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The following information is true and accurate at the time of publication.
January 28, 2003
Reforming the Sony Group Management Structure to Strengthen Corporate Governance
Sony Adopts the "Company
with Committees" System Under the Revised Commercial Code
in Japan and New Board Rules to Enhance Sony's Unique Governance
Approach
At the Board of Directors' Meeting
held today, Sony Corporation determined its direction to
change its management structure in order to enhance the
Group's corporate governance functions. Sony will adopt
the "Company with Committees" system in June of this year
in line with the revised Japanese Commercial Code that will
become effective as of April 1, 2003, as well as new board
rules that are appropriate for Sony's unique management
approach.
From now, details related to the new governance structure
including new board rules and personnel (candidates for
director, corporate executive officer) will be finalized
and submitted for approval to the General Meeting of Shareholders
to be held in June of this year and a subsequent Board of
Directors' Meeting.
Adoption of "Company with Committees" System
The proposed revisions to the current Japanese Commercial
Code are designed to establish a clear distinction of roles
and responsibilities between oversight and operational functions
within a corporation. The Revised Commercial Code will become
effective as of April 1, 2003. The newly adopted Commercial
Code features the "Company with Committees" system.
Adoption of this system under the new code is optional.
Japanese corporations may choose between the corporate governance
structure provided for under the current or the revised
Commercial Codes. If a corporation opts to adopt this system,
the company is legally obliged to establish three committees
(nomination, audit and compensation) under the board and
to introduce the corporate executive officer ("Shikko-yaku")
system as a package. The result is that the company's oversight
function will be vested in a combination of the Board of
Directors and the Board Committees. Once a corporation chooses
to select the "Company with Committees" system, it is automatically
required to abolish the Statutory Auditor/Board of Statutory
Auditors structure which is mandatory under the current
Commercial Code.
The rationale behind the revision of the Commercial Code
is to clearly distinguish the corporate board's oversight
functions from business operation functions. Under the current
Code, this distinction may not be clear because the Board
of Directors can perform both oversight and business operation
roles.
By adopting the "Company with Committees" system, Sony will
therefore abolish its current Statutory Auditor/Board of
Statutory Auditors and establish Nomination, Audit and Compensation
Committees (these Committees will be composed of a majority
of outside directors). Sony will also introduce a new Corporate
Executive Officer ("Shikko-yaku") system.
The present Corporate Executive Officer ("Shikko-yakuin")
system will continue as a unique Sony system.
Adopting New Articles for Sony's Unique Governance
In order to further strengthen the distinction between oversight
and business operation roles to a level beyond the requirements
of the revised Commercial Code, Sony will also introduce
internal standards for a separation between the Chairman
of the Board of Directors and Representative Corporate Executive
Officers. The Board of Directors will also decide the basic
principles of Sony's corporate governance structure and
issue "Regulations of the Board". The major regulations
will concern upper and lower limits on the number of directors;
eliminating conflicts of interest; and qualifications for
director-candidates which will ensure the independence of
the newly-created Committees.
The proposals for Sony's governance structure are outlined
below:
Composition of Board of Directors
The Board of Directors will have between 10 to 20 directors.
Regulations governing the qualifications for director-candidates
will be established in order to eliminate conflicts of interest
and ensure independence. The intention is to increase the
number of outside directors from the present level of three.
Chairman of the Board
Separation between Chairman of the Board and Representative
Corporate Executive Officer will be regulated.
Composition of Committees
Nomination Committee: The Nomination Committee will be composed
of five or more directors and the majority will be outside
directors. However there will be at least two internal directors.
Compensation Committee: The Compensation Committee will
be composed of three or more directors and the majority
will be outside directors. However there will be at least
one internal director. The CEO and COO will not be chosen
for this Committee.
Audit Committee: The Audit Committee will be composed of
three or more directors and the majority will be outside
directors. There will be at least one full-time member.
All members of the Audit Committee will not have business
operation responsibilities and will satisfy the independence
requirements of U.S. corporate reform legislation. In principle,
Audit Committee members will not become Nomination Committee
or Compensation Committee members.
Committee Chairpersons
Chairpersons of the three Committees will be outside directors.
Corporate Executive Officers/ Representative Corporate Executive
Officers
Corporate Executive Officers are in charge of management
and governance for the Sony Group based on the directions
of the Board of Directors. It is envisaged that present
Representative Directors will be appointed as Representative
Corporate Executive Officers.
For Reference: Sony's Efforts to Strengthen Corporate
Governance
Sony has continually modified its management and organization
structures to better adapt to changing business environments.
Examples include the adoption of the CEO system (1976);
Business Unit system (1983); the Company system (1994);
the Network Company system (1999) and the separation of
Group HQ and Shared Services function achieved by the establishment
of the Global Hub and Management Platform (2001).
Sony has displayed considerable energy in reforming its
Board of Directors over the years. In conjunction with Sony's
listing on the NYSE in 1970, two outside directors were
appointed, and in 1991 Sony appointed a non-Japanese as
an outside director. In 1997, Sony clearly separated the
oversight and business operation functions within the company
by reorganizing the Board and establishing Japan's first
Corporate Executive Officer ("Shikko-yakuin") system. This
was followed by the setting up of Compensation and Nomination
Committees in 1998. In 2000, the distinction in role between
Director and Corporate Executive Officer was further clarified
by abolishing rank-titles for Directors. In 2000, the position
of Chairman of the Board was created and in 2002, an Advisory
Board was established to enhance Board of Directors' discussions
with expert outside advice.
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