition, I would like to see the executive candidates move across departments every three years. By cultivating a culture that allows employees to actively learn new fields outside of your specialty, you can cultivate highly motivated and talented people. As a result, Tamura will become a Company that everyone longs for, a company that is exciting to join, and employee engagement will increase. 

Tamura: It is often said that a company is its people, so our Company’s growth depends on how many employees we can create that will possess an “I love Tamura” mindset. If you stay in one department for a long time, it will inevitably become an “I Love My Division” mindset. By introducing a job rotation system, etc., I hope that people will experience various departments, and that Tamura, the company as a whole, will continue to grow. 

“Aspiration for 2050” and the Medium-Term Management Plan - topics that have been deeply discussed 

Tamura: The Tamura Group has launched its long-term vision, “Aspiration for 2050” and the 13th Medium-Term Management Plan, which is the first step toward the realization of “Aspiration for 2050.” The impetus for establishing “Aspiration for 2050” came from a proposal made at the October 2020 meeting of the CSR Management Committee (now the Sustainability Management Committee) stating that we should discuss our future vision from a long-term perspective, given that major changes in the business environment are expected to continue in the future. After a year and a half of discussions, we came to the conclusion of the 13th Medium-Term Management Plan. 

Shibumura: At first, with 2050 as our ultimate goal, we envisioned the kind of company we wanted to become and the kind of company we should be for each milestone year, such as 2024, when we will celebrate our 100th anniversary, and 2030, and discussed when and what we should do to achieve these goals, using the concept of back casting to create this vision. As a result, I think it has become a very important indicator that shows the path that Tamura will take in the future. 

Tamura: The regular half-year committee could not fully discuss it, so we held ad-hoc committees many times to discuss it. Through repeated discussions with everyone, including materiality, the current Medium-Term Management Plan, which integrates sustainability and business strategies, has been completed. 

Minomiya: Yes, but I think it would have been good for me to spend a little more time discussing it at various levels. For example, executive officers and above could have gathered for a training camp and held thorough discussions on the topic. This is something very important for Tamura in the future. The next challenge is how to ensure that information and awareness are shared throughout the company. For this purpose, each business sector will spend about three days and two nights together discussing and putting into concrete terms in their own business. Also, at factories, we can have thorough discussions with everyone in the same way. By doing so, everyone will be able to work with ingenuity and a sense of speed. If we spare that time and effort, I don’t think that job sites will ultimately be very strong. From now on, I would very much like to see top management take the lead in promoting such a trend. 

Accelerating diversity and human resource development initiatives 

Tamura: In terms of diversity in managerial positions and management, we have so far appointed women and non-Japanese employees as ouside directors and general managers of Tamura Corporation, as well as officers at subsidiaries, but these were not internal officers at Tamura Corporation. In July 2022, we finally appointed one female and one non-Japanese Executive Officers. We have been receiving opinions from outside directors and others for a long time and we have finally been able to respond to this. 

Minomiya: That’s right. Recently, such a trend has finally begun to emerge. From now on, I think we need to boldly recruit more foreigners and women, including on the factory floor and as general employees, and make diversity something familiar and commonplace. 

Tamura: Until now, there has been an image that women in management and executive positions are those with outstanding abilities or those who have worked harder than their male counterparts. This image has been a factor that has deterred women from becoming more active in the workforce. Instead, it is necessary to create actual examples and role models where you can become more than a manager if you do your job well like a man and achieve results. 

Shibumura: In addition to diversity, it is also an important issue to enhance the deliberation of the successor plan, which will be entrusted with the future of Tamura Corporation. We are currently studying how to nurture them, but we should be aware that if the management of a company consists of people of the same type, it will be judged that it will not be possible to expect an increase in corporate value over the medium to long term. Diversity is also important in this regard. Our discussions on the development of successors and the issues of nurturing young employees and diversity are all linked, and this is a major challenge that we must take on in the future. 

Minomiya: I started the “Minomiya Juku” in 2019 to develop the next generation. Ms. Shibumura also served as a lecturer at a Minomiya Juku session where we are holding study sessions with future Director candidates. In addition to classroom lectures, we sometimes visit the Diet Building and listen to the stories of members of the Diet, learn authentic tea ceremony from a teacher, etc. We are working on comprehensive human resource development through multifaceted experiences. 

Respond to evolving risk management and governance 

Shibumura: As I mentioned earlier, Tamura is ahead of other companies in building and operating a risk management system. However, when it comes to risk management and compliance, it is absolutely unacceptable to stop related efforts. As the times change, laws and regulations and the concept of compliance change, and holes and leaks emerge without being noticed. As a company, it is essential to catch up with systems and operations, and at the same time, it is necessary to constantly provide basic education and awareness to ordinary employees. 

Tamura: In terms of awareness, the alarm escalation system itself is highly appreciated, but sometimes it takes a while for the alarm to move up in level. Outside directors often point out that true risk management cannot be achieved unless one hones their own sensitivity or sense of risk judgment. 

Shibumura: It is important to have the ability to sense that something is not good. It is risky to think that we should do more research and check before raising the alarm level. When something happens, you can raise the alarm level first and then examine the situation carefully later. 

 Minomiya: And don’t forget to properly praise and reward employees who discover bad things and report them. Since we have prevented accidents at the company before they happen, I think it is important to foster a culture that evaluates such behavior. 

Improving the effectiveness of the Board of Directors 

Minomiya: In the future, more often than not, a company’s business crisis will be due to governance and compliance issues rather than declining profits or sales. When it comes to compliance and risk management, there is something called the “Three Lines of Defense.” The first line of defense is management by onsite personnel, the second line is the control by management sections, and the third line is the verification by the Board of Directors and internal audits. Governance is strengthened when all three lines of defense are effective. In order to achieve this, it is important to have discussions among the Board of Directors, young employees, mid-level executives, executive candidates, and executive officers, and build consensus on important issues that are common across generations. I believe that this will also lead to an improvement in effectiveness.  

Shibumura: At meetings of Tamura’s Board of Directors, each of the outside directors can say what they want to say. Moreover, what is wonderful about Tamura is that it responds to the opinions of outside directors with sensitivity. In that sense, I feel that the effectiveness of the Board of Directors is quite high. Personally, I think it would be a good idea for executive officers to also attend meetings of the Board of Directors when necessary to provide reports. If they were able to participate in certain discussions and deliberations, it would probably lead to even livelier discussions. 

Tamura: Discussions during Board of Directors meetings are full of energy, during which we always receive various opinions that I am grateful for and sincerely welcome. Satisfaction among outside directors is also relatively high when evaluating the effectiveness of the Board of Directors. We hope that you will continue to give us your opinions and suggestions that will help us make improvements while maintaining the current atmosphere in which directors can talk with each other easily during meetings.  

Beyond the Tamura Group’s 100th anniversary 

Minomiya: As we approach the 100th anniversary of the company’s founding soon, once again, in order to become a worldclass company, I would like us to solve various issues such as diversity promotion and business succession planning, so that our employees and their families can be happy, and also so that external stakeholders can look up to us as a company to be admired. To this end, we will become a more wonderful company if we keep our goals high, and if we all engage in dialogue and pool our wisdom toward their realization. We directors will do our best together so that all of our employees can realize these goals. 

Shibumura: I believe that Tamura’s greatest strengths are its technical capabilities that it has cultivated over the years and the excellence of its employees. In addition, what will be important from here on is corporate governance, and I believe that ultimately it will be all about how transparent the organization is. Nothing should ever be hidden. If a problem arises in the field, it is properly conveyed to top management and the areas that need to be improved are communicated at worksites. If this two-way communication flow is firmly established, I think Tamura can grow into a wonderful company that we can be proud of anywhere. 

 Tamura: Thank you very much. As both of you mentioned earlier, in the future, not only the quality of technology and products, but also corporate governance, sustainability, and other aspects of how the company should be will become more important. To that end, we need people who can support these activities, and we want to focus on diversifying and developing human resources. The 100th anniversary of our founding is a goal but by no means the final destination. We will continue to move forward tirelessly for the next 150 years and even 200 years beyond that. I would like to thank our outside directors for their frank opinions and suggestions. 

Messages from an Outside Director and Members of the Audit & Supervisory Board 

Look forward to accelerating the development of new products and markets as well as strengthening ESG promotion 

In the 13th Medium-Term Management Plan, we set out a business strategy that aims to grow by contributing to carbon neutrality. We have been focusing on the electrification of automobiles, wind and solar power generation, energy conservation, and other business areas that are expected to grow further due to rising social needs, and it is becoming increasingly important to maximize our strengths. In various phases such as development, manufacturing, sales and marketing, we are consciously promoting cross-company activities in Electronic Components, Electronic Chemicals/FA Systems, and Information Equipment, and we expect to accelerate the development of new products and new markets by combining our strengths. In addition, along with its business strategy, the company views the environment, society, and governance as elements that all need to work together smoothly, and has set specific goals for further enhancement from the perspective of a global company. I would like to emphasize the importance of these activities. 

At meetings of the Board of Directors, Mr. Kubota proactively provides comments and advice that contribute to global business development, including technology development strategies, based on his extensive experience in administrative agencies and his extensive experience and deep insight in management of companies operating globally. He also voluntarily contributes to the activation of deliberations in the Nomination & Remuneration Advisory Committee and the Sustainability Management Committee based on his broad knowledge, including knowledge about technology. 

Fulfilling my mission as an Audit & Supervisory Board Member and contributing to the development of Tamura Corporation 

I understand that the basic duties of outside Audit & Supervisory Board Members are to strictly monitor and supervise the execution of duties by Directors from the perspective of ensuring legality through the Board of Directors and to check whether controls over overall management are functioning effectively under the established corporate governance system. However, beyond these basic duties I would like to continue to be a part of serious discussions on how we, as a company with 100 years of history, should develop in order to contribute to the well-being of the entire planet, including response to the rapid shift to IoT and global warming, while being aware of what is expected of an Outside Audit & Supervisory Board Member, especially as a lawyer, and accurately grasping the Japan’s situation under the tense world affairs. 

Based on his expertise as an attorney, Mr. Moriya has made necessary and appropriate comments to ensure the legality and appropriateness of the decision-making of the Board of Directors from the perspectives of corporate governance, internal control, risk management, etc. In accordance with the audit policy and plan established by the Audit & Supervisory Board, he works from a broad perspective, including exchanging opinions with executive officers. 

Serving as an Outside Audit & Supervisory Board Member at Tamura Corporation 

 The two pillars of growth and efficiency are the cornerstones of our 13th medium term management plan of the Company, which will reach its 100th year of operation in 2024. Specifically, we have set targets for the creation of new products and businesses aiming for decarbonization, an operating profit margin of 6%, and an ROE of 8%. At the same time, as a good member of society, the Company is working to achieve eight important issues, such as sustainable business growth, improvement of product quality, realization of job satisfaction, and coexistence with local communities. It goes without saying that this goal must be achieved through legal and appropriate corporate activities with an emphasis on compliance. As an Outside Audit & Supervisory Board Member, I will continue to monitor the operation of the management organization to ensure that the company does not deviate from the ideal direction of corporate governance. 

As a certified public accountant, Mr. Toda has extensive knowledge of finance, accounting and taxation. He has made necessary and appropriate comments to ensure the legality and appropriateness of the decision-making of the Board of Directors from an objective and fair standpoint. In accordance with the audit policy and plan established by the Audit & Supervisory Board, he focuses on financial accounting, including exchanging opinions with executive officers and accounting auditors. 

Corporate Governance 

Basic Views on Corporate Governance 

The Company and its group companies have a basic management philosophy of respecting the interests of shareholders. The Group thrives to realize compliance management based on a strong sense of mission of the management team entrusted with management by shareholders and a high sense of corporate ethics. The basic policy and purpose of the Group’s corporate governance is to maximize its corporate value for shareholders by improving management efficiency and transparency. 

Corporate Governance Framework 

Board of Directors and Executive Officer System  

The Board of Directors consists of eight members. Three of these directors are independent outside directors, accounting for more than one third of the Board of Directors. The Group has established its own Independence Criteria for outside directors, available on its website. The Group shall select such candidates of independent outside directors who meet our independence Criteria in addition to those set by the Companies Act and the Tokyo Stock Exchange. Regular meetings of the Board of Directors are held once a month, and extraordinary meetings of the Board of Directors are held as necessary. We have introduced an executive officer system to separate supervision and execution roles so that the Board of Directors can perform its functions more effectively. 

Audit & Supervisory Board System and Internal Auditing 

The Audit & Supervisory Board comprises three members (including two outside members). The Audit & Supervisory Board members audit the performance of directors’ duties by attending the Board of Directors meetings and executive meetings, listening to the directors and other executives about current performance of their duties, inspecting important documents requiring approval, and investigating operations and finances at major business sites, among others. In accordance with annual audit plans, the Integrated Audit Division works with them to conduct internal audits of the Head Office as well as the domestic and overseas bases of the Group companies. 

Nomination & Remuneration Advisory Committee 

With the objective of making fair and transparent decisions on the nomination and compensation of board members, etc., the Tamura Group has established a Nomination & Remuneration Advisory Committee. The Committee is composed of two representative directors and three outside directors, and is chaired by the lead outside director. The Nomination & Remuneration Advisory Committee meets several times a year.

Basic Policy for Internal Control Systems 

The Tamura Group acknowledges “stable and efficient management,” “appropriate accountability,” and “compliance with laws and regulations, as well as in-house rules,” as the objectives of internal systems established to enhance management control. Risk management, compliance, and internal auditing have been identified as methods for achieving these objectives with structures being put in place accordingly. 

Effectiveness Evaluation of Board of Directors 

With the aim of improving the effectiveness of the Board of Directors, analysis/evaluation of the Board of Directors is conducted every year.  

Analysis and evaluation method 

An anonymous questionnaire survey is carried out for all directors and Audit & Supervisory Board members regarding the effectiveness of the Board of Directors including the Nomination & Remuneration Advisory Committee that was arbitrarily formed by the Company. Based on the results of the questionnaire survey and the analysis/evaluation reported by an outside third party, measures for improvement, etc. Are discussed at board meetings. 

Summary of results of effectiveness evaluation of board meetings for the fiscal year ending March 2022 

As in the previous year, each Director and Audit & Supervisory Board Member expressed many constructive and motivating opinions, and the overall evaluation was positive.

It was also confirmed that the Board of Directors is operating in an appropriate manner. In addition, it was confirmed that the risk management system is properly in place and its operation is appropriately supervised, that outside directors and outside auditors contribute to constructive discussions at board meetings, that the board of directors considers issues multilaterally and fully, and that they support management’s decision-making. The Board of Directors also supports management’s decision-making. Based on the above, we confirmed that the effectiveness of the Company’s Board of Directors is ensured. 

 With regard to improvements based on the evaluation of the effectiveness of the previous fiscal year (fiscal year ended March 31, 2021), it was confirmed that the results of the efforts were steadily improving with regard to the methods of managing meetings and providing information to further enhance the quality of discussions. However, further improvements are expected to be made to Board deliberations, management succession planning, and executive training. We confirmed that further efforts should be continued in the future.

Going forward, in order to further improve the effectiveness of the Board of Directors, we will continue to improve initiatives that contribute to the sustainable growth of the Company, such as exercising the functions of the Board of Directors and ensuring the diversity of core personnel. 

Compensation of Board Members 

Compensation of Directors 

The Company has established a policy for determining the details of remuneration, etc. for individual Directors in the Director Remuneration regulations, and the method for determining such policy is discussed and reported by the Nomination & Remuneration Advisory Committee and resolved by the Board of Directors. 

Remuneration Structure: 

The Company’s remuneration for directors used to consist of “fixed remuneration,” “stock-based compensation type stock options (not available to outside directors),” and “performance-linked remuneration.” However, from the FY2022, the Company has decided to discontinue new grants of stockbased compensation type stock options and introduce stockbased compensation for directors, excluding outside directors. Accordingly, remuneration for directors will consist of “fixed remuneration,” “performance-linked remuneration,” and “stock remuneration.”

The remuneration ratio by type is determined in a way that contributes to the provision of sound incentives for improving performance in each fiscal year and increasing corporate value over the medium to long term. It is calculated as a percent age of the total amount paid by position based on the rate of achievement. 

Remuneration for Audit & Supervisory Board Members 

Remuneration, etc. for Audit & Supervisory Board Members is stipulated in the Audit & Supervisory Board Member Remuneration regulations that monthly remuneration consists of basic remuneration and additional remuneration (fixed remuneration only and no stock-based compensation type stock options) and bonuses. Both remuneration and bonuses are determined through discussion among Audit & Supervisory Board Members. 

Compliance and Risk Management 

Policy for Compliance 

In order to perpetuate an enterprise and to continuously respond to stakeholders’ requests, it is necessary for the enterprise to conduct its corporate activities in compliance with laws and regulations and with a high sense of ethics. Based on the “Ethics Compliance Standard” and “the Tamura Group Code of Conduct,” the Tamura Group has prepared the Compliance Handbook and has set the following behavioral criteria to be observed in the course of daily operations, aiming to prevent any and all dishonest and unlawful acts. 

•  Respect of human rights and prohibition of power harassment and sexual harassment; 
• Management of classified information and prohibition of its leakage; 
• Protection and handling of personal data; 
• Prohibition of retention of insider information and transaction based on it; 
• Proper use and protection of the Company's assets and intellectual property; 
• Prohibition of bribery and excessive entertainment/gifts; 
• Prohibition of involvement in anti-social activities; 
• Other risks inherent in each type of work that are identified by division. 

Establishment of Whistleblowing and Consultation System 

Internal Reporting and Consultation System 

The internal reporting system has been developed to establish and strengthen the compliance system by accepting consultations/reports on, whether or not organized or individual, suspected illegal or similar acts occurring inside the Tamura Group, aiming to ensure early detection, correction, and prevention of problematic acts.

As contact windows for internal reporting and consultations regarding illegal behaviors, etc., the “Ethics Consultation Windows” have been set up in order to quickly respond to and resolve compliance issues. Everyone including officers, employees, etc. of the Tamura Group can choose an “in-house window” or an “independent window” that functions independently from top management, for reporting or consultation. In order to mitigate anxiety associated with reporting or consultation, an outside system is used to ensure information confidentiality. Furthermore, protecting the anonymity of persons who make a report or hold consultations and prohibiting unfair treatment are stipulated in the Internal Reporting Regulations.  

Reporting and Consultation System for Business Partners 

 In October 2020, we opened a supplier reporting and consultation service on our website and notified our major suppliers of the service, with the aim of early detection and correction of violations of laws and regulations by having suppliers inform us when Tamura Group-related persons have committed or are suspected of committing such violations. Currently, the system is only available in Japan but we will expand it for use at overseas bases in the future. 

Risk Management 

In order to strengthen its overall risk management system, the Tamura Group established the Risk Management Regulations, which stipulate how to respond to risks that can seriously affect the management of the Group. These Regulations make it a principle that if management crises occur, executives and employees shall work as one to cope swiftly and calmly with them, and that if the crisis affects human life, they shall give top priority to protecting and saving it. Furthermore, Alarm Escalation Levels A and B are defined according to the degree of risk involved and the magnitude of its influences. 

Web-based Alarm Escalation Notification System 

The Web-based Alarm Escalation Notification System is a reporting system that, on occurrence of any of the risk-related events defined in the Risk Management Regulations, enables direct reporting to top management without delay via the intranet and facilitates information sharing so that concerned parties can collectively respond as appropriate. Based on the Risk Management Regulations, executives, employees, and other personnel of the Tamura Group are required to swiftly report an event that may lead to a managerial crisis once they detect it.