住友商（8053） – Corporate Governance Report

(Translation) Corporate Governance Report Last Update: January 4, 2022 Sumitomo Corporation President and Chief Executive Officer Masayuki HYODO Inquiries: Takao NAGAZAWA General Manager, Corporate Legal & General Affairs Department +81-3-6285-5000 Securities Code: 8053 https://www.sumitomocorp.com/en/jp The corporate governance of Sumitomo Corporation (the “Company” or “Sumitomo Corporation”) is described below. 1. Basic Views I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information The Company recognizes that the aims of corporate governance are improving management efficiency and maintaining sound management, while ensuring management transparency is important in order to secure these aims. Accordingly, the Company is endeavoring to establish corporate governance that will result in management serving the interests of shareholders and all other stakeholders. The Company has already taken steps to strengthen and enhance its corporate governance by such means as reinforcing its audit & supervisory board member system and improving the way it functions, optimizing the size of the Board of Directors, limiting the terms of office of the Chairman and the President and Chief Executive Officer, and introducing an executive officer system. Additionally, for the purpose of ensuring appropriate decision-making by the Board of Directors from a variety of perspectives and further strengthening the supervisory function, the Company appoints multiple Outside Directors, and is working to strengthen the supervisory and monitoring function of management by independent Outside Directors and Outside Audit & Supervisory Board Members. In addition, the Company has established the Nomination and Remuneration Advisory Committee (chaired by an outside director), which is an advisory body to the Board of Directors and is composed of a majority of outside directors, to enhance the independence, objectivity and transparency of the functions of the Board of Directors in relation to the nomination and remuneration of senior management. By these means, the Company believes that it will be able to further achieve the aforementioned corporate governance objectives. The Company has summarized its basic views and policy with regard to corporate governance as the Sumitomo Corporation Corporate Governance Principles, which it has made public on its website. (https://www.sumitomocorp.com/jp/-/media/Files/hq/about/governance/detail/principle.pdf?la=en) [Reasons for Non-compliance with the Principles of the Corporate Governance Code] The Company complies all Principles of the Corporate Governance Code. [Disclosure Based on the Principles of the Corporate Governance Code] [Principle 1-3] The Company, guided by its basic management policy of aiming to continue to enhance corporate value in a sustainable way, has a capital policy based on retaining an adequate level of shareholders’ equity with a view – 1 – to reinforcement of its financial soundness and effectiveness of its capital. In particular, the Company is working to achieve: (i) the goal of keeping risk-adjusted assets, which represent the maximum possible losses, within the scope of shareholders’ equity, which is the core risk buffer and (ii) the targets for the capital efficiency indicators (such as ROE) given under the medium-term management plan. The Company keeps interest-bearing debt at an appropriate level by paying attention to the balance between cash generated as a result of business activities and asset reduction, and cash necessary for returns to shareholders and loans and investments, etc. for the pursuit of growth strategies. The Company’s basic policy in relation to shareholder returns is to provide shareholders with stable dividends over the long term. We also aim to raise per-share dividend payments by pursuing the growth of profit in the medium to long term. [Principle 1-4] As a general rule, the Company will neither acquire nor hold shares in other listed companies for purposes other than pure investment. However, the Company may decide to hold shares in listed companies in some exceptional cases when the Company determines that it is appropriate. For such determination, the Company will comprehensively assess and verify the capital cost of individual stocks and the economic rationality and significance of holding the stocks in light of the necessity of partnering or other business needs. Each year, the Board of Directors reviews whether or not the Company’s holding of listed shares is appropriate. If such annual review concludes that specific shareholdings are of little significance, the Company will push ahead with the sale of the shares. In FY 2020, the Company sold shares of 37 listed stocks (either in whole or in part), amounting to 49.5 billion yen in total. As of the end of March 2021, the Company’s shareholdings in listed companies cover 84 stocks, with the total balance of 244.8 billion yen. When exercising voting rights, the Company examines various aspects through both quantitative and qualitative approaches in accordance with its own guidelines. Such examination focuses on whether each proposal presented to shareholders will lead to the enhancement of shareholder value and medium- to long-term corporate value of both the Company and the investee company. In this way, the Company tries to make adequate decisions as to whether to vote in favor of or against each proposal based on comprehensive judgments. If an entity holding shares in the Company for purposes other than pure investment indicates its intention to sell the shares, the Company will, in principle, respect such intention, and the business relationship between the entity and the Company will not be affected. [Principle 1-7] It is stipulated in laws and regulations and in the Company’s internal rules entitled Matters Related to the Administration of Board of Directors that the approval of the Board of Directors must be obtained to conduct business transactions between the Company and its Directors that are competitive or involve conflicts of interest, and if such transactions are executed, key facts regarding the transactions must be reported to the Board of Directors. [Supplementary Principle 2-4-1] The Company implements various measures to ensure diversity in the assignment of core human resources, such as middle managerial positions. The Company’s stance for the assignment and appointment of female employees, mid-career hires and foreign personnel to managerial positions, its voluntary and measurable goals and the progress of activities toward such goals are explained in this corporate governance report under the following three headings (III. Implementation of Measures for Shareholders and Other Stakeholders >> 3. Measures to Ensure Due Respect for Stakeholders >> Other >> Stance to ensure diversity in personnel in managerial positions, voluntary and measurable goals, and the progress toward such goals): – Appointment of female employees – Appointment of mid-career hires – Appointment of foreign personnel Regarding other issues related to the diversity of personnel, please refer to the explanations under the heading “Policies on human resources development to ensure diversity and policies on the improvement of – 2 – diversity-oriented working environments, and the progress of implementing these policies” in this corporate governance report (III. Implementation of Measures for Shareholders and Other Stakeholders >> 3. Measures to Ensure Due Respect for Stakeholders >> Other). [Principle 2-6] The Company has adopted a defined benefit corporate pension plan (contract type). It also deploys personnel with financial market and investment experience as investment managers and manages the investment operations of pension assets. When selecting an external asset manager, the Company sufficiently checks investment management track records and management structures including governance while periodically monitoring the conditions of them even after the commencement of investment management operations. Furthermore, the Pension Management Committee, which is chaired by the Chief Administration Officer and comprised of managers in charge of human resources, finance and accounting organizations, verifies investment results and the financial position of pension assets, reports them to the Management Council and also discloses them to the pension holders. [Principle 3-1] (i) Company objectives (e.g., business principles), business strategies, and management plan ・Business Principles Refer to the Sumitomo Corporation Group Management Principles and Activity Guidelines—as well as Sumitomo’s Business Philosophy, on which they are based—which the Company makes public on its website (https://www.sumitomocorp.com/en/jp/about/policy/principles). ・Medium-Term Management Plan Additionally, refer to the medium-term management plan, which the Company also makes public on its website (https://www.sumitomocorp.com/en/jp/about/policy/mid-term). (ii) Refer to the Sumitomo Corporation Corporate Governance Principles, which summarize the Company’s basic views and policy with regard to corporate governance, and are made public on the Company’s website. (https://www.sumitomocorp.com/jp/-/media/Files/hq/about/governance/detail/principle.pdf?la=en) (iii) Refer to the policies and procedures of the Board of Directors for determining the remuneration of Directors and Executive Officers, which are disclosed in the Company’s annual securities report (yukashoken houkokusho), and in this corporate governance report in the section entitled “II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management” under “1. Organizational Composition and Operation [Director Remuneration]” and “2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) [Remuneration Decision-making Function].” (iv) Refer to the Company’s policies and procedures regarding appointment and dismissal of Directors and Audit & Supervisory Board Members, which are disclosed in this corporate governance report in the section entitled “II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management” under “2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) [Nomination Function, etc.].” (v) Refer to the reasons for nominating candidates for the posts of Outside Director and Outside Audit & Supervisory Board Member, which are disclosed in the reference documents within the Notice of Convocation of the Ordinary General Meeting of Shareholders, and in this corporate governance report in the section entitled “II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management” under “1. Organizational Composition and Operation [Directors] and [Audit & Supervisory Board Members].” Refer also to the reasons for nominating candidates for the posts of internal Director and internal Audit & Supervisory Board Member, which are disclosed in the reference documents within the Notice of Convocation of the Ordinary General Meeting of Shareholders. Refer to the Company’s policies and procedures regarding the selection and dismissal of Executive Officers, which are disclosed in this corporate governance report in the section entitled “II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management” under “2. Matters on Functions of Business Execution, Auditing, Oversight, – 3 – Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) [Nomination Function, etc.].” [Supplementary Principle 3-1-3] The Company’s efforts towards sustainability are explained in “Sustainability initiatives” in this report (III. Implementation of Measures for Shareholders and Other Stakeholders >> 3. Measures to Ensure Due Respect for Stakeholders >> Implementation of Environmental Activities, CSR Activities etc.). In addition, please refer to the explanations under the heading “Disclosure under the TCFD and IBC framework” in this report (III. Implementation of Measures for Shareholders and Other Stakeholders >> 3. Measures to Ensure Due Respect for Stakeholders >> Implementation of Environmental Activities, CSR Activities etc.). The Company’s investment in human capital development is explained in “Investment in human capital development” in this report (III. Implementation of Measures for Shareholders and Other Stakeholders >> 3. Measures to Ensure Due Respect for Stakeholders >> Other). Company’s investment in intellectual property enhancement The Company’s investment in business development, which extends over a variety of business fields, focuses on additional value to be created by such means as business model transformation driven by innovative technologies or the offering of new product designs. In addition, the Company is underpinned not only by the competitive superiority brought about by technological innovation and creative designs or content, but also by its management base which comprises the Company’s diverse human resources, multifaceted business expertise accumulated so far, the Company’s global network, trust relationships with clients and business partners, the Company’s brand value in the markets, and all other wealth of capital (intangible assets). The Company’s strategy is to integrate or combine this management base and the diverse business functions of the business group, aiming to create new businesses and further boost business growth. In this context, the Company holds the corporate vision of “aiming to be a global organization that constantly stays a step ahead in dealing with change, creates new value, and contributes broadly to society.” Under this vision, we are always exploring new business models, know-how and technologies and planting the seeds for future business development. We believe that in most of those new business models, our existing and future intellectual property and intangible assets can contribute toward upholding and strengthening our high profitability, differentiation from competitors’ products or services, and pricing power in the markets, which are expected to eventually bring about greater competitiveness and higher profit margins in the future. Efforts to leverage intellectual property and intangible assets to create new businesses are being deployed by respective organizations in the business group. Furthermore, under the ongoing medium-term management plan, “SHIFT 2023,” the following six fields are identified as next-generation growth themes, in which our management resources are to be intensively invested. Digital transformation (DX): Business reform and new business development utilizing digital Energy innovation: Developing carbon-free energy, expanding power and energy services, and CO2 Social infrastructure: Infrastructure development in developing countries, development of social Retail/consumer: Provision of value and services essential for local communities through the utilization of solutions and Technology x Innovation capture, storage and utilization infrastructure with new functions data from various retail businesses Creation of new businesses in the medical, health, prevention and nursing care fields Expansion of services for the agricultural sector through the utilization of digital Healthcare: Agriculture: technology With a focus on the value obtained from intellectual property and intangible assets in the manner described above, our business investment, reinforcement and development will continue based on meticulous analyses on how such property and assets can lead to competitiveness, differentiation and earning power. [Supplementary Principle 4-1-1] The functions of the Board of Directors are to supervise business execution and to make decisions relating to important management matters including basic management policies such as business plans. The Board also makes decisions on important aspects of business execution required by laws and regulations and the Company’s Articles of Incorporation to be decided by the Board of Directors. Standards for such decision- – 4 – making are stipulated in the Company’s internal rules, Matters Related to the Administration of Board of Directors. Decision-making and execution regarding matters not required by the foregoing internal rules to be decided by the Board of Directors are delegated to the Management Council, the decision-making body at the operational execution level, and to the Executive Officers. Moreover, the foregoing internal rules specify that decisions and progress with execution relating to matters delegated to the Management Council and the Executive Officers should be reported to the Board of Directors. The Board of Directors uses such reports and related information as a means to supervise decision-making and business execution by the Management Council and the Executive Officers. [Principle 4-8] Of the eleven Directors, five are Outside Directors, and they meet the standards set by the Company for independence of Outside Directors, as well as the standards related to independence set by the Tokyo Stock Exchange, Inc. and other financial instruments exchanges that the Company is listed on. [Principle 4-9] For details of standards related to the independence of Outside Directors and Outside Audit & Supervisory Board Members from the Company, refer to the Standards for Appointment and Independence of Outside Directors and Outside Audit & Supervisory Board Members, which the Company has set down and made public on its website. (https://www.sumitomocorp.com/jp/-/media/Files/hq/about/governance/detail/outdirec_independ.pdf?la=en） [Supplementary Principle 4-10-1] The Nomination and Remuneration Advisory Committee serves as an advisory board to the Board of Directors. A majority of committee members shall be Outside Directors, with one of them acting as the committee chairperson. This scheme helps to enhance the independence, objectivity and transparency of the Board of Directors’ function for executive nomination and remuneration. The Company’s view on the composition and independence of the Nomination and Remuneration Advisory Committee, the scope of authority and roles assigned to the committee and other related information are disclosed in the following section in this report (II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management >> 1. Organizational Composition and Operation >> Committee’s Name, Composition, and Attributes of Chairperson >> Supplementary Explanation). [Supplementary Principle 4-11-1] For details of the appropriate balance between knowledge, experience, and skills of the Board of Directors as a whole, and the Company’s view with regard to the diversity and appropriate size of the Board of Directors, refer to the Sumitomo Corporation Corporate Governance Principles, which are made public on the Company’s website. (https://www.sumitomocorp.com/jp/-/media/Files/hq/about/governance/detail/principle.pdf?la=en) Refer to the Company’s policies and procedures regarding appointment of Directors, which are disclosed in this corporate governance report in the section entitled “II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management” under “2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) [Nomination Function, etc.].” Refer to the skill matrix posted in the end of this corporate governance report, which indicates the types of knowledge, experience and competencies, etc. (collectively, “Skills”) that the Board of Directors is required to possess for fulfilling its roles, and which Directors or Audit & Supervisory Board Members currently in office possess such Skills. [Supplementary Principle 4-11-2] The Company discloses significant positions concurrently held by Directors, Audit & Supervisory Board Members, and candidates for those posts on an annual basis in disclosure documents such as the reference documents within the Notice of Convocation of the Ordinary General Meeting of Shareholders, the business report, and the Company’s annual securities report. – 5 – [Supplementary Principle 4-11-3] To maintain and enhance the effectiveness of the Board of Directors, each year Directors and Audit & Supervisory Board Members engage in analysis and evaluation of the Board’s effectiveness through self-evaluation and other methods. This is followed by the disclosure of overviews of the results. In fiscal 2020, in order to boost initiatives to further enhance the effectiveness of the Board of Directors, we conducted interviews by a third party in addition to conducting a questionnaire survey (anonymous) as in fiscal 2019. The following is an overview of the Board of Directors’ effectiveness evaluation and the results of such evaluation for Fiscal 2020, which was reported to and deliberated at the Board of Directors’ meeting held on May 7, 2021: 1. Evaluation Methods (1) Evaluated persons All 11 Directors and 5 Audit & Supervisory Board Members (2) Implementation method Questionnaire survey (anonymous) and interviews conducted during the period from November 2020 to December 2020. Note: Implemented by a third party (external consultant). Demonstration of roles of Outside Directors Selection of items to be deliberated on by the Board of Directors Deliberations based on changes in the external environment and/or management environment (3) Evaluation items (i) (ii) (iii) Adequate provision of information in advance to members of the Board of Directors (iv) Consensus formation after adequate deliberation (v) (vi) Demonstration of roles of the Chairperson (vii) Demonstration of roles of Directors (other than (v) and (vi)) (viii) General evaluation, etc. (4) Evaluation process The results of analysis of the questionnaire survey and interview responses as evaluated by a third party (external consultant) were reported to the Board of Directors. 2. Evaluation Results Overview The overall evaluation and analysis by a third party concluded that the Board of Directors has generally been functioning effectively. On the whole, as stated below, a majority of opinions were positive. As a result of defining agenda items (agenda setting) based on the effectiveness evaluation from Fiscal 2019, adequate time was reserved for themes that require higher priority in deliberation. In regular reporting to the Board of Directors by business units, as a result of continuous improvements made thus far, deliberations centered not only on the financial performance of the units but on strategies, challenges and policies to address them, and points have been narrowed down. The Board of Directors were able to enter into deliberations immediately due to prior briefings for Outside Directors and Audit & Supervisory Board Members on the Board meeting’s agenda items. The focus of deliberations has been narrowed down, and this leads to a more constructive discussion and effective proceedings. Also, at offsite meetings which are set up apart from the Board of Directors, free and active discussion on important and diverse management issues took place, supplementing the Board meetings efficiently. The Chairman of the Board of Directors leads the proceedings in a way that encourages attendees to speak while promoting adequate discussion in a fair and neutral manner. The Board meeting is managed to help produce active discussion. Efforts have been made in Fiscal 2020 to make deliberations more adequate regarding progress review in mid-term management plan, business strategy and monitoring of addressing challenges in each business unit and human resources strategy, etc. Based on the evaluation results, in Fiscal 2021 as well, it was confirmed to address making deliberations further more adequate regarding important management strategy and policy and – 6 – progress review in new mid-term management plan (including strategy for allotment of management resources and business portfolio, and monitoring of efforts for sustainability management) to further improve the effectiveness of the Board of Directors. [Supplementary Principle 4-14-2] The Company provides its Outside Directors and Outside Audit & Supervisory Board Members with information as required in order to deepen their understanding of the Sumitomo Corporation Group Management Principles, as well as the Company’s business management, activities, organization, and related matters. In addition, for its Directors and Audit & Supervisory Board Members, including Outside Directors and Outside Audit & Supervisory Board Members, the Company provides, arranges, and covers expenses for opportunities to acquire knowledge of its business, finances, organization and other matters necessary for them to fulfill their roles and responsibilities. [Principle 5-1] [Basic policy of dialogue with shareholders] The Company endeavors to explain its business management and activities, holding a range of meetings as opportunities for communication with shareholders and investors. These include the general meeting of shareholders, quarterly financial results briefings, and individual meetings. Dialogue with shareholders and investors is supervised by Executive Officers assigned to act as the persons responsible for such dialogue, while the relevant departments within the Company liaise to distribute information and gather opinions from shareholders and investors. When conducting dialogue with shareholders and investors, insider information is managed appropriately in accordance with the internal Rules for the Prevention of Insider Trading. [Implementation systems and activities] To achieve its sustainable growth and increase its corporate value over medium- to long-term, the Company promotes dialogue with stakeholders, including shareholders and investors, which is provided by top management, including the President and Chief Executive Officer, taking into account the requests and major concerns of shareholders and investors, in direct communication opportunities. The Company has established the IR Committee, aiming to promote more effective IR and SR activities as a means of enhancing dialogue with these shareholders and investors. The Committee is chaired by the Chief Strategy Officer (CSO) and comprised of the Chief Financial Officer (CFO), the Chief Administrative Officer (CAO) and general managers of other relevant corporate departments. It meets monthly to discuss policies, issues and measures regarding IR and SR activities, aiming to enhance dialogue with shareholders and investors. The Company has established a system where feedback is provided to the management through the Committee in a timely manner regarding comments and requests obtained from outside by way of IR and SR activities. The Company has also established the Investor Relations Department., which is dedicated to IR and SR activities. While collaborating with other relevant corporate departments in a coordinated fashion, it serves as an organization that aims to plan and manage a variety of IR and SR activities, disclose information to meet expectations of shareholders and investors, and obtain opinions from outside through IR and SR activities to help improve management quality in a timely manner. ▪ General Meeting of Shareholders The Company proactively discloses not only information required by law but also information on the environmental, social and governance (ESG) and corporate governance initiatives etc. within the Notice of Convocation of the General Meeting of Shareholders, and strives to provide in-depth explanations in response to questions from shareholders at the General Meeting. ▪ Institutional investors (in Japan) The Company holds quarterly financial results briefings by the President and Chief Executive Officer and the CFO for institutional investors in Japan as well as small meetings hosted by the President and Chief Executive Officer and CFO on a biannual basis. When shareholders and investors request meetings on an individual basis, the President and Chief Executive Officer, the CFO and the Investor Relations Department hold one-on-one meetings whenever possible. The Company also holds business strategy briefings by business units, – 7 – site tours of the Company’s businesses both inside and outside Japan, and ESG briefings, etc. on a regular basis. Additionally, from fiscal 2019, the Company held an Investor Day to carry out deep dialogue with institutional investors, with the goal of helping them understand its initiatives for medium- to long-term growth. ▪ Institutional investors (outside Japan) The Company regularly visits institutional investors, primarily in Europe, North America and Asia, to hold one-on-one meetings with the President and Chief Executive Officer, the CFO and the Investor Relations Department. In addition, the Company holds one-on-one meetings with managers who are in charge of exercising voting rights for institutional investors (SR activities) in Japan, Europe and the United States (organized jointly by the Investor Relations Department and the Corporate Legal & General Affairs Department). All such meetings were held online in fiscal 2020. ▪ Individual investors The Company periodically holds briefings at physical venues in some cities in Japan and online briefings on several occasions every year. However, all briefings for individual investors were held online in fiscal 2020. To shareholders and investors, the Company discloses not only financial but also non-financial information, including that related to ESG. By presenting the Group’s medium- to long-term efforts to increase its corporate value, the Company strives to enhance dialogue with them. President and Chief Executive Officer: General Meeting of Shareholders, financial results briefing (4 times), dialogue with institutional investors in and outside Japan (7 times) CFO: Financial results briefing (4 times), dialogue with institutional investors in and outside Japan (28 times) CSO: Financial results briefing (twice), dialogue with individual investors in and outside Japan (once), ESG briefing (once) CAO: Financial results briefing (once), ESG briefing (once) Investor Relations Dept.: Dialogue with institutional investors in and outside Japan and analysts (about 180 times), online briefing for individual investors (4 times), dialogue with shareholders as part of SR activities jointly with the Corporate Legal & General Affairs Dept. (for one company in Japan and 4 companies outside Japan) 2. Capital Structure Foreign Shareholding Ratio More than 30% [Status of Major Shareholders] Name / Company Name The Master Trust Bank of Japan, Ltd. (trust account) BNYM AS AGT/CLTS NON TREATY JASDEC Custody Bank of Japan, Ltd. (trust account) Sumitomo Life Insurance Company NORTHERN TRUST CO. (AVFC) RE SILCHESTER INTERNATIONAL INVESTORS INTERNATIONAL VALUE EQUITY TRUST STATE STREET BANK WEST CLIENT – TREATY 505234 Mitsui Sumitomo Insurance Company, Limited Custody Bank of Japan, Ltd. (trust account 7) Nippon Life Insurance Company Custody Bank of Japan, Ltd .(trust account 4) Controlling Shareholder (except for Parent Company) ― – 8 – Number of Shares Owned 186,810,000 68,099,460 61,933,500 30,855,000 18,740,600 Percentage (%) 14.95 5.45 4.96 2.47 1.50 18,177,464 17,004,500 16,467,900 14,879,067 14,484,800 1.45 1.36 1.32 1.19 1.16 Parent Company No Supplementary Explanation The shareholding ratio is calculated by dividing the number of shares held by the number of shares outstanding, which is derived by deducting treasury stock (1,510,638 shares) from the total number of issued shares, and rounding to the nearest hundredth of a percent. 3. Corporate Attributes New Listed Stock Market and Market Section Tokyo (First Section) Fiscal Year-End Type of Business Number of Employees (consolidated) as of the End of the Previous Fiscal Year Sales (consolidated) as of the End of the Previous Fiscal Year March Wholesale Trade More than 1000 More than ¥1 trillion Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year More than 300 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder ― 5. Other Special Circumstances which may have Material Impact on Corporate Governance 1. Views and policies on group management With business units in the Company and regional organizations in Japan and overseas working together, our Sumitomo Corporation Group is developing a wide range of business activities in a wide range of industrial fields globally through Subsidiary and Associated company (collectively hereinafter referred to as “Group Companies”). The management policy of our Company Group is to respect “autonomous” management by each Group Company, and to be involved in important decision-making at the board of directors or organization equivalent to the board of directors of each Group Company based on the relationship of trust established through active “dialogue” as a shareholder, and to create new value through strong “cooperation” of each Group Company including the Company. In order to maximize our group’s corporate value through sharing and putting into practice the principles of Group management, the Company has established a Group Management Policy that sets the three principles of Group management: “autonomy”, “dialogue”, and “cooperation”. 2. Significance of having a listed subsidiary based on the above views and policies The Company has a listed subsidiary, SCSK Corporation (Tokyo Stock Exchange First Section; hereinafter “SCSK”). In order to increase the corporate value of SCSK as well as of the entire Group including SCSK, it is considered appropriate for SCSK to remain as a listed company, considering the current competition and market environment in the business area of SCSK. More specifically, the benefits of being a listed company include: enhancing motivation among the officers and employees of SCSK; enhancing corporate credibility through the establishment and operation of various governance systems, including the transparency of business management and internal control; increasing the corporate presence; increasing brand strengths in – 9 – hiring employees; and establishing a solid financial basis including better financing capability. These benefits should also lead to the further development of trust with customers and business partners as well as to the higher credibility of businesses and services conducted by SCSK. Moreover, it will be beneficial for both the Company and SCSK in terms of increasing corporate value once these two companies leverage their respective strengths while sharing business strategies, and collaborate closely in corporate management for the following areas: supporting and enhancing global business execution through the development and operation of the Group’s IT platforms; and global business creation in such areas as digital transformation (DX) and open innovation. These initiatives should then lead to the maximization of corporate value across the Group. 3. Measures to ensure the effectiveness of the governance system at the listed subsidiary As stated above, the Company respects the autonomous management of Group Companies, and accordingly entrusts the management of SCSK to the management officers of SCSK. In addition, SCSK effectively employs the outside directors who are independent of the Company and establishes and operates its effective corporate governance system to ensure independent decision-making in light of the risk of conflicts of interest between the parent company and general shareholders of SCSK. On the other hand, the Company requires prior consultation and reporting by SCSK on matters that could have a significant impact on SCSK’ s corporate value, such as SCSK’ s execution of important operations and compliance issues, from the perspective of maintaining and enhancing SCSK’ s corporate value and the necessity of risk management based on the construction and operation of internal control for the entire Group, while ensuring that SCSK’ s independent decision-making is secured. – 10 – II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management 1. Organizational Composition and Operation Organization Form Company with Audit & Supervisory Board Chairperson (Excluding individual holding concurrent position as president) 11 [Directors] Maximum Number of Directors Stipulated in Articles of Incorporation Term of Office Stipulated in Articles of Incorporation Chairperson of the Board Number of Directors Appointment of Outside Directors Number of Outside Directors Number of Independent Directors N/A 1 year Yes 5 5 Outside Directors’ Relationship with the Company (1) Name Attribute a * Categories for “Relationship with the Company” From another company From another company From another company Lawyer From another company Nobuyoshi Ehara Koji Ishida Kimie Iwata Hisashi Yamazaki Akiko Ide Relationship with the Company* b c e d △ f g h i j k * * “○” when the director presently falls or has recently fallen under the category; “△” when the director fell under the category in the past “●” when a close relative of the director presently falls or has recently fallen under the category; “▲” when a close relative of the director fell under the category in the past a. Executive of the Company or its subsidiaries b. Non-executive director or executive of a parent company of the Company c. Executive of a fellow subsidiary company of the Company d. A party whose major client or supplier is the Company or an executive thereof e. Major client or supplier of the listed company or an executive thereof f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director/audit & supervisory board member g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) legal entity) (the director himself/herself only) i. Executive of a company, between which and the Company outside directors/audit & supervisory board members are mutually appointed (the director himself/herself only) j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only) – 11 – k. Others Outside Directors’ Relationship with the Company (2) Designation as Independent Director ○ Supplementary Explanation of the Relationship ― Name Reasons of Appointment for Mr. Ehara has wide-ranging knowledge and a wealth of experience in finance and business management accumulated through his many years working in important positions at a major US financial institution and managing a private equity firm, among other roles. He is also honest in character, as well as highly insightful and capable. Mr. Ehara will contribute to the Company’s aims of ensuring appropriate decision making from diverse perspectives in board meetings and further enhancing supervisory functions, and is thus judged to be qualified for the role of Outside Director of the Company and to be able to perform his duties properly in that position. For these reasons, he is appointed as the position of Outside Director. Mr. Ehara meets the standards set by Sumitomo Corporation Independence of Outside Directors, and also fulfills the standards related to independence set by the Tokyo Stock Exchange, Inc. and other financial instruments exchanges. The Company has notified the exchanges of his status as an independent director. Mr. Ishida has wide-ranging knowledge and a wealth of experience in finance and business management, accumulated through his many years working in important positions in a major financial institution, and serving as a member of the Policy Board at the Bank of Japan, among other roles. He is also honest in character, as well as highly insightful and capable. Mr. Ishida will contribute to the Company’s aims of ensuring decision-making appropriate diverse perspectives in board meetings and further enhancing supervisory functions, and is thus judged to be qualified for the role of Outside Director of the Company and to be able to perform his duties properly in that position. For these reasons, he is appointed as the position of Outside Director. Mr. Ishida meets the standards set by Sumitomo Corporation Independence of Outside Directors, and also fulfills the standards related to independence set by the Tokyo Stock Exchange, Inc. and other financial instruments exchanges. from for as Mr. Ishida served until June 2003 an executive at Sumitomo Mitsui Banking Corporation (SMBC), one the of Company’s principal lenders; until June 2005 as an executive at Sumitomo Mitsui Financial Group, Inc. (SMFG), SMBC’s parent company; and until June 2006 as a corporate auditor at SMBC and SMFG. However, more than 15 years have now since Mr. passed Ishida’s retirement from his positions as an executive at SMBC and SMFG, and he has not engaged in the – 12 – Nobuyoshi Ehara ○ Koji Ishida of execution operations since his retirement. We have therefore determined that his independence is unaffected. ― ○ Kimie Iwata Hisashi Yamazaki ○ ― – 13 – The Company has notified the exchanges of his status as an independent director. for Ms. Iwata served in several key positions for many years at the Ministry of Labour (currently Ministry of Health, Labour and Welfare), and after retiring from the ministry served in various executive and outside director positions for private companies. Through these and other roles, Iwata has accumulated wide-ranging Ms. knowledge and a wealth of experience in business management, corporate governance, corporate social responsibility, and diversity, etc.; she is also honest in character, as well as highly insightful and capable. Ms. Iwata will contribute to the Company’s aims of ensuring appropriate decision-making from diverse perspectives in board meetings and further enhancing supervisory functions, and is thus judged to be qualified for the role of Outside Director of the Company and to be able to perform her duties properly in that position. For these reasons, she is appointed as the position of Outside Director. Ms. Iwata meets the standards set by Sumitomo Corporation Independence of Outside Directors, and also meets the standards related to independence set by the Tokyo Stock Exchange, Inc. and other financial instruments exchanges. The Company has notified the exchanges of her status as an independent director. Mr. Yamazaki has highly specialized knowledge and a wealth of experience in law based on his career over many years as a judge and attorney at law. He is also honest in character, as well as highly insightful and capable. Mr. Yamazaki will contribute to the Company’s aims of ensuring from diverse appropriate decision making in board meetings and further perspectives enhancing supervisory functions, and is thus judged to be qualified for the role of Outside Director of the Company and to be able to perform his duties properly in that position. For these reasons, he is appointed as the position of Outside Director. Mr. Yamazaki meets the standards set by Sumitomo Corporation for Independence of Outside Directors, and also meets the standards related to independence set by the Tokyo Stock Exchange, Inc. and other financial instruments the exchanges. The Company has notified exchanges of his status as an independent director. ○ ― Akiko Ide and Ms. Ide served in several key positions for many years at a major telecommunications carrier, working as a group company executive and as a full time audit & supervisory board member of the parent (holding) company. Through these and other roles, Ms. Ide has accumulated wide-ranging knowledge and a wealth of experience in information communications, business management, and corporate governance, etc.; she is also honest in character, as well as highly insightful and capable. Ms. Ide will contribute to the Company’s aims of ensuring appropriate decision-making from diverse perspectives in board meetings and further enhancing supervisory functions, and is thus judged to be qualified for the role of Outside Director of the Company and to be able to perform her duties properly in that position. For these reasons, she is appointed as the position of Outside Director. Ms. Ide meets the standards set by Sumitomo Independence of Outside Corporation Directors, and also meets the standards related to independence set by the Tokyo Stock Exchange, Inc. and other financial instruments exchanges. The Company has notified the exchanges of her status as an independent director. for Voluntary Establishment of Committee(s) Corresponding to Nomination Committee or Remuneration Committee Established Committee’s Name, Composition, and Attributes of Chairperson Corresponding to Corresponding to Committee Nomination Committee Nomination Advisory Committee 5 Committee Remuneration Committee Nomination Advisory Committee 5 and Remuneration and Remuneration Committee’s Name All Committee Members Full-time Members Inside Directors Outside Directors Outside Experts Other Chairperson Supplementary Explanation 0 2 3 0 0 0 2 3 0 0 Outside Director Outside Director The Nomination and Remuneration Advisory Committee is composed of the Chairman of the Board of Directors, the President and Chief Executive Officer and three outside directors. The Nomination and Remuneration Advisory Committee is in charge of reviewing (1) policies and procedures regarding appointment and dismissal of the President and Chief Executive Officer, (2) policies and procedures regarding – 14 – appointment and dismissal of the Chairman of the Board of Directors, (3) nomination criteria for directors and audit & supervisory board members, (4) appointment and dismissal of the President and Chief Executive Officer (including the nomination of a successor of the President and Chief Executive Officer), (5) nominations of candidates for directors and audit & supervisory board members (including determination of Representative Directors and Executive Directors), (6) appointment of Management Council members, (7) the structures/levels of remuneration and bonuses for Directors and Executive Officers and the limit of remuneration for Audit & Supervisory Board Members, and (8) the advisor system, and will submit the results thereof as recommendations to the Board of Directors. In fiscal 2020, the Nomination and Remuneration Advisory Committee met 11 times to deliberate the abovementioned matters, and submitted the results thereof as recommendations to the Board of Directors. All committee members attended all of the 11 meetings except for Director Iwata, who attended 10 of the meetings. Overview of the Nomination and Remuneration Advisory Committee is as follows: ▪ Composition of the Nomination and Remuneration Advisory Committee (1) The Nomination and Remuneration Advisory Committee shall be comprised of internal and external members, with the majority of committee members being the latter. The number of committee members shall be set within the range that enables the committee to carry out thorough consultations and to make prompt and reasonable decisions. Specifically, the committee shall have a total of five members, including two internal members consisting of the Chairman of the Board of Directors and the President and Chief Executive Officer, and three external members who are Outside Directors. (2) The Chairperson of the Nomination and Remuneration Advisory Committee is required to be an external member. (3) The Chief Administration Officer (Human Resources Department) shall serve as the secretariat. ▪ Selection criteria for external committee members The external members shall consist of those Outside Directors who specifically have extensive knowledge and experience as well as deep insights, both in and outside the Company, concerning the breadth of issues to be deliberated by the committee. The composition of external members shall ensure diversity in terms of knowledge, experience, specialty and so on. ▪ Method for selecting external committee members External committee members are selected by a resolution of the Board of Directors. ▪ Method for selecting the Chairperson The Chairperson shall be appointed by a resolution of the Board of Directors based on the outcome of an election by committee members’ mutual vote. ▪ Handling when the Chairperson has an accident or for other reasons If the Chairperson is unable to act or is otherwise unavailable, another external member shall act in place of the Chairperson in the order decided by a resolution of the Board of Directors in which the external members shall exercise their authority to act on behalf of the Chairperson. ▪ Term of office for external committee members and the Chairperson The terms of office for external committee members and the Chairperson are the same as their term as a Director. ▪ Resolution method Any resolution on an agenda item of the Nomination and Remuneration Advisory Committee is required to be made by a majority of members present at a meeting attended by a majority of committee members. ▪ Convener The Nomination and Remuneration Advisory Committee is convened by the Chairperson. [Audit & Supervisory Board Members] Establishment of Audit & Supervisory Board Established – 15 – Maximum Number of Audit & Supervisory Board Members Stipulated in Articles of N/A Number of Audit & Supervisory Board Members 5 Incorporation Department Cooperation among Audit & Supervisory Board Members, Accounting Auditors and Internal Audit Audit & Supervisory Board Members, Accounting Auditor and the Internal Audit Department periodically exchange information to enhance cooperation between them. The Company has established the Internal Auditing Department under the direct supervision of the President and Chief Executive Officer as an independent body for company-wide monitoring of operations. The department maintains close contact with the Audit & Supervisory Board Members and Accounting Auditor, such as by reporting audit plans and the results of internal auditing to them in a timely manner, so as to contribute to effective auditing by the Audit & Supervisory Board Members and Accounting Auditor. The Audit & Supervisory Board Members endeavor to ascertain the audit activities of the Accounting Auditor and to exchange information with the Accounting Auditor by holding regular meetings; they also strive to improve the efficiency and quality of their own audit activities, such as by attending the Accounting Auditor’s audit review meetings, and being present for inventory audits. In addition, the Audit & Supervisory Board Members attend the Internal Control Committee’s meetings, ask the department responsible for internal controls to report the circumstances of the Company’s internal control systems, and seek the department’s cooperation with auditing activities in any other respects. In fiscal 2020, the remuneration paid to KPMG AZSA LLC, the Company’s Accounting Auditor, was as follows: (a) Fees described in Article 2, paragraph (1) of the Certified Public Accountants Act (attestation services) (b) Fees for services other than those described in Article 2, paragraph (1) of the Certified Public Accountants …¥508 million Act…¥11 million (c) Total remuneration paid to the Accounting Auditor for fiscal 2020…¥519 million (d) Total amount of cash and other financial benefits payable by the Company and its consolidated subsidiaries to the Accounting Auditor (including (c))…¥1,110 million Notes: 1. In line with the “Practical Guidelines for Collaboration with Accounting Auditors” published by the Japan Audit & Supervisory Board Members Association, the Company’s Audit & Supervisory Board checks the details of audit plans, the performance of duties during the preceding fiscal year, the calculation bases for remuneration estimates, etc., and gives due consideration to these findings when approving compensation, etc. for the Accounting Auditor, as stipulated in Article 399, paragraph (1) of the Companies Act. 2. The Company pays remuneration to the Accounting Auditor for accounting advisory services, etc. in addition to the service defined in Article 2, paragraph (1) of the Certified Public Accountants Act. 3. Some of the consolidated subsidiaries are audited by audit firms other than the Company’s Accounting Auditor. 4. The audit agreement between the Company and the Accounting Auditor does not differentiate audit remuneration and other fees based on the Companies Act from audit remuneration and other fees based on the Financial Instruments and Exchange Act, and the two types of remuneration cannot actually be differentiated. Therefore, the above amounts show the total of these two types of remuneration and other fees. – 16 – Appointment of Outside Audit & Supervisory Appointed Number of Outside Audit & Supervisory Board Number of Independent Audit & Supervisory Board Members Members Board Members 3 3 Outside Audit & Supervisory Board Members’ Relationship with the Company (1) Name Attribute a Toshio Nagai Yoshitaka Kato Yukiko Nagashima * Categories for “Relationship with the Company” * Lawyer CPA From another company Relationship with the Company* b c d e f g h i j k l m “○” when the director presently falls or has recently fallen under the category; “△” when the director fell under the category in the past “●” when a close relative of the director presently falls or has recently fallen under the category; “▲” when a close relative of the director fell under the category in the past * a. Executive of the Company or its subsidiary b. Non-executive director or accounting advisor of the Company or its subsidiaries c. Non-executive director or executive of a parent company of the Company d. Audit & Supervisory Board Member of a parent company of the Company e. Executive of a fellow subsidiary company of the Company f. A party whose major client or supplier is the Company or an executive thereof g. Major client or supplier of the Company or an executive thereof h. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as an audit & supervisory board member i. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a legal entity) j. Executive of a client or supplier company of the Company (which does not correspond to any of f, g, or h) (the audit & supervisory board member himself/herself only) k. Executive of a company, between which and the Company outside directors/audit & supervisory board members are mutually appointed (the audit & supervisory board member himself/herself only) l. Executive of a company or organization that receives a donation from the Company (the audit & supervisory board member himself/herself only) m. Others – 17 – Outside Audit & Supervisory Board Members’ Relationship with the Company (2) Name Reasons of Appointment Designation as Independent Audit Supervisory Board Members ○ ― & Supplementary Explanation of the Relationship to Mr. Nagai has highly specialized knowledge and a wealth of experience in law based on his career over many years as a judge and attorney at law. He is also honest in character, as well as highly insightful and capable. Mr. Nagai will contribute the Company’s aim of conducting audits from diverse perspectives, and is thus judged to be qualified for the role of Outside Audit & Supervisory Board Member of the Company and to be able to perform his duties properly in that position. For these reasons, he is appointed as the position of Outside Audit & Supervisory Board Member. Mr. Nagai meets the independence standards respectively set by the Company, the Tokyo Stock Exchange, Inc. and other financial instruments exchanges. The Company has notified the exchanges of his status as an independent auditor. Mr. Kato has highly specialized knowledge and a wealth of experience in finance, accounting, and corporate auditing based on his career over many years as a certified public accountant. He is also honest in character, as well as highly insightful and capable. Mr. Kato will contribute to the Company’s aim of conducting audits from diverse perspectives, and is thus judged to be qualified for the role of Outside Audit & Supervisory Board Member of the Company and to be able to perform his duties properly in that position. For these reasons, he is appointed as the position of Outside Audit & Supervisory Board Member. independence standards Mr. Kato meets respectively set by the Company, the Tokyo Stock Exchange, Inc. and other financial instruments exchanges. The Company has notified the exchanges of his status as an independent auditor. Ms. Nagashima has highly specialized knowledge and a wealth of experience in corporate management and corporate governance based on her career over many years in which she held key positions at a major comprehensive human resources company (holding company), as well as experience managing group companies and serving as a full-time audit & supervisory board member at the holding company and an outside director at a major corporation. She is also honest in character, as well as highly insightful and capable. Ms. the Toshio Nagai Yoshitaka Kato ○ ― ○ ― Yukiko Nagashima – 18 – Nagashima will contribute to the Company’s aim of conducting audits from diverse perspectives, and is thus judged to be qualified for the role of Outside Audit & Supervisory Board Member of the Company and to be able to perform her duties properly in that position. For these reasons, she is appointed as the position of Outside Audit & Supervisory Board Member. Ms. Nagashima meets the independence standards respectively set by the Company, the Tokyo Stock Exchange, Inc. and other financial instruments exchanges. The Company has notified the exchanges of her status as an independent auditor. [Independent Directors/Audit & Supervisory Board Members] Number of Independent Directors/Audit & 8 Supervisory Board Members Matters relating to Independent Directors/Audit & Supervisory Board Members All of Outside Directors and Outside Audit & Supervisory Board Members in the Company meet the Company’s internal rule of Standards for Appointment and Independence, and also the criteria for independence set by the Tokyo Stock Exchange and other exchanges on which the Company is listed. The Company has registered all these individuals as independent executives based on the exchanges’ respective provisions. (https://www.sumitomocorp.com/jp/-/media/Files/hq/about/governance/detail/outdirec_independ.pdf?la=en） [Incentives] Incentive Policies for Directors Supplementary Explanation Performance-linked Remuneration, Stock Options, Others The Company’s performance-linked remuneration system for directors is comprised of a performance-linked bonus plan and a stock-based remuneration plan. For details about these plans, including (1) the policy on determining the ratio of performance-linked remuneration, (2) the indicators related to performance-linked remuneration and the reason for adopting such indicators, and (3) the method for determining the amounts of performance-linked remuneration, see the section entitled “II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management” under “1. Organizational Composition and Operation [Director Remuneration].” Recipients of Stock Options Internal Directors, Employees, Other Supplementary Explanation – 19 – New Share Acquisition Rights to the Company’s Directors, Executive Officers and Corporate Officers under the qualification system of the Company [Summary of the new share acquisition rights] ・FY2016 1,820 new sh