Note: This document has been translated from the Japanese original for reference purpose only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. The Company assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation. Corporate Governance Report Last Update: December 17, 2021 Nippon Shinyaku Co., Ltd. Toru Nakai, President & Representative Director Contact: Masahiko Okano, Department Manager, Corporate Communications Department (Tel: +81-75-321-9103) Securities Code: 4516 https://www.nippon-shinyaku.co.jp The corporate governance of Nippon Shinyaku Co., Ltd. (the “Company”) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views At Nippon Shinyaku, we recognize that it is a critical management priority to fulfill our accountability to all stakeholders, by securing the transparency of management in order to raise our corporate value through social contributions. This makes it essential for our corporate governance to function effectively, and we are committed to further enhancing corporate governance structure. The basic views and basic policies on corporate governance of the Company have been compiled and posted on our website in the “Corporate Governance Basic Policy.” https://www.nippon-shinyaku.co.jp/english/ir/esg_management/governance.php [Reasons for Non-compliance with the Principles of the Corporate Governance Code] [Supplementary Principle 4.2.1] Remuneration for the Current Executive Directors of the Company is detailed under “[Director Remuneration] Policy on Determining Remuneration Amounts and Calculation Methods” in “II. 1. Organizational Composition and Operation” of this report. While we have not yet introduced a remuneration system linked to mid-term and long-term results or an employee stock ownership plan, we recognize that the introduction of these systems is an issue to be considered in the future. [Disclosure Based on the Principles of the Corporate Governance Code] UPDATED [Principle 1.4] The Board of Directors will inspect and confirm the rationality and economic significance regarding the purpose of holding each individual cross-shareholding, taking into consideration the capital requirements, the market environment, etc., and the Company will in turn proceed to reduce cross-shareholdings in which the significance of retention is immaterial. – 1 – Regarding the exercise of voting rights pertaining to cross-shareholdings, we will judge the situation based on whether or not it contributes to improving the corporate value of the Company or the issuing company, and will respond appropriately. [Principle 1.7] “Basic Policy on Transactions with Related Parties” is detailed in the “Corporate Governance Basic Policy” (see Article 7). [Supplementary Principle 2.4.1] Our policies for human resource development and internal environment development to ensure diversity have been disclosed on our website, the Integrated Report (Annual Report), etc. https://www.nippon-shinyaku.co.jp/english/ir/ir_library/annual_report.php (i) Information about the promotion of women to core human resources and other initiatives to empower female employees have been disclosed on our website, the Integrated Report (Annual Report), etc. https://www.nippon-shinyaku.co.jp/english/ir/ir_library/annual_report.php (ii) Development of global business is one of the actions set out in the 6th Five-year Medium-term Management Plan, and we hire foreign nationals mainly in divisions related to global business and in our U.S. subsidiary. We plan to increase the proportion of foreign nationals in managerial positions in our Group, which is currently 6%, in line with the further development of global business. (iii) To adapt to the globalization of our business and other changes in the business environment, we will reform the organizational climate and improve corporate value by taking in the high level of expertise and diversity brought about by mid-career hires. Currently, the proportion of mid-career hires in managerial positions in the Company is 5%. As around 10 mid-career hires joined the Company every year for the past few years, we plan to increase their promotion to managerial positions. [Principle 2.6] We fully recognize that management of our corporate pension funds has influence on the stable asset formulation of our employees as well as our own financial condition, and Nippon Shinyaku Corporate Pension Fund have established an Asset Management Committee composed of internal experts, including members from the financial division and the planning division, to decide on management policy and formulate an appropriate management system. [Principle 3.1] (i) Our business philosophy, management policy, guidelines for action, the 6th Five-year Medium-term Management Plan, etc., have been disclosed on our website, the Integrated Report (Annual Report), etc. https://www.nippon-shinyaku.co.jp/english/ir/ir_library/annual_report.php (ii) Our basic views and basic policies on corporate governance have been compiled in the “Corporate Governance Basic Policy” mentioned above, and have been disclosed on our website, the Integrated Report, and elsewhere. https://www.nippon-shinyaku.co.jp/english/ir/esg_management/governance.php (iii) The policy, procedures, etc., that the Board of Directors follows upon determining the remuneration of Directors is detailed in the “Corporate Governance Basic Policy” (see Article 34). (iv) The policy, procedures, etc., that the Board of Directors follows upon nominating candidates for Directors and Corporate Auditors and appointing or dismissing Directors and Corporate Auditors is detailed in the “Corporate Governance Basic Policy” (see Article 14, Article 19, and Article 20). (v) Regarding the appointment and nomination of candidates for Directors and Corporate Auditors, their individual careers and reasons for appointment are detailed in the Reference Documents for the General Meeting of Shareholders. [Supplementary Principle 3.1.3] Our sustainability initiatives have been disclosed on our website, the Integrated Report (Annual Report), etc. With regard to human capital, we consider human resources as a driving force for the achievement of sustainable growth. The 6th Five-year Medium-term Management Plan sets out “creation of organizational climate in which each employee can be active” as one of the key actions, and we have been enhancing various systems for human resource development, creating a better working environment, and taking other relevant measures. As for intellectual property, we recognize its importance in exploring new modalities of drug discovery and expanding our business globally. We promote the protection and use of intellectual property, and the Intellectual Property Department and other R&D departments work together to use the information – 2 – on intellectual property for R&D strategies and business strategies. The 6th Five-year Medium-term Management Plan lays out investment plans, including human capital investment and R&D investment, and the Board of Directors, the Management Policy Review Group, etc. supervise the progress. Details of initiatives related to human capital and intellectual property have been disclosed on our website, the Integrated Report (Annual Report), etc. https://www.nippon-shinyaku.co.jp/english/sustainability/index.php https://www.nippon-shinyaku.co.jp/english/rd/policy.php Our initiatives to address climate change have been disclosed on our website. Taking into consideration the impact of climate change, caused by global warming, on our business and finance, we have identified climate-related risks and expressed our endorsement of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations in December 2021. In addition to addressing risks that have already been identified, we will enhance information disclosure by June 2022 in accordance with the framework of the TCFD recommendations, by collecting and analyzing data concerning scenario analysis of risks and opportunities, identifying and assessing risks and opportunities, and discussing specific initiatives. https://www.nippon-shinyaku.co.jp/english/sustainability/esg/environment/climatechange.php [Supplementary Principle 4.1.1] At the Company, resolutions by the Board of Directors and matters delegated to management are clearly defined in the Rules of the Board of Directors and other internal rules, etc. The Board of Directors carries resolutions on matters that require resolution by the Board of Directors provided for in laws, regulations or the Articles of Incorporation, matters delegated to be determined by the Board of Directors at the General Meeting of Shareholders, important matters related to management, and other matters deemed necessary by the Board of Directors. Furthermore, the Company has established a Management Policy Review Group and adopted a corporate officer system to perform swift and smooth decision-making and business operations. [Principle 4.9] The “criteria for judgment of independence” used when appointing Independent External Directors and Independent External Auditors is detailed under Attachment 2 “Criteria for Judgment of Independence” of the “Corporate Governance Basic Policy.” [Supplementary Principle 4.10.1] In order to strengthen independence, objectivity, and accountability of the Board of Directors in regard to the nomination of Directors and Corporate Auditors and the provision of remuneration, the Company has established a Nominating Committee and Remuneration Committee under the Board of Directors. Our views on the independence of the Committees’ composition, their authority and roles, and other relevant matters have been disclosed in the securities reports. [Supplementary Principle 4.11.1] We have set out our views on the overall balance of knowledge, experience, and skills, as well as the diversity and size, of the Board of Directors. Our policy on and procedures for the appointment of Directors are detailed in the “Corporate Governance Basic Policy” (see Article 19). A skills matrix has been created to show the expertise and experience each Director and Corporate Auditor has. Independent External Directors include those who have experience in corporate management at other companies. [Supplementary Principle 4.11.2] The status of concurrently held positions by Directors and Corporate Auditors are disclosed every year in the Notice of the General Meeting of Shareholders and securities reports. In addition, important information on positions concurrently held by External Directors and External Auditors as of the publishing of this report is detailed under “[Directors] External Directors’ Relationship with the Company (1)” in “II. 1. Organizational Composition and Operation” and “[Corporate Auditors] External Auditors’ Relationship with the Company (1)” in the same section of this report. – 3 – [Supplementary Principle 4.11.3] Our policy on the analysis and evaluation of the effectiveness of the Board of Directors is detailed in the “Corporate Governance Basic Policy” (see Article 33). In order to analyze and evaluate the overall effectiveness of the Board of Directors in FY2020, we implemented a self-evaluation survey for all Directors. As a result, we were able to confirm that within the Board of Directors, each Executive Director and External Director continued to actively make remarks, that open-minded and constructive discussion was pursued from a wide-angle perspective, and that appropriate judgment was being performed by the management, whereby we determined that the overall effectiveness of the Board of Directors was properly maintained. Based on the results of this analysis and evaluation, the Board of Directors will focus on further invigorating and enhancing the discussions at the meetings of the Board of Directors, and continue to ensure and improve the effectiveness of the Board of Directors moving forward. [Supplementary Principle 4.14.2] Our policy on the education and training of Directors and Corporate Auditors is detailed in the “Corporate Governance Basic Policy” (see Article 29 and Article 30). [Principle 5.1] Our policy on promoting constructive dialogue with shareholders is detailed in Attachment 3 “Policy for Constructive Dialogue with Shareholders” of the “Corporate Governance Basic Policy.” 2. Capital Structure Foreign Shareholding Ratio 20% or more, less than 30% [Status of Major Shareholders] UPDATED Name / Company Name Percentage (%) — The Master Trust Bank of Japan, Ltd. (trust account) Meiji Yasuda Life Insurance Company Custody Bank of Japan, Ltd. (trust account) MUFG Bank, Ltd. The Bank of Kyoto, Ltd. STATE STREET BANK AND TRUST COMPANY 505001 (Standing proxy: Settlement & Clearing Services Department, Mizuho Bank, Ltd.) Nippon Life Insurance Company Custody Bank of Japan, Ltd. (trust account 9) Tokio Marine & Nichido Fire Insurance Co., Ltd. Mitsubishi UFJ Trust and Banking Corporation Controlling Shareholder (except for Parent Company) Parent Company — None Supplementary Explanation UPDATED – 4 – Number of Shares Owned 9,957,300 6,486,000 4,714,600 3,315,450 3,090,050 2,705,397 1,341,270 1,131,800 979,500 775,875 14.78 9.63 7.00 4.92 4.59 4.02 1.99 1.68 1.45 1.15 3. Corporate Attributes Listed Stock Market and Market 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 Tokyo Stock Exchange First Section March Pharmaceuticals More than 1,000 Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year Less than 10 ¥100 billion or more, less than ¥1 trillion Shareholder — — 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling 5. Other Special Circumstances which may have Material Impact on Corporate Governance – 5 – 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 a Board of Auditors [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 Maximum number not stipulated One year Chairman (except for cases where concurrently serves as President) 12 the Chairman Appointment of External Directors Appointed Number of External Directors Number of Independent External Directors 4 4 External Directors’ Relationship with the Company (1) Name Attribute Academic Yukio Sugiura Lawyer Miyuki Sakurai Other Yoshinao Wada Yukari Kobayashi Other * Categories for “Relationship with the Company” * Relationship with the Company* a b c d e 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 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 remuneration as a director/corporate auditor 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) i. Executive of a company, between which and the Company external directors/auditors are mutually appointed j. Executive of a company or organization that receives a donation from the Company (the director legal entity) (the director himself/herself only) (the director himself/herself only) himself/herself only) k. Others External Directors’ Relationship with the Company (2) – 6 – Name Designation as Independent Director Supplementary Explanation of the Relationship Yukio Sugiura ○ — Miyuki Sakurai ○ — Yoshinao Wada ○ — Yukari Kobayashi ○ — Reasons of Appointment that, that, from an from an independent We believe standpoint as a pharmacologist, his expertise and insight will benefit the management of the Company. In addition, since he meets the requirements to be an Independent Director and presents no risk of conflict of interest with general shareholders, he is designated as an Independent Director. We believe independent standpoint as a lawyer, her expertise and insight will benefit the management of the Company. In addition, since she meets the requirements to be an Independent Director and presents no risk of conflict of interest with general shareholders, she is designated as an Independent Director. We believe independent standpoint as a physician, his expertise and insight will benefit the management of the Company. In addition, since he meets the requirements to be an Independent Director and presents no risk of conflict of interest with general shareholders, he is designated as an Independent Director. We believe independent standpoint as a corporate manager, her expertise and the management of the Company. In addition, since she meets the requirements to be an Independent Director and presents no risk of conflict of interest with general shareholders, she is designated as an Independent Director. insight will benefit from an from an that, that, Voluntary Establishment of Committee(s) Corresponding to Nomination Committee or Remuneration Committee Established Committee’s Name, Composition, and Attributes of Chairperson Committee’s Name All Committee Members Full-time Members Inside Directors External Directors Outside Experts Other Chairperson Committee Corresponding to Nomination Committee Nominating Committee Committee Corresponding to Remuneration Committee Remuneration Committee 3 0 1 2 0 0 – 7 – 3 0 1 2 0 0 External Director External Director Supplementary Explanation In order to strengthen independence, objectivity, and accountability of the Board of Directors in regard to the nomination of Directors and Corporate Auditors and the provision of remuneration, the Company has established a Nominating Committee and Remuneration Committee under the Board of Directors. [Corporate Auditors] Establishment of Board of Auditors Established Maximum Number of Corporate Auditors Stipulated in Articles of Incorporation Number of Corporate Auditors 4 Maximum number not stipulated Cooperation among Corporate Auditors, Accounting Auditors and Internal Audit Department To ensure the independence of the Accounting Auditor, Corporate Auditors oversee the Board of Directors. In addition, through regular meetings with the Accounting Auditor, Corporate Auditors receive reports on the implementation status of audit plans and interim audits, etc., maintain close contact by being physically present during visiting audits, etc., and strive to mutually enhance the effectiveness and efficiency of audits. In addition to audits by Corporate Auditors, the Audit Department is an organization composed of nine members that reports directly to the Representative Director and conducts operational audits in accordance with the Internal Auditing Regulations. Corporate Auditors and the Audit Department conduct mutual reports on audit plans and the results of audit implementations, etc., hold discussions, and exchange opinions through regular meetings for close cooperation and other appropriate methods as necessary. Appointment of External Auditors Appointed Number of External Auditors Number of Independent External Auditors 2 2 External Auditors’ Relationship with the Company (1) Name Attribute a Tsuyoshi Kondo Sumitaka Maruyama Tax Accountant * Categories for “Relationship with the Company” * Lawyer Relationship with the Company* b c d e f g h i j k l m “○” when the corporate auditor presently falls or has recently fallen under the category; “△” when the corporate auditor fell under the category in the past “●” when a close relative of the corporate auditor presently falls or has recently fallen under the category; “▲” when a close relative of the corporate auditor 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. A corporate auditor 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 remuneration as a corporate auditor – 8 – 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 corporate auditor himself/herself only) k. Executive of a company, between which and the Company external directors/auditors are mutually appointed (the corporate auditor himself/herself only) l. Executive of a company or organization that receives a donation from the Company (the corporate auditor himself/herself only) m. Others External Auditors’ Relationship with the Company (2) Designation as Independent Auditor Supplementary Explanation of the Relationship Name Tsuyoshi Kondo Sumitaka Maruyama ○ ○ — — Reasons of Appointment He has extensive expertise and insight as a legal specialist and satisfies the requirements to be an Independent Auditor. He has extensive expertise and insight as a tax specialist and satisfies the requirements to be an Independent Auditor. [Independent Directors/Auditors] Number of Independent Directors/Auditors 6 Matters relating to Independent Directors/Auditors All External Directors/Auditors who satisfy the qualifications to be Independent Directors/Auditors are designated by the Company as Independent Directors/Auditors. [Incentives] Implementation Status of Measures to Grant Incentives to Directors Supplementary Explanation on the above Item Introduction of Performance-linked Remuneration This is detailed in the “Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods” of this report. Recipients of Stock Options Supplementary Explanation on the above Item — [Director Remuneration] Disclosure of Individual Directors’ Remuneration Supplementary Explanation on the above Item No Individual Disclosure – 9 – The previous fiscal year (from April 1, 2020 to March 31, 2021) Remuneration for Directors: ¥439 million Remuneration for Corporate Auditors: ¥53 million Policy on Determining Remuneration Amounts and Calculation Methods Established Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods Remuneration, etc. of Directors and Corporate Auditors for FY2020 (i) Matters relating to the policies on determining the details of the individual remunerations to Directors The Board of Directors has the authority to determine the policies concerning the remuneration amount, etc. of officers and calculation methods thereof. Specifically, such policies shall be determined by the Board of Directors based on reports from the Remuneration Committee with over half of its members being External Directors as well as an External Director acting as the Chairperson, using an objective benchmark with reference to information such as survey data from external institutions. (Remuneration of Directors (excluding External Directors)) Remuneration of Directors (excluding External Directors) of the Company comprises monthly remuneration and bonuses. Monthly remuneration is determined by evaluating the performance of each Director (excluding External Directors) and adding the amount to a fixed amount corresponding to their position. The amount of bonuses commensurate with business performance for a period is linked to consolidated operating income and determined by adjusting an amount multiplied by a certain percentage corresponding to their position in consideration of performance evaluation of each Director (excluding External Directors). As for the individual remuneration amount of each Director, monthly remuneration, as well as bonuses, are determined based on reports from the Remuneration Committee presented in response to inquiries by the Board of Directors, provided, however, that in cases where the authority to determine the individual remuneration amount of each Director is delegated to the President by the Board of Directors, the President determines such amount based on the reports from the Remuneration Committee presented in response to inquiries by the President and in accordance with the calculation method approved by the resolution of, as well as the performance evaluation of individual Directors (excluding External Directors) ratified by the Board of Directors so that such authority is exercised appropriately. The Remuneration Committee conducts multilateral deliberations including whether the amounts are consistent with the determination policy, and the Board of Directors basically respects such reports and believes that the amounts are in line with the determination policy. (Remuneration of External Directors) Remuneration of External Directors comprises fixed remuneration only to ensure that their function to supervise management can best be fulfilled. As for the individual remuneration amount of each External Director, fixed remuneration is determined based on reports from the Remuneration Committee presented in response to inquiries by the Board of Directors, provided, however, that in cases where the authority is delegated to the President by the Board of Directors, the President determines such amount based on the reports from the Remuneration Committee presented in response to inquiries by the President. (Remuneration of Corporate Auditors) Remuneration of Corporate Auditors comprises fixed remuneration only to ensure that their function to audit and supervise management can best be fulfilled. As for the individual remuneration amount of each Corporate Auditor, it is determined by deliberation of the Corporate Auditors. (ii) Matters relating to the resolutions of the General Meeting of Shareholders on the remuneration, etc. of Directors and Corporate Auditors As for the resolution date of the General Meeting of Shareholders and its content pertaining to the remuneration, etc. of officers of the Company, the maximum amount of remuneration for Directors (10 Directors as at the relevant General Meeting of Shareholders) was determined at ¥600 million per year at the 154th Annual General Meeting of Shareholders held on June 29, 2017, while the maximum amount of – 10 – remuneration for Corporate Auditors (4 Corporate Auditors as at the relevant General Meeting of Shareholders) was determined at ¥80 million per year at the 143rd Annual General Meeting of Shareholders held on June 29, 2006. (iii) Matters relating to the delegation of authority to determine the individual remuneration, etc. of Directors As for the individual remuneration to Directors for FY2020, the performance evaluation of each Director (excluding External Directors) was confirmed at the meeting of the Board of Directors held in April 2020, and at the meeting of the Board of Directors held in June 2020, a resolution was passed to delegate the authority to the President (Shigenobu Maekawa). Subsequently, the President determined the remuneration amounts to each Director based on the report by the Remuneration Committee. The delegated authority includes the confirmation of whether the basic remuneration amount and the bonus amount of each Directors have been appropriately calculated in accordance with the calculation method approved by the resolution of, as well as the performance evaluation of individual Directors (excluding External Directors) ratified by the Board of Directors, and the determination of such amounts. The reason for this delegation of authority is because the President, who is the person responsible for business execution and overseeing the overall performance of the Company, is the most suitable for this task. To ensure that this authority is exercised appropriately by the President, the Board of Directors consulted the Remuneration Committee and submitted a proposal, to which a report is received. (iv) Matters relating to the performance-linked remuneration As for the performance-linked remuneration of Directors (excluding External Directors) of the Company, cash remuneration reflecting performance indicator is paid to raise their awareness toward improving the business performance of each period, and an amount determined by adding an amount commensurate with the performance evaluation of each Director (excluding External Directors) to the amount calculated based on the consolidated operating income of each period is paid as bonuses. This performance indicator is revised, as necessary, according to the changes in the environment and in light of the reports by the Remuneration Committee. Furthermore, non-monetary remunerations are not paid. Consolidated operating income is the indicator selected for calculating performance-linked remuneration of Directors (excluding External Directors), as it is considered to be an indicator that best reflects the actual performance of the core business of the Company, and the indicator is also selected by taking into account such elements as consistency with the treatment of employees. The targeted amount of consolidated operating income for calculating performance-linked remuneration of Directors for FY2020 was ¥25,000 million, while the actual consolidated operating income was ¥26,134 million. [Supporting System for External Directors and/or External Auditors] When convening meetings of the Board of Directors and the Board of Auditors, staff of the Secretarial Section will send documents related to each proposal and matters to be reported to External Directors and External Auditors in advance. [Retired Presidents Holding Advisory Positions (Counselor, Advisor, etc.)] Information on Retired President, etc. Holding Advisory Positions (Counselor, Advisor, etc.) Name Job title/ position Responsibilities (Full/part time, with/without Term Employment terms remuneration, etc.) Date when former role as President, etc. ended — — — — — Number of retired President, etc. holding advisory positions (Counselor, Advisor, etc.) — 0 – 11 – Others We have introduced a counselor and advisor system in order to ensure appropriate judgment on management. The Counselor has experience as the Representative Director of the Company, the Advisor has experience as the Senior Managing Director or Managing Director of the Company, and together, the Counselor and Advisor provide advice on necessary matters related to the management of the Company. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) The Board of Directors consists of the Chairman & Representative Director, President & Representative Director, one Managing Director, five Directors, and four External Directors for a total composition of 12 members, and holds a role as the highest decision-making organization of management, convening a meeting once a month in principle, making decisions on important operations as stipulated in the Rules of the Board of Directors and overseeing business execution. The Board of Directors held 14 meetings in the previous fiscal year (from April 1, 2020 to March 31, 2021). Of items to be proposed to the Board of Directors, particularly for important cases which require prior examination, a preliminary explanation is presented by the drafting division with all Directors and Corporate Auditors present, and a question-and-answer session on the details of the case is held as well. The Company has adopted a corporate auditor system. The Board of Auditors consists of four Corporate Auditors including two Standing Corporate Auditors and two part-time External Auditors. Corporate Auditors attend meetings of the Board of Directors to enhance auditing functions. In addition to audits by the Corporate Auditors, the Audit Department which is an organization that reports directly to the Representative Directors also conducts operational audits in accordance with the Internal Auditing Regulations. In order to strengthen independence, objectivity, and accountability of the Board of Directors in regard to the nomination of Directors and Corporate Auditors and the provision of remuneration, the Company has established the Nominating Committee and the Remuneration Committee under the Board of Directors. Each Committee is composed of three or more members, with over half of those members being Independent External Directors, and an Independent External Director acting as the Chairperson. In response to inquiries by the Board of Directors, the Nominating Committee deliberates on matters concerning the appointment and dismissal, etc., of Directors and Corporate Auditors, whereas the Remuneration Committee deliberates on matters concerning the remuneration, etc., of Directors and Corporate Auditors. Both Committees subsequently report back to the Board of Directors with the results of their deliberations. An auditing agreement has been signed with Deloitte Touche Tohmatsu LLC as an Accounting Auditor, and we will endeavor to ensure proper accounting and transparent management. The names and number of continuous audit years of the certified public accountants assigned as Designated Limited Liability Partners of Tohmatsu are as follows. Mr. Masafumi Takami: one year, Mr. Kenji Tanaka: five years. Furthermore, based on the regulations of Article 427, Paragraph 1 of the Companies Act, the Company has signed a contract with each External Director/Auditor to limit liability for compensation as mentioned in Article 423, Paragraph 1 of the same Act in order to ensure that External Directors and External Auditors can fully demonstrate their expected roles. These contracts limit the amount of their liability for compensation to the amount which is stipulated by laws and regulations. The aforementioned liability limitation shall be applied only in cases where the duties of the External Directors/Auditors which led to liabilities have been performed in good faith and without gross negligence. 3. Reasons for Adoption of Current Corporate Governance System At the Company, Directors’ terms of service are set at one year in order to clarify their managerial responsibilities and to flexibly form an organization conducive to optimal governance in response to the business climate. The appointment of four External Directors is intended to ensure higher level of oversight of Directors’ business execution and further improve managerial transparency and objectivity. Corporate Auditors also attend all meetings of the Board of Directors as well as important business-related meetings with independence of the two External Auditors from the Company guaranteed, whereby we believe that management supervising functions of the Board of Auditors is working properly. – 12 – III. Implementation of Measures for Shareholders and Other Stakeholders 1. Measures to Vitalize the General Shareholder Meetings and Smooth Exercise of Voting Rights UPDATED Early Notification of General Shareholder Meeting Allowing Electronic Exercise of Voting Rights Participation in Electronic Voting Platform Providing Convocation Notice (Summary) in English Supplementary Explanations Notification is sent at least three weeks prior to the date of a General Shareholder Meeting. We also aim to disclose the information online on our website, the Tokyo Stock Exchange website, etc. approximately three business days before sending the notification. Electronic exercise of voting rights has been allowed since the 153rd Annual General Meeting of Shareholders held in June 2016. We have participated in and made available an electronic voting platform since the 153rd Annual General Meeting of Shareholders held in June 2016. An English version of the convocation notice has been prepared and disclosed on the websites of the Tokyo Stock Exchange and the Company. Explanation by Representative 2. IR Activities UPDATED Preparation and Publication of Disclosure Policy Regular Briefings for Analysts and Institutional Investors Posting of IR Materials on Website Establishment of Department and/or Manager in Charge of IR Supplementary Explanations Posted the “IR Policy” and the “Policy on Constructive Dialogue with Shareholders” on our website Held four times yearly, once every quarter Yes Updated every quarter Department in Charge of IR: Corporate Planning Department 3. Measures to Ensure Due Respect for Stakeholders Supplementary Explanations Stipulation of Internal Rules for Respecting the Position of Stakeholders Implementation of Environmental Activities, CSR Activities etc. Development of Policies on Information Provision to Stakeholders Other Stipulated in the “Nippon Shinyaku Group’s Code of Conduct.” Established the “Basic Environmental Policy.” Published an Environmental Report every year until 2008, and began publishing the CSR Report from 2009. Published the Annual Report in 2012, with the content further enhanced. Established “Information Disclosure Regulations.” Held IR Committee on a monthly basis. Nippon Shinyaku values “Develop Each Employee” as a management policy, enhancing individual ability and productivity to increase corporate value, and promoting talented personnel regardless of gender in an effort to create a vibrant organizational culture. In promoting the active participation of women, we launched the “Maru-N Supplement” project in 2011 to support women, and have continued to promote the reform of internal awareness. In addition, we have maintained a worker-friendly environment with activities such as the “Good Job” work-life balance promotion and life balance support systems for female MRs. – 13 – Between April 1, 2019 and March 31, 2024, we aim to employ 15% or more of female employees in management positions (currently 15.4%). We will strive to actively recruit women in accordance with numerical targets, continue raising awareness and providing skill-up training sessions for both women and superiors, and support further active participation by women. – 14 – IV. Matters Related to the Internal Control System 1. Basic Views on Internal Control System and the Progress of System Development The Company is striving to act with higher ethical sense, putting human dignity first and taking consistently into consideration of social contribution. The Company recognizes the aforementioned is involved closely to the progress of corporate value. Internal control system is a measure to achieve it and shall be practiced by all the people who comprise a business organizer. The reliability of financial reporting shall be ensured based on compliance with law and enhancement of effectiveness and efficacy in business. The Company thinks that internal control system shall provide the rational assurance, aiming at its goal to ensure the above reliability. 1. System to ensure that Directors and employees of the Company execute their duties in compliance with laws and regulations and the Articles of Incorporation (a) In addition to complying with the Nippon Shinyaku Group’s Code of Conduct, the standard on which we place the highest priority in our corporate activities, we promote compliance based on the Nippon Shinyaku Group’s Compliance Operating Rules. (b) The execution of duties by the Directors shall be audited by the Corporate Auditors based on the Auditing Standards for Corporate Auditors. (c) The Internal Audit Department shall implement regular internal audits. (d) The employee hotline for compliance reporting is operated as a whistleblowing contact point for compliance violations. 2. System for storage and management of information related to the execution of duties of Directors of the Company (a) Information related to the execution of duties of Directors shall be stored and managed in accordance with the relevant laws and regulations or internal rules, etc. (b) The status of the preparation, storage, and management of information related to the execution of duties of Directors shall be audited by the Corporate Auditors. (c) A system in which Directors and Corporate Auditors can inspect and receive transcripts of information whenever occasion demands shall be established. 3. The Company’s regulations or any other systems for management of risk of loss (a) The supervisory divisions promote risk management activities throughout the Nippon Shinyaku Group based on the Nippon Shinyaku Group’s Basic Risk Management Rules. (b) In preparation for situations in which a loss would seriously affect business operations, the necessary response policies and a response manual shall be formulated in advance, and necessary measures will be taken in the event of loss occurrence to minimize any potential damage. 4. System to ensure that the execution of duties of the Directors of the Company is efficient (a) The Representative Director, Executive Directors and Corporate Officers execute business based on their assigned duties, the Director Regulations, and the Corporate Officer Regulations. (b) Meetings of the Board of Directors shall be held once a month in principle, and also held on extraordinary occasions as necessary. Also, in cases that require urgent decision-making, the Board of Directors may carry written resolutions based on the laws and regulations, Articles of Incorporation, and other internal rules. (c) The Board of Directors formulates the Medium-term Management Plan and other plans for each fiscal year, while setting targets and maintaining the executive structure for the Nippon Shinyaku Group as a whole. 5. (1) System to ensure proper business execution within the corporate group consisting of the Company and its subsidiaries Systems related to reporting to the Company on matters regarding the execution of duties by Directors of the Company’s subsidiaries (a) The Group Companies Management Rules specifies matters that require reports from subsidiaries and the responsible parties, and the said rules shall be referred to in an appropriate manner. (b) Directors of subsidiaries shall provide reports and explanations to the Board of Directors as necessary. (2) Regulations or any other systems for management of risk of loss at the Company’s subsidiaries (a) Supervisory divisions promote risk management activities throughout the Nippon Shinyaku Group based on the Nippon Shinyaku Group’s Basic Risk Management Rules. (b) In preparation for situations in which a loss would seriously affect business operations, the necessary response policies and a response manual shall be formulated in advance, and necessary measures shall be taken in the event of loss occurrence to minimize any potential damage. – 15 – (3) System to ensure that the execution of duties of directors of the Company’s subsidiaries is efficient (a) Based on the Group Companies Management Rules, the administrative division comprehensively manages all subsidiaries as a whole following instructions from the Chief Administrative Officer who performs comprehensive management for all subsidiaries, while the administrative divisions, etc., established at each subsidiary provide management of overall business operations of these subsidiaries. (b) The Board of Directors, meetings of which are held regularly or in extraordinary cases, carries resolutions on important matters related to subsidiaries based on the Rules of the Board of Directors. System to ensure that directors and employees of the Company’s subsidiaries execute their duties in compliance with laws and regulations and the Articles of Incorporation (a) Information on the compliance with the Nippon Shinyaku Group’s Code of Conduct shall be (4) (b) Compliance shall be promoted based on the Nippon Shinyaku Group’s Compliance Operating Rules. (c) The employee hotline for compliance reporting is operated as a whistleblowing contact point for thoroughly disseminated. compliance violations. (d) In accordance with the Internal Auditing Regulations, the Internal Audit Department shall carry out internal audits of subsidiaries as necessary based on the Group Companies Management Rules. Systems to ensure the effectiveness of audits by Corporate Auditors of the Company 6. (1) Matters concerning employees in the event that the Corporate Auditors of the Company request the assignment of employees to support the execution of their duties (a) In the event that the Corporate Auditors request the assignment of employees to support the execution of their duties, employees shall be assigned who possess abilities corresponding to the content of those duties. (2) Matters concerning employees’ independence from Directors of the Company when supporting the duties of the Corporate Auditors of the Company and matters concerning ensuring the effectiveness of instructions for these employees (a) Employees who support the Corporate Auditors are independent from the Directors, and perform their duties under the order and command of the Corporate Auditors. (b) Personnel reassignment or evaluation of these employees requires the advance approval of the Board of Auditors. Systems for reporting to Corporate Auditors of the Company (3) (a) The Representative Director and Executive Directors shall issue reports to the Corporate Auditors on the execution of the business they are responsible for as required at important meetings such as the meeting of Board of Directors. (b) Directors and employees of the Company and directors, corporate auditors, and employees of the Company’s subsidiaries shall provide information required by the Corporate Auditors of the Company. In addition, they shall cooperate in the provision of reports when requested by the Corporate Auditors of the Company as needed. System to ensure that persons reporting to Corporate Auditors of the Company do not receive detrimental treatment as a result of making a report (4) (a) Persons who issue reports to the Corporate Auditors of the Company shall not receive any sort of detrimental treatment as a result, and this policy shall be thoroughly disseminated. (5) Matters concerning policies for processing expenses or liabilities arising from the execution of duties by Corporate Auditors of the Company (a) If the Corporate Auditors request prepayment or reimbursement for expenses related to the execution of duties, such request shall be handled in an appropriate manner. (b) Expenses resulting from information collection, education, reference materials, etc., related to the execution of auditing duties pursuant to the audit plan shall be included in the budget and reserved. (6) Other systems to ensure the effectiveness of audits by Corporate Auditors of the Company (a) The Representative Director meets regularly with the Corporate Auditors to cultivate mutual understanding. (b) The Board of Auditors is allowed to work in close cooperation with the Internal Audit Department. We have focused on promoting compliance over the past years. Since 2007, we have established the “Nippon Shinyaku Group’s Code of Conduct” for the Nippon Shinyaku Group and our affiliated companies, prepared the “Nippon Shinyaku Group’s Compliance Operating Rules,” and strived to raise awareness and enhance compliance with corporate ethics even further. In addition, we have made efforts to expand the scope of overall internal controls including risk controls to Group companies, and worked on functional enhancement mainly led by CSR and the Internal Control Promotion Department. Furthermore, the Audit Department, which is an – 16 – organization that reports directly to the Representative Directors, will perform internal audits to confirm the execution status of each business. 7. The operational status of the system to ensure proper business execution (1) System to ensure that Directors and employees of the Company execute their duties in compliance with laws and regulations and the Articles of Incorporation The Compliance Council comprised of members appointed by the compliance officer and the CSR Committee comprised of Executive Directors is convened to review and deliberate on the implementation, policy, and plan regarding compliance within the Group. In addition, departmental compliance training, training on the Code of Conduct, and level-based training covering managerial positions are implemented for all employees. The execution of duties of the Directors and employees is audited by the Corporate Auditors based on the Auditing Standards for Corporate Auditors or by the Internal Audit Department based on the internal audit plan. Furthermore, the employee hotline for compliance reporting (established at internal and external points) is operated as a whistleblowing (counseling) contact point for compliance violations, through which cases of whistleblowing (counseling) are reported to the Board of Directors semiannually. (2) System for storage and management of information related to the execution of duties of Directors of the Company Information is stored and managed appropriately in accordance with relevant laws and regulations such as the Companies Act and the “Information Handling and Management Rules,” and is audited by the Corporate Auditors based on the Auditing Standards for Corporate Auditors. In addition, preparing for the cases where the Directors and Corporate Auditors request to inspect any materials, etc., a system that can respond to such request has been established. (3) Other systems and regulations for management of risk of loss We specify the major risks that may affects the entire Group and the major risks particular to each division based on the “Nippon Shinyaku Group’s Basic Risk Management Rules,” whereby we formulate and execute action plans with the aim of handling those risks. Furthermore, preparing for the event that a risk materializes, preventive measures for each risk and countermeasures, etc., are compiled in risk management sheets and reviewed as necessary. (4) System to ensure that the execution of duties of Directors of the Company is efficient Regular meetings of the Board of Directors were held once a month. Two extraordinary meetings of the Board of Directors were held, and three resolutions in writing by electronic means were executed. The Board of Directors confirmed the progress of the fiscal year plan, which was formulated in accordance with the Medium-term Management Plan, and targets for the Nippon Shinyaku Group as a whole, on a quarterly basis. (5) System to ensure proper business execution within the corporate group consisting of the Company and its subsidiaries On a quarterly basis, the Director (Chief Administrative Officer) who performs comprehensive management for all subsidiaries provided an overview, etc. on the business conditions of all subsidiaries, while the Directors (Administrative Officers) who manage each individual subsidiary provided overviews of the business conditions and management conditions, etc., of responsible subsidiaries, in accordance with the “Group Companies Management Rules.” Additionally, the directors of the subsidiaries provided progress reports as appropriate at the meetings of the Board of Directors. Compliance training and risk management measures are implemented as appropriate based on the “Nippon Shinyaku Group’s Compliance Operating Rules” and the “Nippon Shinyaku Group’s Basic Risk Management Rules.” In addition, the employee hotline for compliance reporting (established at internal and external points) is operated as a whistleblowing (counseling) contact point for compliance violations. Furthermore, audits are conducted based on the internal audit plan composed by the Internal Audit Department in order to guarantee the appropriateness of business operations. (6) Systems to ensure the effectiveness of audits by Corporate Auditors of the Company The Representative Director and Executive Directors issue reports with respect to performance status at meetings of the Board of Directors attended by the Corporate Auditors. Directors and employees of the Company as well as directors, corporate auditors, and employees of the Company’s subsidiaries comply with requests by the Corporate Auditors to provide required information and cooperate with them. In addition, necessary expenses for auditing are included in the budget and reserved. Furthermore, it is disseminated that parties who issue reports to Corporate Auditors do not receive any sort of detrimental treatment in accordance with the “Nippon Shinyaku Group’s Compliance Reporting System Operational Regulations.” In addition to holding two opinion exchange meetings attended by the Representative – 17 – Director and the Board of Auditors, the Board of Auditors and the Internal Audit Department held an audit liaison meeting every month. 2. Basic Views on Eliminating Anti-Social Forces and Status of Related Efforts In order to prevent any involvement in the Company’s management activities by anti-social forces and organizations, and also to prevent the damage due to such forces, the basic views of the Company have been established in the Nippon Shinyaku Group’s Code of Conduct. The Company has established a responsible department to deal with issues related to anti-social forces, appointed personnel in charge of countering unjustified demands, and promotes activities in cooperation with regional corporate defense countermeasures associations, other related organizations, and related departments at the police headquarters, etc., in order to properly respond to anti-social forces. We endeavor to gather information from regional organizations and related departments at the police headquarters to share such information with relevant parties within the Company through the documentation and distribution thereof. For information on specific cases, response procedures are compiled in a manual which is utilized for the education and training of internal relevant parties. Furthermore, we hold a conference for representatives of all domestic business sites, at which training sessions are provided based on a manual and other materials, and representatives from the Company’s head office are dispatched to carry out workshops upon the request of business sites and related subsidiaries as occasion demands. As for the efforts within the Company, we ensure that report is made to confirm that we have not accommodated any requests for illegal profits from any specific shareholders or any other shareholders, and that there have been no illegal profits offered by anti-social forces, etc. On the other hand, in the case that such illegal profits are detected, we ensure that report is made immediately to the responsible department and take necessary countermeasures. – 18 – V. Other 1. Adoption of Anti-Takeover Measures Adoption of Anti-Takeover Measures Not Adopted Supplementary Explanation on the above Item — 2. Other Matters Concerning Corporate Governance System “Overview of Timely Disclosure System” Based on the criteria and procedures of information disclosure detailed in the “Information Disclosure Regulations,” the Company makes timely, proper, and fair disclosure of important corporate information notified by the Board of Directors or proposed as subject to disclosure by the information retention divisions. Regarding timely disclosure information for which disclosure is required under the “Securities Listing Regulations” stipulated by the Tokyo Stock Exchange, 1) Information related to financial results will be disclosed by the Finance & Accounting Department immediately after the resolution of the Board of Directors. 2) Timely disclosure information not related to the financial results, and information not subject to timely disclosure but still necessary to provide stakeholders with opportunities to accurately understand and properly evaluate the Company will be disclosed by the Corporate Communications Department. Upon the disclosure of information which is not subject to timely disclosure, the “IR Committee,” which is a division responsible for information disclosure in the Corporate Communications Department and was established in accordance with the aim of “Information Disclosure Regulations,” will issue a report to the President for approval and make timely and proper disclosure therewith, following the examination of the necessity, timing and method of disclosure for the cases reported by each division. – 19 – Skills Matrix of Directors and Corporate Auditors Skills and experience management/ Global Finance/ Research & Sales/ Production/Management business Accounting Development Marketing Quality Category Name Corporate Director (Inside) Shigenobu Maekawa strategy ● Toru Nakai ● ● ● Legal affairs/ Risk management ● Personnel/ ESG/ IT/ HR Social Information development contribution management ● ● ● ● ● ● Shouzou Sano Takashi Takaya Takanori Edamitsu Kazuchika Takagaki Hitoshi Ishizawa Hitomi Kimura Miyuki Sakurai Yoshinao Wada Director (External) Yukio Sugiura Corporate Auditor (Inside) Morio Matsuura Kenji Kuwabara Corporate Auditor Tsuyoshi Kondo (External) Sumitaka Maruyama ● ● ● Yukari Kobayashi ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● – 20 – (Note) The above list does not represent all of the expertise and experience Directors and Corporate Auditors have. ● ●
