At the Board of Directors meeting in fiscal 2020, we repeatedly held discussions and considerations over policies for returns to shareholders, cross-held stocks, and opinions of investors that we have obtained through IR activities, as well as various measures including sustainability promotion, based on the purpose of the Corporate Governance Code. We also continued to further discussions on ensuring and improving the effectiveness of the Board of Directors. In June 2021, we increased the number of Independent Outside Directors by one. As a result, the number of total Independent Outside Directors is four, maintaining the ratio of one-third or more of the Board.

Regarding the changes in the business environment, the Group set forth and aims for its Vision 2030 in order to achieve a sustainable society and the continuous growth of the Group, and toward achieving this vision, continues to make efforts to enhance its business competitiveness and create corporate value.

Sumitomo Mitsui Construction is working on strengthening its corporate governance system based on the Corporate Governance Code entered into force in June 2015. Our basic policies regarding corporate governance and disclosures based on each principles stipulated in the Corporate Governance Code can be found in the below document.

Corporate Governance Report

The Company has adopted the Audit & Supervisory Board Member System and Executive Officer System as systems that sufficiently demonstrate the respective monitoring and supervisory functions for the execution of business, and these systems are operated through an organizational structure that has been divided so that “decision-making and supervision” is performed by the Board of Directors, the “execution of business” is performed by Executive Officers, and “audits” are performed by the Audit & Supervisory Board and the accounting auditor. Additionally, Outside Audit & Supervisory Board Members and Outside Directors have been appointed to enhance the decision-making function and supervisory function of the Board of Directors. To further improve the transparency and fairness of corporate management, the Appointment and Remuneration Advisory Committee comprised of Representative Director and part-time Outside Directors has been established in addition to the monitoring function of a company with an Audit & Supervisory Board.

Based on the Corporate Governance Code (Supplementary Principle 4-11(3)), we seek evaluation on the current effectiveness of the Board of Directors by Directors and Audit & Supervisory Board Members, as well as their advice and opinions for further improvement, and disclose an overview of the results to improve the effectiveness of the Board of Directors. The analysis and assessment of the results of the Board of Directors evaluation in fiscal 2020 and the future policy are as follows.

The Appointment and Remuneration Advisory Committee examines officer appointment proposals made by the president as to transparency, fairness and timeliness and discusses their appropriateness and rationality according to the criteria for officer appointment. By referring to the evaluation of the Appointment and Remuneration Advisory Committee, the Board of Directors makes decisions on appointment of officers.

Regarding the dismissal of top-level executives in the middle of their term, the Appointment and Remuneration Advisory Committee examines issues of transparency, objectivity and timeliness and discusses the appropriateness and rationality according to the criteria for chief executive dismissal or the criteria for officer dismissal. The Board of Directors makes decisions on dismissal with reference to the evaluation of the Appointment and Remuneration Advisory Committee.

As for successor appointment, Sumitomo Mitsui Construction has set the Successor Succession Plan, which clarifies requirements for successors, the appointment process, and the development plan. The Appointment and Remuneration Advisory Committee examines each successor appointment proposal made by the president as to transparency, fairness and timeliness and evaluates its appropriateness and rationality according to the Plan. By referring to the evaluation of the Appointment and Remuneration Advisory Committee, the Board of Directors makes decisions on appointment of successors.

Directors’ remuneration is determined based on the deliberation of director’s remuneration system and remuneration level by the Appointment and Remuneration Advisory Committee followed by the resolution of the Board. The Audit & Supervisory Board Members’ remuneration is determined based on deliberation by the Audit & Supervisory Board Members.

Remuneration of Directors (excl. Outside Directors) is composed of monetary remuneration as basic remuneration, combined with restricted stock compensation system which involves ownership of stocks that rise and fall with market fluctuations sharing the benefits and risks of stock price fluctuations with shareholders as a mid- to long-term incentive remuneration in order to further raise the desire to contribute to stock price increases and improvements in corporate value. Basic remuneration (monetary remuneration) is a monthly remuneration determined, in principle, by taking into consideration duties based on each position, management environment, operating results, remuneration levels of other companies in related industries, and coherence between payments to employees and directors.

Regarding Outside Directors, from the view point of securing their independence, they are paid only basic remuneration in the form of monetary remuneration. The amount is set at a reasonable level, in principle, by taking into account factors such as securing talented human resources as well as to facilitate effective performance of the monitoring, supervision and audit functions of independent officers.

The upper limit of remuneration of officers is as follows:

1. Resolution at the ordinary shareholders’ meeting on June 27, 2019
   • Monetary remuneration: Not exceeding annual total of 450 million yen (including up to 80 million yen allocated to Outside Directors; also includes employee portion of salary paid to directors concurrently serving as employees).
2. Resolution at the ordinary shareholders’ meeting on June 28, 2018
   • Apart from the remuneration set forth in 1. above, annual total monetary remuneration receivables not exceeding 60 million yen is provided as remuneration allocated to restricted stocks to Directors excluding Outside Directors.

Sumitomo Mitsui Construction owns cross-held stocks to improve its corporate value over the medium to long term by maintaining and enhancing business relationships with other companies as investment destinations while comprehensively considering business strategies and business relationships with its partners. Our policy is that the economic rationality and future prospects of individual cross-held stocks, including the purpose of holding the stocks and whether benefits and risks associated with holding the stocks match the capital cost or not, should be verified by the Board of Directors, and that stocks that are confirmed as being no longer worthwhile to hold should be sold and holdings reduced. Based on the results of examination, in fiscal 2020, we sold two stocks (34 million yen) held by affiliates.

Whether to exercise voting rights or not is determined by considering if the agenda runs counter to the improvement of the mid- to long-term corporate value of the companies as investment destinations, whether or not the investment destination companies have any serious problems in corporate governance, and other issues.