Shiseido's Board of Directors is comprised of 10 directors including two external directors. The Board meets at least once a month to discuss all significant matters. Attendance at the 14 Board of Directors meetings in the year ended March 2009 was 98% (93% for external directors).
Through the adoption of a corporate executive officer system, we are separating the decision-making and supervisory functions of the Board of Directors from the business execution functions of corporate officers. The Corporate Executive Officer Committee, which acts as the final decision-making body regarding corporate officers' material issues, serves to transfer authority to corporate officers, thereby clarifying their responsibilities and accelerating operational execution. Shiseido's President & Chief Executive Officer, who also serves as the Chief Operating Officer, chairs this Committee. The term of office of directors and corporate officers is one year.
To obtain an outside point of view and further strengthen the Board of Directors' supervisory function in regard to business execution, Shiseido appointed two independent external directors from the year ended March 2007. Inviting the participation of external directors has both enhanced the independence of the Board and stimulated discussion of significant management matters at Board meetings.
We are also working to increase the diversity of directors, for example by promoting individuals with careers outside of Shiseido to two of the eight director seats excluding external directors. These individuals bring with them a new level of objectivity thanks to their broad perspectives and views based on their different backgrounds and areas of expertise, and we believe their participation helps strengthen the Board's supervisory function. We are also striving to improve the executive capabilities of corporate officers by appointing young individuals and focusing on establishing a small but highly skilled management team.
To promote transparency and objectivity in management, Shiseido established two committees to play an advisory role to the Board of Directors: the Remuneration Committee, charged with setting proposals of recommended guidelines regarding various aspects including executive remuneration, and the Nomination Advisory Committee, which formulates the proposal of recommended guidelines including the evaluation and nomination of candidates for director and corporate officer positions. Both committees are chaired by external directors to maintain objectivity.
The Remuneration Committee formulated a remuneration system that increases the weighting of the company's business performance and stock price in determining compensation. Developed in anticipation of increasing globalization and based on similar systems in place at European corporations, the new system went into effect at the start of the March 2009 fiscal year. The committee makes decisions including those concerning performance-linked remuneration payments based on the achievement of performance targets and share price.
In addition to nominating candidates for executive positions, the Nomination Advisory Committee has built and is enforcing a fair and highly transparent framework designed to enhance the capabilities of top management and ensure that all executives deliver a consistently high level of results. Measures include the establishment of term limits for corporate officers and the formation of rules governing promotions, demotions and retirements. The term limit of corporate officers is four years in principle and six years maximum.

Shiseido management and business execution structure

Shiseido's Board of Auditors consists of two standing corporate auditors and three independent external corporate auditors. Corporate auditors monitor the legality and adequacy of directors' performance by attending Board of Directors meetings and other important meetings.
Representative directors and corporate auditors meet regularly to exchange opinions on actions that will resolve corporate governance issues. For example, at the corporate auditors' request, it arranges liaison meetings with the accounting auditors and the Internal Auditing Department in addition to assigning full-time employees to assist in audits. Corporate auditor attendance was 100% for the 14 Board of Auditors meetings and 97% for the Board of Directors meetings held in the year ended March 2009.
Internal audits of the entire Group are conducted to ensure that business is executed in an appropriate manner, and audit results are reported to the Board of Directors and Board of Auditors.

The unfunded retirement benefit plan for directors and corporate auditors was abolished in the year ended March 2005, and starting in the year ended March 2006, compensation for directors and corporate officers consisted of a basic fixed portion and a performance-linked portion that fluctuated according to the attainment of performance targets and stock price in nearly equal proportion. Starting in the year ended March 2009, the Company revised its remuneration system based on the approach employed by European corporations of similar scale to further reduce the weight of the basic fixed portion and increase the weight of the performance-linked portion to about 60%, creating a remuneration system that provides greater incentive to achieve performance targets. The performance-linked portion consists of a bonus determined by annual consolidated performance as a short-term incentive, cash compensation based on the targets set forth in the three-year plan launched in the year ending March 2009 as a medium-term incentive, and stock options as a long-term incentive primarily focused on fostering a shared awareness of profits with shareholders. The design of this performance-linked remuneration system is intended to give directors and corporate officers a medium-to-long-term perspective, not just a single-year focus, and to motivate management to become more aware of Shiseido's performance and stock price.
External directors receive fixed basic remuneration only. They do not receive performance-linked remuneration since the emphasis is on their supervisory functions from a stance independent from business execution. Due to the nature of auditing, corporate auditors receive fixed basic remuneration only, to eliminate linkage with performance.
Shiseido sets appropriate remuneration levels to provide a reward when the company meets its performance targets based on comparisons with companies in the same industry or of the same scale that have a high percentage of overseas sales. Basic remuneration is within the monthly remuneration limits decided by the General Meeting of Shareholders; all performance-linked remuneration, including bonuses, cash compensation as a short-term incentive, and stock options as a long-term incentive, is set by resolution at the General Meeting of Shareholders each year.

Remuneration to Directors and Corporate Auditors
(Year ended March 2009)

Notes

1.

Basic remuneration for directors was within the limit of ¥30 million per month as per resolution of the 89th Ordinary General Meeting of Shareholders (June 29, 1989). Basic remuneration for corporate auditors was within the limit of ¥10 million per month as per resolution of the 105th Ordinary General Meeting of Shareholders (June 29, 2005).

2.

The above-noted amount for directors' bonuses was based on a resolution of the 109th Ordinary General Meeting of Shareholders held on June 24, 2009.

3.

Above-noted amount includes remuneration of the following directors and auditor.

a.

Remuneration to two retiring directors
Basic remuneration of ¥15 million from April through to June 2008 and stock options of ¥3 million were paid to two directors who retired as of the end of 108th Ordinary General Meeting of Shareholders on June 25, 2008.

b.

Remuneration to one retiring corporate auditor
Basic remuneration of ¥3 million from April through to June 2008 was paid for one external auditor who retired as of the end of 108th Ordinary General Meeting of Shareholders on June 25, 2008.

Remuneration of Accounting Auditors
(Year ended March 2009)

Note

In the auditing contract signed between Shiseido and accounting auditors, the amount of remuneration paid for conducting auditing based on corporate law and auditing carried out based on the Financial Instruments and Exchange Law are not clearly classified. Since segmentation of relevant amounts is not possible, the total amount is allocated to "remuneration paid for services rendered as accounting auditors for the fiscal year under review."