Corporate Governance

Zeon aims to increase profits and enhance corporate value on an ongoing basis while respecting and balancing the various interests of its shareholders and other diverse stakeholders. To this end, we continue to work on building a system that enables efficient and sound corporate management through corporate governance. In addition, in our Medium-Term Business Plan: STAGE30, we have set a target of 30% representation of foreign national and/or female directors and officers as a KGI for FY2030, and we are making progress toward realizing board diversity, including gender.
Furthermore, by enhancing our internal control system, we will clarify the functions and division of roles of each body and internal organization and seek to achieve swift decision-making and execution. We will also strive to enhance management transparency through appropriate monitoring and information disclosure regarding our progress and results.

The Board of Directors meets monthly, in principle, with Audit & Supervisory Board members in attendance, to ensure compliance with applicable laws and the Articles of Incorporation in the execution of business. In addition to its statutory duties, the Board decides basic management policy, strategy, and other important matters concerning business execution. The Board consists of nine directors, including five outside directors.

The CXO Council is composed of the Representative Director and President & CEO, the CFO, the CTO, and other executives in accordance with the CXO Council Rules. It convenes on a monthly basis with the objectives of discussing the Group’s medium- to long-term, company-wide management policies and management agendas that are important or critically important in relation to initiatives aimed at enhancing and creating corporate value, as well as strengthening the reporting of execution functions to the Board of Directors.
Based on discussions held at the CXO Council, timely reports are made to the Board of Directors, and strategic direction is presented to the Management Committee (the reorganized successor to the former Managing Directors’ Meeting).

The Management Committee, in accordance with the Management Committee Rules, is composed of the Representative Director and President & CEO, the CFO, the CTO, Directors & Corporate Officers, corporate officers with the title of Senior Corporate Officer or above, and the heads of the departments responsible for second-line functions, among others.^* In principle, the Committee meets twice a month. The Management Committee examines and makes decisions on important management matters after thorough deliberation, taking into account the opinions of attending full-time Audit & Supervisory Board members. Among the agenda items, matters designated as important under the Board of Directors Rules are examined and decided by the Board of Directors.

As a company with an Audit & Supervisory Board, we have established an Audit & Supervisory Board comprising five members, including three outside members. The Board reports on, discusses, and adopts resolutions on important matters. In accordance with the auditing guidelines established by the Audit & Supervisory Board, each member audits the status of directors’ execution of their duties through various means, such as attending Board of Directors meetings and monitoring business operations, including subsidiaries’ operations.

The Director and Officer Nomination and Compensation Committee has been established as an advisory body to the Board of Directors to strengthen the objectivity and transparency of the Board’s functions concerning the nomination and compensation of directors and officers and related matters. The Committee discusses policies for nominating director candidates, succession planning, directors’ compensation, and measures to strengthen executive functions and provides advice to the Company. Dialogue sessions are also held between outside officers and corporate officers and other managerial employees who are future director candidates. The Committee comprises six members, five of whom are independent outside directors, and is chaired by an independent outside director.

The Corporate Value Creation Conference is an advisory body to the Board of Directors that strengthens the Board’s decision-making and oversight concerning the creation of Zeon Group corporate value and efforts to reflect that value in market capitalization. The Conference discusses in advance the “sources of corporate value” that Zeon Group should protect, as well as matters concerning corporate governance, internal control, and risk management systems, and makes recommendations to the Board. The Conference comprises eight members. Its external members are two independent outside directors, two independent outside Audit & Supervisory Board members, and one outside expert—an attorney who has no advisory relationship with the Company. The Conference is chaired by an independent outside officer.

Regarding the effectiveness of the Board of Directors, once a year we conduct a survey of directors and Audit & Supervisory Board members, including outside officers, together with supplementary interviews with each officer. A third-party external attorney analyzes and evaluates the responses. The most recent survey and interviews, conducted in FY2025, produced results similar to those of previous years, and the Board’s effectiveness was generally rated highly. Factory tours for outside officers, opportunities to interact with on-site personnel through Q&A sessions and social gatherings, and agenda items concerning medium- to long-term corporate value enhancement—including Group restructuring and human resources strategies—contributed to more active discussion. However, respondents noted gaps in information and knowledge between inside and outside officers concerning the background required for discussion and called for more substantial deliberation on the long-term management vision and strategy. These comments highlight the need to deepen Board discussions further. We intend to enhance the Board’s effectiveness by continuing visits to factories and other business sites; improving outside officers’ access to internal information, including expanded access rights to materials from the CXO Council and other meeting bodies and committees and from internal events on key themes; and establishing forums for discussing important issues and response policies identified by the CXO Council in light of progress under the Medium-Term Business Plan and changes in the internal and external environment.

To provide a sound incentive for sustainable growth, our compensation is structured as described below. Compensation for inside directors comprises elements (i) to (iv), while compensation for corporate officers comprises elements (i), (ii), and (iv). Outside directors receive only fixed cash compensation. Stock compensation is granted through the Board Benefit Trust-Restricted Stock (BBT-RS). Based on points awarded at a specified time each year, the Company will, in principle, grant common shares annually for element (iii) and at the end of each phase of the Medium-Term Business Plan for element (iv). Under the agreement with each eligible person, the shares are subject to restrictions on transfer, the creation of security interests, and other dispositions for a specified period. If an eligible person leaves a position designated by the Board of Directors during the transfer-restricted period, other than because of term expiration, death, or another justifiable reason, the Company will acquire the relevant shares without consideration.

(i) Cash compensation (fixed)

(ii) Cash compensation (performance-linked):
Evaluation indicators include financial indicators for the Company and its business divisions for a single fiscal year, as well as performance against divisional and individual objectives primarily related to the Medium-Term Business Plan. Each indicator is designed to enhance the Group’s long-term, sustainable growth and profitability.

(iii) Stock compensation (fixed)

(iv) Stock compensation (performance-linked):
Evaluation indicators include financial and non-financial indicators, including ESG-related indicators, linked to the targets for the final fiscal year of each phase of the Medium-Term Business Plan. Each indicator is designed to enhance the Group’s long-term, sustainable growth and profitability.

For cross-shareholdings, we decide whether to hold such shares only after thoroughly examining, among other factors, whether they contribute to enhancing our medium- to long-term corporate value through strengthening relationships with business partners, local communities, and other stakeholders. For shares acquired following such examination, we annually scrutinize, for each individual issue, the appropriateness of the purpose of the holding and whether the benefits and risks derived from the holding are commensurate with the capital cost, among other factors, thereby verifying the suitability of continued ownership.
In addition, in Phase 2 of the Medium-Term Business Plan: STAGE30, which began in FY2023, we set “polishing up” our the management base as one of our company-wide strategies and, from a financial strategy perspective, established a ratio of cross-shareholdings to consolidated net assets of less than 5% as a target for FY2026, advancing initiatives toward this end. This target has been carried forward into Phase 3 of the Medium-Term Business Plan: STAGE30, which began in FY2025, and we plan to further reduce such holdings to achieve the target.
With respect to the exercise of voting rights for cross-shareholdings, we make appropriate decisions from the standpoint of enhancing the investee companies’ medium- to long-term corporate value.