オルガノ（6368） – 【Delayed】Corporate Governance Report

Corporate Governance Last updated: April 1, 2022 ORGANO CORPORATION Masaki Uchikura Representative Director and President, President and Executive Officer Inquiries: Corporate Strategy and Planning Dept., Corporate Management and Planning +81-3-5635-5111 Securities Code: 6368 https://www.organo.co.jp/english/ The corporate governance of ORGANO CORPORATION (the “Company”) is described below. I Basic Views on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information 1. Basic Views The Company has been engaging in efforts to enhance corporate governance that conforms to the following basic views in order to realize fair and trustworthy management and improve management efficiency. (1) The Company will respect the rights of shareholders and ensure equality. (2) The Company will take into account the benefits for a wide range of stakeholders including shareholders/investors, consumers/customers, business partners, employees and local communities, and cooperate with these stakeholders appropriately. (3) The Company will disclose the Company’s information timely and properly, and ensure transparency. (4) The Directors, Audit and Supervisory Board Members, and Executive Officers will recognize their fiduciary responsibilities, and will effectively fulfill their expected roles and duties. (5) The Company will hold constructive dialogue with shareholders. The Company’s basic views and basic policy on corporate governance are provided in the “Organo Corporate Governance Guidelines” available on the Company’s website. (https://www.organo.co.jp/english/company/governance/guidance/) [Reasons for Non-compliance With the Principles of Japan’s Corporate Governance Code] [Update] The Company describes the information based on the Corporate Governance Code revised in June 2021. Supplementary Principle 4.1.3 Succession Plan for the CEO and other Top Executives, Supplementary Principle 4.3.2 and 4.3.3 Appointment and Dismissal of the CEO The Company stipulates the “Qualifications required for the Director and President” as part of a succession plan and shares them with Tosoh Corporation, the parent company. In addition, the Company established the council between the Company’s Nomination and Remuneration Advisory Committee and the parent company’s Selection/Compensation Committee in the fiscal year 2019. The Board of Directors will be involved in the succession plan through deliberations of the revision to the “Qualifications required for the Director and President.” The revision to the “Qualifications required for the Director and President” is determined by the resolution of the Board of Directors after obtaining opinions based on review by the Nomination and Remuneration Advisory Committee. Supplementary Principle 4.2.2 Sustainability Policy In December 2021, the Company established the Sustainability Committee as an executive organ to promote the “sustainability management” that aims to enhance sustainability and further growth of the Company group (the “Group”) where the corporate activities of the Group align with and contribute to maintaining the natural environment and social systems. The purpose of this committee, consisting of Executive Directors and – 1 – Executive Officers with titles, is to deliberate the basic policy of sustainability management and target plans and then to implement the policy and plans prescribed by the Board of Directors. In future at the Company, it is planned that the Sustainability Committee will discuss the basic policy and materiality relating to the sustainability of the Company, and the Board of Directors will determine and monitor those matters. [Disclosures Based on the Principles of Japan’s Corporate Governance Code] [Update] Principle 1.4 Cross-Shareholdings (1) Policy relating to cross-shareholdings The Company adopts a basic policy of not acquiring or holding the shares of concerned companies except when it judges that the holdings contribute to enhancing the Company’s corporate value such as strengthening medium- to long-term cooperation with customers, business partners, etc., expanding transactions and creating synergies. At the Board of Directors each year, the Company comprehensively evaluates the benefits and risks of each individual cross-shareholding in light of the holding costs, and verifies the rationale of holdings from a medium- to long-term perspective. If the Board of Directors judges that the holdings are not deemed reasonable as a result of its verification, the Company will, in principle, proceed with reducing the amount of holdings through measures such as the sale or transfer of the shares. Specifically, the Company implements the evaluation based on the following evaluation items and makes a judgement on sale or transfer. The presence or absence of a scandal such as the violation of laws and regulations or accounting frauds in the past one year three fiscal years Trends in business performance, stock prices, dividends and transactions with the Company in the past Opinions on holdings from the department in charge In evaluating the trend in transactions with the Company, the Company sets criteria for each evaluation item such as designating the matter as a verification target for sale or transfer if no transactions or insignificant transactions were made during the past three fiscal years. In a verification conducted in June 2021, the Company comprehensively verified all 18 issues of shares including the shares of unlisted companies regarding the rationale of their holdings based on the aforementioned policy. As a result, the Company judged that the significance of holdings of some issues has diminished and has decided to gradually reduce those amounts in consideration of issuers’ policies moving forward. As of March 31, 2021, the total amount of cross-shareholdings recognized in the balance sheet was ¥696 million, which accounts for less than 1 percent of the consolidated total assets, and the Company considers the amount to be insignificant. (2) Criteria for exercising voting rights regarding cross-shareholdings The Company makes a judgment regarding exercising voting rights for cross-shareholdings from the perspective of whether or not the exercising contributes to the medium- to long-term enhancement of corporate value for both the Company and investee companies. In particular regarding shares of listed companies, the Company prescribes the standards for approval or disapproval of proposals deemed to be of high importance, such as appropriation of surplus, election of officers, remuneration for officers and anti-takeover measures, and will respond in accordance with such standards. Principle 1.7 Related Party Transactions The Company shall require the approval from the Board of Directors for competitive transactions and conflict of interest transactions with Directors and the corporations, etc. substantially controlled by Directors, and shall report important matters relating to conflict of interest transactions between a Director and the Company to the Board of Directors. The Company examines the presence or absence of related party transactions between Directors as well as their close relatives and the Group companies each year, and monitors the situation. In addition, regarding transactions between the Company and major shareholders, etc., the Company requires obtaining prescribed decision and approval for transactions in accordance with the size, characteristics, significance and other factors of the transactions, in a similar manner as with transactions with other companies that do not have a capital relationship with the Company. The Company and its parent company Tosoh Corporation have a relationship in which the Company purchases items such as some raw materials for water treatment chemicals from Tosoh Corporation and it also carries out other transactions with Tosoh Corporation such as selling various types of water treatment systems and related chemicals to the said company. However, – 2 – the amount is insignificant and the transactions fall under the general activities belonging to the Company’s business, and in light of the size and characteristics of the transactions, the Company judges that they do not harm the interests of the Company and its shareholders. Supplementary Principle 2.4.1 Ensuring Diversity, Including Active Participation of Women (1) Stance on ensuring diversity The Company prescribes “ensuring a comfortable workplace where all employees can realize their full potential” in the “Organo Group Company Code of Conduct” and declares that it shall respect the human rights, diversity and individuality of each individual, and will not discriminate based on nationality, gender, creed, physical condition, or social status. Based on this foundation, the Company evaluates employees in a fair and impartial manner based on ability, regardless of their backgrounds including gender, age, nationality or disability, and recruits, trains and appoints them to managerial positions. (2) Voluntary and measurable goals for ensuring diversity and their status As of the end of March 2021, the number of women in managerial positions in the Company was 15 (the ratio of women in managerial positions was 3.9%), and the Company aims to increase the number to 30 by 2026. In addition, in accordance with the Act on Promotion of Female Participation and Career Advancement in the Workplace, the Company satisfies certain criteria regarding items such as the ratio of women hired and the continued employment ratio, and has been continuously granted the “Eruboshi (Three-star Rating)” certification since 2017. As of the end of March 2021, the Company has not appointed a foreign national employee to a managerial position, but has a certain number of foreign national employees and plans to appoint them to managerial positions based on its stance of appointing employees to managerial positions based on their ability in a fair and impartial manner, regardless of nationality. The Company recruits about 15 midcareer hires needed by the Company per year regardless of managerial or non-managerial positions, and will continue to recruit 15 or more midcareer hires per year. (3) Human resource development policy and internal environment development policy to ensure diversity, and status of their implementation Given that its workforce consists of a diverse range of employees possessing a variety of personalities and backgrounds, the Company aims to develop an environment where all employees are able to fulfill their potential and realize growth. As of the end of March 2021, the Company is implementing initiatives such as assigning female employees to the departments in charge of construction management, which previously was staffed mainly by male employees, enriching Japanese language education for foreign national employees, giving consideration to the company cafeteria, and establishing a prayer room. Please refer to the “ORGANO GROUP REPORT” for details. (https://www.organo.co.jp/english/ir/group-report/) Principle 2.6 Roles of Corporate Pension Funds as Asset Owners The Company adopts a contract-type defined benefit corporate pension fund and entrusts the administration and management of pension assets to asset management institutions that have expressed acceptance of the Stewardship Code. The Company strives to ensure safety and efficiency of pension asset management through activities such as periodically checking performance results and economic indicators and considering the revision to the fund management policy in a meeting body consisting of members with appropriate qualifications including General Managers of Human Resources Dept. and Accounting Dept. In addition, the pension asset is managed in the joint account of multiple asset management institutions that have expressed acceptance of the Stewardship Code, and the exercising of voting rights, etc. cannot be ordered through the pension asset. Therefore, the Company considers the conflict of interest between the Company and the beneficiaries as appropriately managed. Principle 3.1 Full Disclosure (1) Management philosophy, management strategy, management plan, etc. The Company prescribes its corporate philosophy, the “Management Philosophy” that expresses the Company’s reason for existence and the “Long-term Management Vision” with an eye toward the direction of management in the next ten years and makes them available on its website. (https://www.organo.co.jp/english/company/philosophy/) – 3 – With regard to the return of profit to shareholders in its capital policy, the Company strives to provide distribution of profits in a way that considers the Company’s revenue status, while adhering to a basic policy of providing stable and continuous dividends. The Company will utilize internal reserve funds in business investments and R&D investments, etc., to achieve sustainable growth. The Company has also formulated its three-year Medium-term Management Plan. The Company adopts a rolling method of updating the plan every year without fixing the ending fiscal year to continue its business management with an eye toward the next three years at all times. The overview is posted on its financial results presentation materials and shareholder newsletters. Such materials are available on the Company’s website. (2) Basic views and basic policy on corporate governance The Company’s basic views and basic policy on corporate governance are provided in the “Organo Corporate Governance Guidelines” available on the Company’s website. (https://www.organo.co.jp/english/company/governance/guidance/) (3) Policies and procedures in determining remuneration to Directors and Audit and Supervisory Board Members a. Directors The following is a summary of the Company’s “Policy for determining remuneration, etc. to Directors” resolved at the Board of Directors meeting held on February 1, 2021. i. Basic policy The remuneration system for Executive Directors, in addition to the fixed remuneration (cash), encourages business execution in line with management policies and management targets and establishes a remuneration framework and remuneration standards which provide strong incentive for the achievement of short-term and mid- to long-term management targets in order to achieve sustainable growth and improve the corporate value of the Group. The remuneration system for Non-Executive Directors, including Outside Directors, shall be fixed remuneration (cash) only, for the purpose of effectively functioning their supervisory and monitoring functions. ii. Remuneration framework 1) Executive Directors Remuneration to Executive Directors consists of fixed remuneration and performance-linked remuneration, and performance-linked remuneration consists of short-term performance-linked remuneration (cash) and mid- and long-term performance-linked remuneration (stock). The remuneration level is designed to be appropriate for each position by comparing and verifying it with objective data such as remuneration levels from external remuneration consultants and remuneration survey data from external research organizations. A) Fixed remuneration The total amount of remuneration based on the remuneration table set for each position shall be paid in equal monthly installments from July to June of the following year. B) Performance-linked remuneration The ratio of the total amount of performance-linked remuneration is designed to be approximately 50% to 60% when the performance evaluation index is the standard value set by the Board of Directors, and this ratio is higher for Directors of higher ranks. In addition, the ratio of short-term performance-linked remuneration (cash) to medium-to-long-term performance-linked remuneration (shares) shall be designed to be approximately 7:3 in the case the performance evaluation index is at the standard value set by the Board of Directors. Short-term performance-linked remuneration (cash) The short-term performance-linked remuneration shall be monetary remuneration. From the perspective of clarifying the relationship between business performance and remuneration, the Company shall use the consolidated operating profit, which is an important management index of the Group, as the performance evaluation index, and shall pay the total amount calculated by the remuneration table for each position according to the consolidated operating profit of the previous fiscal year in equal monthly installments from July to June of the following year. The amount paid varies in the range of 0-170% depending on the amount of consolidated operating profit. Medium-to-long-term performance-linked remuneration (shares) The medium-to-long-term performance-linked remuneration is a stock-based remuneration plan using a trust. From the perspective of improving corporate values over the medium to – 4 – long term and aligning the interests with those of shareholders, the Company shall use the consolidated return on equity (ROE), which is an important management indicator of the Group and indicates capital efficiency, as the performance evaluation indicator, and shall deliver shares of the Company calculated based on the performance-linked coefficient determined in accordance with the consolidated return on equity for the previous fiscal year and the basic amount for each position. The amount equivalent to the payment varies in the range of 0 to 200% depending on the consolidated return on equity. In addition, the Company has established a three-year transfer restriction period from the time of delivery of the shares to be delivered. 2) Non-Executive Director The remuneration for Non-Executive Directors consists of a fixed remuneration only, and the total remuneration based on their position is paid in equal monthly installments from July to June of the following year. The remuneration level is designed to be appropriate for each position by comparing and verifying it with objective data such as remuneration levels from external remuneration consultants and remuneration survey data from external research organizations, and by taking into consideration the appointment of each Director as a member of important committees and the nature of their duties. iii. Process of determining remuneration The Company has established the Nomination and Remuneration Advisory Committee as a non-statutory advisory body to the Board of Directors in order to ensure objectivity and transparency in the process of determining remuneration, etc. and provide an appropriate amount of remuneration. The amount of remuneration to the Company’s Directors and the method of calculating such amount shall be determined by resolution of the Board of Directors based on the opinion of the Nomination and Remuneration Advisory Committee and within the scope of the remuneration limit determined by resolution of the General Meeting of Shareholders. The Nomination and Remuneration Advisory Committee shall review matters such as the total amount of remuneration for Directors, confirmation of the amount of remuneration for individual Directors, and the policy of remuneration, etc. for Directors, and report to the Board of Directors. Among the remunerations for Directors, the amount of remuneration and the number of shares to be paid for performance-linked remuneration shall be determined in unison in accordance with a predetermined method. At the Nomination and Remuneration Advisory Committee during the 76th fiscal year, in addition to the policy relating to the decision of remunerations, etc. for Directors, the total and individual remuneration amounts for officers in the fiscal year under review were deliberated. In addition, the results of deliberations were reported to the Board of Directors. b. Audit and Supervisory Board Members Remuneration to Audit and Supervisory Board Members is a fixed amount according to their respective positions in the Company. The amount of remuneration is determined through discussion by the Audit and Supervisory Board Members within the scope of the remuneration limit determined by resolution of the General Meeting of Shareholders. (4) Policies and procedures in nominating the candidates for Directors and Audit and Supervisory Board Members and the dismissal of senior management The Board of Directors determines the candidates for Directors through the consideration and opinions of the Nomination and Remuneration Advisory Committee based on the evaluation of the qualifications required for Directors such as personality, insight, ability, experience, ethical viewpoint, etc., in addition to performance and other factors. The candidates for Independent Outside Directors shall satisfy the independence criteria for outside officers prescribed by the Company. At the Nomination and Remuneration Advisory Committee during the 76th fiscal year, the expected roles for Outside Directors were deliberated in addition to the selection of the candidates for Directors. In addition, the results of deliberations are reported to the Board of Directors. In the selection of the candidates for Audit and Supervisory Board Members, the Director and President prepares a personnel proposal based on the evaluation of the qualifications, etc. required for Audit and Supervisory Board Members, such as personality, insight, ability, experience, ethical viewpoint, etc. and then the Board of Directors determines those candidates after obtaining the consent of the Audit and Supervisory Board. – 5 – If a Director falls under the criteria for considering dismissal prescribed by the Company, such as a continuation of poor business performance in a certain period or an occurrence of a significant scandal, the Company considers as to whether or not it is necessary to dismiss the Director. Specifically, the Company discusses with the parent company, and if the dismissal is deemed relevant in consideration of external environmental factors, etc., the Board of Directors determines that it dismisses the person from Representative Director, Director with titles and other positions and does not nominate the person as a reelection candidate for Director. (5) Explanations on individual selections and nominations in nominating the candidates for Directors and Audit and Supervisory Board Members The Company describes the explanations on individual selections and nominations in nominating the candidates for Directors and Audit and Supervisory Board in the notice of the General Meeting of Shareholders, Registration Statement of Independent Officers, as well as [Directors] and [Audit and Supervisory Board Members] of this report. The notice of the General Meeting of Shareholders is announced on the Company’s website. (https://www.organo.co.jp/english/ir/general-meeting-of-shareholders/) Supplementary Principle 3.1.3 Initiatives on Sustainability and Investments in Human Capital and Intellectual Properties, Etc. (1) Initiatives of the Company on sustainability Please refer to Supplementary Principle 4.2.2 Sustainability Policy of this report. (2) Investments in human capital and intellectual properties, etc. In its Medium-term Management Plan for fiscal years 2021 to 2023, the Company newly established initiatives for developing and utilizing diverse human resources in Japan and overseas as part of efforts to build its business foundation. As part of the initiative to strengthen human resource development, the Company considers a medium- to long-term global human resource strategy aiming to develop and utilize overseas human resources, and has reviewed and rebuilt its managerial position system for developing the future management base. Moreover, as a workstyle reform initiative, the Company will promote streamlining operations by shifting to a paperless system, utilizing ICT tools and implementing other measures. In addition, as investments in intellectual properties, the Company has expanded investment in development with a target of 2.5% or more of net sales, and has made efforts to create new businesses through next-generation ultra-pure water systems, water recovery technologies, and non-aqueous separation and purification technologies for the electronics industry, and to strengthen sensing and digital technologies. The Board of Directors and the Management Meeting will continue to deliberate and supervise investments effectively so that those initiatives contribute to the sustainable growth of the Company. Supplementary Principle 4.1.1 Scope and Content of Matters Delegated to the Management In accordance with the provisions of the Board of Directors Regulations and the Detailed Regulations on the Operations of the Board of Directors, the Board of Directors makes decisions on important business executions including the formulation of the Medium-term Management Plan and the profit planning of a single fiscal year, investments over a certain amount and other matters. With regard to decisions on business executions for business executions other than matters that the Board of Directors shall determine, the Company prescribes the scope and content of matters delegated to the Management Meeting, Director and President, supervising Directors and others according to the size, characteristics and significance, etc. of each matter in the Authorization Regulations, the Management Meeting Regulations and the Internal Approval Regulations. Supplementary Principle 4.3.4 Establishment of Company-wide Risk Management Systems To promote compliance, the Company has established the Compliance Committee and is promoting company-wide initiatives such as formulating a compliance education plan and establishing a compliance system. In addition, the Company is building the PDCA cycle of the process to ensure and enhance the effectiveness of group-wide risk management. In executing management plans and strategies, the Company’s Board of Directors identifies major risks among the risks pointed out by various departments/divisions and group companies. Various departments/divisions proceed with their risk responses based on the risk management plan formulated by the supervising department/division that lead the responses against those major risks. Among other activities, the Internal Auditing Dept. evaluates the progress of the risk management plan, and the Board – 6 – of Directors conducts monitoring and gives directives for improvement of the plan, thereby supervising the risk management status. Principle 4.8 Effective Use of Independent Outside Directors As a listed subsidiary, the Company believes that the ratio of Independent Outside Directors needs to be equivalent to or above one-third in the Board of Directors. Therefore, in the 76th Ordinary General Meeting of Shareholders held on June 29, 2021, the Company continued to select three Independent Outside Directors with the total number of Directors being nine, and the ratio has become one-third. In addition, Independent Outside Directors include those who have management experience in other companies, etc. Principle 4.9 Independence Criteria and Qualifications for Independent Outside Directors An outside officer of the Company shall be deemed as not satisfying the requirements for independence if any of the following statuses are applicable to him/her. (1) A person who is currently, or who has been during the past ten years, an executive of the Company or a subsidiary of the Company. (2) A person who is currently, or who has been during the past ten years, a non-executive director or an accounting advisor of the Company or a subsidiary of the Company (applicable only in the case of outside audit and supervisory board members). (3) A person who is currently, or who has been during the past ten years, an executive or a non-executive director of the Company’s parent company. (4) A person who is currently, or who has been during the past ten years, an audit and supervisory board member of the Company’s parent company (applicable only in the case of outside audit and supervisory board members). (5) A person who is currently, or who has been during the past ten years, an executive at a sister company of the Company. (6) A person who is currently, or who has been during the past one year, either a person who has the Company as a major business partner, or an executive of such an entity. (7) A person who is currently, or who has been during the past one year, either a person who is a major business partner of the Company or an executive of such an entity. (8) A person who is currently, or who has been during the past one year receiving a large amount of money or other assets from the Company other than remuneration for directors (and other officers) either as a consultant, an accounting professional, or a legal professional. (9) A person who is currently a major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a corporation). (10) A person who is currently an executive at an entity under circumstances where outside officers are mutually appointed between said entity and the Company. (11) A person who is currently an executive at an entity that is receiving significant amount of donations from (12) A person whose spouse or relative within second degree of kinship falls under any of (1) through (8) the Company. above (limited to material persons). Supplementary Principle 4.11.1 Views on the Appropriate Balance Between Knowledge, Experience and Abilities, Diversity and Size of the Board of Directors as a Whole The number of the Company’s Board of Directors shall be between three and ten, and in principle, one-third or more of its members shall be Independent Outside Directors. In addition, the Company believes that ensuring the diversity of the Board of Directors is useful for its deliberation to be made in a multifaceted and effective manner, and shall select in a balanced way persons with diverse knowledge, experience and ability. The Board of Directors of the Company currently consists of nine Directors including three Independent Outside Directors, and each Director has knowledge, experience and ability in the fields of management in general, business administration, sales, research and development, technology and industrial policy, etc., respectively. Therefore, the Company considers the Board of Directors to be well-balanced and well-diversified and of an appropriate size. In addition, Independent Outside Directors include those who have management experience in other companies, etc. This time, the Company has identified the following combination of skills necessary for achieving the medium- to long-term management plan: corporate management/management – 7 – strategy; financial affairs/accounting, legal/risk management; global; sales/marketing; technology; human resource strategy; and ESG (environment, society and governance). The Company believes that it should maintain the overall balance and diversity of the Board of Directors to make the Board of Directors effective by selecting in a balanced manner Directors who have these skills. The Company plans to initiate disclosing the combination of the skills possessed by each Director (a so-called skill matrix) of the candidates for Directors from the next fiscal year. Supplementary Principle 4.11.2 Status of Concurrent Positions of Directors In principle, outside officers of the Company shall not concurrently serve as director or audit and supervisory board member of more than three listed companies excluding the Company. The status of concurrent officer positions of Directors and Audit and Supervisory Board Members in other listed companies are described in the notice of the General Meeting of Shareholders, annual securities reports, as well as [Directors] and [Audit and Supervisory Board Members] of this report. The notice of the General Meeting of Shareholders is announced on the Company’s website. (https://www.organo.co.jp/english/ir/general-meeting-of-shareholders/) Outside officers of the Company currently do not serve as directors or audit and supervisory board members of more than three listed companies excluding the Company. Supplementary Principle 4.11.3 Analysis and Assessment of Overall Effectiveness of the Board of Directors Every year, the Board of Directors performs an analysis/assessment on the overall effectiveness of the Board of Directors, and releases a summary of the results. The overview of the analysis/assessment performed on the overall effectiveness of the Board of Directors conducted in the fiscal year 2021 is as follows: (1) Analysis/assessment method relating to the overall effectiveness of the Board of Directors A survey was conducted in the following outline. In reference to the results, the Board of Directors performed analysis/assessment in regard to the overall effectiveness of the Board of Directors and future efforts in which to engage were discussed. Scope: a total of 12 people including all Directors of the Company (nine) and all Audit and Supervisory Board Members of the Company (three) Implementation timing: April 2021 Implementation method: signed questionnaire Period: fiscal year 2020 (April 2020 to March 2021) Questions (major items): “Effectiveness of Board of Directors,” “Composition of Board of Directors,” “Operation of Board of Directors,” “Support systems for Non-Executive Directors and Audit and Supervisory Board Members” and “Relationships and dialogue with shareholders and investors” (2) Overview of the analysis/assessment relating to the overall effectiveness of the overall Board of Directors The Company confirmed that the overall effectiveness of the Board of Directors was being ensured in that Directors have the necessary abilities and Independent Outside Directors are fulfilling their expected roles appropriately, that the subjects to be addressed by the Board of Directors is appropriate and the Board of Directors is indicates the direction toward achieving goals while appropriately responding to promotion, modification and other activities regarding their implementation, that the Chairman has created an atmosphere where active discussions can take place and maintains an appropriate amount of control, that the incentive function of the remuneration for Directors is appropriate, and that meeting bodies in which non-executive officers can participate are properly functioning. In addition, it was judged that in comparison to the previous year, the results of the Nomination and Remuneration Advisory Committee are properly reported to the Board of Directors, that matters to be reported and contents of the Board of Directors are appropriate and the documents of the Board of Directors are improved, that the support system for Non-Executive Directors and Outside Audit and Supervisory Board Members is strengthened, and the management information that Non-Executive Directors and Outside Audit and Supervisory Board Members can access is appropriate, and that the opinions of Non-Executive Directors and Outside Audit and Supervisory Board Members are reflected appropriately. At the same time, the Company recognized the need to deepen the discussion relating to the creation of corporate value, that the Board of Directors should be more effectively involved in the selection of – 8 – Directors and the Director and President, and that the Board of Directors should secure more time to discuss important matters after narrowing down agendas for the Board of Directors. (3) Future measures in light of the analysis/assessment relating to the overall effectiveness of the Board of Directors The Board of Directors will implement improvement measures for the following matters based on the aforementioned analysis and evaluation. Discussion for creating corporate value In the fiscal year 2020, the Company reviewed its Long-term Management Plan and formulated a framework of the new Long-term Management Plan “ORGANO2030.” In the fiscal year 2021, the Company will clarify the plan and the process to achieve it mainly through the Long-term Management Plan Promotion Meeting. The Long-term Management Plan Promotion Meeting will check the progress and modify the strategy of the Long-term Management Plan. In addition, the Long-term Management Plan Promotion Meeting will hold discussions on the corporate value and capital policy that the Group should emphasize, and facilitate the discussions on a continuing basis. Selection of Directors and succession plan In the fiscal year 2021, the Company plans to discuss the skill set, etc. necessary for Directors and the Board of Directors in the Nomination and Remuneration Advisory Committee and then identify them in the Board of Directors. Director composition and policy on developing executive management in awareness of gender and internationality In awareness of ensuring diversity among Directors, one female Outside Audit and Supervisory Board Member assumed office in June 2021. In the fiscal year 2021, the Nomination and Remuneration Advisory Committee will discuss the diversity of officers that should be secured in light of the management policy and strategy of the Company. In addition, the Long-term Management Plan Promotion Meeting also plans to deepen the discussion on the direction relating to ensuring the diversity of executive management. Deepening of discussions in the Board of Directors The company will strive to ensure sufficient discussion time in the Board of Directors by narrowing down its agendas. Furthermore, regarding important management issues such as enhancing corporate value, ESG and SDGs, the Company will enhance the quality of discussion in the Board of Directors by enhancing prior explanations to Outside Directors and Audit and Supervisory Board Members. Supplementary Principle 4.14.2 Policy on Training for Directors and Audit and Supervisory Board Members In order for Directors and Audit and Supervisory Board Members (including outside officers) to acquire knowledge necessary for appropriately fulfilling their roles and duties, the Company offers or arranges training opportunities based on the following policies at the expense of the Company. (1) If Directors or Audit and Supervisory Board Members newly assume office, the Company implements or arranges training relating to their duties and responsibilities as officers, and provides opportunities to obtain explanations regarding the Company’s management plan, business overview, internal rules and other regulations. (2) After those persons assume office as Directors or Audit and Supervisory Board Members, the Company continues to implement training relating to laws and regulations, management, compliance, etc. by external lecturers and the Company’s departments in charge, and also arranges for external organizations to provide trainings. In addition, the Company explains its businesses as necessary and offers opportunities such as office inspections so that those persons can deepen their understanding regarding the Company’s businesses. (3) The Company implements or arranges training relating to the duties and responsibilities as officers for Executive Officers who are to be candidates for future Directors. In addition, the Board of Directors and the Audit and Supervisory Board check the implementation status of training every year. Principle 5.1 Policy Relating to Constructive Dialogue With Shareholders The Company’s policies relating to the system establishment, initiatives and other matters for promoting constructive dialogue with shareholders, etc. of the Company are as follows: – 9 – (1) The Director supervising the Corporate Strategy and Planning Dept. manages the overall dialogue with shareholders, etc., and promotes constructive dialogue with shareholders, etc. (2) The responsible person of Corporate Strategy and Planning Dept. serves as a contact point for dialogue with shareholders, etc., and in accordance with the purpose and contents of meetings, the Director and President, other Directors including outside Directors, Audit and Supervisory Board Members or General Manager of Corporate Strategy and Planning Dept. etc., respond under the reasonable scope. (3) The Corporate Strategy and Planning Dept. plays a key role in the dialogue with shareholders, etc., exchanging information with the Accounting Dept., the Legal Dept. and other relevant departments/divisions on a daily basis, and strives to provide accurate and fair information. (4) In addition to individual meetings and telephone conferences with shareholders, etc., the Company holds a financial results presentation for investors half yearly, utilizes investor conferences hosted by securities companies and enhances information disclosures through its website, the notice of the General Meeting of Shareholders, shareholder letters, financial results presentation materials and other media. (5) The Company reports to the Board of Directors material matters from among the evaluation/comments obtained through investor briefing sessions and the opinions obtained through the dialogue with shareholders. (6) In accordance with the Insider Transaction Prevention Regulations and the Disclosure Policy, the Company ensures information protection and management and makes efforts for fair disclosure. (7) The Company identifies beneficial shareholders as necessary in order to ensure effective dialogue with shareholders, etc. 2. Capital Structure [Status of Major Shareholders] Ratio of shareholding by foreign investors From 20% to less than 30% Name Number of shares owned (shares) Shareholding ratio (%) 4,925,400 694,100 643,500 202,100 200,092 165,000 134,400 118,400 105,300 99,300 Tosoh Corporation Custody Bank of Japan, Ltd. (Trust Account) The Master Trust Bank of Japan, Ltd. (Trust account) BANQUE ET CAISSE D’EPARGNE DE L’ETAT LUXEMBOURG 46985807 Mizuho Bank, Ltd. BBH The Advisors’ Inner Circle Fund II Kopernik Global All-Cap Fund KBC BANK NV – UCITS CLIENTS NON TREATY BBH BOSTON CUSTODIAN FOR BBHTSIA HEPTAGON FUND PLC COPEL 620357 Custody Bank of Japan, Ltd. (Securities Investment Trust Account) Custody Bank of Japan, Ltd. (Trust Account 5) Controlling shareholder (excluding the parent company) ――― – 10 – 42.80 6.03 5.59 1.76 1.74 1.43 1.17 1.03 0.92 0.86 Parent company Tosoh Corporation (Listing: Tokyo) (Code) 4042 Supplementary explanation ――― 3. Corporate Attributes Listed stock market and market section First Section of the Tokyo Stock Exchange Fiscal year-end Type of business Number of employees (consolidated) at the end of the preceding fiscal year Net sales (consolidated) during the preceding fiscal year March Machinery 1,000 or more Number of consolidated subsidiaries at the end of the preceding fiscal year Less than 10 From ¥100 billion to less than ¥1 trillion 4. Policy for Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder With regard to the policy for measures to protect minority shareholders in conducting transactions with the controlling shareholder, the Company shall make reasonable decisions referring to contract terms and market prices, in a similar manner as with transactions with other companies that do not have a capital relationship with the Company. Moreover, the Company established the Special Committee in April 2022 for the purpose of practicing fairness when conducting important transactions, etc. between the Company and the Company’s parent company Tosoh Corporation and its subsidiaries (excluding the Company and the Company’s subsidiaries), and monitoring and supervising issues regarding conflicts of interest between the parent company group and minority shareholders in such transactions, etc. to appropriately protect the interests of minority shareholders. The Company has secured the independence of this committee by having it solely consist of Independent Outside Directors (three members). 5. Special Circumstances Which May Have Material Impact on Corporate Governance The Company’s parent company is Tosoh Corporation, and the ratio of the voting rights of the Company held by Tosoh Corporation is 43.10% (for which indirect holdings ratio accounts 0.10%). Tosoh Corporation and the Company have not entered into any contracts or other agreements regarding the Company’s material financial and business policies. There are no particular restrictions on the Company’s material financial and business policies in relation to Tosoh Corporation, including approval items in conducting business activities. Although the Company is engaged in businesses related to the corporate group of Tosoh Corporation, the two companies are clearly segregated in terms of the products they handle and the customers they do business with. The Company recognizes that as a listed company, it has secured a certain degree of management independence in its business activities and management decisions. When an important transaction, etc. is conducted between the Company and Tosoh Corporation or one of its subsidiaries, the Special Committee, which was established in April 2022, will deliberate on such transaction, etc. from the standpoint of protecting the interests of minority shareholders and report the resulting recommendation to the Board of Directors. In addition, from the perspective of supervision, etc. in the group management of Tosoh Corporation, the Company accepts Directors from Tosoh Corporation, however, the Company believes that the effectiveness of its corporate governance system is secured, considering that the nomination of officers, such as the selection and dismissal of Directors, and matters relating to remunerations, etc. are deliberated by the Nomination and – 11 – Remuneration Advisory Committee of which Independent Outside Directors account for the majority of its members, and then determined by the Board of Directors. While advocating for hybrid management, the Company has been making efforts to cultivate and strengthen the businesses that cover the profit fluctuation risks of the commodity business, and positions the Water Treatment Engineering Business Unit as one important role of the business portfolio that enhances the Company’s hybrid management. In addition, Tosoh Corporation consistently maintains the stance of respecting the independence of the Company as a listed company in regard to the Company’s management. – 12 – [Directors] II Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Supervision in Management 1. Organizational Composition and Operation Organization form Company with Audit and Supervisory Board Maximum number of Directors stipulated in Articles of Incorporation Term of office stipulated in Articles of Incorporation 10 1 year Chairman of the Board of Directors President Number of Directors Appointment of Outside Directors Appointed Number of Outside Directors Number of independent officers designated from among Outside Directors Outside Directors’ relationship with the Company (1) 9 3 3 Name Attribute Motoo Nagai From another company Keikou Terui From another company Kenji Hirai Other Relationship with the Company (*) a b c d e f g h △ ○ i j k * Categories for “Relationship with the Company” * “○” when the Director presently falls or has recently fallen under the category; “△” when the Director fell under the category in the past; * “●” when a close relative of the Director presently falls or has recently fallen under the category; and “▲” when a close relative of the Director fell under the category in the past a Executive of the Company or its subsidiary b Non-executive director or executive of the parent company of the Company c Executive of a fellow subsidiary of the Company d Party whose major business partner is the Company or an executive thereof e Major business partner of the Company or an executive thereof f Consultant, accounting professional or legal professional who receives a large amount of money or other assets from the Company other than remuneration as a Director g Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a corporation) only) Director himself/herself only) h Executive of a business partner of the Company (which does not correspond to any of d., e., or f.) (the i Executive of a corporation to which outside officers are mutually appointed (the Director himself/herself j Executive of a corporation that receives a donation from the Company (the Director himself/herself only) k Other – 13 – Outside Directors’ relationship with the Company (2) Name Designation as independent officer Supplementary explanation of the relationship Reasons for appointment Motoo Nagai ○ Motoo Nagai had worked for financial institutions for many years and had been engaged in company management as a Director and Deputy President of Mizuho Trust & Banking Co., Ltd. In addition, he has served as an outside director of other listed companies, deepening his knowledge on multidimensional corporate management. After being appointed as an Outside Audit and Supervisory Board Member and Outside Director of the Company, he has been giving us useful opinions and advices on the management of the Company, especially enhancement of governance, utilizing his abundant and various knowledge. As the Chairman of the Nomination and Remuneration Advisory Committee, he has also been leading the deliberations on matters related to the selection of candidates for Directors and the compensation of Directors, etc., and is expected to continue performing his roles. In addition to high ethical standards, and abilities to accurately make decisions and understand issues, which are essential for a Director, he also possesses the necessary experience and insight to promote sustainable growth and improvement of corporate value of the Group. Therefore, the Company has judged that he is capable of appropriately performing his duties as an Outside Director. He also satisfies the requirements for independent officers prescribed by the securities exchange and the criteria for independence of outside officers prescribed by the Company. Therefore, judging that there is no risk for conflict of interest with ordinary shareholders of the Company, the Company has designated him as an independent officer. Apr. 1977 Apr. 2005 Apr. 2007 Apr. 2011 June 2011 Apr. 2014 June 2014 June 2015 June 2019 Joined The Industrial Bank of Japan, Limited Executive Officer of Mizuho Corporate Bank, Ltd. (currently Mizuho Bank, Ltd.) Managing Executive Officer (retired in April 2011) Deputy President and Executive Officer of Mizuho Trust & Banking Co., Ltd. Director and Deputy President (Representative Director), Deputy President and Executive Officer Administrative Officer (retired in June 2014) Outside Audit and Supervisory Board Member of the Company, Outside Statutory Auditor (Full-time) of Nissan Motor Co., Ltd. Outside Director of the Company, Outside Audit & Supervisory Board Member of Nisshin Seifun Group Inc. Outside Director of Nissan Motor Co., Ltd. Outside Director of Nisshin Seifun Group Inc. Current position Motoo Nagai was in the past an executive of Mizuho Trust & Banking Co., Ltd., a business partner of the Company (retired in June 2014). As of the end of March 2021, the ratio of the Company’s borrowings from Mizuho Trust & Banking Co., Ltd. was approximately 4.3% in the total amount, which is not especially outstanding. Moreover, the amount relating to the outsourcing to the company was ¥17 million during the fiscal year ended March 31, 2021, which is insignificant. – 14 – Name Designation as independent officer Supplementary explanation of the relationship Reasons for appointment Keikou Terui ○ Apr. 1979 July 2008 Jan. 2011 Apr. 2012 Aug. 2013 Oct. 2013 June 2014 Mar. 2016 June 2016 Aug. 2018 June 2020 Joined Ministry of International Trade and Industry (currently Ministry of Economy, Trade and Industry) Director-general for technology policy coordination, Minister’s Secretariat Director-General of Kanto Bureau of Economy, Trade and Industry Director-General of Regional Economic and Industrial Policy (retired in June 2013) President of Japan Utility Telemetering Association Senior Research Associate of Chemicals Evaluation and Research Institute, Japan (retired in September 2016) Director of Union of Japanese Scientists and Engineers Outside Director of Ube Industries, Ltd. Outside Director of Bridgestone Corporation Outside Director of the Company, Director of Chemicals Evaluation and Research Institute, Japan (retired in June 2020) Director of Japan Industrial Safety Competency Center Executive Director of Japan Chemical Innovation and Inspection Institute Current position Keikou Terui had held a number of management positions at Ministry of Economy, Trade and Industry. At those positions, he had promoted preparation and implementation of industrial policy and demonstrated his leadership at important positions in management of organization. In addition, he has highly academic knowledge on risk evaluation and management of chemicals, and has served as an outside director of other listed companies, deepening his knowledge on multidimensional corporate management. After being appointed as an Outside Director of the Company, he has been giving us useful opinions and advices on the management of the Company, utilizing his abundant and various piece of knowledge. As a member of the Nomination and Remuneration Advisory Committee, he has also been contributing to the deliberations on matters related to the selection of candidates for Directors and the compensation of Directors, etc., and is expected to continue performing his roles. In addition to high ethical standards, and abilities to accurately make decisions and understand issues, which are essential for a Director, he also possesses the necessary experience and insight to promote sustainable growth and improvement of corporate value of the Group. Therefore, the Company has judged that he is capable of appropriately performing his duties as an Outside Director. He also satisfies the requirements for independent officers prescribed by the securities exchange and the criteria for independence of outside officers prescribed by the Company. Therefore, judging that there is no risk for conflict of interest with ordinary shareholders of the Company, the Company has designated him as an independent officer. – 15 – Name Designation as independent officer Supplementary explanation of the relationship Reasons for appointment Kenji Hirai ○ Apr. 1981 Apr. 1990 Apr. 1998 Jan. 2002 Apr. 2004 Dec. 2018 Apr. 2019 June 2019 June 2021 Joined Sagami Chemical Research Center (currently Sagami Chemical Research Institute) Senior Research Fellow Senior Fellow Vice President Vice Chairman of the Board, President Vice Chairman of the Board (Representative Director), President (retired in March 2019) Vice Chairman of the Board (Representative Director), Research Advisor Outside Director of the Company Research Advisor of Sagami Chemical Research Institute Current position Kenji Hirai was the Vice Chairman of the Board (Representative Director) of Sagami Chemical Research Institute (retired in June 2021). The Company and the aforesaid institute are implementing joint research. The amount of expenditure paid by the Company to the institute in the fiscal year ended March 31, 2021, is ¥10 million. In addition, the Company has made donations to the institute. The amount paid in the fiscal year ended March 31, 2021 is ¥300,000, which is insignificant. Kenji Hirai, while making distinguished achievements in research of cutting-edge functional substances, high performance agrochemicals and environmental preservation substances, and development of biotechnology, has demonstrated his skills on management and operation of an organization, as Vice Chairman of the Board, President of Sagami Chemical Research Institute (retired as the President in March 2019). After being appointed as an Outside Director of the Company, he has been giving us useful opinions and advices on the management of the Company, utilizing his abundant and various piece of knowledge. As the member of the Nomination and Remuneration Advisory Committee, he has also been contributing to the deliberations on matters related to the selection of candidates for Directors and the compensation of Directors, etc., and is expected to continue performing his roles. In addition to high ethical standards, and abilities to accurately make decisions and understand issues, which are essential for a Director, he also possesses the necessary experience and insight to promote sustainable growth and improvement of corporate value of the Group. Therefore, the Company has judged that he is capable of appropriately performing his duties as an Outside Director. He also satisfies the requirements for independent officers prescribed by the securities exchange and the criteria for independence of outside officers prescribed by the Company. Therefore, judging that there is no risk for conflict of interest with ordinary shareholders of the Company, the Company has designated him as an independent officer. Voluntary establishment of committee(s) equivalent to nominating committee or remuneration committee Established – 16 – Committee’s name, composition, and chairperson’s attributes Committee equivalent to nominating committee Committee equivalent to remuneration committee Nomination and Remuneration Advisory Committee Nomination and Remuneration Advisory Committee 4 0 1 3 0 0 4 0 1 3 0 0 Outside Director Outside Director Committee’s name Total committee members Full-time members Inside Directors Outside Directors Outside experts Other Chairperson Supplementary explanation The Nomination and Remuneration Advisory Committee considers the following matters and reports its opinions to the Board of Directors. (1) Matters relating to the election and dismissal of Directors of the Company (resolution matters of the General Meeting of Shareholders) (2) Matters relating to the selection and dismissal of the Representative Director and Directors with titles of the (3) Matters relating to the election and dismissal of Executive Officers and Directors with titles of the (4) Matters relating to the policies, regulations and other rules on the election and dismissal, etc. of the (5) Matters relating to the policies, regulations and other rules on the remuneration, etc. that are received by Directors and Executive Officers of the Company Directors and Executive Officers of the Company (6) Matters relating to the remunerations, etc. that are received by Directors and Executive Officers of the Company Company Company (7) Necessary matters relating to each of the aforementioned items [Audit and Supervisory Board Members] Establishment of Audit and Supervisory Board Established Maximum number of Audit and Supervisory Board Members stipulated in Articles of Incorporation Not limited Number of Audit and Supervisory Board Members 3 Cooperation among Audit and Supervisory Board Members, the Independent Auditor and the Internal Auditing Dept. The Audit and Supervisory Board Members of the Company receive reporting for the matters regarding the overall business management from the Internal Auditing Dept. and the Independent Auditor, cooperate with each other, and consult lawyers, etc. as necessary, thereby securing the structure for the effective internal control system. – 17 – The Audit and Supervisory Board Members of the Company and the Independent Auditor reports the auditing status and share other information in the regular meetings. In principle, the Audit and Supervisory Board Members of the Company and the Internal Auditing Dept. hold a regular meeting once every two months, conduct reporting on internal auditing status and share other information. Appointment of Outside Audit and Supervisory Board Members Appointed Number of Outside Audit and Supervisory Board Members Number of independent officers designated from among Outside Audit and Supervisory Board Members 2 2 Outside Audit and Supervisory Board Members’ relationship with the Company (1) Name Attribute Wataru Higuchi Nobuko Hanano Lawyer Lawyer Relationship with the Company (*) a b c d e f g h i j k l m △ * Categories for “Relationship with the Company” * “○” when the Audit and Supervisory Board Member presently falls or has recently fallen under the category; “△” when the Audit and Supervisory Board Member fell under the category in the past; * “●” when a close relative of the Audit and Supervisory Board Member presently falls or has recently fallen under the category; and “▲” when a close relative of the Audit and Supervisory Board Member fell under the category in the past a Executive of the Company or its subsidiary b Non-Executive Director or Accounting Advisor of the Company or its subsidiary c Non-executive director or executive of the parent company of the Company d Audit and supervisory board member of the parent company of the Company e Executive of a fellow subsidiary of the Company f Party whose major business partner is the Company or an executive thereof g Major business partner of the Company or an executive thereof h Consultant, accounting professional or legal professional who receives a large amount of money or other assets from the Company other than remuneration as an Audit and Supervisory Board Member i Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a corporation) j Executive of a business partner of the Company (which does not correspond to any of f., g., or h.) (the Audit and Supervisory Board Member himself/herself only) k Executive of a corporation to which outside officers are mutually appointed (the Audit and Supervisory l Executive of a corporation that receives a donation from the Company (the Audit and Supervisory Board Board Member himself/herself only) Member himself/herself only) m Other – 18 – Outside Audit and Supervisory Board Members’ relationship with the Company (2) Name Reasons for appointment Designation as independent officer Supplementary explanation of the relationship Wataru Higuchi ○ Wataru Higuchi, as a lawyer and certified public accountant, has highly professional knowledge and experience relating to legal, finance and accounting. In addition, he has served as an outside director who is an audit and supervisory committee member of another listed company, deepening his knowledge on multidimensional corporate management. In addition to high ethical standards and ability to make decisions fairly and impartially, which are essential for an Audit and Supervisory Board Member, he also possesses the necessary experience and insight to conduct an appropriate audit to the management of the Company. Therefore, the Company has judged that he is capable of appropriately performing his duties as an Outside Audit and Supervisory Board Member. He also satisfies the requirements for independent officers prescrib