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Enhancing Corporate Governance

The CITIZEN Group’s Corporate Governance

The CITIZEN Group endeavors to improve corporate value and contribute to society through sustained activities that are in harmony with the local community and the global environment. This is part of its corporate philosophy, after which the company was named: "Loved by Citizens, Working for Citizens." To continuously further this goal, we strive to reinforce corporate governance in recognition of the importance of ensuring management transparency and supervising management from various angles.

The CITIZEN Group is striving to further enhance its corporate governance to ensure sustainable growth through the achievement of the Group's overall business goals. With the global economy and society changing at an unprecedented rate, CITIZEN WATCH is playing a central role in managing and supervising the entire Group to respond to the various social issues we face.

Corporate Governance Structure

CITIZEN WATCH has a Board of Directors comprising five directors knowledgeable about its business content and three highly independent outside directors. The Board of Directors makes decisions on the execution of business and oversees the execution of business.

In addition, we have adopted the Board of Corporate Auditors system; the Board of Corporate Auditors consists of three members, including two outside corporate auditors.

We have established the Nominating Committee and the Compensation Committee as voluntary bodies to enhance management transparency.
The main duties of the Nominating Committee are to deliberate and propose to the Board of Directors matters concerning the selection or dismissal of the representative director, the president and CEO, and the chairman of the Board of Directors; to deliberate and report in consultation with the Board of Directors or the president and CEO or other directors concerning the selection or dismissal of officers; and to deliberate and report in consultation with the Board of Directors or the president and CEO or other directors concerning succession planning for the president and CEO and directors.
The Compensation Committee discusses matters related to the policy and the standards for and compensation received by the directors, and its main duty is also to provide advice and counsel to the Board of Directors.

Each committee is composed of three or more directors, who are appointed by a resolution of the Board of Directors. The majority of committee members are outside directors and at least one of them is a representative director. The chairperson of each of the committees is an outside director and is elected by the members of the respective committee.

In accordance with the audit policy and audit plans prescribed by the Audit & Supervisory Board, in carrying out initiatives for the further enhancement of corporate governance, each auditor attends the Board of Directors meetings, Group management meetings, and management meetings, inspects important documents such as authorization documents and reports from the Board of Directors, etc. concerning the execution of duties, and implements rigorous audits on the conduct of affairs by directors through means such as examining business operations and assets. We also receive reports on accounting audits from the accounting auditor, Nihonbashi Audit Corporation, and cooperate with the accounting auditor to efficiently perform audit work and other tasks for CITIZEN WATCH and its subsidiaries.

Figure
  • * 8 Directors (including 3 Outside Directors) / 3 Corporate Auditors (including 2 Outside Corporate Auditors)

Committees

To ensure the achievement of business goals and the sustainable development of The entire CITIZEN Group, we have formulated the "Group Risk Management Basic Policy," "Group Risk Management Basic Regulations," and "Group Crisis Management Basic Regulations." These measures aim to achieve centralized risk management and prompt responsiveness, thus actively promoting the enhancement of Group governance.

Moreover, we have established committees such as the CITIZEN-SIRT (CITIZEN-Security Incident Response Team) for responding to significant incidents and the Group Quality Compliance Committee for addressing quality-related compliance risks. Through these committee initiatives tailored to our operations, we are actively advancing efforts to strengthen corporate governance and enhance management transparency.

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Board Composition and Diversity

CITIZEN WATCH is committed to ensuring that the Board of Directors effectively fulfills its roles and responsibilities in achieving management strategies, taking into consideration diversity, including gender and internationality. To this end, we have identified essential knowledge, experience, and abilities in areas such as "corporate management/management strategy," "sales/marketing/DX," "R&D/Technology," "finance/accounting," as well as "global business," "HR development/diversity," and "ESG/sustainability," and these are the roles we expect from directors.

The appointment of directors and officers is based on the Companies Act and other laws and regulations, and the individuals selected must possess the requisite character and insight as well as the qualifications for directors and officers.

Assessment of Board Effectiveness

CITIZEN WATCH conducted an evaluation and analysis of the effectiveness of the Board of Directors to further strengthen its functions. The evaluation results indicated that the Board of Directors is effectively functioning, with a focus on operations, agenda, and structure, and that its effectiveness is ensured.

To evaluate, we conducted a questionnaire for all directors and corporate auditors using an effectiveness evaluation tool provided by an external organization. The questionnaire was based on questions developed by an external organization, and the results were assessed by the Board of Directors.

1. Evaluation method

To analyze and evaluate the effectiveness of the Board of Directors, we conducted a questionnaire regarding the Board of Directors for all directors and corporate auditors, using an effectiveness evaluation tool developed by an external organization. The questionnaire was administered using questions developed by an external organization, and the results of the analysis and evaluation were reviewed by the Board of Directors.

  • Target: All directors and corporate auditors (12 persons)
  • Time: February 24 - March 10, 2023
  • Method: Questionnaire
  • Questions: 17 questions in total
    1. 1st set of questions: Questions related to the operation of the Board of Directors (2 questions)
    2. 2nd set of questions: Questions about the agenda of the Board of Directors (11 questions)
    3. 3rd set of questions: Questions about the structure supporting the Board of Directors (4 questions)
2. Summary of the results

Regarding the results of the questionnaire evaluating the effectiveness of the Board of Directors, each director and each auditor generally gave a high evaluation, confirming that the Board of Directors is functioning effectively. The ratings for each question were as follows.

  1. The operation of the Board of Directors meetings

    The materials are sufficient and appropriate, and supplementary explanations are provided orally. Materials are distributed electronically, so that directors can view materials earlier than before to conduct sufficient preliminary studies. Opportunities for discussion is provided in which important matters can be confirmed in advance before the board meeting.

  2. The agenda for the Board of Directors meetings

    Each director participates in deliberations from a variety of perspectives based on their diverse management experience and knowledge, contributing to the improvement of the quality of deliberations. Progress and analysis of management plans, priority measures, SDGs, ESGs, and other important management topics are discussed comprehensively, and active discussions are held, including objections and risks.

    Regarding the promotion of DX, etc., the progress is reported to the members of the Board of Directors as appropriate, and the recognition of issues is shared.

  3. System to support the Board of Directors

    Outside of board meetings, a variety of management information is provided and many opportunities are provided for discussion. There are opportunities for outside directors to interview executives from the management side and executive candidates, and exchange opinions.

    Trainings have been provided such as factory tours, various exhibitions, and seminars, however, there was an answer that systematic training opportunities should be provided and that it is necessary to increase the trainings in the future.

Directors’ and Audit & Supervisory Board Members’ Compensation

Compensation for CITIZEN WATCH directors (excluding outside directors) consists of performance-linked and non-performance-linked compensation, etc. Compensation for outside directors and corporate auditors consists solely of fixed compensation.

CITIZEN WATCH maintains a policy to set officer compensation at a level that facilitates the motivation for performance improvement and securing excellent personnel, taking into account changes in the business environment, external data, industry standards, and management content. Decisions about executive bonuses are determined based on financial benchmarks (such as sales, operating profit) and non-financial benchmarks (world events, disasters, M&A) in addition to this policy.

The purpose of performance-linked stock compensation is to establish a clearer link between director compensation and the stock value of CITIZEN WATCH, enhancing awareness of contributing to medium to long-term performance improvement and increased corporate value. The Company's policy is to determine compensation at a level that makes such objectives possible. Starting from FY2022, ESG-related indicators, such as the CO2 emissions reduction rate and "FTSE Russell ESG Rating Score," have also been added as evaluation metrics. A Mars Clawback Clause has been introduced to request a reduction or return of compensation in the event of misconduct by directors and officers, aiming to prevent improper conduct by directors and officers and curb excessive risk-taking.

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Classification Number of officers Total amount of compensation, etc. (million yen) Amount of fixed compensation out of all compensation, etc. (million yen) Amount of bonus out of all compensation, etc. (million yen) Amount of performance-linked stock compensation, etc. (million yen)
Directors (of which outside directors) 10 (4) 309 (28) 167 (28) 99 (-) 43 (-)
Audit & Supervisory Board members (of which outside Audit & Supervisory Board members) 4 (2) 45 (27) 45 (27) - (-) - (-)
Total (of which outside officers) 14 (6) 355 (55) 212 (55) 99 (-) 43 (-)
  1. The above figures include directors and audit & supervisory board members who retired upon the conclusion of the 137th Ordinary General Meeting of Shareholders, held on June 28, 2022.
  2. Bonuses to directors (excluding outside directors) are the amount to be paid after the conclusion of the 138th Ordinary General Meeting of Shareholders, to be held on June 28, 2023.
  3. The performance-linked stock compensation of 43 million yen for directors (excluding outside directors and directors who are non-residents of Japan) is the amount as expenses for the fiscal year under review. With respect to the stock benefit obligation calculated based on the number of shares to be delivered to six directors (excluding outside directors and directors who are non-residents of Japan) as performance-linked stock-based compensation covering three fiscal years corresponding to the medium-term management plan whose final fiscal year is the 137th fiscal year, the difference of 16 million yen from the amount recorded as expenses in the 137th Business Report is recorded as expenses for the current fiscal year.
  4. To promote motivation in contributing to the enhancement of single-year and medium to long-term performance and the improvement of corporate value, the performance indicators for bonuses are consolidated net sales and consolidated operating profit ratio in the annual plan, in addition to consolidated net sales, consolidated operating profit ratio, and the ROE in the Medium-Term Management Plan. The actual results during the fiscal year under review were consolidated net sales of 301.366 billion yen, a consolidated operating profit ratio of 7.9%, and an ROE of 9.6%. Bonuses were calculated by multiplying the base monthly compensation for each position by a coefficient determined by the level of achievement of performance indicators and nonfinancial items.
  5. The content of performance-linked stock compensation is the shares of the Company, and the conditions, etc. at the time of allotment are as stated in “(1) Policies, etc. on determination of officer compensation, etc.” Furthermore, the status of delivery is as stated in “II. 1. (5) Status of shares delivered to officers of the Company as compensation for the performance of the duties during the fiscal year under review.” In order to further clarify the linkage between the compensation for directors and the share value of the Company to promote motivation in contributing to the enhancement of medium to long-term performance and the improvement of corporate value, the performance indicators for performance-linked stock compensation are consolidated sales, consolidated operating profit margin, ROE, CO2 emissions reduction rate (compared to 2018) and FTSE Russell ESG Ratings score related to the medium-term management plan. The actual results during the fiscal year under review were consolidated net sales of 301.366billion yen, a consolidated operating profit ratio of 7.9%, and an ROE of 9.6%, CO2 emission reduction rate (compared to 2018) of 16.8% and a FTSE Russell ESG Ratings score of 3.5. Performance-linked stock compensation was calculated according to the level of the achievement of performance indicators, etc.
  6. The maximum allowance for the total amount of compensation, etc. for directors (excluding outside directors) was set at 370 million yen per year (inclusive of bonuses, etc.) at the 133rd Ordinary General Meeting of Shareholders, held on June 27, 2018, and the number of directors (excluding outside directors) at the conclusion of that Ordinary General Meeting of Shareholders was eight (8). Employee salaries for employees who also serve as directors shall not be paid.
  7. Separate from note 6 above, at the 133rd Ordinary General Meeting of Shareholders, held on June 27, 2018, the total amount of performance-linked stock compensation for directors (excluding outside directors and directors who are non-residents of Japan) was set at not more than 300 million yen every three fiscal years (starting in 2018, the first year, at not more than 100 - 27 - million yen), and the number of directors (excluding outside directors and directors who are non-residents of Japan) at the conclusion of that Ordinary General Meeting of Shareholders was eight (8).
  8. The maximum allowance for the total amount of compensation, etc. for outside directors was set at 40 million yen per year at the 134th Ordinary General Meeting of Shareholders, held on June 26, 2019, and the number of outside directors at the conclusion of that Ordinary General Meeting of Shareholders was three (3). No bonuses shall be paid to outside directors.
  9. The maximum allowance for the total amount of compensation, etc. for Audit & Supervisory Board members was set at 80 million yen per year at the 122nd Ordinary General Meeting of Shareholders, held on June 26, 2007, and the number of Audit & Supervisory Board members at the conclusion of that Ordinary General Meeting of Shareholders was four (4). No bonuses shall be paid to Audit & Supervisory Board members.
  10. In order to increase the transparency concerning the compensation of directors, the Company delegated the determination of the content of individual compensation, etc. of directors for the fiscal year under review to the Compensation Committee, chaired by Outside Director Mr. Yoshio Osawa and with Outside Directors Ms. Toshiko Kuboki and Mr. Katsuhiko Yoshida and President and CEO Mr. Toshihiko Sato as members. The Compensation Committee found that the content of the individual compensation, etc. of directors for the fiscal year under review is in line with the Policy on the Determination of the Content of Individual Compensation, etc. of Directors because the determination of the content was delegated to the Compensation Committee by a resolution of the Board of Directors, and the content of compensation, etc. conforms with said policy resolved by the Board of Directors.

Officer List

CITIZEN WATCH strives to appoint outside directors or outside corporate auditors who are free from any possibility of conflict of interest with general shareholders, emphasizing their abundant experience and broad insight as management staff or their advanced knowledge and insight in corporate finance, corporate legal affairs, and other areas.

In addition, the knowledge, experience, and abilities required to effectively fulfill the roles and responsibilities of the Board of Directors in achieving management strategies are defined and disclosed in the skills matrix.

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Name Position Attendance at Board of Directors meetings
Toshihiko Sato President & CEO - 17 / 17
(100%)
Toshiyuki Furukawa Managing Director In charge of the Corporate Planning Department, Accounting Department, Public Relations & Investor Relations Office, and Information Systems Department 17 / 17
(100%)
Yoshitaka Oji Managing Director Senior General Manager of Watch Business Division 17 / 17
(100%)
Keiichi Nakajima Director - 17 / 17
(100%)
Yoshiaki Miyamoto Director General Manager of General Affairs Division and in charge of Group Risk Management, Personnel Division, CSR Department and Environmental Management Department 17 / 17
(100%)
Toshiko Kuboki Outside Director - 17 / 17
(100%)
Yoshio Osawa Outside Director - 17 / 17
(100%)
Katsuhiko Yoshida Outside Director - 13 / 13
(100%)

Attendance at meetings

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Name Nominating Committee Compensation Committee
No. of attendances Attendance rate (%) No. of attendances Attendance rate (%)
Toshihiko Sato 6 100 8 100
Fumiaki Terasaka - - 4 100
Toshiko Kuboki 6 100 8 100
Yoshio Osawa 6 100 8 100
Katsuhiko Yoshida 6 100 4 100

Skills Matrix

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Name Corporate Management / Management Strategy Sales / Marketing / DX R&D / Technology Global Business HR Development / Diversity Finance / Accounting ESG / Sustainability
Toshihiko Sato ●   ●       ●
Toshiyuki Furukawa ● ●       ●  
Yoshitaka Oji ● ●   ●      
Keiichi Nakajima ●   ● ●      
Yoshiaki Miyamoto ●       ●   ●
Toshiko Kuboki       ● ●   ●
Yoshio Osawa ● ●   ●      
Katsuhiko Yoshida ● ●     ●    
  • Up to three items of roles expected of each director are on the matrix table.

Employee Stock Ownership Program

The CITIZEN Group has adopted an employee stock ownership program as one of benefits for employees, mainly at Group companies in Japan. This helps employees build assets by making it easy for them to acquire stock in CITIZEN WATCH Co., Ltd. as an easy way to start asset building, by continually making small contributions to the program. Membership in this program also increases employees' sense of involvement in management. The number of members is 2002 (as of March 31, 2023), making it the sixth largest shareholder (shareholding ratio of 1.96%, as of March 31, 2023).

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