What is the difference between a Company with an Audit and Supervisory Board and a Company with an Audit and Supervisory Committee?

A Company with an Audit and Supervisory Board has a board responsible to audit whether the directors elected at the general meeting of shareholders are managing the company properly.

Auditors on the Audit and Supervisory Board conduct operational audits to check legality of directors’ actions and ensure they have executed their duties in accordance with the law. They also perform a preliminary verification of financial results to be reported at the General Meeting of Shareholders as an accounting audit.

In contrast, a Company with an Audit and Supervisory Committee elects and appoints its committee members separately from other directors and establishes an Audit and Supervisory Committee instead of an Audit and Supervisory Board.

^{*Having the majority be outside directors is required to ensure independence.}

This goes a step beyond simply auditing legality to audit validity (whether inappropriate decisions are being made, even if there have been no legal violations).

Auditors are strictly in an auditing position and do not have voting rights on the Board of Directors*, whereas Audit and Supervisory Committee members have voting rights and also play a role in decision-making.

^{*A governing body that makes decisions on management policies and other important matters for a corporation. The Board of Directors at Toyota currently consists of ten directors and six auditors.}

Chief Officer of General Administration & Human Resources Group Takanori Azuma explains, “Auditors and directors are in different positions. The Board of Directors is essentially a forum for discussions among directors, with auditors auditing that process. Because of this role, auditors may be reluctant to speak up, making it difficult for them to engage as actively in discussions as the directors.”

Having all the Board of Directors members participate as decision-makers allows for diverse perspectives and lively discussions, the ultimate aim behind this change.

Toyota expects this change to not only reinvigorate the Board of Directors but to boost decision-making speed as well.

A Company with an Audit and Supervisory Committee allows the Board of Directors to delegate important business execution decisions to the executive directors.

For example, Toyota currently resolves human resource matters involving chief officers and company presidents at the Board of Directors meetings. Still, discussions are underway to have these decisions made at the executive level after the transition.

This ability to delegate authority will allow the Board of Directors to focus more on supervisory duties.

This transition will decrease the number of members participating in the Board of Directors meetings at Toyota from 16 (10 directors and 6 auditors) to 10 (10 directors, including 4 Audit and Supervisory Committee members).

With 5 of the 10 directors serving as Outside Directors, this leads to increased transparency and fairness of management*.

^{*Under the previous system, the 10 directors consisted of 6 inside directors and 4 outside directors.}

Toyota aims to reinvigorate the Board of Directors by combining directors who manage with a focus on products and regions with independent outside directors who offer broader perspectives and advice.

“It is hard for Toyota to judge by itself whether something will resonate with customers,” says Chief Officer Azuma. “Having people from a variety of backgrounds, including global backgrounds, join our fight to become a mobility company may be a secret weapon for Toyota's survival.”

This is not the start of Toyota’s revisions to its corporate governance.

To reinvigorate the Board of Directors, Toyota streamlined the number of directors from 27 to 11 in 2011.

In 2013, Toyota appointed Outside Directors to seek advice based on their extensive experience and insights from an independent position.

To promote product and region-centered management, Toyota introduced a system in 2011 where chief officers in charge of regions are, in general, stationed in that region.

In 2016, Toyota changed to the in-house company system, switching from a function base to a product base structure, so that each in-house company president is responsible for everything from vehicle planning to production within their company.

In 2019, Toyota also introduced the senior professional/senior management system. In 2020, the advisor system for retired executives was abolished. Then, in the following year, Toyota reviewed titles such as Vice President and Operating Officer to build a system where work is performed based on roles rather than titles.

^{*Executives are defined as Senior Managing Officers and higher, while Senior Professionals/Senior Management include Managing Officers, Executive General Managers, and Senior Grade 1 and 2 and Grand Masters.}

Toyota has consistently worked to improve governance in step with the changing times.

There has been a shift from an era that required uniformity to mass-produce cars of the same quality to an era that requires diversity to respond flexibly to unforeseen changes.

At this turning point, Toyota is building a system where directors with diverse insight and expertise can all participate in decision-making, shifting its formation as it transitions to a mobility company.