Chori’s Issue 2 – Independent outside directors refuse to meet with shareholders and absence of any nominated remuneration committee | Increase both Chori’s and Toray’s shareholders’ value
What we hope Tosho to improve the shareholders’ value as a shareholder are
1) Increase the value of the overall Toray Group by increasing shareholder value of Chori and
2) Improve corporate governance

Chori’s Issue 2 – Independent outside directors refuse to meet with shareholders and absence of any nominated remuneration committee

 The role of independent outside directors is especially important for Chori’s minority shareholders, who cannot rely on governance from the parent company.
 However, we have been requesting an interview with Chori’s outside director since 2015 and have continuously been refused. For example, we received the following response to our request to meet in March 2019.

The Board of Directors has decided that all IR-related matters (including yours) will be handled by the director in charge of IR, and individual interviews will be declined.

 Independent outside directors, who should have been “independent”, are following the Boards decision to “refuse to meet with shareholders”. We strongly doubt that an independent outside director who gives priority to the company’s policy and the majority of the Board of Directors’ opinion over their own judgment can perform the function as a spokesman for minority shareholders expected of an independent outside director.

 Further, in November 2019, we asked the outside director for a meeting directly, not via the company, and were again rejected as follows.

Reply from Director Sawano ->Link to Japanese letter
In regards to a recent request to meet with me, I sincerely apologize but I am declining. Thank you for your understanding.
Reply from Director Morikawa->Link to Japanese letter
I am responding to a recent request for an interview with me I’ve considered it, and I’m sorry to say I will not meet with you.

 Principle 5 of the Corporate Governance Code stipulates that “senior management and directors (including outside directors) should have constructive dialogue with shareholders.”

 In addition, Corporate Governance Code 4-7- (iv) states that the role and responsibilities of independent outside directors are “appropriately representing the views of minority shareholders and other stakeholders in the boardroom from a standpoint independent of the management and controlling shareholders”.

 This raises the question as to how independent outside directors, who refuse to meet with minority shareholders, can properly reflect those views to the board of directors.

 In a corporate governance report released June 18th, 2019, Chori stated compliance with all Principles 4-7 without any special comments. Which raises the question on whether Chori made a false statement regarding their compliance, which they also should have explained in greater detail.

TOPIC①:No nomination and compensation committee established

 Approximately half the companies on the TSE have voluntarily setup nomination and compensation committee.


 Further 60% of listed subsidiaries have voluntarily setup a committee. Chori does have an Audit and Supervisory Committee.

(Source:QUICK Astra Manager, as of 12/30/2019)

TOPIC②:Can Chori’s independent outside directors become members of special committees?

 In accordance with the “Guidelines on Fair M&A” created by the Ministry of Economy, Trade and Industry on June 2019 (hereinafter referred to as the “M&A Guidelines”), it is recommended that an independent outside director of a listed subsidiary be appointed to a Special Committee and discuss the cancellation of a parent-child listing from a minority shareholder’s perspective.

 Morikawa, an independent outside director of Chori, joined the firm once after graduating from college. Currently, if a special committee is set up to discuss M&A, if an independent outside director was an employee of the parent company let alone the company even if it was more than 10 years ago, due to concerns over conflicts of interest, cannot be a member of the committee nor participate in any board resolutions.

 Since Chori only has two independent outside directors, during a potential M&A, if both are not on the special committee, it would not be able to have a majority of members being independent outside directors.

 In order to protect minority shareholders, the role of independent outside directors is especially important. We would like to ask Ms. Morikawa and other independent outside directors whether they can really fulfill their role as spokesperson for Chori’s minority shareholders.

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