TOKYO ELECTRON Annual Report 2012

PAGE

12CONTENTS

Highlights

Top Message

Segment Information

FeatureCorporate Governance
n CORPORATE GOVERNANCE

Corporate Citizenship

R&D/Intellectual Property

Financial Section

Corporate Datan BOARD OF DIRECTORS, STATUTORY AUDITORS AND EXECUTIVE OFFICERSCORPORATE GOVERNANCE

The Assurance of Transparency Generates Dynamism

CORPORATE GOVERNANCE
Against a backdrop of ongoing business globalization, Tokyo

has adopted the executive officer system to separate the businessElectron maintains a management philosophy that puts empha-execution function from the Board of Directors. Moreover, Tokyosis on improving corporate value for its shareholders and all

Electron has been disclosing the individual remunerations of rep-other stakeholders. To this end, the Company considers it isresentative directors since 1999 in recognition of the importanceimportant to strengthen corporate governance. In line with theof managerial transparency for shareholders.

following three basic principles, the Company is building ahighly effective corporate governance structure, and upgrading

The Board of Directors

and strengthening its internal control systems and risk manage-

The Board of Directors consists of 14 directors, two of whom

ment system.

are outside directors. In principle, the Board of Directors meetsonce a month, with additional meetings if necessary. (DuringTetsuro Higashi
Chairman of the Board

The business environment in Japan infiscal 2012 was extremely difficult
because of the Great East Japan Earthquake, power shortages stemming fromthe accident at the Fukushima nuclear
power plants, supply chain disruption
resulting from the flooding in Thailand,
and yen appreciation triggered by thefinancial crisis in Greece. Nevertheless,as mentioned elsewhere in this annual
report, Tokyo Electron was able to makeimportant strategic moves, includingcommencing operations of a new
Miyagi plant, and other new manufacturing and development bases that holdthe key to the Company’s future growthand market penetration of its newproducts. I am deeply grateful for theearnest support and understanding of
our shareholders and other stakeholders, which made this progress possible.
Many uncertainties continue toweigh on the worldwide economic
situation, and the future outlook
remains unclear. However, I believe that
it is at just such a time that it is critically important for a company to clearly
set forth policies and measures forcorporate value enhancement from a
medium- to long-term perspective,
articulate a vision for the future, andmaintain and strengthen managementtransparency and soundness. To that
end, the Company must function as adynamic organization, with the Boardof Directors, the organization entrustedwith management of the Company by
the shareholders, the executive body,which is responsible for the executionof business, and the individual employees who execute business on the front
lines, each brimming with vision andvitality to create a bright future.
It is also essential that communication
among these three levels of the organization be prompt and highly transparent. Moreover, the management andbusiness policies generated by thesethree organizational levels must win
wide-ranging acceptance and generate
expectations from our customers andsociety at large.
Dynamic growth can be ensured only
when a company enhances the governance I have described above. As a
global supplier, the Company should
gain the trust and meet the expectations of our shareholders and all otherstakeholders worldwide by maintaining
and strengthening our highly transparent management activities. In this light, I
continue to offer support, encouragement, and advice to the Company’s
executive body and employees. I lookforward to your continued understanding and support.

Tokyo Electron’s Basic Principles of Corporate Governancefiscal 2012, the Board of Directors met on 12 occasions.) In

1. Ensure the transparency and soundness of business operations

order to ensure that the Company can respond quickly to2. Facilitate quick decision-making and the efficient execution ofchanging business conditions, and to more clearly define management accountability, the term of office for directors is set atbusiness operationsone year.

3. Disclose information in a timely and suitable manner

Furthermore, Tokyo Electron has set up two committees

The Corporate Governance Framework

whose activities are intended to ensure the transparency ofTokyo Electron uses the statutory auditor system based on themanagement: the Compensation Committee and the Nomi-

Companies Act, and furthermore has established its own Com-nation Committee. The members of both these committees

pensation Committee and Nomination Committee to increase theare directors and statutory auditors, excluding the represen-transparency and objectivity of management. Also, Tokyo Electrontative directors.

Diagram of the Corporate Governance Framework, Internal Control System and Risk Management System
Annual Shareholders’ Meeting
Compensation Committee
Nomination Committee

Statutory Auditors

Board of Chief Business Ethics Director
Directors Chief Internal Control Director

Request for improvement/Report

Representative Directors

Confirm the progress of improvements andgive instructions
Audit and improvement reports

Request for improvement/ReportCompliance & Internal Control Executive Officer

Independent Auditors

Executive Officers

Internal Audit Dept.
(Global Audit Center)

Committees Ethics Committee
Information Security Committee
Export Trade Control Committee
Request for improvement/Report

Audit

Risk Management & Internal Control Dept.
Request for improvement/Report

Business Depts.

Monitoring
Check and balance

Administrative Depts.

TOKYO ELECTRON Annual Report 2012

PAGE

13CONTENTS

Highlights

Top Message

Segment InformationFeature

Corporate Governance
n CORPORATE GOVERNANCE

Corporate Citizenship

R&D/Intellectual Property

Financial Section

Corporate Datan BOARD OF DIRECTORS, STATUTORY AUDITORS AND EXECUTIVE OFFICERSCORPORATE GOVERNANCE
Compensation for Corporate Directors and Statutory

internal control systems and make them more effective. The

Coordination Between Statutory Auditors and Indepen-remuneration to be paid to representative directors at the BoardAuditors

Company is implementing practical measures in line with thedent Auditors

meeting for approval.

Tokyo Electron has adopted the following executive com-

Fundamental Policies Concerning Internal Controls within theThe statutory auditors receive audit plans for the fiscal year from

Nomination Committee: This committee nominates candi-

pensation program with the intention of tying compensa-

Tokyo Electron Group decided by the Board of Directors. The

the independent auditors, as well as explanations regarding

dates for directors to be selected at the annual shareholders’tion more closely to financial results and shareholder value,Company is also implementing measures for the Internal Con-

auditing methods and particular areas of focus, among othermeeting, and nominates a candidate for CEO to be selected byraising corporate competitiveness, and enhancing manage-trols Over Financial Reporting, based on the Financial Instru-matters. The independent auditors audit the year-end financial

the Board, which it submits at the Board meeting for approval.

ment transparency.

ments and Exchange Act.

statements and review the quarterly financial statements, andCompensation Committee: This committee proposes thereport the results of their audits to the statutory auditors.

1. The compensation for corporate directors consists of a monthly
The Board of Statutory Auditors

fixed remuneration and a performance-linked compensation.

Internal Control Systems

The Company provides KPMG AZSA LLC, its independent audi-

To strengthen the internal control and risk management systems

tors, with all necessary information and data to ensure that it candirectors is designed to align compensation more clearly withof the entire Tokyo Electron Group more effectively, Tokyo

conduct its audits during the fiscal year promptly and correctly.

the Board of Directors, the Top Management Conference andfinancial results and increases in shareholder value. It takes into

Electron appointed a Chief Internal Control Director and a Com-other important business meetings, but also conduct operations

account consolidated return on equity (ROE) and consolidated

pliance & Internal Control Executive Officer. Under them, theCompliance

audits and accounting audits, and evaluate risk management, in

net income, two performance indicators of consolidated busi-Company established the Risk Management & Internal Control

Trust from stakeholders is the corner-addition to auditing the performance of duties by directors. During

ness results. Necessary adjustments are then made when there

Department, which evaluates and analyzes the risks which could

stone of business activities. In order tofiscal 2012, the board of statutory auditors met seven times.

are special factors that should be taken into account, such asaffect the Group, and works to reduce risks by promoting themaintain trust, it is necessary to continu-principal performance indicators for the term under review,necessary measures. Tokyo Electron has also established theously act in rigorous conformity to busi-

Outside Directors and Outside Auditors

including profits and losses, and so on. Performance-linked

Information Security Committee and the Export Trade Control

ness ethics and compliance. In line with

From the viewpoint of objectively ensuring the effectiveness ofcompensation comprises cash bonuses and stock-based com-Committee to further strengthen the management of confiden-

the Fundamental Policies Concerning

the decision-making of the Board of Directors, Tokyo Electron

pensation. The ratio of cash bonuses to stock-based compen-tial information and the export compliance system.

Internal Controls within the Tokyo

has appointed two outside directors to the Board: Mr. Hiroshi

sation has generally been one to one. Stock-basedInoue, who is Chairman of the Board, Tokyo Broadcasting

compensation consists of granting share subscription rights

Internal Audit Department (Global Audit Center)and employees are required to maintain

System Holdings, Inc., and Mr. Masahiro Sakane, who is Chair-with a set strike price of one yen per share and setting unexer-

The Global Audit Center oversees the internal auditing activi-

high standards of ethics and to act withman of the Board, Komatsu Ltd. From the viewpoint of objec-

cisable period for three years. Performance-linked compensa-

ties of the entire Tokyo Electron Group. The Center is respon-a clear awareness of compliance.

tively ensuring the reasonableness of the audits, Tokyo Electrontion is limited to five times the fixed compensation.

sible for auditing the business activities of the Group’s

The Company has four statutory auditors, two of whom are out-

2. The performance-linked compensation system for corporateside auditors. The statutory auditors not only attend meetings ofhas appointed two outside auditors: Mr. Togo Tajika, and Mr.
Ryuji Sakai, who is a Partner at Nagashima Ohno & Tsunematsu.
Mr. Togo Tajika conducts audits of the Tokyo Electron Group asa full-time company auditor.

3. The performance-linked compensation of outside directors
does not include stock-based compensation.
4. The compensation for statutory auditors consists only of amonthly fixed remuneration, to maintain independenceElectron Group, all Group executives

5. Retirement allowances systems for corporate directors andhttp://www.tel.com/eng/ir/ethics.htm

domestic and overseas bases, as well as their compliance andCode of Ethics, Chief Business Ethics Director and Ethics

systems, and evaluating the effectiveness of internal control

Committeesystems. When necessary, the Global Audit Center also pro-In 1998, Tokyo Electron formulated the “Code of Ethics of thevides guidance to operating divisions.

Tokyo Electron Group” to establish uniform standards to govern
all of its global business activities. In the same year, the Company

from management.
The Executive Officer System

Code of Ethics ofthe Tokyo Electron Group

Coordination Between Statutory Auditors and Internal

appointed a Chief Business Ethics Director and established theIn order to further clarify the roles of the Board of Directors andstatutory auditors have been abolished in and after the end

Audit Department

Ethics Committee, which is responsible for promoting businessexecutives in charge of business operations, Tokyo Electron hasof fiscal 2005, as part of the revisions to Tokyo Electron’s

The statutory auditors coordinate with the Global Audit Center,ethics awareness throughout the Group. The Code and its Q&A

adopted the executive officer system. This system promotes fast

executive compensation program.

a department responsible for internal auditing activities, primar-section are published in Japanese, English, Korean and Chinese

ily by attending its report meetings, which were held 13 times

editions, and the Company distributes it to all Group executives

during fiscal 2012.

and employees, including those overseas. Moreover, the Code isdecision-making and the quick establishment and execution ofbusiness strategies.

Internal Control and Risk Management System
In order to enhance corporate value and ensure that all businessappropriately reviewed and revised in response to changes inactivities are carried out responsibly and in the interests of all

the environment and societal demands. The most recent revision

stakeholders, Tokyo Electron is taking steps to strengthen itsof the Code and Q&A was in April 2011.

Zoom

TOKYO ELECTRON Annual Report 2012

PAGE14

CONTENTS

Highlights

Top Message

Segment Information

FeatureCorporate GovernanceCorporate Citizenship

n CORPORATE GOVERNANCE

R&D/Intellectual Property

Financial Section

Corporate Datan BOARD OF DIRECTORS, STATUTORY AUDITORS AND EXECUTIVE OFFICERSCORPORATE GOVERNANCE
shareholders are free to cast their votes via the Internet.

Compliance & Internal Control Executive Officer

employees may use to report their concerns. The entire Group• Even when the information is not subject to the listing reg-Tokyo Electron has appointed a Compliance & Internal Control

has established an ethics hotline and a compliance hotline, andulations pertaining to marketable securities, the Company

Moreover, Tokyo ­Electron participates in the web-based voting

Executive Officer from among the executive officers to raise

this reporting system is also in place at each overseas base. In all

discloses the information proactively, in a fair, prompt andplatform for institutional investors operated by Investor Com-awareness of compliance across the Group, and further improvecases, this system ensures that strict confidentiality is main-accurate manner if the information is deemed useful inmunications Japan Inc. (ICJ). To supplement the above share-its implementation.

tained to protect the whistleblower and ensure that they are notproviding stakeholders with an accurate understanding ofholder meeting-related initiatives, Tokyo Electron’s website

subject to any disadvantage or repercussions.

the Company.

carries notices, resolutions and presentation materials ofshareholders’ meetings. An English version of the Notice ofFramework for Thorough Implementation of ComplianceTokyo Electron has drawn up the Compliance Regulations set-

Disclosure Policy

Disclosure Practices

ting out basic compliance-related requirements in line with theTokyo Electron is committed to disclosing information about• If it is subject to the marketable securities listing regulations

Code. The Compliance Regulations are intended to ensure that

the Company in a fair, prompt and accurate manner, to ensure(material information), Tokyo Electron will release information

all individuals who take part in business activities for the Group

that all stakeholders, including shareholders and other inves-simultaneously in a press release and via the Tokyo Stockclearly understand the pertinent laws, regulations, internationaltors, can obtain an accurate, in-depth understanding of the

Exchange’s “Timely Disclosure Network” (TDnet), and will post

standards and internal company rules, and continuously apply

Company and its activities, and evaluate the Company’s corpo-

the information on its website as soon as possible, following

these rules in all of their activities. The Company also conducts

rate value appropriately. The Company also solicits feedback

the official announcement.

web-based training programs for employees, makes informationfrom its stakeholders as part of its information disclosure activ-• Even when it does not fall into the category of “material infor-

on compliance issues available to employees via the Company

ities, and uses the feedback as a point of reference to guidemation,” the Company will voluntarily disclose information

intranet, and takes other steps to promote broad awareness ofcorporate management.

which may be of interest to stakeholders in a fair, accurate,and easy-to-understand manner, either on its website or incompliance throughout the Company.
Information Disclosure Standards
Internal Reporting System• Tokyo Electron complies fully with the Financial Instruments

printed form, through various means of communication.
• Tokyo Electron conducts meetings to discuss its financial

In the event that an employee becomes aware of any activity

and Exchange Act, and the Tokyo Stock Exchange’s listing

results with securities analysts and investors; these meetings

which may violate laws, regulations or principles of businessregulations pertaining to marketable securities.

are also open to members of the press. The Company makes

ethics, the Group operates an internal reporting system thataudio recordings of its fiscal year-end and mid-term financial
results meetings, and posts these recordings on the Company’swebsite. 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 toDoes Tokyo Electron have these major components of corporate governance?

the information, the Company strives to disclose all information simultaneously in Japanese and English. However, due

Compensation Committee

Yes Composed of directors, excluding representative directors, or statutory auditors

to the time required for translation, there may be cases

Nomination Committee

Yes Composed of directors, excluding representative directors, or statutory auditors

where the posting of English information to the website isOutside directors

Yes Two of the 14 directors are outside directors

delayed slightly.

Outside auditors

Yes Two of the four statutory auditors are outside auditors

Executive officer system

Yes

Shareholder Measures

Disclosure of individual remunerations ofrepresentative directors

Yes Disclosed since 1999

Tokyo Electron mails a Notice of Annual General Meeting of

Performance-linked compensation systemYesadvance of the meeting, as one of its measures to vitalize

Stock options system

Yes Does not apply to outside directors and auditorsthese meetings and to promote smooth and efficient voting.

Retirement allowance system for executives

NoIt also sets the date of the Company’s meeting to avoid days

Anti-takeover measures

Noon which many such meetings are concentrated. In addition,

Shareholders to shareholders more than three weeks in

Annual General Meeting of Shareholders is also provided.

Tokyo Electron is a constituentof the FTSE4Good Global Index.

Since September 2003, Tokyo Electron has been chosen for theFTSE4Good Global Index, which is a CSR index provided by theFTSE Group. The FTSE Group is a world leading index firm 100%
owned by the London Stock Exchange.