Tokyo Electron  Annual Report 2011

Corporate GovernanceTokyo Electron’s Growth and Corporate GovernanceTetsuro Higashi
Chairman of the Board

The Great East Japan Earthquake that occurred in March 2011

same time, the electronics industry harbors huge growth potential

caused us to induce great concern among our shareholders. With

as it expands to every region around the world. I believe thatyour support, however, as of June 2011 we have restored Tokyo

Tokyo Electron must remain a company that possesses “aspira-Electron’s development and production functions to largely thetions and vitality” and stay in the vanguard of the times by gener-

same condition as before the disaster. We are confident we will beating further technological innovation.

fully prepared to meet growing demand from our customers.

when considering corporate governance. First, as company man-of all stakeholders. In addition, all of the Company’s employees

agement is entrusted to us by the shareholders, it is extremely

and executive officers are strongly determined to rebuild from theimportant for us to maximize corporate value over the medium

disaster and harbor strong ambitions to make Tokyo Electron anand long terms. On the other hand, the second point is that I

even stronger company. I myself once again feel proud of thebelieve a corporation is an organic living structure which is formed

strong resolve of the Company’s employees and their high level ofby the Company’s employees, and that it must therefore be a truly

awareness in these respects.

worthwhile, vibrant organization from the standpoint of theThe electronics industry in which the Company operates has

employees. In this sense, I believe that the essence of corporate

given birth to a steady stream of technological innovation forgovernance lies in management’s continuous efforts to develop

more than half a century. This technological innovation in turn hassystems and measures that ensure that the company remains

generated new demand, spurring significant growth in the indus-

attractive to both shareholders and employees.

try as a whole. Going forward, the electronics industry still offers

From these perspectives, I intend to actively provide timely

significant scope for technological innovation. The industry’s mar-advice in support of the current execution system and thekets are set to further permeate every aspect of daily life, from­Company overall.

advanced information and communications technology fields, tothe automobile, healthcare-related and energy sectors. At the18

As chairman, I put particular emphasis on the following points

I wish to extend my gratitude for the encouragement and support

Annual Report 2011

Tokyo Electron

Corporate Governance
Against a backdrop of ongoing business globalization, Tokyo

representative directors since 1999 in recognition of the impor-Electron maintains a management philosophy that puts emphasistance of managerial transparency for shareholders.

on maximizing corporate value and enhancing shareholder
The Board of Directors

satisfaction.
To this end, the Company is striving to strengthen corporate

The Board of Directors consists of 15 directors, two of whom aregovernance through a variety of measures. The Company is build-external directors. In principle, the Board of Directors meets once a

ing a highly effective corporate governance structure, and upgrad-month, with additional meetings if necessary. (During fiscal 2011,ing and strengthening its internal control systems and risk

the Board of Directors met on 11 occasions.) In order to ensure

management system. Efforts in this regard are founded on thethat the Company can respond quickly to changing businessfollowing three basic principles.

­conditions, and to more clearly define management accountability,
the term of office for directors is set at one year. Furthermore,

Tokyo Electron’s Basic Principles of Corporate Governancethere are two committees whose activities are intended to

1. Ensure the transparency and soundness of business operations

improve corporate governance: the Compensation Committee

2. Facilitate quick decision-making and the efficient execution ofand the Nomination Committee.

business operationsCompensation Committee: This committee proposes the remu-

3. Disclose information in a timely and suitable manner

neration to be paid to representative directors at the Board meeting for approval.

The Corporate Governance Framework

Nomination Committee: This committee nominates candidatesTokyo Electron uses the statutory auditor system based on thefor directors to be selected at the annual shareholders’ meeting,Company Law, and furthermore has established its own Nomina-and nominates a candidate for CEO to be selected by the Board,tion Committee and Compensation Committee to increase thewhich it submits at the Board meeting for approval.

transparency and objectivity of management. Also, Tokyo Electron
has adopted the executive officer system to separate the business

Each of these committees is composed of members of theexecution function from the Board of Directors. Moreover, Tokyo

Board of Directors, excluding the representative directors, or statu-

Electron has been disclosing the individual remunerations oftory auditors.

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

Statutory Auditors

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

Independent Auditors

Confirm the progress of improvements and give instructions
Request for improvement/Report

Representative Directors
Audit and improvement reports

Request for improvement/ReportCompliance & Internal Control Executive Officer

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 Department
Request for improvement/Report

Business Depts.

Monitoring

Check and balance

Administrative Depts.

19Tokyo Electron  Annual Report 2011

The Board of Statutory AuditorsThe Company has four statutory auditors, two of whom are

3. The earnings-linked compensation of external directors does
not include stock-based compensation.

­external auditors. The statutory auditors not only attend meetings

4. In order to ensure that statutory auditors maintain full indepen-of the Board of Directors, the Management Meeting and otherdence from management pressures, the compensation of statu-

important business meetings, but also conduct operations audits
and accounting audits, and evaluate risk management, in addition

tory auditors consists of a fixed monthly salary only.
5. Retirement allowances for corporate directors and statutory

to auditing the performance of duties by directors. During fiscal

auditors were abolished at the end of fiscal 2005, as part of the2011, the board of statutory auditors met six times.

revisions to Tokyo Electron’s compensation system for executives.

The Executive Officer System

Internal Control and Risk Management System

In order to further clarify the roles of the Board of Directors andIn order to enhance corporate value and ensure that all businessexecutives in charge of business operations, Tokyo Electron has

activities are carried out responsibly and in the interests of all

adopted the executive officer system. This system promotes faststakeholders, Tokyo Electron is taking steps to strengthen its inter-decision-making and the quick establishment and execution ofnal control systems and make them more effective. The Company

business strategies.

is implementing practical measures in line with the basic policy forinternal control systems in the Tokyo Electron Group decided byCompensation for Corporate Directors and Statutory Auditors

the Board of Directors. The Company is also implementing inter-

The Company has introduced incentive systems, such as businessnal controls over financial reporting based on the Financial Instru-results-based compensation and stock options linked to sharements and Exchange Law.

prices. As regards business results-based compensation, effectivefrom fiscal 2011, the Company revised its executive compensation

Internal Control Systems

system to link compensation more precisely to the elements ofTo strengthen the internal control and risk management systems

maximizing corporate value and enhancing shareholder value. Toof the entire Tokyo Electron Group more effectively, Tokyo Electron

achieve this, Tokyo Electron has added ROE as an extra evaluation

appointed a Chief Internal Control Director and a Compliance &yardstick to the conventional one of net income.

Internal Control Executive Officer. Under them, the Company

1. The compensation for corporate directors is composed of two

established the Risk Management & Internal Control Department,elements: a fixed monthly salary, and performance-linked

which evaluates and analyzes the risks which could affect theannual compensation which is linked to earnings performance.

Group, and works to reduce risks by promoting the necessary

2. The total amount of performance-linked compensation formeasures. Tokyo Electron has also established the Information

corporate directors is calculated by assessing the degree ofSecurity Committee and the Export Trade Control Committee toachievement of ROE as well as net income, and is also adjusted

further strengthen the management of confidential information

to allow for any other important management targets desig-

and the export compliance system.

nated for the period under review, for any special losses thatoccurred, and for any other special factors that should be con-Internal Audit Department (Global Audit Center)sidered. This compensation is split between cash bonuses andThe Global Audit Center oversees the internal auditing activitiesstock-based compensation at a ratio of roughly one to oneof the entire Tokyo Electron Group. The Center is responsible forhaving been changed from the previous ratio of two to one.

auditing the business activities of the Group’s domestic andAs a result, the ratio of stock-based compensation increased.

overseas bases, as well as their compliance and systems, andThis change was made to allow corporate directors to share inevaluating the effectiveness of internal control systems. Whenboth the benefits and the risks experienced by shareholders.

necessary, the Global Audit Center also provides guidance toThe amount of performance-linked compensation is set at aoperating divisions.

maximum of a multiple of five times the annual fixed compensation. The stock-based compensation takes the form of newstock warrant contracts with an exercise price of one yen pershare. The restricted period on exercising stock options is set atthree years.

20Annual Report 2011

Tokyo Electron

Coordination Between Statutory Auditors and InternalTokyo Electron Code of Ethics

Audit Department

Compliance/Internal Control Executive Officer

The statutory auditors coordinate with the department responsible

Since April 2009, Tokyo Electron has appointed a Compliance/for internal auditing activities primarily by attending the Global

Internal Control Executive Officer from among the executive offi-Audit Center’s report meetings, which were held 13 times during

cers to raise awareness of compliance across the Group, andfiscal 2011.

further improve its implementation.

Coordination Between Statutory Auditors and Indepen-Framework for Thorough Implementation of Compliancedent Auditors

Tokyo Electron has drawn up compliance regulations setting out

The statutory auditors receive audit plans for the fiscal year frombasic compliance-related requirements in line with its code of

the independent auditors, as well as explanations regarding audit-ethics. The compliance regulations are intended to ensure that all

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

individuals who take part in business activities for the GroupThe independent auditors audit the year-end financial statements

clearly understand the pertinent laws, regulations, internationaland review the quarterly financial statements, and report thestandards and internal company rules, and continuously apply

results of their audits to the statutory auditors.

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

The Company provides KPMG AZSA LLC, its independent

web-based training programs for employees, makes information

auditor, with all necessary information and data to ensure that iton compliance issues available to employees via the Company

can conduct its audits during the fiscal year promptly and correctly.

intranet, and takes other steps to promote broad awareness ofcompliance throughout the Company.

Compliance
Trust is the cornerstone of Tokyo Electron’s business founda-Internal Reporting System: Hotlinetion. The fundamental requirements for maintaining trust areIn the event that an employee becomes aware of any activity

rigorous conformity to ethical standards and compliance withwhich may violate laws, regulations or principles of businessthe law, by individual employees and by each of our organiza-ethics, the Company operates an internal reporting systemtions. In line with the basic policy for internal control systems in(Hotline) that employees may use to report their concerns.

the Tokyo Electron Group, all Group employees are required to

Strict confidentiality is maintained to protect the whistle-maintain high standards of ethics and to act with a clear

blower and ensure that they are not subject to any disadvan-awareness of compliance.

tage or repercussions.

Ethical Standards, Chief Business Ethics Director and Ethics

Disclosure Policy

Committee

Tokyo Electron is committed to disclosing information about theIn 1998, the Company formulated the “Tokyo Electron Code ofCompany in a fair, prompt and accurate manner, to ensure that allEthics” (revised in April 2011) to establish uniform standards tostakeholders, including shareholders and other investors, cangovern all of its global business activities.

obtain an accurate, in-depth understanding of the Company andIn the same year, the Company appointed

its activities, and evaluate the Company’s corporate value appro-a Chief Business Ethics Director and estab-priately. The Company also solicits feedback from its stakeholders

lished the Ethics Committee, which isas part of its information disclosure activities, and uses the feed-

responsible for promoting business ethics

back as a point of reference to guide corporate management.

awareness throughout the Company. The

Tokyo Electron Codeof Ethics

Tokyo Electron Code of Ethics prescribes aInformation Disclosure Standards

common code of behavior for all employ-• Tokyo Electron complies fully with the Financial Instruments andees of Tokyo Electron and the Group, andExchange Law, and the Tokyo Stock Exchange’s listing regula-

the Company distributes it to all Grouptions pertaining to marketable securities.

employees, including those overseas.

21

Tokyo Electron  Annual Report 2011• Even when the information is not subject to the listing regulations pertaining to marketable securities, the Company discloses

time required for translation, there may be cases where theposting of English information to the website is delayed slightly.

the information proactively, in a fair, prompt and accuratemanner if the information is deemed useful in providing stake-Shareholder Measures

holders with an accurate understanding of the Company.

Tokyo Electron mails a Notice of Annual General Meeting ofShareholders to shareholders more than three weeks in advanceDisclosure Practicesof the meeting, as one of its measures to vitalize these meetings• If it is subject to the marketable securities listing regulations

and to promote smooth and efficient voting. It also sets the(material information), Tokyo Electron will release information

date of the Company’s meeting to avoid days on which many

simultaneously in a press release and via the Tokyo Stocksuch meetings are concentrated. In addition, shareholders are

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

free to cast their votes via the Internet. Moreover, Tokyo

the information on its website as soon as possible, following the­Electron participates in the web-based voting platform for insti-

official announcement.

tutional investors operated by Investor Communications Japan• Even when it does not fall into the category of “material infor-

Inc. (ICJ). To supplement the above shareholder meeting-relatedmation,” the Company will voluntarily disclose informationinitiatives, Tokyo Electron’s website carries notices, resolutions

which may be of interest to stakeholders in a fair, accurate, andand presentation materials of shareholders’ meetings. An Eng-

easy-to-understand manner, either on its website or in printed

lish version of the Notice of Annual General Meeting of Share-form, through various means of communication.

holders is also provided.

• 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
recordings of its fiscal year-end and mid-term financial results

Tokyo Electron is a constituentof the FTSE4Good Global Index.

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, the Company strives to disclose all information
simultaneously in Japanese and English. However, due to theSince September 2003, Tokyo Electron has been chosen for the FTSE4Good GlobalIndex, which is a CSR index provided by the FTSE Group. The FTSE Group is a world
leading index firm, a joint venture between the Financial Times newspaper and theLondon Stock Exchange.

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

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

Nomination Committee

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

External directors

Yes Two of the 15 directors are external directors

External auditors

Yes Two of the four statutory auditors are external auditors

Executive officer systemYes

Disclosure of individual remunerations of representative
directors

22

Yes Disclosed since 1999

Performance-linked compensation system

Yes

Stock options system

Yes Does not apply to external directors and auditors

Retirement benefits system for executives

NoAnti-takeover measures

No