Basic Policies

1. Securing the Rights and Equal Treatment of Shareholders

While taking proper measures to secure shareholders' rights, the Company develops a proper environment for exercise of shareholders' rights including paying attention to foreign shareholders and minority shareholders and providing information necessary for the exercise of rights accurately and in a timely manner.

2. Proper Cooperation with Stakeholders other than Shareholders

The Group Vision of the Company is to provide new value to society and solve social issues by enabling "living in health and comfort" and "harmony with the natural environment" for people around the world, and the Company works to facilitate cooperation with its stakeholders.

3. Proper Information Disclosure and Securing of Transparency

The Company, in addition to disclosure required by laws and regulations, actively provides information to various stakeholders including financial information such as financial position and operating results, management strategy/issues, and non-financial information concerning risks and governance, etc.

4. Responsibilities of the Board of Directors

In order to achieve sustainable growth, enhance medium to long term corporate value, and increase earnings ability and capital efficiency, the Board of Directors of the Company presents the overall direction of its management strategy, develops an environment to support risk-taking by the management, and effectively oversees the business management of the Company from an independent and objective standpoint, based on the fiduciary responsibility and accountability to shareholders.

5. Dialog with Shareholders

The Company develops a system to have a constructive dialog with shareholders/investors and actively promotes such dialog.

Measures to Improve the Effectiveness of the Company’s Board of Directors

Previous measures (Plan, Do)

The Company’s Board of Directors mainly worked on the following actions in the most recent three fiscal years.

Review of the composition of the Board of Directors and the officer remuneration system

• Further enhancement of the monitoring capability by review of the composition of the Board of Directors
• Review of remuneration design for directors to provide incentives for sustainable growth and improving medium- to long-term corporate value
• Improvement of transparency in the remuneration decision-making process by entrusting the decision right for performance-linked remuneration to the Remuneration Advisory Committee

Enhancement of management of Board of Directors meetings

• Enhancement of the setting of agenda items at meetings of the Board of Directors, deepening deliberations on important management matters by establishing Matters to Be Discussed
• Enhancement of the quality of discussions at Board of Directors meetings by expanding the pre-meeting briefings

Other measures for cooperation and information sharing

• Holding Independent Officer Meetings for only Outside Directors and Outside Audit & Supervisory Board Members
• Expansion of opportunities for Outside Officers to participate in site visits, research presentations, etc.

1. Process of the fiscal year’s Evaluation (Check)

• (1)From November 2023 to January 2024
  We conducted surveys for all Directors and Audit & Supervisory Board Members and based on the responses to these surveys, an interview was conducted with all Directors and Audit & Supervisory Board Members by the third-party organization.
  The survey and the interviews covered not only the Board of Directors but also the Nomination Advisory Committee and Remuneration Advisory Committee and the topics included such areas as the composition of the Board of Directors, the management and discussion status of meetings of the Board of Directors, the Nomination Advisory Committee, and Remuneration Advisory Committee, and support systems and information-sharing provided to Outside Officers, etc.
• (2)February 2024
  The Company’s Board of Directors received reports from the third-party organization based on the aforementioned surveys and interviews, and discussed the contents of the report.
• (3)March and April 2024
  The Company’s Board of Directors deliberated on responses to the issues identified.

2. Result summary of the evaluation (Check)

• (1)As a result of the deliberations based on the report from the third-party organization, the Company’s Board of Directors confirmed that the effectiveness of the Board of Directors is sufficiently ensured, particularly in the following aspects.
  • Under the appropriate composition of the Board of Directors, each Director and Audit & Supervisory Board Member properly perform their roles and functions, and open and active discussion is conducted.
  • The arrangement of discussions and gist of discussions at the Management Council meetings are shared with the Board of Directors, and are highly rated by Outside Officers.
  • The chair of the Board of Directors is highly regarded as performing his role appropriately. In addition, Outside Directors and Audit & Supervisory Board Members contribute to substantive discussions based on their own experience and knowledge.
• (2)On the other hand, the Company’s Board of Directors shared that there are still issues regarding the following points.
  • While working on business structural transformation and business portfolio transformation, there is room for improvement to hold further in-depth discussions at the Board of Directors and other meetings on medium- to long-term management issues, etc.
  • The importance of further advancement of the discussions on the executive side in the stage prior to Board of Directors meetings and further information sharing with the Board of Directors are recognized.
  • Regarding the composition of the Board of Directors, there is a need for continuous discussion, taking into consideration the percentage of Outside Directors in the future, the expected roles of the officers, the size of the Board of Directors, etc.

3. Future measures (Act)

Based on the objective analysis by the third-party organization, the Company’s Board of Directors confirms the appropriateness and effectiveness of the previous measures, identifies the issues to be addressed for further enhancement of the effectiveness of the Board of Directors, and has decided to implement the following measures for improvement.

• (1）Continuation and enhancement of discussions from the medium- to long-term perspective at Board of Directors meetings
  The Company aims for “contributing to a sustainable society” and “sustainable growth of corporate value” as two mutually reinforcing aspects of sustainability, and promotes the business portfolio management and strengthening its business platform. In order to properly supervise this, The Board of Directors aims to enhance discussions on key management subjects to be discussed from a medium- to long-term perspective, such as business portfolio transformation, management resource allocation, etc. In order to further deepen discussions, more opportunities are made for opinion exchange outside of meetings of the Board of Directors.
• (2）Improvement of operations to enhance discussions at Board of Directors meetings, etc.
  In order to enhance discussions at Board of Directors meetings, we will consider the advancement of discussions at the Management Council meeting which is responsible for preliminary deliberations at Board of Directors meetings, and promote further streamlining and greater efficiency of the operation of Board of Directors meetings. In addition, we will continue to work on information sharing with Outside Officers and enhancement of communication between Outside Officers, etc.
• (3）Continuous consideration of the composition of the Board of Directors
  We deepen discussions on the composition of the Board of Directors and continuously pursue the most appropriate form of the Board of Directors in light of our management philosophy, management strategy, and business environment.

Policy for Determining Director Remuneration

• 1. Basic policy
  The Directors’ remuneration of the Company is one of the important components of corporate governance. The Company designs this system to provide appropriate incentives to both executives and supervisors for achieving sustainable growth and improving medium- to long-term corporate value.
  Remuneration for Non-executive Directors* including Outside Directors, who supervise the management of the Company, is comprised solely of fixed basic remuneration at a level determined in consideration of third-party survey data, in order to secure a high degree of independence unaffected by short-term earnings fluctuations.
  The remuneration for Executive Directors combines performance-linked remuneration with stock-based remuneration as nonmonetary remuneration, in addition to fixed basic remuneration which serves a basic livelihood, in order to provide incentives tied to earnings and management strategy as senior management, with levels of remuneration amounts and proportions of types of remuneration adjusted as appropriate for each role according to management strategy and tasks, in consideration of third-party survey data.
  To ensure the optimal way of remunerating Directors and design of the remuneration system, the Board of Directors and the Remuneration Advisory Committee regularly deliberate and continually confirm their appropriateness and make improvements.
• 2. Policy for determining the timing for payment and conditions of remuneration
  Considering the purpose of each type of remuneration, fixed basic remuneration is paid monthly as it serves as a basic livelihood, performance-linked remuneration is paid monthly as it serves as a constant incentive, and for stock-based remuneration, points described below are granted to eligible Directors on a certain date each fiscal year set forth in the Share Grant Regulations determined by the Board of Directors, and shares of the Company are provided to eligible Directors at the time they retire both as Director and as officer of the Group in light of the purpose of the stock-based remuneration to share the medium- to long-term perspectives of shareholders.
• 3. Policy for determining each individual’s basic remuneration (monetary remuneration)
  Amounts of basic remuneration for Directors are determined through comprehensive consideration in accordance with rank and responsibility taking account of other companies’ levels of remuneration and the Company’s earnings.
• 4. Policy for determining content of performance-linked remuneration and nonmonetary remuneration as well as method of calculating amounts and numbers thereof
  Performance-linked remuneration, which comprises a part of remuneration for Executive Directors, combines both achievement of financial targets including invested capital efficiency with achievement of non-financial targets including individual targets such as progress on sustainability, so as to provide incentives tied to earnings and management strategy as senior management.
  Performance-linked remuneration is calculated based on a comprehensive judgment on the basis of achievement of financial targets such as consolidated net sales, operating income, ROIC, etc., together with achievement of individually set targets including progress on sustainability. Standards for financial incentives are selected as appropriate for clear and objective evaluation based on earnings results together with the perspective of awareness for improving invested capital efficiency.
  The formula required to calculate individual performance-linked remuneration is outlined as follows.

  [Formula required to calculate individual performance-linked remuneration]

  • 
  A portion of remuneration for Executive Directors is the provision of stock-based remuneration as non-monetary remuneration. To share with shareholders not only the benefits of share price increases but also the risk associated with share price decreases, a stock-based remuneration system was adopted, whereby a trust established by the Company acquires shares of the Company and grants them to eligible Directors. Based on the Share Grant Regulations adopted by the Board of Directors, eligible Directors are granted points linked to achievement of targets set by the medium-term management plan in accordance with their rank, etc. (maximum of 150,000 points per fiscal year) and the Company’s shares are granted to eligible Directors corresponding to the accumulated number of points at the time of their retirement as Director and as officer of the Group (the number of shares to be granted is the number of points granted multiplied by 1.).
• 5. Policy for determining the proportion of basic remuneration, performance-linked remuneration, and nonmonetary remuneration for individual Executive Directors
  The proportion of basic remuneration, performance-linked remuneration, and stock-based remuneration for each Executive Director is determined to provide an appropriate incentive in accordance with management strategy and management tasks, with consideration given to the level obtained from third-party survey data.
  The proportion of basic remuneration, performance-linked remuneration, and stock-based remuneration for each Executive Director is generally 6:3:1, with performance-linked remuneration ranging between 0% to 200% of the base amount based on rank, according to evaluation. However, the Board of Directors and the Remuneration Advisory Committee regularly deliberate on its appropriateness, and improvement is made based on continual confirmation of appropriateness.
• 6. Policy for determining items to be entrusted regarding determination of content of remuneration of individual Directors and for determining content of remuneration of individual Directors
  Among remuneration of each individual Director, determination of the amount of performance-linked remuneration is entrusted to the Remuneration Advisory Committee based on a resolution of the Board of Directors, with the Remuneration Advisory Committee being authorized to confirm the reasonableness and appropriateness of the evaluation of the achievement of targets by each Executive Director as proposed by the President and Director, and to determine remuneration amounts for individual Directors by applying this evaluation to the formula determined by the Board of Directors.
  To ensure that such authority is properly exercised, the Remuneration Advisory Committee is comprised of a majority of Outside Directors, and it regularly reports to the Board of Directors on the process of the above confirmation and determination.
  Regarding determination of basic remuneration and stock-based remuneration for individual Directors, the Board of Directors requests deliberation by the Remuneration Advisory Committee and makes a determination based on ample consideration of the result of deliberation by the Remuneration Advisory Committee.
  Fixed basic remuneration by rank is paid upon determination of the amount by the Board of the Directors. Stock-based remuneration is granted to eligible Directors when certain conditions are met, corresponding to points granted to each Director based on the Share Grant Regulations adopted by the Board of Directors.
• 7. Important matters for determining the content of individual remuneration, etc. for Directors
  In the event that a Director who is eligible for payment of stock-based remuneration, which is nonmonetary remuneration, as part of the above-stated remuneration for Executive Directors, retires due to personal reasons (except in cases where it is determined that the resignation is due to unavoidable circumstances), and in the event that a Director is dismissed or resigns due to causing loss or damage to the Company’s group companies as defined in the Share Grant Regulations, etc., all or some of the points granted up to that point shall be forfeited and no shares of the Company corresponding to the forfeited points shall be granted, or no further points shall be granted, based on a resolution of the Board of Directors.

• *Non-executive Directors include Director and Chairman.