Corporate Governance｜Governance｜SANYO CHEMICAL INDUSTRIES, LTD

Based on the Company mission, “Establish a better society through our corporate activities,” the Sanyo Chemical Group will realize sustainable growth toward the future by enhancing both economic and social values in close cooperation with all stakeholders. To this end, we consider the establishment of corporate governance that is trusted by stakeholders to be one of the highest priority management issues.

Corporate governance system

We are a company with an Audit & Supervisory Board. The Company has also introduced the executive officer system, under which Executive Officers execute business in accordance with the management policy, etc., determined at meetings of the Board of Directors. In this manner, the Company clearly separates the management decision-making and supervisory function from the business execution function.

Corporate Governance Report (In Japanese Only)

Corporate governance structure

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Directors and the Board of Directors

The term of office of Directors is one year. With the objective of strengthening the management supervisory functions, three out of eight Company’s Directors are independent Outside Directors; moreover, the Chairperson of the Board is appointed from among Directors. The Board of Directors holds a meeting, in principle, once a month. It makes decisions on important matters, such as management policy, and supervises the status of business execution by Directors and Executive Officers. In FY2023, 15 meetings of the Board of Directors were held.

Audit & Supervisory Board Members and the Audit & Supervisory Board

Of four Audit & Supervisory Board Members, three are Outside Audit & Supervisory Board Members. The Audit & Supervisory Board Members not only attend Board of Directors’ meetings, Management Council meetings, and other important meetings, but also inspect important approval documents. They thus audit the status of Directors’ business execution, capitalizing on the knowledge of inside members who are well versed in the wide range of businesses of the Company, as well as the expertise of outside members with experience relating to financial and accounting affairs or with business management experience. In addition, as an organization under the direct control of the Audit & Supervisory Board, the Company has established the Auditors Staff Division. The Division staff who assist the Audit & Supervisory Board Members in their duties are independent of the Directors. By establishing this structure, we strive to secure the effectiveness of audits.

Management Council

The Management Council meets once a month, in principle, to make decisions on important matters regarding business execution by Executive Officers, based on the management policy, etc., determined at meetings of the Board of Directors.

Committees

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	Chairperson	FY2023 Frequency of meetings （times）	Role
Nomination and Compensation Committee	Outside Directors	6	As an advisory body to the Board of Directors, a majority of whose members are outside directors, the committee reports to the Board of Directors on matters related to director nomination and compensation when consulted by the Board and independently deliberates and advises on matters related to subjects, such as strengthening the functions of the Board even when not consulted by the Board.
Sustainable Management Committee	President and CEO	2	As a body under the direct control of the Board of Directors, the Committee deliberates and makes decisions on the policy for responding to important matters to be addressed with high priority, regarding the process for sustainable growth, the environment, society, and governance.
Compliance Committee	President and CEO	2	As a body under the direct control of the Board of Directors, the Committee deliberates and makes decisions on basic policies and measures to ensure full compliance with laws and regulations.
Internal Control Committee	President and CEO	2	As a body under the direct control of the Board of Directors, the Committee makes decisions on the entire internal control system, and provides instructions and supervision for the internal control system’s development, operation, evaluation, and improvement activities.

Standards for selection of Directors

The Company’s policy is to form a Board of Directors consisting of inside directors who have objective judgement, foresight, and insight,etc. into management issues based on the expertise, knowledge, and experience they have accumulated in sales or research, or production or general affairs departments, and Outside Directors who can proactively provide advice and suggestions, etc. based on their rich experience from an objective perspective. In line with this policy, the Company selects candidates while taking into account the balance and diversity, etc. of the Board of Directors, and other elements.

Standards for selection of Audit & Supervisory Board Members

The Company’s policy is to form an Audit & Supervisory Board consisting of outside members who have legal independence in addition to high levels of expertise and discernment based on their experience in serving as a manager or person in charge of accounting in a listed company, and inside members who can express their opinions regarding objective auditing based on their knowledge and experience of other specialized fields and who are sufficiently qualified to ensure their independence from those involved in business execution. In line with this policy, the Company selects candidates for the Audit & Supervisory Board with its agreement.

Reason for selection as Outside Director

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Name	Independent Director	Reason for selection
Aya Shirai	○	We have designated Ms. Aya Shirai as an independent director since she meets the Company’s independence standards and is therefore deemed to have no conflict of interest with our general shareholders. She has a wealth of experience gained through administrative activities from her many years of involvement in municipal administration. In addition, she has experience and achievements from having been involved in corporate management as an outside director of other listed companies. She was selected as an outside director because she is expected to contribute to the continuous enhancement of our corporate value by offering useful findings and opinions from an independent standpoint based on her extensive experience and knowledge.
Hideaki Obata	○	We have designated Mr. Hideaki Obata as an independent director since he meets the Company’s independence standards and is therefore deemed to have no conflict of interest with our general shareholders. In addition to extensive practical experience in administrative departments mainly in HR and general affairs, he has many years of experience and a track record in management of companies with broad business domains. He was selected as an outside director because he is expected to contribute to the continuous enhancement of our corporate value by offering useful findings and opinions from an independent standpoint based on his extensive knowledge and experience.
Yumi Sano	○	We have designated Ms. Yumi Sano as an independent director since she meets the Company’s independence standards and is therefore deemed to have no conflict of interest with our general shareholders. She has a wealth of practical experience in promoting diversity and developing human resources in a listed company and a public interest corporation. In addition, she has experience and achievements from having been involved in corporate management as an outside director of another listed company. She was selected as an outside director because she is expected to contribute to the continuous enhancement of our corporate value by offering useful findings and opinions from an independent standpoint based on her extensive experience and knowledge.

Diversity of the Board of Directors

The Company selects candidates for its Board of Directors by comprehensively considering each member’s personality and other aptitudes, in order to form a Board of Directors with a good overall balance of knowledge, experience, and ability to effectively perform its roles and responsibilities. It should also ensure it maintains an appropriate size and diversity, including in terms of gender, internationality, professional experience, and age. To enhance our corporate value in the medium to long term in keeping with the basic philosophy described below, the Nomination and Compensation Committee held discussions on the skill items required for the Company’s Board of Directors, and decided on the following eight items: corporate management; compliance and risk management; understanding of diversity and sustainability; international business; R&D, production, and new business development; sales and marketing; human resources development and training; and finance and accounting. These skill items will be reviewed and revised, if necessary, in the light of the business environment and social circumstances.

Basic philosophy

Contribute to society through fulfillment of the Company mission: “Establish a better society through our corporate activities”
Steadfastly maintain a stable management base and proactively develop new businesses while leveraging the strength of our existing businesses
Realize a WakuWaku company that respects diversity and where all employees enjoy high job satisfaction

As of June 30, 2024, the current Board of Directors consists of eight directors with knowledge in line with these skill items (including three independent Outside Directors, two of whom are female) and four Audit & Supervisory Board Members (two of whom is an independent Outside Audit & Supervisory Board Member). Independent Outside Directors include members who have management experience at other companies.

Initiatives toward diversity of the Board of Directors

The Company describes the following Board diversity indicators as initiatives to achieve transparent management while unafraid of challenges, one of the materiality issues it identified in 2022.

Increasing the percentage of women to 30% or more
Ratio of independent outside directors: one-third or more of all directors

Compensation and incentives for Directors

Basic policies on directors' compensation

Compensation linked to securing capable human resources to improve corporate business performance
Designing compensation levels and structures that reflect job responsibilities

Decision-making process on compensation levels and structures

Decisions are made with consideration for such matters as trends in business performance and objective data from external organizations. The Nomination and Compensation Committee, a majority of whose members are outside directors, verifies the validity of such decisions. Basic policies on directors' compensation are deliberated and decided on by the Board of Directors.

Overview of types of compensation, etc.

The compensation for Directors consists of basic compensation, bonuses, and stock-based compensation.

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Compensation type	Overview
Basic compensation	The basic compensation is based on the roles and responsibilities of each Director, and is determined by taking into account the status of financial results over the medium to long term and for the relevant fiscal year, as well as levels at other companies. It is paid on a monthly basis.
Bonuses	To raise awareness of improving business performance, base pay levels are calculated based on such matters as the state of business performance during the fiscal year, using consolidated ordinary profit, an indicator of corporate earning power as an index. Allocation decisions are based on the roles and responsibilities of each director, and individual payment amounts are decided on and paid with consideration for individual evaluation of each director.
Stock-based compensation	Points are granted depending on the position, etc. based on the Share Delivery Regulations. In principle, the shares of the Company are delivered depending on the number of points when Directors retire.

Although no specific rates are determined of base compensation, performance-based compensation, and stock-based compensation as proportions of total compensation of individual directors, to ensure the efficacy of incentives to improve business performance compensation levels and structures are verified regularly by the Nomination and Compensation Committee, a majority of whose members are outside directors.

Training for Directors and Audit & Supervisory Board Members

For inside and full-time Directors and Audit & Supervisory Board Members, when they assume office, we provide explanations on the Company’s Articles of Incorporation, the Board of Directors Regulations, and other internal regulations. For Outside Directors and full-time Outside Audit & Supervisory Board Members, we facilitate their understanding of the Company’s businesses by conducting inspection tours of our factories and other operation sites. In FY 2023, a seminar led by an outside instructor was held on management awareness of capital cost and share price.

Skills matrix

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Name	Position	Outside	Independent	Skills
Name	Position	Outside	Independent	Corporate management	Compliance and risk management	Understanding of diversity and sustainability	International business	R&D, production, and new business development	Sales and marketing	Human resource development and training	Finance and accounting
Aya Shirai	Director	●	●	●	●	●				●
Akinori Higuchi	Representative Director, President and CEO			●	●	●	●	●	●	●
Masahiro Harada	Director				●	●		●	●
Hiroyuki Susaki	Director				●	●	●		●
Yoshiyuki Oku	Director				●	●	●			●	●
Kenichi Nishimura	Director				●	●	●				●
Hideaki Obata	Director	●	●	●	●	●	●	●		●
Yumi Sano	Director	●	●		●	●				●
Hirokazu Kurome	Audit & Supervisory Board Member	●	●	●	●	●	●	●
Sho Takeuchi	Audit & Supervisory Board Member				●	●	●		●
Jun Karube	Audit & Supervisory Board Member	●		●	●	●	●		●
Yusuke Nakano	Audit & Supervisory Board Member	●	●	●	●	●					●

Major discussion topics and themes

Board of Directors

Formulation and revision of the Medium-Term Management Plan and the Comprehensive Plan
Policy on operating major businesses
Matters regarding investment, financing
Confirmation of the results of the effectiveness evaluation of the Board of Directors
Matters on which to seek advice from the Nomination and Compensation Committee
Approval of closed financial statements
Matters regarding procedures for the general meeting of shareholders
Resolutions on such matters as transactions involving conflicts of interest, officer liability insurance, and appointment and dismissal of key personnel pursuant to the Companies Act

Nomination and Compensation Committee

Evaluation indicators reflected in officer compensation
Verification of plans for developing future candidates for president and chief executive officer
Management responsibility for extraordinary losses recorded in association with the withdrawal from the superabsorbent polymers business
Terms of office of consultants, advisors, and special contractors

Sustainable Management Committee

Basic Policy on Sustainability
Response to TCFD Recommendations
Human Capital Management Activities
Realization of management with awareness of cost of capital and stock price
Activities of the CSR Promotion Management Committee
Sustainable Distribution

Compliance Committee

Implementation planning and status of corporate ethics study meetings
Results of the use of whistleblowing contact points for consultation or reporting
Revision of the Compliance Committee Regulations
Status of risk management activities

Internal Control Committee

Results of the evaluation of internal control activities related to financial reports
Regarding proposals for disclosing the operational status of the Internal Control System in the Business Report
Results of the evaluation of the operational status of the Internal Control System regarding significant risks other than those included in financial reports

Effectiveness evaluation of the Board of Directors

The Company evaluates the effectiveness of the Board of Directors annually. Evaluation of Board effectiveness in FY 2023 was based on the results of an anonymous survey of all directors, including outside directors, and all Audit and Supervisory Board members.

FY 2023 Board of Directors effectiveness evaluation survey

Subjects: All nine directors, including outside directors, and all four Audit and Supervisory Board members

Survey period: March 2024

Method: Anonymous survey using the surveying system of an independent agency, to ensure objectivity

Details: Respondents were asked to assess the following major items on a scale of one to five or provide comments freely

Composition and operation of the Board of Directors
Discussions at Board of Directors meetings
Monitoring function of the Board of Directors
Performance of Directors
Support system and training for Directors and Audit & Supervisory Board Members
Dialogue with shareholders
Efforts made by each Director
Operation of the Nomination and Compensation Committee

The results were reported to the Board of Directors meeting held in May 2024. Discussions were held and analysis was conducted based on the aggregate results of the ratings on a five-point scale and comments in the free description fields of the questionnaire survey, to evaluate the effectiveness of the Board of Directors.

Overview of Effectiveness Evaluation

Last year's evaluation of effectiveness made it clear that there was room for improvement on the subjects of individual items related to the operation of and deliberations on the Board of Directors and enhancement of support by the secretariat. In this year's survey, no respondents chose the lowest evaluation of "unimproved" on these subjects. Instead, nearly all respondents answered "generally improved," indicating that the Board saw a certain level of improvement. Based on the answers to the above survey questions, the Board has been judged to have secured effectiveness overall.

Future issues.

In order to increase the Board's effectiveness even more, the Company recognizes the needs for the chairperson to encourage more active expression of opinions by individual directors, for broader debate through inside directors speaking up with an awareness of the fact that they are responsible for management supervision, and for further promotion of efforts to realize management conscious of capital cost and share price based on such matters as feedback from dialogues with investors and verification of the priority of cross-shareholdings. The Company also recognizes the need for further enhancement of the structure for support by the secretariat in such areas as establishing opportunities for exchange of opinions among outside directors only and enhancing officer training. The Company will address these issues as priorities.

Succession plan (plan to foster successors)

The Company has established an ideal image of the president and CEO, identifying the requirements that the next representative director, president, and CEO should meet in order to realize the Group's vision for FY 2030. In light of these personnel requirements, the Company secures transparency in the selection process through systematic training to equip candidate successors with the qualities and abilities they need and regular verification of progress by the Nomination and Compensation Committee.