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 Companies Act. Sony’s Charter of the Board of Directors (attached as an exhibit 1.3 to this report) requires its board to consist of between 10 to 20 directors.
The Companies Act does not require Sony to have a majority of “independent” (in the meaning given by the NYSE Corporate Governance 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 Committee, the Audit Committee and the Compensation Committee). In addition, the Securities Listing Regulations of the Tokyo Stock Exchange require Sony to have, at least one “Independent Director” on the Board of Directors. “Independent Director” is defined in the Securities Listing Regulations of the Tokyo Stock Exchange as an “outside” director who is unlikely to have conflicts of interest with shareholders.
As of June 28, 2011, 13 of the 15 members of Sony’s Board of Directors are qualified as “outside” directors. In addition, all 13 “outside” directors are also qualified and designated as “Independent Directors” under the Securities Listing Regulations of the Tokyo Stock Exchange.
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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 has 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 120,000 U.S dollars 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 or employee of a firm that
is the company's internal or external auditor; (B) a
person whose immediate family member is a partner of such a firm; (C) a person who has an immediate
family member who is a current employee of such a
firm and who personally participates in the firm's audit,
assurance or tax compliance (but not tax planning)
practice; or (D) a person who was, or has an
immediate family member who was, within the last
three years, 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 has 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 of the last three fiscal years, exceeds the greater of 1 million U.S. dollars or 2 percent of such other company’s consolidated gross revenues.
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“Outside” director is defined in the Companies Act 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 the Companies Act, 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 the Companies Act, 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:
Shall not have received directly from Sony Group, during any consecutive 12 month period within the last three years, more than an amount equivalent to 120,000 U.S dollars, 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, a statutory auditor, a corporate executive officer, a general manager or other employees of any company whose aggregate amount of transactions with Sony Group, in any of the last three fiscal years, exceeds the greater of an amount equivalent to 1,000,000 U.S. dollars, or 2 percent 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, a corporate executive officer, an accounting counselor, a general manager or other employees of Sony or its subsidiaries*. (*This provision of the Charter is based on the definition of “outside” director under the Companies Act.)
In addition, the Securities Listing Regulations of the Tokyo Stock Exchange requires Sony to have, at least one “Independent Director” on the Board of Directors. “Independent Director” is defined in the Securities Listing Regulations of the Tokyo Stock Exchange as an officer who is unlikely to have conflicts of interest with shareholders.
As of June 28, 2011, 13 of the 15 members of Sony’s Board of Directors qualified as “outside” directors. In addition, all those 13 “outside” directors are qualified and designated as “Independent Directors” under the Securities Listing Regulations of the Tokyo Stock Exchange. |
| Executive Sessions. Non-management directors
must meet in regularly scheduled executive sessions
without management. Independent directors should
meet alone in an executive session at least once a year. |
An “outside” director, as defined under the Companies Act, 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 the Companies Act 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 the Companies Act, 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 the Companies Act, a majority of its members must be “outside” directors, as defined under the Companies Act. 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 the Companies Act, a majority of its members must be “outside” directors, as defined under the Companies Act. Sony’s Charter of the Board of Directors recommends that at least one of the directors on the Committee be a corporate executive officer. The Charter prohibits the CEO and/or the COO (or a person at any equivalent position) from serving on the Compensation Committee. Under the Companies Act, the Committee is responsible for, among others, determining the compensation of each director and corporate executive officer.
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| Audit Committee. An audit committee satisfying the
independence and other requirements of Rule 10A-3
under the Exchange Act. The committee must have at
least three members. All members must be
independent. The committee must have a charter
addressing the committee's purpose, an annual
performance evaluation of the committee and the
duties and responsibilities of the committee. |
Sony’s Audit Committee consists of at least three directors. Under the Companies Act, a majority of its members must be “outside” directors, as defined under the Companies Act. In addition, pursuant to the Companies Act, 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 the NYSE Corporate Governance Standards, and two members of the Committee are qualified as 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. |
| Equity Compensation Plans. Equity compensation plans require shareholder approval, subject to limited exemptions. |
Under the Companies Act, 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 under Sony’s Articles of Incorporation. |
| Corporate Governance Guidelines. Corporate governance guidelines must be adopted and disclosed. |
Sony is required to disclose the status of its corporate
governance under the Companies Act and the Securities Listing Regulations of the Tokyo Stock Exchange; however, Sony does not have corporate governance guidelines that cover all the requirements described in the NYSE Corporate Governance Standards, as many of the provisions do not apply to Sony. Details of the status are posted on the following website:
http://www.sony.net/SonyInfo/IR/library/control.html |
| Code of Ethics. A code of business conduct and
ethics for directors, officers and employees must be
adopted and disclosed, along with any waivers of the
code for directors or executive officers. |
Although this provision of the NYSE Corporate Governance Standards does not apply to Sony, Sony has adopted a code of conduct to be observed by all its directors, officers and other employees. The code of conduct is available at
http://www.sony.net/SonyInfo/csr/compliance/
code_of_conduct.pdf
The code’s content covers principal items described in the NYSE Corporate Governance Standards.
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Sony Corporation Global Headquarters
