Corporate Governance

Our Policy

Our approach to governance is designed to fulfill our responsibilities to our shareholders and other key stakeholders and support transparent, fair, timely and conclusive decision-making, with the goal of achieving sustainable growth and increasing corporate value over the medium to long term. Furthermore, we formulated and disclosed our Corporate Governance Guidelines for the purpose of ensuring transparency and fairness in decision-making and achieving effective corporate governance through proactive information disclosure. We also revise the guidelines as appropriate in step with the evolution of corporate governance.

In FY2021, we continued to strengthen and enhance our corporate governance through measures such as formulating the Sustainability Principles through discussions on how to respond to the revised Corporate Governance Code and other discussions at Board meetings.

Management System

For the enhancement of corporate governance, we have established the following advisory bodies to the Board of Directors: 1) the Nomination and Compensation Advisory Committee—the majority of which consists of outside officers including independent Outside Directors—for the purpose of strengthening the independence, objectivity, and accountability of Board of Directors’ functions and contributing to the further enhancement of the corporate governance system; and 2) the INPEX Advisory Committee, for the purpose of obtaining multifaceted and objective counsel and recommendations from external experts across a wide range of areas, including domestic/international political and economic outlook, prospects for the energy sector, and sustainability, with the aim of maintaining sustainable growth and enhancing medium- and long-term corporate value. The member attendance rate at committee meetings held in FY2021 was 100% on every occasion. We have also established the Compliance Committee for the purpose of promoting unified compliance initiatives throughout the INPEX Group, the details of which are stated in the Compliance Management System.¹

We have many opportunities to engage in important negotiations with the governments of oil-producing countries, government-owned oil companies, and international oil companies. This requires internal Directors and executive officers who have knowledge, expertise and international experience related to the Company’s business, and in-depth knowledge of both the Company and their particular fields of expertise. Internal Directors in principle hold concurrent positions as executive officers. By adopting this organizational structure, our Board of Directors is better placed to make efficient business decisions. At the same time, this structure helps to ensure the effective supervision of management.

We have appointed five of the twelve members of the Board of Directors from outside the Company to enhance the transparency of management and strengthen the effective supervisory function of the Board of Directors. We also take advantage of the objective perspectives of Outside Directors, which may differ from those of the Internal Directors. Given their independent standing, Outside Directors are expected to provide advice based on their own knowledge and experience, monitor management and conflict of interest transactions, and appropriately represent the views of stakeholders in the boardroom. We appoint as Outside Directors people who have extensive experience and wide-ranging insights as corporate managers, academics, or other specialists in the resource/energy industry, or in finance, legal affairs or other fields.

As of the end of March 2022, four of the five Audit & Supervisory Board Members are Outside Auditors. The INPEX Audit & Supervisory Board has been established pursuant to laws and regulations of Japan to strengthen the audit function and ensure the independence of auditors and the effectiveness of audits. Further efforts of the Company include assigning audit assistants to the Audit & Supervisory Board Members’ Office—which assists Audit & Supervisory Board operations—and strengthening this board’s coordination with the internal audit departments (Audit Unit) and accounting auditors.

Furthermore, we regularly hold meetings among Outside Directors, Audit & Supervisory Board Members (including accounting auditors as necessary) and the Representative Directors to exchange opinions on a wide range of themes relating to important management issues, for the development and operation of internal control systems, and other issues related to corporate governance. Those meetings consist of the “Meeting of Outside Directors, Audit & Supervisory Board Members, and the Representative Directors”, “Meeting of Outside Directors and Audit & Supervisory Board Members (including accounting auditors as necessary)”, and “Meeting of Audit & Supervisory Board Members and the Representative Directors”.

INPEX also promotes gender diversity at the executive level. We appointed our first female executive officer in March 2020, with the appointment of one female Outside Director and one Outside Audit & Supervisory Board Member.

1 Management System

Corporate Governance System

Attendance at the Board of Directors meetings during FY2021

In principle, the Board of Directors meets on a monthly basis, with 16 meetings being held in FY2021. The attendance of all Directors at Board of Directors meetings was as follows.²

2 Notice of the 16th Ordinary General Meeting of Shareholders p.10&78

Evaluation results of effectiveness of Board of Directors in FY2021

With the aims of regularly verifying that the Board of Directors is functioning appropriately and identifying issues for continuous improvement, the Company evaluates the effectiveness of the Board of Directors each year, and discloses the summary of the results. In line with this policy, the seventh evaluation was conducted in FY2021. The evaluation method and summary of the results are as follows.

Evaluation Method

An interim review of the issues identified in the effectiveness evaluation for the previous fiscal year was undertaken at the meeting with Outside Directors and Audit & Supervisory Board Members held in August 2021. The implementation method of this fiscal year’s effectiveness evaluation was also discussed, including how to involve a third-party evaluation body. As a result, the decision was made to retain the Board of Directors self-evaluation method as the effectiveness evaluation in fiscal 2021, as this method was confirmed to be appropriate by the third-party evaluation organization in the previous evaluation. In addition, going forward, we confirmed a policy to appoint a third-party evaluation organization on a roughly three-yearly basis to determine the appropriateness of the method of evaluation and analysis conducted by the Board of Directors secretariat, and the validity of the draft improvement plan.

Subsequently, this fiscal year’s implementation policy and evaluation items were deliberated at the meeting of the Board of Directors held in November 2021, including the content of the survey prepared by the Board of Directors secretariat.

The evaluation items included: the self-evaluation of each Director and Audit & Supervisory Board Member; the composition, operations, roles and responsibilities of the Board of Directors; operations of the Nomination and Compensation Advisory Committee; and the status of improvement of issues identified in the previous evaluation. An anonymous online survey of all Directors and Audit & Supervisory Board Members was conducted in December 2021. Directors were encouraged to make comments on many of the question to obtain more specific views and opinions.

The results of the survey were consolidated and analyzed by the Board of Directors secretariat, and in January 2022, the results of the consolidation and analysis—as well as issues and initiatives for the future—were discussed at a meeting among the Outside Directors, Audit & Supervisory Board Members and the Representative Directors. Based on that discussion, the following evaluation results were confirmed at the Board of Directors meeting held in February 2022.

Summary of Evaluation Results

1. The overall effectiveness of the Board of Directors was confirmed to be sufficient, as in the previous fiscal year.
2. The following initiatives received positive evaluations and their continuation was requested: (i) Implementation of online pre-meeting briefings; (ii) Implementation of lectures and opinion exchange meetings by outside experts; and (iii) Establishment of agenda items to discuss medium- to long-term themes.
3. The following issues were identified as future initiatives, in order to secure even further effectiveness for the Board of Directors:
   • Deeper discussions on management strategies, including the planning and progress of initiatives for each of the Net Zero businesses
   • Further invigoration of discussions at Board of Directors meetings
   • Deeper discussions regarding the desired state of the Board of Directors
   • Enhanced discussions on portfolio management.

The Company will continue to improve the effectiveness of the Board of Directors based on the results of this evaluation.

Skill Matrix

We select Directors who have diverse and abundant experience and insights for executing our INPEX Vision @2022, which aims to realize a net zero carbon society in 2050.

The skill matrix of the Company’s Directors is shown in the table below.

Process for Determining Directors’ Compensation

As an advisory body to the Board of Directors, we have established the Nomination and Compensation Advisory Committee—the majority of whose members are Independent Outside Directors—to help strengthen the independence, objectivity, and accountability of the Board of Directors’ functions in determining the compensation for each Director. Based on the report of the Committee, the Board of Directors establishes a policy for determining the amount of compensation for Directors and the method of calculating such amount. The compensation etc. paid to Directors is no more than the upper limit of the compensation, etc. resolved at the General Meeting of Shareholders.

The Nomination and Compensation Advisory Committee is expected to meet, in principle, at least four times a year to deliberate on major matters concerning the policy for determining the amount and calculation method of compensation for Directors and the details of compensation, etc for each individual and to provide a report to the Board of Directors, and the Board of Directors makes decisions with the utmost respect for the content of that report. The amount of compensation to be paid to each Director (including the final amount of bonuses based on the evaluation of the performance of the division in charge) shall be decided by the President & CEO—who has been entrusted by the resolution of the Board of Directors and who is most familiar with the Company’s management situation—in accordance with the report of the Committee.

Considering the external environment and recent social and economic trends surrounding the Company, the Company may adjust the calculation of the amount of compensation for each Director. This is conducted by resolution of the Board of Directors and after careful deliberation by the Nomination and Compensation Advisory Committee about the appropriateness of the target value and calculation method for performance-linked compensation.

The total amount of consolidated compensation for each Director and Audit & Supervisory Board Member is not disclosed due to the absence of applicable Directors or Audit & Supervisory Board Members who received consolidated compensation of 100 million yen or more, which is the disclosure standard stipulated in the Cabinet Office Ordinance on Disclosure of Corporate Affairs issued by the Financial Services Agency of Japan.

Remuneration for Directors

There are three types of remuneration for Directors (excluding Outside Directors): (i) basic compensation in accordance with the duties of each position; (ii) bonuses as short-term incentive compensation; and (iii) stock-based compensation as a medium- to long-term incentive. Compensation for Outside Directors consists only of basic compensation, so as to preserve the independence of their role.

(1) Basic compensation

• Cash compensation paid to Directors as a fixed monthly compensation in accordance with the duties of each position
• Cash compensation paid (in addition to the aforementioned monthly fixed compensation) to Outside Directors who also serve as committee members

(2) Bonuses

• Performance-linked cash compensation paid each June, taking into account the Company’s performance for the fiscal year in question and the performance of the division in charge
• In addition to the Company’s main financial indicators of: net income attributable to shareholders of the parent company (hereinafter “net income”); and cash flows from operating activities before exploration, the company adopts non-financial indicators including safety indicators (zero major accidents), which are indispensable to fulfill the Company’s mission of stable energy supply. The amount of compensation is calculated based on the evaluation weights in the table below and according to the degree of achievement of these targets. The final amount of compensation fluctuates within the range of 0% to 200%.

• The degree of achievement of the targets of the divisions under each Director’s jurisdiction, excluding the Chairman, President & CEO, etc., shall be annually evaluated, and the results of the evaluation of each division shall be reflected in the bonus amount of each Director, which is calculated based on the degree of achievement of corporate performance indicators.

(3) Stock-based compensation

• Stock-based compensation to be paid to Directors after their retirement that combines performance-linked elements aimed at raising Directors’ awareness of their contribution to the Company’s medium- to long-term business performance and enhancement of corporate value, and fixed elements aimed at strengthening Directors’ awareness of sharing interests with shareholders through ownership of the Company’s shares
• The standard amount of stock-based compensation is set for each position, and a portion of the standard amount is linked to performance share, while the remainder is comprised of non-performance share stock-based compensation.
• The Company’s performance indicators for the performance share portion are based on the key management indicators in the Medium-term Business Plan—such as net income, cash flows from operating activities before exploration, return on equity (ROE) and total payout ratio—as well as on the performance indicators for production cost per BOE and net carbon intensity, with the goal of thoroughly strengthening the oil and natural gas business and promoting each of the five net zero businesses. Depending on the degree of achievement of these goals, the amount of compensation will be calculated based on the evaluation weights in the table below, and the final amount of compensation will vary within the range of 0% to 200%.
• The non-performance share portion is paid as stock-based compensation with a fixed number of shares to be delivered, from the perspective of strengthening the sense of shared interest with shareholders.
• Stock-based compensation is provided through a system using the Board Incentive Plan Trust. Under this system, points are granted annually to those eligible for the system based on their position, performance, etc., and in principle, the Company’s shares equivalent to the accumulated number of points are delivered from the trust after the retirement of those eligible for the system.

• The ratio of the President & CEO’s remuneration when the target achievement level for each index shall be 100% is as follows.

• For stock-based compensation, in the event that any Director commit a significant improper or illegal act, the Company may cancel or forfeit their right to receive the Company’s shares under the system (malus) and demand the return of cash corresponding to the Company’s shares already delivered to them (clawback).

Audit & Supervisory Board

We have adopted the auditor system and have an Audit & Supervisory Board consisting of five Audit & Supervisory Board members, four of whom are Outside Auditors. These four Outside Auditors have abundant experience and knowledge of the Company’s business, finance, accounting, legal and other fields, which they apply to their auditing duties. In addition, we have established the Audit & Supervisory Board Member’s Office, an organization independent from executive divisions, whose role is to assist the Audit & Supervisory Board members in the execution of their duties. Three full-time employees have been assigned to the Office with appropriate knowledge and abilities necessary for that purpose.

In principle, the Audit & Supervisory Board meets monthly on the same day as the Board of Directors meetings, and as necessary. The Audit & Supervisory Board makes resolutions on statutory matters including audit plans, receives reports from the internal audit department and accounting auditors on the performance of their duties, and requests explanations when necessary. In addition, the Audit & Supervisory Board members share information on issues and other matters identified through audit activities and hold discussions on them as necessary.

In FY2021, a total of sixteen Audit & Supervisory Board meetings were held and all Audit & Supervisory Board members attended all of these meetings, as shown in the table below:

Training for Directors and Audit

To ensure that Directors and Audit & Supervisory Board members can properly fulfill their roles and responsibilities, we explain important matters such as the Company’s business and management strategies and business risks to newly appointed Directors and Audit & Supervisory Board members. We also provide each Director and Audit & Supervisory Board Member with necessary training opportunities (training by experts, site visits, etc.).

In addition, we strive to enhance the Board of Directors’ cooperation and business knowledge by inviting outside experts in the environment, energy, and other fields to regularly hold lectures and opinion exchanges for the members.