Tokyo Electron Limited  Annual Report 08

C OR P ORA T E G O V ER N A N C E

Tokyo Electron maintains a management philosophy that puts
emphasis on maximizing corporate value and enhancing shareholder satisfaction. To this end, the Company is striving to enhance
corporate governance by building an optimal corporate governancestructure and managing it effectively. Efforts in this regard arefounded on three basic principles.
Tokyo Electron’s Basic Principles of Corporate Governance
1. Ensure the transparency and soundness of business operations
2. Facilitate quick decision-making and the efficient execution ofbusiness operations
3. Disclose information in a timely and suitable manner

The Corporate Governance Framework
Tokyo Electron uses the statutory auditor system, and has also
adopted the executive officer system to separate the businessexecution function from the board of directors.
The Board of Directors
The board of directors consists of 14 directors, three of whom areexternal directors. During fiscal 2008, the board of directors met on
12 occasions. In order to ensure that the Company can respondquickly to changing business conditions, and to more clearly define
management accountability, the term of office for directors is set atone year.
The board of directors has two committees: the Compensation
Committee and the Nomination Committee, whose activities areintended to improve corporate governance. The Compensation
Committee proposes the remuneration to be paid to the Chairman& CEO and the President & COO at the board meeting for approval.
The Nomination Committee selects candidates for directorships for

submission at the annual shareholders’ meeting, as well as candidates for CEO, which it submits at the board meeting for approval.
Each of these committees is composed of members of the board ofdirectors, excluding the Chairman & CEO and the President & COO.
The Board of Statutory Auditors
The Company has four statutory auditors, two of whom are outsideauditors. The statutory auditors not only attend meetings of theboard of directors and other important business meetings, but also
they conduct operations audits, accounting audits and risk evaluation, in addition to auditing the performance of duties by directors.
During fiscal 2008, the board of statutory auditors met seven times.
The Executive Officer System
In order to further clarify the roles of the board of directors andexecutives in charge of business operations, Tokyo Electron
adopted the executive officer system in April 2003. This systempromotes fast decision-making and the quick establishment andexecution of business strategies.

Internal Control and Risk Management System
In order to enhance corporate value and ensure that all businessactivities are carried out responsibly, in the interests of all stakeholders, Tokyo Electron is taking steps to strengthen its internal control
systems, and make them more effective. The Company is implementing specific activities based on the basic policy for internalcontrol systems established in May 2006, which was partiallyrevised in April 2008. It is also making progress in developing asystem of internal control over financial reporting which is based on
the Financial Instruments and Exchange Law.

Diagram of the Corporate Governance Framework,
Internal Control System and Risk Management System
Annual Shareholders’ Meeting
Board ofDirectors

Nomination Committee
Compensation Committee
Chief Business Ethics Director
Chief Internal Control Director

RepresentativeDirectors
Request for improvement

Statutory Auditors

Confirm the progress of improvements and give instructions

ReportExecutive Officers

Audit and improvement reports
Report

Audit

ReportReportRequest for
improvement

Request for
improvement

Risk Management
Function

20

Internal Audit Dept.
(Global Audit Center)

Audit
Request for
improvement

Monitoring
Monitoring
Check and balance
Administrative

Business Depts.

Independent Auditors

Depts.

Audit
Audit

Internal Control Director
Tokyo Electron considers the improvement of internal control systems and the management structure
to be of great importance. Starting in June 2008,
the Company will appoint an Internal Control Director who will work to strengthen internal control
based on the basic policy for internal control
decided by the Board of Directors.
Internal Audit Department(Global Audit Center)
The Global Audit Center oversees the internal
auditing activities of Tokyo ­Electron and its corporate group. The Center is responsible for auditing
the business activities of domestic and overseas
bases of the Group, as well as their complianceand systems, and evaluating the effectiveness ofinternal control systems. When necessary, theGlobal Audit Center also provides guidance tooperating divisions. The Center reports the resultsof its audits to Company management on aAnnual Report 08 Tokyo Electron Limited

regular basis, and organizes meetings to report its findings andexchange information with the statutory auditors.
Risk Management Function
The General Affairs Department is responsible for crisis management,
including measures involving business risk and operational risk, aswell as for establishing the necessary internal regulations for managing each risk category and activities for training and raising employees’ awareness of risk management. These internal regulations
include compliance standards, risk management regulations, crisis
management regulations, rules governing the handling of personal
information, standards for managing documents, rules to prevent
insider trading and guidelines for the timely disclosure of information.
Coordination Between Statutory Auditors andInternal Audit Department
The Global Audit Center, which is responsible for internal auditing activities, makes regular reports to Company managementon the results of its audits, and holds periodic meetings (34times a year) to report its findings and exchange information withthe statutory auditors.
Coordination Between Statutory Auditors andIndependent Auditors
Tokyo Electron has engaged KPMG AZSA & Co. as its independentauditor. The Company provides the independent auditor with all
required information and data to ensure that it can conduct its
audits promptly and correctly.
The statutory auditors receive audit plans for the fiscal year fromKPMG AZSA & Co., as well as explanations regarding auditing
methods and particular areas of focus, among other matters. They
also receive opinions for the audits of the financial statements.

In June 2007, the Tokyo Electron Code of Ethics was rewritten to
make it easier to understand, and to reflect the changing ethicalnorms of the current era. To ensure full awareness of the Code, it
was compiled into a booklet, which the Company distributed to allGroup employees, including those overseas.
Compliance Regulations
Compliance regulations are intended to ensure that all individuals whotake part in business activities for the Group clearly understand thepertinent laws, regulations, international standards and internal company rules, and continuously apply these rules in all of their activities.
Compliance Education for Employees
Information on compliance issues is available to employees via theCompany intranet. The Company also conducts web-based training
programs for employees, and takes other steps to promote broad
awareness of compliance.
Internal Reporting System: Hotline
In the event that an employee becomes aware of any activity which
may violate laws, regulations or principles of business ethics, theCompany operates an internal reporting system (Hotline) thatemployees may use to report their concerns. Strict confidentiality is
maintained to protect the whistleblower, and ensure that they are
not subject to any disadvantage or repercussions.
Protection of Personal Information
Following the full introduction of Japan’s personal information
protection law, the Company formulated a basic directive andregulations to protect personal information. The Company conducts training programs to educate employees on how to handle
such information, and to ensure that the rules and policies arewidely understood.

Compliance Framework
Trust is the cornerstone of Tokyo Electron’s business foundation. The
fundamental requirements for maintaining trust are rigorous conformity to ethical standards and compliance with the law, by individual
employees and by each of our organizations. The Group maintains
high standards of ethics and a clear awareness of compliance, placing the utmost priority on compliance with laws, regulations andinternational business standards in all of its corporate activities.
Ethical Standards, Ethics Committee and Chief Business
Ethics Director
Recognizing the need to establish uniform standards to govern allof its global business activities, in 1998, the Company formulated
the “Tokyo Electron Code of Ethics,” which concretely describes theCompany’s basic views on ethics. The same year, the Company
established the Ethics Committee, which is responsible for promoting business ethics awareness, and appointed a Chief Business
Ethics Director to supervise these efforts.

Remuneration for Directors, Executive Officers andStatutory Auditors
The Company and its subsidiaries (excluding listed companies)
have introduced incentive systems, such as business results-basedremuneration, and stock options linked to share prices. Effectivefrom fiscal 2006, the Company revised its executive remuneration
system to link remuneration more closely to financial performanceand shareholder value and also improve management transparency
and its competitive strength.
New Remuneration System for Executives
1. The remuneration for Company directors and executive officers is
composed of two elements: a fixed monthly salary, and anannual bonus which is linked to earnings performance.
2. The total amount of performance-linked remuneration (annualbonuses) for directors and executive officers of the Group is set
at a maximum of 3% of consolidated net income. This remuneration is split between cash bonuses and stock-based21

Tokyo Electron Limited  Annual Report 08

remuneration (stock options), at a ratio of roughly two to one.
The stock-based remuneration takes the form of new stock
warrant contracts with an exercise price of one yen per share.
This is because current securities and exchange regulations
make it difficult to introduce and implement direct share issuance, or the sort of transfer-restricted shares that are used incountries such as the United States. The restricted period on
exercising stock options is set at three years.
3. The earnings-linked remuneration (annual bonuses) of external
directors does not include stock options.
4.	In order to ensure that statutory auditors maintain full independence from management pressures, the compensation of statutory auditors consists of a fixed monthly salary only.
5. Retirement allowances for directors, statutory auditors andexecutive officers were abolished at the end of fiscal 2005, aspart of the revisions to Tokyo Electron’s remuneration systemfor executives.
Remuneration linked to corporate performance comprises a
relatively large share of executives’ total remuneration. Tokyo­Electron thinks that this will give executives a strong incentive toimprove the Company’s earnings performance and elevate theshare price, since they share in both the benefits and the risks
experienced by shareholders.

Disclosure Practices
If it is subject to the rules on timely disclosure (material information),
Tokyo Electron will release the information simultaneously in a press
release, and via the Tokyo Stock Exchange’s “Timely Disclosure
Network” (TDnet), and will post the information on its website assoon as possible, following the official announcement.
Even when it does not fall into the category of “material information,” the Company will voluntarily disclose information which may beof interest to stakeholders, in a fair, accurate, and easy-to-understandmanner, either on its website or in printed form, through various
means of communication.
Tokyo Electron conducts meetings to discuss its financial resultswith securities analysts and investors; these meetings are also open
to members of the press. The company makes audio and video
recordings of its fiscal year-end and mid-term financial results meetings, and posts these recordings on the Company’s website. All of
the documents distributed at its quarterly financial results meetings
are also posted on the website.
To ensure that foreign investors have fair and equal access to theinformation, in principle, the Company strives to disclose all information simultaneously in Japanese and English. However, due tothe time required for translation, there may be cases where theposting of English information to the website is delayed slightly.

Disclosure of the Individual Compensation ofRepresentative Directors
In order to increase transparency and reflect shareholders’ interests,
Tokyo Electron discloses the remuneration paid to each representative director (Chairman & CEO and President & COO), as well as theaggregate remuneration paid to directors and statutory auditors, inits business report, which is sent to shareholders along with theNotice of Annual General Meeting of Shareholders.

IR Spokespersons
To ensure that information is accurate and disclosure is fair, theCompany’s major investor relations activities will be undertaken by
official IR spokespersons—either the CEO, the COO, the IR director,
or representatives of the IR department. In principle, information on
the Company shall not be provided to the press, or to persons
connected with the securities market, by any executive or employee
of Tokyo Electron acting alone other than official IR spokespersons.
When necessary, IR spokespersons may formally appoint otherexecutives or employees to speak on their behalf.

Disclosure Policy
Tokyo Electron is committed to disclosing information about theCompany in a fair, prompt and accurate manner, to ensure that all
stakeholders, including shareholders and other investors, canobtain an accurate, in-depth understanding of the Company and its
activities, and evaluate the Company’s corporate value appropriately. The Company also solicits feedback from its stakeholders aspart of its information disclosure activities, and uses the feedback
as a point of reference to guide corporate management.
Information Disclosure Standards
Tokyo Electron complies fully with the Financial Instruments andExchange Law, and the rules on timely disclosure established by
the Tokyo Stock Exchange.
Furthermore, even when the information is not subject to regulations on timely disclosure, the Company discloses the information
proactively, in a fair, prompt and accurate manner if the information
is deemed useful in providing stakeholders with an accurate understanding of the Company.

22Shareholder Measures
Tokyo Electron mails a Notice of Annual General Meeting of Shareholders to shareholders more than three weeks in advance of themeeting, as one of its measures to vitalize these meetings and topromote smooth and efficient voting. It also sets the date of theCompany’s meeting to avoid days on which many such meetings
are concentrated. In addition, shareholders are free to cast theirvotes via the Internet. Moreover, Tokyo Electron participates in theweb-based voting platform for institutional investors operated byInvestor Communications Japan Inc. (ICJ). To supplement theabove shareholder meeting-related initiatives, Tokyo Electron’s
website carries notices, resolutions and presentation materials ofshareholders’ meetings. An English version of the Notice of Annual
General Meeting of Shareholders is also provided.