Shionogi has adopted a Company with a Board of Auditors governance structure to support efficient management oversight. Under this system, the Group is working to strengthen the audit capabilities of its auditors and the monitoring functions of the Internal Control Department to ensure business execution is based on appropriate management decisions. In order to separate business management and business execution, the directors are responsible for making management decisions in line with the Group’s medium- and long-term plans, while the executive officers are responsible for implementing business strategy, resulting in business execution based on rapid and flexible decision-making. Half the Company’s directors are outside appointments, and we plan to enhance their supervisory functions further to reinforce management oversight.

Corporate Governance Structure

Board of Directors

In principle, the Board of Directors meets every month to make decisions on important matters that affect Shionogi’s business and to oversee business execution. Aiming to strengthen the board’s oversight of business execution, we appointed two outside directors in fiscal 2009 and added another outside director in fiscal 2012 to promote highly transparent and equitable management by drawing on perspectives from outside the Company. In fiscal 2015, we appointed our first female director to the board and increased the number of directors to six in order to strengthen management further and promote diversity. All three outside directors are independent appointments and are tasked with ensuring accountability and a high level of transparency in management.

Corporate Governance Transition

Fiscal 2004

  • Number of internal directors reduced to five from fourteen
  • Introduction of corporate officer system

Fiscal 2009

  • Introduction of an outside director system
  • Establishment of Nomination Advisory Committee
  • Establishment of Compensation Advisory Committee
  • Start of opinion exchanges with auditors

Fiscal 2015

  • Information sharing meetings with outside directors
  • Advent of female (internal) directors

Fiscal 2017

  • Changing composition of Nomination Advisory Committee and Compensation Advisory Committee (majority of members now outside directors)

Fiscal 2020

  • Advent of female (outside) directors

The Board of Directors is advised by the Nomination Advisory Committee and the Compensation Advisory Committee, which are chaired by outside directors. To ensure that management decisions are equitable and well-informed, these committees carefully assess the aptitude of candidates for director positions, the impact directors have on business management, and the suitability of individuals for certain roles and their respective levels of remuneration.

Attendance at meetings of the Board of Directors in fiscal 2019 was as follows.

Director

Name of committee members Attendance rate
Motozo Shiono
Chairman of the Board and Representative Director
13/13
Isao Teshirogi, Ph.D.
President and CEO
13/13
Takuko Sawada
Director, Executive Vice President
13/13
Teppei Mogi
Outside Director
13/13
Keiichi Ando
Outside Director
13/13
Hiroshi Ozaki
Outside Director
10/11 

Auditor

Name of committee members Attendance rate
Akira Okamoto
Standing Corporate Auditor
13/13
Ikuo Kato
Standing Corporate Auditor
13/13
Shinichi Yokoyama
Outside Corporate Auditor
13/13
Takaoki Fujiwara
Outside Corporate Auditor
12/13
Tsuguoki Fujinuma
Outside Corporate Auditor
11/11 
  • From June 18, 2019 onward

Nomination Advisory Committee

Comprised of Keiichi Ando (Chairman), Teppei Mogi, Hiroshi Ozaki, Motozo Shiono and Isao Teshirogi, the Nomination Advisory Committee meets at least once a year to discuss the balance of skill of Board of Director (including Outside directors), enhancement of Administration Division, nomination of Corporate Officer in terms of acceleration of research and development and etc..

(Meetings held in fiscal 2019: One)

Compensation Advisory Committee

Comprised of Teppei Mogi (Chairman), Keiichi Ando, Hiroshi Ozaki, Isao Teshirogi and Akira Okamoto, the Compensation Advisory Committee meets at least twice a year to discuss the performance evaluation of Directors and Officers on Fiscal 2018 and indicators of performance evaluation on Fiscal 2019.

(Meetings held in fiscal 2019: Two)

The following table summarizes the details of the members and achievements of the Nomination Advisory Committee and the Compensation Advisory Committee in fiscal 2019.

Nomination Advisory Committee

Name of committee members Attendance rate
Keiichi Ando
Outside Director (Chairperson)
1/1
Teppei Mogi
Outside Director
1/1
Hiroshi Ozaki
Outside Director
1/1
Motozo Shiono
Chairman of the Board and Representative Director
1/1
Isao Teshirogi, Ph.D.
President and CEO
1/1

Compensation Advisory Committee

Name of committee members Attendance rate
Teppei Mogi
Outside Director (Chairperson)
2/2
Keiichi Ando
Outside Director
2/2
Hiroshi Ozaki
Outside Director
1/1 
Isao Teshirogi, Ph.D.
President and CEO
2/2
Akira Okamoto
Standing Corporate Auditor
2/2
  • From June 18, 2019 onward

Audit framework

To ensure directors and each organization in the Company conduct their duties in a legally compliant and appropriate manner, the Company has established systems to enable Auditors and the Internal Control Department, which is responsible for conducting internal audits, to carry out audits of business execution and exchange opinions with the representative directors as required. Board of Auditors is comprised of two Standing Corporate Auditors and three Outside Corporate Auditors. All Outside Corporate Auditors are independent.

Auditors ensure Directors and Officers conduct their duties in a legally compliant and appropriate manner through business audit and accounting audit based on “Code of Audit and Supervisory Board Member Auditing Standards” in conjunction with feedback while attendance of Board of Director, Corporate executive meeting and important meeting.

Business execution framework

We have introduced an executive officer system to support dynamic and flexible business operations, enabling the Group to respond rapidly to significant changes in the operating environment. We have also established the Corporate Executive Meeting as a body to discuss business execution. It is composed of directors, Auditors and the corporate officers responsible for business execution and meets every week in principle. The Corporate Executive Meeting is a forum for discussing issues related to business execution and important management matters. 

Analysis and self-evaluation of the effectiveness of the Board of Directors —summary of results

The Board of Directors analyzed and evaluated its effectiveness in FY2019 by conducting questionnaires and interviews of individual directors and corporate auditors, with a focus on “6. Directors and the Board, (1) Framework, (3) Roles and

Responsibilities, and (6) Operation” in the Basic Views and Guidelines on Corporate Governance set by the Company.

The following is a summary of the results:

1. Framework

We assess that the Board of Directors has currently secured the necessary framework from the standpoint of various attributes, including expertise and experience, and diversity. However, issues for the future include the need to elect

directors of foreign nationality as well as successor candidates from the standpoint of further diversity and succession. The Board of Directors will consider ways to further strengthen the governance framework while taking the Company’s business development into account.

 

2. Roles and Responsibilities

Reporting on and supervising of the status of management development were reported at meetings between outside directors and the president on a continuous basis to exchange opinions. We reported on the status of compliance activities twice a year and received opinions at the meetings of the Board of Directors. Issues for the future include discussions on the medium-term plan, further explanations and discussions of the selection process and development progression with respect to management development, and enhancement of the contents of reports on ESG. The Board of Directors will continue to consider ways to improve its roles and responsibilities.

 

3. Operation

With regard to the further stimulation of discussions at Board of Directors meetings, which was an issue in the previous fiscal year, the Board of Directors provided basic information and held lectures for understanding pharmaceutical companies, as well as conducting advance briefings on the agenda of the Board of Directors meetings on a period basis. An observation tour of the Settsu Plant was also held. Additionally, the Board of Directors regulations were revised to establish a framework for reporting the progress of resolution matters. Opinions submitted as issues for the future included consideration of on-site observation tours of facilities other than those visited in the past. The Board of Directors will continue to consider ways to improve its operation. Based on the above, we assess that the Company’s Board of Directors is operating appropriately and its effectiveness has been secured. We will use the results of this self-evaluation as a basis for making continuous improvement to make the Board of Directors even more effective.

Amount of Remuneration for Directors and Corporate Auditors

Total director remuneration is determined within limits set by resolution of the General Meeting of Shareholders. It encompasses base monthly remuneration, performance-linked bonuses determined by results for the fiscal year and other factors, and restricted stock compensation (medium-term performance linked and long-term) introduced in FY2018. Outside directors only receive base remuneration.

Base monthly remuneration is determined according to the position and responsibilities of directors with due consideration of the operating environment and global trends. Bonuses are short-term incentives determined according to performance and other factors in each fiscal year based on a calculation matrix.

Stock-based compensation is awarded based on a grant table according to the director’s position and role. Medium-term performance-linked stock compensation is granted in order to further increase linkage with medium- to long-term performance, provide directors, excluding outside directors, an incentive to continuously increase corporate value, and to further promote shared values with shareholders.

Performance targets consist of net sales and operating income driven by new products and core businesses, return on equity, the growth rate of total shareholder return (TSR) at comparable companies, and other indicators. These targets are based on the assumption that the Company achieves its vision, which is to “grow sustainably as a drug discovery-based pharmaceutical company contributing to a more vigorous society through improved healthcare.”

As a result, the share of base remuneration in total remuneration, which was approximately 75 percent in FY2013, declined to less than 50 percent in FY2018. While we are improving our remuneration system with the aim of reducing the proportion of base remuneration to approximately 40 percent, the proportion exceeded 50 percent in the fiscal year under review since performance-based remuneration decreased year on year due to a shortfall of performance indicators.

Total corporate auditor remuneration is determined within limits set by resolution of the General Meeting of Shareholders. It encompasses base monthly remuneration.

Shionogi has established the Compensation Advisory Committee, of which an outside director serves as chairperson and outside directors comprise a majority of members, to advise the Board of Directors. The committee duly considers director and corporate auditor remuneration.

Structure of directors’ remuneration

(Millions of yen, except for persons)