積水化学工業（4204） – Corporate Governance Report

Corporate Governance Report Last Update: January 27, 2022 SEKISUI CHEMICAL CO., LTD. President: Keita Kato Contact: +81-3-6748-6467 Securities Code: 4204 http://www.sekisuichemical.com/ The corporate governance of SEKISUI CHEMICAL (“the Company”) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views The SEKISUI CHEMICAL GROUP (“the Group”) sets forth as the basic policy for corporate governance the promotion of sustainable corporate growth and the increase of corporate value. To realize this, the Group will enhance the transparency/fairness of management, pursue prompt decision-making, and continue to fulfill the expectations of “customers,” “shareholders,” “employees,” “business partners,” and “local communities and the environment,” the five major categories of stakeholders that the Group values most, through the creation of values to the society, as declared in the Corporate Philosophy. [Corporate Philosophy] “The 3S principles” Service At SEKISUI, we serve our stakeholders by creating social, environmental and economic value through responsible business practices. Speed At SEKISUI, we accelerate innovation by eagerly taking on new challenges, adapting to change and staying ahead of the times. Superiority At SEKISUI, we contribute to society by helping to solve social issues with our superior technologies and quality. The Group’s ESG management aims to achieve both “realization of a sustainable society” and “sustainable growth of the Group” and is working with stakeholders on the following three key steps. (1) Development of “three prominences” (Environment, CS & quality, Human Resources) and “governance” (2) Accelerate the solution of social issues through three approaches (increasing quantity, improving quality, and providing sustainably) (3) Creating and expanding the value of “peace of mind that continues into the future” in four business domains (Residential, Advanced Lifeline, Innovative Mobility, and Life Science) The Company has established and disclosed the SEKISUI Corporate Governance Principles for the purpose of further evolving its corporate governance initiatives and communicating our corporate governance approach and initiatives to our stakeholders. – 1 – * In the following translation, “Audit & Supervisory Board Member” stands for “Kansayaku” in the Corporate Governance Code. [Reasons for Non-compliance with the Principles of the Corporate Governance Code] The Company implements all principles of the Corporate Governance Code. [Disclosure Based on the Principles of the Corporate Governance Code] In addition to the SEKISUI Corporate Governance Principles, the status of the Company’s initiatives and its approach with respect to all 83 items of the Corporate Governance Code consisting of the General Principles, Principles and Supplementary Principles have been summarized and disclosed in the form of the Initiatives to Each of Principles of the Corporate Governance Code. Please refer to the following. http://www.sekisuichemical.com/about/outline/governance/index.html Descriptions of the items disclosed based on each Principle of the Corporate Governance Code are as follows: [Principle 1.4] The Company sets and discloses SEKISUI Corporate Governance Principle where basic policy for Cross-Shareholdings of the other listed companies and policy for the exercise of voting rights are shown as follows. i. Basic policy The Company may strategically hold shares of the other publicly-listed companies, to a limited extent, that are important business partners of the Company provided that the Company made its judgment on such holdings to be beneficial for the purpose of maximizing medium to long-term enhancement of corporate value of the Company and the business partners. Strategic rationale shall be reviewed in an appropriate and timely manner and the Company will reduce those holdings without sufficient strategic benefits or inconsistent with the Company’s capital policies. The Board conducts annual assessment of such holdings to examine specific benefits by such share-holdings and consistency with the risk-benefit evaluation of such individual holdings over the cost-of-capital and other factors. The Company shall disclose the overview of the evaluation. In accordance with the above-mentioned basic policy, The Board has conducted annual assessment of the individual holdings in terms of stockholding ratio, existence of board representation or dispatched executives, or business alliance, state of business activities, dividend received, etc. and made judgment for appropriateness of holding them at the regular Board meeting held in June, 2021. The total number of share-holdings was recorded 26 as of the end of March, 2021, by contrast of 28 holdings as of the end of March, 2020 as a result of disposition of two holdings during FY2020. ii. Policy for the exercise of voting rights The Company exercises voting rights at shareholder meeting of the share-holding companies in accordance with the specific standards with respect to the voting rights established by the Company to reflect perspectives of connecting the medium to long-term enhancement of the Company’s corporate value with the corporate value enhancement of the above companies based on strategic position of such holding and dialogue and so forth with them, thereby shall perform its monitoring function as a shareholder. As to exercising of voting rights, the Company applies a judgment standard, considering significance of agendas proposed by companies (including special resolution items), business performance (equity ratio, profit/loss condition, etc.) in their current fiscal year, and their business sustainability. The Company then makes the final comprehensive decision on proposals integrating on-going engagements (dialogues) with the said companies. [Principle 1.7] The Company has taken the following measures to prevent any transaction between the Company and an officer of the Company or a major shareholder from harming the interest of the Company or the common interest of the shareholders. The Board of Directors Regulations stipulates a conflict of interest transaction – 2 – between the Company and its Director as the matter requiring the resolution of the Board of Directors. Actual individual transactions are monitored by the Board of Directors through the approval processes. Audit & Supervisory Board also audits such transactions in accordance with the Note of Audit & Supervisory Board Member Auditing Standards. [Supplementary Principles 2.4.1] The Company is currently working to develop a personnel strategy to support the promotion of core human resources to director or senior management posts through the process of experience accumulation. The Company believes that the key feature of this strategy should be to ensure diversity of employees who are promoted to middle management positions in the expectation that they will become future executive/successor candidates. As for active participation of women, the ratio of women to total new graduate hires has reached around 30% in the last five years, and the Company intends to maintain the ratio at or above the current level. To ensure diversity of employees in middle management positions, the Company aims to raise the ratio of women to total employees promoted to middle management positions to 30% by 2030. To achieve this goal, targeting women employees who hope to be appointed to management positions (manager candidates) and their direct supervisors, the Company is conducting a “Career Development Program for Women.” This training program has been put in place with the aim of fostering awareness and gaining the achievements appropriate for management positions. The Company has been continually conducting this program across the entire Group. Mid-career hires currently account for 14% of employees in management positions. In particular, when the Company undertakes new endeavors, such as starting a new business or promoting an important theme (DX, etc.), going forward, it will recruit mid-career experts in the relevant fields as appropriate. As for foreign nationals, the Company has currently appointed 11 foreign nationals to management positions in Japan on a non-consolidated basis. The Company expects that more foreign nationals will be promoted to such positions as its global business grows going forward. For human resource development and internal environment development to ensure diversity, the Company is working on the following initiatives: (1) Role-based personnel system The Company plans to introduce a role-based personnel system in FY2022. Under the role-based personnel system, the Company will clarify the image of the career path from junior/middle management positions to senior management positions by clearly indicating the roles of individual positions ranging from senior management positions to junior management positions (section manager or equivalents). The Company will define roles of individual positions based on linkage to/backcasting from the management policy and the achievement of business goals, making this system one with a view to the future. (2) Work-style not relying on long working hours The Company has been working to design a system to embrace diverse work-styles and to streamline operations by promoting the use of IT and work-style reform investments. In particular, the Company has established “Work-style Reform Guide” in October 2021 to provide clear guidance on autonomous work-styles to be adopted by each employee. (3) Follow-up training for mid-career hires The Company ensures that mid-career hires can demonstrate their technical expertise immediately after joining the Company by providing them with training to learn the businesses, systems, etc., of the Company. (4) Support to help employees to raise children while working To promote the use of childcare leave by male employees, the Company gives encouragement to applicable employees and their supervisors. The ratio of male employees who have taken childcare leave is currently in the 30% range. (5) Fusion and development of global human resources across region – 3 – To develop future global leaders to be pillars of SEKISUI CHEMICAL Group, the Company provides presidents and senior executives of foreign subsidiaries and senior management of the Company opportunities to interact with each other to learn diverse perspectives and values from each other. Examples of such opportunities include: – Sharing and instillation of the Long-Term Vision In FY2020, the first year of our Long-Term Vision, all presidents of foreign subsidiaries participated in an online discussion for the sharing and instillation of the Long-Term Vision and to discuss the implementation method of the vision at each company. – Global Saijuku School Executives from all over the world enroll in the school for a one-year program. Most recently, these students made recommendations on global management on the theme of “Implementation of the Values of SEKISUI.” Through these initiatives, the Company encourages diverse human resources, such as women, mid-career hires, and foreign nationals, to actively aspire to be promoted to management positions and to play an active role as managers leveraging their unique strengths. For more details, please refer to the Company’s CSR Report. https://www.sekisuichemical.com/csr/assets/images/csr_report2021e.pdf [Principle 2.6] The pension fund of the Company has established a system which can play an expected role in asset management by way of arranging professional staff both to the administrative board, which is an executive body, and the secretariat. Further, the board of representative, which is a decision-making body of the pension fund, is appropriately administered to balance conflict of interest between the Company and beneficiaries, by way of selecting the same number of representatives chosen by a business owner and by and from among the pension plan participants. [Principle 3.1] The Company believes that timely, appropriate and active information disclosure is essential for us to ensure management transparency and fulfill our social responsibility. To steadily put this belief into practice throughout the Group, we have established the “Principle of Corporate Information Disclosure” and the “Corporate Information Disclosure Regulations” to strengthen our internal information disclosure framework. The disclosure status of each item is as follows: (i) The Group Principles, management strategies, and the midterm management plan are disclosed on the website of the Company, in earnings results briefing materials, and business reports. (ii) The basic policy on corporate governance is disclosed on the website of the Company, in corporate governance reports, business reports, etc. (iii) The policy for the remuneration for Directors and Audit & Supervisory Board Members is disclosed in corporate governance reports, annual securities reports, and the reference materials attached to the notice of the general meeting of shareholders. To enhance transparency and fairness in the process, the determination of the system and the level of remuneration for the Directors is deliberated by the Nomination and Remuneration Advisory Committee, which consists of the majority of Independent Outside Board Members and is chaired by an Independent Outside Officer. The Board of Directors makes a final policy decision based on the recommendations made by the advisory committee with respect. (iv) The policy concerning the appointment/dismissal of the senior executive and the nomination of Director/ Audit & Supervisory Board Member candidates is disclosed in the SEKISUI Corporate Governance Principles. To enhance transparency and fairness in the process, the nomination of candidates for Director is deliberated by the Nomination and Remuneration Advisory Committee. The Board of Directors makes a final policy decision based on the recommendations made by the advisory committee with respect. (v) Reasons for appointment/dismissal of the senior executive and nominating candidates for Director and for Audit & Supervisory Board Member are disclosed on the notice of the general meeting of shareholders. – 4 – [Supplementary Principles 3.1.3] In the Long-Term Vision “Vision 2030,” which was adopted after deliberation by the Board of Directors, “sustainable management” was added as a new area to be strengthened by the Company in an effort to enhance its corporate value by enhancing sustainable contribution to the resolution of social issues. This is in addition to “contribution to solving social issues” and “profitable growth,” which are the areas that the Company has been working and will continue to work to strengthen under the Long-Term Vision. In the area of human resources, SEKISUI CHEMICAL Group aims to be an entity that gives rise to innovation and creativity, and brings employees and the Company together in the drive to tackle social issues and contribute to finding solutions to them. We share this commitment Group-wide while promoting the creation of workplaces that are full of energy and enthusiasm. For details, pleases refer to the relevant page on our website from the link below. (https://www.sekisuichemical.com/csr/human/) In our Medium-Term Management Plan “Drive 2022,” the Company has allocated 130 billion yen to R&D expenses, which represent the core part of our intellectual property investment. As part of these R&D expenses, some of our Divisional Companies and subsidiaries/affiliated companies have set an R&D expense target for “A-type new products” (meaning products expected to generate new demand), aiming to create a marginal profit in excess of R&D expense. In the future, a “Strategic Domain Map” will be created showing, by keywords, the areas that each Divisional Company aims to enter, and will be discussed by the Board of Directors to direct long-term investments of management resources. The “Strategic Domain Map” will be discussed and reviewed by the Board of Directors regularly once every year. In the area of climate change, the Company declared support for the TCFD in January 2019 and started in July 2019 to disclose the impact of climate change risk and associated revenue opportunities on the Group’s business activities, earnings, etc., under the four disclosure items recommended by the TCFD (governance, strategy, risk management, and metrics and targets) (updated annually). In particular, for the purpose of disclosure on “strategy,” we developed four scenarios relating to the future of the business of the Company based on the combination of the following two axes: (1) whether the social system, such as city planning and energy, will be centralized (urban concentration, centralized management) or decentralized (regional decentralization, local production for local consumption) and (2) whether a low temperature increase (by less than 2℃) or a high temperature increase (by 4℃) will be expected based on the fifth assessment report of the UNʼs Intergovernmental Panel on Climate Change (IPCC) (published 2014) and disclose opportunities, risks and the Company’s responses for the four scenarios represented by each quadrant. [Supplementary Principles 4.1.1] Whereas the Board of Directors of the Company is responsible for performing high-level corporate management functions (decision-making, development of strategies, and supervision), the Executive Officers Committee established in each divisional company is responsible for business execution based on the decision of the Board of Directors. A significant part of the business execution function has been delegated to each divisional company so that the Company can make appropriate and timely respond to changes in the environment. With regard to such delegation of authority, the Company has also established the approval standards that take into consideration of the effect on the corporate-level management. These standards clarify the scope of the matters requiring the deliberation of the Board of Directors and that of the matters for which decisions can be made by each divisional company. * Matters requiring the deliberation of the Board of Directors (examples) -Business management: Management policies/plan, election of officers, significant organizational change, significant capital investment, annual budget -General affairs/personnel affairs: Change in important regulations such as the articles of incorporation, basic personnel policies, change in the personnel system -Accounting/finance: Financial policies, large borrowing or lending of funds, large investment, financial reporting -R&D and technology: Introduction/licensing of important technologies, transfer of intellectual property rights to/from a third party – 5 – [Principle 4.9] The Company has developed the “Criteria for Independence of Outside Board Members (Directors and Audit & Supervisory Board Members)” to secure the independence of Outside Directors. These criteria are disclosed on the SEKISUI Corporate Governance Principles. The two incumbent Outside Directors have been designated as independent officers in accordance with the rules of the Tokyo Stock Exchange. The Company appoints the Outside Directors who can expect impartial advice and constructive discussion based on their extensive administrative experience and specialized knowledge in different background from the Company. The reason for the appointment of each Outside Director is disclosed in the reference materials for the general meeting of shareholders, annual securities reports, corporate governance reports, etc. [Supplementary Principles 4.10.1] Although Independent Outside Directors do not currently comprise a majority of the board of the Company as there are two Independent Outside Directors among nine Directors in total, as noted in “Principle 4-10 Use of Optional Approach,” the Company has established the Nomination and Remuneration Advisory Committee, which currently consists of five members including two Independent Outside Directors. Although Independent Outside Directors do not constitute a majority of the members, one of the members is an Independent Outside Audit & Supervisory Board Member and the Committee is chaired by an Independent Outside Director. As such, the Company believes that the fairness and transparency of the Committee are ensured. The Company is preparing for an increase in the number of Independent Outside Directors at the Annual General Meeting of Shareholders scheduled for June 2022. If this is approved, Independent Outside Directors will constitute a majority of the members of the Nomination and Remuneration Advisory Committee. [Principle 4.11] The number of Directors shall not exceed 15, and 2 or more of them shall be independent Outside Directors. The Board of Directors of the Company shall consist of Directors who have an excellent character, insight, and a high moral standard in addition to knowledge, experience, and skills. The Company is continuously seeking to ensure diversity of the Board of Directors. The number of Audit & Supervisory Board Members shall be 3 or more, with half or more of them being Independent Outside Audit & Supervisory Board Members elected from outside of the Company. At least one of the Audit & Supervisory Board Members shall be an individual who has knowledge and expertise in corporate finance and accounting, and at least one of the Audit & Supervisory Board Members shall have knowledge and expertise in legal systems. The Outside Audit & Supervisory Board Members in particular shall be elected from individuals with high specialties such as a certified public accountant, a lawyer, a scholar (on quality control etc.). The Company evaluates and improves the Board’s function by discussing the effectiveness of the Board and points to improve at the Nomination and Remuneration Advisory Committee, holding regular meetings to exchange views between Outside Directors and the senior executive of the Company, and between Audit & Supervisory Board (including outside Audit & Supervisory Board Members) and accounting auditor, as well as Board of Directors Meeting agenda-setting and the status of active participation of each Directors and Audit & Supervisory Board Members. [Supplementary Principles 4.11.1] The Company ensures diversity among board members and keeps the number of Directors at an optimal level for appropriate decision-making that is commensurate with the business domain and size. The presidents of the divisional companies who are the top management of each business and senior corporate officers with significant experience and strong expertise are appointed as Inside Directors. Together with the Outside Directors who have broad knowledge and experience and Audit & Supervisory Board Members with strong expertise, balance is ensured with respect to diversity, optimal size, and capabilities, and the roles and responsibilities of the Board of Directors are effectively performed.,. Both of the two Independent Outside Directors of the Company have management experience in other companies, and the Company intends to continue to appoint persons with management experience in other companies as Independent Outside Directors. – 6 – The Board of Directors has already prepared and disclosed a skills matrix to define the skills that it should have. The Board will consider a review of specific items of the skills matrix to include a complete set of skills representing manufacturing functions such as R&D, production, and sales as well as other skills that will contribute to the achievement of “doubling sales volume by FY2030” set forth in the Company’s Long-Term Vision including new business development and alliance and will review them further as appropriate in response to any changes in the business environment. The skills matrix will also be utilized in discussions on appropriate director candidates by the Nomination and Remuneration Advisory Committee in the future. The election of Directors is conducted in consideration of the management principles and strategies, through deliberation by the Nomination and Remuneration Advisory Committee, consisting of the majority of Independent Outside Board Members and chaired by an Independent Outside Officer. The Board of Directors makes a final policy decision respecting the recommendations made by the advisory committee. [Supplementary Principles 4.11.2] Directors and Audit & Supervisory Board Members are required to secure time and efforts necessary to appropriately fulfill their respective roles and responsibilities. Therefore, where they also serve as officers at other listed companies, they are required to limit to four or less concurrent positions to the extent that does not interfere with the execution of their duties at the Company. The status of the concurrent positions at listed companies held by Directors and Audit & Supervisory Board Members is disclosed each year in the notice of the general meeting of shareholders, annual securities reports, and corporate governance reports. [Supplementary Principles 4.11.3] The Company evaluates the effectiveness of the Board of Directors each year as set out in [Principle 4.11 Preconditions for Board and Kansayaku Board Effectiveness]. The Board of Directors has been engaged in sufficient discussion time under an appropriate agenda with opinions and recommendations actively provided by Directors (including Outside Directors) and Audit & Supervisory Board Members. The Company has evaluated that the current Board of Directors is sufficiently functioning and contributing to enhance the corporate value of the Group. In FY2020, Long-term Vision, new Medium-term Management Plan and growth strategies (i.e. R&D, large-scale new business, and plant investment, etc.) and foundational strategies (i.e. report on the Sustainability Committee, digital transformation, safety and CS & Quality, etc.) as important management issues, are discussed sufficiently at the Board of Directors Meeting. In addition, the Company conducted a questionnaire for directors and corporate auditors to evaluate the effectiveness of the Board of Directors, identified important management issues that should be discussed more firmly, and reviewed the agenda of the Board of Directors so that directors and corporate auditors will be able to discuss important issues in sufficient time. Furthermore, the company confirmed that sufficient discussion time was secured, and opinions and recommendations were actively provided by both Outside and Inside Directors and Audit & Supervisory Board Members. The nomination of Directors and Audit & Supervisory Board Members, individual performance evaluation and level of remuneration were deliberated by the Nomination and Remuneration Advisory Committee and the final decision was made at the Board of Directors Meeting considering the recommendation. The Nomination and Remuneration Advisory Committee was held six times and deliberated agendas including succession plan for the President and Representative Director, composition and effectiveness of the Board of Directors, and initiatives to strengthen corporate governance. In FY2021, the Company will continue to enhance deliberation on important management issues to make appropriate decisions as the Board of Directors and to ensure fairness and transparency in the Company’s management. [Supplementary Principles 4.14.2] The Company provides training and information that are necessary for Directors and Audit & Supervisory Board Members to adequately fulfill their respective roles and responsibilities as appropriate in accordance with the following policy: – 7 – i. Newly appointed Directors (including independent Outside Directors) and Audit & Supervisory Board Members are provided with opportunities to develop necessary knowledge, skills, etc., and to receive an explanation about the management strategy of the Company, the financial conditions of the Company, and other important matters from the President of the Company and designated executive officers by the President within three months of the date of the assumption of office. ii. Directors and Audit & Supervisory Board Members are required to always collect information and study proactively on such matters as the financial conditions of the Company, legal compliance, and corporate governance in order to fulfill their roles adequately. Any cost for such study such as attending seminars given by external parties is borne by the Company through prescribed procedures. [Principle 5.1] The Company believes that timely, appropriate and active information disclosure and two-way communication activities are essential for us to deepen mutual understanding and build a relationship of trust with shareholders. Therefore, the Company positively responds to any requests from shareholders that are considered to support sustainable growth and the medium/long-term enhancement of the corporate value of the Company. The Company has also established the “Basic Policy for Constructive Dialogue with Shareholders,” which had been deliberated and approved by the Board of Directors, and discloses it in corporate governance reports, etc. 2. Capital Structure Foreign Shareholding Ratio More than 30% [Status of Major Shareholders] Name / Company Name Number of Shares Owned Percentage (shares) 34,325,400 23,689,100 19,681,000 18,153,949 10,960,691 9,845,064 7,998,405 7,880,999 7,797,500 7,676,190 (%) 7.63 5.26 4.37 4.03 2.43 2.18 1.77 1.75 1.73 1.70 Master Trust Bank of Japan, Ltd. (Trust Account) Custody Bank of Japan, Ltd. (Trust Account) The Dai-ichi Life Insurance Company, Limited Asahi Kasei Corporation The Bank of New York Mellon 140042 Employees Stock Ownership Plan Sekisui House, Ltd. BNP PARIBAS LUXEMBOURG/JASDEC/FIM/LUXEMBOURG FUNDS/UCITS ASSETS Custody Bank of Japan, Ltd. (Trust Account 7) State Street Client Omnibus Account OM02 SECURITIES SERVICES Controlling Shareholder (except for Parent Company) Parent Company – None Supplementary Explanation The list is reported as of March 31, 2021. The Company holds 26,436,059 treasury stocks (5.54% of the issued shares), which are excluded in the above list. – 8 – The treasury stocks excludes 220 thousand shares held by entrusted Employee Stock Ownership Plan and 575 thousand shares held by Board Incentive Plan as officer remuneration system, respectively. The number of shares owned is rounded down to the nearest thousand. The percentage is calculated after deducting the number of treasury stocks from that of total outstanding shares. 3. Corporate Attributes Listed Stock Market and Market Section Fiscal Year-End Type of Business Number of Employees (consolidated) as of the End of the Previous Fiscal Year Sales (consolidated) as of the End of the Previous Fiscal Year Tokyo Stock Exchange First Section March Chemicals More than 1,000 More than 1 trillion yen Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year From 100 to 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 One subsidiary is listed on the Korea Exchange, to which the majority of Directors are dispatched; however, the representative Director is appointed from said business company and management is conducted according to local circumstances. – 9 – 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 Number of Outside Directors Number of Independent Directors Appointment of Outside Director Appointed Chairman of the Board 15 1 year 9 2 2 Outside Directors’ Relationship with the Company (1) Name Attribute Yutaka Kase Hiroshi Oeda * Categories for “Relationship with the Company” * From another company From another company Relationship with the Company* a b c d e f h g △ △ i j k “○” when the Director presently falls or has recently fallen under the category; “△” when the Director fell under the category in the past “●” when a close relative of the Director presently falls or has recently fallen under the category; “▲” when a close relative of the Director fell under the category in the past * a. Executive of the Company or its subsidiaries b. Non-executive Director or executive of a parent company of the Company c. Executive of a fellow subsidiary company of the Company d. A party whose major client or supplier is the Company or an executive thereof e. Major client or supplier of the listed company or an executive thereof f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a Director/ Audit & Supervisory Board Member g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) legal entity) (the Director himself/herself only) i. Executive of a company, between which and the Company Outside Directors/ Audit & Supervisory Board Members are mutually appointed (the Director himself/herself only) j. Executive of a company or organization that receives a donation from the Company (the Director himself/herself only) k. Others Outside Directors’ Relationship with the Company (2) – 10 – Name Designation as Independent Director Supplementary Explanation of the Relationship Reasons of Appointment Yutaka Kase ○ Hiroshi Oeda ○ respectively. Mr. Kase is taking office of Advisor of Sojitz Corporation and Outside Director of JAC Recruitment Co., Ltd. While the Company has business transaction with each of both parties, the ratio of the transaction value to the net sales of Sojitz Corporation or JAC Recruitment Co., Ltd. and the Company for the business year last closed was less than Accordingly, 1%, independence of Outside Directorship is sufficiently secured. He is deemed not to be at risk of causing conflict of interest with general shareholders, and has thus been designated as an independent officer. Although Mr. Oeda is taking office of Corporate Special Advisor of Nisshin Seifun Group Inc. and Outside Director of EBARA CORPORATION. While the Company has business transaction with each of both parties, the ratio of the transaction value to the net sales of EBARA CORPORATION and the Company for the business year last closed was less than 1%, respectively. He is also concurrently taking office of Seifun Kaikan Inc. and Hitotsubashi Koenkai, the Company has business transaction neither with each of both parties, respectively. Accordingly, independence of Outside Directorship is sufficiently secured. He is deemed not to be at risk of causing conflict of interest with general shareholders, and has thus been designated as an independent officer. regarding Mr. Kase has provided advice with respect to the business management of the Company and supervised business execution appropriately by leveraging his abundant experience and past global achievements corporate management and business strategy fostered through his position as a corporate manager of a general the trading company. Therefore, Company has judged that he would be able to contribute to further enhancing the corporate value of the SEKISUI thus CHEMICAL Group appointed him as Director. and As Mr. Oeda has been a management largest milling the executive of company in Japan, the Company expects him to provide advice with respect to the business management of the Company and supervise business execution appropriately by leveraging his abundant experience and skill regarding corporate global management, business strategies and M&A activities fostered through his positions. Therefore, the Company has judged that he would be able to contribute to enhancing the corporate value of the SEKISUI CHEMICAL Group and thus appointed him as Director. Voluntary Establishment of Committee(s) Corresponding to Nomination Committee or Remuneration Committee Established Committee’s Name, Composition, and Attributes of Chairperson Committee Corresponding Name of Committee The Nomination and All Committee Members Full-time Members Inside Directors Outside Directors Outside Experts Other Chairperson 5 0 2 2 1 0 Outside Director (person) – 11 – to Nomination Committee Committee Corresponding to Remuneration Committee Remuneration Advisory Committee The Nomination and Remuneration Advisory Committee Supplementary Explanation 5 0 2 2 1 0 Outside Director The Company has established an optional advisory committee for nomination, remuneration, or the like for the purpose of complementing the Board functions and enhancing fairness and transparency in the process. (hereinafter translated as “the Nomination and Remuneration Advisory Committee”) One Outside Expert is Outside Audit & Supervisory Board Member of the Company. Chairman : Yutaka Kase Committee members : Hiroshi Oeda, Tetsuo Ozawa, Teiji Koge and Keita Kato In FY2020, the Nomination and Remuneration Advisory Committee was held six times and deliberated agendas including composition and effectiveness of the Board of Directors, and initiatives to strengthen corporate governance. The Nomination and Remuneration Advisory Committee of the Company has function of both Nomination Committee and Remuneration Committee. [Audit & Supervisory Board Members] Establishment of Audit & Supervisory Board Established Maximum Number of Audit & Supervisory Board Members Stipulated in Articles of The Company does not set a ceiling on the number of Audit & Supervisory Board Members Number of Audit & Supervisory Board 5 Incorporation Members Departments Cooperation among Audit & Supervisory Board Members, Accounting Auditors and Internal Audit – Audit & Supervisory Board Members confirm the audit plan with accounting auditor Ernst & Young Shin-Nihon LLC and exchange information and opinions periodically with the accounting auditor including receiving audit reports, with the aim of improving the effectiveness and efficiency of audits through close collaboration. -Audit & Supervisory Board regularly holds a regular meeting for exchange of opinions with the Internal Audit Department to understand the current internal issues and to determine the need for any on-site audit by Audit & Supervisory Board Members as appropriate. The results of the internal audit conducted by the Corporate Audit Department and the improvement status of audit findings are reported to the Audit & Supervisory Board Members on a timely basis. With the assistance of the dedicated support staff, Audit & Supervisory Board also collects information from internal departments and conducts any necessary interviews. -A group-wide internal framework has been put in place to enable Audit & Supervisory Board Members to exercise without any obstacle its authorities by, among others, attending various important meetings, conducting an investigation into divisions concerned including affiliates, and examining the approval documents of important projects. Sufficient information sharing and exchange of opinions take place among the members of Audit & Supervisory Board (including Outside Audit & Supervisory Board Members). Audit & Supervisory Board Member also holds a regular meeting with the Representative Directors, Directors, and – 12 – executive officers to exchange opinions on, among others, the issues that the Company should resolve, the status of the improvement of the environment for audit by Audit & Supervisory Board Member, and important audit issues and to make necessary requests to enhance mutual understanding. Appointment of Outside Audit & Supervisory Appointed Number of Outside Audit & Supervisory Board Number of Independent Audit & Supervisory Board Members Members Board Members 3 3 Outside Audit & Supervisory Board Members’ Relationship with the Company (1) Name Attribute a Attorney-in-law Tetsuo Ozawa Academic Kazuyuki Suzuki Ryoko Shimizu CPA * Categories for “Relationship with the Company” * Relationship with the Company* b c d e f g h i j k l m “○” when the Director presently falls or has recently fallen under the category; “△” when the Director fell under the category in the past “●” when a close relative of the Director presently falls or has recently fallen under the category; “▲” when a close relative of the Director fell under the category in the past * a. Executive of the Company or its subsidiary b. Non-executive Director or accounting advisor of the Company or its subsidiaries c. Non-executive Director or executive of a parent company of the Company d. Audit & Supervisory Board Member of a parent company of the Company e. Executive of a fellow subsidiary company of the Company f. A party whose major client or supplier is the Company or an executive thereof g. Major client or supplier of the Company or an executive thereof h. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as an Audit & Supervisory Board Member i. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a legal entity) j. Executive of a client or supplier company of the Company (which does not correspond to any of f, g, or h) (the Audit & Supervisory Board Member himself/herself only) k. Executive of a company, between which and the Company Outside Directors/ Audit & Supervisory Board Members are mutually appointed (the Audit & Supervisory Board Member himself/herself only) l. Executive of a company or organization that receives a donation from the Company (the Audit & Supervisory Board Member himself/herself only) m. Others Outside Audit & Supervisory Board Members’ Relationship with the Company (2) Name Supplementary Explanation of the Relationship Reasons of Appointment Designation as Independent Audit & Supervisory Board Member – 13 – Tetsuo Ozawa ○ Kazuyuki Suzuki ○ Ryoko Shimizu ○ Mr. Ozawa is an attorney-in-law serving as a representative partner of Tokyo Fuji Law Office. He does not meet the criteria provided for in Rule 415(1)(vi), etc. of the Enforcement Rules for Securities Listing Regulations and is deemed not to be at risk of causing conflict general of shareholders, and has thus been designated as an independent officer. interest with of with interest Mr. Suzuki serves as a professor of Graduate School of Informatics of University Electro-Communications. He does not meet the criteria provided for in Rule 415(1)(vi), etc. of the Enforcement Rules for Securities Listing Regulations and is deemed not to be at risk of causing conflict of general shareholders, and has thus been independent designated as an officer. Ms. Shimizu serves as a fulltime of Professor Kansai Accountancy University. She does not meet the criteria provided for in Rule 415(1)(vi), etc. of the Enforcement for Securities Listing Rules Regulations and is deemed not to be at risk of causing conflict of interest with general shareholders, and has thus been designated as an independent officer. School of of in credibility of Mr. Tetsuo Ozawa has a legal perspective and wide range of knowledge and abundant experience about risk management and mainly in the field of corporate law as an attorney-in-law. Also the perspective of compliance, to check appropriateness of decisions made by the management, the Company expects him to contribute to improve the public the Company. Therefore the Company appointed him as an Outside Audit & Supervisory Board Member. Mr. Suzuki possesses profound knowledge extensive and experience on quality control and reliability engineering, and the Company expects him to reflect his knowledge and experience in the auditing of the Company. Therefore the Company appointed him as an Outside Audit & Supervisory Board Member. Ms. Shimizu possesses specialized knowledge of accounting in Japan and overseas as well as abundant auditing experience as a Certified Public Accountant the Company expects her to reflect her knowledge and experience in the auditing the Company. Therefore the Company appointed her as an Outside Audit & Supervisory Board Member. and of [Independent Directors/ Audit & Supervisory Board Members] Number of Independent Directors/ Audit & 5 Supervisory Board Members Matters relating to Independent Directors/ Audit & Supervisory Board Members -All Outside Directors and Outside Audit & Supervisory Board Members, currently five persons in total, have been designated as Independent Directors/ Audit & Supervisory Board Members pursuant to the provisions of the Tokyo Stock Exchange, based on the Company’s policy to designate persons who are sufficiently independent and meet the criteria of independence for Outside Board Members prescribed by the Company as Outside Directors and Outside Audit & Supervisory Board Members of the Company. (Please refer to the Criteria for Independence of Outside Board Members (Directors and Audit & Supervisory Board Members) which are disclosed in the form of appendix to the SEKISUI Corporate Governance Principles.) – 14 – -In the latest fiscal year, Mr. Kase attended all the seventeen meetings of the Board of Directors and Mr. Oeda attended all the seventeen meetings of Board of Directors. Mainly from a viewpoint of top executives with rich experienced, they actively made required remarks on a bill under discussion. -In the latest fiscal year, Audit & Supervisory Board Member, Mr. Ozawa, attended all theseventeen meetings of Board of Directors and all the nineteen meetings of Audit & Supervisory Board. Mainly from a view point of specialist as an attorney-at-law, he made required remarks on establishing and maintaining the compliance system of the Company group. Audit & Supervisory Board Member, Mr. Suzuki attended all the seventeen meetings of Board of Directors and all the nineteen meetings of Audit & Supervisory Board. With profound knowledge and extensive experience on quality control and technological management, he made required remarks on a bill under discussion. Audit & Supervisory Board Member, Ms. Shimizu attended all the seventeen meetings of Board of Directors and all the nineteen meetings of Audit & Supervisory Board. Mainly from a viewpoint of finance and accounting, etc. as a certified public accountant, she made required remarks on a bill under discussion. [Incentives] Incentive Policies for Directors Performance-Based Remuneration, Share-Based Compensation Plan Supplementary Explanation (Policy for granting incentive) The remuneration for Directors of the Company consists of performance-based remuneration and non-performance-based remuneration. The performance-base remuneration is discussed and appropriately managed by the Nomination and Remuneration Advisory Committee to ensure that it functions effectively as an incentive toward the improvement of the Group’s corporate value and the achievement of the management plan. The remuneration for Outside Directors does not contain a performance-based remuneration component. Furthermore, the Company has selected operating income, which is the business performance target of the Company; the business performance of the divisional companies, which reflects the business performance of the Group’s unique divisional company system; ROE, an assessment criteria for the improvement of the Group’s corporate value; and dividends, which provides incentive to return these management results to shareholders, as indicators relating to the performance-based remuneration, with the reasons for the selection being to enable the performance-based remuneration will to function effectively as an incentive for the Directors of the Company to improve the Group’s corporate value and achieve the management plan, as well as to ensure a high level of objectivity and transparency of the remuneration process. The amount of payment is determined to keep the balance with the above indicators by utilizing the executive remuneration data of outside research agencies and periodically making comparisons with companies similar in size and business performance to the Group. The targets and results of the indicators for the performance-based remuneration for the current fiscal year are as follows. Indicators Targets Results Business performance of the Company (Operating income) 70.0 billion yen 67.3 billion yen Business performance of the divisional companies (Operating income) Housing 32.0 billion yen 30.5 billion yen Urban Infrastructure & Environmental Products 14.0 billion yen 11.2 billion yen High Performance Plastics 27.6 billion yen 28.937.1 billion yen Medical 9.3 billion yen 7.0 billion yen 6.9% 47 yen 6.5% 47 yen ROE Dividends – 15 – Recipients of Stock Options Supplementary Explanation – [Director Remuneration] Disclosure of Individual Directors’ Partially disclosed Remuneration Supplementary Explanation Total amount of remuneration, etc., per class of officers, total amount of remuneration, etc., per category thereof, and number of eligible officers Class of officers Directors (excluding Outside Directors) Audit & Supervisory Board (excluding Outside Audit & Supervisory Board Members) Outside Officers Category of remuneration, etc. (millions of yen) Basic remuneration Bonus Share-based compensation Total Number of eligible officers (persons) 284 115 45 79 – – 74 – – 474 45 79 7 3 6 (Notes) 1. The amount paid to Directors does not include the portion of employee’s salary (including bonus) amounting to 82 million yen for Director who concurrently serves as employee 2 persons). 2. The number of eligible officers includes 1 Audit & Supervisory Board Member who retired at the closing of the 98th Annual General Meeting of Shareholders held on June 23, 2020 and 1 Outside Director who retired on August 31, 2021. The names of, and the amount paid to, the officers whose remuneration, etc., amounts to 100 million yen or more are individually disclosed in the annual securities report. Policy on Determining Remuneration Amounts Established and Calculation Methods Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods (1)Policy on determining remuneration, etc. The basic policy of the remuneration system for the Company’s officers has been determined as follows as part of efforts to realize the Company’s corporate philosophy. -It must contribute to the sustainable growth of the Group and the mid- and long-term improvement of corporate value. -It must encourage the Company’s officers to share a common awareness of interest with the shareholders and to further enhance management awareness that places importance on the interest of the shareholders. -It must be a remuneration system with a strong link to business performance in order to motivate the Company’s officers to achieve the business plan. -It must be a system with standards capable of attracting and retaining diverse and talented management resources in order to enhance the Group’s competitiveness. Furthermore, the remuneration, etc. for Executive Directors consists of basic remuneration, bonus and share-based compensation, while the remuneration for Outside Directors and Audit & Supervisory Board Members consists only of basic remuneration. – 16 – -The basic remuneration is provided in a flat amount commensurate with the officer’s roles and responsibilities within the limit of the officers’ remuneration allowance. Executive Directors are obliged to allocate a certain amount of the base remuneration to purchase the shares of the Company through the Officers Stock Ownership Plan with the aim of enhancing management awareness of placing an emphasis on the stock price. -The bonus represents the performance-based remuneration, the amount of which is determined in accordance with the performance of fiscal year within the range of payment rate (0% to 100%) linked to the degree of achievement of targets such as operating income and performance of each divisional company, when ROE and dividend amount meet certain criteria. -The share-based compensation plan is an incentive plan aimed at further raising motivation to contribute to the improvement of mid- and long-term business performance and improve the Group’s corporate value, under which the number of shares to be granted is determined in accordance with the position of Directors. Said plan has a structure enabling Directors to receive a benefit at the time of retirement for the results for which they contributed to enhancing the Company’s mid- and long-term corporate value in the form of the Company’s shares reflecting such enhancement in share value, thereby enhancing the link with mid- and long-term shareholders’ value. -The basic remuneration and the bonus, as monetary remuneration, are provided on a regular schedule during officer’s service while the share-based compensation is granted in lump sum at officer’s retirement. In a resolution relating to officers’ remunerations approved by the 85th Annual General Meeting of Shareholders held on June 28, 2007, the upper limit of remunerations for Directors was set at 1,100 million yen per year, while the upper limit of remunerations for Audit & Supervisory Board Members was set at 120 million yen per year. In a resolution approved by the 94th Annual General Meeting of Shareholders held on June 28, 2016, the upper limit for share-based compensation was set at a total of 330 million yen in the three- year period. The amount of the officers’ remuneration of the Company is determined based on the roles and responsibilities of the officer. The system has been designed so that the higher the rank of the officer the higher the ratio of the performance-based remuneration component. The responsibilities of each officer also reflect the business performance of the divisional company for which he or she is responsible. (2)Process of determining officers’ remuneration In determining the amount of remunerations, etc. to the Company’s Directors and the policy on determining calculation methods, the matter is deliberated by the Nomination and Remuneration Advisory Committee in advance and the results of the deliberation are recommended to the Board of Directors. The Board of Directors determines the policy based on the recommendation of the said advisory committee. The following is a summary of the procedures taken by the Nomination and Remuneration Advisory Committee. The chairman (Outside Director) convenes the committee and the agenda items are proposed by each committee member and deliberated by the committee. The results of deliberation by the committee are recommended to the Board of Directors by the chairman. The members of the committee are required to determine these matters from the perspective of whether or not it contributes to the Company’s corporate value and ultimately to the common interests of the shareholders, and are prohibited from making decisions that would solely benefit the personal interests of oneself or that of third parties, including the management team of the Company. In determining the amount of remuneration, the Nomination and Remuneration Advisory Committee deliberated the Directors’ remuneration levels and other matters including the personal evaluations and remunerations of each Director and the Board of Directors made a final decision. The specific amount, payment date, payment method and other matters are left discretion of President and Representative Director. In determining the amount of remuneration for the 99th fiscal term, the Nomination and Remuneration Advisory Committee deliberated the Directors’ remuneration levels and other matters including the personal evaluations and remunerations of each Director in June 2020 and June 2021, and the Board of Directors made a final decision. [Supporting System for Outside Directors and/or Audit & Supervisory Board Members] -Corporate Business Strategy Department functions as Secretariat to the Board of Directors. The Company develops further the environment in which sufficient materials are provided to the Directors in advance for – 17 – their deliberation through the appropriate organization-wide coordination depending on the nature of the discussion in the Board of Directors so that Directors can ask questions in advance. -Prior to the Board of Directors Meeting, the Secretariat to the Board of Directors makes a visit to independent Outside Directors to enhance the understanding of the discussion agenda by them, explaining about the agenda. -Corporate Internal Audit Department and the Secretarial Office are in charge of the Secretariat to Audit & Supervisory Board to support the audit activities conducted by Audit & Supervisory Board Members and the administration of Audit & Supervisory Board. In cooperation with each other, they establish the system which enables Outside Audit & Supervisory Board Members to inspect important documents and conduct a hearing to a responsible person in charge of each division as necessary. -Audit & Supervisory Board exchanges opinions with independent Outside Directors and provides information gained through audit activities. [Status of individuals retired from Representative Director and President, etc.] Name Position/ Title Description of Duties Naofumi Negishi Executive Advisor Activities for business Social organizations, contribution activities etc. Working Pattern/ Condition (Full time/Part time, With/Without remuneration, etc.) Part time, With remuneration, etc. Date of Retirement from President, etc. Term June 27, 2018 Maximum five years Total Number of Senior Advisor/Advisor who is a Former President and Representative Director, 1 etc. Other Matters The Company has both Executive Advisor System and Senior Advisor System aimed engaging in outside activities by persons with experience of office of President and Director, etc. Executive Advisor and Senior Advisor engage in such activities that have certain significance to the Company from the view point of a public nature and interest in economic and industrial sectors as well as academic and sports world, and never intervene to any management matters. Appointment of Executive Advisor is resolved by the Board of Directors, after being deliberated by the Nomination and Remuneration Advisory Committee, which consists of the majority of Independent Outside Board Members, and is delegated by President and Director. Mr. Negishi’s “Date of Retirement from President, etc.” is the day when he retired from Chairman of the Board and Director. 2. Matters on Functions of Business Execution, Auditing and Oversight, and Determination of Nomination and Remuneration (Overview of Current Corporate Governance System) (1) Organizational structure and business execution system As an organizational structure under the Companies Act, the Company has chosen to be a company with Audit & Supervisory Board. Under the Divisional Company System, the Company has adopted the Executive Officer System in order to clearly distinguish the business execution function from the decision-making function in management. Each divisional company has an Executive Officers Committee, which serves as the company’s highest decision-making body. The Executive Officers Committee has been delegated substantial authority previously entrusted to the Board of Directors. – 18 – (2) The Board of Directors The Board of Directors continually strives to strengthen its role as a body responsible for decision-making concerning the Company’s fundamental policies and upper-level management issues, and supervising the execution of business. The Board includes Outside Directors to ensure transparency in management and fairness in business decisions and operations. In addition, all Audit & Supervisory Board Members including Outside Audit & Supervisory Board Members shall attend the meetings of the Board of Directors. The number of Directors shall not exceed 15, and 2 or more of them shall be independent Outside Directors. The Company ensures diversity among board members and keeps the number of Directors at an optimal level for appropriate decision-making that is commensurate with the business domain and size. The presidents of the divisional companies who are the top management of each business and senior corporate officers with significant experience and strong expertise are appointed as Inside Directors. Together with the Outside Directors who have broad knowledge and experience, they effectively perform the roles and responsibilities of the Board of Directors, taking the balance with respect to diversit