Corporate Governance

Our Approach

We position “Our Mission” as the universal philosophy underpinning the management of SMBC Group and as the foundation for all of our corporate activities. We are working toward effective corporate governance as we consider the strengthening and enhancement of corporate governance to be one of our top priorities in realizing “Our Mission.”

Initiatives for Improving Corporate Governance

  • Establishment of Sumitomo Mitsui Financial Group
  • Voluntary establishment of Nominating Committee, Compensation Committee, and Risk Committee as internal committees of the Board of Directors
  • Voluntary establishment of Audit Committee as internal committee of the Board of Directors
  • Formulation of "Basic Policy on Internal Control Systems" through internal control resolution made based on "Our Mission" and "Code of Conduct" in order to establish frameworks for ensuring appropriate operations
  • Listing of shares on the New York Stock Exchange in order to improve transparency of financial reporting, increase convenience for investors, and diversify fund procurement methods
  • Establishment of the "SMFG Corporate Governance Guideline"
  • Increase in the number of outside directors to five and in the number of outside corporate auditors to three
  • Strengthening of Group governance by appointing the chairman of SMBC Nikko Securities as a director of Sumitomo Mitsui Financial Group along with the president of SMBC
  • Commencement of evaluations of the effectiveness of the Board of Directors
  • Transition to a Company with Three Committees; increase in the number of outside directors to seven; establishment of voluntary Risk Committee together with legally mandated Nomination Committee, Compensation Committee, and Audit Committee; and appointment of outside directors as chairmen of three legally mandated committees
  • Institution of new Group governance system through introduction of group-wide Business Units and CxO system
  • Transition to the Company with Audit and Supervisory Committee structure by core subsidiaries SMBC and SMBC Nikko Securities
  • Decrease in the number of directors from 17 to 15 and increase in the ratio of outside directors to 47%
  • Appointment of an outside director as the chairman of the Risk Committee
  • Appointment of Group CSuO
  • Establishment of voluntary Sustainability Committee (Chaired by an outside director)
  • Establishment of Group Business Management Department

Sumitomo Mitsui Financial Group's Corporate Governance System

SMFG Group employs the Company with Three Committees structure. This structure was adopted in order to establish a corporate governance system that is globally recognized and is aligned with international banking regulations and supervision requirements and to achieve enhanced oversight of the exercise of duties by the Board of Directors and expedite this exercise of duties. In addition, core subsidiaries SMBC and SMBC Nikko Securities employ the Company with Audit and Supervisory Committee system described in the Companies Act.

Through the implementation of effective corporate governance systems, we aim to prevent corporate misconduct while also achieving ongoing growth and medium- to long-term improvements in corporate value. We realize that there is no perfect form for corporate governance structures. Accordingly, we will continue working toward the strengthening and enhancement of corporate governance in order to realize higher levels of effectiveness.

Corporate Governance System

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  • *1:Chairman of the Advisory Board of Nikko Research Center, Inc., former Deputy Governor of the Bank of Japan.
  • *2:Specially appointed professor of International University of Health and Welfare.
  • *3:Professor at the University of Tokyo Institute for Future Initiatives.
  • *4:Senior Counselor of The Japan Research Institute, Limited.

As of June 2023

Board of Directors

Role of the Board of Directors

The Board of Directors of the Company is primarily responsible for making decisions on the matters that are within its legally mandated scope of authority, such as basic management policies, as well as for overseeing the exercise of duties of executive officers and directors. Authority for execution decisions other than those legally required to be made by the Board of Directors will, in principle, be delegated to executive officers. The purpose for this delegation is to enhance the oversight function of the Board of Directors and to expedite the exercise of duties.

The Board of Directors works toward the realization of “Our Mission” and the long-term growth of corporate value and the common interests of the shareholders. Any action that may impede those objectives will be addressed with impartial decisions and response measures.

Furthermore, the Board of Directors is responsible for establishing an environment that supports appropriate risk taking by executive officers. It will develop a system for ensuring the appropriateness of SMBC Group’s business operations pursuant to the Companies Act and other relevant legislation in order to maintain sound management. Another responsibility of the Board of Directors is to exercise highly effective oversight of executive officers from an independent and objective standpoint. Accordingly, the Board of Directors endeavors to appropriately evaluate company performance and reflect these evaluations in its assessment of executive officers.

Composition of the Board of Directors

The Board of Directors is comprised of directors with various backgrounds and diverse expertise, experience, gender and nationality.

As of June 29, 2023, the Board of Directors was comprised of 15 directors, which the Company believes to be the appropriate number of directors for the Board to perform its functions most efficiently and effectively. Ten of the 15 directors did not have business execution responsibilities at the Company or its subsidiaries, with seven of these 10 directors being outside directors. The chairman of Sumitomo Mitsui Financial Group, who does not have business execution responsibilities, serves as the chairman of the Board of Directors. This membership ensures an objective stance toward supervising the exercise of duties by executive officers and directors.

Outside directors serve as chairmen and members of the Company’s legally mandated and voluntarily established committees. When necessary, outside directors will request reports on compliance, risk management, or other matters from the relevant divisions in order to promote appropriate coordination and supervision.

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Examples of matters discussed by the Board of Directors

  • Deliberations on the formulation of the new Medium-Term Management Plan
  • Focused supervision of SMBC Nikko Securities in light of the administrative action taken by the Financial Services Agency
  • Progress of the Medium-Term Management Plan and business plan
  • Global compliance
  • Digitalization efforts
  • Corporate governance structure
  • Sustainability initiatives
  • Capital policy (ROE and PBR improvement)
  • Human resources measures
  • Policy for equity holdings
  • System strategy policy
  • Responding to geopolitical risks

Processes for selecting and dismissing directors and executive officers

We expect our directors and executive officers to embody the values expressed in our management philosophy at a high level, to possess a wealth of practical experience and high levels of ability and insight, and to contribute to the further development of SMBC Group. In selecting directors, the Nominating Committee spends ample time deliberating whether a candidate can meet these expectations. Where it is difficult for a director or executive officer to perform their duties effectively, the Group will consider their dismissal.

For details, please see References 4 and 5 in the "SMFG Corporate Governance Guidelines."

Succession planning for top management

One of the matters discussed by the Nominating Committee that directly relates to our Mission and management strategy is succession plans for the Company president (Group CEO) and the presidents of the core subsidiaries SMBC and SMBC Nikko Securities. To train and develop our future top management, we take our time systematically forming a candidate pool through tough work assignments and third-party assessment and coaching. From within this large pool of candidates, the best candidates with the qualities required to lead a global financial group, such as broad vision and communication abilities, are selected for top management.

Top management selection process

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Skills Matrix of Directors

A skills matrix is developed following deliberations by the Nominating Committee as to the knowledge and experience expected of directors in exercising sufficient supervisory functions as a Board of Directors of a global financial group. In 2022, IT/DX and Sustainability, which are becoming increasingly important in SMBC Group’s business strategy, were added.

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  • * : The items listed in “Skills Matrix of Directors” are areas particularly expected of the relevant directors and do not represent all of the knowledge and experience possessed by the directors.

As of June 2023

Support Systems for Outside Directors

The Company recognizes that outside directors require an in-depth understanding of the Group’s business operations and business activities. Accordingly, we continually endeavor to supply outside directors with the information and insight on business activities that are necessary to supervise management while also providing the opportunities needed to fulfill their roles.
Initiatives to support directors in FY2022 included those indicated to the right.

  • Participation in meetings of general managers of core Group companies and other executive team meetings, tours of bases of Group companies, and discussions with presidents of Group companies for facilitating a greater understanding of business operations and business activities
  • Informal meetings between outside directors and relevant departments on topics including Central Bank Digital Currency and promoting DE&I.
  • Explanatory forums on Board of Directors’ meeting agenda items prior to Board meetings to assist in understanding of items
  • Study sessions led by external lecturers on topics such as information sharing regulations (firewall regulations), business and human rights, and cybersecurity
  • Timely and effective provision of information such as details on the proceedings of internal meetings to outside directors
  • External director-only meetings

Outside Director and Corporate Auditor Independence Standards

In order for an outside director (“Outside Director”) of the Company to be classified as independent, they must not fall under, or have recently fallen under, any of the following categories:

1. Major Business Partner
  • An entity that has the Company or SMBC as a major business partner or an executive director, officer, or other person engaged in the execution of business of such an entity.
  • An entity that is a major business partner of the Company or SMBC or an executive director, officer, or other person engaged in the execution of business of such an entity.
2. Specialist
  • A legal expert, accounting expert, or consultant who has received money or other property from the Company or SMBC averaging more than ¥10 million per year over the last three years, in addition to any compensation received as a director or corporate auditor.
  • A member of a Juridical Person, etc. or other organization that provides specialist services, such as a law firm, accounting firm, or consulting firm, which has received large amounts of money or other property from the Company or SMBC.
3. Donations

A person who has received–or an executive director, officer, or other person engaged in the execution of business of an entity which has received–on average over the last three years, donations or other payments from the Company or SMBC in excess of the greater of ¥10 million per year and 2% of the recipient’s annual revenue.

4. Major Shareholder

A major shareholder of the Company or an executive director, officer, or other person engaged in the execution of business of a major shareholder (including anyone who has been a major shareholder, or an executive director, officer, or other person engaged in the execution of business of a major shareholder, within the last three years).

5. Close Relative

A close relative of any person (excluding non-material personnel) who falls under any of the following:

  1. (1)A person who falls under any of 1 through 4 above; or
  2. (2)A director, corporate auditor, executive officer, or other person engaged in the execution of business of the Company or a subsidiary thereof.

Please see Reference 6 of the "SMFG Corporate Governance Guideline" for more information.

Internal Committees

  Main role Number of meetings
in FY2022
(average attendance)
Activities in FY2022
Nomination Committee The Nomination Committee is responsible for preparing proposals regarding the appointment and dismissal of directors to be submitted to the general meeting of shareholders. This committee also deliberates on matters regarding personnel decisions pertaining to officers of the Company and major subsidiaries and the selection of successors to the presidents of the Company, SMBC, and SMBC Nikko Securities. 5 meetings
  • In anticipation of the change of SMBC president in April 2023, ongoing discussions have been held concerning succession planning.
  • Specifically, the committee narrowed down the list of candidates based on the “qualities required for top management” discussed in FY2021, and agreed to appoint a new president.
Compensation Committee The Compensation Committee is responsible for deciding policies for determining the compensation of directors and executive officers of the Company as well as compensation amounts of individual directors and executive officers of the Company based on those policies. In addition, this committee deliberates on the policies for determining the compensation of the executive officers of major subsidiaries and the compensation amounts of individual executive officers of the Company. 7 meetings
  • With the start of the new Medium-Term Management Plan from FY2023, we have reviewed how medium-term performance-linked remuneration is assessed. Specifically, we have investigated incorporating “Create social value” into the evaluation index as a non-financial index.
  • The committee also discussed disciplinary actions to be taken against the officers of SMBC Nikko Securities for market manipulation and violation of the firewall regulations separating banking and securities.
Audit Committee The Audit Committee is responsible for auditing the execution of duties by executive officers and directors of the Company, preparing audit reports, and determining the content of proposals for election, dismissal, or non-reelection of the accounting auditor to be submitted to the general meeting of shareholders. Committee members appointed by this Committee are to perform audits of the operations and assets of the Company and its subsidiaries. 16 meetings
  • In accordance with the audit policy and audit plan, audited the execution of duties by directors and executive officers by attending key meetings, interviewing with executive officers and directors, receiving reports from internal departments and visiting domestic and overseas offices.
  • Provided summaries of the results of its deliberations to the Board of Directors, and issued recommendations and opinions to executive officers, etc. where necessary.
Risk Committee The Risk Committee is responsible for deliberation on matters relating to environmental and risk awareness, the operation of the Risk Appetite Framework, and the implementation of risk management systems as well as other important matters pertaining to risk management and reporting to the Board of Directors on these matters. 4 meetings
  • The committee deliberated the environment and risk recognition in the new Medium-Term Management Plan, including geopolitical risks, the trends and outlooks of monetary policy across Europe, the U.S., and Japan.
  • In preparation for formulating the Medium-Term Management Plan and operational plan, the committee discussed the risk appetite and the policy for addressing risk scenarios when they materialize, based on the top risks and stress test results.
  • The committee also engaged in discussion on SMBC Group’s risk management system, including the strengthening of group governance.
Sustainability Committee The Sustainability Committee is responsible for deliberating on the progress of sustainability initiatives, including climate change initiatives, domestic and overseas sustainability trends, and other important matters related to sustainability. It regularly reports to, and advises, the Board or Directors. 2 meetings
  • The committee reviewed SMBC Group’s materiality, with the aim of creating social value by addressing a wide range of social issues.
  • The committee reviewed the results of company- wide efforts regarding sustainability, and discussed the policy for sustainability initiatives in the new Medium-Term Management Plan starting from FY2023.

Evaluation of the Board of Directors' Effectiveness

The “SMFG Corporate Governance Guideline” contains provisions on evaluating the effectiveness of the Board of Directors. In accordance with these provisions, annual analyses and evaluations are conducted by the Board of Directors to determine whether or not it is executing its duties in line with the guideline, and the results of these analyses and evaluations are disclosed.

In FY2022, the evaluation focused on the three areas described below, which are areas for which provisions exist in Japan’s Corporate Governance Code and the “SMFG Corporate Governance Guideline.” All seven outside directors were asked for their opinions regarding these areas at meetings of the Board of Directors held in April and May 2023 and interviews of internal directors were conducted thereafter. Discussions were held at Board of Directors’ meetings in June based on the findings of these interviews with internal directors, after which analyses and evaluations were carried out to determine whether or not the Board of Directors was executing its duties in line with the “SMFG Corporate Governance Guideline.” Moreover, reviews by external specialists with expertise from developed nations are received at each stage of the evaluation process.

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Overview of Results of Evaluation of the Board of Directors' Effectiveness

In FY2022, based on appropriate actions taken to respond to the findings of the last Effectiveness Evaluation, the Board of Directors assessed the Group to be sufficiently effective, and more effective than before, as a result of efforts to increase the sophistication and effectiveness of deliberations at Board of Directors meetings. Based on the results of the latest Effectiveness Evaluation, together with the diverse opinions of the directors and the recommendations of external experts gathered through a series of processes, our Board of Directors is working to further improve effectiveness by promoting mutual understanding between outside directors and internal officers and employees, and by discussing fundamental issues to enhance our corporate value.

  FY2022 Evaluation FY2023 Priority Issues
Role of the Board of Directors
  • Steps are taken to invigorate discussions by drawing on the highly specialized expertise of the outside directors. These discussions were geared toward medium- to long-term improvements in corporate value based on the interests of various stakeholders while incorporating important matters related to business strategies to contribute to the fulfillment of “Our Mission.”
  • In particular, in FY2022, the Board of Directors had thorough discussions on important topics such as the formulation of the new Medium-Term Management Plan for the future of SMBC Group, and, as its holding company, focused supervision of SMBC Nikko Securities in light of an incident in which former officers and employees of the company violated Article 159, Paragraph 3 (illegal market manipulation) of the Financial Instruments and Exchange Act (the “market manipulation case”).
  • Based on the executive-side discussions of the Management Committee, matters related to business plans and other basic management policies as well as the status of business execution were presented and reported on several occasions. As a result, effective deliberations on these matters were able to take place and oversight functions were exercised properly.
The Board of Directors will play an even more involved role based on mutual understanding between the outside directors and internal officers and employees in supervising the progress of the new Medium-Term Management Plan (Plan For Fulfilled Growth) while being aware of environmental changes including monetary policy trends, market demands regarding return on capital, geopolitical risks, and technological innovation such as generative AI, as well as in supervising efforts to respond to administrative action, etc., in response to market manipulation cases and to prevent such cases occurring again, and in exercising supervisory functions over major subsidiaries.
Proceedings of the Board of Directors and Support Systems for Outside Directors
  • The number and content of agenda items as well as the amount of time dedicated to discussion of agenda items were more or less at the appropriate level.
  • Appropriate agenda management by the chairperson has facilitated the continuation of brisk discussions.
  • The Board of Directors continues to make flexible management decisions amid the changing operating environment. Members of the Board of Directors are provided with the information necessary for exercising their oversight function in a timely and appropriate manner.
  • The Company continued to provide systems for effectively supporting the Board of Directors in making management decisions through venues such as study sessions for outside directors and forums for discussions between outside directors and internal directors, executive officers, and accounting auditors, etc. Steps were taken to contribute to livelier discussions at meetings of the Board of Directors, including the provision of information about major Group companies and the setting-up of meetings, in order deepen understanding of the Group companies’ operations.
We will further increase the sophistication of discussions by, for example, taking further advantage of outside directors’ knowledge, and continuing to ensure sufficient time for deliberation of important topics.
Composition of the Board of Directors
  • As of June 30, 2023, the Board of Directors consisted of 15 directors, seven of whom were outside directors. Accordingly, outs ide directors represented over 40% of all directors. It was once again acknowledged that the outside directors represented a diverse range of expertise, genders, and nationalities and that the Board of Directors features an atmosphere conducive to outside directors voicing opinions regarding management.
The Nominating Committee shall continue to examine and review the ideal composition of the Board of Directors in light of its role.

Compensation Program

To facilitate the fulfillment of Our Mission and the realization of Our Vision, SMBC Group’s medium- to long-term vision, we developed a compensation program for Directors, Corporate Executive Officers and Executive Officers (the “Executives”) and introduced Stock Compensation Plans as a part of Executives’ compensation programs, for the purpose of:

  • 1. Providing appropriately functioning incentives for Executives, strengthening linkage with our short-, medium-, and long-term performance, and
  • 2. Further aligning the interests of Executives with those of shareholders, by increasing the weight of stock compensation and enhancing the shareholding of our Executives.

Executive Compensation System (FY2023)

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Executive Compensation Structure

In principle, executive compensation consists of base salary, bonuses and stock compensation. The performance- linked portion, which fluctuates with the business environment and performance, accounts for approximately 40% of total compensation.

Annual Performance-Linked Incentive

Both the Bonus (Cash) and Stock-Compensation Plan II are paid as annual performance-linked incentives. Three performance indicators are used: “SMFG Net Income” which is management’s end performance, and “SMBC Banking profit” and “SMBC Net Income (pre-tax),” which indicate the profitability of SMFG’s major subsidiaries. These create a strong link between performance and executive compensation, ensuring that compensation functions as an appropriate incentive for performance.

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Medium-Term Performance-Linked Compensation

Stock Compensation I is paid as medium-term performance- linked compensation. In order to improve accountability incentives for our medium- and long-term performance and to increase shareholder value, medium-term performance-inked compensation is calculated based on the target indices of ROCET1 and base expenses together with qualitative evaluations including “customer satisfaction” and “initiatives in new business fields.”

Compensation programs and levels are determined by the Compensation Committee based on third-party surveys of manager compensation, economic and social trends, and the operating environment.

Annual Performance-Linked IncentiveDisplay enlarged image

Evaluation of efforts to create social value

We are incorporating an indicator evaluating efforts to create social value into executive compensation with the aim of further increasing our executives’ commitment to contributing to the realization of a sustainable society and achieving “SMBC Group GREEN×GLOBE 2030.”

From FY2022, the Compensation Committee will judge performances of annual progress of KPIs in the “SMBC Group GREEN×GLOBE 2030”, such as the reduction of greenhouse gas emissions, and performances of external ESG ratings. These performances will be reflected in annual performance-linked incentive by a maximum of 10%, plus or minus.

“Create social value” has been incorporated in the evaluation index of the medium-term performance-linked remuneration since FY2023 as a non-financial index. Specifically, the Compensation Committee evaluates the rate of KPI achievement for environmental and employee- related initiatives, as well as efforts to address the five key issues (materiality) set by SMBC Group.

Ensuring Robust Business Operations

We have also introduced provisions for malus (forfeiture) of restricted stock and the claw-back of vested stock allocated under the Stock Compensation Plans in the event of incidents occurring such as material revisions to financial statements or material damage to the reputation of the Group.

We are working to restrain excessive risk-taking and foster a prudent risk culture expected of a financial institution.

For further details on our corporate governance and our Policy regarding equity holdings, please refer to the following link.

For details about SMFG's organization management structure, please see the following link.

For details about Equity Holdings, please see the following link.