JAPANESE

Corporate Governance

Organizational Profile

In 1999 Komatsu Ltd. introduced the Executive Officer System and has been working to separate management decision-making and supervisory functions from executive functions within the confines of the law. At the same time, the Company has maintained the Board of Directors with a small number of members and appointed outside directors and auditors. To improve the effectiveness of discussions in Board meetings, we have promoted reforms in the operational aspect of Board meetings to ensure fulfilling discussions of important management agendas and quick decision-making.

Corporate Governance of Komatsu

Corporate Governance of Komatsu

Board of Directors

The Board of Directors meets every month. (The Board met 15 times in the fiscal year ending March 31, 2011.) In Board meetings, directors make decisions on management policies of the Komatsu Group, review and resolve important management matters, and strictly control and supervise the execution of management duties by all executive management personnel, including the representative directors. At present, of the 10 directors on the Board, there are 3 outside directors. When performing their duties, outside directors offer opinions and suggestions from an independent position, based on their insight and rich experience helping to ensure that management is transparent and sound through their active participation in discussions.


Board of Corporate Auditors

The Board of Corporate Auditors makes decisions concerning audit policies, duty assignments and other relevant matters. Each corporate auditor attends Board of Directors meetings and other important meetings, and audits the execution of duties by directors. The Board meets every month, hears the conditions of execution of management duties from the directors, and conducts appropriate audits. (The Board of Corporate Auditors met 15 times in the fiscal year ending March 31, 2011.) We have also established the Office of Auditors' Staff to exclusively assist auditors.


Remuneration for Directors and Corporate Auditors

In an effort to maintain an objective and transparent remuneration system, the policy and levels of remuneration for Directors and Corporate Auditors of the Company are deliberated by the Compensation Advisory Committee, which consists of four external members (two Outside Corporate Auditors, one Outside Director and one outside expert) and one internal member.

Taking its reports and recommendations into consideration, the remuneration for Directors is determined by the Board of Directors, and the remuneration for Corporate Auditors is determined by discussions by the Corporate Auditors, respectively, within the range previously determined by resolution of the General Meeting of Shareholders.

With regards to remuneration levels, comparison of other key, globally active manufacturers in Japan is made by the Compensation Advisory Committee and is reflected in its reports and recommendations.

The remuneration for Directors is comprised of fixed remuneration (paid monthly) and performance-based remuneration linked to Komatsu's consolidated performance.The total amount paid of performance-based remuneration shall be calculated each year by evaluating the basic indicators of ROE (Net income attributable to KomatsuLtd. on KomatsuLtd. shareholders' equity) and ROA (Income before income taxes and equity in earnings of affiliated companies on Total assets) at the ratio described in the below and making adjustments for growth (growth rate of consolidated sales) and profitability (profit margin of segment).


<Basic Indicators>

  • Consolidated ROE (Net income attributable to KomatsuLtd. on KomatsuLtd. shareholders' equity) : 70%
  • Consolidated ROA (Income before income taxes and equity in earnings of affiliated companies on Total assets) : 30%

<Adjustment Indicators>

  • Adjustment according to growth rate of consolidated sales and profit margin of segment.

Two thirds of the total amount of performance-based remuneration shall be paid in the form of cash as Directors' bonuses, and the remaining one third shall be paid by granting Stock Acquisition Rights as stock-based remuneration for the purpose of fostering the same perspective on corporate value with the share holders and consequently clarifying their incentive to enhance the long-term corporate value of the Company.

Regarding the amount levels of performance-based remuneration, the maximum amount thereof shall be roughly 60% of the total amount of annual remuneration of Directors (which is made up of fixed remuneration (paid monthly) and performance-based remuneration), and the minimum shall be zero (in which case, only fixed remuneration will be paid to the Directors).

The remuneration for Corporate Auditors only consists of fixed remuneration (paid monthly) designed to support their independent position with authority to audit the execution of duties by Directors without getting fettered by the movements of corporate performance of the Company.


International Advisory Board

Komatsu established the International Advisory Board (IAB) in 1995 as a means to supplement executive functions and receive objective advice and suggestions through exchange of opinions and discussions with a group of domestic and overseas experts on what Komatsu should work for as a global company.


International Advisory Board (IAB)

Members of the fifth session IAB (front row)

Members of the fifth session IAB (front row)

Outside Advisors for the Fifth Session of the IAB

Name Title
Mr. Yukio Okamoto Specialist in international affairs, and President, Okamoto Associates, Inc.
Dr. Lawrence J. Lau Vice Chancellor and President, and Ralph and Claire Landau Professor of Economics, The Chinese University of Hong Kong
Dr. Juergen M. Geissinger President and CEO, INA-Holding Schaeffler KG
Mr. Travis Engen Former President and CEO, Alcan Inc.

Improvement of Internal Controls

System for Ensuring Directors' Execution of Duties

To ensure that Directors efficiently execute their duties, we have implemented the following system:

<1> The Board of Directors meets every month and more often as needed. The Board strives to maintain transparency and soundness of management through the participation of outside directors. We have also established the Regulations for the Board of Directors and the Standards for the Board Meeting Agenda to clarify the matters upon which the Board of Directors should make decisions.

<2> Together with the introduction of the Executive Officer System, we have defined the separation of duties for directors, executive officers and senior managers, and set up internal rules, including the Regulations on Decision-Making Authority, to ensure appropriate and effective execution of duties.

<3> To promote efficient management by the Board of Directors, we established the Strategy Review Committee, consisting of senior executive officers and senior managers. Based on the reviews of the Committee, executive officers and senior managers execute their duties within the authority delegated by the Board of Directors.


Framework for Ensuring Appropriateness of Business Operations of the Komatsu Group

<1> We have established the Regulations for Affiliated Companies and relevant rules to contribute to proper and efficient operation of Group management, while respecting the independence of the management of affiliated companies. Each affiliated company is assigned to a division at Komatsu that is in charge of managing and supporting the affiliate. We have also positioned the Komatsu's Worldwide Code of Business Conduct as the code applicable to all companies affiliated with the Company. Based on these regulations and the Code, each company of the Komatsu Group stipulates various regulations for the proper promotion of duties.

<2> To strengthen governance of the Group as a whole and monitor management, the Company will dispatch a Director or Corporate Auditor, as needed, to Komatsu's main affiliated companies.

<3> Important committees of the Company, including the Compliance Committee, Risk Management Committee and Export Control Committee, take actions with the entire Group in view, and allow representatives of affiliated companies to take part in their meetings, as needed.

<4> Particularly important affiliated companies are required to regularly report to the Board of Directors of the Company on the status of their business, including risks and compliance.

<5> The Internal Audit Department of the Company audits each division of the Company and implements or supervises auditing of major affiliated companies that belong to the Komatsu Group. It also monitors and instructs each affiliated company, so that the affiliate will build its structure in conformity with the Company's internal controls and operate it correctly. In addition, the Department will report to the Board of Corporate Auditors regarding internal controls, as needed.


Basic Policy Pertaining to the Elimination of Antisocial Forces

It is the basic policy of the Company to prohibit the Komatsu Group from having any relationship whatsoever with antisocial movements or groups that threaten the order and security of civil society from the perspectives of social justice and corporate social responsibility.

<1> This policy is provided in the Komatsu's Worldwide Code of Business Conduct and disseminated throughout the Company, as well as throughout each company of the Komatsu Group.

<2> In keeping with the basic policy, the Company-primarily the General Affairs Departments of the Head Office, main business operations, and Group companies-works with police and other relevant external organizations to prevent the involvement of antisocial movements or groups in its management and quell any harmful effects they may bring about.

<3> The Company is doing its utmost to collect information and receive education/training from the above external organizations, and share the information throughout the Komatsu Group.