Corporate Governance Framework

Basic Approach and Framework

Corporate Governance Framework (as of June 26, 2019)

Item Details
Format of institutional design Company with an audit and supervisory committee
Number of directors who are not Audit and Supervisory Committee members 12 (9 inside, 3 outside)
Number of directors who are Audit and Supervisory Committee members 5 (2 inside, 3 outside)
Total number of directors 17 (11 inside, 6 outside)
Ratio of outside (independent) officers 35.3%
Ratio of female officers 17.6%
Term of directors who are not Audit and Supervisory Committee members 1 year
Term of directors who are Audit and Supervisory Committee members 2 years
Adoption of executive officer system Yes
Institution assisting the president's decision making Executive Council
Voluntary advisory institutions for the Board of Directors Establishment of Nomination Advisory Committee and Compensation Advisory Committee

Basic Policy on Corporate Governance

In order to achieve the sustainable growth of the JXTG Group and increase its corporate value over the medium to long term, the Company established the JXTG Group Basic Policy on Corporate Governance, with the objective of establishing and operating a corporate governance framework for the conduct of transparent, fair, timely, and decisive decision-making in the Group's management. This policy describes systematically and comprehensively the Group's basic approach to corporate governance as well as its establishment and operation, taking into consideration the Corporate Governance Code created by the Tokyo Stock Exchange. This basic policy is published on the JXTG Holdings website as our commitment to all stakeholders, including shareholders of JXTG Holdings along with JXTG Group customers, business partners and employees, and the local communities where we operate.

Basic Concept for Corporate Governance

By establishing and operating the Corporate Governance appropriately, JXTG Group shall realize the JXTG Group Philosophy and achieve its sustainable growth and increase its corporate value over the medium to long term. Based on this recognition, the Company shall establish and operate the Corporate Governance of JXTG Group as follows:

Basic Matters on the Establishment and Operation of Corporate Governance

1.Roles of the companies under the holding company system
JXTG Group is a group of companies whose core business consists of three business fields: energy business, oil and natural gas exploration and production business and metals business. In view of the fact that these three businesses are so distinct, JXTG Group has established a structure, under which the Company serves as a holding company and three Core Business Companies which promote each core business are placed thereunder. Under this structure, from the perspective of optimizing the value of JXTG Group as a whole while the Company takes charge of formulating the JXTG Group Philosophy, JXTG Group Code of Conduct, basic management policies such as medium-term management plans and budgets (hereinafter referred to as “Basic Management Policies”), allocating management resources and overseeing the management of each Core Operating Company, each Core Operating Company shall agilely execute the business activities in accordance with the Basic Management Policies.
2.Organization
The Company is a company with audit and supervisory committee.
3.Board of Directors
The Board of Directors of the Company consists of the Chairman, the President, more than one full-time directors, and part-time directors concurrently serving as the President of each Core Operating Company and outside directors. With such composition, the Board of Directors of the Company shall manage the Company in accordance with the following policies.
  1. (1)Focus on deliberation and decision of the Basic Management Policies and oversight of the execution of operations.
  2. (2)As an effort to improve agility of the execution of operations, delegate part of decision-making on the execution of material operations to the President of the Company.
  3. (3)With respect to the material matters such as appraisal of return on investment, risks, progress of execution of material operations of the Company and the Core Operating Companies, the Board of Directors shall receive reports from persons such as the President of the Company and the President of each Core Operating Company, verify its consistency with the Basic Management Policies and oversee such matters.
4.Audit and Supervisory Committee
  1. (1)The Audit and Supervisory Committee shall carry out audits with a high degree of effectiveness and objectivity conduct audits in an organized and systematic fashion through appropriate collaboration between the full-time audit and supervisory committee members, who are given the strong power to gather information, and the audit and supervisory committee members who are outside directors, who have a high degree of independence, in addition to a wealth of knowledge and experience.
  2. (2)The Audit and Supervisory Committee shall oversee the execution of operations through each audit and supervisory committee member exercising the voting right that he or she has as a director at the Board of Directors meetings as well as exercising the right to state his or her opinion on personnel affairs and compensation of directors who are not audit and supervisory committee members.
5.Outside directors
To take advantage of a wealth of knowledge and experience of outside directors and to ensure transparency and objectivity in decision-making, the Company shall take the following measures:
  1. (1)In determining the Basic Management Policies at the Board of Directors of the Company, request outside directors to be involved, from the stage of consideration and to fully discuss it from multiple points of view; and in decision-making on and overseeing execution of material operations, fully verify its consistency with the Basic Management Policies, taking opinions of outside directors into account; and
  2. (2)In determining personnel affairs and remuneration of directors at the Board of Directors of the Company, ensure transparency of the decision-making process by consulting with the Nomination Advisory Committee and the Compensation Advisory Committee, a majority of whose members are outside directors, and which are chaired by an outside director.
6.Executive officers and the Executive Council
  1. (1)The Company shall appoint executive officers who execute operations agilely pursuant to a decision of the Board of Directors.
  2. (2)For the President to make decisions on execution of operations as President and Executive Officer, the Company shall establish the Executive Council as a consultative body for matters to be decided by the President, which shall consist of Director and Chairman of the Board, President and Executive Officer, Executive Vice Presidents, Senior Vice Presidents who have been appointed by President and Executive Officer, and the President of each Core Operating Company, and have the Executive Council make decisions through careful deliberations.
  3. (3)A full-time audit and supervisory committee members shall attend the Executive Council, grasp a process of important decision-making, and the status of execution of operations, and share such process and status with other audit and supervisory committee members.
7.Corporate governance framework of Core Operating Companies
  1. (1)Each Core Operating Company is a company with board of corporate auditors (as defined in the Companies Act of Japan). Each Core Operating Company has a Board of Directors to enable directors to oversee each other’s performance of duties. Each Core Operating Company shall fully analyze the risk of the business and verify the conformity of the execution of operations performance to the Basic Management Policies. The Company shall also dispatch its full-time audit and supervisory committee member to each Core Operating Company as its part-time corporate auditor, and cause such corporate auditor to audit the execution of the duties by the directors of the Core Operating Company.
  2. (2)Any decision-making regarding the matters related to the execution of material operations of a Core Operating Company (including matters on the execution of material operations of a subsidiary of such Core Operating Company) shall be in principle subject to the decision made by, and reported to, the Board of Directors of the Company after the decision-making by the board of directors of such Core Operating Company. The execution of the other operations by the Core Operating Companies shall be delegated to the relevant Core Operating Company to the extent consistent with the Basic Management Policies and the allocation of management resources determined by the Company, and decided by the President of such Core Operating Company after deliberations by the executive council of the Core Operating Company.

Composition of Nomination Advisory Committee and Compensation Advisory Committee (as of June 26, 2019) and Fiscal Year 2018 Results

Advisory Bodies Nomination Advisory Committee Compensation Advisory Committee
Chairperson Outside director (Otsuka)* Outside director (Otsuka)*
Members
(including chairperson)
Representative directors: 2 (Sugimori, Mutoh)*
Outside directors: 3 (Ota, Otsuka, Miyata)*
Representative directors: 2 (Sugimori, Mutoh)*
Outside directors: 3 (Ota, Otsuka, Miyata)*
Purpose Ensure the transparency of the process of determining director candidates Ensure the transparency and objectivity of the process of determining the compensation and other benefits for directors and executive officers
Results in fiscal year 2018 The committee met a total of four times and held delibarations on such matters including personnel proposals of candidates for directors of the Company, succession planning and abolition of senior executive advisor and advisor system. The committee met a total of four times and held delibarations on such matters including directors' compensation level of the Company after transition to a company with an Audit and Supervisory Committee, the revision of the management rule of Compensation Advisory Committee and the executive compensation plan.
  • *Please see Executives for the profiles of officers (Board of Directors and Audit and Supervisory Committee Members)

Nomination Advisory Committee

To ensure the transparency of the process of determining the director candidates of the Company, the Nomination Advisory Committee has been established to provide advice to the Board of Directors. The Nomination Advisory Committee deliberates on the personnel matters of the Company's directors (including appointment and dismissal). The Nomination Advisory Committee consists of three outside directors and two representative directors, and one of the outside directors on the committee acts as chairperson. The Board of Directors requests Nomination Advisory Committee to advise on the issue of succession planning for the Company's chairman and president and for the presidents of the core operating companies.
Compensation Advisory Committee
To ensure the transparency and objectivity of the process of determining the compensation and other benefits for directors and executive officers, the Compensation Advisory Committee has been established to provide advice to the Board of Directors. The Compensation Advisory Committee comprises three outside directors and two representative directors, and one of the outside directors on the committee acts as chairperson. The Board of Directors requests the Compensation Advisory Committee to advise on the policies for determining the compensation and other benefits for directors and executive officers, and the executive compensation plan and the concrete compensation amount.

Abolition of Senior Executive Advisor and Advisor System

The Company abolished Senior Executive Advisor and Advisor System on June 26, 2019 with an aim to further strengthen corporate governance. The Company may appoint some of the resigned executives as senior corporate adviser/corporate adviser after carrying out necessary procedures including reporting to Nomination Advisory Committee and the Board of Directors' resolutions, if the Company deems it necessary to use such resigned executives' knowledge and to assign them external affairs (activities in business/industry community, assuming public offices).

Evaluation of the Effectiveness of the Board of Directors

Overview of Evaluation of the Effectiveness of the Board of Directors

From November 2018 to January 2019, the Company conducted an evaluation of the effectiveness of the entire Board of Directors. To that end, the Company employed an external consultant; implemented a questionnaire for all directors; and conducted interviews with the same. The results were analyzed, and as shown in the table below, the Board was generally evaluated as effective for each evaluation item.
In addition, it has also been evaluated as effective by the directors, that the following items has been promoted, when moving to a company with audit and supervisory committee in June 2018 for the purpose of "separation of management supervision and business execution”: (i)organization of matters for the deliberation, (ii)securing of the length and time of deliberation and (iii) the implementation of various measures to promote free and open debate.
On the other hand, issues has been shown continuously in the following items: (i)the role of holding company and core operating subsidiaries, (ii)further promotion of “separation of management supervision and business execution“ and (iii)the way of pre-explaining to outside directors, etc., which we will work on toward further improvement.

Process for Evaluation of Board Effectiveness

Method of Appointing Director Candidates

The Company strives to appoint independent outside directors* to at least one-third of director positions. As of June 26, 2019, the ratio of outside independent officers was 35.3%.
As directors who are not Audit and Supervisor Committee members, the Company has appointed people who have such characteristics as high standards of business ethics, strategic thinking ability, superior decision-making capabilities, and flexible attitudes toward change, as well as the ability to supervise decision-making and management from the viewpoint of what is best for the Group as a whole. Two or more of the directors are independent outside directors.
As directors who are Audit and Supervisory Committee members, the Company has appointed people who have such characteristics as high standards of business ethics, a certain level of specialist knowledge in legal affairs, finance and accounting, as well as the ability to appropriately audit the execution of duties by directors and the ability to appropriately supervise the execution of business. A majority of these are independent outside directors.

  • *The term "independent outside director" refers to outside directors who have satisfied the Company's "Criteria for Assessing the Independence of Independent Officers."

Support System for Outside Directors

Each of the three outside directors who are not Audit and Supervisory Committee members and the three outside directors who are Audit and Supervisory Committee members meet the independence standards based on the rules of the Tokyo and Nagoya stock exchanges, on which the Company is listed. The Company sends materials regarding the agenda of meetings of the Board of Directors to the outside directors, in principle, three days before the meeting, and the Company provides explanations to the outside directors before the meeting. Furthermore, to enhance the auditing function by all Audit and Supervisory Committee members, including outside directors, the Company has established the Office of Audit and Supervisory Committee, which is clearly independent from the chain of command for divisions responsible for business execution (including personnel evaluations). Full-time staff members have been assigned to the office to assist with the duties of the Audit and Supervisory Committee members. Moreover, to support the outside directors who are not Audit and Supervisory Committee members in business execution, the Board Members' Support Office has been established, and full-time staff members have been assigned.

Training for Directors and the Corporate Auditors of Core Operating Companies

The directors of the Company and core operating companies and the corporate auditors of core operating companies have the duty of working toward the realization of the Group Philosophy, the sustained growth of the JXTG Group, and the achievement of increased corporate value over the medium to long term. To that end, to support efforts to enhance necessary knowledge and skills, the Company and its core operating companies provide opportunities for directors and corporate auditors to receive training related to the Companies Act, internal control systems, accounting and taxes, business strategies, and organizations. In addition, the Company also pays for expenses arising from self-study initiatives. Furthermore, when outside directors are appointed, the Company provides explanations of basic matters regarding the JXTG Group's businesses, and after their appointment, the Company offers business presentations and worksite tours to deepen their understanding.

Training of Outside Directors (Fiscal 2018 and Fiscal 2019)

Theme Intended for Timing (fiscal year) Content of training
Corporate governance Newly appointed directors 2019(expected) JXTG Group corporate governance
Internal control Newly appointed directors 2019(expected) JXTG Group internal control systems
Overview of the holding company and core operating subsidiaries Newly appointed directors 2019(expected) Basic knowledge about the holding and the core operating subsidiaries
Business management Newly appointed directors 2019(expected) The JXTG Group's frameworks for business management and investment management
Finance / Investor relations Newly appointed directors 2019(expected) Current status and issues regarding the Company's financial affairs, opinions of institutional investors, etc.
Worksite tours All directors 2018 (Energy) Oita refinery, Malaysia LNG plants
(Metals) Kurami factory pf Toho Titanium Co., Ltd, Saganoseki Smelter & Refinery
2019(expected) (Energy) Central Technical Research Laboratory, Negishi refinery, TAIWAN NISSEKI Co., Ltd., JX Specialty Chemical & materials (Taiwan) Co., Ltd.
(Metals) Nikko Metals Taiwan Co., Ltd.

Determination of Director Compensation

The upper limit of the total amount of compensation, for the Company's directors was determined, as follows, at the eighth Ordinary General Meeting of Shareholders, held on June 27, 2018.

  1. 1.The maximum amount of compensation for directors who are not Audit and Supervisory Committee members shall be 1,100 million yen (including 200 million yen for outside directors who are not Audit and Supervisory Committee members) per business year.
  2. 2.The maximum amount compensation for directors who are Audit and Supervisory Committee members shall be 200 million yen per business year.

In addition, in a separate framework from the above, at the eighth Ordinary General Meeting of Shareholders, held on June 27, 2018, it was resolved that a share compensation plan for the Company's directors who are not Audit and Supervisory Committee members (excluding outside directors) and executive officers who do not serve concurrently as directors (hereinafter, collectively "the Directors, etc.") would be reinstated. The upper limit of the plan is 600 million yen over a period of three fiscal years.
The compensation and other benefits of directors who are not Audit and Supervisory Committee members (excluding outside directors) comprise the three components; fixed compensation paid monthly based on role, a bonus whose amount fluctuates based on performance, and share compensation in which the Company's shares are provided based on fluctuation of the share value of the Company. This is a balanced compensation system that reflects the Company's business performance for the business year as well as shareholder value over the medium to long term in compensation amounts. The policy for determining this compensation and other benefits is determined by resolution of the Board of Directors after deliberation and recommendation by the Compensation Advisory Committee (comprising three outside directors and two representative directors; and chaired by an outside director).
The Board of Directors of the Company shall allow one Audit and Supervisory Committee member to attend the Compensation Advisory Committee's meetings so that the Audit and Supervisory Committee of the Company adequately exercise the right to state opinions on compensation of directors who are not Audit and Supervisory Committee members at general meetings of shareholders. On the other hand, remuneration for outside directors who are not Audit and Supervisory Committee members consists of a monthly remuneration in view of the scope of their roles as advisers and supervisers to management and to the supervisory function in general management through an independent and objective point of view.
The compensation of directors who are Audit and Supervisory Committee members consists of a monthly remuneration in consideration of their independence of the role.

Introduction of Share Compensation Plan

The Company introduced a share compensation plan beginning in fiscal 2017. The share compensation plan adopts a mechanism called Board Incentive Plan Trust (BIP Trust). The plan covers the period of execution of the duties of the Directors, etc., over three fiscal years, from fiscal 2017 to fiscal 2019, and entitles the Directors, etc., to the delivery of the Company's shares based on their roles. Certain portions of such Company shares may be provided by cash equivalent of the value of the Company's shares upon conversion.
The purpose of the introduction of this plan is to clarify the linkage between the compensation of the Directors, etc., and the value of the Company's shares; to further raise the incentive of the Directors, etc., to contribute to the enhancement of corporate value; to further increase awareness for shareholder-centered management; and to improve the medium- to long-term corporate value of the JXTG Group.

Amount of Compensation and Other Benefits for Each Category of Executives (Fiscal Year 2018)

Before Transition to a Company with an Audit and Supervisory Committee
(From April 1, 2018 to the conclusion of the 8th ordinary general meeting of shareholders (June 27, 2018))

Category of Executives Total Remuneration Amount (million yen) Total Remuneration Amount by category (million yen) Number of Executives concerned (person) Total Remuneration Amount by category (million yen) Number of Executives concerned (person)
Monthly Remuneration Bonus Share Remuneration
Directors
(excluding Outside Directors)
140 88 44 12 8 12
Corporate Auditors
(excluding Outside Corporate Auditors)
25 25 - 3 - -
Outside Directors 14 14 - 4 - -
Outside Corporate Auditors 8 8 - 3 - -
  • *The amount of share remuneration is the amount accounted for in fiscal year 2018.

After Transition to a Company with an Audit and Supervisory Committee
(From the conclusion of the 8th ordinary general meeting of shareholders (June 27, 2018) to March 31, 2019)

Category of Executives Total Remuneration Amount (million yen) Total Remuneration Amount by category (million yen) Number of Executives concerned (person) Total Remuneration Amount by category (million yen) Number of Executives concerned (person)
Monthly Remuneration Bonus Share Remuneration
Directors who are not Audit and Supervisory Committee members
(excluding Outside Directors)
374 239 119 10 17 10
Directors who are Audit and Supervisory Committee members
(excluding Outside Directors)
51 51 - 2 - -
Outside Directors 32 32 - 3 - -
Outside Directors Audit and Supervisory Committee members 30 30 - 3 - -
  • *The amount of share remuneration is the amount accounted for in fiscal year 2018.

Amount of Compensation and Other Benefits for Each Executives (Fiscal Year 2018)

Name Category of Executives Total Remuneration Amount (million yen) Total Remuneration Amount by category (million yen)
Monthly Remuneration Bonus Share Remuneration
Yukio Uchida Representative Director 103 66 31 6
  • *Executive only with total remunerations of 100 million yen or more is listed.

Risk Management

The JXTG Group has introduced an enterprise risk management (ERM) system, through which it strives to share and visualize risk information that contributes to management decision making and the day-to-day execution of business operations.

Enterprise Risk Management (ERM)

The Company established an office in charge of risk management within the Corporate Planning Department in April 2017, which has been working on the development and operation of an ERM system.
In fiscal 2017, based on the COSO* ERM framework, the Company comprehensively identified risks facing the JXTG Group with an eye on the current condition of the entire JXTG Group and future changes in the social and economic situation. Afterward, through interviews of managers and other means, we determined specific risk events that could affect the JXTG Group. After calculating the impact and probability of these risks according to assessment criteria, we selected those risks exceeding a certain threshold as "material risk events." Furthermore, we determined the degree of latency of these material risk events in a comprehensive manner and defined multiple priority response risk events. The Board of Directors receives reports on these priority response risk events and verifies the effectiveness of the overall ERM process.
In fiscal 2018, we will examine detailed contingencies for each designated priority response risk event and begin implementing these contingencies after reporting them to the Board of Directors. We will also continue to closely monitor changes in the social and economic situation as we identify material risk events that could affect the JXTG Group and assess these risks, as well as designate priority response risk events and prepare for them.
Furthermore, the core operating companies, JXTG Nippon Oil & Energy, JX Nippon Oil & Gas Exploration, and JX Nippon Mining & Metals, each have established and are operating an ERM system based closely on their individual business operations and characteristics.
Departments in charge of risk management of the Company and its core operating companies work together to share information on risks. If a risk event that could seriously impact the JXTG Group's management is detected at a core operating company, a system is in place in which both the core operating company responsible for the risk event and the Company will work together to share information as well as examine and implement contingencies for the risk event.

  • *COSO stands for Committee of Sponsoring Organizations of the Treadway Commission. It refers to a framework for internal control released by the commission and adopted by countries around the world.

Internal Control

Based on the JXTG Group Philosophy and in alignment with the Code of Conduct, the Company has established and operates an internal control system to ensure appropriate operations. The Board of Directors formulated the Basic Policy on Internal Control System, which addresses the operation of this system, and is monitoring the status of operation of this system.

The Internal Control Department takes the lead in assistance and general management for the development and operation of the JXTG Group's internal control system. In particular, the department works on building and reinforcing internal control systems for general operations pursuant to the COSO framework, which has become a global standard on internal controls. Starting in fiscal 2018, an approach to internal controls following a risk-based PDCA cycle was rolled out and deployed at JXTG Holdings and JXTG Nippon Oil & Energy. Under this approach, each organization identifies and evaluates risks that could impede business operations, formulates and implements appropriate controls based on the risks identified, and then regularly monitors these risks. We plan to roll out and deploy this same approach at other Group companies in the future.

Risks and Opportunities Concerning Climate Change

The Company has identified climate change as a management strategy risk within ERM. Specifically, the Company faces risks related to the transition to a low-carbon society and risks related to the physical impacts of climate change.
The JXTG Group maintains a diverse business portfolio that spans the fields of energy, resources and materials. Along with risks related to the transition to a low-carbon society, there are various business opportunities that can be gained from this transition as well, including those in sectors such as natural gas, electricity, renewable energy, functional materials, and electronic materials. In particular, the Company believes that development and strengthening of businesses that will be mainstays of the future as indicated in the medium-term management plan (overseas business, power and gas business, and technology-driving business) will help it cope with the transition to a low-carbon society.
Please see the Special Feature section on pp. 33-40 of our Integrated Report for more about the JXTG Group's contributions to the realization of a low-carbon society.

Risk Assessment of Business Activities

The JXTG Group has developed company rules and regulations for combating various kinds of risks in its business activities. For the screening of new investments, in addition to country risks and foreign exchange rate risks, we analyze and evaluate ESG-related risks, including environmental risks such as those related to the scope of response to biodiversity and environmental regulations, risks in the procurement of raw materials including water, and human resources risks including occupational health and safety aspects. Based on this, appropriate actions are taken when necessary.
For example, when reviewing a potential investment, we perform screenings based on the stage-gate system prior to reaching a final decision. The objective of the stage-gate system is to narrow down important projects for the advancement of business strategies in an efficient manner. Under this system, processes from initial review to execution are broken down into stages of review. In turn, gates are set up that must be cleared in each of these stages. During screenings, we clarify various risks, including ESG-related risks, using sensitivity analysis and case analysis among other means and take steps to minimize risks. For important investments, follow-up is carried out after a certain period of time has passed to clarify impacts on the initial outlook caused by environmental changes or other factors and determine whether to continue with the project thereafter.
Furthermore, ESG-related risks pertaining to existing businesses are managed and monitored appropriately within the framework of the Company's CSR promotion structure.

Crisis Management

When crises or emergency situations arise that may significantly affect the management of the JXTG Group, the Company exercises overall control and has prepared the Rules for Responding to Crises and Emergencies, which specifies measures to be taken to minimize any damage that may occur.
The Crisis Management Department of the Company functions as the standing organizational unit in charge of crisis response and management. The general manager of this department acts as head of this crisis response unit, and when such situations arise at the Company and Group companies, operating procedures require that the situation and measures to be taken be reported immediately to the head of the crisis response unit.
In addition, depending on the magnitude of the crisis, the Company may, at its discretion, form a crisis response headquarters or a joint crisis response headquarters with JXTG Group companies to respond quickly and appropriately to the crisis, thereby fulfilling the social mission of the JXTG Group.

Information Security

Based on its Basic Rules for Information Security, the JXTG Group works to prevent the improper use or disclosure, including leakage, of company information, which is a corporate asset. The JXTG Group also strives to maintain the accuracy and reliability of its corporate information as well as prevent falsification or erroneous handling while making it possible for authorized users of information to have constant access to information when they need it.

Cyber Security Measures

The JXTG Group conducts training drills, issues reminders on suspicious email delivered to employees and provides Group-wide security training using curriculum translated into multiple languages in order to protect its important information and systems from cyberattacks, which have become stealthier in recent years.
The IT Security Basic Procedures for JXTG Group have been established as a set of rules that must be followed by Group companies. The Company is now working to further enhance cyber security countermeasures for the entire JXTG Group.

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