Enhancing the Board's Vitality and Accelerating Decisions--Toyota's Transition to an Audit and Oversight Committee
In a strategic move aimed at enhancing corporate governance and fostering diversity, Toyota Motor Corporation is planning to transition from a Company with an Audit and Supervisory Board to a Company with an Audit and Supervisory Committee. This transformation, expected to take place following approval at the Ordinary General Meeting of Shareholders in June, will mark a significant shift in the company's governance structure.
The Audit and Supervisory Committee, a common governance structure in Western corporate models, typically consists of independent directors who oversee the audit process and provide recommendations on auditor appointments, audit fees, and financial reporting. Unlike the Audit and Supervisory Board, which is more integrated into the company's operations, the committee is more focused on advisory roles and ensuring compliance with financial regulations.
Toyota's decision to transition to this system is part of a broader initiative to improve governance in step with the changing times. Since 2011, the company has been streamlining its governance structure, reducing the number of directors from 27 to 11 and introducing various systems aimed at promoting product and region-centered management.
One such initiative is the senior professional/senior management system introduced in 2019, which aims to strengthen the roles of key executives. In 2016, Toyota changed to the in-house company system, switching from a function base to a product base structure. This shift was followed by the abolishment of the advisor system for retired executives in 2020.
To further reinforce its commitment to diversity and independence, Toyota aims to reinvigorate its Board of Directors by combining directors with a focus on products and regions with independent outside directors. Five of the ten directors will serve as Outside Directors, increasing transparency and fairness of management.
The Audit and Supervisory Committee, once established, will have members with voting rights and a role in decision-making, unlike auditors who have no voting rights on the Board of Directors. The committee elects and appoints its members separately from other directors, ensuring a more independent and objective oversight.
The transformation of Toyota's corporate governance is not a new initiative; it has been in progress since 2011. The change is expected to boost decision-making speed by allowing the Board of Directors to delegate important business execution decisions to executive directors. It also aims to allow for diverse perspectives and lively discussions among all Board of Directors members, fostering a more dynamic and adaptable corporate culture.
While the exact impacts of this transition are yet to be seen, the move towards a more transparent and compliance-oriented governance structure could enhance investor confidence and reputation. However, it is important to note that the specifics of Toyota's current governance structure, including its emphasis on diverse and independent board composition, are aimed at strengthening corporate governance regardless of the specific audit and supervisory structure used.
[1] Toyota Motor Corporation, "Toyota's Corporate Governance", Accessed April 27, 2023, https://global.toyota/en/corporate/governance/ [2] Toyota Motor Corporation, "Toyota's Corporate Governance Reform", Accessed April 27, 2023, https://global.toyota/en/corporate/governance/reform/
- In the context of this transformation, Toyota Motor Corporation is expected to appoint members to the Audit and Supervisory Committee, focusing on independent directors who will oversee the company's financial matters and ensure compliance with regulations, thus demonstrating a strong commitment to financial business.
- As part of their long-term initiative for improved governance, Toyota's decision to transition to a Company with an Audit and Supervisory Committee signifies a significant step in their finance strategy, aiming to foster investor confidence and enhance the corporation's reputation in the global business arena.
