ルネサスエレクトロニクス（6723） – Corporate Governance Report

[Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation Last Update: January 24, 2022 Renesas Electronics Corporation Hidetoshi Shibata Representative Director, President and CEO Contact: CEO Office TEL: +81-3-6773-3001 Securities Code: 6723 https://www.renesas.com/ The corporate governance of Renesas Electronics Corporation (hereinafter “Renesas” or the “Company”) is described below. I． Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views Based on the following Corporate Governance Policy, the Renesas Group strives to be a company that is trusted by society by maintaining sound relationship with any and all stakeholders including local communities, customers and business partners in order to fulfill our social responsibility as a company 【Corporate Governance Policy】 Based on our “Purpose”, “To Make Our Lives Easier”, we are committed to build a sustainable future where technology helps make our lives easier by developing a safer, healthier, greener, and smarter world to provide intelligence to our four focus growth segments: Automotive, Industrial, Infrastructure, and IoT. To achieve our Purpose, we aim to respond flexibly to changes, solve issues, and continue to create value in a sustainable way based on the “Renesas Culture”, a guideline of conduct for all of our activities, behavior and decision-making, which consists of five elements. Based on Renesas Culture, we aim for continuous growth and enhancement of corporate value over the med- to long-term. In addition, we aim to co-exist and co-prosper with every stakeholder in order to create long-term sustainable value as a responsible global company. In order to achieve this, we must thrive in the rapidly-changing, competitive global semiconductor marketplace, and continue to satisfy the expectations of all of our stakeholders and to grow with profit expansions. We will continue to solidify our business foundation as a global semiconductor company by honing technological advancement as well as supplying excellent semiconductor products and optimized solutions through elaborate marketing and sales activities. We recognize the importance to build a corporate governance structure and system that enables transparent, fair, quick and resolute decision-making. We will remain committed to enhance our corporate governance structure and system through various measures such as communication and cooperation with our stakeholders including shareholders, appropriate information disclosure, ensuring appropriate delegation of authority and highly effective oversight functions. 1 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation 【Our Purpose】 To Make Our Lives Easier At Renesas we continuously strive to drive innovation with a comprehensive portfolio of microcontrollers, analog and power devices. Our mission is to develop a safer, healthier, greener, and smarter world by providing intelligence to our four focus growth segments: Automotive, Industrial, Infrastructure, and IoT that are all vital to our daily lives, meaning our products and solutions are embedded everywhere. 【Renesas Culture】 Transparent The leadership team’s strategy and policy, the company’s current situation, as well as the issues and thoughts of each business organization should be well understood among employees. This is also tightly connected to the “Agile” and “Entrepreneurial” elements described below, and we believe it is fundamental for the success of every individual and organization. Agile Global In order to respond to changes in a timely manner, it is necessary to identify the likely outcomes and implications as quickly as possible, make decisions quickly, and rapidly take or correct actions. We must recognize situations, make decisions and act at a high velocity. When a follow-up regarding a task is made from inside and outside the company, employees should understand they are not being “Agile”. Not only the markets that we operate in, but also our customers and our competitors are global, and in order to thrive in this global environment, it is essential for us to have a global perspective ourselves. It is true we need better language skills, but there are many other simple steps we can take to facilitate communication, such as organizing discussion agenda, issues, alternative solutions in advance. In particular, numbers are useful as words. Whenever possible, use numbers to communicate, and try to share information more smoothly. Innovative In order for Renesas to provide “Innovative” technologies and products and continue to create sustainable social value, it is essential to practice “Innovative” way of conducting business and of thinking. Each and every one of our employees should embody “Innovation” using their imagination and creativity to contribute to the realization of a richer society. Entrepreneurial Individual employees should act professionally, voluntarily, and independently as if they are “running their own business” and are responsible for the results they deliver. Based on our strategies and policies as a company, we aim to develop employees who can think freely and create new value, without being constrained by existing concepts. 【Reasons for Non-compliance with the Principles of the Corporate Governance Code】 Updated 【Principle 4-9: Independence Standards and Qualification for Independent Directors】 The Company currently applies the Independence Standard established by the Tokyo Stock Exchange. The Company will consider establishing its original Independence Standards, taking various items into account such as future business environment and shareholders structure. 【Supplementary Principle 4-11-3: Analysis on the Efficiency of the Board of Directors】 The Company did not conduct the survey on the efficiency of the Company’s Board of Directors in FY2021, but the Company has implemented the various measures to improve the efficiency of the Board of Directors based on the discussion made by Board of Director meeting, voluntary nomination/compensation committee meeting and cooperation with administration office of each meeting body. The Company will make efforts to improve the efficiency of Board of Directors through various measures such as the periodic evaluation on the efficiency of Board of Directors, its analysis and implementation of improvement actions taking the PDCA cycles into account. 2 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report 【Disclosure Based on the Principles of the Corporate Governance Code】 Renesas Electronics Corporation 【Principle 1.4: Policies for Cross-Shareholdings, voting rights exercise standard of Cross-Shareholdings】 The Company regards investment shares which the Company owns for the purpose other than pure investment as the Strategic Shareholdings (so-called “Cross-Shareholdings” in the Corporate Governance Code). The Company has a policy for the Strategic Shareholdings, under which the Company periodically confirms the significance and benefit to keep other company’s share including strategic shareholdings, and, if the Company finds it does not have enough significance or benefit to do so, the Company will sell such share at the appropriate time flame. The Company does not own such shares as of the date of this report. 【Principle 1-7. Overview of the procedures which secures the appropriateness of related party transactions】 Please refer to Article 8 of our Corporate Governance Guidelines: 【Supplementary Principle 2-4-1: Policy to ensure diversity, policy for human resources development and internal environment development to secure diversity, voluntary and measurable goals regarding diversity and their status】 Please refer to “Employee Growth and Engagement” in our web site “Sustainability at Renesas” https://www.renesas.com/about/company/sustainability/engagement 【Principle 2-6: Roles of Corporate Pension Funds as Asset Owners】 The Company has established the Renesas Corporate Pension Fund to operate the defined benefit plan, which manages the reserve fund by providing the investment trustee institution with the basic investment policy established by the Pension Fund. Because the management of the Pension Fund may impact stable asset formation for employees and the financial standing of the Company, the Pension Fund strives for proper and efficient management and regular monitoring, utilizing the knowledge of the external experts and consultants including actuaries whom the Pension Fund concludes advisory contracts. For the proper management of the Pension Fund, the Company implements various measures from both of human resources and operation perspectives such as: appointment of the appropriate person with experience and abilities from the Company as an executive officer of the Pension Fund who is in charge of the fund management; and the attendance of the executive of the Accounting & Control Division at the Asset Management Committee hosted by the Pension Fund. In addition, to prevent possible conflicts of interest between the beneficiaries of the Pension Fund and the Company, the Pension Fund entrusts the investment trustees with the decision to select investees and exercise voting rights on investees. 【Principle 3-1 (i) Business principles, business strategies and business plans】 Please refer to Article 1.1. “Basic view” of this report for our business principles. 3 of the Code】 and directors】 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation 【Principle 3-1 (ii) Basic views and guidelines on corporate governance based on each principles of the principles Please refer to Article 1.1. “Basic View” of this report. 【Principle 3-1 (iii) Board policies and procedures in determining the compensation of the executive management Please refer to “Director Compensation” session in Article 2.1 “Organizational Composition and Operation” of this report for the compensation of Directors. 【Principle 3-1 (iv) Board policies and procedures in the appointment/dismissal of the senior management and the nomination of directors and corporate auditors (kansayaku) candidates】 Please refer to Articles 15 and 17 of our Corporate Governance Guidelines: 【Principle 3-1 (v) Explanations with respect to the individual appointments/dismissals and nominations】 For the reason to appointment to each director, please refer to Proposal No1. “Election of six directors” in the reference document of “NOTICE OF THE 19TH ORDINARY GENERAL MEETING OF SHAREHOLDERS” (Translation) which is posted on our website: For the reason to appoint each Corporate Auditor, please refer to Proposal No2. “Election of two corporate auditors” in the reference document of “NOTICE OF THE 19TH ORDINARY GENERAL MEETING OF SHAREHOLDERS” (Translation) which is posted on our website and “Outside Corporate Auditor’s (Kansayaku’s) Relationship with the Company (2)” in Corporate Auditor (Kansayaku) session of “Article 2.1 Organizational Composition and Operation” of this report. 【Supplementary principle 3-1-3. Disclosure of sustainability and TCFD initiatives】 In April 2021, Renesas has signed up to support the Task Force on Climate-related Financial Disclosure (TCFD) and joined the Japan-based TCFD Consortium. By supporting such initiatives, we will commit to transparent information disclosure that focuses on analyzing the risks and opportunities brought by climate change. Following the proposal by TCFD, we will proactively disclose information to stakeholders from the four perspectives of “Governance”, “Strategy”, “Risk Management” and “Indicators and Targets”, as well as to establish a business strategy that further considers climate change and make business decisions that will reduce risks and maximizes opportunities brought by climate change. For more information on the Group’s environmental initiatives and other sustainability efforts, visit: https://www.renesas.com/about/company/sustainability 【Supplementary principle 4-1-1. The scope and content of the matters delegated to the management】 Please refer to Articles 17 and 18 of our Corporate Governance Guidelines: 4 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation The items which require the resolution of Board of Directors other than those specified in our Articles of Incorporation and applicable laws and regulations are as follows: ・ Fundamental management policy (mid-term management plan, annual operating plan, basic policy on management of subsidiaries, etc.) ・ Matters related to HR and organization (appointment of Executive Officers and assignment their responsibilities, revision of HR/compensation systems, etc.) ・ Acquisition or disposal of important assets (capital investment, M&A, etc.) ・ Accounting and financial matters (huge amount of expenditures, etc.) 【Supplementary Principle 4-11-1. View on a board structure】 Please refer to Article 15 of our Corporate Governance Guidelines. 【Supplementary Principle 4-11-2. Concurrently Position of Directors and Corporate Auditors】 Please refer to our “19th Securities Report” posted on our website for the situation of concurrent position of Directors and Corporate Auditors. *Only Japanese is available 【Supplementary Principle 4-11-3. Summary of the evaluation of board effectiveness】 As stated in “Reasons for Non-compliance with the Principles of the Corporate Governance Code” above, the Company did not conduct the survey on the efficiency of the Company’s Board of Directors in FY2020. For the reference, the self-evaluation result (including the evaluation of improvement status addressed previous year) and items to be improved prevailed through the questionnaire which was conducted in the past are as follows: Self-evaluation covers, including but not limited to, the structure/diversity of Board of Directors, activation of independent outside directors, the maturity of the materials for the Board of Directors meeting, agenda of the Board of Directors meeting, sufficiency of explanation provided for each agenda by executive managements, appropriateness of proceeding management of the Board pf Directors meeting (whether or not the board members feel free to give its comments, etc.), time reserved to discuss the agenda, frequency of the Board of Directors meeting. (1) The Board of Directors filled its role to the certain extent in FY2017 and is expected to make deeper discussion for business strategy and technology strategy. (2) There is no issue under current operation as for the sufficiency of materials for the Board of Directors meeting and explanations provided to board members by executive managements, proceeding management of the Board of Directors meeting, discussion time, and frequency of the Board of Directors meeting. On the other hand, aiming for “Accelerate the Leap from Structural Reforms to the Growth Stage”, we need to consider 5 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation how to make more fruitful and constructive discussion, e.g. frequency of the Board of Directors meeting and its agenda. (3) We need to consider how to further activate independent outside directors, e.g. expand the discussion opportunity with independent outside Directors. (4) Regarding the discussion for the appointment of executive managements and Directors, we need to consider how to establish more suitable process including the establishment of voluntary nomination committee to secure more fairness and transparency. Based on these results, and taking future business environment and our shareholders structure, etc. into account, the Company has been discussed and developed improvement measures and countermeasures, and implemented these measures. For example, we established the voluntary nomination committee on November 2018, and shared and developed the discussion about company business strategy at the Board of Directors meeting. We will continuously implement the measure to improve the effectiveness of the Board of Directors taking the PDCA cycles into account such as making self-evaluation and pointing out the matters to be improved. 【Supplementary Principles 4-14-2. Training policy for Director and Corporate Auditor】 Please refer to Article 21 of our Corporate Governance Guidelines. 【Principle 5-1. Policy for Constructive Dialogue with Shareholders】 Please refer to Article 6 of our Corporate Governance Guidelines and its Attachment. 【Supplementary principle 5-2-1. Basic policy on the business portfolio and reviewing status for the business portfolio】 Please refer to the “Progress Update” and earnings documents available on our website. (Implementation Status for other principles which are required to explain) 【Principle 1-3. Establishment of Basic Strategy for Capital Policy and explanation thereof】 The Company believes the improvement of profitability taking Gross Margin ratio and Operation Margin as KPI (Key Performance Indicator) will lead improvement of our strong financials. We are aiming to achieve 50 to 55 % in Gross Margin ratio and 25 to 30% in Operating Margin ratio in mid to long term. In addition, from the revenue growth viewpoint. we are aiming to achieve the growth more than our Serviceable Available Market (SAM). We will review and revise this strategic mid to long range plan along with the expansion and enhancement of our business portfolio and continuous optimization of manufacturing structure as appropriately. In addition, our basic policy on profit return to shareholders are to return a part of profit by appropriate and efficient manner while aiming to keep adequate internal reserve for the research and development activity for new product and capital investment from the viewpoint of maximization of company value and realize strong financial capability. We will decide the amount of dividend for each business period considering various factors into consideration such as consolidated and non-consolidated retained earnings, consolidated net income, forecast of net income and 6 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation cash flow for the following business periods, etc. 2. Capital Structure Foreign Shareholding Ratio More than 30% 【Status of Major Shareholders】 Updated Name / Company Name INCJ, Ltd. The Master Trust Bank of Japan, Ltd. (Trust Account) DENSO Corporation Toyota Motor Corporation Custody Bank of Japan, Ltd. (Re-trust of Sumitomo Mitsui Trust Bank, Limited / NEC Corporation pension and severance payments Trust Account) Hitachi, Ltd. Custody Bank of Japan, Ltd. (Trust Account) Mitsubishi Electric Corporation MSIP CLIENT SECURITIES GIC PRIVATE LIMITED – C Controlling Shareholder (except for Parent Company) Parent Company Supplementary Explanation Updated 2021. Number of Shares held (shares) Percentage of Shares held (%) 391,547,575 157,436,900 153,143,625 75,015,900 71,779,857 61,990,548 55,325,100 50,706,885 44,642,530 36,899,650 20.14 8.09 7.87 3.85 3.69 3.18 2.84 2.60 2.29 1.89 (1) Status of major shareholders described above is based on shareholder registry as of December 31, (2) In calculating percentage, treasury shares (2,581 shares) are excluded, and numbers are round off to two decimal places. (3) 71,779,857 shares (percentage of shares held: 3.69%) owned by Custody Bank of Japan, Ltd. (Re-trust of Sumitomo Mitsui Trust Bank, Limited / NEC Corporation pension and severance payments Trust Account) were shares that were contributed by NEC Corporation as employee pension trusts. The voting rights of such shares will be exercised at the instruction of NEC Corporation. (4) The Company newly issued 192,252,800 shares through a public offering with the due date of payment on June 15, 2021 and 2,067,600 shares through a third-party allotment of shares (a third-party allotment of shares due to the overallotment) with the due date of payment on June 28, 2021, respectively. In, addition, the Company newly issued 15,747,600 shares through exercises of stock acquisition rights and 1,838,785 shares through the vesting of Restricted Stock Unit (RSU) program respectively for the period from January 1, 2021 to December 31, 2021. ― n/a 7 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation 3. Corporate Attributes Fiscal Year-End Type of Business Listed Stock Market and Market Section Tokyo Stock Exchange First Section Number of Employees (consolidated) as of the End of the Previous Fiscal Year Sales (consolidated) as of the End of the Previous Fiscal Year Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year Updated December Electric Appliances More than 1,000 From ¥100 billion to less than ¥1 trillion From 100to less 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 Updated Although, INCJ, Ltd. owns 20.14% of voting rights of the Company and JAPAN INVESTMENT CORPORATION owns whole outstanding shares of INCJ, Ltd. as of December 31, 2021, we secure the independence from both companies as follows: ・ The Company conducts its business based on the policy that we secure the independence in management decision-making for its business operation and transactions from INCJ, Ltd. and JAPAN INVETMENT CORPORATION as well as other major shareholders, third parties with which we have business relationship. ・ The Company appoints one outside director from INCJ, Ltd. However, based on the fact that the total number of Directors are 6, we believe we secure enough independence from INCJ, Ltd. for management decision-making. In addition, regarding execution of daily business operations, Executive Officers (Senior Vice President and higher), head of each division makes decisions based on our unique viewpoint in accordance with the roles and responsibilities defined by the Basic Rules of Ringi Approval. ・ The Company appoints 4 outside Directors and 2 outside Corporate Auditors who don’t have any interest with us, INCJ, Ltd. nor JAPAN INVESTMENT CORPORATION as independent officer to improve our business performance and corporate governance. These independent officers give comments at the Board of Directors from independent and equitable viewpoint. 8 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight Renesas Electronics Corporation in Management 1. Organizational Composition and Operation Organization Form Company with Board of Corporate Auditors (i.e. Kansayaku Board) 【Directors】 Maximum Number of Directors Stipulated in Articles of Incorporation Term of Office Stipulated in Articles of Incorporation 1 year 15 Status of election of Outside Directors Yes (elect Outside Directors) Chairperson of the Board Number of Directors Number of Outside Directors Number of Independent Directors President 6 5 5 Outside Directors’ Relationship with the Company (1) Name Attribute Relationship with the Company* Tetsuro Toyoda (Mr.) From another company Jiro Iwasaki (Mr.) From another company Selena Loh Lacroix (Ms.) From another company Arunjai Mittal (Mr.) From another company Noboru Yamamoto (Mr.) From another company a b c d e f g h i j k ○ * * Categories for “Relationship with the Company” ”○” 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/kansayaku 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/kansayaku 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) k. Others 9 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation Outside Directors’ Relationship with the Company (2) Updated Name Designation as Independent Director Supplementary Explanation of the Relationship Reasons of Appointment Tetsuro Toyoda Yes He currently serves as Mr. Tetsuro Toyoda currently serves as Co- (Mr.) Chief Investment Chief Investment Officer and Member of the Officer (CIO) and Board of INJC, Ltd. and previous served as Co-Member of the Board, Chief Investment Officer and the Member of the Head of Investment Board of Innovation Network Corporation of Group, INCJ, Ltd., Japan (currently, Japan Investment which is the Corporation). Based on his abundant Company’s major knowledge, experiences and deep insight shareholder owning cultivated through his career in wide-ranging 20.14% of the investment businesses at these companies, the Company’s voting Company selected Mr. Tetsuro Toyoda as rights Outside Director with the expectation that the Jiro Iwasaki Yes Nothing Mr. Jiro Iwasaki has served as a director at (Mr.) Board of Directors will be strengthened by him demonstrating supervising and monitoring capabilities on the overall management of the Company. The Company has notified the Tokyo Stock Exchange of Mr. Tetsuro Toyoda as Independent Officer stipulated under the regulations of the Tokyo Stock Exchange because he does not subject to any item which may cause conflict with general shareholders specified by the Tokyo Stock Exchange. multiple companies for a long time and thus possesses management experiences in electronica and electronic components businesses. He currently serves as an outside director at other companies. Based on his abundant knowledge, experiences and deep insight cultivated through these experiences, the Company selected Mr. Jiro Iwasaki as Outside Director with the expectation that the Board of Directors will be strengthened by him demonstrating supervising and monitoring capabilities on the overall management of the Company. The Company has notified the Tokyo Stock Exchange of Mr. Jiro Iwasaki as Independent 10 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Selena Loh Yes Nothing The Company selected Ms. Selena Loh Lacroix Lacroix (Ms.) Renesas Electronics Corporation Officer stipulated under the regulations of the Tokyo Stock Exchange because he does not subject to any item which may cause conflict with general shareholders specified by the Tokyo Stock Exchange. as Outside Director with the expectation that the Board of Directors will be strengthened by her demonstrating supervising and monitoring capabilities on the overall management of the Company, from the perspective of promoting diversity and by leveraging her global insight in the field of corporate legal, corporate governance and human resources gained through extensive experiences in the semiconductor industry and several other industries. The Company has notified the Tokyo Stock Exchange of Ms. Selena Loh Lacroix as Independent Officer stipulated under the regulations of the Tokyo Stock Exchange because he does not subject to any item which may cause conflict with general shareholders specified by the Tokyo Stock Exchange. Outside Director with the expectation that the Board of Directors will be strengthened by him demonstrating supervising and monitoring capabilities on the overall management of the Company, from the perspective of promoting diversity and by leveraging his global insight in the business operations cultivated through years of extensive experiences in the semiconductor industry and related industries. The Company has notified the Tokyo Stock Exchange of Mr. Arunjai Mittal as Independent Officer stipulated under the regulations of the Tokyo Stock Exchange because he does not subject to any item which may cause conflict with general shareholders specified by the Tokyo Stock Exchange. Arunjai Mittal (Mr.) Yes Nothing The Company selected Mr. Arunjai Mittal as Noboru Yamamoto Yes Nothing The Company selected Mr. Noboru Yamamoto 11 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report (Mr.) Renesas Electronics Corporation as Outside Director with the expectation that the Board of Directors will be strengthened by him demonstrating supervising and monitoring capabilities on the overall management of the Company, based on the abundant knowledge, experiences and achievements cultivated through years of management experiences in the global finance and security industry and representative for M&A advisory companies. He has served as an Outside Corporate Auditor since March 2018, cultivated the business knowledge of the Company, and audited the overall management of the company appropriately. He also served as a member of the Voluntary Compensation Committee of the Company since March 2020 and stated opinions proactively. The Company has notified the Tokyo Stock Exchange of Mr. Noboru Yamamoto as Independent Officer stipulated under the regulations of the Tokyo Stock Exchange because he does not subject to any item which may cause conflict with general shareholders specified by the Tokyo Stock Exchange. 12 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation 【Voluntary Committee】 Voluntary establishment of Committee(s) Corresponding to Nomination Committee or Compensation Committee Established Committee’s Name, Composition, and Attributes of Chairperson Committee Corresponding to Nomination Committee Committees’ Name Nomination Committee Total Committee Members Total Committee Members 4 Full-time Members Inside Directors Outside Directors Outside Expert Others Chairperson 4 0 0 4 ― ― Outside Director Committee Corresponding to Compensation Committee Committees’ Name Compensation Committee Full-time Members Inside Directors Outside Directors Outside Expert Others Chairperson 0 1 2 ― 1 Outside Director Supplementary Explanation ・Committee members described above are as of the date of this report. ・”Others” for Compensation committee member is an outside Corporate Auditor. 【Corporate Auditor (Kansayaku)】 Establishment of Board of Corporate Auditors Established Maximum Number of Corporate Auditor (Kansayaku) Stipulated in Articles of Incorporation Number of Corporate Auditor (Kansayaku) 6 4 Cooperation among Corporate Auditor (Kansayaku), Accounting Auditor and Internal Audit Department Updated Each of Corporate Auditors requests the Accounting Auditor to report the matters related to its audit as needed. In addition, the Board of Corporate Auditors have meetings with the Accounting Auditor periodically to make the Accounting Auditor to report accounting audit plan, audit result, etc. and exchange opinions about audit activities from time to time as needed. Through these activities, the Board of Corporate Auditor and the Accounting Auditor make efforts to enhance their alignment. Furthermore, full-time Corporate Auditor attends the actual inspections on the Company’s major assets (inventories, etc.) conducted by the Accounting Auditor. Through this activity, full-time Corporate Auditor confirms that Company’s assets are properly booked. Full-time Corporate Auditor make efforts to enhance alignment with the Internal Audit Department through various measures such as periodic meeting with the head of the Internal Audit Department to make the Vice President to report internal audit result and exchanges opinions and information about the matters to be improved. 13 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation Appointment of Outside Corporate Auditor (Kansayaku) Appointed Number of Outside Corporate Auditor (Kansayaku) Number of Independent Corporate Auditor (Kansayaku) 3 3 Outside Corporate Auditor’s (Kansayaku’s) Relationship with the Company (1) Name Attribute Relationship with the Company* Kazuyoshi Yamazaki (Mr.) Lawyer Takeshi Sekine (Mr.) From another company Tomoko Mizuno (Ms.) From another company a b c d e f g h j k l m ○ i * * * Categories for “Relationship with the Company” ”○” 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. Kansayaku 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 a kansayaku 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) k. Executive of a company, between which and the Company outside directors/kansayaku are mutually (the kansayaku himself/herself only) appointed (the kansayaku himself/herself only) l. Executive of a company or organization that receives a donation from the Company (the kansayaku himself/herself only) m. Others Outside Corporate Auditor’s (Kansayaku’s) Relationship with the Company (2) Name Designation as Independent Corporate Auditor (Kansayaku) Supplementary Explanation of the Relationship Reasons of Appointment Kazuyoshi Yamazaki Yes ― The Company appointed Mr. Kazuyoshi Yamazaki as (Mr.) an outside Corporate Auditor with expectation that he audits the overall management of the Company independently and fairly, mainly from a legal perspective by leveraging his professional knowledge, extensive experience and deep insight gained through many years of experience as an 14 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Takeshi Sekine Yes He currently The Company appointed Mr. Takeshi Sekine as an (Mr.) serves as outside Corporate Auditor with expectation that he Renesas Electronics Corporation attorney-at-law. The Company has notified the Tokyo Stock Exchange of Mr. Kazuyoshi Yamazaki as Independent Officer stipulated under the regulations of the Tokyo Stock Exchange because he does not subject to any item which may cause conflict with general shareholders specified by the Tokyo Stock Exchange. Managing audits the overall management of the Company Executive Officer, mainly from financial and accounting viewpoint by Head of Portfolio leveraging his professional knowledge and Monitoring, Japan experience and deep insight gained as a certified Investment public accountant (including considerable knowledge Corporation which of finance and accounting). The Company has owns the whole notified the Tokyo Stock Exchange of Mr. Takeshi share of the INCJ, Sekine as Independent Officer stipulated under the Ltd., our major regulations of the Tokyo Stock Exchange because he shareholder does not subject to any item which may cause conflict with general shareholders specified by the Tokyo Stock Exchange. audits the overall management of the Company by leveraging her extensive knowledge, experience and deep insight based on the abundant knowledge, experiences and achievements cultivated through years of business operation in the machinery industry and working in global consulting firms and pharmaceutical companies. The Company has notified the Tokyo Stock Exchange of Ms. Tomoko Mizuno as Independent Officer stipulated under the regulations of the Tokyo Stock Exchange because she does not subject to any item which may cause conflict with general shareholders specified by the Tokyo Stock Exchange. 15 Tomoko Mizuno Yes ― The Company appointed Ms. Tomoko Mizuno as an (Ms.) outside Corporate Auditor with expectation that she [Translation for Reference and Convenience Purpose Only] Corporate Governance Report 【Independent Officers (Directors/Corporate Auditors)】 Number of Independent Directors/Corporate Auditors 8 Renesas Electronics Corporation Matters relating to Independent Directors/Corporate Auditor Updated The Company has notified the Tokyo Stock Exchange of 5 independent outside Directors and 3 independent outside Corporate Auditors. In light of the purpose of the Corporate Governance Code, the Company is aware that 1 of independent outside Director and 1 of outside independent Corporate Auditor may not be regarded to have enough independency from the appearance because such independent outside Director is a Member of the Board of INCJ, Ltd.(which owns 20.14% of voting rights of the Company as of December 31, 2021) and such independent outside Corporate Auditor is a Managing Executive Officer of JAPAN INVESTMENT CORPORATION, which owns entire outstanding shares of INCJ, Ltd. However, such Director gives frank opinions and advises from unique external viewpoint and supervises business execution by the Board of Directors, and such corporate auditor gives frank opinions and advises from its unique external viewpoint and professional knowledge and deep insight as certified public accountant and audits the business execution by Directors. They fulfill their roles and responsibilities adequately. Please refer to “Principle 4-9: “Independence Standards and Qualification for Independent Directors” in “Reasons for Non-compliance with the Principles of the Corporate Governance Code” session of “1.1. Basic Views”. 【Incentives】 Incentive Policies for Directors Supplementary Explanation Director Compensation”. Performance-linked Compensation Stock based compensation (the restricted stock units (the “RSU”) and the performance share units (the “PSU”)) Please refer to “Policy on Determining Compensation Amounts and Calculation Methods” session in “2.1 Recipients of Stock based compensation Inside Directors, Outside Directors, Subsidiaries’ Directors, Subsidiaries’ employees Employee, Supplementary Explanation The Company introduced “stock compensation type stock options” for Directors (excluding Outside Directors), Executive Officers who are not Directors from FY2016, and employees (excluding Executive Officers) of the Company and Directors (excluding outside Directors), Executive Officers and employees its subsidiaries from FY2017 respectively in order to encourage the motivation for the contribution to increase the stock price and the corporate value. From FY2020, the Company introduced “stock compensation type stock options” for Outside Directors additionally in order to encourage the motivation for the contribution to increase the stock price and the corporate value. From FY2021, the Company introduced new stock based compensation plan 16 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation (RSU/PSU) which is adopted globally and broadly, is to further enhance incentives for the increase in the share price and corporate values as well as to secure talented personnel with diversity in terms of nationality and experience. 【Director Compensation】 Compensation Supplementary Explanation Disclosure of Individual Directors’ Selected Directors Securities report and business report which shows total amount of compensations for internal Directors and external Directors are disclosed and publicly available on our website. In Securities report, the Company disclosed the individual compensation amount for specific Directors in accordance with Japan’s Cabinet Office Ordinance on Disclosure of Corporate Information, etc. In addition, we aim to be transparent in our disclosure regarding executive compensation of not only our Directors, including the Chief Executive Officer (CEO), but also for our core members of the management team. Therefore, we include in our disclosure individual compensation of the CEO, Chief Financial Officer (CFO), Chief Legal Officer (CLO), and Executive Officers in charge of Automotive Solution Business and IoT and Infrastructure Business, respectively, not limited to compensation of individual Directors of no less than JPY100 million, which is required to be disclosed by law. https://www.renesas.com/jp/ja/document/rep/1499506?language=ja (only Japanese version is available) Policy on Determining Compensation Amounts and Calculation Methods Established Disclosure of Policy on Determining Compensation Amounts and Calculation Methods Our basic policy regarding compensation for Directors who do not concurrently serve as Executive Officers Compensation for Directors who concurrently serve as Executive Officers shall be described in shall be as follows: “Compensation for Executive Officers” below. ・Highly transparent and objective; shareholders; and to realize corporate vision ・ Improvement of corporate value and compensation must interlock to share awareness of profit with ・Contribute to ensuring and retaining global management team that satisfies accurate ability requirements Based on these basic policies, the Company pays base salary as fixed compensation and, for some of such 17 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation Directors, in order to secure diverse and excellent human resources and to raise awareness further of their roles, RSU as stock based compensation subjected to duration of service conditions, up to the compensation limit (JPY2,000million/year, of which compensation for Outside Directors is up to JPY400M within the limitation) resolved at the Annual General Meeting of Shareholders on March 29, 2018 taking into consideration the decision of voluntary compensation committee is delegated the authority by the Board of Directors. Our basic philosophy regarding compensation for Executive Officers (including Directors who concurrently serve as Executive Officers) is as follows: ・Highly linked to company performance, and highly transparent and objective; ・ Improvement of corporate value and compensation must interlock to share awareness of profit with ・Contribute to ensuring and retaining global management team that satisfies accurate ability requirements shareholders; and to realize corporate vision. ・Base salary as fixed compensation (Short-term incentives) ・Performance-linked compensation focused on achievement of nearer-term financial and strategic objectives ・ Stock based compensation as stock price-linked compensation, where management is motivated to increase shareholder value (Long-term incentives) Performance evaluation criteria is set taking the factors/indicators such as the Company’s financial situation and company value into account. Regarding the proportion of the compensation, based on basic policy, we set the ratio of stock-based compensation stock options to total compensation, and it is more than half of total compensation amount. (Base salary) Base salary is the core compensation that reflects the market value for particular roles and responsibilities in the organization. It is a reward for actual responsibilities, competencies, and experience of each Executive Officer. Base salary is paid as a fixed amount based on scope of responsibilities and the expected contribution to the company. This is the fundamental component of executive compensation, and is set at a level that invites and ensures retention of competent executive officers, and motivates them to drive global Base salary will be adjusted annually considering market salary increase rates, company/Business Unit business expansion. performance and individual performance. 18 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report (Performance-linked compensation (Short-term incentive (STI))) Renesas Electronics Corporation Short-term incentive (STI) is offered to the Executive Officers in order to motivate and reward them for overall company financial results, as well as an assessment of the individual performance of Executive Officers each fiscal year. STI is an essential element of the executive compensation program and is focused on motivating Executive Officers to contribution to the performance objectives for the company. The STI program is based on one-year company performance, composed of performance of the Automotive solution Business Unit and the IoT and Infrastructure Business Unit, and evaluation is conducted using certain measures including the following to evaluate business expansion and its profitability. • Revenue (growth rate) • Operating margin Evaluation measures and goals are set annually after review by the Compensation Committee, as well as the amounts of payment in response to business performance. (Stock price-linked compensation (Long-term incentive (LTI)) Long-term incentive (LTI) refers to variable pay based on measures that extend for a period of more than one year, and typically align payouts with value results experienced by shareholders. The role of long-term incentives is to link financial incentives to Executive Officers with organization’s long-term performance, and shareholder’s long-term focus. Our current long-term incentive is provided by RSU/PSU, and the actual profits received by Executive Officers are determined based on stock price growth, and/or 3-year total shareholders return (TSR). Specifically, our stock compensation consists of PSU, where vests the units in a number determined in accordance with the extension rate of TSR and RSU with duration of service conditions. Of these, PSU is designed with our TSR as the performance measures in order to connect further to strengthening awareness and activities aimed at maximizing corporate value over the medium-to-long term and contributing to stock prices. The number of stock compensation units to be granted is determined based on the average closing price of the Company’s share on the Tokyo Stock Exchange over the period of the 3 calendar months immediately prior to the calendar month in which the stock compensation is awarded by the Board of Directors, on the basis of the grant target amount set for each person according to their roles and responsibilities. The composition ratio of grant target amount for PSU and RSU is 50%: 50%. [PSU] Directors. ・ Grantees will be granted the number of units calculated by the following formula: Number of Units = the PSU target grant value (prior to performance evaluation) / the average closing price of the Company’s share on the Tokyo Stock Exchange over the period of the 3 calendar months immediately prior to the calendar month in which the stock compensation is awarded by the Board of 19 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation (*) the number of Units shall be rounded to the nearest 100 Units ・ The performance period of PSU will be the three-year period from April 1 of the year in which the PSUs are granted (the “Performance Period”). PSUs shall vest on the vesting date (JST) which is, in principle, the 3rd anniversary of the date of grant, (as determined by the Company) by multiplying the number of the units subject to the PSU by the calculation ratio. The Company will issue a share for every unit that vests (the “Number of Shares for PSU”) to the recipient.: Performance Indicator: TSR：It is determined by comparison with the companies which constitute SOX (Philadelphia Semiconductor Index), TOPIX (Tokyo Stock Price Index) and the peer companies that the Company selects based on industry segment, scale of company, business model and so on (the Renesas Peers) Performance Evaluation Period: PSUs are granted. Growth rate of our TSR: The performance period of PSUs will be the three-year period from April 1 of the year in which the The growth rate of the TSR of the Company ＝ (Average stock price during the three-month period that ends on the last day of the Performance Period (*1) － Average stock price during the three-month period that ends on the day immediately preceding the first day of the Performance Period (*2)) ＋ Total amount of dividend per share in relation to the dividends of surplus of the Company for which the day during the Performance Period is set as the record date Average stock price during the three-month period that ends on the day immediately preceding the first day of the Performance Period (*2) *1: Average stock price during the three-month period that ends on the last day of the Performance Period shall be the simple average price of the closing prices of the Shares on the Tokyo Stock Exchange during the last three-month period of the Performance Period. *2: Average stock price during the three-month period that ends on the day immediately preceding the first day of the Performance Period shall be the simple average price of the closing prices of the Shares on the Tokyo Stock Exchange during the three-month period that ends on the day immediately preceding the first day of the Performance Period. The way to determine the number of vesting of PSU: The “Calculation Ratio” means the weighted average ratio obtained by weighting the SOX Calculation Ratio (as defined below) at 25/100, the TOPIX Calculation Ratio (as defined below) at 50/100 and the Renesas Peers Calculation Ratio (as defined below) at 25/100, provided that if the growth rate of the total shareholder return (the “TSR”) of the Company is 0% or less, the Calculation Ratio shall be 100% at maximum. The “SOX Calculation Ratio” means the classified percentage as set out in (i) through (v) below in accordance with the range to which the growth rate of the TSR of the Company belongs if the growth 20 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation rate of the TSR of the Company and the growth rate of the TSR of the companies constituting the Philadelphia Semiconductor Sector Index (the “SOX Constituent Companies”) are classified in ascending order from the lowest TSR. The “TOPIX Calculation Ratio” means the classified percentage as set out in (i) through (v) below in accordance with the range to which the growth rate of the TSR of the Company belongs if the growth rate of the TSR of the Company and the growth rate of the TSR of the companies constituting the Tokyo Stock Price Index (the “TOPIX Constituent Companies”) are classified in ascending order from the lowest TSR. The “Renesas Peers Calculation Ratio” means the classified percentage as set out in (i) through (v) below in accordance with the range to which the growth rate of the TSR of the Company belongs if the growth rate of the TSR of the Company and the growth rate of the TSR of the peer companies that the Company selects based on industry segment, scale of company, business model and so on (the “Renesas Peers”) are classified in ascending order from the lowest TSR provided, however, that if the Company selects more than one categories of Renesas Peers, the Renesas Peers Calculation Ratio shall be the weighted average ratio obtained by calculating the Renesas Peers Calculation Ratio for each category of Renesas Peers and weighting such Renesas Peers Calculation Ratios by the ratio determined by the Company. If the growth rate of the TSR of the Company is less than 25%ile: 0 If the growth rate of the TSR of the Company is 25%ile or more and less than 50%ile: The rate (number) obtained as a result of calculating as increasing at the same ratio between 50% and 100% If the growth rate of the TSR of the Company is 50%ile or more and less than 75%ile: The rate (number) obtained as a result of calculating as increasing at the same ratio between 100% and 150% If the growth rate of the TSR of the Company is 75%ile or more and less than 90%ile: The rate (number) obtained as a result of calculating as increasing at the same ratio between 150% and 200% If the growth rate of the TSR of the Company is 90%ile or more: 200% (i) (ii) (iii) (iv) (v) The growth rate of the TSR of the Company shall be obtained using the following formula, and the growth rate of the TSR of the SOX Constituent Companies, the TOPIX Constituent Companies and the Renesas Peers shall be obtained by a method equivalent to the formula for the growth rate of the TSR of the Company [RSU] ・ Grantees will be granted the number of units calculated by the following formula: Number of Units = the RSU grant value for the three year period (one year period for outside directors of the Company)/ the average closing price of the Company’s share on the Tokyo Stock Exchange over the period of the 3 calendar months immediately prior to the calendar month in which the stock compensation is awarded by the Board of Directors. (*) the number of units shall be rounded to the nearest 100 units ・ After the anniversary date 3 years after the grant date of the RSU, the RSU shall vest and the Company 21 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation shall issue to the recipient 1 share per unit that vests. ＜Compensation mix for the Company’s directors other than outside directors＞ Until FY2019, the Company has paid to outside directors only base compensation as fixed amount compensation. On the other hand, based on the resolution of annual general meeting of shareholders held on March 27, 2020, the Company grants outside director stock compensation type stock options (TSO) within the amount limitation resolved by annual general meeting of shareholders held on March 29, 2018. From FY2021, the Company grants outside director RSU. 【Supporting System for Outside Directors and/or Corporate Auditors (Kansayaku)】 Updated (1) Support structure The Company does not have dedicated staff who supports outside Directors, but staffs of the Legal Division (a secretarial office of the Board of Directors meeting) in cooperation with the department which is responsible for subject agenda are supporting outside Directors as appropriately such as explanation of the discussion item of the Board of Directors meeting and the Executive Committee meeting in advance as needed. The Company have the Corporate Auditors Department which is composed of specialized or concurrent staffs supporting Corporate Auditors’ duties supports execution of outside Corporate Auditors’ duties. Regarding the operation of the Board of Corporate Auditors (Kansayaku Board), full-time Corporate Auditor explains the Company’s business situation and reports the audit activities, etc. and part-time Corporate Auditors introduce other companies’ cases, etc. and Corporate Auditors share the information and exchange the opinions for their audit activities. (2) Communication system Depending on the importance of subject management information or business information, the Company’s concerned department in charge provides information to outside directors and outside Corporate Auditors as appropriately. In addition, the Company has established the system for outside Directors and outside Corporate Auditors to share information in a timely manner including the establishment of environment which enables outside Directors and outside Corporate Auditors to access the Company’s internal website. In case the Company hold the Board of Directors meeting or the Board of Corporate Auditors meeting, the Legal Division staff issues the notice and provide materials and so on necessary for the deliberation at the Board of Directors meeting, and the Corporate Auditor Department staff issues the notice and provide materials and so on necessary for the deliberation of the Board of Corporate Auditors meeting. Both staffs make effort to provide enough information in a timely manner as prior arrangement for each board (the Board of Directors and the Board of Corporate Auditors). The Legal Division staff researches and answers quickly to the inquiries such as findings and questions if made by outside Directors. The Corporate Auditors Department staff researches and answers quickly to the inquiries such as findings and questions if made by outside Corporate Auditors. 22 [Translation for Reference and Convenience Purpose Only] Corporate Governance Report Renesas Electronics Corporation 【Retired presidents holding advisory positions (sodanyaku, komon, etc.)】 Information on retired presidents holding advisory positions (sodanyaku, komon, etc.) Name Title/Position Responsibilities Employment terms (Full/Part time, with/ without compensation, etc. Retirement date from President etc. – – – – Term – – 0 Number of retired presidents holding advisory positions (sodanyaku, komon, etc.) Supplementary Explanation ・The Company don’t have advisory positions so called “Sodanyaku” or “Komon”. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Compensation Decisions (Overview of Current Corporate Governance System) (1) Overview of current system The Company appoints outside officers who have various experiences and expertise aiming to proactively incorporate external viewpoint to deal with business challenges from various perspectives. Currently, the Company appoints 5 outside Directors out of 6 Directors and 3 outside Corporate Auditors out of 4 Corporate Auditors. Further, aiming for obtaining appropriate and objective advice to improve the Company’s business performance and corporate governance, the Company appoints 5 outside Directors and 3 outside Corporate Auditors as independent officers (defined by the Tokyo Stock Exchange). 4 of these outside Directors and 2 of outside Corporate Auditors are the independent officers who don’t have any conflict in interest with the Company, Company’s major shareholders or their mother company. (2) Business execution In order to appoint suitable per