Overview of Corporate Governance

(a) Policy for Nomination of Candidates for Director
Our basic approach to the structure of the Board of Directors, which fulfills the roles of determining the direction of management and exercising supervision over the progress of business execution, is to ensure that it comprises a diverse range of human resources with different expert knowledge, experience, and other qualities. In particular, the Nomination Committee will consider candidates for Outside Director to ensure that they comprise individuals who possess experience and knowledge in corporate management (business similar to or different from the Group's business, etc.) and organizational management, and individuals who possess broad and advanced expert knowledge and extensive experience in relation to finance and accounting, legal affairs, production engineering, research and development, sales and marketing, or international relations, etc.
In light of the basic policy on the structure mentioned above, the Nomination Committee will nominate and select individuals who satisfy the following requirements as candidates for Director, regardless of individual attributes concerning gender, nationality and race, etc.:

• - An individual of exceptional insight and character;
• - An individual with a strong sense of ethics and a law-abiding spirit; and
• - An individual who can properly fulfill his or her duties concerning the exercise of supervision over the management of the Company and the determination of the direction of management.

Further, with respect to candidates for Independent Outside Director, the Nomination Committee will nominate and select individuals who satisfy the following requirement in addition to the above requirements:

• - An individual who has no material interest in the Group and who can remain independent. The specific selection of personnel shall be decided after deliberation by the Nomination Committee.

Provided that the Company considers that an Outside Director is not independent if he or she falls under any of the conditions listed below in addition to meeting the standards for independence established by Tokyo Stock Exchange, Inc.

1. An individual who falls under or has fallen under any of items (1) or (2) below, either presently or in the past:

1. (1) An executive or non-executive Director of the Company; or
2. (2) An executive or non-executive Director of the Company's subsidiary.

2. An individual who falls under any of items (1) through (5) below:

1. (1) An executive of a client or supplier company of the Company, whose value of transactions amounted to 2% or more of the consolidated net sales of the Company or the client or supplier company as of the end of the previous fiscal year;
2. (2) A person who received, as a professional or consultant, etc., consideration of not less than 10 million yen from the Company in the previous fiscal year, excluding his/her consideration as a Director;
3. (3) An executive of an organization that received a donation of not less than 10 million yen from the Company in the previous fiscal year;
4. (4) A shareholder who directly or indirectly holds at least 10% of the total number of voting rights of the Company or an executive of such shareholder; or
5. (5) The Company's Accounting Auditor or its employee, etc.

3. An individual who has fallen under any of items (1) to (5) of 2 above at any time in the past three (3) years:

4. A close relative of any of the persons listed in item (1) or (2) of 1 above, items (1) to (5) of 2 above, or 3 above (excluding unimportant persons); or

5. A person who has served as the Company's Outside Director for a period of more than eight (8) years.

(b) Policy for Election and Dismissal of Executive Officers
In electing Executive Officers responsible for the execution of business tasks, the Nomination Committee will elect individuals who satisfy the following requirements, regardless of individual attributes concerning gender, nationality and race, etc.:

• - An individual of exceptional insight and character;
• - An individual with a strong sense of ethics and a law-abiding spirit; and
• - An individual well-versed in management and the business activities of the Group.

In relation to the election process, the Chief Executive Officer will first draft a proposal for the election of Executive Officers after consulting with relevant officers as necessary. The Chief Executive Officer will then submit a proposal for the election of Executive Officers to the Board of Directors based on the deliberations and responses to inquiries at a Nomination Committee meeting, and Executive Officers will be elected by resolution of the Board of Directors based on a comprehensive review of the candidates' personal history, achievements, specialist knowledge, and other capabilities.
In addition, if any event occurs that makes an Executive Officer highly ineligible in light of these standards, the Executive Officer shall be dismissed by resolution of the Board of Directors following a review by the Nomination Committee.

Analysis and evaluation of the effectiveness of the Board of Directors

The Company analyzes and evaluates the effectiveness of the Board of Directors based on the evaluation by each Director on an annual basis. In FY2022, the effectiveness of the Board of Directors was evaluated using a third-party organization. The evaluation method and a summary of the results are outlined below.

1. Method of analysis/evaluation
   1. (1) Evaluation process
      
      • ･September 2021 / The materials and minutes of the Company's Board of Directors meetings were disclosed to the third-party organization.
      • ･October 2021 / The third-party organization conducted a preliminary interview with the Chairman of the Board of Directors and the Chief Executive Officer regarding the current status of the Board of Directors.
      • ･November 2021 / A questionnaire prepared in consultation with the third-party organization was distributed to all 10 Directors and anonymous responses were retrieved.
      • ･December 2021 / Based on the results of the questionnaire, the third-party organization conducted individual interviews with all 10 Directors on important matters concerning the Board of Directors.
      • ･February and March 2022 / Given the report from the third-party organization on the results of the questionnaire and interviews compiled and analyzed, the Directors discussed the effectiveness of the Board of Directors based on that report.
      • ･March 2022 / Following the discussions in February and March, the Board of Directors passed a resolution on the effectiveness of the Board of Directors for FY2022.
   2. (2) Questionnaire items
      The questionnaire uses a five-grade evaluation for the questions below (1. Strongly agree, 2. Agree, 3. Neither agree nor disagree, 4. Disagree, 5. Totally disagree) and provides a free comment space where needed.
      
      • ･Roles and functions of the Board of Directors
      • ･Scale and composition of the Board of Directors
      • ･Status of operations of the Board of Directors
      • ･Composition, roles and status of operations of each of the Nomination Committee, Audit Committee and Remuneration Committee
      • ･Support system for Outside Directors
      • ･Relationship with investors and shareholders
      • ･Overall effectiveness of the Company's governance system and the Board of Directors
   3. (3) Interview items
      Based on the responses to the questionnaire, the third-party organization conducted interviews on the following important matters concerning the effectiveness of Board of Directors.
      
      • (i) Views on business and management
        Optimization of business portfolio
        Promotion of CX (efforts for management innovation) and organizational reform
        Status of corporate culture and human resources
        Status of group governance and internal control
      • (ii) Views on the Board of Directors
        Supervisory function by the Board of Directors
        Status of discussions at the Board of Directors
        Comments by Outside Directors
        Quality of discussions at the Board of Directors and future responses
        Discussions on sustainability issues
        Setting of agenda
        Materials and presentations
        Views on the leading Independent Outside Directors
        Succession plan for the Chief Executive Officer
        Views on the Chairman and its succession plan
        Composition of Outside Directors and their succession plan
        Sharing of information on discussions at the Nomination Committee with the Board of Directors
        Status of activities of the Audit Committee
2. Issues based on the FY2021 evaluation and evaluation of responses to those issues

   As a result of the questionnaire and interviews conducted by the third-party organization regarding the initiatives concerning the following matters taken by the Company in FY2022 based on the results of the evaluation of the effectiveness of the Board of Directors for FY2021, it was confirmed that "certain measures were taken and improvements have been made" and "sufficient discussions were conducted by the Board of Directors" in general.

   1. (1) Matters pertaining to enhancement of management supervisory functions (the manner of supervision, including supervision of the measures taken based on the Medium-term Management Strategy, the appropriate content and number of proposals to the Board of Directors, the content and volume of materials for the Board of Directors, and time for prior consideration)
      
      • ･Distribution of materials for the Board of Directors should be made at an early timing with particularly important sections in materials highlighted.
      • ･Emphasis should be made on explaining new matters, and causes and countermeasures, etc. of matters that are progressing unfavorably in reports made by Executive Officers at the Board of Directors meetings.
      • ･In regard to matters deliberated by the Board of Directors, reporting of business results, budget, financial results, etc. should be made in the first half so that Directors may judge the appropriateness of each measure based on the general situation of business performance, etc.
      • ･Business briefings should be held regularly for Outside Directors in order to deepen their understanding of our business and major projects, overseas sites/business expansion, and overview and background, etc. of measures taken under the Medium-term Management Strategy.
   2. (2) Matters pertaining to understanding of capital cost and setting of indicators
      
      • ･In line with the partial review of the Medium-term Management Strategy, financial plans, including ROIC, were reviewed after consultation by the regular Board of Directors meetings held in March and April 2021.
      • ･Appropriate calculation and operation methods, etc. of management indicators, including ROIC, should be further discussed by the Board of Directors to develop a monitoring structure based on appropriate management indicators applicable for the next Medium-term Management Strategy.
   3. (3) Matters pertaining to supervision of the policy for reduction of the Strategic Share Holdings
      
      • ･Strategic Share Holdings should be examined based on business alliances, business relationships, and investment effects to systematically reduce shares if it is deemed unnecessary to hold them.
   4. (4) Matters pertaining to supervision of Group governance, etc.
      
      • ･Initiatives should be taken on the Group-wide measures to activate communication and enhance internal control.
      • ･Previously implemented reports on safety, quality, compliance, etc. by the Sustainable Management Office to the Board of Directors should be continued as provision of necessary information for monitoring.
3. Results of analysis of the questionnaire and interviews by the third-party organization

   The key results of analysis of the questionnaire and interviews compiled by the third-party organizations are as follows.

   1. (1) Effectiveness, etc. of the Board of Directors
      
      • ･The supervisory function of the Board of Directors is appropriately exercised, and its effectiveness is considered to be high.
      • ･In the self-evaluation of Directors, it was confirmed that each individual contributed to activating discussions at the Board of Directors meetings and to exercising the supervisory function.
   2. (2) Supervisory function of the Board of Directors
      
      • ･The management team is currently working on business and organizational reforms, but there are still many issues recognized. The role, composition, and discussions of the Board of Directors are expected to change in response to such business and management stages. As for their role, it is considered that "the support and supervision of execution will be important in the success of reforms and the creation of growth areas" and "discussions are needed to enhance the supervision function to monitor the efforts to address issues."
      • ･The Board of Directors has a common understanding that supervision of management and execution is an important role. The way in which a supervisory function is exercised is considered to differ depending on the experience and perspective of each Director. Specific measures included "support execution and lead to change," "examine from both quantitative and qualitative aspects, focusing on major policies related to the whole," and "strictly monitor progress and achievements in response to commitments." There is an opinion stating that it is better for the Board of Directors to take a more leading role in matters related to the way the Company ought to be, such as sustainability issues.
   3. (3) Sustainability
      
      • ･On sustainability issues, many directors believe it is better for the Board of Directors to demonstrate stronger leadership and set a direction from the Board's point of view. In order to conduct effective discussions, it is considered necessary to "clarify the definition of sustainability," "organize how Outside Directors can contribute," "establish a sustainability committee to hold discussions outside the Board of Directors," and "enhance the secretariat structure" among others.
4. Summary of FY2022 evaluation results

   As a result of deliberations by the Board of Directors in consideration of the results of the third-party analysis, it was confirmed that the effectiveness of the Board of Directors of the Company was secured in FY2022. Matters recognized as issues in the questionnaire and interviews and a summary of deliberations of the Board of Directors regarding those issues are as follows.

   1. (1) Matters pertaining to the operation of the Nomination Committee, Audit Committee and Remuneration Committee
      
      • ･There was an opinion that "the Nomination Committee has not sufficiently shared information with the Board of Directors regarding the status of consideration of the succession plan for the internal Directors." Regarding this, there was an opinion indicating that "this evaluation result may be due to a lack of sharing of discussions had by the Nomination Committee with the entire Board of Directors or to inadequate sharing of relevant information from Directors who also serve as Executive Officers. This can also be said of discussions at the Remuneration Committee, etc., and from a broad perspective, it may be a question of whether each committee shares the content of deeper discussions."
      • ･On the other hand, there was a comment stating that "in some cases, the content of discussions at each committee includes information that is not necessarily appropriate to be shared with the Board of Directors as a whole because of the presence of relevant persons within the Board." Regarding this, an opinion was given that "opportunities for discussion among Outside Directors only should be increased, taking into account cases where it is not appropriate to share information with internal relevant parties."
   2. (2) Matters pertaining to supervision of growth strategies by the Board of Directors
      
      • ･Regarding the optimization of the business portfolio, there was an opinion stating, "Since a certain degree of business reforms, including restructuring and withdrawal, is expected to be completed, discussions on growth strategies, such as strengthening existing businesses and fostering new businesses, should be deepened from a multifaceted perspective."
      • ･In addition, while there was an opinion stating, "It is necessary to enhance explanations and information provision from Executive Officers in order for the Board of Directors to accurately monitor the current situation," there was also an opinion stating, "This is covered by the business briefing, etc. for Directors currently held."
   3. (3) Matters pertaining to the establishment of a sustainability committee
      
      • ･Through this evaluation process, it was found that on sustainability, many Directors believe "it is better for the Board of Directors to demonstrate stronger leadership and set a direction from the Board's point of view."
5. FY2023 initiatives toward further enhancement of effectiveness

   The Company's FY2023 measures to enhance effectiveness based on evaluation results of the effectiveness of the Board of Directors in FY2022 are as follows.

   1. (1) Responding to opinions on the operation of the Nomination Committee, Audit Committee and Remuneration Committee
      
      • ･In the evaluation process, a point was made that while the details of in-depth discussions by each committee need to be shared more with the Board of Directors as a whole, for matters discussed by the Nomination Committee and the Remuneration Committee in particular, the presence of stakeholders (mainly internal directors) at meetings of the Board of Directors also needs to be taken into account. Accordingly, the frequency of Outside Directors' opinion exchange meetings, where discussions take place only among Outside Directors, will be increased.
   2. (2) Responding to opinions on the supervision of growth strategies by the Board of Directors
      
      • ･When formulating the next Medium-term Management Strategy planned to be announced in 2023, the details of measures, including matters related to growth strategies, will be explained by the execution side and discussed from a multilateral perspective by making use of settings such as briefings for Directors (please refer to the following paragraph). In addition, the rolling after the formulation of the next Medium-term Management Strategy will also be discussed from a multilateral perspective.
      • ･Business briefings for Outside Directors, which were previously held as a platform where Executive Officers provided explanations and information to the Board of Directors to accurately monitor the current situation, will be reorganized into briefings for Directors targeting all Non-executive Directors and will be held continually. The briefings will cover matters such as the next Medium-term Management Strategy, business portfolio, Group-wide strategy, individual business strategy, R&D and intellectual property strategy, business restructuring, investment, progress on each MMDX theme, and rolling review of the Medium-term Management Strategy.
   3. (3) Responding to opinions on the establishment of the Sustainability Committee
      
      • ･The Sustainability Committee was established under the Board of Directors on June 28, 2022.
      • ･The Committee will consider monitoring methods and issues related to sustainability management and others as matters at request of the Board of Directors for advice.

Looking ahead, the Board of Directors will keep making continuous efforts toward further effectiveness improvements.