TOKYO ELECTRON ANNUAL REPORT 2013

PAGE14

CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Special Feature

Review of Operations
and Business Outlook

Corporate GovernanceCorporate GovernanceCorporate CitizenshipIntellectual Property

Financial Section

Corporate Data

Directors, Audit & Supervisory Board Members and Executive Officers

Corporate Governance
Against a backdrop of ongoing business globalization, Tokyo

duties by directors. During fiscal 2013, the audit & supervisory board

Electron maintains a management philosophy that puts emphasis onmet seven times.

improving corporate value for its shareholders and all other stake-effectiveness of internal control systems. As necessary, the Global

nInternal Control and Risk Management System

Audit Center also provides guidance to operating divisions.
In order to enhance corporate value and ensure that all businessholders. To this end, the Company considers it important to strength-

Outside Directors and Outside Audit & Supervisory Board

activities are carried out responsibly and in the interests of all stake-

Coordination Between Audit & Supervisory Board Members

en corporate governance. In line with the following three basic

Members

holders, Tokyo Electron is taking steps to strengthen its internal con-and Internal Audit Department

principles, the Company is building a highly effective, optimized cor-

From the viewpoint of objectively ensuring the effectiveness of thetrol systems and make them more effective. The Company isThe audit & supervisory board members coordinate with the Global

porate governance structure, and upgrading and strengthening its

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

implementing practical measures in line with the Fundamental

Audit Center, a department responsible for internal auditing activities,

internal control systems and risk management system.

appointed two outside directors to the Board: Mr. Hiroshi Inoue, who isPolicies Concerning Internal Controls within the Tokyo Electron

primarily by attending its report meetings.

Chairman of the Board, Tokyo Broadcasting System Holdings, Inc.,

Group decided by the Board of Directors. The Company is alsoTokyo Electron’s Basic Principles of Corporate Governanceand Mr. Masahiro Sakane, who is Councilor & Senior Advisor,

implementing measures for the Internal Controls Over Financial

Coordination Between Audit & Supervisory Board Members

1. Ensure the transparency and soundness of business operations

Komatsu Ltd. Additionally, to objectively ensure the reasonableness ofReporting, based on the Financial Instruments and Exchange Act.

and Independent Auditors

2. Facilitate quick decision-making and the efficient execution ofthe audits, Tokyo Electron has appointed three outside audit & supervi-business operations
3. Disclose information in a timely and suitable mannernThe Corporate Governance Framework

The audit & supervisory board members receive audit plans for thesory board members: Mr. Mikio Akaishi, Mr. Takatoshi Yamamoto andInternal Control Systems

fiscal year from the independent auditors, as well as explanations

Mr. Ryuji Sakai, who is an attorney at law of Nagashima Ohno &To more effectively strengthen the internal control and risk manage-regarding auditing methods and particular areas of focus, among

Tsunematsu. Mr. Mikio Akaishi conducts audits of the Tokyo Electron

ment systems of the entire Tokyo Electron Group, Tokyo Electronother matters. The independent auditors audit the year-end financial

Group as a full-time audit & supervisory board member.

appointed a Chief Internal Control Director and a Compliance &statements and review the quarterly financial statements, and report

Internal Control Executive Officer. Under them, the Company estab-the results of their audits to the audit & supervisory board members.
The Company provides KPMG AZSA LLC, its independent audi-

Tokyo Electron uses the audit & supervisory board system based onCompensation for Corporate Directors and Audit &the Companies Act, and furthermore has established its own

Supervisory Board Members

within the General Affairs Department, which evaluates and analyzes

tors, with all necessary information and data to ensure that it canCompensation Committee* and Nomination Committee** to increase

Tokyo Electron has adopted the following executive compensation

the risks which could affect the Group, and works to reduce these

conduct its audits during the fiscal year promptly and correctly.

the transparency and objectivity of management. The members ofprogram with the intention of tying compensation more closely torisks by promoting the necessary measures. Tokyo Electron has also

these committees are directors and audit & supervisory board mem-financial results and shareholder value, raising corporate competitive-

established the Information Security Committee and the Export Tradebers, excluding the representative directors. Also, to more clearly

ness, and enhancing management transparency.

Control Committee to further strengthen the management of confi-

define the roles of the Board of Directors and the executive body and1. The compensation for corporate directors consists of a monthly

dential information and the export compliance system.

to facilitate quick decision-making, Tokyo Electron has adopted thefixed remuneration and a performance-linked compensation.

executive officer system since 2003. Moreover, Tokyo Electron has

2. The performance-linked compensation system for corporate direc-

been disclosing the individual remuneration of representative direc-lished a dedicated risk management and internal control function

nCompliance
Stakeholder trust is the cornerstone of business activities. In orderto maintain trust, it is necessary to continuously act in rigorous

Internal Audit Department (Global Audit Center)

conformity to business ethics and compliance. In line with thetors is designed to align compensation more clearly with financial

The Global Audit Center oversees the internal auditing activities ofFundamental Policies Concerning Internal Controls within thetors since 1999 in recognition of the importance of managerial trans-results and increases in shareholder value. It takes into accountthe entire Tokyo Electron Group. The Center is responsible for audit-Tokyo Electron Group, all Group executives and employees areparency for shareholders.

consolidated net income and consolidated return on equity (ROE),

ing the business activities of the Group’s domestic and overseas

required to maintain high standards of ethics and to act with a*two performance indicators of consolidated business results.

bases, as well as their compliance and systems, and evaluating theclear awareness of compliance.

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.

Necessary adjustments are then made when there are special factors that should be taken into account, such as principal performance indicators for the term under review, including profits andlosses, and so on. In principle, performance-linked compensation

The Board of Directors

comprises cash bonuses and stock-based compensation.

The Board of Directors consists of 11 directors, two of whom are

Performance-linked compensation is limited to five times the fixedoutside directors. In principle, the Board of Directors meets once

yearly remuneration. The ratio of cash bonuses to stock-baseda month. During fiscal 2013, the Board of Directors met on 12

compensation has generally been one to one. Stock-based com-occasions. In order to ensure that the Company can respondpensation consists of granting share subscription rights with a set

quickly to changing business conditions, and to more clearly

strike price of one yen per share and a three-year vesting perioddefine management accountability, the term of office for directors
is set at one year.

before the granted stock options may be exercised.
3. The performance-linked compensation of outside directors does
not include stock-based compensation.

The Audit & Supervisory Board

4. The compensation for audit & supervisory board members con-

The Company has five audit & supervisory board members, three ofsists only of a monthly fixed remuneration, to maintain indepen-

whom are outside audit & supervisory board members. The audit &dence from management.

supervisory board members not only attend meetings of the Board of

5. Retirement allowance systems for corporate directors and audit &Directors, the Top Management Conference and other important

supervisory board members have been abolished in and after thebusiness meetings, but also conduct operations audits and account-end of fiscal 2005, as part of the revisions to Tokyo Electron’s

ing audits, evaluate risk management, and audit the performance ofexecutive compensation program.

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

Audit & Supervisory
Board

Compensation Committee Chief Business Ethics DirectorNomination Committee
Chief Internal Control Director

Request for improvement/Report

Representative Directors

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

Request for improvement/ReportCompliance & Internal Control Executive Officer

Internal Audit Dept.
(Global Audit Center)

Executive Officers

Committees Ethics Committee
Information Security Committee
Export Trade Control Committee

Independent Auditors

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 2013

PAGE15CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Special Feature

Review of Operationsand Business Outlook

Corporate GovernanceCorporate GovernanceCorporate CitizenshipIntellectual Property

Financial Section

Directors, Audit & Supervisory Board Members and Executive Officers

Corporate Governance
Code of Ethics, Chief Business Ethics Director and Ethics

Internal Reporting SystemCommittee

In the event that an employee becomes aware of any activity which

In 1998, Tokyo Electron formulated the “Code of Ethics of the Tokyo

may violate laws, regulations or principles of business ethics, theElectron Group” to establish uniform standards to govern all of its

Group operates an internal reporting system that employees can use

global business activities. In the same year, the Company appointed

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

a Chief Business Ethics Director and established the Ethics

hotline and a compliance hotline, and this reporting system is also inCommittee, which is responsible for promoting business ethics

place at each overseas base. In all cases, this system ensures thatawareness throughout the Group. The Code and its Q&A section arestrict confidentiality is maintained to protect the whistleblower andpublished in Japanese, English, Korean and Chinese editions, andDoes 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 11 directors are outside directors

Outside audit & supervisory board members

Yes

Three of the five audit & supervisory board members areoutside audit & supervisory board members

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

Executive officer system

Yes

Disclosure of individual remunerations of representative directors

Yes

including those overseas. Moreover, the Code is appropriately

Shareholder’s Meeting

Performance-linked compensation systemYesreviewed and revised in response to changes in the environment andTokyo Electron mails a Notice of Annual General Meeting ofsocietal demands. The most recent revision of the Code and Q&A

Shareholders to shareholders more than three weeks in advance ofStock options systemYes

was in April 2011.

the meeting, as one of its measures to vitalize these meetings and toRetirement allowance system for executives

Nopromote smooth and efficient voting.

Anti-takeover measures

No

the Company distributes it to all Group executives and employees,

Compliance & Internal Control Executive Officer

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

Tokyo Electron has appointed a Compliance & Internal Control

which many such meetings are concentrated. In addition, sharehold-Executive Officer from among the executive officers to raise aware-ers are free to cast their votes via the Internet. Moreover, Tokyo

ness of compliance across the Group, and further improve its imple-Electron participates in the web-based voting platform for institutional

mentation.

investors operated by Investor Communications Japan Inc. (ICJ). To
supplement the above shareholder meeting-related initiatives, Tokyo

Framework for Thorough Implementation of ComplianceElectron’s website carries notices, resolutions and voting results ofTokyo Electron has drawn up the Compliance Regulations setting out

shareholders’ meetings.

basic compliance-related requirements in line with the Code. The
Compliance Regulations are intended to ensure that all individuals
who take part in business activities for the Group clearly understandthe pertinent laws, regulations, international standards and internal
company rules, and continuously apply them in all of their activities.

Constituent of theFTSE4Good Global Index

The Company also conducts web-based training programs foremployees, makes information on compliance issues available toemployees via the Company intranet, and takes other steps to promote broad awareness of compliance throughout the Company.

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

Corporate Data