キヤノン（7751） – CORPORATE GOVERNANCE REPORT

The following is an overview of Corporate Governance at Canon Inc. (the “Company”) March 31, 2022 Canon Inc. I. Fundamental Policy Concerning Corporate Governance and Basic Information about Capital Structure, Corporate Attributes, etc. 1. Fundamental Policy In order to establish a sound corporate governance structure and continuously raise corporate value, the Company believes that it is essential to improve management transparency and strengthen management supervising functions. At the same time, a sense of ethics and mission held by each executive and employee of a company is very important in order to achieve continuous corporate growth and development. The Company’s corporate governance structure is described as follows under “Disclosure Based on the Principles of the Corporate Governance Code,” “Principle 3.1 Full Disclosure,” “ii) Basic Views and Guidelines on Corporate Governance.” Reasons for Non-compliance with the Principles of the Corporate Governance Code (Revised) Relevant Code Information contained in this report is based on Japan’s Corporate Governance Code as revised in June 2021, which includes details for the Prime Market. Supplementary Principle 4.11.1 Balance Between Diversity, Knowledge, and Experience etc. of the Board as a Whole Descriptions of this are included in “(ii) Basic Views and Guidelines on Corporate Governance” and “(iv) Board Policies and Procedures in the Appointment and Dismissal of Senior Management and Nomination of Director and Audit & Supervisory Board Member Candidates” of “Principle 3.1 Full disclosure.” At present, though the Company’s Board of Directors does not include any females or non-Japanese, it is the Company’s basic policy to respect diversity and appoint people who are deemed to be capable of performing his or her duties fairly and appropriately regardless of individual attributes such as gender, nationality or age. As for Executive Officers, there are two females and one non-Japanese. Currently, none of the Company’s Outside Directors have experience managing a business as a chief executive officer or other senior level executive. However, the Board of Directors as a whole, holds a wide range of business management perspectives. The Company is broadly engaged in four businesses, namely Printing, Imaging, Medical, and Industrial. While common core competence technologies form the basis of each business, the market environment surrounding each business differs greatly. Going forward, the Company will continue to focus on sustainable growth and raising corporate value through the evolution and innovation of core competence technologies. Accordingly, the Company believes that it is meaningful for experienced managers with knowledge of these markets and technologies to participate in meetings of the Board of Directors. The skills that the Company’s Board of Directors should generally possess overall, and the skills possessed by each current Director are publically disclosed on the Company’s website below. The Company, taking into account the changing business environment, and as appropriate, will continue to explore the most suitable makeup of the Board of Directors, reviewing the skills that the Company’s Board of Directors should possess overall. https://global.canon/en/csr/management/governance.html Disclosure based on the Principles of the Corporate Governance Code (Revised) Principle 1.4 Strategic Share Holdings (So-called “Cross-Shareholdings” in the Corporate Governance Code) 1. Policy Regarding Strategic Holdings For the medium- to long-term growth of the Company, ceaseless improvement of respective systems like development, production, and sales, is essential. It is, however, difficult to achieve all of this solely through the management resources of the Canon Group. The Company decides in some cases to hold shares of companies outside the Canon Group as part of cooperation with such companies, when it determines that such shareholding would be beneficial to strengthening of those systems. 2. Examining the Rationale of Strategic Share Holdings As for strategic share holdings, the Company examines the medium- to long-term rationale of each holding every year on a regular basis evaluating its significance, the performance of the invested company, whether or not the yield on the investment exceeds the Company’s cost of capital, and other aspects, and making reports to the Board of Directors. If the rationale for the holding is not recognized, it will be sold. As for current share holdings, the rationale for the holdings were recognized at the Board of Directors meeting held in February 2022. 3. Policy Regarding the Exercise of Voting Rights Pertaining to Strategic Share Holdings The Company decides to vote for or against a proposal of invested companies based on a standard of whether or not such proposal would contribute to the profit of all shareholders, while respecting the management policies, business strategies etc. of the invested companies. Principle 1.7 Related Party Transactions In accordance with laws and regulations, transactions between the Company and Directors, as well as Director’s transactions involving a conflict-of-interest with the Company should be approved by the Board of Directors based on the material facts on such transactions. And after the transaction is complete, a report is given to the Board of Directors. Executive Officers, which are elected through resolution of the Board of Directors, are treated the same as Directors. Supplementary Principle 2.4.1 Ensuring Diversity in the Appointment etc. of Core Human Resources (i) Stance regarding ensuring diversity, Status and goals of ensuring diversity 1. Stance Regarding Ensuring Diversity Guided by the Company’s corporate philosophy of Kyosei, enacted in 1988, Canon respects diversity of culture, customs, language, and ethnicity, and actively encourages the fair promotion and utilization of human resources, regardless of such characteristics as gender, age or disability. To promote diversity, the Company is encouraging company-wide activities through a horizontally integrated organization known as VIVID (Vital workforce and Value Innovation through Diversity). VIVID Activities Policy Respecting diversity as an important issue, promote the introduction of new systems across the Canon Group, seeking to replace existing systems, and strive to change employees’ thinking and awareness of diversity issues. Revise HR policies and workplace conditions to avoid any limitations or restrictions being placed on the career opportunities afforded to talented people with the ambition to succeed. Promote internal/external dissemination of information on diversity promotion activities to help identify/develop role models and encourage wider adoption of best workplace practices. 2. Promotion of Females to Management Positions (Stance, status and targets regarding the appointment of females to management positions) The Company is committed to providing equal opportunities according to ability and fair treatment for all, irrespective of gender. On top of this, the Company, among others, organizes leadership training for women with the goal of developing female candidates for management positions, holds seminars for employees returning to work from childcare leave and their supervisors, and provides mentoring by female managers. The number of female managers increased from 58 in 2011 to 138 in 2021. In 2020, based on the Act on the Promotion of Female Participation and Career Advancement in the Workplace, the Company formulated an action plan with a goal of having more than three times the ratio of women in management, compared with 2011* levels, by the end of 2025. *The year before VIVID was introduced. Female Ratio (In 2011 and over the past three years） (No. of females) 2019 Employees 2020 4,109 (16.1％） 4,179 (16.5％） 4,162 (16.6％） 2011 3,790 (15.4%) 2021 Managers Directors* 58 (1.2％） 0 (0.0％） 127 (2.9％） 126 (3.0％） 138 (3.3％） 2 (3.9％） 2 (4.2％） 2 (4.0％） *Directors, Audit & Supervisory Board Members, and Executive Officers 3. Promotion of non-Japanese to management positions (Stance, status and targets regarding the appointment of non-Japanese to management positions) For the Company, which operates globally, an international perspective is essential. If necessary, to achieve this the Company believes that it must consider also appointing non-Japanese to executive and other management positions. To facilitate this, the Company is actively working to develop executive candidates on a global basis, for example, by promoting personnel exchange among overseas Group companies, promoting appropriate personnel regardless of nationality to the top management and executive staff of overseas group companies, and conducting “Global Executive Management Training” to share Canon’s management philosophy with the top management of overseas group companies. However, the Company believes that it is not important to formally request an increase in the number of non-Japanese managers at this point in time, and has not set specific targets for the timing or number of non-Japanese managers to be appointed. At present, only a small number of non-Japanese nationals have been appointed to executive and other management positions at the Company. However, the above initiatives are expected to increase the number of such non-Japanese candidates in the near future. 4. Promotion of mid-career recruits to management positions (Stance, Status and targets regarding the appointment of mid-career recruits to management positions) The Company believes that in order to achieve sustainable growth in the current business environment, which requires more diverse perspectives and is undergoing rapid changes, it is necessary to actively seek outside human resources rather than rely solely on internal human resources. In particular, in order to transform our business portfolio and subsequently strengthen our business, it is essential not only to make effective use of our internal human resources, but also to recruit mid-career personnel who are necessary for the business areas we need to strengthen. In the future, the Company will further increase the ratio of mid-career hires, and if there are qualified mid-career hires, the Company will actively promote them to management positions without giving preference to internal personnel. As of the end of 2021, the ratio of mid-career employees to all employees was approximately 19% (4,545 people), and the ratio of mid-career employees to managers was approximately 13% (590 people), both of which are considered to be appropriate. Going forward, the Company expects the appointment ratio of mid-career hires to management positions to generally remain at this level. Managers Directors* Mid-career Hire Ratio (Past three years） (No. of people) Employees 2021 2019 2020 4,734（20％） 4,545（19％） 4,874（20％） 640（13％） 601（13％） 590（13％） 6（12％） 6（12％） *Directors and Audit & Supervisory Board Members, excluding Outside Directors and Outside Audit & Supervisory Board Members, and Executive Officers (ii) Policies regarding Human Resource Development and Internal Working Environment to Ensure Diversity and their Status 6（13％） In addition to the description in (i) of the preceding paragraph, it is described in “Others” of “III. 3. Status of Initiatives for Respect for Stakeholders.” Principle 2.6 Roles of Corporate Pension Funds as Asset Owners Canon Inc. and major Canon Group companies in Japan jointly established the Canon Pension Fund, appointing finance and accounting experts to the roles of Chief Director, Executive Director, and Investment Managing Director. Grounded in the Basic Policy which was based on guidelines enacted by the Japanese Ministry of Health, Labour and Welfare—the pension fund employs asset allocation plans considered optimal from a medium- to long-term investment perspective, and selects investment products and entrusted institutions that align with the asset allocation plans. In asset allocation and the selection of investment institutions, careful deliberation is carried out by the asset investment committee, which consists of the Chief Director, Executive Director, Investment Managing Director and experienced investment and pension plan experts. Additionally, scheduled monitoring of investment status, including the stewardship activities of each entrusted institution, is carried out through quarterly reporting sessions. Through this, the Canon Group has established a structure that realizes steady asset formation for employees and secures the future investment and management of a healthy pension fund that gives due consideration to avoiding conflicts of interest between pension beneficiaries and the Company. We are also taking such steps as participating in seminars hosted by the Pension Fund Association of Japan to elevate the competencies of our investment personnel. Principle 3.1 Full Disclosure (i) Company Objectives (e.g., Business Principles), Business Strategies and Business Plans 1. Corporate Philosophy Truly global companies must foster good relations with customers and communities, as well as with governments, regions, and the environment, as part of their fulfillment of social responsibilities. The Company, under a corporate philosophy of Kyosei—living and working together for the common good— will fulfill its corporate social responsibility, and will contribute to expand society, through offering superior products and services to people all over the world in order to remain an Excellent Global Corporation. Note: The Company’s Corporate Philosophy and CSR Activity Policy are available on the Company’s website at the addresses provided below. https://global.canon/en/vision/philosophy.html https://global.canon/en/csr/policy/index.html 2. Business Strategies and Business Plans To fulfill the Company’s social responsibility, it needs to enhance its corporate competitiveness and maintain its sound financial position. Since 1996, the Company has been implementing 5-year management phases of the Excellent Global Corporation Plan, promoting the enhancement of competition and the establishment and maintenance of a sound financial structure. Under Phase V of the Excellent Global Corporation Plan, the Company’s medium- to long-term management plan for the period from 2016 to 2020, the Group was focused on transforming its business portfolio, concentrating on four areas, namely commercial printing, network cameras, medical, and industrial equipment, and making them into pillars of new businesses. And in Phase VI (2021 – 2025), the Group aims to create further innovation, reorganizing the organization into 4 industrial groups, namely Printing, Imaging, Medical, and Industrial, to further accelerate the strengthening of businesses after the transformation. The Company’s business portfolio is in line with the Company’s philosophy of Kyosei, which is to contribute to the prosperity of the world and the well-being of mankind by achieving corporate growth and development. The portfolio consists of businesses determined from various viewpoints, including 1) the ability to leverage the Company’s technological advantages, which are derived from core competence technologies that have been cultivated over many years, such as optical technology, image processing and analysis technology, and network technology; 2) the ability to contribute to solving social issues such as safety and security; and 3) the expectation for sustainable business growth, capturing changes in the social and economic environment. At Corporate Strategy Committee meetings, which are chaired by the CEO and attended by the CFO, CTO, as well as people that are in charge of business groups, the Company regularly discusses the business strategy of each business group, including technology strategies, R&D investments, and capital expenditures, and determines the allocation of resources within the business portfolio. At the same time, it also reviews the business portfolio itself as necessary. Outside Directors and Audit & Supervisory Board Members also attend Corporate Strategy Committee meetings, but if there is a major change in strategy, it will be discussed and resolved at meetings of the Board of Directors Note: The Excellent Global Corporation Plan is posted on the Company’s website at the address provided below. https://global.canon/en/vision/strategies.html 3. Capital Policy In order to steadily and continuously make necessary investment in medium- to long-term growth, the Company attaches importance to enhancing shareholders’ equity. Furthermore, the Company strives to return profits to shareholders through a stable and active dividend, comprehensively taking into consideration mid-term profit forecasts, planned future investments, cash flow and other factors while also acquiring its own shares as necessary. (ii) Basic Views and Guidelines on Corporate Governance The Company is globally expanding its businesses in various business fields, including office equipment, consumer products, medical equipment, and industrial equipment, and aims to aggressively expand into new business fields in the future. In order to make prompt decisions in each business field, and make important decisions for the entire Canon Group or matters that straddle several business fields from a company-wide perspective and at the same time secure appropriate decision making and execution of operation, the Company judges the corporate governance structure below to be effective. Board of Directors While the focus of the organizational structure of the Board of Directors is on Representative Directors that oversee company-wide business strategies or execution such as the CEO, COO, CFO, CTO, and Representative Directors or Executive Directors that oversee multiple business fields or headquarters functions, at least two Independent Outside Directors are appointed while also assuring that they account for one third or more of the total number of Directors, in order to secure sound management. The Board of Directors, in accordance with laws and regulations, makes important decisions and supervises the execution of duties by officers. Except for the above, the CEO and other Representative Directors are active in decision making and execution, and under the command and supervision of the Representative Directors, Executive Officers that are elected through resolution of the Board of Directors make decisions and execute operations of each business field or function. Audit & Supervisory Board As a body which is in charge of the audit of operations, under the principles of autonomy, which is independent from the Board of Directors, the Company has full-time Audit & Supervisory Board Members that are familiar with the Company’s businesses or its management structure, and Independent Outside Audit & Supervisory Board Members that have extensive knowledge in specialized areas such as law, finance and accounting, and internal control. The Audit & Supervisory Board, which is composed of these individuals, cooperates with the Company’s accounting auditors and internal audit division, oversees the status of duty execution of operations and corporate assets to secure the soundness of management. (iii) Board Policies and Procedures in Determining the Remuneration of the Senior Management and Directors. 1. Policy The remuneration of Representative Directors and Executive Directors consists of a basic remuneration, which is a fixed amount, paid each month, as a compensation for execution of duties required in accordance with their position and the degree to which they contribute in their role, a bonus that is linked to the Company’s business performance in each business year, and a stock-type compensation stock option plan to provide an incentive to improve medium- to long-term performance and raise corporate value. The remuneration of the Executive Officers is also in line with the above. As for Outside Directors, remuneration is limited to the basic remuneration, which is a fixed amount, paid each month. 2. Procedure The Company, with the aim of ensuring the transparency and objectivity of the remuneration decision-making process as well as the validity of the remuneration system, established the “Nomination and Remuneration Advisory Committee,” a non-statutory committee, which consists of the CEO, two Independent Outside Directors, and one Independent Outside Audit & Supervisory Board Member. The Committee, after examining the rationale of the remuneration system, including calculation standards of the basic remuneration, the bonus, and the granting standards of stock-type compensation stock option plan, reports to the Board of Directors to the effect that the system is reasonable. Decisions regarding the amount and content of remuneration (the amount of basic remuneration and bonus as well as the number of stock-type compensation stock options) of each director is delegated to the CEO. However, the CEO must make decisions based on the prescribed criteria in accordance with the policy described above and as described in “Incentives” within “1. Items Concerning Institutional Structure, Organizational Operation, etc.,” under “II. Overview of Corporate Governance Structure in terms of the Organization of Management regarding Managerial Decision-Making, Execution of Duty, Oversight and other matters.” below. And prior to making a decision, the CEO must present the proposal to the Nomination and Remuneration Advisory Committee for confirmation. The total amount of directors’ basic remuneration and stock-type compensation stock options is within the total remuneration (upper limit) that is approved by the shareholders’ meeting. As for the bonus for Directors, the payment is fixed provided that the proposal about such payment submitted at the ordinary general meeting of shareholders is approved. (iv) Board Policies and Procedures in the Appointment and Dismissal of Senior Management and the Nomination of Director and Audit & Supervisory Board Member Candidates 1. Policy Director and Audit & Supervisory Board Member candidates and Executive Officers are people that have the ability to fairly and effectively execute duties and, in principle, are selected from people that have met the following requirements, regardless of personal attributes such as gender, nationality, age etc. Representative Directors and Executive Directors Have a true understanding of the corporate philosophy and code of conduct of the Company. At the same time, have broad familiarity with the Company’s businesses and operations, gained through, for example, Executive Officer experience. Have the ability to make effective decisions that overlook multiple businesses and functions. In addition to this, the CEO shall be a person with the ability to lead the Canon Group, having, in particular, a wealth of knowledge and skill related to management and a clear vision and a strong sense of responsibility. Independent Outside Directors In addition to meeting the independence standard that is separately determined by the Board of Directors, have an abundance of experience and superior insight into fields such as business management, risk management, law, and economics. Audit & Supervisory Board Members Be familiar with the Company’s businesses or its management structure, or have an abundance of experience and superior insight into professional fields such as law, finance, accounting, and internal control. As for Outside Audit & Supervisory Board Members, additionally meet the independence standards that are separately determined by the Board of Directors. Executive Officers Have been highly evaluated in terms of character and ability in managerial assessment and managerial talent training programs, and also have sufficient knowledge, experience and judgment, to shoulder the responsibility of execution in specific fields, and truly understand the corporate philosophy and code of conduct of the Company. 2. Appointment and Nomination Procedures The Company established the “Nomination and Remuneration Advisory Committee,” a non-statutory committee, which consists of the CEO, two Independent Outside Directors and one Independent Outside Audit & Supervisory Board Member. At the time, Director and Audit & Supervisory Board Member candidates are nominated and Executive Officers are appointed, including the selection of a successor for the chief executive officer position, the CEO recommends candidates thereof from among individuals that have been recognized as having met the prescribed requirements, and the Committee checks the fairness and validity of such recommendation prior to submission to and deliberation by the Board of Directors. In particular, with regard to chief executive officer candidates, it is the CEO’s responsibility to select and train candidates through an executive training system and a mechanism for accumulating management experience, including the transfer of persons who have been selected as executive officers and involvement in company-wide projects. And the process is confirmed by the Nomination and Remuneration Advisory Committee. Additionally, as for Audit & Supervisory Board Member candidates, prior to deliberation of the Board of Directors, consent of the Audit & Supervisory Board shall be acquired. 3. Procedures for the Dismissal of Senior Management In cases where a Representative Director, including the CEO, or an Executive Director, together referred to as “Senior Management,” commits an illegal, dishonest, or unfaithful act, or is deemed to have not fulfilled their role, or is judged not to be suitable for responsibilities of Senior Management, Directors, Audit & Supervisory Board Members can at any time demand that the Nomination and Remuneration Advisory Committee discuss the need for dismissal of the concerned Senior Management member. The outcome of the Nomination and Remuneration Advisory Committee discussion, regardless of content, is presented to the Board of Directors where deliberation regarding the need for dismissal is held. Senior management subject to the deliberation are not allowed to participate in the discussion. (v) Explanations with Respect to the Appointment, Dismissal and Nomination of Individuals The reasons for selecting (if deemed especially necessary, the reasons for dismissing or not appointing) a candidate for Director or Audit & Supervisory Board Member are stated in the reference documents for the notice of convocation of the general meeting of shareholders. Supplementary Principle 3.1.3 Measures etc. regarding Sustainability 1. Approach to Sustainability Since 1988, and as stipulated by the Board of Directors, Canon has been striving to uphold our corporate philosophy of kyosei (living and working together for the common good) in order to contribute to worldwide prosperity and happiness. A society in which all people live and work together, respect each other and get along happily, transcending culture, customs, language, ethnicity, and region. And a society in harmony with nature, that can preserve Earth’s irreplaceable environment to future generations. To realize such a society, Canon will create new value through the power of technology and innovation, providing world-first technologies and world-leading products and services while also contributing to solutions for the problems our society faces. By providing greater value while using fewer resources throughout all product lifecycles, we aim to enable affluent lifestyles while protecting the environment. Through our corporate activities, Canon will continue to proactively work toward realizing a sustainable society. 2. Human Capital and Intellectual Property Investment etc. Important issues surrounding sustainability and the allocation of management resources, including investments in human capital and intellectual property, are discussed at Corporate Strategy Committee meetings, which is also attended by Outside Directors and Audit & Supervisory Board Members, and further reported to and deliberated by the Board of Directors, as needed. (1) Investing in Human Capital Canon strives to foster a corporate culture in which an enterprising spirit comes into play by thoroughly implementing fair and equitable placement, evaluation, and treatment based on the principles of meritocracy as well as respect for humanity, which respect aspirations, responsibility, and a sense of mission. In human resource development, Canon systematically implements training programs and trainee systems to develop professionals in R&D, manufacturing, and sales, including the LEAD Program, which seeks to identify, develop, and appoint next-generation leaders. Additionally, as stated in Principle 3.1 Enhancement of Information Disclosure (i) (2) Management Strategy and Management Plan, the Company is transforming its business portfolio and continuing to strengthen its business. And to support these activities, investing in human capital is an important management issue. Given the growing need for DX human resources across all business groups, the Company established the training facility, Canon Institute of Software Technology (CIST), to strengthen digital-related training. And to transfer human resources to business areas with high growth potential, the Company has implemented a training-type career matching system that combines training and in-house recruitment, promoting a wide range of human resource retraining and internal job transfers. Through these measures, Canon is working to maximize the utilization of human capital, by placing the right people in the right place. (2) Investing in Intellectual Property Canon has grown as an R&D-driven company that develops new markets and customers through products equipped with proprietary technologies. The corporate culture that emphasizes technology and innovation has remained unchanged to this day, and since 2007, the ratio of R&D expenses to net sales has generally been more than 8%. Intellectual property-related activities, which aim to connect various intangible assets such as core competence technologies to business development and value creation, have always been an important part of Canon. Since 1986, Canon has ranked among the top five companies in the world in terms of the number of patents registered in the United States, and has maintained the number one position among Japanese company since 2005. The Intellectual Property Division clearly defines the purpose of its intellectual property activities as “support for business development.” Under Phase V of the Excellent Global Corporation Plan (2016 – 2020), followed by Phase VI (2021 – 2025), in order to support the transformation of its business portfolio and the strengthening of its business, the Company is systematically strengthening its patent portfolio with a vision of what it will look like 10 or 20 years from now. In addition to protecting core competence technologies in existing and new businesses as intellectual property, we are also increasing the number of general-purpose patent applications related to standard technologies and AI, which are essential for the IoT society, in anticipation of collaboration with other industries and changes in the business portfolios of our competitors. In this way, we are focusing on the future of our business and the surrounding environment, setting priority themes, strengthening our intellectual property capabilities, evaluating the value of our patents, and replacing them to maintain a strong patent portfolio. As a result, while maintaining our competitive advantage by protecting our core competence technologies, we are able to negotiate with other companies in an advantageous manner to use the rights we need, thereby ensuring a degree of freedom in our business. 3. Response to Requests for TCFD Disclosure The Company’s response to requests for TCFD disclosure In addition to expressing support for TCFD recommendations, the Company discloses information through its Sustainability Report and CDP Climate Change Questionnaires. *The Company’s initiatives related to sustainability and human capital investing etc. are disclosed in the Company’s Sustainability Report. https://global.canon/en/csr/report/index.html Supplementary Principles 4-1-1 Disclosure of Scope and Content of Matters Delegated to Management. As stated in “Principle 3.1 Full Disclosure” under “(ii) Basic Views and Guidelines on Corporate Governance,” the Board of Directors in addition to matters that are required by laws and regulations or articles of incorporation (Example: As certain amount or more of assets that are acquired or disposed of), is responsible for supervising the execution of duties and at the same time making decisions on important matters involving the entire Canon Group or important matters that straddle several business fields. Details of items that are deliberated by the Board of Directors are determined by Regulations of the Board of Directors. As for decision-making and execution outside of this area, based on regulations regarding the division of duties and administrative authorities prescribed by the Board of Directors, the CEO and other Representative Directors undertake some of them, and Executive Officers selected by resolution of the Board of Directors undertake the others under the direction and supervision of the CEO as persons in charge of a business field or function. Principle 4.8 Effective Use of Independent Directors As stated in Principle 3.1 “Full Disclosure” under (ii) “Basic Views and Guidelines on Corporate Governance,” while the focus of the organizational structure of the Board of Directors is on Representative Directors that oversee company-wide business strategies or execution such as the CEO, COO, CFO, CTO, and Representative Directors or Executive Directors that oversee multiple business fields or headquarters functions, at least two Independent Outside Directors are appointed while also assuring that they account for one third or more of the total number of Directors, in order to secure sound management. Currently there are a total of five directors (three Representative Directors and two Independent Outside Directors). Principle 4.9 Independence Standards and Qualification for Independent Directors The Company establishes the “Independence Standards for Independent Directors/Audit and Supervisory Board Members” resolved by the board of directors with the consent of all Audit and Supervisory Board Members, in order to clarify the standards for ensuring independence of Independent Directors/Audit and Supervisory Board Members of Canon Inc., taking into consideration Japan’s Corporate Governance Code (Principle 4.9) and the independence criteria set by securities exchanges in Japan. Note: The “Independence Standards for Independent Directors/Audit and Supervisory Board Members” are available on the Company’s website at the address provided below. https://global.canon/en/ir/strategies/governance.html “Independence Standards for Independent Directors/Audit and Supervisory Board Members” Canon Inc. deems that a person who satisfies the requirements for Outside Directors/Audit and Supervisory Board Members prescribed by the Corporation Law of Japan, and meets the independence criteria set by securities exchanges in Japan, and does not fall into any of the items below, is an “Independent Director/Audit and Supervisory Board Member” (a person who is independent from the management of Canon Inc. and unlikely to have conflicts of interest with general shareholders). 1. A person/organization for which Canon Group (Canon Inc. and its subsidiaries; hereinafter the same) is a major client, or a major client of Canon Group, or an executing person of such organization or client 2. A major lender to Canon Group, or an executing person of such lender 3. A large shareholder of Canon Inc., or an executing person of such shareholder 4. A person/organization receiving large amounts of contributions from Canon Group, or an executing person of such organization 5. A consultant, accounting professional or legal professional who has received a large amount of money or other properties from Canon Group, other than as compensation for being a director/Audit and Supervisory Board Member (if the recipient is a corporation, partnership or any other organization, this item applies to any person belonging to said organization.) 6. A certified public accountant belonging to the audit firm engaged to conduct the statutory audit of Canon Group (including any such accountant to whom this item has applied in the last 3 business years) 7. An executing person of another company in cases where an executing person of Canon Group is an outside director/Audit and Supervisory Board Member of such other company 8. An immediate family member (spouse and a relative within the second degree of kinship) of any of the persons listed in each of items 1 to 7; provided, however that the persons to whom this is applicable shall be limited to key executing persons such as directors, executive officers of companies and partners of advisory firms Supplementary Principle 4.10.1 Stance, authority, duty etc. regarding independence of Nomination Committee and the Remuneration Committee and its Makeup The Company’s Nomination and Remuneration Advisory Committee includes both Independent Outside Directors and one Independent Outside Audit & Supervisory Board Member in order to ensure its independence. Its role is to deliberate, after receiving an inquiry from the Board of Directors, and report the results to the Board of Directors with respect to the following matters. a. Fairness in selecting each candidate for Director, Audit & Supervisory Board Member, and Executive Officer b. Validity of remuneration system for Directors and Executive Officers Additionally, the Nomination and Remuneration Advisory Committee deliberates on the qualities, skills, etc. required of Directors (including the Chief Executive Officer), Audit & Supervisory Board Members and Executive Officers as necessary, and deliberates on the necessity of the dismissal of Representative Directors and Executive Directors (including the CEO) who are deemed unsuitable for their duties, and reports the results of each deliberation to the Board of Directors. Supplementary Principle 4.11.2 The Status of Directors and Audit & Supervisory Board Members Holding Concurrent Posts The Company discloses important concurrent posts of Directors and Audit & Supervisory Board Members along with the reasons for being selected as a candidate, in the reference documents for the notice of convocation of the general meeting of shareholders where the elections of Directors and Audit & Supervisory Board Members are proposed. Additionally, at least once a year, the status of Directors and Audit & Supervisory Board Members holding of concurrent posts are checked and disclosed. Currently, the status of holding concurrent posts, including holding of a director or officer position in other listed companies is as follows: Directors Fujio Mitarai Audit & Supervisory Board Member of the Yomiuri Shimbun Holdings Kunitaro Saida Attorney. Yusuke Kawamura Director of Mitsui DM Sugar Holdings Co., Ltd. Chairman & CEO of Institute of Glocal Policy Research Audit & Supervisory Board Members Yutaka Tanaka Attorney. Director of Laws & Ordinances Compliance Investigation Office, Financial Services Agency of Japan Supplementary Principle 4.11.3 Analyzing and Evaluating the Effectiveness of the Board of Directors Once a year, a questionnaire survey of Directors and Audit & Supervisory Board Members on the items below is conducted. Based on the result of the questionnaire survey, analysis and evaluations regarding the effectiveness of the entire Board of Directors are carried out at the Board of Directors’ meeting. As for the operation of Board of Directors (including the appropriateness of when documents are distributed, how often meetings are held, and the time spend deliberating) As for the decision making and supervisory function of the Board of Directors (including the appropriateness of agenda items and agenda criteria of the Board of Directors as well as appropriateness etc. of content that is reported) As for the roles of Outside Directors and Audit & Supervisory Board Members (including the necessity of training etc. regarding the understanding of company affairs and corporate structure) As for fiscal year 2021, at the Board of Directors meeting held in February 2022, it was determined that there was no problem with the effectiveness of Board of Directors meetings due to ongoing measures to enhance deliberation at these meetings. These measures include, providing Outside Directors and the Audit & Supervisory Board with prior explanations of the meeting agendas, sharing management information by having Outside Directors attend Corporate Strategy Committee meeting, etc., the periodical exchanging of opinions between Outside Directors and the Audit & Supervisory Board based on the findings of Audit & Supervisory Board Members, and creating opportunities for Outside Directors and Audit & Supervisory Board members to receive individual explanations from each business group about their business strategy. In the future, yearly analysis and evaluations will be continued and an overview of the results will be disclosed. At the same time, when necessary, efforts will be made to improve the running etc. of Board of Directors meetings. Supplementary Principle 4.14.2 Training Policy for Directors and Audit & Supervisory Board Members For Directors and Audit & Supervisory Board Members, when assuming their positions, training is carried out with the aim of thoroughly understanding their roles and responsibilities and securing necessary or useful knowledge for them to properly fulfill their duties. Also incumbent Directors and Audit & Supervisory Board Members can, at the Company’s expense, attend training courses held inside and outside the Company. Furthermore, Outside Directors and Outside Audit & Supervisory Board Members, to familiarize them with the Company’s business, are given opportunities, including attending important meetings such as meetings of the Corporate Strategy Committee, holding meetings with the person in charge of business divisions, and visiting operation sites as necessary. Principle 5.1 Policy for Constructive Dialogue with Shareholders 1. Policy For sustainable growth and to help improve corporate value over a medium- to long-term perspective, the Company has constructive dialogue with shareholders through an ordinary general meeting of shareholders, corporate strategy conferences, financial results conferences, and interviews with major institutional investors. 2. The Structure to Promote Dialogue a. Finance & accounting (Investor Relations (IR)), legal affairs, corporate communications are responsible for working together and promoting dialogue. The Executive Vice President & CFO oversees the entire structure to promote dialogue. b. For analysts and institutional investors, the CEO hosts a corporate strategy conference at the beginning of the year. Other than this, the CFO hosts quarterly financial results conferences. For individual investors, on the Company’s website, specific pages containing information about corporate strategy, financial results, and financial data etc. have been set up using descriptions that are easy to understand. Additionally, the Company provides opportunities to meet with executive officers, outside directors, audit & supervisory board members etc., as necessary, to engage in dialogue with analysts and institutional investors in Japan and overseas. For detail, see special publications “III 2. IR Activities.” Note: Investor information is available on the Company’s website at the address provided below. https://global.canon/en/ir/ c. As for the opinions or demands that are obtained through dialogue with shareholders, accordingly, the department in charge reports to the CFO and the CFO reports important ones to the CEO or the Board of Directors. 3. Controlling Insider Information The Company has set the “Rules on Prevention of Insider Trading,” which makes thorough control of undisclosed material information and provides the procedure of information disclosure. 2. Capital Structure Percentage of Shares Held by Foreign Investors From 10% to less than 20% Overview of Major Shareholders (Revised) Name of Shareholders The Master Trust Bank of Japan, Ltd. (Trust Account) Custody Bank of Japan, Ltd. (Trust Account) The Dai-ichi Life Insurance Company, Limited Mizuho Bank, Ltd. State Street Bank West Client – Treaty 505234 Moxley and Co. LLC OBAYASHI CORPORATION Barclays Securities Japan Limited SMBC Nikko Securities Inc. Sompo Japan Insurance Inc. Number of Shares Held (Shares) Shareholding Ratio (%) 166,121,000 15.89 62,350,600 24,320,780 22,558,173 20,903,878 19,101,237 16,527,607 15,210,500 14,157,500 13,080,087 5.96 2.33 2.16 2.00 1.83 1.58 1.45 1.35 1.25 Existence or Nonexistence of Controlling Shareholder, excluding Parent Company Existence or Nonexistence of Parent Nonexistent —– Company Supplementary Information (Revised) “Overview of Major Shareholders” is as of December 31, 2021. With respect to The Dai-ichi Life Insurance Company, Limited, in addition to the above, there are 6,180 thousand shares of the Company’s stock included in trust property relating to retirement allowance trust. In addition to the above shares, the Company owns 287,991,705 shares 21.59% of total issued shares) of treasury stock. The shareholding ratios above are calculated by deducting the number of treasury shares from total shares issued. Tokyo (1st Section), Nagoya (1st Section), Sapporo (Existing Market), and Fukuoka (Existing Market) December Electric appliances 1,000 and above 1 trillion yen and above 300 and above 3. Corporate Attributes Stock Exchange Listings Fiscal Year-end Sector Number of Employees (Consolidated) Net Sales (Consolidated) Number of Subsidiaries and Affiliates Controlling Shareholders, etc. —– 4. Guidelines for the Protection of Minority Shareholders When Making Transactions with 5. Other Special Circumstances that may have a Material Impact on Corporate Governance The Company has Canon Marketing Japan Inc. and Canon Electronics Inc. as listed subsidiaries. The Canon Group strives to improve corporate value in a way that is in line with the interests of all shareholders, including minority shareholders, by posting stable profit. To facilitate this, the Canon Group aims to maximize consolidated results, maintaining the independence and leaving in place the dynamic management systems of listed subsidiaries. Canon Marketing Japan Inc. not only sells Canon products, but also develops its own businesses such as IT solutions. As for Canon Electronics Inc., in addition to producing products on consignment from the Company and selling its own products, it is engaged in new space-related businesses. Both subsidiaries have their own businesses and Canon-related businesses. The Company has comprehensively determined that maintaining decision-making and financing means that are independent of the Company while making the best use of its strengths as a member of the Canon Group is a system that contributes to maximizing the Group’s value and reason for maintains listings. The operation of both subsidiaries is independent. Additionally, officers of the Company do not concurrently serve as officers of the two subsidiaries. Both subsidiaries are working to improve governance through the use of independent outside directors. In addition, in transactions between the Company and the two subsidiaries, the Company endeavors not to unreasonably harm the interests of minority shareholders of both the Company and the two subsidiaries by applying the arms-length rule to ensure the appropriateness of transactions. II. Overview of Corporate Governance Structure in terms of the Organization of Management regarding Managerial Decision-Making, Execution of Duty, Oversight and other matters Items Concerning Institutional Structure, Organizational Operation, etc. Organization Form Company with Audit & Supervisory Board 1. Directors the Number of Directors in the Company’s Articles of Incorporation Term of Directors specified in Company’s Articles of Incorporation Chairman of the Board of Directors Number of Directors Elected Outside Directors Number of Outside Directors Number of Outside Directors designated as Independent Directors 30 1 year CEO 5 Elected 2 2 Relationship with the Company (1) Name Occupation Relationship with the Company (Notes 1,2, and 3) a b c d e Kunitaro Saida Attorney Yusuke Former f g h i j k Kawamura employee of another company Note 1: Items of selection regarding “Relationship with the Company” Note 2: If the item currently applies or recently applied to the referenced person mark as “.” If it applied in the past, mark as “.” Note 3: If the item currently applies or recently applied to a close relative to the referenced person mark as “.” If it applied in the past, mark as “.” a An executive of the listed company or its subsidiary b An non-executive director or an executive of the parent company of the listed company c An executive of a sister company of the listed company d A person or an executive of an organization that has the listed company as a major e A major business partner or an executive of a major business partner of the listing business partner company f Other than director’s remuneration, an accountant, a legal specialist, or a consultant that obtains a large amount of money or other assets from the listed company g A major shareholder of the listed company (In the case that the relevant major shareholder is a legal entity, an executive of the relevant legal entity) h An executive (and only that executive) of a business partner of the listed company i An executive (and only that executive) where there is a mutually appointed outside (where d, e, and f do not apply) director relationship j An executive (and only that executive) where the listed company makes a contribution k Other Relationship with the Company (2) (Revised) Name Indepen-dent Director Supplementary Information in Regard to Applicable Items Kunitaro Saida Yes did The Company pay Kunitaro Saida remuneration for advisory services before he assumed the position of director. The amount, however, was less than 12 million yen annually and the contract has already expired. as and and legal Offices Reason(s) for Electing the Relevant Outside Director (and reason(s) for designation as Independent Director, if applicable) Kunitaro Saida has been in serving as an attorney corporate affairs subsequent to his distinguished career Superintending Prosecutor of High Public Prosecutors (in Takamatsu, Hiroshima, and Osaka), has also serving as an experience Outside Director an Outside Audit & Supervisory Board Member for other companies. The Company elected him as an Outside Director in hopes that he will furnish particularly useful advice, drawing on his wealth of experience and high level of expertise legal affairs when taking part in discussions on internal control mechanisms and corporate governance, including from the ensuring perspective compliance. In addition, he is designated an independent director/auditor, as the Company judged that a conflict of interest with ordinary investors is unlikely, which is in accordance with the guidelines stock of exchanges in Japan and the Company. regarding the of Yusuke Kawamura Yes —– a to as the financial Yusuke Kawamura has a wealth of experience as an Outside Director along with capacity as an expert with respect and securities systems as well as strategy for managing financial that he institutions, given worked securities company and subsequently served in various positions, including as a university professor, a commissioner of councils of Japan’s Ministry of Finance and Financial Services Agency, and an Executive Counselor Japan of Securities Dealers Association. The Company elected him as an Outside Director in hopes that he will furnish particularly useful advice, drawing on his wealth of experience and high level of expertise regarding finance securities, especially when taking part in discussions on M&A and ESG-related a shareholder investor perspective. In addition, he is designated an independent director/auditor, as the Company judged that a conflict of interest with ordinary investors is unlikely, which is in accordance with the stock of guidelines exchanges in Japan and the Company. topics from and and the Establishment Voluntary Committee(s) Nomination Committee or Remuneration Committee corresponding of to Established Committee’s Name, Composition, and Attributes of Chairperson Committee Corresponding Committee Corresponding to Nominating Committee Remuneration and Advisory and Advisory to Committee Nomination Remuneration Committee 4 0 1 2 0 1 Inside Director Committee’s Name All Committee Members Full-time Members Inside Directors Outside Directors Outside Experts Other Chairperson Nomination Remuneration Committee 4 0 1 2 0 1 Inside Director Supplementary Explanation (Revised) The Company established the Nomination and Remuneration Advisory Committee, a non-statutory committee, which consists of the CEO, two Independent Outside Directors and one Independent Outside Audit & Supervisory Board Member. The committee ensures fairness and validity in the selection of each Director, Audit & Supervisory Board Member, and Executive Officer, and deliberates the necessity to dismiss Representative Directors and Executive Directors, including the CEO. It also aims to ensure validity of the remuneration system of Directors and Executive Officers. Recent activities of the Nomination and Remuneration Advisory Committee are shown below. For other details, please refer to “iii) Board Policies and Procedures in Determining the Remuneration of Senior Management and Directors,” “iv) Board Policies and Procedures in the Appointment and Dismissal of Senior Management and the Nomination of Director and Audit & Supervisory Board Member candidates” of “Principle 3.1 Full Disclosure” under “I 1 Disclosure Based on the Principles of the Corporate Governance Code” as well as “Supplementary Principle 4.10.1 Stance, authority, duty etc. regarding independence of Nomination Committee and the Remuneration Committee and its Makeup.” January 18, 2021 March 23, 2021 December 24, 2021 January 18, 2022 March 23, 2022 the regarding Confirmation and deliberation regarding the election of directors, audit & supervisory board members and executive officers as well as confirmation and deliberation regarding directors’ bonus Confirmation and deliberation individual remuneration amounts of directors, audit & supervisory board members, and executive officers (Basic remuneration and stock-type compensation stock options) and the appropriateness of remuneration system operation Confirmation and deliberation regarding the level of payment of executive remuneration (Bonus and stock-type compensation stock options) Confirmation and deliberation regarding the election of directors, audit & supervisory board members and executive officers as well as confirmation and deliberation regarding the individual remuneration amounts of directors, audit & supervisory board members, and executive officers (Bonus) and the appropriateness of remuneration system operation Confirmation and deliberation individual remuneration amounts of directors, audit & supervisory board members, and executive officers (Basic remuneration and stock-regarding the type compensation stock options) and the appropriateness of remuneration system operation The current committee comprises of the committee chairman, CEO Fujio Mitarai, and three members, Outside Directors Kunitaro Saida and Yusuke Kawamura (appointed the successor of Haruhiko Kato as of March 30, 2021), and Outside Audit & Supervisory Board Member Yutaka Tanaka. Every meeting of the committee was attended by all three members. The secretariat of this committee is the Secretarial Office which is involved in supporting the work of this committee, including the preparation of deliberation material and the keeping of meeting minutes. Audit & Supervisory Board Members Exists Existence or Nonexistence of a Audit & Supervisory Board Number of Audit & Supervisory Board Members in the Company’s Articles of Incorporation Number of Audit & Supervisory Board Members 5 5 Cooperation among Audit & Supervisory Board Members, Accounting Auditors, and Internal Auditing (Revised) Cooperation between Audit & Supervisory Board Members and Accounting Auditors Audit & Supervisory Board members and the Audit and Supervisory Board, prior to the start of an audit receive briefs from the accounting firm which includes an overview of the audit plan and an explanation of important audit matters, and confirms validity. Additionally, information is shared when necessary, by receiving reports regarding the results of internal audits, and through the quarterly review of accounting audits given by accounting firm. Furthermore, on top of being present for audits, meetings are held with the accounting firm that is in charge of auditing major related companies, during which efforts are made to grasp the audit situation. As for the accounting firm’s system for managing the quality of the audit, detailed explanations are received during which validity is confirmed. For the purpose of monitoring the independence of the accounting firm, an Audit & Supervisory Board pre-approval system, targeting details of the auditing contract and amount of remuneration was introduced. Cooperation between Audit & Supervisory Board Members and Internal Auditing The Audit & Supervisory Board Members and the Audit & Supervisory Board receive from the internal auditing division outlines of their internal audit plan before conducting each audit as well as reports about important auditing items. After the internal audit is conducted, the Audit & Supervisory Board Members and the Audit & Supervisory Board hear reports on all audit results and evaluations. Furthermore, close cooperation is being worked for through, for example, the exchanging of opinions and information as necessary. Outside Audit & Supervisory Board Members Number of Outside Audit & Supervisory Board Members 3 Elected Number of Outside Audit & Supervisory Board Members to be Independent considered 3 Relationship with the Company (1) Name Hiroshi Yoshida Yutaka Tanaka Attorney Occupation Relationship with the Company (Notes 1, 2, and 3) a b c d e f g h k l m i j Koichi Former Kashimoto employee Certified Public Accountant of another company Note 1: Items of selection regarding “Relationship with the Company” Note 2: If the item currently applies or recently applied to the referenced person mark as “.” If it applied in the past, mark as “.” Note 3: If the item currently applies or recently applied to a close relative to the referenced person mark as “.” If it applied in the past, mark as “.” subsidiary business partner company a An executive of the listed company or its subsidiary b An non-executive director or an accounting advisor of the listed company or its c An executive or a non-executive director of the parent company of the listed company d An audit & supervisory board member of the parent company of the listed company e An executive of a sister company of the listed company f A person or an executive of an organization that has the listed company as a major g A major business partner or an executive of a major business partner of the listed h Other than director’s remuneration, an accountant, a legal specialist, or a consultant that obtains a large amount of money or other assets from the listed company i A major shareholder of the listed company (In the case that the relevant major shareholder is a legal entity, an executive of the relevant legal entity) j An executive (and only that executive) of a business partner of the listed company