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 “forgopro.com.ua, 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 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 2018, 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 2018 was 100 percent.

Reasons for Election of Outside Directors
NameIndependent OfficerSupplementary Explanation relating to These ItemsReason for Election as Outside Director
Yasuo Ikeda
  • Vice-Chairman of the Board of Directors, Musashi Academy of the Nezu Foundation
  • University Professor of Waseda University
  • Professor Emeritus of Keio University

Yasuo Ikeda is the Vice-Chairman of the Board of Directors, Musashi Academy of the Nezu Foundation, a University Professor of Waseda University and a Professor Emeritus of Keio University. The Company is engaged in transactions including joint research with Keio University, and makes donations to Waseda University and Keio University. The monetary amount of these transactions and donations are insignificant. In light of the scale and nature of these activities, 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 knowledge and experience as a medical doctor and university professor.
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.
Masayuki Oku
  • Outside Director of Komatsu Ltd.
  • Outside Director of Panasonic Corporation
  • Outside Corporate Auditor of Nankai Electric Railway Co., Ltd.
  • Non-executive Director of Bank of East Asia (China)

Masayuki Oku was Chairman of the Board at Sumitomo Mitsui Financial Group. The Company is engaged in regular banking transactions such as depositing of funds with Sumitomo Mitsui Banking Corporation, a member company of the aforementioned group. 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, Aioi Nissay Dowa Insurance 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
NameIndepen-dent OfficerSupplementary Explanation relating to These ItemsReason for Election as Outside Audit & Supervisory Board Member
Hisashi Hara
  • Advisor, The Law Office of Nagashima Ohno & Tsunematsu
  • Outside Director of the Board of Nippon Paint Holdings Co., Ltd.

Hisashi Hara is the Advisor, The Law Office of Nagashima Ohno & Tsunematsu. The Company receives legal advice as necessary from counsels other than Mr. Hara of said law firm. The monetary amount of transactions between said law firm and the Company is insignificant. In light of the scale and nature of the 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 Audit & Supervisory Board Member appropriately by leveraging his abundant experience and knowledge as a corporate legal expert (lawyer). 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’s fundamental policy for remuneration of directors and Audit & Supervisory Board members is to attract outstanding people and appropriately motivate them in order to continuously increase the Chugai Group’s corporate value. At the same time, remuneration levels and the remuneration system are designed to link compensation of officers with the Company’s performance and align their interests with those of shareholders.

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, remuneration of executive directors consists of bonuses paid according to performance in each fiscal year and restricted stock compensation linked to mid- and long-term performance (tenure-based and performance-based) as a long-term incentive to continuously increase corporate value, in addition to fixed regular compensation. These three components are paid by resolution of the Board of Directors based on the Company’s criteria within the limits on remuneration approved by the General Meeting of Shareholders. The Compensation Committee sets policies and deliberates details concerning remuneration of directors with specific titles to ensure the objectivity and transparency of the remuneration-setting process.

Remuneration of non-executive directors and Audit & Supervisory Board members (including outside members) consists solely of fixed regular compensation, and is paid by resolution of the Board of Directors for non-executive directors and through consultation with the Audit & Supervisory Board for Audit & Supervisory Board members. The amounts are set within the limits approved by the General Meeting of Shareholders.

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

Amount of Remuneration Paid to Directors and Audit & Supervisory Board Members (2018)

Amount of Remuneration Paid to Representative Directors (2018)

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 28, 2019, 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 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 problems that arise. We have also established Division Risk Management Committees and a Risk Management Committee under the Executive Committee. Division Risk Management Committees summarize and create risk maps of all the risks facing their divisions, make proactive efforts to prevent the materialization of such risks, and submit reports on the progress of those efforts to the Risk Management Committee. The Risk Management Committee identifies Group-wide risk issues that may have a material impact on management and submits a progress report to the Executive Committee concerning preventive measures.

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.

As well as strictly complying with laws and regulations such as the Law for Ensuring the Quality, Efficacy and Safety of Drugs and Medical Devices and the voluntary Code of Practice for the industry established by the Japan Pharmaceutical Manufacturers Association (JPMA), Chugai proactively takes part in the activities of the Fair Trade Council of the Ethical Pharmaceutical Drugs Marketing Industry, the JPMA Code Compliance Committee and other organizations. In addition, by establishing its own two guidelines for transparency, Chugai works 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 light of increasing societal demands for greater compliance in the pharmaceutical industry, we have strengthened compliance measures Company-wide. In addition to working to enhance compliance education in each of our training programs, we conduct compliance risk management measures in each organizational unit. Moreover, every six months the Sustainability Department conducts monitoring surveys regarding compliance status. They are conducted for the entire organization, including subsidiaries and affiliated companies in Japan and overseas, and the results are reported to the Compliance Committee. Each organization appoints a Compliance Manager and Compliance Officer who work to ensure thorough legal compliance in the workplace and hold corporate ethics courses twice a year, among other programs.

The CCC Hotline has been established to receive employee inquiries and reports concerning laws, Company rules, the Chugai Group Code of Conduct and other related matters.

In January 2017, the compliance oversight functions that were previously handled by multiple committees to comply with pharmaceutical regulations, general laws, industry standards, Company rules and healthcare compliance, were consolidated, and the Compliance Committee, a corporate management committee, was established to create an administrative system linked more directly to management.

The intention of this change is to facilitate proper and appropriate judgments and actions based on the societal norms and values required of pharmaceutical companies given the diversification of businesses and their employees due to the accelerating pace of globalization. It is also aimed at properly and appropriately responding to increasingly diverse and stringent regulatory regimes, including extraterritorial application of the laws of various countries, notably the antitrust and anti-bribery laws of the United States. Compliance oversight functions (Sustainability Department, Quality & Regulatory Compliance Unit) were established to monitor, lead and support the compliance of the Chugai Group as a whole, including overseas subsidiaries, creating a horizontal global compliance management framework.

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 included in all three ESG indices selected by the Government Pension Investment Fund of Japan in July 2017.

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 21st 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, Chugai’s Annual Report won the Second Prize for two consecutive years, the Grand Prize for two consecutive years and the Excellent Award starting from the “Annual Report 2012,” and have won the Second Prize for “Annual Report 2017.” We have received high evaluation for the sixth year in a row since we started publishing the integrated report.

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 108th annual general meeting of shareholders was held on March 28, 2019. After the presentation of the business report through video and other materials, shareholders deliberated on agenda items concerning appropriation of retained earnings, and election of directors and audit & supervisory board members. All agenda items were approved and passed by a majority.

IR Activities

In addition to quarterly investor presentations and conference calls to explain operations, we also conducted “R&D conference calls” to present and answer questions about information of great interest to investors. Furthermore, to improve communication with individual shareholders and investors, we hold production site tours and conduct investor presentations at securities company branches and via the Internet. Senior management also hosts visits by overseas institutional investors, and each year the president 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” which the goal is set for 2021, 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, 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 work 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 13.3% (as of end of 2018)
  • Goal: Percentage of female managers to be over 13% (by 2018)
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 (Family-friendly 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
  • E-mail
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