Corporate Governance

Basic Stance on Corporate Governance

The TOTO Group strives to be a great company, trusted by people all around the world, contributing to the betterment of society. In addition to being a corporate entity engaged in the pursuit of profit through fair competition, the Group conducts its business in such a way as to continue to benefit society broadly. In order to realize this target, we believe it is important to build a system for pursuing and supervising fair and equitable management, and clearly define a philosophy that serves as the basis of such a system.

(1) The TOTO Group has developed a philosophy system for TOTO Group management. This includes a common Group philosophy, representing the inherited values of TOTO that will be carried forward into the future. This represents the "heart" of our philosophy. Also, our philosophy system includes visions for business activities representing the direction of our action to be reviewed in accordance with the demands of the times. This is positioned as the "body in action." All of our business activities are based on this philosophy system.

(2) To ensure operational decisions and business execution in compliance with relevant laws and regulations and TOTO’s Articles of Incorporation, TOTO has a Board of Directors and an Audit & Supervisory Committee, and retains independent accounting auditors.
The Board of Directors, emphasizing fairness, objectivity, and transparency, has appointed five Outside Directors who are independent of the TOTO Group. The Outside Directors give various advice and make proposals on our overall management.
The Audit & Supervisory Committee audits the business execution of Directors and consists of four members, including three outside members. We have built a system to ensure their effective audits through their attendance of major meetings, including Management Committee, and the exchange of opinions with Directors who are not Audit & Supervisory Committee Members on a regular basis.

(3) To complement audits by Audit & Supervisory Committee and independent accounting auditors and to build a stronger internal control system, we have established the Internal Audit Office in-house, which is independent of operational divisions. With the establishment of the Internal Audit Office, we have strengthened our internal audits under the direction of the President.
Audit & Supervisory Committee, independent accounting auditors and members of the Internal Audit Office carry out audits as a three-party audit team. In addition, we strive to enhance the quality and effectiveness of audits through close collaboration among the three parties, which involves reviewing audit results by Audit & Supervisory Committee Members and exchanging information at meetings, among other activities.　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　

(4) In order to comply with the tax laws of countries around the world, TOTO Group will ensure tax transparency by establishing a tax policy. TOTO aims to increase value for shareholders by eliminating tax risks on a global basis.

Corporate Governance and Business Operations

Directors and the Board of Directors

The Board of Directors, which consists of all Directors, meets once a month in principle, makes decisions from the most appropriate company-wide, group-wide and stakeholder perspectives and conducts mutual supervision of the duties of Directors.
Directors other than the Audit & Supervisory Committee members, the Chairman of the Board or Outside Directors concurrently hold positions as Executive Officers in order to perform their own business duties as well (Directors and Executive Officers).
TOTO invites Outside Directors, well versed in the management of leading companies respected for their management practices to which the TOTO Group aspires or specializing in such matters as corporate finance and legal issues, to receive advice and suggestions on general management issues based on their in-depth knowledge and expertise as experienced managers.

Audit & Supervisory Committee Members and the Audit & Supervisory Committee

The Audit & Supervisory Committee, which consists of all Directors who are Audit & Supervisory Committee Members, meets once a month in principle, oversees the execution of the duties of the Directors who are not Audit & Supervisory Committee members from the perspectives of legality and appropriateness. The Audit & Supervisory Committee Members attend meetings of the Management Committee and other major meetings to state their opinions as required and conduct operating audits in line with the relevant auditing policies while utilizing means via the internet and other means.
In addition, the Audit & Supervisory Committee Members regularly exchange opinions with Directors who are not the Audit & Supervisory Committee members and streamline the system to ensure the effectiveness of audits. TOTO calls upon Outside Members of the Audit & Supervisory Committee having deep insight and extensive experience in corporate management or specializing in such matters as corporate finance and legal issues to evaluate decisions made by the Board of Directors and monitor Directors’ execution of their duties from an objective and fair perspective.

Nominating Advisory Committee

The Nominating Advisory Committee ,which meets once a year or more in principle, has been established to help ensure the objectivity and transparency of TOTO’s management through activities such as deliberation on and confirmation of the appointment of TOTO’s Board of Directors. The Committee shall make reports to the Board of Directors on proposals to the General Meeting of Shareholders related to the appointment and dismissal of Directors, including Outside Directors and Representative Director.
Half or more of Committee members shall be outside members, and the chairperson and members have been appointed by the Board of Directors. The Committee members consist of five Independent Directors/Audit & Supervisory Board Members as outside members and Representative Director Chairman of the Board and President Representative Director of TOTO as inside members, and the chairperson shall be the President and Representative Director of TOTO. Members with special interests are unable to participate in the resolution. 

Compensation Advisory Committee

The Compensation Advisory Committee, which meets once a year or more in principle, has been set up to confirm that the process to determine base compensation, bonuses, and restricted stock compensation for Directors, and their allocation balance are in line with the Articles of Incorporation, the resolutions of the General Meeting of Shareholders, and the Basic Policy for Directors’ Compensation, in order to contribute to the ensuring of the appropriateness and objectivity of Directors’ compensation through its activities. The majority of Committee members shall be outside members and the chairperson and members have been appointed by the Board of Directors. The Committee members consist of six outside members including five Independent Directors/Audit & Supervisory Board Members and one Director without the right of representation as an inside member, and the chairperson shall be elected from among the outside members.

Internal Audits

The Internal Audit Office, which is independent of the operational divisions, examines under the direction of the President whether TOTO and the Group companies are performing their operations appropriately and efficiently in compliance with laws and regulations, the Articles of Incorporation, the corporate philosophy and internal regulations.

Executive Officers

To implement decisions made by the Board of Directors effectively and efficiently, TOTO has introduced an Executive Officer system.

Management Committee

TOTO makes important decisions regarding its operations through deliberations at meetings of the Management Committee, which comprises Directors who are also Executive Officers. The meetings of the Committee are, in principle, held twice a month.

Composition of the Board of Directors and Audit & Supervisory Committee in Fiscal 2024

We believe that in order to supervise business operations and to make important decisions, TOTO’s Board of Directors must be composed of members with diverse perspectives, experience and highly professional skills. TOTO invites Outside Directors well versed in the management of leading companies respected for their management practices to which the TOTO Group aspires or specializing in such matters as corporate finance and legal issues. TOTO also ensures the balance of knowledge, experience, abilities, and diversity on the Board of Directors by appointing those who understand our corporate philosophy and who are familiar with our business as Inside Directors.
As of June 26, 2024, we have 14 Directors with voting rights at Meetings of the Board of Directors, of whom nine are Inside Directors with careers in the TOTO Group and five are highly independent Outside Directors.
These members use their respective skills in discussions to make legal and business management decisions and supervise business operations.
The Audit & Supervisory Committee consists of one standing members with careers in the TOTO Group and three outside members with a high level of independence, and conducts audits from the perspectives of legality and appropriateness.

Composition of the Board of Directors, the Audit and Supervisory Committee,etc

(Note) Compensation Advisory Committee members include an external expert who is appointed as an outside member.

Expertise and experience of the Director of the Board（Skill Matrix）

(Note)The table above does not cover all the expertise and experience each director possesses.

Reasons for Adoption of Current Corporate Governance System

The TOTO Group considers that an essential aspect of corporate management is ensuring the satisfaction of stakeholders and constantly expanding corporate value by improving objectivity and transparency in management and by clarifying management responsibilities. To achieve this, for matters requiring management decisions, TOTO recognizes the importance of systematizing “who makes decisions about what and where” as well as “what checks are implemented” in a fair and honest manner.

TOTO is building a structure of decision-making, supervision, and more efficient and effective business execution, with the aim of continuously increasing corporate value.

・ Clarifying the allocation of management responsibility (introduction of the Executive Officer system and the like)
・Enhancing management transparency and soundness (establishment of the Nominating Advisory Committee and the Compensation Advisory Committee)
・Reinforcing supervisory and auditing functions (nomination of highly independent Outside Directors and Outside Members of the Audit & Supervisory Board)
・Strengthening decision-making functions (establishment of the Management Committee and the like)

TOTO has adopted the framework of a company with an Audit & Supervisory Committee system as its base while integrating the superior functions of a company with Nomination Committee. 

Corporate Governance Report
Here you can view the Corporate Governance Report of TOTO Group

Penetration of Common Group Philosophy

The TOTO Group has developed a philosophy system for TOTO Group management. This includes a common Group philosophy, representing the inherited values of TOTO that will be carried forward into the future. Also, our philosophy system includes visions for business activities representing the direction of our action to be reviewed in accordance with the demands of the times. All of our business activities are based on this philosophy system.(*For more details, please refer to the "Philosophy System" section of "About TOTO".)
In order to strengthen our corporate governance, we are putting especial effort into ensuring the penetration of our Common Group Philosophy.

PDCA cycle for Penetration of Common Group Philosophy

Establishment of TOTO Group Business Conduct Guidelines (*1)

The Business Conduct Guidelines, which state the concrete policy directions for the realization of the company's management philosophy, were published in 14 languages and are applicable to each and every employee working at the TOTO Group.

In addition, in order to ensure all employees abide by these Business Conduct Guidelines, relevant education and training programs are being promoted within the Group.

Implementation of Employee Awareness Survey (*2)

An employee awareness survey targeted at employees of TOTO and Group companies in Japan is conducted every year with the aims of keeping track of employee motivation and the level of organizational activity, and using that information to improve the operations of organizations within the Group. The awareness survey involves the anonymous collation of responses by organization and employment type to questions related to "Penetration of philosophy," "motivation of employees," "level of interconnection and solidarity between individual expectations and company's management goals", "degree of developing environment to activate employees". The survey results at the entire Group and organizational level are then shared with the employees to facilitate the creation of action plans to reinvigorate the workplace. We will continue to bolster the dissemination of our management strategy, and maintain and reinforce the organizational culture of the TOTO Group through the implementation of this survey.

Compensation, etc., for Directors

The Basic Policy for Directors' Compensation

The TOTO’s Directors’ Compensation is as follows.

1. The compensation system shall motivate Directors to manage the Company in such a way as to share the common interests with the shareholders, answer to their expectations from a medium- to long-term perspective, realize the corporate philosophy of the TOTO Group, and continuously increase corporate value.
2. The compensation system shall be appealing, and attract excellent and diverse human resources to lead the TOTO Group in the future.
3. The Compensation Advisory Committee and the Board of Directors shall confirm that its decision process and allocation balance of Directors’ compensation are reasonable.

Compensation determination processes for Directors (Excluding Directors who are Audit & Supervisory Committee Members)

TOTO resolved a policy determining the compensation for Directors at the board meeting held on June 24, 2022. As for the resolutions, we consulted with the Compensation Advisory Committee on the contents and received a report in advance.
We confirmed that the compensation for Directors (Excluding Directors who are Audit & Supervisory Committee Members) and their determination processes are in accordance with the Basic Policy on Directors’ Compensation after reviewing the compensations for individual Directors (Excluding Directors who are Audit & Supervisory Committee Members) in this fiscal year from diversified perspectives at the Compensation Advisory Committee meeting. The Board of Directors respects the report from the Compensation Advisory Committee and believes that the compensation is in line with the basic policy.
The Board of Directors has delegated its authority to determine the following for Directors (Excluding Directors who are Audit & Supervisory Committee Members)’ compensation to the President, Representative Director Noriaki Kiyota. 

　- Monthly basic compensations for each position
　- Bonus (in aggregated amount) allocation reference points for each position
　- Whether or not to make individual bonus reduction assessment, and the details if it is made
　- Allocation criteria for each position for stock compensation 

The reason for the delegation is that we decided the chief execution officer, Representative Director, is suitable to appropriately evaluate the performance of the Directors, who direct and supervise the operations of their departments in a comprehensive manner while considering corporate-wide performance. As for the execution of delegated authority, determination by the President, Representative Director Noriaki Kiyota on Directors’ compensation must be discussed with the Compensation Advisory Committee, which then must ensure and report that the decision process and allocation balance are reasonable and objective and are in line with the Articles of incorporation, resolutions of General Meetings of Shareholders, and the Basic Policy for Directors’ Compensation. 

Compensation determination processes for Directors who are Audit and Supervisory Committee Members

As for Compensation for Directors who are Audit & Supervisory Committee Members, only base compensation shall be paid.
The base compensation for individual Directors who are Audit & Supervisory Committee Members is determined depending on his/her duties and responsibilities upon consultation with Directors who are Audit & Supervisory Committee Members.

Composition of compensations and upper limit

Compemsation composition and recipients

*Restricted stock compensation is designed on the assumption that eligible directors hold the stocks in a long-run until their resignation and to be indirectly based on performance via stock prices.

Resolutions of General Meetings of Shareholders on Compensation for Directors

Note: Resolution at the 156th Ordinary General Meeting of Shareholders held on June 24, 2022. (Number of directors: 15, including 4 directors who were Audit and Supervisory Committee members)

Conditions for payment of compensation

Basic compemsation

Basic compensation for Directors are fixed compensation and paid to Directors after monthly compensation being set based on titles and duties.

Bonus

The purpose of bonuses for The Eligible Directors is to increase their motivation and morale towards performance improvement and share values with stakeholders. The total amount of bonuses is calculated and divided into Bonus Based on Single-Year Performance and Bonus Based on Multi-Year Performance based on consolidated operating income. The reason why consolidated operating income is selected as a performance indicator is that the income is directly related to businesses, and we determined that incentives would be appropriately distributed based on performance improvement. Bonuses are paid to the Eligible Directors after prorating the calculated total amount according to the defined bonus (in aggregated amount) allocation reference points and completing individual bonus reduction assessment. Payment shall be made once a year, and the details are as follows.

- Bonus Based on Single-Year Performance: The amount of payment shall be up to 0.6% of the consolidated operating income for the previous fiscal year.

- Bonus Based on Multi-Year Performance: As listed in the table below

Restricted stock compensation

The purpose of restricted stock compensation granted to the Eligible Directors is to encourage them to consistently improve corporate value and further share values with stakeholders, and this compensation is designed to motivate the Eligible Directors to achieve management targets from not only a single-year but also a medium-to long-term viewpoint. The Eligible Directors shall pay in all the monetary compensation claim as property contributed in kind based on resolutions of the Board of Directors and receive the issuance or disposal of the common stock of the Company.

In the case of the resulting issuance or disposal of the common stock of the Company, a contract regarding the grant of the restricted stock has been concluded between the Company and the respective Eligible Directors.

・Overview of the Contract regarding the Grant of Restricted Stock

Determination policy for compensation proportion

Among the compensations for Eligible Directors, because of the nature of bonuses being distributed based on the consolidated operating income as a performance indicator, the proportion of compensation largely vary depending on the figure. Therefore, the proportion is calculated based on the consolidated operating income that is first disclosed in the earnings briefing and included in the consolidated earnings forecast (full-year) in the fiscal year. From the above, the determination policy for the proportion of compensations for the Eligible Directors in FY 2024 is as follows.

(Note) Based on the above percentages
・Consolidated operating income is 48 billion yen (figure disclosed in the earnings briefing on April 26, 2024)
・Bonus Based on Multi-Year Performance is not granted

<Totals and breakdown of compensation for Directors and Audit & Supervisory Board members in FY 2023>

(note)
 1 Achievement of performance indicators:Consolidated operating profit of 42,766million yen
     (Bonus Based on Multi-Year performance is granted)
 2 Please refer to the＜Stock status delivered to directors as compensation for the performance of their duties in the current Fiscal 2023>

<Stock status delivered to directors as compensation for the performance of their duties in the current Fiscal 2023>

(Note) Stocks were not issued to Outside Directors and Audit & Supervisory Board members.

<Amounts of compensation by compensation type for Directors whose total amount of compensation is 100 million yen or more>

Directors whose total amount of compensation is 100 million yen or more in FY2023.

Outside Directors

Since all Outside Directors are invited to join their respective boards as members who can make decisions materially independent of the management of TOTO and all other specific stakeholders, we designate all Outside Directors as Independent Directors.

We nominate candidates for Outside Directors who fully satisfy the Nominating Advisory Committee’s Requirements for Independent Directors [see (Note) below], the satisfaction of which is set forth by TOTO as a mandatory requirement.

(Note) Requirements for Independent Directors

　・a person who has experience in business management above a certain level, or a professional or an external expert in business management (a company owner with significant past achievements, a specialist in the investment banking business, a lawyer, a certified public accountant, a researcher who mainly studies the Companies Act or other acts, or any similar person);

　・a person who is not or has not been a Director (except for an Outside Director; the same is applied hereinafter), an Audit & Supervisory Board Member (except for an Audit & Supervisory Board Member, Outside; the same is applied hereinafter), an accounting advisor, an Executive Officer, a manager or any other employee (collectively, the “Director”) of the Company, its Subsidiary or Affiliate Companies (collectively, the “Company Group”);
　・a person who is not the spouse or a relative within the third degree of relationship of a current or former Director of the Company Group (except for a person who is not a principal of the Company);
　・a person who, during the most recent five years, has not served as a Director in a financial institution that is a major loan provider for the Company Group;
　・a person who, during the most recent five years, has not served as a Director in a business associate that has business with the Company Group of 2% or more of the consolidated sales of either such business associate or the Company Group in any fiscal year during the recent five fiscal years;
　・a person who is not a lawyer, a certified public accountant, or a consulting or other professional service provider (if such service provider is a corporation, association or other entity, a person who belongs to such entity and a person who belonged to such entity during the most recent five years) who received from the Company Group a compensation totaling 10 million yen or more in any fiscal year during the most recent five fiscal years; or
　・a person who is not a Director of a company which is the Company’s major shareholder or whose major shareholder is the Company, or who is not a Director of a parent company, subsidiary or affiliate of such company.

(1) Current Independent Directors

(Note) When nominating Independent Directors, after confirming that the Judging Criteria Regarding Independence stipulated by the stock exchange is not contradicted and that the Requirements for Independent Directors stipulated by TOTO are met, the Independent Directors are decided upon at the Meeting of the Board of Directors.

(2) Main Activities in Fiscal 2023