TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

10CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo ElectronTop Message

Review of Operationsand Business Outlook

Corporate GovernanceCorporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Directors,Directors, Audit
Audit && Supervisory
Supervisory Board
Board Members
Members andand Executive
Executive Officers
Officers

Corporate Governance
Against a backdrop of ongoing business globalization, Tokyo
Electron maintains a management philosophy that places emphasis	Outside Directors and Outside Audit & Supervisory BoardMembers

Tokyo Electron is taking steps to strengthen its internal control systems
and make them more effective. The Company is implementing practical	Coordination Between Audit & Supervisory Board
Members and Independent Auditorson improving corporate value for its shareholders and all other stake-

From the viewpoint of objectively ensuring the effectiveness of the deci-

measures in line with the Fundamental Policies Concerning Internal

The audit & supervisory board members receive audit plans for the fiscal

holders. To this end, the Company considers it important to strength-sion-making of the Board of Directors, Tokyo Electron has appointed twoControls within the Tokyo Electron Group decided by the Board ofyear from the independent auditors, as well as explanations regarding

en corporate governance. In line with the following three basic

outside directors to the Board: Mr. Hiroshi Inoue, who is Chairman of theDirectors. The Company is also implementing measures for the Internal

auditing methods and particular areas of focus, among other matters.

principles, the Company works to maintain a highly effective, opti-Board at Tokyo Broadcasting System Holdings, Inc., and Mr. Masahiro

Controls Over Financial Reporting, based on the Financial Instruments

The independent auditors audit the year-end financial statements andmized corporate governance structure while upgrading and strength-Sakane, who is Councilor at Komatsu Ltd. Additionally, to objectively

and Exchange Act.

review the quarterly financial statements, and report the results of theirening its internal control systems and risk management system.

ensure the reasonableness of the audits, Tokyo Electron has appointed
three outside audit & supervisory board members: Mr. Mikio Akaishi, Mr.

Tokyo Electron’s Basic Principles of Corporate Governanceaudits to the audit & supervisory board members.
The Company provides KPMG AZSA LLC, its independent auditors,

Internal Control Systems

Takatoshi Yamamoto and Mr. Ryuji Sakai, who is an attorney at law ofTo more effectively strengthen the internal control and risk managementwith all necessary information and data to ensure that it can conduct its

1. Ensure the transparency and soundness of business operations

Nagashima Ohno & Tsunematsu. Mr. Mikio Akaishi conducts audits ofsystems of the entire Tokyo Electron Group, Tokyo Electron appointed aaudits during the fiscal year promptly and correctly.

2.	Facilitate quick decision-making and the efficient execution of busi-

the Tokyo Electron Group as a full-time audit & supervisory board mem-Chief Internal Control Director and a Compliance & Internal Control

ber.

Executive Officer. Under them, the Company established a dedicatedness operations
3. Disclose information in a timely and suitable manner	Compensation for Corporate Directors and Audit &risk management and internal control function within the General Affairs

ComplianceDepartment, which evaluates and analyzes the risks which could affect

Stakeholder trust is the cornerstone of business activities. In order tothe Group, and works to reduce these risks by promoting the necessary

maintain trust, it is necessary to continuously act in rigorous conformity toThe Corporate Governance Framework

Tokyo Electron has adopted the following executive compensation pro-measures. Tokyo Electron has also established the Information Security

business ethics and compliance. In line with the Fundamental Policies

Tokyo Electron uses the audit & supervisory board system based on thegram with the intention of tying compensation more closely to financial

Committee and the Export Trade Control Committee to further strength-Concerning Internal Controls within the Tokyo Electron Group, all GroupCompanies Act, and furthermore has established its own Compensation

results and shareholder value, raising corporate competitiveness, anden the management of confidential information and the export compli-executives and employees are required to maintain high standards of eth-Committee* and Nomination Committee** to increase the transparency

enhancing management transparency.

ance system.

ics and to act with a clear awareness of compliance.

and objectivity of management. The members of these committees are1.	The compensation for corporate directors consists of a monthly fixed

directors and audit & supervisory board members, excluding the repre-Supervisory Board Members

remuneration and a performance-linked compensation.	Code of Ethics, Chief Business Ethics Director and Ethics

Internal Audit Department (Global Audit Center)sentative directors. Also, to more clearly define the roles of the Board of2.	The performance-linked compensation system for corporate directors

The Global Audit Center oversees the internal auditing activities of theDirectors and the executive body and to facilitate quick decision-mak-is designed to align compensation more clearly with financial results

entire Tokyo Electron Group. The Center is responsible for auditing theIn 1998, Tokyo Electron formulated the Code of Ethics of the Tokyo

ing, Tokyo Electron has adopted the executive officer system sinceand increases in shareholder value. It takes into account consolidated

business activities of the Group’s domestic and overseas bases as well

Electron Group to establish uniform standards to govern all of its global

2003. Moreover, Tokyo Electron has been disclosing the individual remu-

net income and consolidated return on equity (ROE), two perfor-

as their compliance and systems, and for evaluating the effectiveness ofbusiness activities. In the same year, the Company appointed a Chief

neration of representative directors since 1999 in recognition of themance indicators of consolidated business results. Necessary adjust-internal control systems. As necessary, the Global Audit Center also pro-Business Ethics Director and established the Ethics Committee, which isimportance of managerial transparency for shareholders.

ments are then made when there are special factors that should bevides guidance to operating divisions.

responsible for promoting business ethics awareness throughout the*	Compensation Committee: This committee makes recommendations to the Board ofDirectors on the director remuneration system, as well as representative director remuneration itself.
**	Nomination Committee: This committee nominates director- and CEO-candidates, andsubmits them to the Board of Directors for approval.

taken into account, such as principal performance indicators for theThe Board of Directors
The Board of Directors consists of nine directors, two of whom areoutside directors. In principle, the Board of Directors meets once amonth. During fiscal 2014, the Board of Directors met on 13 occasions. In order to ensure that the Company can respond quickly tochanging business conditions, and to more clearly define management accountability, the term of office for directors is set at one year.
The Audit & Supervisory Board
The Company has four audit & supervisory board members, three ofwhom are outside audit & supervisory board members. The audit &supervisory board members not only attend meetings of the Board ofDirectors, the Top Management Conference and other important business meetings, but also conduct operations audits and accounting
audits, evaluate risk management and audit the performance of duties
by directors. During fiscal 2014, the audit & supervisory board met
seven times.

term under review, including profits and losses, and so on. In principle, performance-linked compensation comprises cash bonuses andCommittee

Group. The Code and its Q&A section are published in Japanese,
English, Korean and Chinese editions, and the Company distributes it to	Coordination Between Audit & Supervisory Board

all Group executives and employees, including those overseas.

Members and Internal Audit Department

stock-based compensation. Performance-linked compensation is lim-The audit & supervisory board members coordinate with the Global

Moreover, the Code is appropriately reviewed and revised in response to

ited to five times the fixed yearly remuneration. The ratio of cash

Audit Center, a department responsible for internal auditing activities,changes in the environment and societal demands.

bonuses to stock-based compensation has generally been one toprimarily by attending its report meetings.

one. Stock-based compensation consists of granting share subscription rights with a set strike price of one yen per share and a three-year

Diagram of the Corporate Governance Framework, Internal Control System and Risk Management System

vesting period before the granted stock options may be exercised.

Shareholders' Meeting

3.	The performance-linked compensation of outside directors does notinclude stock-based compensation.
4.	The compensation for audit & supervisory board members consists

Board of Directors

Chief Business Ethics Director

only of a monthly fixed remuneration, to maintain independence frommanagement.
5.	Retirement allowance systems for corporate directors and audit &supervisory board members have been abolished since the end of fiscal 2005, as part of the revisions to Tokyo Electron’s executive compensation program.

Request for improvement/Report

Representative Directors

Compliance & Internal Control Executive Officer
CSR Promotion Executive Officer

In order to enhance corporate value and ensure that all business activities are carried out responsibly and in the interests of all stakeholders,

Independent Auditors

Confirm the progress of improvements and give instructions
Audit and improvement reports

Request for improvement/Report

Internal Audit Dept.
(Global Audit Center)

Executive Officers

Committees Ethics Committee
Information Security Committee
Export Trade Control Committee
CSR Promotion Council

Internal Control and Risk Management System

Audit & Supervisory
Board

Compensation Committee
Chief Internal Control Director
Nomination CommitteeChief CSR Promotion Director

Request for improvement/Report

Risk Management & Internal Control Function(General Affairs Dept.)
Request for improvement/Report

Monitoring

Administrative Depts.

Check and balance

Business Depts.

Audit

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

11

CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Talking about
Tokyo Electron

Review of Operations
and Business Outlook

Corporate GovernanceCorporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Directors,Directors, Audit
Audit && Supervisory
Supervisory Board
Board Members
Members andand Executive
Executive Officers
Officers

Corporate GovernanceCompliance & Internal Control Executive Officer

cretely stating its corporate social responsibility and policies. By

Tokyo Electron has appointed a Compliance & Internal Control

understanding its duties as a good corporate citizen and earnestly

Executive Officer from among the executive officers to raise aware-

responding to the demands of society, the Tokyo Electron Groupness of compliance across the Group and further improve its imple-

seeks to contribute to society and create hope for the future.

mentation.

Does Tokyo Electron have these major components of corporate governance?
Compensation Committee

Yes

Composed of directors, excluding representative directors,
or audit & supervisory board members

Nomination Committee

Yes

Composed of directors, excluding representative directors,
or audit & supervisory board members

Outside directors

Yes

Two of the 9 directors are outside directors

Outside audit & supervisory board members

Yes

Three of the four audit & supervisory board members areoutside audit & supervisory board members	CSR Promotion Council, Chief CSR Promotion Director,
Framework for Thorough Implementation of Compliance

CSR Promotion Executive Officer

Tokyo Electron has drawn up the Compliance Regulations setting out

In 2014, the Group established the CSR Promotion Council to for-basic compliance-related requirements in line with the Code. The

mulate and review CSR promotion plans and indicators, andCompliance Regulations are intended to ensure that all individuals

newly appointed a Chief CSR Promotion Director, to oversee theExecutive officer system

Yes

who take part in business activities for the Group clearly understandmeeting. Under the leadership of the CSR Promotion Executive

Disclosure of individual remunerations of representative directors

Yesthe pertinent laws, regulations, international standards and internalOfficer, the Group is working to further enhance CSR activities.

Performance-linked compensation system

Yes
Yes

employees, makes information on compliance issues available toShareholders’ Meeting

Stock options system

employees via the Company intranet, and takes other steps to pro-Tokyo Electron mails a Notice of Annual General Meeting ofRetirement allowance system for executives

No

mote broad awareness of compliance throughout the Company.

Shareholders to shareholders more than three weeks in advance ofAnti-takeover measures

Nocompany rules, and continuously apply them in all of their activities.
The Company also conducts web-based training programs forthe meeting, as one of its measures to vitalize these meetings and toInternal Reporting Systempromote smooth and efficient voting. It also sets the date of theIn the event that an employee becomes aware of any activity which

Company’s meeting to avoid days on which many such meetings are

may violate laws, regulations or principles of business ethics, theconcentrated. In addition, shareholders are free to cast their votes viaGroup operates an internal reporting system that employees can use

the Internet. Moreover, Tokyo Electron participates in the web-based

to report their concerns. The entire Group has established an ethics

voting platform for institutional investors operated by ICJ, Inc.

hotline and a compliance hotline, and this reporting system is also in

To supplement the above shareholder meeting-related initiatives,

place at each overseas base. In all cases, this system ensures thatTokyo Electron’s website carries notices, resolutions, and voting

strict confidentiality is maintained to protect the whistleblower andresults of shareholders’ meetings.

ensure that they are not subject to any disadvantage or repercussions.

CSR (Corporate Social Responsibility)
The Tokyo Electron Group regards ensuring workplace safety, the safeuse of its products and the health of everyone associated with theGroup’s activities as fundamental to fulfilling its corporate social respon-Constituent of theFTSE4Good Global Index

sibility (CSR). To further promote CSR initiatives, the Group has established a CSR Policy as well as dedicated CSR promotion structure.
CSR Policy
In 2013, Tokyo Electron adopted a CSR Policy based on theCompany’s Corporate Philosophy and Management Policies, codifying its basic stance and values with regard to CSR activities and con-Tokyo Electron has been a constituent of the FTSE4Good Global Index
since September 2003. The FTSE4Good Global Index is a social
responsibility investment (SRI) index provided by the FTSE Group,a world-leading index firm wholly owned by the London Stock Exchange.

Disclosed since 1999

Does not apply to outside directors andaudit & supervisory board members