The Air Water Group believes that conducting fair business activities, using general common sense, and gaining trust from all stakeholders is essential for continuous business growth and the maximizing of enterprise value. We also view that enhancement of corporate governance, including an internal control system, is the most important management issue for gaining stakeholder trust and fulfilling corporate social responsibility. Air Water is working to strengthen its corporate governance by constructing a fully functioning management structure for appropriate management decision-making and the proper and swift execution of business based thereon, with supervision and monitoring, while securing management transparency through wide-range information disclosure.
Air Water is a company with an Audit & Supervisory Board where the Board of Directors is responsible for making important management decisions and supervising business execution, and auditing of the execution of director duties and other matters is accomplished through Audit & Supervisory Board members attending meetings of the Board of Directors and other important committees. This management framework ensures appropriate decision-making and prompt business execution by directors while enabling proper supervision and monitoring of each director’s performance of duties.
Our Board of Directors is comprised of a total of 9 members: 6 internal directors and 3 outside directors (of which one is a woman). In addition to matters stipulated in laws, regulations and the Articles of Association, Air Water’s Board of Directors makes decisions and receives reports on important matters related to Our Group’s management and business execution and also supervises and monitors individual directors. Moreover, Air Water appoints 3 outside directors so as to receive recommendations and opinions that are beneficial to Air Water’s management from an outside, objective perspective in order to further reinforce the Board of Director’s management supervisory function. The term of office for directors is set at one year in order to make it possible to flexibly construct the optimal management framework in a rapidly changing business environment and to further clarify the management responsibilities of directors each fiscal year.
As the body that supports accurate and quick decision-making in the group’s wide-ranging fields of business, the Corporate Management Committee is comprised of executive directors at the level of managing director and higher, the general managers of each business division, and other key managers. The Corporate Management Committee, which meets once a month, in principle, conducts advance deliberations on the agenda items of the Board of Directors from wide-ranging and diverse standpoints, and also deliberates on important items related to the Air Water Group’s business execution.
Air Water’s Audit & Supervisory Board, is comprised of a total of five members: two internal A & SB members, and three outside A & SB members. Air Water appoints three additional outside A & SB members so as to receive recommendations and opinions that are beneficial to Air Water’s auditing from an outside, objective perspective in order to further reinforce monitoring and supervision of management. A & SB members work to grasp and monitor management execution by such means as attending Board of Directors meetings and other key meetings in accordance with the auditing policies and standards, etc. stipulated by the Audit & Supervisory Board, and conduct auditing to ensure that the execution of duties by directors conforms with laws, regulations, and the Articles of Association and that corporate operations are being executed properly through supervision and verification of the design and operation, etc. of the internal control system, including internal controls related to financial reporting. A & SB members receive regular reports from the accounting auditors and internal auditing unit on the status of audits and findings, and exchange information and opinions with them.
Internal audits are conducted regularly by the Internal Auditing Office, the company’s internal auditing unit (consisting of 13 full-time staff members), on the Air Water Group’s compliance with laws, regulations, and internal rules and on the appropriateness and adequacy of the group’s business processes. The Internal Auditing Office also conducts monitoring and supervision of the construction and operation of the internal control system for ensuring the reliability and appropriateness of financial reporting, and with respect to evaluations of the system’s effectiveness, the Office fulfills the role of lead managing division under the responsibility and direction of the representative director. In addition, along with the Internal Auditing Office, Air Water has established the Compliance Center (consisting of 15 full-time staff members) as the dedicated department for cross-group management and governance in connection with compliance, disaster prevention, and environmental protection. When facts are found through internal audits that have the potential to seriously impact Air Water’s management, there is a system for appropriately reporting them to the Audit & Supervisory Board and the representative director.
With regard to accounting audits, Air Water has concluded an auditing agreement with KPMG AZSA LLC, and this firm carries out the audits.
<Policy on cross-held shares>
Air Water Inc. holds cross-held shares to maintain and expand relationships with customers and create business opportunities. Whether or not to newly acquire and continuously hold cross-held shares is decided by considering how the business relationships with invested companies and cooperative relationships with them, such as alliance and collaboration, contribute to the medium- to long-term enhancement of the Group’s corporate value.
<Verification of cross-held shares>
Air Water closely examines if the benefits and risks associated with each cross-held shareholding match our capital cost and fit the purpose of holding such shares and contribute to the Group’s corporate value in the medium to long term. This is verified at the board of directors on an annual basis. We conduct a review and sell or reduce the number of shares of which holding is not considered as meaningful or reasonable.
<Criteria for exercising voting right for cross-held shares>
As for exercise of voting right for cross-held shares, Air Water determines whether to approve or disapprove each proposal by considering if such proposal contributes to sustainable growth and medium- to long-term enhancement of corporate value of the invested company and does not damage the share value of our Group.
To achieve sustainable growth and the medium- to long-term enhancement of corporate value, Air Water Inc. understands that building long-term relationships of trust with shareholders and investors through the timely and impartial release of accurate information concerning its operations, finances, etc., as well as constructive dialogue, are absolutely essential. The Senior Executive Officer in charge of IR oversees communications with shareholders and investors and also facilitates organic collaboration between relevant company departments to ensure appropriate information sharing and establish opportunities for dialogue with management. In addition to the General Meeting of Shareholders, Air Water also holds an annual financial results briefing in which the President & CEO participates. Additionally, on the day of the quarterly financial report, a phone conference is held with analysts and institutional investors, and we also holds events, such as factory tours and small meetings, and organizes visits to overseas institutional investors. Through the various dialogues with shareholders and investors, the Company gathers opinions and concerns related to its management processes, etc. and reports these to the CEO and management team as necessary. Careful consideration is given to measures for preventing the leakage of insider information when speaking with shareholders and investors.
|Number of Directors in Articles of Incorporation||20|
|Term of Directors in Articles of Incorporation||1 year|
|Chairman of the Board of Directors||Chairman|
|Number of Directors||9|
|Status of appointment of Outside Director||Appointed|
|Number of Outside Directors||3|
|Number of Outside Directors who are appointed as independent officer||2|
We appoint as independent outside directors individuals who meet requirements and criteria stipulated in the Companies Act and by financial instrument exchanges and who meet the Judgment Criteria for the Independence of Outside Officers, which has been established by resolution of the Board of Directors. In addition, in selecting candidates for independent outside director positions, the company puts emphasis on a high level of expertise and extensive experience that make possible honest and constructive recommendations and opinions with respect to the company’s management.
Air Water Inc. determines that Outside Directors and Outside Auditors (hereinafter collectively referred to as “Outside Officers”) or Outside Officer candidates are sufficiently independent of the Company if they do not fall under any of the following items:
- An executive of the Company and its subsidiary (hereinafter collectively referred to as “Group”) 1 or a person who was an executive of the Group in the past ten (10) years;
- A person who was a non-executive director or auditor of the Group in the past ten (10) years and had served as executive of the Group in the past ten (10) years before being appointed as non-executive director;
- A person 2 or an executive of an entity for which the major business partner is the Group;
- An person 3 or an executive of an entity who is the major business partner for the Group;
- The major shareholder of the Company (a person who directly or indirectly holds more than or equal to 10% of the voting right of the total number of voting rights; the same shall apply hereinafter) or the executive thereof;
- An executive of an entity of which the Company is the major shareholder;
- A person who belongs to an audit corporation that is the accounting auditor of the Group;
- An attorney, a certified public accountant, a certified public tax accountant, or consultants etc. who receives a large amount 4 of money and other property benefits other than executive compensation from the Group (if the entity receiving property is an organization, such as a corporation and an association, a person belonging to the organization);
- An person or an executive of an entity who receives a large amount 4 of donations or grants from the Group;
- In the case where an executive of the Group serves as Outside Officer of another company, an executive of such another company or its parent or subsidiary company;
- A person who has fallen under any of ［3］ to［10］above in the past three (3) years; or
- In the case where a person who falls under any of［1］to ［11］above is an important executive 5, the person’s spouse or relative within the second degree of kinship.
However, if there are sufficient reasons to determine that an Outside Officer is unable to fulfill his or her duty as an independent officer even though he or she does not fall under any of the items above, such Outside Officer may not be appointed as independent officer.
Yukiko Sakamoto has held key positions in the Ministry of Health, Labour and Welfare and has also served as the deputy governor of Shizuoka Prefecture and as a member of the House of Councilors, and therefore has extensive experience and a high level of expertise. Air Water has appointed her as an outside director because she is able to leverage that experience and expertise to provide beneficial recommendations and opinions on Air Water’s overall management. In addition, there are no circumstances giving rise to potential conflicts of interest with general shareholders as stipulated by the Tokyo Stock Exchange, and she meets the Judgment Criteria for the Independence of Outside Officers stipulated by the company. She has thus been designated an independent director.
Isamu Shimizu is a professor emeritus of Kyoto University and a long-standing researcher of ecology. He therefore has extensive experience and a high level of expertise as a university professor and instructor. Air Water has appointed him as an outside director because he is able to leverage that experience and expertise for Air Water’s business management. In addition, there are no circumstances giving rise to potential conflicts of interest with general shareholders as stipulated by the Tokyo Stock Exchange, and he meets the Judgment Criteria for the Independence of Outside Officers stipulated by the company. He has thus been designated an independent director.
Takao Matsui has had a long career as a certified public accountant, and therefore brings extensive experience a high level of expertise. Air Water has appointed him as an outside director because he is able to leverage that experience and expertise to provide beneficial recommendations and opinions on Air Water’s overall management.
(Supplementary Explanation of the Relationship)
Takao Matsui is from KPMG AZSA LLC, which is our company’s auditing firm. He retired from the auditing firm in June 2018; therefore, he is not in the position to be influenced by the auditing firm’s intention.
|Status of establishment of Board of Auditors||Established|
|Number of Auditors in Articles of Incorporation||6|
|Number of Auditors||5|
|Status of appointment of Outside Auditors||Appointed|
|Number of Outside Auditors||3|
|Number of Outside Auditors who are appointed as independent officer||3|
Kunihiko Tsuneyoshi has expert experiences and knowledge as a person from a financial institution. In light of the useful suggestions and advice provided by him based on his know-how and expertise to ensure the appropriateness of Air Water’s business execution, we believe that he fulfills the audit functions expected of an outside auditor, and is, therefore, an appropriate appointment. In addition, there are no circumstances giving rise to potential conflicts of interest with general shareholders as stipulated by the Tokyo Stock Exchange, and he meets the Judgment Criteria for the Independence of Outside Officers stipulated by the company. He has thus been designated an independent director.
(Supplementary Explanation of the Relationship)
Kunihiko Tsuneyoshi had served in the past as an executing person at Sumitomo Mitsui Trust Bank, Limited, our group’s primary lender. After retiring from the bank in March 2012, he worked as an executing person of the bank’s group company until March 2019. Because quite some time has passed since his retirement from Sumitomo Mitsui Trust Bank, Limited, which he initially worked for, he is not in the position to be influenced by the bank’s intention. Although Sumitomo Mitsui Trust Bank, Limited holds our company’s shares, it is not our company’s major shareholder (shareholders who own 10/100 or more of the total issued stocks with voting rights specified in the Financial Instruments and Exchange Law). In addition, although our group has transactions with Sumitomo Mitsui Trust Bank, Limited such as fund borrowing, the group is currently not hugely dependent on the bank, since our group has transactions with multiple financial institutions; therefore, Sumitomo Mitsui Trust Bank, Limited will not affect our company’s management.
Atsushi Hayashi has a wealth of experience and expertise as a judge and attorney. In light of his leveraging of that experience and expertise to provide useful guidance and advice regarding the appropriateness of Air Water’s pursuit of business operations, we believe he fulfils the auditory functions required of an outside auditor, and is therefore an appropriate appointment. In addition, there are no circumstances giving rise to potential conflicts of interest with general shareholders as stipulated by the Tokyo Stock Exchange, and she meets the Judgment Criteria for the Independence of Outside Officers stipulated by the company. She has thus been designated an independent director.
Nobuo Hayashi has a wealth of experience and expertise as a university professor and instructor. In light of his leveraging of that experience and expertise to provide useful guidance and advice regarding the appropriateness of Air Water’s pursuit of business operations, we believe he fulfils the auditory functions required of an outside auditor, and is therefore an appropriate appointment. In addition, there are no circumstances giving rise to potential conflicts of interest with general shareholders as stipulated by the Tokyo Stock Exchange, and he meets the Judgment Criteria for the Independence of Outside Officers stipulated by the company. He has thus been designated an independent director.
The General Affairs Department, which provides admin functions for the Board of Directors, distributes to outside directors materials pertaining to board meeting agendas and reports well in advance of meetings, and explains them where required.
Information and materials about the company that outside auditors require (or that are otherwise deemed appropriate for sharing among auditors) are relayed to them mainly by the standing statutory auditors.
- The maximum amount of compensation for Directors and Auditors shall be as follows:
（1）The maximum amount of compensation for Directors is 1.13 billion yen (including 34 million yen for Outside Directors) per year according to the resolution at the 17th annual meeting of shareholders held on June 28, 2017
（2）Apart from the maximum amount of compensation for Directors listed in (1) above, the total amount of monetary compensation receivables paid as compensation concerning restricted stocks to our Directors (excluding Outside Directors) is 100 million yen per year according to the resolution at the 19th annual meeting of shareholders held on June 26, 2019.
（3）The maximum amount of compensation for Auditors is 98 million yen per year according to the 7th annual meeting of shareholders held on June 28, 2007.
- In addition to the fixed basic compensation and the variable compensation that is linked to performance (bonus), the compensation for Directors (excluding Outside Directors) consists of the restricted stock compensation plan that has been newly introduced in place of the traditional stock compensation-type stock options so that our Directors (excluding Outside Directors) share ever more merits and risks of stock price fluctuations with shareholders and enhance a sense of commitment to share price gain and corporate value improvement. The compensation for Outside Directors and Auditors consists of basic compensation and bonus.
Remuneration paid to directors (excluding outside directors) comprises three parts: a base fee, which is a fixed amount; bonuses, which are determined in accordance with the company’s business performance; and the new system instead of stock options, which assigns shares with transfer restrictions to directors (excluding outside directors) as a means of motivating them to work hard to drive share prices upward and improve corporate value. In addition, this new system has been instituted to ensure that directors shoulder a greater share of the benefits and risks of share price movement along with shareholders. The remuneration paid to outside directors and auditors comprises only the basic fee and bonuses. Directors are paid remuneration within a scale approved by a shareholders’ meeting resolution, and adjusted in accordance with each individual’s roles and responsibilities. Another consideration when deciding on remuneration is our belief that it is a powerful incentive for working to improve corporate value over the medium-to-long term. For remuneration to be approved, the representative directors deliberate on the matter before drawing up a remuneration table and receiving the input of the independent outside directors before tabling it for approval at a Board of Directors meeting. Similarly, auditors are paid remuneration within a scale approved by a shareholders’ meeting resolution, and finalized after discussion and decision by the auditors.
Air Water Inc. has set the following basic policy for establishing “frameworks to ensure that the execution of the duties by directors complies with the laws and regulations and the articles of incorporation, and other frameworks to ensure the properness of operations of a company and operations of group of enterprises consisting of the company and its subsidiary companies” in accordance with the Company Act, and strives to ensure the properness and effectiveness of operations of the Company and its subsidiaries under the frameworks established based on this basic policy.
- a. As the foundation of its compliance system, the “Air Water Group Code of Ethical Conduct” shall be established as action guidelines so that the officers and employees of the Group comply with the laws and regulations and practice behavior respecting social ethics. Air Water shall provide education on the spirit of observing social ethics and laws and establish rules regarding legal compliance.
- b. The “Compliance Center,” which is under the direct control of the representative directors, shall be established as a supervisory division to manage all the compliance issues in the Group. The supervisor of the Compliance Center shall be appointed from Directors or Executive Officers. In addition, the Group shall establish and operate the "Compliance Committee," which is a body to discuss important compliance-related matters, and an internal reporting system where officers and employees of the Group who become aware of any act which may violate compliance requirements can make a report or consult directly to the "Compliance Center" and external attorneys without going through their office organization.
- c. The Directors shall report the status of execution of operations at the Board of Directors meetings that are held on a regular or as-needed basis and oversee the execution of one another’s duties. The Auditors shall attend the Board of Directors meetings and other important meetings based on the audit standards for Auditors stipulated by the Board of Auditors and audit the execution of duties by Directors of the Group through investigation of the status of execution of operations, including that of the subsidiary companies.
- d. The “Internal Auditing Office,” which is the Company’s internal auditing unit, shall conduct an internal audit of the Group’s compliance with the internal regulations and the laws and regulations concerning the Group’s business activities in accordance with the internal audit regulations and internal audit plans. The results of internal audit shall be reported to the Representative Director and Auditors.
- e. The Group shall regularly receive advice from external experts on compliance with the Anti-Monopoly Act, constantly provide its officers and employees education on the Anti-Monopoly Act and establish a framework where contact with competitors is strictly controlled and the Group’s operations of and compliance with the internal rules for observing the Anti-Monopoly Act are periodically monitored by the “Compliance Center.”
Information on the execution of duties by Directors, such as minutes of the Board of Directors meeting and documents requesting formal approval, shall be documented or recorded on electromagnetic media and properly and safely stored and managed in accordance with the internal rules for document management. In addition, a framework where these documents are readily available to Directors, Auditors or the internal auditing division upon their request shall be put in place.
- a. As for risks concerning compliance, safety, disaster prevention and environmental preservation which are recognized as particularly important for business activities of Air Water Group, the “Compliance Center” shall manage, as the supervisory division for the entire Group, such risks in a cross-sectoral manner.
- b. As for individual risks concerning information security, quality control, intellectual properties and business contracts, a division in charge shall be established respectively to set internal regulations, create manuals and provide education and training as well as to manage such risks in the entire Group through prior inspection and authorization procedures.
- c. With the "Compliance Center" serving as the secretariat, the "Risk Management Committee" shall be held regularly, through which the status of risk management framework in the entire Group is assessed, and the risk management framework in the Group overall is bolstered.
- d. If a risk having significant impact on business activities is realized, a Crisis Management Committee shall be established immediately in accordance with the "Risk Management Regulations," and a framework for dealing with the realized risk promptly and appropriately shall be put in place.
- a. Air Water Inc. shall provide for rights concerning assignment of duties and decision making in the organizational regulations and the administrative authority rules for ensuring appropriate and effective execution of duties and clarify the authority and responsibility of each Director and executive officer. A framework which complies with this framework shall also be established for subsidiary companies.
- b. Prompt decision making and clarification of responsibility for execution of operations in a wide range of business and operation areas shall be achieved by delegating authority to executive officers appointed at the Board of Directors. To flexibly establish a management framework that can promptly respond to changes in business environment, the term of Directors and executive officers shall be one (1) year, respectively.
- c. A business of which size is larger than a certain size shall introduce a company (in-house pseudo company) system. A framework where each company head is delegated authority for execution of the relevant business and is responsible for the consolidated performance, including that of its subsidiaries, shall be put in place.
- d. A mid-term management plan shall be established at the Board of Directors, and main business objectives shall be set based thereon. In addition, effective execution of duties by Directors shall be ensured by establishing business strategies and profit plans for each company, business sector and subsidiary every year and managing their performances on a monthly basis.
- a. The Auditors and the “Auditing Office,” which is the internal auditing division, shall audit subsidiaries periodically in cooperation with the auditors of such subsidiaries to ensure appropriateness of execution of duties in the Group.
- b. As a general rule, Director(s) and Auditor(s) shall be sent to subsidiaries from the Company to ensure appropriate execution of operations and effective supervisory function.
- c. Divisions responsible for supervising each subsidiary and matters that require subsidiaries to report to and seek approval of Air Water shall be clarified in the rules for associated companies so that a structure to report to Air Water from subsidiaries is established. Specific important matters concerning subsidiaries shall also be discussed at the Board of Directors of Air Water.
- d. A basic plan concerning establishment of framework for internal control on financial reporting shall be established, in accordance with the Financial Instruments and Exchange Act, to ensure reliability and appropriateness of financial reporting of the Group. An internal control system that enables effective and appropriate evaluation based on such plan shall be developed and properly operated.
Employees shall be assigned to assist the duties of Auditors. Such employees shall not belong to a chain of command for execution of operations and shall follow the instructions of Auditors. The appointment, transfer, evaluation, etc. of such employees shall be determined upon prior consent of the Board of Auditors.
- a. In order that Auditors precisely understand the process for making important decisions and the status of execution of operations, a framework shall be put in place where Auditors may attend the Board of Directors and other important meetings, view at all times documents requesting formal approval and other documents related to execution of operations and ask Directors and employees for a report on their status of execution of duties as necessary.
- b. A framework shall be put in place where Directors and employees promptly notify Auditors or the Board of Auditors of matters designated by law, matters that may have a material impact on the Group’s management, the progress of internal audits and the status of execution of duties that is required to report for auditor purposes.
- c. The Directors and employees of the Group who reported to the Auditors of the Company shall not be treated unfairly on the ground that they made such reports.
When Auditors request advance payment or reimbursement for any expenses resulting from execution of their duties, the Company shall process such expenses or debts promptly unless such processing is deemed unnecessary for execution of duties by such Auditors.
Frameworks shall be put in place so that Auditors regularly exchange opinions with the representative directors, accounting auditor, internal auditing division as well as the auditors of subsidiaries to ensure effective audits through exchanging opinions and information for auditor purposes.
Air Water Inc. has established a clear policy in the “Air Water Group Code of Ethical Conduct” that we shall stand firmly against anti-social forces that pose a threat to the order and safety of civil society and have no relations with them. In addition, as a supervisory division that takes measures to sever any relations with anti-social forces, the general affairs division of the Company establishes close partnerships with external specialized institutions such as attorneys and the police, gather information on anti-social forces and, as necessary, issue reminders and provide education on how to deal with cases to relevant divisions of the Group.