住友ゴム工業（5110） – Corporate Governance Report

[Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE Please note that the following is an unofficial English translation of the Japanese original text of the Corporate Governance Report of Sumitomo Rubber Industries, Ltd., which is reported to the Tokyo Stock Exchange. The Company provides this translation for reference and convenience purposes only and without any warranty as to its accuracy or otherwise. In the event of any discrepancy between this translation and the Japanese original, the latter shall prevail. Latest Revision: March 25, 2022 Company: Sumitomo Rubber Industries, Ltd. Representative: Satoru Yamamoto, Inquiries: Phone: Securities Code: 5110 URL: Representative Director, President and CEO Governance Group, General Affairs Dept., Human Resources and General Affairs HQ +81-78-265-3001 https://www.srigroup.co.jp/ An Overview of Corporate Governance at Sumitomo Rubber Industries, Ltd. (the “Company”) is Described Below. I Basic Policy Regarding Corporate Governance and Capital Structure 1. Basic Policy 1. Basic Views Sumitomo Rubber Industries’ basic management policy is to enhance not only its economic value but also its social value and contribute to the development of a sustainable society by ensuring that “Our Philosophy” is the foundation for all decision-making and the starting point for all actions. Under this policy, the Company considers the enhancement of corporate governance as one of its major management objectives. Through initiatives toward the achievement of this management objective, the Company aims to establish deep relationships of trust with society and enhance its fairness and transparency, while ensuring Group-wide business efficiency. Accordingly, the Company has formulated its basic views as follows and strives to further enhance its corporate governance. a) We will develop an environment to secure shareholder rights and opportunities to exercise their rights. b) We will enhance our corporate value by appropriately cooperating with a wide range of stakeholders. c) We will disclose the Company’s financial and non-financial information in an accurate and appropriate manner. d) We have established a Management Committee to deliberate on the majority of issues relating to business execution so that the Board of Directors will fully discuss matters on the overall direction of the Company including the management policy and medium- to long-term plans. Furthermore, the fair operation of the Board of Directors will be ensured through strict audits by the standing audit & supervisory board members and independent outside audit & supervisory board members as well as through objective supervision by the independent outside directors. e) We will strive to continuously enhance our corporate value through dialogue with shareholders. (1) Reasons for Non-compliance with Principles of the Corporate Governance Code The Company has implemented all principles of the Corporate Governance Code since its revision in June 2021. (2) Disclosure Based on Principles of the Corporate Governance Code Disclosure is made in accordance with the Code revised in June 2021 (including the principles for the Prime Market applicable from April 4, 2022) – 1 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE [Principle 1.4: Disclosure of the Policy on Cross-shareholdings and the Standards for the Exercise of Voting Rights as to Cross-shareholdings] 1) Policy on cross-shareholdings: The Company may hold shares of its business partners, etc., with an aim for the continuous enhancement of its corporate value over the medium to long term, stable corporate management, and reinforcement of relationships with its business partners; provided, however, that the Company has made it its policy to periodically examine the shares of each individual company from a medium- to long-term perspective. If the Company decided that it is unnecessary to continue holding the shares, the Company will consider selling them, taking the stock prices and market trends into consideration as well. 2) Close examination and verification of the adequacy of shareholdings: The Company has made it its policy to have the Board of Directors periodically judge the adequacy of shareholdings, taking into comprehensive consideration the significance of the shareholdings and economic rationality, such as growth potential, profitability, and reinforcement of business relationships. In November 2020, the Company examined the adequacy of shareholdings and sold some shares. 3) Standards for the exercise of voting rights: The Company exercises its voting rights as to the cross-shareholdings by comprehensively taking into account whether the Company as a shareholder will be able to contribute to the improvement of the investee’s corporate value and whether such exercise will lead to the medium- to long-term improvement of the Company’s corporate value, as well as through dialogue with the investee. When there is a possibility that the shareholders’ value may be significantly damaged or that a serious concern about corporate governance may arise due to long-term underperformance or serious violation of compliance of the investee or for other reasons, the Company will gather sufficient information by various means including dialogue with the investee and make a comprehensive decision on the agenda. [Principle 1.7: Establishment of Procedures for Related Party Transactions and Disclosure of Such Procedures] The Company has established a system to ensure that the common interests of the Company and its shareholders are not harmed by periodically monitoring competitive transactions and conflict of interest transactions involving directors or audit & supervisory board members as well as related party transactions with parties including major shareholders as a matter for resolution by the Board of Directors, while at the same time externally disclosing such transactions pursuant to applicable laws and regulations including the Companies Act and the rules of the Tokyo Stock Exchange. [Supplementary Principle 2.4.1: Ensuring Diversity in Promoting Core Human Resources] The Group is disseminating its Top Commitment to “Work style reform and diversity promotion” both internally and externally, aiming to become a “Company that can utilize diverse human resources to make the most of its own abilities.” We are working to create diverse employment environments by promoting the hiring of foreign nationals, mid-career hiring, rehiring of employees who have resigned on reaching mandatory retirement age, hiring of people with disabilities, appointing local employees overseas as executives, and appointing non-regular employees as regular employees. In order to promote the active participation of women, we have reset the target in 2021 and set the ratio of women in management positions at 7% by 2025. As for employees with foreign nationality, we actively promote local employees to senior management at the Group’s overseas subsidiaries, while hiring and promoting human resources who can play an active role regardless of their nationality to management positions in the Company itself. (Managers with foreign nationality at the Company: 7 persons; regular employees with foreign nationality: 33 persons (including 7 managers)) We actively employ mid-career hires for staff and management positions, and also promote non-regular employees to regular employees. We will continue striving to secure diverse human resources through a variety of hiring methods. For details on our promotion of diversity and inclusion, please refer to the following Company websites. Top Commitment https://www.srigroup.co.jp/sustainability/genki/kindness/03_2.html – 2 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE Goals and Achievements of Activities: Kindness (Various People-friendly Measures) https://www.srigroup.co.jp/sustainability/genki/kindness/ Sustainability Documents “Integrated Report” https://www.srigroup.co.jp/sustainability/information/download.html [Principle 2.6: Exercise of the Function as the Asset Owner of the Corporate Pension] The management of the Company’s corporate pension fund is examined and planned by the quarterly Assets Management Committee with respect to the management of pension assets based also on reports from management institutions, and is executed by the Sumitomo Rubber Combined Corporate Pension Fund. The Assets Management Committee consists of persons from the Human Resources, Accounting, and Finance Departments who have appropriate qualifications on investment and executives of the labor union as the representative of beneficiaries, establishing a system that allows the management of pension resources to be checked soundly from the perspectives of specialties and beneficiary protection. [Principle 3.1: Full Disclosure] (i) Management philosophy, management strategies, and managerial plans The basic management policy of the Sumitomo Rubber Group is to enhance not only its economic value but also its social value and contribute to the development of a sustainable society, based on the Group’s corporate philosophy, “Our Philosophy.” “Our Philosophy” is structured such that at the top, there is our Purpose, which is defined as “Through innovation we will create a future of joy and well-being for all.” Next there are our “Story,” “Vision,” and the “Values each member of Sumitomo Rubber Industries holds, the SRI WAY.” In addition to promoting business activities that take “Our Philosophy” as the foundation for all decision-making and the starting point for all actions, the Company also aims to achieve its ” Mid-Term Plan” which was formulated to embody “Our Philosophy.” For details on “Our Philosophy” and “Mid-Term Plan ,” please refer to our website Our Philosophy (https://www.srigroup.co.jp/english/corporate/philosophy.html) Mid-Term Plan (https://www.srigroup.co.jp/english/corporate/vision.html) (ii) Basic views and policy on corporate governance Please refer to “1. Basic Views” of “Basic Policy.” (iii) Policy and procedures for determining the remuneration of senior management and directors Based on the resolution of the Board of Directors meeting on February 9, 2022 and the approval at the 130th Ordinary General Meeting of Shareholders on March 24, 2022, the Company has introduced a stock compensation plan with restrictions on transfer as a new incentive plan for directors. The Company has established the following Policies for Determining Officer Remuneration, including the determination of stock compensation as the medium- to long-term incentive remuneration: Policies for Determining Officer Remuneration (Established on February 9, 2021, revised on February 9, 2022, and applied on March 24 of the same year) 1. The basic policy of the Company is to adopt a remuneration system that is linked to the interests of shareholders, in order to ensure that remuneration for its officers (directors and executive officers) functions sufficiently as an incentive to sustainably enhance corporate value, while also ensuring that, when making decisions about the remuneration of individual officers, this remuneration is at a level appropriate to their respective responsibilities. Specifically, remuneration for directors, excluding outside directors, and executive officers consists of basic salary as fixed remuneration and bonuses as performance-based remuneration. Remuneration for outside directors, who perform a supervisory function, consists only of basic salary, from the perspective of ensuring the impendence of their performance of duties. Basic Policy – 3 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE Policies Related to Determination of the Amount of Basic Salary for Individuals Policies Related to Determination of the Content of Short-Term Performance-Based Remuneration Policies Related to Determination of the Content and Amount of Medium- to Long-Term Incentive 2. The basic salary of officers of the Company is a monthly fixed remuneration, and is determined in accordance with their position, responsibilities, and years in office, based on basic salary tables determined after comprehensively taking into consideration the level of remuneration at peers, the business performance of the Company, salary levels for employees, and other factors. 3. and Method of Calculating Its Amount In order to enhance officials’ awareness of enhancing business performance each business year, short-term performance-based remuneration is cash-based remuneration that reflects performance indicators. When determining the allocation to each individual, the individual’s position, operational duties, level of responsibility, level of achievement of key targets within departments under his or her supervision, level of contribution to business performance, and other factors are taken into account, also taking into consideration a medium- to long-term perspective. 4. Remuneration The medium- to long-term incentive remuneration shall be the Company’s shares with restrictions on share transfer, until retirement due to reasons that the Company’s Board of Directors deems justifiable. The aim is to provide an incentive for members to sustainably enhance the corporate value of the Company and further promote sharing of value between directors and shareholders. The number of shares shall be determined in accordance with the recipient’s position based on the stock compensation table determined by comprehensively taking into consideration the level of other companies, the level of employees’ salaries, etc. 5. The proportion of each type of remuneration for directors, excluding outside directors, and executive officers is structured such that the weighting of incentive remuneration is higher for officers with higher positions than lower positions. The proportion is considered by the Nomination and Remuneration Committee, taking into consideration remuneration levels benchmarked against companies of a similar business scale to the Company or in a related industry or business format. The Board of Directors (the Representative Director and President delegated as described in item 6.) determines the details of remuneration for individual officers within the scope of the proportion of remuneration for each type of remuneration indicated in the recommendation of the Nomination and Remuneration Committee, while also respecting the content of this recommendation. Furthermore, in terms of general amounts for the proportion of each type of remuneration, the ratios of “fixed remuneration (basic salary)” to “short-term performance-based remuneration (bonus)” to “medium- to long-term incentive remuneration” are 75:20:5 for directors, excluding outside directors, and 80:20 for executive officers. (If the level of achievement of performance indicators is 100%) However, the payment ratio will fluctuate as follows, because the actual performance remuneration to be paid fluctuates depending on consolidated business profit, etc. Policies Related to Determining the Proportion in the Amount of Remuneration for Individuals Position Fixed Remuneration (Basic Salary) 72–95% Short-term Performance-based Remuneration (Bonus) 0–20% Medium- to Long-term Incentive Remuneration (Stock Compensation) 5–8% 0–20% 80–100% Matters Related to Delegation of Details of Remuneration, etc. for Individual Officers Director Officer other than director 6. The Representative Director and President is delegated to determine the specific content of the amount of remuneration for individuals by resolution of the Board of Directors. The content of the delegated rights includes determining the amount of basic salary for officers and appraising and allocating bonuses based on officers’ operational responsibilities. In order to ensure that the Representative Director and President appropriately exercises these rights, the Board of Directors consults the Nomination and Remuneration Committee regarding a draft proposal and – – 4 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE receives a recommendation. The Representative Director and President delegated as described above must make a decision in accordance with the content of this recommendation. (iv) Policy, etc. for the appointment, dismissal, and nomination of director and audit & supervisory board member candidates 1) Director candidates are nominated based on consideration of whether they can contribute to the continuous enhancement of the corporate value of the Company, including factors such as their contribution to achieving effective corporate governance and the diversity of the members of the Board of Directors in terms of knowledge and experience. 2) Audit & supervisory board member candidates are nominated based on consideration of whether they can perform their duties fairly, such as audits of the execution of directors’ duties, for the sake of all stakeholders including shareholders from an independent and objective standpoint, in order to contribute to the Company’s sustainable growth. 3) The nomination of director and audit & supervisory board member candidates is determined based on objective and fair consideration by the Nomination and Remuneration Committee, the majority of whose members are independent outside officers and upon a recommendation of the Board of Directors. 4) When a reason arises that is confirmed to make it difficult for directors or audit & supervisory board members to appropriately execute their functions, such as serious violation of laws, ordinances, or articles of the incorporation, the Board of Directors consults the Nomination and Remuneration Committee and after obtaining its report, holds an examination and makes a decision on dismissal from the position of the person in question, other penalties, or submission of a dismissal proposal to the general meeting of shareholders. (v) Explanations with respect to the individual appointments and nominations of director and audit & supervisory board member candidates The reasoning behind the nomination of nominees for the Board of Directors and Audit & Supervisory Board shall be included in the reference materials (pp. 11–20) provided with the Notice of Convocation of the 130th General Meeting of Shareholders. Notice of Convocation of the 130th Ordinary General Meeting of Shareholders https://www.srigroup.co.jp/ir/shareholder/dvql4p000000esii-att/2203_130Notice_JP.pdf [Supplementary Principle 3.1.3 Initiatives on Sustainability] The Group’s corporate philosophy framework “Our Philosophy” is based on the “Sumitomo Business Philosophy,” which has been handed down over the past 400 years. The Sumitomo Business Philosophy states that we “Respect not only economic values but also social values.” In the Mid-Term Plan through to 2025, announced in February 2020, the Company adopted the slogan “Promoting ESG-based Management” as one of its value drivers, and declared that it would contribute to solving environmental and social problems through its business activities and would further strengthen its efforts to make society sustainable. Amid drastic changes in social issues such as the spread of climate change, we announced “Driving Our Future Challenge 2050” in August 2021, believing that a long-term policy looking ahead to 2050 is necessary for society and the Company to achieve sustainable growth. In “Driving Our Future Challenge 2050,” we have established the 2050 Challenge Goals and measures that can contribute to solving social issues in each area of the environment, society and governance. By steadily implementing these plans, the Company will contribute to the development of a sustainable society, by working to increase not only economic value but also social value while coexisting with society and the environment. Please refer to the Company’s website at the link below for the details of specific initiatives related to sustainability. Formulation of the long-term sustainability policy “Driving Our Future Challenge 2050” https://www.srigroup.co.jp/newsrelease/2021/sri/2021_060.html Response to TCFD https://www.srigroup.co.jp/sustainability/genki/ecology/04_5.html Human capital https://www.srigroup.co.jp/sustainability/managemen_resources/human.html Intellectual capital https://www.srigroup.co.jp/sustainability/managemen_resources/intellectual.html – 5 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE [Principle 4.1.1: Disclosure of the Scope of Matters Delegated by the Board of Directors to the Management] The Company has developed a system that facilitates the delegation of authority from the Board of Directors and prompt and resolute decision-making by the management by establishing various rules regarding the approval authority, including the Board of Directors Rules and the Management Committee Rules, and by clearly defining the matters to be approved by each body. [Principle 4.9: Disclosure of Independence Standards for Independent Outside Directors] The Company judges the independence of outside directors based on whether they can contribute to the stable growth of the Company over the medium to long term, assuming that they fulfill the independence criteria set by the Tokyo Stock Exchange. Additionally, a candidate to whom any of the following conditions apply is subject to even stricter scrutiny than the other candidates on whether falling under any of the following items damages his or her independence. The Company will also disclose to the possible extent the relationship with the said candidate and reasons that he or she is judged to be independent. 1) A person who executed business at the Company or its subsidiary in the past; 2) A person who executed business or was a non-executive director at the parent company of the Company in the past; 3) A person who executed business at a fellow subsidiary of the Company in the past; 4) A person who executed business at an entity for which the Company is a major business partner in the past; 5) A person who executed business at a major business partner of the Company in the past; 6) A person who belonged to a consultant, an accounting professional, or a legal professional entity (limited to a corporation or an organization such as an association) receiving a large amount of money or other financial assets from the Company other than officer remuneration in the past; 7) A major shareholder of the Company (if said major shareholder is a corporation, a person who executes or executed its business); 8) A close relative of the person described in 1) through 7); 9) A business partner of the Company or a person who belonged to the said business partner; 10) A person who belonged to an entity, between which and the Company’s outside officers are mutually appointed; and 11) An entity to which the Company contributes donations or a person who belonged to the said entity. [Supplementary Principle 4.10.1: Effective Use of Independent Officers] As an advisory body to the Board of Directors, the Company has established the Nomination and Remuneration Committee, a majority of whose members are independent outside officers and which is chaired by an independent outside director. The Nomination and Remuneration Committee ensures objectivity and transparency in the nomination of officers and determination of remuneration, and aims to enhance corporate value through supervision by independent outside officers. Currently, the Committee has nine members, seven of whom are independent outside officers, and the attendance rate of each Committee member was 100% in fiscal 2020. The Nomination and Remuneration Committee of the Company stipulates in its Rules that the Committee shall deliberate on the following matters in response to an inquiry from the Board of Directors, and submit a recommendation to the Board: (1) Proposal for General Meeting of Shareholders on election and dismissal of directors and audit & supervisory board members; (2) Establishment, amendment, or abolition of the basic policies, rules, procedures, etc. necessary for the resolution of the preceding item; (3) Other matters deemed particularly necessary by the Nomination and Remuneration Committee with respect to the election and dismissal of candidates for directors and audit & supervisory board members; (4) Appointment and removal of Representative Director, Chairman of the Board, and President; (5) Appointment and removal of executive officers (Vice President, Managing Executive Officer, and Senior Executive Officer); (6) Remuneration of individual directors and executive officers; (7) Establishment, amendment, or abolition of the basic policies, rules, procedures, etc. necessary for the resolution of the preceding item; (8) Other matters deemed particularly necessary by the Nomination and Remuneration Committee regarding the remuneration of directors and executive officers. – 6 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE [Principle 4.11.1: Balance between Knowledge, Experience and Skills of the Board of Directors, and Views on Diversity and Board Size] The Company’s Board of Directors, which includes several outside independent directors, is of an appropriate size and is comprised of a well-balanced group of experts from various fields capable of fulfilling the functions of the Board, including corporate management and business strategy, production and technology, international business, sales and marketing, legal and governance, financial strategy and accounting, and DX and IT. Going forward, the Company intends to select director candidates who are capable of contributing to the enhancement of the Company’s corporate value, based on deliberation by the Nomination and Remuneration Committee. For the Skill Matrix of directors and audit & supervisory board members of the Company, please refer to the reference materials (pp. 21–22) provided with the Notice of Convocation of the 130th General Meeting of Shareholders. Notice of Convocation of the 130th Ordinary General Meeting of Shareholders https://www.srigroup.co.jp/ir/shareholder/dvql4p000000esii-att/2203_130Notice_JP.pdf [Principle 4.11.2: Disclosure of Concurrent Positions of Directors and Audit & Supervisory Board Members] For the Concurrent Positions of directors and audit & supervisory board members of the Company, please refer to the Business Report (pp. 39, 45) provided with the Notice of Convocation of the 130th General Meeting of Shareholders. Notice of Convocation of the 130th Ordinary General Meeting of Shareholders https://www.srigroup.co.jp/ir/shareholder/dvql4p000000esii-att/2203_130Notice_JP.pdf [Principle 4.11.3: Analysis and Evaluation of the Effectiveness of the Board of Directors and Disclosure of a Summary of Results] Regarding the analysis and evaluation of the Board of Directors, which had been conducted previously, the Company’s Board of Directors delegated them to an independent third-party evaluation company that prepared questionnaire items, and distributed questionnaires to all directors and audit & supervisory board members and collected them for the first time in the fiscal year under review. Based on the results of the questionnaire, 12 directors and 5 audit & supervisory board members were interviewed. After evaluation and examination by a third-party organization, the results were compiled into a report, which was received at the Board of Directors meeting held in December 2021 and deliberated at the meeting. ◼ Main items in the questionnaire “Competencies of the Board of Directors,” “Appropriateness of operations and discussions of the Board of Directors,” and “Appropriateness of the support by the secretariat” ◼ Summary of the evaluation results The Board of Directors of the Company has the following strengths, and its effectiveness is evaluated to be generally at a high level. a) Enhanced information-sharing for outside officers There is a separate time set aside from the Board of Directors meetings to share matters to be resolved at management meetings and their status of discussions, and it is a valuable opportunity for outside officers to understand the situation. b) Ensuring diversity The Company’s Board of Directors includes two women and one foreign national, and is highly diversified. The Board is also well-balanced in terms of skills. ◼ Future initiatives Going forward, while taking advantage of these strengths, the Company will enhance the effectiveness of the Board of Directors and further improve corporate value by carefully selecting agenda items. It will aim to focus more on discussions on important matters pertaining to overall management, and provide opportunities to freely exchange opinions on topics that should be intensively discussed. [Principle 4.14.2: Disclosure of Training Policy for Directors and Audit & Supervisory Board Members] The Company’s internal directors and executive officers participate in external executive training programs at the Company’s expense. Through participation in those training programs, the directors and executive officers acquire the knowledge necessary to play a role as part of the major governing body of a listed company. Newly appointed outside officers are briefed on the information necessary to provide advice as – 7 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE officers to the Company for the enhancement of its corporate value, including the Company’s latest business conditions, results and issues that need to be addressed. [Principle 5.1: Disclosure of Policy Concerning the Development of a System and Measures to Promote Constructive Dialogue with Shareholders] The Company will conduct dialogue with shareholders with an aim to enhance its corporate value based on the following policy: a) The Company strives to realize dialogue in line with the interests of various stakeholders by appointing the officer in charge of finance for investor relations (IR) and the officer in charge of general affairs for shareholder relations (SR). b) In preparing materials and gathering information for the IR and SR activities mentioned above, the Company’s Corporate Planning, General Affairs, Finance, Legal Affairs, and other related departments engage in organic, cross-sectional coordination in order to support constructive dialogue with stakeholders, including shareholders and institutional investors. c) The Company, in addition to full information disclosure at the general meeting of shareholders and through the convocation notice, provides various types of timely information such as dissemination of information on business status in addition to the status of ESG-based management and sustainability activities in the Integrated Report. In addition, the Company also holds results briefings and endeavors to promote communication with shareholders and investors. d) The Company considers the opinions learned through dialogue with shareholders and investors as valuable to further enhance its corporate value. While sharing such information with the senior management, the Company studies the necessity and methods for materializing such opinions as needed. e) When engaging in dialogue with shareholders and investors, the Company checks the explanation and disclosure materials for the dialogue with external consultants and other professionals beforehand for the purpose of preventing the risk of insider trading. 2. Capital Structure [Major Shareholders] Ratio of shares held by foreigners less than 30% more than 20% Number of shares held (Thousand Shares) 75,879 24,342 Shareholding ratio (%) Name of shareholder Sumitomo Electric Industries, Ltd. The Master Trust Bank of Japan, Ltd. (Trust account) National Mutual Insurance Federation of Agricultural Cooperatives Custody Bank of Japan, Ltd. (Trust account) NORTHERN TRUST CO.(AVFC)RE SILCHESTER INTERNATIONAL INVESTORS INTERNATIONAL VALUE EQUITY TRUST Sumitomo Mitsui Banking Corporation Sumitomo Corporation NORTHERN TRUST CO.(AVFC)RE U.S. TAX EXEMPTED PENSION FUNDS SMBC Nikko Securities Inc. STATE STREET BANK AND TRUST COMPANY 505103 Controlling shareholder (excluding parent company) ——— Parent company None 7,331 6,731 6,089 5,215 4,805 4,325 4,143 3,780 – 8 – 28.85 9.26 2.79 2.56 2.32 1.98 1.83 1.64 1.58 1.44 [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE Supplementary Explanation The above status of major shareholders is as of December 31, 2022. Shareholding ratio is calculated by excluding the number of treasury stock (47,604 shares) from the total number of shares issued and outstanding. 3. Corporate Attributes Stock exchange listings and market classification Fiscal year-end Industry Number of employees as of December 31, 2013 (consolidated) Net sales as of December 31, 2013 (consolidated) Number of consolidated subsidiaries as of December 31, 2013 First Section, Tokyo Stock Exchange; December Rubber products 1,000 or more ¥100 billion or more and less than ¥1 trillion 50 or more and less than 100 4. Guideline on Protection of Minority Shareholders in Conducting Transactions with Controlling Shareholders 5. Other Exceptional Circumstances that Might Have a Material Impact on Corporate Governance ——— ——— – 9 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE II Overview of Business Management Organization and Other Corporate Governance Systems to Managerial Decision-Making, Business Execution, and Management 1. Items relating to Organization Structure and Operations, etc. Form of organization Company with an Audit & Supervisory Board related Supervision [Directors] Number of directors stipulated in the Articles of Incorporation Term of office of directors stipulated in the Articles of Incorporation Chairperson of the Board of Directors Number of directors Election of outside directors Number of outside directors Number of outside directors designated as independent officers 15 One year Chairman of the Board 11 Elected 4 4 Relationship with the Company (1) Name Attributes Attorney Keizo Kosaka Kenji Murakami Coming from another company Nobuyuki Kobayashi Coming from another company Mari Sonoda Other * Categories for relationship with the Company *○” when the said individual presently falls or has recently fallen under each of the following categories; Relationship with the Company *1 e g f h ○ ○ b d c a i “△” when the said individual fell under each of the following categories in the past. *●” when a close relative of the said individual presently falls or has recently fallen under each of the following categories; “▲” when a close relative of the said individual fell under each of the following categories in the past. a. Executive of a listed company or its subsidiary b. Executive or non-executive director of the parent company of a listed company c. Executive of a fellow subsidiary company of a listed company d. The party whose principal client or supplier is a listed company or executive thereof e. Principal client or supplier of a listed company or executive thereof f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from a listed company besides compensation as an executive g. Principal shareholder of a listed company (executive of the said corporate shareholder if the principal h. Executive of a client or supplier company of a listed company (which does not correspond to any of d, shareholder is a legal entity) e, or f, above) (the said individual only) i. Executive of a company, between which and outside directors are mutually appointed (the said j. Executive of a company or organization that receives a donation from a listed company (the said individual only) individual only) k. Other – 10 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE Relationship with the Company (2) Name Independent officer Supplementary explanation relating to these items Keizo Kosaka X X X Kenji Murakami Nobuyuki Kobayashi Reason for election as outside director (including the reason for designation as independent officer, if applicable) Mr. Kosaka provides valuable comments and opinions from an objective perspective, leveraging his abundant knowledge as an attorney who excels at corporate legal affairs, and substantial experience in corporate management as Chairman of Irokawa Law Office, as well as Outside Audit & Supervisory Board Member of Toyo Aluminium K.K., Sekisui Plastics Co., Ltd., Techno Associe Co. Ltd., and SEIREN CO., LTD. The Company requests his appointment based on its judgment that he would contribute to the improvement of the Company’s corporate governance. Mr. Kenji Murakami has ample knowledge in corporate management, with substantial experience in corporate management as Representative Director, President and COO of Daiwa House Industry Co., Ltd. The Company requests his appointment based on its judgment that he would contribute to the improvement of the Company’s corporate governance. Mr. Nobuyuki Kobayashi has been engaged mainly in the accounting and finance section at Sumitomo Electric Industries, Ltd. (SEI) and utilizes his extensive experience and broad insights as a manager, based on his experience as Managing Director of SEI, to provide valuable opinions and suggestions regarding all aspects of corporate management. The Company requests his appointment in expectation that he will contribute to improving the Company’s corporate governance. Outside director Keizo Kosaka is an attorney. There are no significant transactional relationships between Irokawa Law Office, which Mr. Kosaka serves as Chairman, as well as Toyo Aluminium K.K., Sekisui Plastics Co., Ltd., Techno Associe Co. Ltd., and SEIREN CO., LTD., where he serves as Outside Audit & Supervisory Board Member and the Company. Outside director Kenji Murakami had served as Representative Director and Vice Chairman of Daiwa House Industry Co., Ltd. until March 2012. There is no significant transactional relationship between the said company and the Company. Outside director Nobuyuki Kobayashi is Managing Director of Sumitomo Electric Industries, Ltd. (SEI). Although SEI is a major shareholder of the Company (shareholding ratio: 28.85%), there is no special interest between Mr. Kobayashi as an individual and the Company. SEI has a transactional relationship with the Company in raw materials for tires, etc., but as of December 31, 2021, this business relationship accounted for less than 1.0% of each company’s total consolidated annual revenue. Considering that the Company’s dependence of SEI – 11 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE is low and it is not overly affected by the said company, the Company judges that there is no risk of conflicts of interest with general shareholders. – Mari Sonoda X Ms. Mari Sonoda has held important positions at the Ministry of Finance and elsewhere and has earned experience in finance, fiscal affairs and policy planning, and extensive experience based on her time developing personal information protection systems, including My Number, the national identification number. The Company requests her appointment in expectation that she will contribute to improving the Company’s corporate governance. Any voluntary committee equivalent to the Nomination Committee or Remuneration Committee Yes Establishment of optional advisory committees, committee composition, and attributes of the chairperson Optional committee equivalent to Nomination Committee The Nomination and Remuneration Committee 9 0 2 4 0 3 Outside director Optional committee equivalent to Remuneration Committee The Nomination and Remuneration Committee 9 0 2 4 0 3 Outside director Committee Committee members Full-time members Internal directors Outside directors Outside experts Others Chairperson Supplementary Explanation Furthermore, the Company resolved at the Meeting of the Board of Directors to establish a Nomination and Remuneration Committee as a voluntary advisory body for the Board of Directors. The members of the Committee included into “Others” are Outside audit & supervisory board members. [Audit & Supervisory Board Members] Establishment of the Audit & Supervisory Board Number of audit & supervisory board members stipulated in the Articles of Incorporation Number of audit & supervisory board members Yes 5 5 Cooperation among Audit & Supervisory Board Members, Accounting Auditor and Internal Audit Office In accordance with audit plans and policies set out by the Audit & Supervisory Board, each audit & supervisory board member attends important meetings, including Board of Directors’ meetings; – 12 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE hears reports on the status of job execution from directors and the internal audit office; reviews important approval documents; and implements on-site audits at the Head Office, major business sites and subsidiaries. In addition, audit & supervisory board members review each other’s reports on auditing status while working closely with accounting auditor to ensure that audits are conducted in an appropriate manner. As the internal audit office, the Company has established the Audit Department under the direct control of the president and have full-time assistant to the audit & supervisory board members. The Audit Department conducts audits of the Group as a whole and evaluates its internal control system over the Group’s financial reporting. In accordance with audit policies and annual internal audit plans, the Audit Department implements on-site audits of the Head Office, major business sites and subsidiaries to evaluate the efficacy, efficiency and degree of compliance adequacy in connection with the execution of operations at each division and department and related Group company. On the completion of an internal audit, the results and any recommendations for improvement are reported to the President, the Audit & Supervisory Board and the Board of Directors, in an effort to ensure reciprocal collaboration. The Audit Department and accounting auditor facilitate closer collaboration as needed to fulfill their duties. For accounting audits, the Company has entered into an audit agreement with KPMG AZSA LLC in line with the Corporation and the Financial Instruments and Exchange Laws. Election of outside audit & supervisory board members Number of outside audit & supervisory board members Number of outside audit & supervisory board members designated as independent officers Elected 3 3 Relationship with the Company (1) Name Attributes Relationship with the Company *1 e g d b c f h a i Morihiro Murata Asli M. Colpan Hirofumi Yasuhara * Categories for relationship with the Company *○” when the said individual presently falls or has recently fallen under each of the following categories; Certified public accountant Professor Coming from another company “△” when the said individual fell under each of the following categories in the past. *●” when a close relative of the said individual presently falls or has recently fallen under each of the following categories; “▲” when a close relative of the said individual fell under each of the following categories in the past. a. Executive of a listed company or its subsidiary b. Non-executive directors or accounting advisors of the listed company or its subsidiaries c. Executive or non-executive director of the parent company of a listed company d. Parent company of auditors of listed company e. Executive of a fellow subsidiary company of a listed company f. The party whose principal client or supplier is a listed company or executive thereof g. Principal client or supplier of a listed company or executive thereof h. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from a listed company besides compensation as an executive i. Principal shareholder of a listed company (executive of the said corporate shareholder if the principal j. Executive of a client or supplier company of a listed company (which does not correspond to any of f, shareholder is a legal entity) g, or h, above) (the said individual only) k. Executive of a company, between which and outside directors are mutually appointed (the said l. Executive of a company or organization that receives a donation from a listed company (the said individual only) individual only) m. Other – 13 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE Relationship with the Company (2) Name Independent officer Supplementary explanation relating to these items Morihiro Murata X X X Asli M. Colpan Hirofumi Yasuhara Reason for election as outside audit & supervisory board member (including the reason for designation as independent officer, if applicable) Mr. Murata expresses opinions on the execution of business by directors from an objective viewpoint as an outside audit & supervisory board member, based on his considerable knowledge in finance and accounting as a certified public accountant and tax accountant, as well as experience of involvement in corporate management as outside director, audit & supervisory committee member of Kagome Co., Ltd., and outside audit & supervisory board member of Kokuyo Co., Ltd. The Company requests his appointment based on its judgment that he would contribute to the reinforcement of the Company’s audit system. Ms. Asli M. Colpan expresses opinions on the execution of business by directors from an objective viewpoint as an outside audit & supervisory board member, based on her advanced academic knowledge as a professor specializing in management strategy and corporate governance, as well as experience of involvement in corporate management as Independent Director of Gourmet Kineya Co., Ltd. and outside director of Nissha Co., Ltd. The Company requests her appointment based on its judgment that she would contribute to the reinforcement of the Company’s audit system. Mr. Hirofumi Yasuhara, making full use of his experience in finance and corporate management as Representative Director of PanaHome Corporation (currently Panasonic Homes Co., Ltd.), as well as Senior Audit & Supervisory Board Member of Panasonic Corporation and Outside Corporate Auditor of Santen Pharmaceutical Co., Ltd. and Hitachi Zosen Corporation, Outside audit & supervisory board member Morihiro Murata is certified public accountant and tax accountant. There are no significant transactional relationships between Murata Morihiro Accounting Firm, which Mr. Murata is represented, and the Company. Outside audit & supervisory board member Asli M. Colpan is Professor at Graduate School of Economics, Kyoto University, and Professor at Graduate School of Management, Kyoto University. There is no significant transactional relationship between Nissha Co., Ltd., where she serves as outside director, and the Company. Outside audit & supervisory board member Hirofumi Yasuhara is Outside Corporate Auditor at Santen Pharmaceutical Co., Ltd. and Hitachi Zosen Corporation. There is no significant transactional relationship between Santen Pharmaceutical Co., Ltd. and Hitachi Zosen Corporation, where he serves as – 14 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE Name Independent officer Supplementary explanation relating to these items Outside Corporate Auditor, and the Company. Reason for election as outside audit & supervisory board member (including the reason for designation as independent officer, if applicable) has provided the Company with opinions on the performance of duties by directors from an objective point of view as an outside audit & supervisory board member. The Company requests his appointment based on its judgment that he would contribute to the reinforcement of the Company’s audit system. [Independent Officers] Number of independent officers 7 Other Information on Independent Officers The Company has designated directors Keizo Kosaka, Kenji Murakami, Nobuyuki Kobayashi and Mari Sonoda and Audit & Supervisory Board Members Morihiro Murata, Asli M. Colpan and Hirofumi Yasuhara as Independent Officers, outside corporate officers who have no potential conflicts of interest with general shareholders according to the criteria stipulated by Tokyo Stock Exchange, and has duly submitted to Tokyo Stock Exchange notification to such effect. [Incentives] Status of implementation of measures to grant incentives to Directors A performance-based remuneration system is adopted. Supplementary Explanation relating to This Item Please refer to [Directors’ Remuneration] “Disclosed Policy for Deciding the Amounts or Calculation Method of Remuneration” Grantees of stock options Supplementary Explanation relating to This Item ——— [Directors’ Remuneration] Disclosure status (of individual directors’ remuneration) Supplementary Explanation relating to This Item JPY 500 million / 14 directors in total Policy for deciding the amounts or calculation method of remuneration Yes Individual directors’ remuneration is not disclosed. Disclosed Policy for Deciding the Amounts or Calculation Method of Remuneration Based on the resolution of the Board of Directors meeting on February 9, 2022 and the approval at the 130th Ordinary General Meeting of Shareholders on March 24, 2022, the Company has introduced a stock compensation plan with restrictions on transfer as a new incentive plan for directors. The – 15 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE Company has established the following Policies for Determining Officer Remuneration, including the determination of stock compensation as the medium- to long-term incentive remuneration: Policies for Determining Officer Remuneration (Established on February 9, 2021, revised on February 9, 2022, and applied on March 24 of the same year) 1. Basic Policy The basic policy of the Company is to adopt a remuneration system that is linked to the interests of shareholders, in order to ensure that remuneration for its officers (directors and executive officers) functions sufficiently as an incentive to sustainably enhance corporate value, while also ensuring that, when making decisions about the remuneration of individual officers, this remuneration is at a level appropriate to their respective responsibilities. Specifically, remuneration for directors, excluding outside directors, and executive officers consists of basic salary as fixed remuneration and bonuses as performance-based remuneration. Specifically, remuneration for directors, excluding outside directors, and executive officers consists of basic salary as fixed remuneration and bonuses as performance-based remuneration. Stock compensation is paid to directors, excluding outside directors, as a medium- to long-term incentive, while remuneration for outside directors, who perform a supervisory function, consists only of basic salary, from the perspective of ensuring the independence of their performance of duties. 2. Policies Related to Determination of the Amount of Basic Salary for Individuals The basic salary of officers of the Company is a monthly fixed remuneration, and is determined in accordance with their position, responsibilities, and years in office, based on basic salary tables determined after comprehensively taking into consideration the level of remuneration at peers, the business performance of the Company, salary levels for employees, and other factors. 3. Policies Related to Determination of the Content of Short-Term Performance-Based Remuneration and Method of Calculating Its Amount In order to enhance officials’ awareness of enhancing business performance each business year, short-term performance-based remuneration is cash-based remuneration that reflects performance indicators. When determining the allocation to each individual, the individual’s position, operational duties, level of responsibility, level of achievement of key targets within departments under his or her supervision, level of contribution to business performance, and other factors are taken into account, also taking into consideration a medium- to long-term perspective. 4. Policies Related to Determination of the Content and Amount of Medium- to Long-Term Incentive Remuneration The medium- to long-term incentive remuneration shall be the Company’s shares with restrictions on share transfer, until retirement due to reasons that the Company’s Board of Directors deems justifiable. The aim is to provide an incentive for members to sustainably enhance the corporate value of the Company and to further promote sharing of value between directors and shareholders. The number of shares shall be determined in accordance with the recipient’s position based on the stock compensation table determined by comprehensively taking into consideration the level of other companies, the level of employees’ salaries, etc. 5. Determination of the Proportion of the Amounts of Basic Salary and Performance-Based Remuneration in the Amount of Remuneration for Individuals The proportion of each type of remuneration for directors, excluding outside directors, and executive officers is structured such that the weighting of performance-based remuneration is higher for officers with higher positions than lower positions, and is considered by the Nomination and Remuneration Committee, taking into consideration remuneration levels benchmarked against companies of a similar business scale to the Company or in a related industry or business format. The Board of Directors (the Representative Director and President delegated as described in item 6.) determines the details of remuneration for individual officers within the scope of the proportion of remuneration for each type of remuneration indicated in the recommendation of the Nomination and Remuneration Committee, while also respecting the content of this recommendation. – 16 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE Furthermore, in terms of general amounts for the proportion of each type of remuneration, the ratios of “fixed remuneration (basic salary)” to “short-term performance-based remuneration (bonus)” to “medium- to long-term incentive remuneration” are 75:20:5 for directors, excluding outside directors, and 80:20 for executive officers. (If the level of achievement of performance indicators is 100%) However, the payment ratio will fluctuate as follows, because the actual performance remuneration to be paid fluctuates depending on consolidated business profit, etc. Position Director Officer other than director Fixed Remuneration (Basic Salary) 72–95% 80–100% Short-term Performance-based Remuneration (Bonus) 0–20% 0–20% Medium- to Long-term Incentive Remuneration (Stock Compensation) 5–8% – 6. Matters Related to Delegation of Details of Remuneration, etc. for Individual Officers The Representative Director and President is delegated to determine the specific content of the amount of remuneration for individuals by resolution of the Board of Directors. The content of the delegated rights includes determining the amount of basic salary for officers and appraising and allocating bonuses based on officers’ operational responsibilities. In order to ensure that the Representative Director and President appropriately exercises these rights, the Board of Directors consults the Nomination and Remuneration Committee regarding a draft proposal and receives a recommendation. The Representative Director and President delegated as described above must make a decision in accordance with the content of this recommendation. [Support System for Outside Directors (Outside Audit & Supervisory Board Members)] Outside directors and outside audit & supervisory board members receive explanations in advance about the content of matters that have been submitted for deliberation by the Board of Directors so that they can sufficiently check and review such matters submitted. Outside audit & supervisory board members receive explanations on the content of important in-house meetings at the Audit & Supervisory Board, and conduct their audits after receiving reports and explanations from the internal audit office, an internal control department, the executive officers in charge of business execution and the accounting auditor, which are done in a timely manner. The results of the above audits and opinions and proposals given by each outside audit & supervisory board member are appropriately reflected on the internal audit, the audit & supervisory board members’ audit and the accounting audit to enhance the effectiveness of these audits. – 17 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE [Status of Persons Who Have Retired from Positions Such as Representative Director and President] Name, etc. of Advisor/Corporate Advisor, etc. who have formerly served as Representative Director and President, etc. Name Title/Position Details of Duties Date of Retirement as President, etc. Term of Office Form and Conditions of Employment (Full-time/Part-time, Paid or Unpaid, etc.) Tetsuji Mino Corporate Advisor Part-time/Paid March 30, 2011 Determined as per internal regulations Provision of advice on the Company’s external activities and social contribution activities, etc.. Total number of Advisor/Corporate Advisor who have formerly served as Representative Director and President, etc. One Other matters Decisions to appoint persons who have formerly served as Representative Director and President, etc. as Advisor are made through deliberation by the Board of Directors. In addition, Advisors do not participate in any kind of decision-making related to management. 2. Items relating to Functions of Business Execution, Audit and Supervision, Nomination, and Decision on Remuneration, etc. The Company has adopted a corporate system with an Audit & Supervisory Board and maintains directors, a general meeting of shareholders, accounting auditor and the following bodies. The Company’s Board of Directors deliberates and determines matters of managerial importance and supervises directors’ execution of operations. As of the filing date of this report, the Board of Directors was composed of 11 members, 4 of whom were outside directors. Audit & supervisory board members independently conduct auditing of directors’ execution of operations. As of the filing date of this report, the Company adopted a structure of 5 audit & supervisory board members, 2 of whom were standing audit & supervisory board members. Standing audit & supervisory board members attend important internal meetings and confirm important documents for approval. The Audit & Supervisory Board is composed of all of the Company’s audit & supervisory board members. From the aspect of reinforcing the management auditing function, 3 of the 5 audit & supervisory board members serve as outside audit & supervisory board members, securing a structure to conduct fair and objective audits. In addition to the abovementioned organizations stipulated under Japan’s Corporation Law, the Company established a Management Meeting composed of internal directors and executive officers appointed by the president. With the attendance of standing audit & supervisory board members, the Management Meeting makes prompt managerial decisions based on discussions or the reporting of matters considered to be important to management. Furthermore, the Company adopted an executive officer system in March 2003. This system was put in place with the aim of establishing a management structure that promotes the separation of management supervision and execution, clarifies the rights and responsibilities of each business and promptly responds to changes in the business environment. As of the filing date of this report, there were 22 executive officers, 16 of whom did not serve concurrently as directors. – 18 – [Translation for Reference and Convenience Purposes Only] Sumitomo Rubber Industries, Ltd. CORPORATE GOVERNANCE Furthermore, the Company resolved at the Meeting of the Board of Directors held in December 2015 to establish a Nomination and Remuneration Committee as a voluntary advisory body for the Board of Directors to ensure objective and transparent procedures for nominating officers and determining remuneration for officers. The Committee is chaired by an independent outside director, and the majority of members are independent outside officers. 3. Reason for Adopting the Current Governance System The Company’s basic management policy is to enhance not only its economic value but also its social value and contribute to the development of a sustainable society by ensuring that “Our Philosophy” is the foundation for all decision-making and the starting point for all actions. Under this policy, the Company considers the enhancement o