東海カーボン（5301） – [Delayed]Corporate Governance Report

Corporate Governance Report Last Update: December 22, 2021 Tokai Carbon Co., Ltd. Hajime Nagasaka, President and CEO Contact: +81-3-3746-5100 Securities Code: 5301 The corporate governance of Tokai Carbon Co., Ltd. (the “Company”) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views Tokai Carbon recognizes that enhancing the corporate value over the mid-to-long term is the most important management objective and believes that responding to the expectations of all stakeholders, including customers and shareholders, and building favorable relationships with them, is essential in achieving this objective. To this end, the Company sets forth its basic corporate philosophy, “Ties of Reliability.” Based on this philosophy and taking into account the views defined in its Guidelines and the TOKAI CARBON Code of Ethics, the Company strives to develop an effective corporate governance structure. [Reasons for Non-compliance with the Principles of the Corporate Governance Code] The Company recognizes that it puts into practice all principles of the Corporate Governance Code. [Disclosure Based on the Principles of the Corporate Governance Code] Disclosure is provided in accordance with the Corporate Governance Code revised in June 2021 (including its Principles applicable for the Prime Market effective from April 2022). [Principle 1-4] (1) The Company’s policy is to acquire and own shares of business partners, etc. only when it judges that it can create further business opportunities and increase its corporate value in the mid-to-long term through building, maintaining and reinforcing business partnerships and collaborative relationships. In making decisions on holding of other stocks, the Company appoints the responsible department, which analyzes factors such as the significance and profitability of holding the stocks and whether risks associated with such holding are commensurate with the capital cost, and periodically verifies the appropriateness from the Company-wide and strategic standpoints at the meetings of the Management Committee and the Board of Directors. The Company will reduce the holding of the stocks if the verification finds holding them not sufficiently reasonable. (2) In regard to the voting rights for investee companies, we make judgment on the exercise of voting rights from the perspective of increasing corporate value of the Company and the respective investee companies in the medium-to-long term. [Principle 1-7] With respect to the competitive transactions and conflict of interest transactions of Directors, the Company’s policy is to have the Board of Directors deliberate such transactions in advance in accordance with relevant laws and regulations and the Rules of the Board of Directors. As for the transactions approved, the results are reported to the Board of Directors. [Supplementary Principle 2-4-1] (1) Approach for ensuring diversity, and its goals and status – 1 – Aiming to contribute to the realization of a sustainable society, the Company will actively hire and promote diverse human resources, regardless of race, region, nationality, age, sex, sexual orientation or disability, in order to create innovation and new values. At the same time, we will make education available and create a work environment for employees with diverse characteristics. For managerial positions that play a central role in management, we believe it is particularly important to ensure diversity, and we will continue to appoint women, foreign nationals, and mid-career hires. (i) Appointment of women to managerial positions We set a goal for the ratio of female hires to 30% or more among total new graduates hires for career-track positions in our Action Plan for General Business Operators based on the Act on Promotion of Women’s Career Advancement. While the percentage of female employees has been on the rise, that of female employees in managerial positions at present remains at 2.3% (three persons). We aim to double the number of female managers to 4.6% (6 persons) by 2024 by actively appointing diverse female human resources, based on the concept of the right skills in the right positions regardless of job function or number of years in service. (ii) Appointment of foreign employees to managerial positions In conjunction with the promotion of globalization, we are working to hire more foreign nationals. Currently we have six employees of foreign nationality, accounting for 1.5% of the managerial positions (two persons), on a Tokai Carbon non-consolidated basis. We plan to continue to hire and appoint foreign employees, and aim to increase the number of foreign managers by 2024. (iii) Appointment of mid-career hires to managerial positions We have been appointing mid-career hires to assign persons with the right skills in the right positions according to various business themes such as overseas expansion and technology development, with the mid-career hires in managerial positions now accounting for 23.8% (31 persons). We plan to continue to hire and appoint more mid-career persons, and aim to increase their percentage of the managerial positions by 2024. (2) Human resource development policy and internal environment development policy for ensuring diversity The Company strives to develop human resources and improve the internal environment in order to support the employees’ taking on challenges on their own and to make the Company attractive to a wide variety of global human resources. We have been working on human resource development aimed at ensuring diversity, through rank-based training and career design training. Going forward, we will expand training aimed at encouraging independent learning, and add global human resource exchange among young employees and re-education of the senior generation. In addition, as a system to support diversity, we have been promoting a career self-report system for career-track employees and reducing scheduled working hours. Going forward, we aim to become a more rewarding company by further improving engagement and promoting health management. [Principle 2-6] In regard to the investment management of reserve funds for the defined-benefit pension plan, the Company has formulated internal regulations and invests the reserve funds in accordance with the regulations. Specifically, the Company has established the investment management guidelines and the basic policy for investment management, and a person in charge of pension management assigned in the Human Resources Department confirms that the pension reserves are managed appropriately in accordance with the policy asset mix by referring to quarterly reports from asset managers. In addition, the Company appropriately carries out functions as an asset owner, such as having the person in charge of pension management report the results of investment management of pension assets for each fiscal year at meetings of the Management Committee. [Principle 3-1] (1) Company objectives (e.g., business principles), business strategies, business plans The Company’s corporate philosophy is “Ties of Reliability.” It believes in the importance of trust between Tokai Carbon and its stakeholders (as represented by customers, shareholders, employees, and society). This idea of mutual reliability, which is based on common values shared with our stakeholders, is the foundation of our continued business and existence. – 2 – This concept allows the Company to provide added value to its stakeholders, thus enabling them to achieve their individual goals. Through this cycle of trust, the Company will strive to further enhance its ties of reliability. The Company discloses a three-year mid-term management plan “T-2023” for the period from 2021 to 2023 on its website: https://www.tokaicarbon.co.jp/news/ (2) Basic views and policy on corporate governance Our basic views on corporate governance are disclosed in “I. 1. Basic Views” and in “II. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)” of this report. (3) Board policies and procedures in determining remuneration Policies and the method of determining remuneration of Directors of the Company are disclosed in the “Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods” in “II. 1. Organizational Composition and Operation” of this report. (4) Board policies and procedures for the appointment and dismissal of senior management and the nomination of candidates for Directors and Audit & Supervisory Board Members At the Company, the Nomination Committee (composed of one (1) internal Director and three (3) External Directors), which is an advisory organ of the Board of Directors, deliberates and confirms the requirements for senior management and the basic policies on the appointment and dismissal of senior management members. In addition, the election and dismissal of Executive Officers as well as their roles, etc. are determined based on deliberation by the Board of Directors. The policies and procedures for nominating and dismissing candidates for Directors and Audit & Supervisory Board Members as well as each of the individual proposals for nomination and dismissal are deliberated on by the Nomination Committee and resolved by the Board of Directors before they are addressed at a general meeting of shareholders. (5) The Company discloses the reasons for nominating candidates for all Directors and Audit & Supervisory Board Members, including External Directors and External Audit & Supervisory Board Members, in the Reference Document for an Annual Meeting of Shareholders. [Supplementary Principle 3-1-3, and Supplementary Principle 4-2-2] In November 2021, the Board of Directors of the Company resolved to revise the Basic Sustainability Policy (formerly the Basic CSR Policy), thereby clarifying its intent to incorporate sustainability and ESG into its business strategies, with the aim of resolving social issues through its business and realizing a sustainable society. (Basic Sustainability Policy) Tokai Carbon Group engages in corporate activities based on the corporate philosophy of “Ties of Reliability” with its stakeholders. In order to make sure that we are a reliable partner for our stakeholders, we develop business strategies with due consideration to ESG (Environmental, Social and Governance) and work to resolve social issues through our business activities, thereby contributing to the realization of a sustainable society while improving our corporate value on a sustainable basis. (Structure) The CSR Committee, which is chaired by the director responsible for the General Affairs Department and composed of heads of the Corporate Planning, General Affairs, Human Resources, Legal Affairs, and Environment Safety Management departments, generally meets four times a year to promote CSR activities. The Committee is responsible for discussing and making decisions on important CSR-related matters, bringing matters for deliberation and submitting reports to the Management Committee, and overseeing information disclosure through the preparation of Integrated Reports and other means. The activities of the CSR Committee provide a focal point for PDCA cycles we engage in to achieve prosperous coexistence with each of our stakeholders. Important managerial issues (Materiality) and goals are disclosed on the Company’s website. – 3 – https://www.tokaicarbon.co.jp/sustanability/csr_management.html (Response to climate change) Recognizing that responding to climate change is an important managerial issue, the Company resolved to support the Task Force on Climate-related Financial Disclosures (TCFD) at its Board of Directors’ meeting in November 2021. Aiming to realize a low-carbon society and a decarbonized society, we identify the impact of climate change on the Company’s business, take appropriate measures, and disclose information in accordance with the TCFD recommendations on the Company’s website. https://www.tokaicarbon.co.jp/sustanability/climate-change.html [Supplementary Principle 4-1-1] The Company defines matters stipulated by laws and regulations and the Articles of Incorporation, the formulation, etc. of management policies and plans, and other important business management matters as items to be resolved by the Board of Directors and delegates all other business execution decision-making to the management team. [Principle 4-9] The Company appoints External Directors, who are independent officers, in accordance with the requirements for external directors set forth in the Companies Act and the independence standards defined by the financial instruments exchanges, and the Independence Standards for External Officers set forth by the Company. [Supplementary Principle 4-10-1] The Nomination Committee and Remuneration Committee are described in “Establishment of Voluntary Committee(s), Composition of Committee and Attributes of Chairman” and “Supplementary Explanation.” [Supplementary Principle 4-11-1] The Board of Directors of the Company works to make accurate and timely business decisions in order to promote sustainable growth and increase corporate value in the mid-to-long term. To achieve this objective, the Board of Directors of the Company takes into account the size, contents, etc. of the Company’s business and elects candidates for business-executing Directors who are well versed in the operations of each business division and corporate division so as to optimize the composition of the Board of Directors in terms of diversity and the appropriate balance between knowledge, experience and skills of the Board as a whole. External Directors are elected by taking into account the requirements for external directors as set forth in the Companies Act and the independence standards defined by the Tokyo Stock Exchange, as well as the Independence Standards for External Officers set forth by the Company. And the Company receives advice from External Directors from viewpoints independent from business execution based on their wide-ranging experience and insights not only in their specialized fields but also in a broad range of areas, including management experience at other companies. The skill matrix of each Director and Audit & Supervisory Board Member is disclosed in the Company’s Integrated Reports. https://www.tokaicarbon.co.jp/ir/library/ [Supplementary Principle 4-11-2] Concurrent positions held by Directors and Audit & Supervisory Board Members are indicated on pp. 10–19 and 36–38 of the Notice of FY2020 Annual Meeting of Shareholders. [Supplementary Principle 4-11-3] In order to strengthen the effectiveness of the Board of Directors, the Company analyzes and evaluates the effectiveness of the Board of Directors on an annual basis. The implementation status of the evaluation for FY2020 is summarized as below. (1) Method of evaluation The Board of Directors analyzed and evaluated its effectiveness based on the results of (i) qualitative and quantitative analysis of the operational results, status, and other details of the corporate governance system, including the Board of Directors and the Management Committee, in 2020; (ii) a survey on the composition/operation of the Board of Directors, information provision to External Directors, and other – 4 – relevant matters conducted with respect to all Directors and Audit & Supervisory Board Members; and (iii) individual interviews with External Directors. (2) Overview of results of evaluation The results of the evaluation of the effectiveness of the Board of Directors in FY2016 indicated that the Company has strengthened its corporate governance system, centered on the Board of Directors, by establishing the Nomination Committee, the Remuneration Committee, the Management Committee, and the Risk Management & Compliance Committee in 2016. This has contributed to making significant improvements from the previous year in various aspects, including the selection of agenda proposals, content of materials/explanations, content of deliberations, and meeting minutes. In the evaluation, it was pointed out that each of the External Directors has gained a better understanding of important cases by attending almost all Board of Directors meetings (according to 2016–2020 records) and proactively attending other important meetings. Neutral and objective opinions from External Directors have contributed greatly to enhancing the supervisory functions of the Board of Directors. This year marked the fifth year of the evaluation. The evaluation concluded that the current corporate governance system has largely been established, and in addition to maintaining the achievements delivered in the early stage of the system’s launch, further improvements have been made in effectiveness through the measures taken in 2020, including the efforts to diversify the members of the Board of Directors and proactive involvement in the establishment of an ESG management base and expansion of disclosure. A further issue pointed out is the need for expanding discussions to include higher-level themes, such as a review of the long-term vision in light of significant changes in the environment, including the acceleration of trends toward decarbonization, and the re-development of management strategies based thereon. [Supplementary Principle 4-14-2] In order to ensure that the management supervision and auditing functions of Directors and Audit & Supervisory Board Members are adequately demonstrated, a secretariat for the Board of Directors is put in place to provide information required for executing duties in an appropriate and timely manner. Further, from the perspective of promoting contribution to sustainable growth into the future, training opportunities are set. [Principle 5-1] It is provided in “III. 2. IR Activities” of this report. [Supplementary Principle 5-2-1] In November 2021, the Board of Directors of the Company resolved to adopt the “Basic Policy on Business Portfolio Management” and decided to deliberate on the direction of the business portfolio annually at the Board of Directors’ meetings, taking into account the consistency with the Company’s long-term vision and perspectives on medium- to long-term growth, in addition to setting and monitoring targets for profitability and capital efficiency based on the Company’s capital cost. In disclosing our medium-term management plan, we will present our views on this business portfolio, along with our basic policies for profit planning and capital policy. 2. Capital Structure [Status of Major Shareholders] Foreign Shareholding Ratio 10% or more but less than 20% Name / Company Name Number of shares owned Percentage (%) The Master Trust Bank of Japan, Ltd. (Trust Account) Japan Custody Bank, Ltd. (Trust Account) MUFG Bank, Ltd. 36,346,600 21,891,000 7,958,779 17.05 10.27 3.73 – 5 – Mitsubishi UFJ Trust and Banking Corporation The Master Trust Bank of Japan, Ltd. (Mitsubishi Chemical Corp. Retirement Benefit Trust Account) Japan Custody Bank, Ltd. (Trust Account 9) Japan Custody Bank, Ltd. (Securities Investment Trust Account) Japan Custody Bank, Ltd. (Trust Account 6) Japan Custody Bank, Ltd. (Trust Account 5) Nomura Trust and Banking Co., Ltd. (Investment Trust account) Controlling Shareholder (except for Parent Company) Parent Company None Supplementary Explanation 6,290,000 5,900,000 3,389,900 3,340,500 2,676,500 2,611,200 2,540,500 2.95 2.77 1.59 1.57 1.26 1.22 1.19 The above is based on the shareholder registry as of June 30, 2021. The Company holds 11,761,735 shares of treasury stock. As below, the Reports of Possession of Large Volume (including the Change Reports) are available for public inspection. However, since the Company cannot confirm the numbers of shares substantially held by them as of June 30, 2021 , they are not included in the above Status of Major Shareholders. • The Change Report was submitted by Sumitomo Mitsui Trust Asset Management Co., Ltd. as of May 20, 2021. • The Change Report was submitted by Nomura Securities Co., Ltd. as of July 1, 2021. • The Change Report was submitted by Mitsubishi UFJ Financial Group, Inc. as of July 5, 2021. 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 Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year Tokyo Stock Exchange First Section December Glass & Ceramics Products More than 1,000 From ¥100 billion to less than ¥1 trillion From 10 to less than 50 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder – 6 – 5. Other Special Circumstances which may have Material Impact on Corporate Governance – 7 – II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management 1. Organizational Composition and Operation Organization Form Company with Audit & Supervisory Board [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 13 1 year President Appointment of External Directors Appointed Number of External Directors Number of Independent Directors External Directors’ Relationship with the Company (1) Name Attribute Nobumitsu Kambayashi Junichi Tanahashi Mayumi Asada From another company From another company Attorney-at-law Relationship with the 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/Audit & Supervisory Board Member g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) legal entity) (the director himself/herself only) i. Executive of a company, between which and the Company External Directors/Audit & Supervisory Board Members are mutually appointed (the director himself/herself only) j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only) k. Others 9 3 3 – 8 – External Directors’ Relationship with the Company (2) Designation as Independent Director Yes Name Nobumitsu Kambayashi Supplementary Explanation of the Relationship Mr. Kambayashi worked for Kawasaki Heavy Industries, Ltd., a business partner of the Company, as a person engaged in business execution up until the end of June 2016. Transactions with the firm account for a very small percentage of overall transactions of the Company. Junichi Tanahashi Yes — Mayumi Asada Yes — – 9 – Reasons of Appointment Mr. Nobumitsu Kambayashi has served in various posts, including President and Managing Director of Kabushiki Kaisha Kawasaki Zosen and Senior Executive Vice President and President of Kawasaki Heavy Industries, Ltd., and President of Ship & Offshore company and has been serving as an External Director of the Company since March 2016. Mr. Kambayashi offers advice to the management of the Company and provides appropriate advice on business execution from objective and professional viewpoints based on his abundant experience and extensive knowledge in the management of a manufacturing business involving global business activities, and the Company has judged that he is capable of carrying out the management supervision function from a standpoint that is independent from the management team. Mr. Kambayashi satisfies the independence standards defined by Tokyo Stock Exchange, Inc. and the Independence Standards for External Officers set forth by the Company. Considering the above, the Company has determined that he poses no risk of causing conflicts of interest with general shareholders and has designated him as an independent officer. The Company believes that Mr. Junichi Tanahashi will be able to fulfill the supervisory function from an objective and professional viewpoint independent from the management based on his wealth of experience and broad knowledge as a manager at Nippon Chemical Industrial Co., Ltd., which conducts business globally. Mr. Tanahashi satisfies the independence standards defined by Tokyo Stock Exchange, Inc. and the Independence Standards for External Officers set forth by the Company. Considering the above, the Company has determined that he poses no risk of causing conflicts of interest with general shareholders and has designated him as an independent officer. The Company believes Ms. Mayumi Asada will be able to fulfill the supervisory function from an objective and professional viewpoint independent from the management based on her wealth of experience and broad insights as an attorney-at-law and Doctor of Medicine, which she gained from her long service as an attorney-at-law and her medical knowledge as a Doctor of Medicine. Ms. Asada satisfies the independence standards defined by Tokyo Stock Exchange, Inc. and the Independence Standards for External Officers set forth by the Company. Considering the above, the Company has determined that she poses no risk of causing conflicts of interest with general shareholders and has designated her as an independent officer. 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 External Experts Other Chairperson Supplementary Explanation Committee Corresponding to Nomination Committee Nomination Committee Committee Corresponding to Remuneration Committee Remuneration Committee 4 0 1 3 0 0 4 0 1 3 0 0 External Director External Director The Company established the Nomination Committee and the Remuneration Committee in March 2016. The objectives and roles of these two committees are described below. 1. Objectives of the Nomination Committee and the Remuneration Committee The Nomination Committee and the Remuneration Committee, where External Directors have a majority, ensure the objectivity and transparency of the decision-making process concerning personnel matters, remuneration, etc. of Directors, etc. and promote the further enhancement of the corporate governance system. 2. Roles of the Nomination Committee (1) The Nomination Committee deliberates the following matters and refers them to the Board of Directors. Contents of proposals on election of candidates for Directors and dismissal of Directors to be submitted to a general meeting of shareholders Appointment/dismissal of Representative Director, President and CEO Appointment/dismissal of Executive Officer Appointment/dismissal of Executive Officer with a specific title Other matters concerning personnel matters of Directors, etc. as deemed necessary 3. Roles of the Remuneration Committee (1) The Remuneration Committee deliberates the following matters and refers them to the Board of Directors. – 10 – Basic policy concerning remuneration, etc. of Directors, etc.; formulation, change, and abolition of rules and systems Contents of proposals concerning the maximum amount of remuneration of Directors and Audit & Supervisory Board Members to be submitted to a general meeting of shareholders Other matters concerning remuneration, etc. of Directors, etc. as deemed necessary (2) The Remuneration Committee deliberates and makes decisions on the following matters based on the designation from the Board of Directors. Contents of individual evaluation and amount of remuneration, etc. of Directors, etc. The Nomination Committee was convened four times in FY2020 and all three committee members attended and discussed and resolved the appointment and promotion, etc. of Directors and Executive Officers. The Remuneration Committee was convened four times, and all three committee members attended and discussed and resolved the remuneration amounts for Directors and Executive Officers. [Audit & Supervisory Board Members] Establishment of Audit & Supervisory Board Established Maximum Number of Audit & Supervisory Board Members Stipulated in Articles of Incorporation Number of Audit & Supervisory Board Members Cooperation among Audit & Supervisory Board, Accounting Auditors and Internal Audit Departments Audit & Supervisory Board Members and the Internal Auditing Office promote close information exchange through periodically holding meetings as well as through examining each other and exchanging opinions on the results of internal audits, recommendations and proposals. Audit & Supervisory Board Members also hold meetings with Accounting Auditors as necessary to exchange information and promote collaboration. Audit & Supervisory Board Members cooperate with Accounting Auditors to establish auditing plans and attend the audits of the Accounting Auditors if necessary. They also receive reports and explanations regarding auditing processes and results, and audit consolidated and non-consolidated financial statements and other documents. Appointment of External Audit & Supervisory Board Appointed Number of External Audit & Supervisory Board Number of Independent Audit & Supervisory Board External Audit & Supervisory Board Members’ Relationship with the Company (1) Name Attribute Relationship with the Company* a b c d e f g h i j k l m Kaoru Ogashiwa Motokazu Hiura Certified public tax accountant From another company △ * 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 4 4 2 2 – 11 – a. Executive of the Company or its subsidiary b. Non-executive director or accounting advisor of the Company or its subsidiaries c. Non-executive director or executive of a parent company of the Company d. Audit & Supervisory Board Member of a parent company of the Company e. Executive of a fellow subsidiary company of the Company f. A party whose major client or supplier is the Company or an executive thereof g. Major client or supplier of the Company or an executive thereof h. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as an Audit & Supervisory Board Member i. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a legal entity) j. Executive of a client or supplier company of the Company (which does not correspond to any of f, g, or h) (the Audit & Supervisory Board Member himself/herself only) k. Executive of a company, between which and the Company External Directors/Audit & Supervisory Board Members are mutually appointed (the Audit & Supervisory Board Member himself/herself only) l. Executive of a company or organization that receives a donation from the Company (the Audit & Supervisory Board Member himself/herself only) m. Others External Audit & Supervisory Board Members’ Relationship with the Company (2) Designation as Independent Audit & Supervisory Board Member Yes Supplementary Explanation of the Relationship — Name Kaoru Ogashiwa Reasons of Appointment Mr. Kaoru Ogashiwa has worked as a certified public tax accountant for many years and has abundant experience serving positions such as an auditor and an external director and audit & supervisory committee member in the distribution industry. The Company has judged that he is capable of carrying out audits based on his specialized knowledge of taxation and accounting cultivated through his career as a certified public tax accountant and experience in serving as an auditor at other companies. Mr. Ogashiwa satisfies the independence standards defined by Tokyo Stock Exchange, Inc. and the Independence Standards for External Officers set forth by the Company. Considering the above, the Company has determined that he poses no risk of causing conflicts of interest with general shareholders and has designated him as an independent officer. The Company believes Mr. Motokazu Hiura will be able to perform audits from a neutral and objective viewpoint as an External Audit & Supervisory Board Member as he has expertise in accounting and finance gained from his service in the accounting and finance division at Dainichiseika Color & Chemicals Mfg. Co., Ltd. over many years. Mr. Hiura satisfies the independence standards defined by Tokyo Stock Exchange, Inc. and the Independence Standards for External Officers set forth by Motokazu Hiura Yes Mr. Motokazu Hiura worked for Dainichiseika Color & Chemicals Mfg. Co., Ltd., a business partner of the Company, as a person engaged in business execution up until March 2019. Transactions with the firm account for a very small percentage of the – 12 – overall transactions of the Company. the Company. Considering the above, the Company has determined that he poses no risk of causing conflicts of interest with general shareholders and has designated him as an independent officer. [Independent Directors/Audit & Supervisory Board Members] Number of Independent Directors/Audit & Supervisory Board Members 5 Matters relating to Independent Directors/Audit & Supervisory Board Members The Company designates individuals who satisfy the qualifications for an independent officer as independent officers. The Company has established its own standards for independence of external officers as follows. [Independence Standards for External Officers] 1. Person who executes the business (executive directors, executive officers, managers, and other employees) of the Tokai Carbon Group (the Company and its consolidated subsidiaries) (including a person who executed the business of the Tokai Carbon Group in the past) 2. Current major shareholder of the Company (a shareholder who holds voting rights equivalent to 10% or more of the total voting rights) or person who executes the business thereof 3. (1) Major business partner of the Group (a business partner whose transaction amount with the Company exceeded 2% of the annual consolidated net sales of the Company in the most recent fiscal year) or person who executes the business thereof; (2) Business partner of the Company whose transaction amount with the Company exceeded 2% of its annual consolidated net sales in the most recent fiscal year or person who executes the business thereof 4. Major lender of the Group (a lender to whom the Company has outstanding borrowings in an amount that exceeded 2% of its consolidated total assets at the end of the most recent fiscal year) or person who executes the business thereof 5. Provider of professional services, such as a consultant, lawyer, or certified public accountant, who has received monetary consideration or other property, in addition to remuneration for Directors and Audit & Supervisory Board Members of the Company, in an average annual amount exceeding 10 million yen over the past three years, and the Group is a major business partner (the threshold is 2% or more of the annual net sales of such organization) of the accounting firm, law firm or other organization to which such person belongs. voting rights 6. Representative partner or partner of the Company’s accounting auditor 7. Person who executes the business of a juridical person of which the Group holds 10% or more of the total 8. Party who receives a large amount of donations or grants (the threshold is 10 million yen or more annually) from the Group or a person who executes the business thereof – 13 – External Auditor. [Incentives] Supplementary Explanation Supplementary Explanation [Director Remuneration] Disclosure of Individual Directors’ Remuneration Supplementary Explanation Not applicable. 9. Person who executes the business of a juridical person that has appointed the Group’s officers, etc. (directors, accounting advisors, audit & supervisory board members, executive officers, or accounting auditors) or employees as its officers, etc. degree of kinship) 10. Close relative of the persons provided for in categories 1.-9. above (a spouse or relative within the second 11. Person who fell under categories 2.-9. above in the past three years, or close relative thereof Even in the case of falling under any of the above categories, if the relevant individual is judged to substantially have independence, the reason will be explained/announced at the time of appointment as Incentive Policies for Directors Performance-linked Remuneration Effective March 2016, the Company decided to incorporate “performance-linked remuneration” that fluctuates based on the magnitude of achievement of performance targets as part of the remuneration for Directors and Executive Officers who engage in business execution. Recipients of Stock Options No Individual Disclosure Policy on Determining Remuneration Amounts and Calculation Methods Established Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods Remuneration for Directors is set within the maximum limits approved at the General Meeting of Shareholders and with the aim of having Directors and Audit & Supervisory Board Members in charge of business execution be strongly committed to achieving high management targets and maximizing medium-to-long-term corporate value by fulfilling the following requirements. The Company aims to pay remuneration commensurate with the operating performance of the Company and the performance and achievement of each individual. • Remuneration for encouraging commitment of Directors and Audit & Supervisory Board Members toward short- and mid-to-long-term management targets – 14 – • Remuneration guaranteeing the level of remuneration that can motivate incumbent and future candidates for Directors and Audit & Supervisory Board Members and is competitive with that offered by competitors • Remuneration guaranteeing transparency and reasonableness in carrying out the responsibility of providing explanations to Directors, Audit & Supervisory Board Members, shareholders and investors The remuneration for Directors and Audit & Supervisory Board Members of the Company consists of “basic remuneration,” which is the fixed portion, and “performance-linked remuneration,” which varies depending on the level of achievement of performance targets. For Directors who are responsible for business execution, the standard amount of “basic remuneration,” which is the fixed portion, and the percentage of “performance-linked remuneration” to “basic remuneration” are set higher as the level of officer rises. This is by taking into account responsibility of each Director and Audit & Supervisory Board Member and impact on the Company’s performance. The performance-linked remuneration consists of a bonus, which is paid based on the level of achievement of financial performance each year, and a mid-to-long-term incentive (performance cash) which is paid based on the magnitude of achievement of the three-year financial performance targets and on the evaluation of important initiatives taken that are unlikely to be clearly reflected in short-term financial results. Our target financial indicators are net sales, ROS, and ROIC, all of which are positioned as key indicators in our mid-term management plan as well. Because performance-linked remuneration is not suitable for non-executive Directors and Audit & Supervisory Board Members who are independent from business execution, only fixed remuneration is paid to such Directors and Audit & Supervisory Board Members. Financial target indicators Net sales ROS ROIC Target value 251,204 million yen 11.3% 5.7% Actual value 201,542 million yen 3.9% 1.6% Regarding performance evaluations and remuneration for Directors, the Company has adopted a mechanism whereby remuneration is set within the maximum limit approved at the General Meeting of Shareholders, with the degree of achievement of financial targets and various initiatives deliberated by the Remuneration Committee, which is chaired by an External Director. It is a highly transparent remuneration system that incorporates objective viewpoints. The Company, at its Board of Directors meeting held on March 27, 2020, resolved to leave the decision on the amounts of remuneration to the Remuneration Committee. The Remuneration Committee was convened a total of four times, on February 3, March 16, March 27, and July 20, 2020. Remuneration for Audit & Supervisory Board Members is set within the maximum limit approved at the General Meeting of Shareholders and is determined through discussions at Audit & Supervisory Board meetings. Additionally, the Company pays Directors (excluding External Directors) remuneration in order to grant shares with a transfer restriction as monetary claims of up to 100 million yen a year, with the aim of incentivizing them to work to achieve the sustained enhancement of the Company’s corporate value as well as promoting value sharing with shareholders. The transfer restriction period shall be 30 years from the day of receiving the allotment, and upon the expiration of the transfer restriction period or in the case of resignation due to the expiration of the term of office, death or other legitimate reasons, the transfer restriction shall be lifted by resolution of the Board of Directors. The Board of Directors determines the specific timing and allocation of payments. [Supporting System for External Directors and/or Audit & Supervisory Board Members] In order to promote enhancement of deliberation by the Board of Directors, the Company distributes supporting materials and provides explanations, etc. to External Directors and/or External Audit & Supervisory Board Members as necessary in advance when holding meetings of the Board of Directors. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) – 15 – The Company’s corporate governance system is structured as described below. (a) Board of Directors The Board of Directors is responsible for determining important management matters and supervising business execution and meets monthly as a general rule. The Board of Directors was convened 19 times in FY2020. As of the date of submission of this report, there are nine (9) Directors, three (3) of whom are External Directors. The Company has established the Nomination Committee and the Remuneration Committee, the majority of members of which are External Directors, as voluntary advisory organs of the Board of Directors. It has also established the Risk Management & Compliance Committee as a voluntary committee under the Board of Directors. (b) Audit & Supervisory Board Members and the Audit & Supervisory Board The Audit & Supervisory Board of the Company meets monthly as a general rule. The Audit & Supervisory Board was convened 14 times in FY2020. As of the date of submission of this report, there are four (4) Audit & Supervisory Board Members, two (2) of whom are External Audit & Supervisory Board Members. Based on the auditing policy and the audit plan resolved by the Audit & Supervisory Board, Audit & Supervisory Board Members perform audits of the status of execution of duties by Directors through attending Board of Directors’ meetings and other important meetings and investigating the status of business operations and assets. (c) Business execution The Executives Meeting was established under the Board of Directors to discuss and determine important matters concerning management based on the basic policies determined by the Board of Directors. Under the Executives Meeting are various committees that complement the discussions at the Executive Meetings by reporting the results of deliberation at the Executives Meeting. Furthermore, from the perspective of clarifying the functions and responsibilities of corporate officers engaged in business execution, the Company adopts the Executive Officer System, under which the Board of Directors selects fourteen (14) Executive Officers who are accountable for business execution. (d) Internal audits and accounting audits The Company has established the Internal Auditing Office to serve as an internal auditing department. Ten staff members have been appointed to the Internal Auditing Office, which is in charge of improving and enhancing the internal control systems by performing internal audits on business operations of the Company and its group companies. The Internal Auditing Office ensures it follows up on audits performed to see that recommendations for improvement have been implemented. Important audit results are reported to the Board of Directors. On March 30, 2021, the Company entered into a contract with an accounting audit firm, KPMG AZUSA LLC, regarding accounting audits pursuant to Japan’s Companies Act and Financial Instruments and Exchange Act. The names of the two (2) certified public accountants who carry out the relevant operations are Ryoichi Isashi and Takeshi Nakatani. There are no special conflicts of interest between the Company and the aforesaid accounting audit firm and executive members of the said accounting audit firm who perform audits of the Company. (e) Nomination Committee, Remuneration Committee The Company has established the Nomination Committee and the Remuneration Committee as voluntary advisory organs of the Board of Directors that take on the decision making function for nomination and remuneration, respectively. For an overview of these committees, refer to “Establishment of Voluntary Committee(s), Composition of Committee and Attributes of Chairman.” Outline of limited liability agreement The Company and its non-executive Directors (External Directors) and Audit & Supervisory Board Members enter into an agreement to limit the liability of damages stipulated in Article 423, Paragraph 1 of the Companies Act pursuant to Article 427, Paragraph 1 of the said Act. The amount of liability for damages under this agreement is the amount stipulated in laws and regulations for both non-executive Director and Audit & Supervisory Board Member. This limit is applicable only when the performance of duties of an External Director or an External Audit & Supervisory Board Member is recognized to have been carried out in good faith and with no gross negligence. Outline of Indemnity Contract and Director and Officer Liability Insurance The Company maintains a director and officer liability insurance policy for Directors, including External Directors; Audit & Supervisory Board Members, including External Audit & Supervisory Board Members; Executive Officers; and retired officers. The policy provides coverage up to the maximum total amount insured during the insurance period for losses arising from claims made against them during the insurance – 16 – period as a result of their execution of duties. The insurance premiums are borne in full by the Company and the maximum total insurance amount under the contract is 1 billion yen. 3. Reasons for Adoption of Current Corporate Governance System Tokai Carbon, as a company with an Audit & Supervisory Board, operates under the basic stance of reinforcing audits by Audit & Supervisory Board Members and the internal audit function, and makes efforts to strengthen management supervision functions of the Board of Directors by appointing multiple External Directors and establishing voluntary committees in order to realize an appropriate corporate governance structure. In addition, from the perspective of clarifying the functions and responsibilities of corporate officers engaged in business execution, the Company has adopted the Executive Officer System and established a Management Committee in an effort to enhance and strengthen business execution functions of the organization. – 17 – III. Implementation of Measures for Shareholders and Other Stakeholders 1. Measures to Vitalize the General Shareholder Meetings and Smooth Exercise of Voting Rights Early Notification of General Shareholder Meeting Scheduling AGMs Avoiding the Peak Day Allowing Electronic Exercise of Voting Rights Participation in Electronic Voting Platform Providing Convocation Notice in English Supplementary Explanations For the FY2020 Annual Meeting of Shareholders held on March 30, 2021, the Company mailed out the Notice of the FY2020 Annual Meeting of Shareholders on March 9 and also posted the Notice on its website prior to mailing out the Notice. The Company avoids peak days when scheduling its annual general meetings of shareholders. The Company adopts an Internet-based system for exercising voting rights, allowing the exercise of such rights via PC and smartphone. The Company participates in an electronic voting platform for institutional investors operated by ICJ, Inc. The Company prepares the convocation notice (summary) in English and posts the notice on its company website and on the voting platform for institutional investors. 2. IR Activities Supplementary Explanations Explanation by the Representative Preparation and Publication of Disclosure Policy Regular Investor Briefings for Analysts and Institutional Investors Regular Investor Briefings for Overseas Investors Posting of IR Materials on Website Establishment of Department and/or Manager in Charge of IR The Company defines its basic policy on information disclosure and posts it in Japanese and in English on its company website. A financial results briefing is held quarterly in Japan. The Company also periodically holds individual meetings with analysts and institutional investors. The Company periodically participates in IR conferences hosted by securities companies and holds individual meetings with overseas institutional investors to explain and exchange opinions on management policies, the business environment, operating performance, sustainability, etc. The Company discloses materials on financial results, securities reports, timely disclosure documents, etc. in Japanese and in English on a quarterly basis. Responsible department: General Affairs Department Responsible officer: Officer in charge of General Affairs Department Yes Yes 3. Measures to Ensure Due Respect for Stakeholders Stipulation of Internal Rules for Respecting the Position of Stakeholders Implementation of Environmental Activities, CSR Activities etc. Supplementary Explanations The Company sets forth in its corporate philosophy (“Ties of Reliability”) that a company stands on relationships of trust with all stakeholders and hence can continue to pursue its activities. With respect to environmental protection activities, the Company undertakes initiatives to reduce environmental burden, promote ISO14001, etc. and continues to make improvements through implementing the PDCA cycle based on the environmental management system. Meanwhile, the Tokai Carbon Group carries out CSR activities by promoting efforts centered on the environment, society, and governance, and summarizes the activities together with financial information in the Annual – 18 – Report that is produced once a year in an effort to convey the information to stakeholders in a user-friendly manner, in addition to timely disclosure on its websites. [Action plan concerning promotion of women’s participation] 1. Period of plan Two years from April 1, 2020 to March 31, 2022 2. Objective (1) Increase the ratio of females among new graduates hired for management trainee positions during the period of the plan to 30% or more. (2) Implement measures to encourage employees to take annual paid leave, aiming for at least a 65% rate of taking annual paid leave. 3. Initiatives • Proactive PR activities to attract job-seekers as a workplace that encourages women to play active roles (e.g., increasing opportunities for interaction with female employees in the hiring process such as at company information sessions and in internships, featuring female employees in the hiring brochure and on hiring websites, and drawing attention to the fact that 100% of the Company’s employees return to work after childcare leave). • Launch of hiring activities targeting female students majoring in science and engineering (increasing the number of applicants by drawing attention to the increasing trend in hiring female students majoring in science and engineering based on the hiring results: 2 females majoring in technology were hired in 2019 and 3 are expected to be hired in 2020) • Increase the rate of taking annual paid leave by establishing the Month for Promotion of Taking Annual Paid Leave and other systems. 4. Issues going forward • As for Objective (1), the ratio of newly hired female graduates to all newly hired graduates in 2021 is one to three (33.3%), thus achieving the goal. We will implement initiatives to increase the ratio of female hires on a continuing basis. • We implemented planned annual leave in addition to the Period for Taking Annual Paid Leave with regard to Objective (2), with a view to improving the rate of taking annual paid leave. We will calculate the rate of taking paid leave in a year’s time after the plan formulation, to check the results of the efforts. Other – 19 – IV. Matters Related to the Internal Control System 1. Basic Views on Internal Control System and the Progress of System Development Basic Policy for Establishing an Internal Control System 1. System to ensure that the execution of duties by Directors complies with laws, regulations and the Articles of Incorporation 1) The Board of Directors sets forth basic policies, including the Corporate Philosophy, the Guidelines, and the TOKAI CARBON Code of Ethics, and ensures the execution of duties in compliance with laws and regulations. 2) The Board of Directors determines the execution of important business operations in accordance with laws, regulations and the articles of incorporation, and supervises the execution of duties by Directors. 3) Internal audits are performed to address compliance matters and provide advice. 4) Education, audits and guidance are provided to ensure compliance. 5) An internal reporting system is properly operated to promptly detect and correct any organizational or personal violation of law, etc. and to contribute to reinforcing compliance management. 6) Based on the TOKAI CARBON Code of Ethics, the Company severs any relations with antisocial forces, organizations, or individuals that threaten the order and safety of civil society, and organizationally takes a resolute stance against and rejects any unjust or illegal demands from such parties. 2. System concerning storage and management of information associated with the execution of duties by Directors 1) Information associated with the execution of duties by Directors is recorded on paper or by electromagnetic means (hereinafter referred to as “Documents, etc.”), stored and managed in accordance with the Document Handling Rules and the Electronic Information Management Rules. 2) A system is put in place where Directors and Audit & Supervisory Board Members are able to inspect and search Documents, etc. containing information associated with the execution of duties by Directors in an efficient manner. 3) When important decisions are made, such facts are promptly and appropriately disclosed in accordance with the Basic Policy for Information Disclosure. 3. Rules concerning management of risk of loss and other systems 1) In the event of a serious disaster, accident or any other unforeseeable situation, the Company and its group companies respond promptly and appropriately to the crisis in accordance with the Emergency Countermeasures Guidelines. 2) In order to avoid the risk of loss from business operations, rules and regulations concerning accounting and financial management, business partner management, export management, environmental and disaster prevention management, quality management, information management, investment management, etc. are formulated, enforced and properly operated. 3) To mitigate and avoid other latent business risks, each responsible department performs risk management on a day-to-day basis. In addition, the Risk Management & Compliance Committee, which meets quarterly in principle, discusses important matters concerning risk management and compliance; provides advice to relevant offices and departments, etc. based on the results of such discussions; reports and makes proposals to the Board of Directors and the management; and, makes efforts to identify risks and improve the operating environment. 4) The Tokai Carbon Group companies promptly report matters that might cause significant damage to the Company and its group companies to the Company and the Audit & Supervisory Board Members of the Company in accordance with the Rules Concerning Management of Subsidiaries set forth by the Company. 4. System to ensure effective execution of duties by Directors 1) The Company adopts the Executive Officers System to clarify the roles, etc. of Directors and Executive Officers and promote execution of business operations with agility and speed. 2) A three-year medium-term management plan is formulated as a company-wide target to be shared by Directors and employees, and budgets are set for each business year for implementing specific steps. A General Planning Meeting is held to confirm targets and policies set. 3) Financial reports are prepared monthly, quarterly, and annually, and the results, analyses, etc. are reported quarterly to the Board of Directors. – 20 – 4) Important matters are deliberated at Management Committee meetings, General Planning Meetings, and other important meetings attended by Directors, Executive Officers responsible for business operations, and other members. 5. System to ensure that the execution of duties by employees complies with laws, regulations and the Articles of Incorporation. 1) The Company widely promotes awareness about its Corporate Philosophy, the Guidelines, the TOKAI CARBON Code of Ethics and its Ethics and Compliance Standards. 2) Training and education concerning legal compliance are promoted. 3) Internal audits are properly conducted to address compliance matters and provide advice. 4) An internal reporting system is properly operated to promptly detect and correct any organizational or personal violation of law, etc. and to contribute to reinforcing compliance management. 5) Based on the TOKAI CARBON Code of Ethics, the Company severs any relations with antisocial forces, organizations, or individuals that threaten the order and safety of civil society, and organizationally takes a resolute stance against and rejects any unjust or illegal demands from such parties. 6. System to ensure appropriateness of operations of the corporate entity consisting of the stock company and its parent and subsidiaries 1) The Company and its group companies are managed based on the group-wide philosophy and action guidelines, and the appropriateness of their operations is ensured through periodically setting plans of the Group companies, reporting the financial status, making preliminary reports and having discussions on important matters in accordance with the Rules Concerning Management of Subsidiaries so that they contribute to the implementation of business objectives and the improvement of management efficiency as a corporate entity. 2) The Company establishes a system for promoting awareness of risk management and compliance while promoting reinforcement of group governance by dispatching officers and employees of the Company to its group companies as directors and auditors. 3) The Tokai Carbon Group companies set out management objectives common within the group based on the medium-term management plan formulated by the Company and set budgets each business year for realizing specific objectives. 7. Matters concerning employees to assist Audit & Supervisory Board Members with their duties and matters regarding independence of such employees from Directors, in the event that Audit & Supervisory Board Members request the assignment of such employees 1) In the event Audit & Supervisory Board Members request the assignment of employees to assist with their duties, the Company considers, as necessary, appointing Audit & Supervisory Board staff member(s) to assist the duties of Audit & Supervisory Board Members and reinforcing the existing internal auditing functi