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Significant Differences between the New York Stock Exchange's Corporate Governance Standards and Sony's Corporate Governance Practices
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| The table below discloses the significant ways in which Sony's corporate governance practices differ from those required for U.S. companies under the listing standards of the New York Stock Exchange (NYSE). As a foreign private issuer listed on the NYSE, Sony is exempt from most of the exchange's corporate governance standards requirements. For further information on Sony's corporate governance practices and history, please refer to the `Corporate Governance' webpage, which can be accessed through the menu at the left. |
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NYSE Standards |
Sony's Corporate Governance Practices |
| Board Independence. A majority of board directors must be independent. |
Sony has adopted the "Company with Committees" system under the Japanese Company Law and its related legislation. Japanese law does not require Sony to have a majority of "independent" (in the meaning given by the NYSE standards) directors on its board; rather, it requires Sony to have a majority of "outside" directors (the definition of the term "outside" director is summarized below) on each of three statutory committees (the nominating, audit and compensation committees).
Sony's Charter of the Board of Directors (attached as an exhibit to Sony's Annual Report on Form 20-F) requires its board to consist of between 10 to 20 directors.
As of June 20, 2008, 12 of the 15 members of Sony's Board of Directors qualified as "outside" directors.
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Director Independence. A director is not independent if such director is
(i) a person who the board determines has a material direct or indirect relationship with the company, its parent or a consolidated subsidiary;
(ii) a person who, within the last three years, has been an employee of the company or an immediate family member of an executive officer of the company, its parent or a consolidated subsidiary;
(iii) a person who had received, or whose immediate family member had received, during any 12 month period within the last three years, more than US$100,000 per year in direct compensation from the company, its parent or a consolidated subsidiary, other than director and committee fees or deferred compensation for prior services (provided such compensation is not contingent in any way on continued service);
(iv) (A) a person who is, or whose immediate family member is, a current partner of a firm that is the company's internal or external auditor; (B) a person who is a current employee of such a firm; (C) a person who has an immediate family member who is a current employee of such a firm and who participates in the firm's audit, assurance or tax compliance (but not tax planning) practice; or (D) a person who was, or an immediate family member who was, within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the listed company's audit within that time;
(v) a person who is, or whose immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the listed company's present executive officers at the same time serves or served on that company's compensation committee; or
(vi) an executive officer or employee of a company, or an immediate family member of an executive officer of a company, that makes payments to, or receives payments from, the listed company, its parent or a consolidated subsidiary for property or services in an amount which, in any single fiscal year, exceeds the greater of US$1 million or 2% of such other company's consolidated gross revenues.
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"Outside" director is defined in the Japanese Company Law as:
A director (i) who is not a director of the company or any of its subsidiaries engaged in the business operations of the company or such subsidiary, as the case may be, or a corporate executive officer or a general manager or other employee of the company or any of its subsidiaries, and (ii) who has never been a director of the company or any of its subsidiaries engaged in the business operations of the company or such subsidiary, as the case may be, or a corporate executive officer or a general manager or other employee of the company or any of its subsidiaries.
Under Japanese law, a director's status as an "outside" director is unaffected by the director's compensation, his or her affiliation with business partners, or the board's affirmative determination of independence. On the other hand, under Japanese law, a director who has had a career as a management director, corporate executive officer, or other employee of the company or its subsidiaries is by definition not an "outside" director.
Sony's Charter of the Board of Directors includes a provision requiring that each "outside" director:
(i) Shall not have received directly from Sony Group, during any 12 month period within the last three years, more than an amount equivalent to US$100,000, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);
(ii) Shall not be a director, statutory auditor, corporate executive officer, general manager or an employee of any company whose aggregate amount of transactions with Sony Group, in any of the last three (3) fiscal years, exceeds the greater of an amount equivalent to US$1,000,000, or 2% of the annual consolidated sales of such company; and
(iii) Shall not be, or shall not have been, a director engaged in the business operation, corporate executive officer, accounting counselor, general manager or an employee of Sony or its subsidiaries*.
(* This provision of the Charter is based on the definition of goutsideh director under the Japanese Company Law.)
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| Executive Sessions. Non-management directors must meet regularly in executive sessions without management. Independent directors should meet alone in an executive session at least once a year. |
An "outside" director, as defined under Japanese law, is equivalent to a "non-management director" under the NYSE rules because an "outside" director does not engage in the execution of business operations of the company. Neither Japanese law nor Sony's Charter of the Board of Directors requires non-management directors to meet regularly without management and nothing requires outside directors to meet alone in an executive session at least once a year. |
| Nominating/Corporate Governance Committee. A nominating/corporate governance committee of independent directors is required. The committee must have a charter that addresses the purpose, responsibilities (including development of corporate governance guidelines) and annual performance evaluation of the committee. |
Sony's Nominating Committee consists of at least five directors. Under Japanese law, the Committee is responsible for determining the contents of proposals regarding the appointment and dismissal of directors to be submitted for approval to the shareholders' meeting. Unlike listed U.S. companies under NYSE rules, it is not responsible for developing governance guidelines or overseeing the evaluation of the board and management. Under Japanese law, a majority of its members must be "outside" directors, as defined under Japanese law.
Sony's Charter of the Board of Directors requires at least two of the directors on the Committee to be corporate executive officers. |
| Compensation Committee. A compensation committee of independent directors is required. The committee must have a charter that addresses the purpose, responsibilities and annual performance evaluation of the committee. |
Sony's Compensation Committee consists of at least three directors. Under Japanese law, a majority of its members must be "outside" directors, as defined under Japanese law. Sony's Charter of the Board of Directors recommends that at least one of the directors on the Committee be a corporate executive officer. This Charter prohibits the CEO and/or the COO (or a person at any equivalent position) from serving on the Compensation Committee. Under Japanese law, the Committee is responsible for, among others, determining the compensation of each director and corporate executive officer. |
| Audit Committee. An audit committee satisfying the independence and other requirements of Rule 10A-3 under the Exchange Act and the more stringent requirements under NYSE standards is required. |
Sony's Audit Committee consists of at least three directors. Under Japanese law, a majority of its members must be "outside" directors, as defined under Japanese law. In addition, pursuant to Japanese law, no member of the Committee shall be a director of the company or any of its subsidiaries who is engaged in the business operations of the company or such subsidiary, as the case may be, or a corporate executive officer of the company or any of its subsidiaries, or an accounting counselor, general manager or other employee of any of such subsidiaries.
Sony's Charter of the Board of Directors also requires each member of the Audit Committee to meet the independence requirements of the applicable U.S. securities laws and regulations, and requires at least one member to meet the audit committee financial expert requirements. Currently, all the members of Sony's Audit Committee are also "independent" as defined in Rule 10A-3 under the Exchange Act, and two members of the Committee are audit committee financial experts.
Sony's Charter of the Board of Directors discourages any Audit Committee member from concurrently being a member of other Committees.
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| Equity Compensation Plans. Equity compensation plans require shareholder approval, subject to limited exemptions. |
Under Japanese law, if Sony wishes to adopt an equity compensation plan under which stock acquisition rights are granted on specially favorable conditions, except where all of its shareholders are granted rights to subscribe for such stock acquisition rights or such stock acquisition rights are gratuitously allocated to all of its shareholders, each on a pro rata basis, then Sony must obtain shareholder approval by a "special resolution" of a general meeting of shareholders, where the quorum is one-third of the total number of voting rights of all of its shareholders and the approval by at least two-thirds of the number of voting rights of all the shareholders represented at the meeting is required. |
| Corporate Governance Guidelines. Corporate governance guidelines must be adopted and disclosed. |
Sony is required to disclose the status of its corporate governance under Japanese laws and regulations; however, Sony does not have corporate governance guidelines that cover all the requirements described in the NYSE standards, as many of the provisions do not apply to Sony. |
| Code of Ethics. A code of business conduct and ethics must be adopted and disclosed, along with any waivers for directors or executive officers. |
Although this provision of the NYSE standards does not apply to Sony, Sony has adopted a code of conduct to be observed by all its directors, officers and other employees. A copy of this code of conduct is available on this website. The code's content covers principal items described in the NYSE standards.
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This summary was updated on July 7, 2008. |
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