Corporate Governance

Chugai has positioned the enhancement of corporate governance as an important management task. We are committed to responding appropriately and fairly to the requests of shareholders and other stakeholders, and increasing corporate value continuously.

Basic Approach

Based on its strategic alliance with Roche, a leading global pharmaceutical company, Chugai’s mission is 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,” and the company defines its basic management objective as to grow together with the society through innovation by “becoming a top innovator for advanced and sustainable patient-centric healthcare, powered by our unique strength in science and technology and the alliance with Roche.”

While being a member of the Roche Group, Chugai maintains its managerial autonomy and independence as a publicly listed company and will constantly strive to perfect its corporate governance as established in “Chugai Pharmaceutical Co., Ltd. Basic Corporate Governance Policy,” in order to fulfil the mandate of its many stakeholders appropriately and fairly for the achievement of its basic management objective.

Management Decision-Making, Execution and Oversight of Business Operations

To expedite business operations and clarify executive responsibilities, Chugai has adopted an executive officer system to keep decision-making on management issues of primary importance separate from business execution. The Board of Directors is in charge of the former, while executive officers are entrusted by the board with the authority to conduct the latter. While the Board of Directors is in charge of decision-making with respect to the most important managerial matters, other decisions on business operations are made at organizations such as the Executive Committee. The Chief Executive Officer (CEO) has ultimate responsibility for making decisions on Company-wide management strategies and the Chief Operating Officer (COO) has ultimate responsibility for important matters concerning business execution.

Board of Directors

The Board of Directors makes decisions on management issues of primary importance and receives quarterly reports on the state of business execution as well as reports on key decisions made at the Executive Committee. It is also responsible for oversight of the execution of business operations. The Board consists of nine directors including three independent outside directors. In 2019, the Board of Directors convened nine times.

Executive Committee

The Executive Committee makes decisions on Company-wide management strategy and important matters concerning business execution. It consists of executive directors, including the CEO, and key executive officers. In addition, the Corporate Communications Committee, Risk Management Committee, EHS Committee and Compliance Committee have been established under the Executive Committee.

Appointment Committee and Compensation Committee

As an advisory body to the Board of Directors, the Appointment Committee deliberates on the selection of director candidates and succession plans for or dismissal of executive directors, including the CEO. The Appointment Committee consists of one member from inside the Company and at least three outside members, including at least one independent outside director. The member from inside the Company is appointed by the Board of Directors from among the representative directors and persons with experience as representative directors. The outside committee members are appointed by the Board of Directors from among the non-executive directors and persons with experience as non-executive directors.

As an advisory body to the Board of Directors, the Compensation Committee deliberates on remuneration policy and the remuneration of individual directors. It consists of at least three outside committee members, including at least one outside director, appointed by the Board of Directors from among the nonexecutive directors including outside directors and persons with experience as non-executive directors.

Chugai’s Corporate Governance System

Introduction of Outside Perspectives

To reflect diverse stakeholder viewpoints in business decisions, Chugai has taken measures to obtain outside perspectives, such as nominating outside directors and establishing a council made up of domestic and overseas specialists.

Chugai International Council

To respond accurately to changes in the global business environment and conduct international business in an appropriate manner, Chugai works to further enhance decision-making by operating the Chugai International Council (CIC), which is composed of Japanese and international professionals in various sectors. Of the 10 council members, including the CIC Chair, one is a woman.

Chugai International Council (CIC) Composition

Outside Directors

Chugai has appointed outside directors to reflect a broader range of stakeholder views in management decision-making. Outside directors point out issues and give advice concerning Chugai’s management from their abundant experience and knowledge as corporate executives, physicians or university professors. The average rate of attendance by outside directors at the nine board meetings in 2019 was 100 percent.

Reasons for Election of Outside Directors
Name Independent Officer Supplementary Explanation relating to These Items Reason for Election as Outside Director
Mariko Y Momoi
  • Chief Medical Officer of Ryoumou Seishi Ryogoen, Kiryu Ryoiku Futabakai Social Welfare Corporation
  • Professor Emerita of Jichi Medical University
  • Visiting Professor of School of Medicine, Shinshu University
  • Regent of Tokyo Medical University (part-time)

<No applicable relationship exists>

Dr. Mariko Y Momoi has no experience in corporate management in the past. However, the Company is of the judgement that she will be able to provide appropriate advice and supervision on the management of the Company, based on her experience in managing organizations such as universities and hospitals, in addition to her extensive knowledge and experience as a physician and university professor.
The Company designated her as an independent officer based on the Company’s judgment that she meets the conditions for independence stipulated by the Tokyo Stock Exchange and Chugai’s Independence Standards for an outside officer, and that there is no risk of conflict with the interests of general shareholders.
Masayuki Oku
  • Outside Director of Komatsu Ltd.
  • Outside Director of Rengo Co., Ltd.
  • Outside Director of The Royal Hotel, Ltd.
  • Outside Corporate Auditor of Nankai Electric Railway Co., Ltd.
  • Non-Executive Director of The Bank of East Asia (China)

Until June 2011, Masayuki Oku was President and Representative Director of Sumitomo Mitsui Banking Corporation, a member of the Sumitomo Mitsui Financial Group. He was chairman of the board of Sumitomo Mitsui Financial Group until June 2017, but he has retired from both roles and is no longer involved in business execution. The Company has ordinary banking transactions with Sumitomo Mitsui Banking Corporation, such as depositing funds, but it is not a business partner that will have a significant effect on the Company’s decision-making. In light of the scale and nature of these transactions, the Company believes that there is no risk of influence over judgments by investors and shareholders.

The Company judged that he will be able to execute his duties as an Outside Director appropriately through giving advice and supervising the Company about its management from his extensive experience and knowledge as a corporate manager.
The Company designated him as an independent officer based on the Company’s judgment that he meets the conditions for independence stipulated by the Tokyo Stock Exchange and Chugai’s Independence Standards for an outside officer, and that there is no risk of conflict with the interests of general shareholders.
Yoichiro Ichimaru
  • Senior Advisor of Aioi Nissay Dowa Insurance Co., Ltd.
  • Outside Director of Seino Holdings Co., Ltd.

<No applicable relationship exists>

The Company judged that he will be able to execute his duties as an Outside Director appropriately through giving advice and supervising the Company about its management from his extensive experience and knowledge as a corporate manager.
The Company designated him as an independent officer based on the Company’s judgment that he meets the conditions for independence stipulated by the Tokyo Stock Exchange and Chugai’s Independence Standards for an outside officer, and that there is no risk of conflict with the interests of general shareholders.
Reasons for Election of Outside Audit & Supervisory Board Members
Name Independent Officer Supplementary Explanation relating to These Items Reason for Election as Outside Audit & Supervisory Board Member
Kenichi Masuda
  • Partner of Anderson Mōri & Tomotsune
  • Outside Director of Bridgestone Corporation
  • Outside Corporate Auditor of LIFENET INSURANCE COMPANY
  • Outside Audit & Supervisory Board Member of Mercuria Investment Co.,Ltd.
  • Visiting Professor of School of Law, The University of Tokyo

The Company has no special conflict of interests with him.

Mr. Kenichi Masuda has no experience in corporate management in the past. However, as he has abundant knowledge and experience as an expert in corporate legal affairs (attorney-at-law), the Company is of the judgment that he will be able to execute his duties as Outside Audit & Supervisory Board Member appropriately.
The Company designated him as an independent officer based on the Company’s judgment that he meets the conditions for independence stipulated by the Tokyo Stock Exchange and that there is no risk of conflict with the interests of general shareholders.
Takaaki Nimura
  • Representative of Nimura Certified Public Accounting Office

The Company has no special conflict of interests with him.

The Company judged that he will be able to execute his duties as an Outside Audit & Supervisory Board Member appropriately by leveraging his abundant experience and knowledge as a corporate accounting expert (certified public accountant).
The Company designated him as an independent officer based on the Company’s judgment that he meets the conditions for independence stipulated by the Tokyo Stock Exchange and that there is no risk of conflict with the interests of general shareholders.
Yuko Maeda
  • Director of CellBank Corp.
  • Auditor of Japan Agency for Marine-Earth Science and Technology (part-time)

The Company has no special conflict of interests with her.

The Company judged that she will be able to execute her duties as an Outside Audit & Supervisory Board Member appropriately by leveraging her extensive experiences and knowledge on the application of intellectual properties of companies and academia and on collaboration between industry and academia, as well as her management experiences and audit experiences as an auditor of independent administrative corporation.
The Company designated her as an independent officer based on the Company’s judgment that she meets the conditions for independence stipulated by the Tokyo Stock Exchange and that there is no risk of conflict with the interests of general shareholders.

Auditing System

Audit & Supervisory Board Member Audits

Chugai has an Audit & Supervisory Board, and audits of management decision-making and business execution are conducted independently from business operations by five Audit & Supervisory Board members, including three outside members.

Audit & Supervisory Board members express their opinions in real time from the standpoint of appropriate corporate governance in a variety of situations including at meetings of the Board of Directors, the Executive Committee (full-time Audit & Supervisory Board members only) and the Audit & Supervisory Board.

Internal Audits

The Audit Department, with a staff that includes certified internal auditors and certified fraud examiners, conducts audits of the status of business execution of the Chugai Group, including subsidiaries, from various standpoints, such as the effectiveness, efficiency and compliance of business activities; reports and makes recommendations to the Executive Committee; and reports to the Audit & Supervisory Board. In addition, Audit Department staff serve as Audit & Supervisory Board members at subsidiaries.

In addition, the Audit Department assesses whether effective internal controls are established and being implemented in accordance with internal control standards generally accepted as fair and appropriate in Japan to ensure the reliability of financial reporting based on the Financial Instruments and Exchange Act.

Accounting Audits

KPMG AZSA LLC handles accounting audits and internal control audits.

Cooperative Auditing

Audit & Supervisory Board members, the Audit Department and the Accounting Auditor cooperate closely by regularly exchanging information to improve the effectiveness of their respective audits. Audit & Supervisory Board members and the Accounting Auditor confirm each other’s audit plans and hold regular meetings to exchange opinions on matters including the results of quarterly audit reports. In addition, they work to strengthen governance at Group companies by coordinating with Audit & Supervisory Board members at subsidiaries on quarterly reports, fiscal year-end reports and other matters. The Office of Audit & Supervisory Board Members ensures the independence and enhances the auditing functions of Audit & Supervisory Board members.

Officer Remuneration

Chugai has designed its remuneration plan for directors and Audit & Supervisory Board members to attract outstanding people and appropriately motivate them in order to continuously increase the Chugai Group’s corporate value.

As part of this plan, we target marketcompetitive levels of remuneration. Executive director remuneration is determined by benchmarking levels against a group of major Japanese corporations and other domestic pharmaceutical companies. Specifically, the Board of Directors decides remuneration levels annually after deliberation by the Compensation Committee based on the results of a survey by an external expert organization and other factors.

In order to further clarify the link between remuneration and the Company’s business performance and shareholder value, and to raise directors’ ambition and motivate them to improve performance, executive director remuneration consists of bonuses paid according to performance and other factors in each fiscal year as a short-term incentive and restricted stock compensation linked to medium- and long-term performance (tenure-based and performance-based) as a long-term incentive, in addition to fixed regular compensation. Remuneration of non-executive directors, including outside directors, and Audit & Supervisory Board members consists solely of fixed regular compensation. The guideline for the composition of CEO remuneration is 35 percent regular compensation, 30 percent bonuses and 35 percent restricted stock compensation, and the composition for other executive directors is determined in consideration of duties and other factors.

Bonuses, which are a short-term incentive, are determined by multiplying the standard amount set for each position by an evaluation coefficient corresponding to the degree of achievement of Company and individual performance targets in the previous fiscal year. For restricted stock compensation granted as a long-term incentive, 50 percent is tenure-based restricted stock with a transfer restriction period of three to five years, and 50 percent is performance-based restricted stock. The number of shares to be granted is determined by dividing the standard amount set for each position by the closing price of the Company’s shares on the day before the resolution for their allotment by the Board of Directors. The transfer restriction shall be removed at the expiration of the transfer restriction period for the shares granted, provided that the recipient has held the position of director of the Company continuously during the transfer restriction period. For performance-based restricted stock, the number of shares for which the transfer restriction shall be removed is additionally based on the result of a comparison between the total shareholder returns of domestic pharmaceutical companies and total shareholder returns of the Company.

Officer remuneration is determined by resolution of the Board of Directors for directors and following deliberation by the Audit & Supervisory Board members for Audit & Supervisory Board members, both within the total amounts approved at the General Meeting of Shareholders. The Compensation Committee, which consists of three or more external members appointed by the Board of Directors, including at least one independent outside director, deliberates on remuneration of individual directors to ensure the transparency and objectivity of the determination process.

A resolution was passed in the 98th Annual General Meeting of Shareholders held in March 2009 to abolish the retirement benefits system for directors. A resolution was passed in the 95th Annual General Meeting of Shareholders held in March 2006 to abolish the retirement benefits system for outside directors and Audit & Supervisory Board members (including outside members).

At the 106th Annual General Meeting of Shareholders held on March 23, 2017, a resolution was passed to newly introduce restricted stock in place of the current stock options for executive directors of the Company. The aggregate amount of such compensation shall not exceed ¥345 million on top of the aforementioned fixed regular compensation and bonuses.

System for Remuneration of Directors and Audit & Supervisory Board Members

Criteria for Performance-Based Remuneration and the Method to Determine Its Amount

Amount of Remuneration Paid to Directors and Audit & Supervisory Board Members (2019)

Amount of Remuneration Paid to Representative Directors (2019)

Relationship with Roche and Ensuring the Rights and Equal Treatment of Shareholders

Roche, the parent company of Chugai, holds 59.89 percent of Chugai’s outstanding shares based on the strategic alliance agreement between the two companies. Roche and Chugai have agreed to cooperate in maintaining the listing of Chugai’s common stock on the First Section of the Tokyo Stock Exchange.*

The aim of this alliance is to establish a new business model that differs from conventional corporate acquisitions and joint ventures. Although Roche Holding Ltd. includes Chugai in its consolidated accounts, Chugai functions as an independent listed company and makes all of its own management decisions based on the principle of self-governance. Chugai believes that autonomy and diversity are key to generating innovation, that maintaining its independent management brings diversity to the Roche Group, and that the pharmaceuticals it creates as a result contribute to all stakeholders, including patients and minority shareholders. Chugai recognizes that the various benefits from being listed on the First Section of the Tokyo Stock Exchange – such as its solid credit rating, flexible fund procurement, name recognition and social presence – are supported by the understanding of minority shareholders, Roche and investors who are potential shareholders. That is why in its business dealings with the Roche Group, Chugai conducts all transactions fairly using third-party prices to protect the interests of minority shareholders.

As of March 30, 2020, three of Chugai’s nine directors are from the Roche Group. However, they do not comprise a majority of the Board of Directors, and thus Chugai considers its management independence to be secure. Chugai will continue to manage its business with autonomy and independence as a publicly listed company.

Chugai believes that securing substantially equal treatment of shareholders is very important. We therefore emphasize giving due consideration to minority and foreign shareholders and to maintaining an environment that allows them to exercise their rights.

  • *The Tokyo Stock Exchange requires delisting if the ratio of tradable shares to listed shares is less than 5 percent.
Restrictions on Roche’s Shareholding
PeriodMaximum Shareholding
Oct. 1, 2002 – Sep. 30, 2007 50.1%
Oct. 1, 2007 – Sep. 30, 2012 59.9%
Oct. 1, 2012 and thereafter Cooperate in maintaining Chugai’s listing

Maintenance and Management of Internal Controls

On May 18, 2006, the Company approved the Board of Directors’ resolutions concerning the Internal Control System as its basic policies in maintaining systems for ensuring appropriate business operations. On April 22, 2015, the Company revised the Board of Directors’ resolutions concerning the Internal Control System in response to the main revisions of the Partial Amendment to the Companies Act and the amended Ordinance for Enforcement of the Companies Act, namely “enhancement of systems for groups of enterprises,” “enhancement of audit systems,” and “obligation to disclose status of operations,” which came into effect in 2015. Since this revision, the status of implementation of the Internal Control System is regularly reported at Board of Directors meetings, and necessary revisions are made in a timely manner to maintain effective internal controls.

Risk Management

Chugai views risk management as a priority issue pertaining to the Company’s core operations and strives to promote the evolution of risk management on a day-today basis. For its risk management system, Chugai has established Risk Management Regulations based on its Risk Management Policy to prevent the materialization of risks that could affect the Company’s business activities, as well as to ensure prompt and appropriate handling of any problems that arise. We have also established the Risk Management Committee, which is a corporate management committee chaired by a representative director, as well as division risk management committees in each division and at subsidiaries in Japan and overseas. The Risk Management Committee monitors and evaluates risk management at each division with a Company-wide perspective, identifies risks that may have a material impact on management as Group-wide risk issues, and submits progress reports on Company- wide measures to the Executive Committee. Division risk management committees create and quantitatively evaluate risk maps that identify the risks in the respective divisions. To address priority risks, the division risk management committees draw up annual response plans for priority risks and submit quarterly reports on the progress of the plans to the Risk Management Committee.

Related Link: https://www.chugai-pharm.co.jp/english/sustainability/strategy/riskmanagement.html

Chugai Risk Management System

Compliance

Rooted in its belief that corporate ethics take priority over profit, Chugai places paramount importance on respect for life, and strives for fair and transparent corporate activities based on high ethical standards, along with sincere scientific initiatives.

Chugai strictly complies with laws, regulations and voluntary industry standards and proactively takes part in the compliance activities of various associations and organizations. Chugai has also established its own guidelines for transparency, helping to ensure a high level of ethics, morality and transparency in its various business activities including collaboration with medical institutions and other parties and cooperation with patient groups.

In response to the external environment and the diversification of our business activities, we consolidated oversight functions for compliance promotion for the whole Chugai Group, including overseas subsidiaries, and established the Compliance Committee as a corporate management committee, thereby creating a compliance system linked more directly to management. At the same time, we established compliance oversight functions (Sustainability Department, Quality & Regulatory Compliance Unit) to monitor, lead and support compliance of the Chugai Group, including overseas subsidiaries. We conduct monitoring surveys every six months and improvement activities for all organizations, and enhance compliance education through training programs. In addition, each division appoints a Compliance Manager and Compliance Officer who work to ensure thorough legal compliance in the workplace.

The internal and external consultation desks have been established to receive inquiries and reports from Chugai Group employees concerning laws, Company rules, the Chugai Group Code of Conduct and other related matters.

Disclosure Policy

Under new mid-term business plan IBI 21, we have identified “strengthen sustainable platforms” as a Group-wide strategy. Accordingly, we will strive to further develop communications as we believe that enhancing the platforms through dialogue with stakeholders will support our quest for innovation. To this end, in April 2019 the IR Committee was reorganized as the Corporate Communications Committee and shifted its focus from considering information disclosure policies for capital market participants to considering corporate communication strategies encompassing a wider array of stakeholders.

The Corporate Communications Committee is a corporate management committee composed of the CFO and general managers of the Corporate Communications Department, the Corporate Planning Department, the Finance & Accounting Department, the Sustainability Department and the General Affairs Department. The committee holds regular meetings and is responsible for the establishment, revision and internal dissemination of the Disclosure Policy, and for the management and promotion of information collection, disclosure and other related activities. Top management, including the CEO and key executive officers, has primary accountability for disclosure. In addition, the Corporate Communications Department takes the lead in coordinating with relevant departments, using various tools to communicate promptly and effectively.

Chugai’s policy for disclosing information to shareholders and investors is to make timely, appropriate and fair disclosure of information in accordance with the Financial Instruments and Exchange Act and relevant rules of the stock exchange on which Chugai’s shares are listed in order to receive fair valuation in capital markets. In addition, as a means to ensure transparency, we disclose information simultaneously in Japanese and English in principle, to allow easy access to disclosed information.

External Recognition

Continuously Selected as a Constituent of Global SRIs

Chugai has been continuously selected as a constituent of global indices for socially responsible investment (SRI) such as FTSE4Good Index series and MSCI ESG Leaders Indexes since 2003 and 2010, respectively. In addition, Chugai is listed for all four ESG indices used by the Government Pension Investment Fund of Japan.

Chugai has been selected as a component of these global SRI indices in recognition of its proactive initiatives from the standpoint of corporate sustainability in areas including the environment, society and governance. Chugai will continue to fulfill its social responsibility as a healthcare company.

Chugai Receives Second Prize in 22nd Nikkei Annual Report Awards

The Nikkei Annual Report Awards have been held each year since 1998 for the further enhancement and diffusion of annual reports issued by Japanese companies. Chugai started to publish the annual report in an integrated form, from “Annual Report 2012,” and made various efforts to promote a better understanding of its unique strengths and corporate value among a wide range of stakeholders. As a result, we have won two Grand Prizes, four Second Prizes, and one Excellent Award, and have received high evaluation for the seventh year in a row since we started publishing the integrated report in 2012.

Communication with Shareholders and Investors

General Meeting of Shareholders

Unlike many Japanese companies, which have fiscal years ending in March, Chugai’s fiscal year ends in December. As a result, we can avoid holding our general meeting of shareholders on the same day as other companies.

Convocation notices for the general meeting of shareholders are normally sent out more than four weeks prior to the meeting date.

The 109th annual general meeting of shareholders was held on March 30, 2020. After the presentation of the business report through video and other materials, shareholders deliberated on agenda items concerning appropriation of retained earnings, election of directors and audit & supervisory board members, and revision of remuneration for audit & supervisory board members. All agenda items were approved and passed by a majority.

IR Activities

To engage more proactively in discussions with our shareholders and investors, in 2019 we conducted briefings on ESG and R&D, topics of great interest to investors.
We also give quarterly briefings on financial results and hold conference calls and investor meetings. We provide production site tours and briefings for individual shareholders and investors; senior management conducts visits to overseas institutional investors; and the CEO holds informal discussions with investors and analysts as an opportunity to speak directly in small groups.

Due to the introduction of the Principles for Responsible Institutional Investors (Japan’s Stewardship Code) and Japan’s Corporate Governance Code, greater dialogue between companies and shareholders is required. Chugai has proactively established forums for ongoing discussions between investors and the management team to ensure a fuller exchange of opinions. We will continue measures to enhance face-to-face IR with management.

Promotion of the Active Participation of Women

Based on the belief that diversity is vital for working and generating new value, and that it is also indispensable for innovation, Chugai prioritizes the promotion of Diversity and Inclusion (D&I) as an important management task.
In our mid-term business plan “IBI 21”, in addition to the efforts thus far, the Company has set forth a target outcome of innovation stories generated by leveraging the strengths of D&I. Based on respecting different values and ideas, we are working to foster an inclusive organizational culture in which diverse human resources can succeed and pursue innovation.

For promoting the active participation of women, Chugai organized a working team under senior management in 2010 to begin addressing this issue, and then established the Diversity Office in 2012 to enhance and promote broad-based activities. In addition to the challenges including the launch of a talent management system that selects and trains human resources based on objective criteria regardless of background, gender or age, revision of the personnel system, and organization of forums for women in every division as an opportunity for female employees to consider their careers and working styles, a training to nurture female leaders was launched in fiscal 2014.

Additionally, based on the Act on Advancement of Measures to Support Raising Next-Generation Children, the Company enhanced flexibility of its working systems including telecommuting in order to support employees to balance work and childcare or nursing care, and to arrange environments for everyone to be able to demonstrate their abilities so that all employees can realize work-life synergy.

Results and goals:
  • Results: Percentage of female managers were 13.7% (as of end of 2019)
  • Goal: Percentage of female managers to be over 16% (by 2021)

* Results and Goal is calculated based on Chugai Pharmaceutical (nonconsolidated) employees, including employees assigned to affiliated companies and external companies.

External Recognitions:
  • The “Nadeshiko Brand” by the Ministry of Economy, Trade and Industry and the Tokyo Stock Exchange: 2014, 2015, 2016 and 2017
  • Selected as one of the New Diversity Management Selection 100 companies for 2017 by the Ministry of Economy, Trade and Industry
  • The Commendation of Companies Promoting Gender Equality and Work-Life Balance for 2014, sponsored by the Ministry of Health, Labour and Welfare
    The Minister’s Prize for Excellence (Companies promoting gender equality)
    The Tokyo Prefectural Labour Bureau Chief’s Prize for Excellence (Familyfriendly companies)
  • Kurumin Certification (certification from the Ministry of Health, Labour and Welfare as a company supporting childrearing): 2008, 2011 and 2015
  • Platinum Kurumin Certification: 2018
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