Chugai is committed to continuously increasing corporate value and responding appropriately and fairly to the requests of shareholders and other stakeholders. To fulfill this commitment, we have positioned the enhancement of corporate governance as an important management task and are building a system that emphasizes prompt decision-making, clarification of executive responsibilities, and management transparency. Based on these concepts, Chugai has taken measures to strengthen functions of the Board of Directors and speed up its decision-making, such as optimizing the number of directors, nominating outside directors to check management from the stakeholder viewpoint, and introducing an executive officer system that aims at clarifying executive responsibilities. Furthermore, aiming at accurately responding to changes in global business environment as well as ensuring business deployment with a proper corporate attitude, the International Advisory Council (IAC) has been formed with specialists from various fields inside and outside Japan to provide advice for the management. Going forward, the Company will further pursue sound management and promote swifter decision-making, clarification of executive responsibility and enhancement of management transparency.

Corporate Governance Report [212KB]

Corporate Governance System

Seeking to expedite business operations and clarify executive responsibilities, the Company has kept separate the business execution function and the decision-making function related to the most important management issues. The Board of Directors bears the decision-making function, while executive officers carry out business operations.

The Board of Directors is in charge of decision-making for management issues of primary importance and supervises business execution, receiving reports on business execution status (such as regular reports for each quarter, and reports on matters determined by the Executive Committee). The Board consists of 12 members including five outside directors.

Chugai has introduced an executive officer system, where the Board of Directors entrusts executive officers with the authority to conduct business operations. The Executive Committee is the body for executive decision-making and consists of 11 members including the President, key executive officers, and two full-time auditors.

Chugai has a board of company auditors, and audits on management and business execution are conducted independently from business operations by four corporate auditors, including two outside corporate auditors. In addition, as an internal audit organization, the Audit Department has been established with a staff that includes certified internal auditors. The department conducts audits of the overall business execution of the Chugai Group to examine business activities from the viewpoints of compliance, effectiveness and efficiency. It provides reports and proposals to the Executive Committee, and reports to corporate auditors are also implemented.

With the mission to "dedicate itself to adding exceptional value through the creation of innovative medical products and services for the benefit of the medical community and human health around the world," Chugai has pursued transparent, fair and highly ethical corporate activities. Chugai believes that maintaining good internal control is crucial to fulfilling its social responsibilities and making appropriate and timely management decisions. With this in mind, we have adopted board of director resolutions on basic policies concerning internal controls, and have built a robust system to ensure compliance with laws, regulations and the Articles of Incorporation in the execution of duties by all executives and employees in the Chugai Group.

The Internal Control System by the Board of Directors [56KB]

In order to ensure that the execution of business in the Chugai Group complies with laws, regulations and the Articles of Incorporation, and to further enhance the execution of social responsibility, the Company has established the Chugai Business Conduct Guidelines (Chugai BCG) as a specific code of conduct. For the purpose of familiarization therewith, we have formed the Corporate Social Responsibility Committee, a sub-organization of the Executive Committee, and the Corporate Social Responsibility Department, an organization dedicated to CSR-related activities. These organizations enhance and reinforce the promotion of social responsibility in overall compliance, corporate ethics, human rights, social contributions and protection of the environment. Moreover, we are making efforts toward activities based not only on compliance but also a high level of ethics and a sense of morals as a company involved in life sciences. The BCG Hotline has been established as a window for reporting and counseling on Chugai BCG violation matters, including so-called "public-interest whistleblowing." A window for employees to receive counseling has also been established outside the Company.

Chugai has established the Compliance Rules as a basis for building a sound compliance system. The Compliance Committee, a sub-organization of the Risk Management Committee, and Risk Management & Compliance Department, which is in charge of the Company's compliance with laws and other relevant rules are responsible for promoting these rules. The Risk Management & Compliance Department acts to ensure companywide compliance through compliance managers and others responsible for compliance in each organization, and periodical (quarterly) monitoring investigations are implemented to keep abreast of the status of compliance inside the Company, with the results reported to the Executive Committee.

Chugai has established the Risk Management Regulations to prevent risks that might affect the corporate activities of the Chugai Group and to ensure prompt and appropriate measures should trouble arise. The Risk Management Committee, a sub-organization of the Executive Committee, and the Division Risk Management Committee have been formed. The Risk Management Committee summarizes the risks identified in each division by the Division Risk Management Committee and creates a risk map. The Committee also specifies risks that may have a material impact on the management as all company-wide risk issues, and reports to the Executive Committee on the progress of measures to prevent them. Moreover, when an emergency occurs that might have a material impact on the corporate activities of the Chugai Group, it has been determined that an emergency headquarters, with the Representative Director as the General Manager, will be formed to handle countermeasures.

Chugai has been conducting measures according to generally accepted standards to ensure the credibility of financial reporting. A properly-validated internal control system on financial reporting is in place, including the identification of risks and documentation of controlling activities.

Chugai entered into the Basic Alliance Agreement with Roche, a world-leading research focused healthcare group based in Switzerland in December 2001. The Company started its operation based on the strategic alliance from October 2002.

The Basic Alliance Agreement provides that Chugai will guarantee Roche's right to maintain its shareholding percentage in Chugai at not less than 50.1%. Roche owns about 59.9% of the Company's shares issued as of December 31, 2008, through Roche Pharmholding B.V. (Headquarters: Netherlands; hereinafter, Roche Pharmholding).

Furthermore, the agreement also sets forth agreements on operation and governance of Chugai including the following:

In accordance with the abovementioned alliance agreement, the Company has become the exclusive pharmaceutical company within the Roche Group in the Japanese market, and has the right of first refusal on the development and marketing in Japan of all development compounds owned by the Roche Group. Likewise, Roche has the right of first refusal on the development and marketing of Chugai's development compounds in markets outside Japan, excluding South Korea, when Chugai seeks a partner for such activities.

The aim of this alliance is to establish a new business model that differs from conventional corporate acquisitions and joint ventures. Although Roche Pharmholding includes Chugai in its consolidated accounts, Chugai functions as an independent listed company and makes its own management decisions based on the principles of self-governance. In addition, all transactions with the Roche Group are conducted fairly on an arms-length basis to protect interests of shareholders other than Roche.

One Executive Vice President from the Roche Group has been appointed as a director of the Company since March 2008, and three out of the five outside directors are from the Roche Group. As they do not make up the majority of the 12 directors, the Company recognizes that its management independence is ensured.