Corporate Governance

Obayashi believes that transparency and sound management, along with a strong corporate governance framework, are critical to maintaining society's trust.

We enhance corporate governance also to achieve sustainable growth and greater corporate value over the medium- to long-term. Specific initiatives include transparent, fair, rapid, and resolute decision-making. Such decision-making is always based on the principles of Japan's Corporate Governance Code set out by the Tokyo Stock Exchange.

Management Structure

Obayashi has a General Meeting of Shareholders, Board of Directors, Audit & Supervisory Board, financial auditor, and other statutory bodies. Additionally, we have established systems for making management decisions and conducting appropriate audits. We practice precise and swift decision-making through our executive officer system and Management Meeting. The latter is composed of members appointed from among the directors and executive officers.

Management Structure

Board of Directors

The Board of Directors consists of ten members, of which three are independent directors. They are responsible for management decisions and business execution. They also supervise the execution of duties by other directors, executive officers, and employees. The tenure for directors is one year, which enables us to respond dynamically to changes in the business environment. We clarify directors' management responsibilities for each business year.

The effectiveness of the Board of Directors as a whole is subject to analysis and evaluation once a year. These are based on the assessments and opinions of individual directors and Audit & Supervisory Board members on the Board of Directors' size, composition, management methods, state of deliberation, support systems, and more. The process takes place under the advice of an external legal office. In concrete terms, each director and Audit & Supervisory Board member fills out a questionnaire once a year on the board's management. The results are reported to the board and reflected in subsequent operations and more. An evaluation was done again in FY2019.3, and we judged that the Board of Directors continued to be effective. In response to the effectiveness evaluation results, we took measures to enhance the independent directors' understanding of our business. This includes providing opportunities to visit Obayashi offices in Japan and abroad. We will improve the status and operating methods of the Board of Directors as needed. Any improvements will be based on the opinions of the directors and the Audit & Supervisory Board members.

Audit & Supervisory Board

The Audit & Supervisory Board consists of five members, including three outside members, with four-year terms. Audit & Supervisory Board members are independent from the directors. From this position, they conduct audits that follow the "Obayashi Audit Guidelines for Audit & Supervisory Board Members." Audits ensure that directors, executive officers, and employees are conducting business in compliance with the law and the Articles of Incorporation. To ensure Company financial statements are appropriate, the Audit & Supervisory Board members perform accounting audits. When appointing the financial auditor, the Audit & Supervisory Board checks how well the financial auditor is performing its duties and makes sure that the auditor's audit system, independence, and expertise are appropriate.

Management Meeting

The Management Meeting is composed of members appointed from among the directors and executive officers. It is held to report, discuss, instruct, and resolve on important management matters and ensure precise and swift decision-making.

Executive Officers

Executive officers receive authority from the Board of Directors to execute business operations. By concentrating on their executive duties, the executive officers achieve efficient business execution.

Executive Officers' Meeting

The Executive Officers' Meeting is comprised of directors and executive officers. The meeting is held to convey management strategies and report on the status of business execution.

Recommendation Committee and Remuneration Committee

The Recommendation Committee and Remuneration Committee are each headed by an independent director. Each has five members, including two directors and three independent directors. The Recommendation Committee deliberates on the selection process for directors, Audit & Supervisory Board members, and executive officers. The Remuneration Committee deliberates on remuneration for these persons. The results are submitted to the Board of Directors. This is intended to clarify the selection and remuneration decision processes, while ensuring transparency and objectivity. Particularly when appointing and dismissing presidents, the Board of Directors offers direction regularly. The board determines whether the process is being conducted appropriately in line with a succession plan (standards for appointing and dismissing presidents, standards for nominating successors, development policies, and the like). In FY2019.3, Recommendation Committee and Remuneration Committee members had a 100% attendance rate.

Overview of the Corporate Governance Structure (As of June 25, 2019)

Form of organization Company with Audit & Supervisory Board
Members of the Board Number in Articles of Incorporation: Up to 15 persons
Actual Number: 10 persons (Of which, independent directors 3 persons)
Appointment term: 1 year
Remuneration: Basic remuneration and stock remuneration in line with contribution to performance
Audit & Supervisory Board members Actual Number: 5 persons (Of which, outside Audit & Supervisory Board members:3 persons)
Number of independent directors/auditors 6 persons
Executive officer system Yes
Financial auditor Ernst & Young ShinNihon LLC
Discretionary committees Recommendation Committee regarding directors, Audit & Supervisory Board members, and executive officers
Remuneration Committee regarding executive remuneration

Main Recent Initiatives to Enhance Corporate Governance

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Independent Directors and Outside Audit & Supervisory Board Members

We have appointed three independent directors and three outside Audit & Supervisory Board members. Independent directors provide advice on improving management efficiency and supervise all aspects of management from an independent position. Outside Audit and Supervisory Board members are responsible for ensuring effective corporate governance by conducting third-party checks independent of management. Our standards for appointing independent directors and outside Audit & Supervisory Board members, including standards regarding independence, are as follows:

Requirements for Selection as an Independent Director*1/Outside Audit & Supervisory Board Member*2 Candidate

  • 1 The independent director/outside Audit & Supervisory Board member candidate ("Candidate") must have capabilities, knowledge, experience, and character suitable for such position at the Corporation. The Candidate must be able to provide directions and opinions to the Corporation's management from an independent and impartial standpoint.
  • 2 The Candidate must not be a former director, Audit & Supervisory Board member, or employee of the Corporation or any of its associated companies.
  • 3 The Candidate must not currently belong, and must not have belonged in the past, to an Accounting Auditor, law office, or main bank with which the Corporation currently has a contract.
  • 4 The Candidate must not currently be, and must not have been in the past, a major shareholder with an ownership stake of 10% or more. The Candidate must not currently belong, and must not have belonged in the past, to an entity that is a major shareholder.
  • 5 The Candidate must not currently belong, and must not have belonged in the past, to an entity that has a business relationship with the Corporation in which the annual amount of transactions has exceeded 2% of the net sales of both the Corporation and such entity during the last three fiscal years.
  • 6 The Candidate must not currently work, and must not have worked in the past, as an executive at a non-profit organization to which the Corporation has made an annual donation exceeding 20 million yen during the last three fiscal years.
  • 7 If the Candidate does not meet the requirements in 3. through 6., at least five years must have passed since the candidate left the relevant entity.
  • 8 The Candidate must meet the requirements for an independent director/auditor pursuant to the provisions of the Tokyo Stock Exchange's Securities Listing Regulations.

*1 An outside director as per Article 2, Section 15 of the Companies Act
*2 Outside Audit & Supervisory Board member As per Article 2, Section 16 of the Companies Act

Independent Director Appointment Reasons and Activity Status

Independent Director Reason for Appointment and Activity in FY2019.3
Shinichi Otake Mr. Shinichi Otake has considerable experience, excellent capabilities, knowledge, and character gained through many years of involvement in the management of Nippon Telegraph and Telephone WEST Corporation. Since becoming an independent director of the Corporation in 2013, he has provided valuable advice to the Corporation's management. The Corporation nominated him to continue having his considerable experience and extensive knowledge reflected in appropriate decision-making by the Corporation's Board of Directors and in supervision of management. He attended all 14 meetings of the Board of Directors in FY2019.3. (Attendance rate: 100%)
Shinichi Koizumi Mr. Shinichi Koizumi has considerable experience, excellent capabilities, knowledge, and character gained through many years of involvement in management of Toray Industries, Inc. Since becoming Independent Director of the Corporation in 2015, he has provided valuable advice to the Corporation's management. The Corporation nominated him as a candidate for Independent Director in order to continue making use of his considerable experience and extensive knowledge in appropriate decision making by the Corporation's Board of Directors and supervision of management. He attended all 14 meetings of the Board of Directors in FY2019.3. (Attendance rate: 100%)
Naoki Izumiya
*Appointed in June 2018
Mr. Naoki Izumiya has considerable experience, excellent capabilities, knowledge, and character gained through many years of involvement in the management of the Asahi Group. Since becoming Independent Director of the Corporation in 2018, he has provided valuable advice to the Corporation's management. The Corporation nominated him as a candidate for Independent Director in order to having his considerable experience and extensive knowledge reflected in appropriate decision making by the Corporation's Board of Directors and supervision of management. He attended 10 of 12 meetings of the Board of Directors in FY2019.3. (Attendance rate: 83%)

Outside Audit and Supervisory Board Members Appointment Reasons and Activity Status

Outside Audit and Supervisory Board Members Reason for Appointment and Activity in FY2019.3
Hiroshi Yokokawa After many years of involvement in economic, trade, and industry administration, Mr. Hiroshi Yokokawa gained experience in corporate management as Officer, Osaka Gas Co., Ltd. In addition, he has excellent capabilities, knowledge, and character. The Corporation nominated him as a candidate for Outside Audit & Supervisory Board Member in order to having his considerable experience and extensive knowledge reflected in audits of the Corporation. He attended 20 of 22 meetings of the Audit and Supervisory Board in FY2019.3. (Attendance rate: 91%)
Tetsuo Nakakita
*Appointed in June 2018
After many years of involvement in the administration of government policy on land, infrastructure and transport, Mr. Tetsuo Nakakita has also engaged in corporate management as President & CEO, West Japan Housing Industry Credit Guarantee Inc. since 2013. The Corporation nominated him as a candidate for Outside Audit & Supervisory Board Member since he has excellent capabilities, knowledge, and character in order to make use of his considerable experience and extensive knowledge in audits of the Corporation. He attended all 12 meetings of the Board of Directors (attendance rate: 100%) and all 17 meetings of the Audit and Supervisory Board in FY2019.3. (Attendance rate: 100%)
Akihiko Nakamura
*Appointed in June 2018
Although Mr. Akihiko Nakamura has expertise as an accounting expert, CPA and considerable experience and excellent capabilities, knowledge, and character related to corporate accounting. The Corporation nominated him as a candidate for Outside Audit & Supervisory Board Member in order to make use of his considerable experience and extensive knowledge in audits of the Corporation. He attended all 12 meetings of the Board of Directors (attendance rate: 100%) and all 17 meetings of the Audit and Supervisory Board in FY2019.3. (Attendance rate: 100%)

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Training of Members of the Board and Audit & Supervisory Board Members

The directors make important management decisions and supervise management of the business. Audit & Supervisory Board members audit the execution of duties by directors, executive officers, and employees. The directors and the Audit & Supervisory Board members continually update their knowledge and skills.

Each year at Obayashi Corporation, an external instructor gives training to all directors, Audit & Supervisory Board members, and executive officers. Topics include corporate governance, business operations crisis management, and the like. When necessary, we provide training opportunities for directors and Audit & Supervisory Board members such as participation in external seminars. Members of the Audit & Supervisory Board regularly participate in external workshops as they endeavor to better understand their roles and duties and acquire the knowledge they need.

A training in April 2019 focused on the SDGs, climate change countermeasures, risk management, human rights, and other sustainability concerns. The directors and Audit & Supervisory Board members, along with directors from Group companies, considered these issues from an ESG perspective.

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Collaboration among Audit & Supervisory Board Members, Financial Auditor, and Internal Audit Arm

The Audit & Supervisory Board members and financial auditor each conduct audits from their independent standpoints. Audit & Supervisory Board members receive reports and briefings as required from the financial auditor. The two parties also cooperate to raise the effectiveness of audits by sharing information and opinions. Meanwhile, the Business Administration Department is Obayashi's internal audit arm. It is responsible for all audits conducted separately from the Audit & Supervisory Board members and financial auditor. Such audits are performed according to Obayashi's Internal Audit Regulations. The purpose of these audits is to monitor the effectiveness of internal control and the execution of duties by each Company department.

The Audit & Supervisory Board members and Business Administration Department also share information and opinions to raise the effectiveness of audits.

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Policies for Determining Remuneration

The basic policy on remuneration for each director and executive officer is to determine the amount of basic remuneration and performance-linked stock remuneration for each fiscal year in accordance with actual contribution to earnings. The purpose is to secure outstanding human resources and provide incentive to each director and executive officer to improve earnings and enhance corporate value.

For basic remuneration, the Board of Directors, following deliberation by the Remuneration Committee, has set a remuneration table in accordance with title and earnings contribution ranking. At the end of each business year, the Remuneration Committee, headed by an independent director and with independent directors as a majority of its membership, appraises how much individual directors and executive officers contributed to earnings. This determines their remuneration for the next fiscal year. Such remuneration is capped at ¥60 million per month in keeping with a resolution made at the 101st Ordinary General Meeting of Shareholders on June 29, 2005.

Our performance-linked stock remuneration system was introduced in FY2016.3. The goal of this system is to incentivize contributions to increasing earnings mainly over the medium to long term as well as to enhancing corporate value. The system distributes Obayashi shares to directors and executive officers (except for independent directors and persons residing outside Japan) based on the degree of achievement of earnings targets for each business year. The standard for distributing shares is determined in advance by the Board of Directors after deliberation by the Remuneration Committee. The basic policy on Audit & Supervisory Board member remuneration is to set an amount required to secure outstanding personnel. The ultimate aim thereby is to ensure that corporate governance functions effectively.

Remuneration standards are established in advance through discussions by Audit & Supervisory Board members. They are based on such factors as whether the member is full-time or part-time. Remuneration for each member is determined in line with those standards, capped at ¥10 million per month in keeping with a resolution made at the 101st Ordinary General Meeting of Shareholders on June 29, 2005.

Total Remuneration of Members of the Board and Audit & Supervisory Board (FY2019.3)

Position Total Remuneration and Other Compensation
Directors (15 directors) ¥435 million
Audit & Supervisory Board members
(8 members)
¥86 million
Of which, independent directors/outside Audit
& Supervisory Board members (8 members)
¥59 million

Notes:
1. The above includes amounts for five directors and three Audit & Supervisory Board members who left their posts as of the conclusion of the 114th Ordinary General Meeting of Shareholders on June 26, 2018.
2. The above includes a performance-linked stock remuneration expense of ¥46 million recorded for seven of the 10 directors who were appointed at the 114th Ordinary General Meeting of Shareholders on June 26, 2018 (the three independent directors were excluded) as well as one director who left his post upon the conclusion of the same meeting (he continued as an executive officer).

Matters Pertaining to the Financial Auditor (FY2019.3)

Category Compensation Paid for Audit Certification Activities Compensation Paid for Non-Audit Activities
Obayashi Corporation ¥107 million ¥3 million
Consolidated subsidiaries ¥75 million -
Total ¥182 million ¥3 million

Name of the financial auditor: Ernst & Young ShinNihon LLC

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Establishment and Implementation of Internal Control System

We have established and implemented an internal control system per the Companies Act and Ordinance for Enforcement of the Companies Act. The purpose of the system is to ensure appropriate business operations throughout the Group.

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Dialogue with Shareholders and Others

We consider the General Meeting of Shareholders to be an important forum for dialogue with shareholders. At the meeting, the business report by the president, Q&A sessions with directors, and so on enable constructive shareholder dialogue. We also hold financial results briefings for second-quarter and annual financial results. Results briefings for the first- and third-quarter results are by conference call. Other opportunities include construction site tours, participation in securities companies' investment conferences, small meetings, and other such activities.

IR Activities

Activity FY2019.3 Description
First half Second half
Results briefings 1 time
(May)
1 time
(November)
(Target) Analysts and institutional investors (some shareholders)
・Results briefings (after second quarter and annual financial results announcements)
(80 attendees in May and 58 in November)
1 time
(August)
1 time
(February)
・Briefings by telephone conference system (after first and third quarter financial results announcements)
(57 participants in August and 44 in February)
IR coverage responses and interviews 38 times 43 times (Target) Analysts and institutional investors (some shareholders)
・142 individual interviews by assigned directors and the Corporate Communications Department
(116 persons in Japan and 26 overseas)
Participation in securities company conferences 0 times 3 times (Target) Overseas institutional investors (some shareholders)
・27 total participations by assigned directors, general manager of Accounting Department, and the Corporate Communications Department in conferences held by securities companies, with individual interviews
Overseas IR activities - 1 time (Target) Major shareholders and institutional investors overseas
・Individual visits by the president, with explanation of Obayashi's business strategy, financial results, etc.
・Happened in the UK in November
Construction site tours 1 time 1 time (Target) Analysts and institutional investors (some shareholders)
・Held to introduce our business
・Held at Seibu Ikebukuro Building JV in September and Tokyo Outer Ring Road Northbound Shield JV in March
Individual tours - 8 companies (Target) Analysts and institutional investors wishing for individual tours
・Tours of the Technical Research Institute and observations of new Obayashi technologies there
Individual explanations to major shareholders 21 companies 10 companies (Target) Institutional investors who are major shareholders
・Individual visits and interviews by with the president, assigned directors, and general manager of General Administration Department, with explanations of rigorous compliance measures, executive officer nomination agenda items, etc.

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Corporate Governance Report

In accordance with the Japanese Corporate Governance Code set forth by the Tokyo Stock Exchange, Obayashi submits Corporate Governance Report.

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