To raise the corporate value and to continue to exist as a company that is trusted by stakeholders such as shareholders and all of society, we recognize the importance of thoroughly implementing compliance and improving the efficiency and transparency of management, and we are working to enhance corporate governance.
(The information below is current as of the end of June 2011, unless otherwise stated.)
| •Organizational structure | Company with statutory auditors |
|
|---|---|---|
| •Percentage of shares held by foreigners (as of March 31, 2011) | 40.2% | |
| •Directors | Number of directors as stipulated by the Articles of Incorporation |
16 |
| Number of directors (number of outside directors) | 15 (4) | |
| Term | 2 years | |
| •Statutory auditors | Number of directors as stipulated by the Articles of Incorporation |
5 |
| Number of directors (number of outside directors) | 5 (4) | |
| Term | 4 years | |
| •Rights plan and other measures to protect against acquisition | None | |
| •Other | Issuance of a special-class share to the Minister of Economy, Trade and Industry |
|
Regarding deliberation and decision making related to conducting important business in the development of oil and natural gas, INPEX appoints outside directors in addition to the knowledgeable directors from within our company. This ensures the validity of decision making through a rational, efficient and objective perspective.
Our Board of Directors consists of 15 directors, four of which are outside directors. In addition to a monthly meeting, the Board of Directors meets as necessary in order to discuss and determine the execution of important matters. The board also supervises the execution of duties by directors.
Furthermore, our Board of Directors collects written pledges from all directors including outside directors. This is done to ensure conformance with the Companies Act when taking a proper response toward the duty of noncompetition, the prevention of information leakage and the implementation of appropriate measures toward transactions with a potential conflict of interest.
From the perspective of increasing the speed of decision making related to the execution of business, we have established an Executive Committee with attendance by full-time directors and managing executive officers. The meetings are held weekly and as necessary. At the Executive Committee, flexible decision making is conducted for resolutions not affiliated with the Board of Directors, and deliberation is held to contribute to decision making by the Board of Directors.
Moreover, we implemented an Executive Officer System from October 2008 in order to respond accurately and quickly to a rapidly changing management environment and the expansion of our business activities. The Executive Officer System seeks to clarify a system for the execution of business and strengthen a flexible and efficient management system.
INPEX has adopted a statutory auditor system. The Board of Statutory Auditors is composed of five members, including four outside auditors.
In addition to attending meetings of the Board of Directors and the Executive Committee, the statutory auditors review the execution of business duties by directors through reports given by and hearings for related departments. Furthermore, the statutory auditors receive reports from the independent auditors regarding audits held six times per year and as necessary. They also conduct regular meetings (five or six times per year or as necessary) with the internal audit department (Internal Audit Unit) to receive reports regarding internal audits and the evaluation of internal controls.
To strengthen the function of the statutory auditors and to ensure viable corporate governance, we are working to enhance ancillary staff for the statutory auditors and form partnerships through periodic meetings between the statutory auditors, the Internal Audit Unit and the independent auditors. Moreover, we have constructed a system to strengthen the monitoring function through periodic meetings with the representative directors and directors.
In accordance with the Companies Act and the Financial Instruments and Exchange Act, we accept accounting audits from Ernst & Young ShinNihon LLC. The amount of compensation paid to the CPAs is determined in total based on the audit plan and the number of auditing dates, after obtaining approval from the Board of Auditors.
| Name of the CPA firm: | Ernst & Young ShinNihon LLC |
|---|---|
| Names of the CPAs: | Kenji Endo, Yusuke Kosugi, Satoshi Takahashi |
| Accounting audit members: | 12 CPAs, 12 assistant CPAs and 16 others |
| Compensation for auditing services: | INPEX: ¥137 million; Consolidated subsidiaries: ¥80 million |
| Compensation for non-auditing services: | INPEX: ¥39 million; Consolidated subsidiaries: ¥6 million |
Regarding the appointment of outside directors, we place importance on evaluation for the validity of business decisions and consideration of their efficacy, professionalism and objectiveness in the oversight function in addition to the perspective of independence.
Each of our company’s four outside directors possesses a broad range of knowledge and many years of experience in the energy industry. Also, these directors are shareholders of our company and serve as directors and an advisor of companies that conduct business in the same field as we do. Therefore, we recognize the importance of paying special attention to the possibility of competition and other conflicts of interest. In response, we collect written pledges from outside directors in order to ensure conformance with the Companies Act when taking a proper response toward the duty of noncompetition, the prevention of information leakage and the implementation of appropriate measures towards transactions with a conflict of interest. These written pledges are the same as those submitted by internal appointees.
When appointing outside auditors, we believe that it is important to comprehensively consider factors such as independence, efficacy in the oversight function and professionalism.
The four outside auditors form a majority on the Board of Statutory Auditors with a total of five members. The outside auditors possess rich knowledge and experience in our company’s business, as well as in fields such as finance and accounting. The statutory auditors utilize these qualities when performing auditing activities for our company. One of the outside auditors also serves as a director at Japan Petroleum Exploration Co., Ltd. (JAPEX), a corporation that owns stock in our company. JAPEX conducts business in the same fields as the business of our group. Listed companies are required to appoint an independent executive in order to protect general shareholders. Our company has appointed the outside auditor Haruhito Totsune as an independent director required by the Tokyo Stock Exchange, Inc. from the perspective of the protection of investors.
| Name | Attendance times | |
|---|---|---|
| Outside directors | Kazuo Wakasugi | Board of Directors meetings 17/17 |
| Yoshiyuki Kagawa | Board of Directors meetings 13/17 | |
| Seiji Kato | Board of Directors meetings 11/14 | |
| Shigeo Hirai | Board of Directors meetings 14/17 | |
| Outside auditors | Haruhito Totsune | Board of Directors meetings 15/17 Board of Auditors meetings 15/15 |
| Koji Sumiya | Board of Directors meetings 14/14 Board of Auditors meetings 11/11 |
|
| Hiroshi Sato | Board of Directors meetings 16/17 Board of Auditors meetings 14/15 |
|
| Masaru Funai | Board of Directors meetings 12/14 Board of Auditors meetings 11/11 |
In the business of developing oil and natural gas, a long period of time is required from starting business until the recovery of investment. Therefore, we believe that it is inappropriate to reflect short-term performance in director compensation.
Compensation for directors consists of monthly compensation (basic compensation), which is issued based on the business duties for each director position, and a bonus based on company performance. Compensation is decided by the Board of Directors. Similarly, compensation for the statutory auditors consists of monthly compensation (basic compensation) and a bonus, decided through consultation with the statutory auditors.
The table below shows the amount of compensation for directors and statutory auditors for the year ended March 2011. Note that the retirement benefits plan was abolished in 2008 as a result of a revision in the form of the director compensation system.
| Director classification | Total amount of compensation paid (¥ million) |
Total amount of compensation paid by type of compensation (¥ million) |
Number of directors eligible for basic compensation | |
|---|---|---|---|---|
| Basic compensation | Bonus | |||
| Directors (excluding outside directors) | 546 | 448 | 98 | 14 |
| Statutory Auditors (excluding outside auditors) | 33 | 31 | 2 | 2 |
| Outside Directors | 68 | 58 | 9 | 9 |
| Notes: 1. | The Company does not maintain a stock option plan. |
|---|---|
| 2. | The Company does not maintain an accrued retirement benefits plan. |
| 3. | The total amount of compensation paid includes a provision to accrued bonuses to directors for the year ended March 31, 2011. |
| 4. | The number of directors eligible for compensation includes three directors including one outside director who retired by termination during this term and two statutory auditors including one outside auditor who retired by resignation from the Company effective June 23, 2010 at our 4th ordinary General Meeting of Shareholders. |
| 5. | Compensation was not paid to one of the 16 directors as of March 31, 2011. |
For proper and efficient company operations and to prevent the occurrence and expansion of losses, INPEX conducts appropriate business management by our Board of Directors and Executive Committee, and develops internal rules such as our Articles of Incorporation, job demarcation, administrative authority and group companies management. We also created our Corporate Social Responsibility Policy, developed a system for its adherence and thorough implementation, and developed a compliance system, internal notification system, risk management system and internal audits.
In accordance with the Internal Controls Reporting System (enacted April 2008) stipulated by the Financial Instruments and Exchange Act, we formed a special evaluation team within the Internal Audit Unit and evaluate the maintenance and operation of internal controls related to financial reporting for our company and the group companies. As the result of evaluations performed at the end of March 2011, we have judged that internal controls associated with financial reporting are functioning effectively. In June 2011, details of the evaluation were submitted to regulatory agencies in the form of a report on internal controls. Furthermore, our internal controls report received an unqualified opinion of appropriateness from its independent auditors.
To conduct integrated actions throughout our entire company, we established a Compliance Committee in April 2006. Our company’s Vice Chairman serves as the chairperson (director in charge of compliance) of the committee. The committee works together with the statutory auditors, the Board of Statutory Auditors, the independent auditors and the Internal Audit Unit, which is the internal audit department. Through this cooperation, the committee proposes/implements compliance measures, monitors the status of implementation and holds activities to increase compliance awareness. Moreover, the committee receives reports on violations and implements stoppage recommendations and other responses to investigated violations. The committee also formulates measures to prevent the reoccurrence of violations.
In addition, an internal notification system was established in April 2006 in accordance with the Whistleblower Protection Act. The system is available for use by the directors and employees of our company. Anonymous reporting is possible and whistleblowers are thoroughly protected to ensure that they are not subject to unfair treatment.
As a form of compliance education, we distribute a compliance manual and compliance Q&A. The goal of these materials is to have each employee implement compliance activities. Furthermore, we conducted domestic compliance training seminars and programs a total of 66 times from March to July of 2010. The training was based on results of a compliance questionnaire distributed in December 2009 to all directors and employees of our company. At the training, an explanation was given for the themes and suggested reforms ascertained through the questionnaire. The training also sought to reconfirm fundamental compliance concepts, increase awareness mainly toward information security and provide education on human rights related to various forms of harassment. In addition, we established a compliance committee Web site on our company intranet in December 2010, and we began publishing a monthly internal newsletter titled Compliance Journal. Through all these measures, we are working to increase the level of awareness toward compliance.
According to the stipulations of the Articles of Incorporation, INPEX issues a special-class share to the Minister of Economy, Trade and Industry. This share possesses influence on certain major corporate decisions. The special-class share does not possess voting rights at shareholders’ meetings. However, it is possible for the holder of the special-class share to exercise veto rights for certain major corporate decisions. For our company, the issuance of the special-class share to the Minister of Economy, Trade and Industry is an effective countermeasure to prevent control over the business of our company or against hostile takeovers for speculative purposes. Furthermore, we expect positive results in terms of external negotiation and credits.
To improve the transparency of management and the accountability of managers, we conduct timely, appropriate and fair disclosure of information through our Web site, public relations activities and IR activities toward shareholders and investors.
| Supplementary explanation | |
|---|---|
| Early delivery of convocation notices for the general meeting of shareholders |
At the 5th Ordinary General Meeting of Shareholders held on June 28, 2011, we sent convocation notices on June 10, which was earlier than the period stipulated by law. |
| Use of voting rights through the Internet |
We implemented the use of voting rights via the Internet. We also adopted a platform for the electronic use of voting rights. |
| Other | The convocation notice and other related documentation are available in both Japanese and English (summary) on our company’s Web site. On the day of the shareholders’ meeting we used videos and a slide show to explain our business prior to opening the meeting. |
The 5th Ordinary General Meeting of Shareholders
(held June 28, 2011)
| Supplementary explanation | Explanation by representative: Yes/No |
|
|---|---|---|
| Regular IR presentations for individual investors |
We participate in events such as IR fairs for individual investors and meetings in venues such as branches of brokerage firms. For the year ended March 31, 2011, we held 13 meetings in six cities throughout Japan. The meetings were attended by more than 1,500 individual investors. | Yes |
| Regular IR presentations for analysts and institutional investors |
We hold biannual meetings on financial results for analysts and institutional investors. Our president and director in charge of finance & accounting explain our financial details and business forecast to approximately 200 analysts and institutional investors. Video archives of the meeting are made available on the same day on our company’s Web site. An English translation is included in the transmission. Furthermore, we held two onsite tours (domestic and overseas) for analysts and institutional investors in the year under review. | Yes |
| IR meetings | We held more than 500 IR meetings with analysts and institutional investors in the year under review. Meetings included overseas IR road shows, conferences and one-on-one meetings. | Yes |
| IR materials available on Web site |
Our Web site (IR section) features financial reports, stock information, presentation materials, videos and brochures for individual investors. |
To achieve the appropriate disclosure of information, we have established internal regulations for corporate information disclosure and defined the process for collecting, managing, transmitting and disclosing information throughout our company. A summary of disclosure and other policies based on the aforementioned regulations is listed. Please refer to Disclosure Policy for further details.
