Sankyu : Corporate Governance Report

Corporate Governance Report

Last Update: June 28, 2023

Sankyu Inc.

Kimihiro Nakamura, President (Representative Director)

Contact: General Affairs Department

[phone]

Stock Exchange Code: 9065

https://www.sankyu.co.jp/en/

The corporate governance of Sankyu Inc. (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other

Basic Information

1. Basic Views UPDATED

1. Basic philosophy

As a listed company, the Company believes that the basis of corporate governance is to ensure management transparency for shareholders and other stakeholders, and to aim for continuous growth and development by improving management efficiency.

Corporate philosophy

(1) Management philosophy

With the guiding principle of valuing people, Sankyu will establish a presence that is indispensable to its customers. The Sankyu Group will contribute to the improvement of employee welfare and the development of society through its business growth.

(2) Management objectives

• We will contribute to the sustainable development of society as people living together on this planet.
• We will provide the highest value in line with the evolution of technology.
• We will value the wisdom and effort of our front-line employees and nurture people who can maximize that value.

(3) Code of conduct - For actions based on morals and ethics

• We will put safety first in everything that we do.
• We will act based on compliance.
• We will act globally, correctly understanding cultures, religions, and values.
• We will proactively work on protecting the global environment.
• We will carry out work that impress the world.
• We will take pride and responsibility in our work.
• We will respect each other and grow together.
• We will aim to be a company where outstanding people grow.
• We will continue to be a strong company, by concentrating efforts in the field.
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2. Systems for decision-making, execution of business, oversight, and auditing in corporate management

1. In order to ensure that Directors execute their duties efficiently, the Company shall hold regular meetings of the Board of Directors each month, as well as extraordinary meetings when necessary, to decide on important matters and mutually supervise the business execution status of Directors. In addition, important matters regarding items such as management policies and strategies are discussed at the Management Committee, and the Board of Directors makes executive decisions after these deliberations. The Company has adopted a corporate officer system to promote the separation of oversight and execution, as well as to enhance the oversight function of the Board of Directors over business execution and speed up its decision- making process.
2. The Company has adopted a corporate auditor system. Corporate Auditors attend meetings of the Board of Directors and the Management Committee, as well as other important meetings, receive reports from Directors, Corporate Officers, and employees, and investigate the status of the Company's business and assets, as necessary. In addition, Corporate Auditors are able to take necessary measures in a timely manner, such as presenting opinions, including advice and recommendations, to the Directors, etc., and prohibiting Directors from committing violations.
3. With regard to the internal audit, the Internal Audit Department audits the business, accounting, etc. of business sections and subsidiaries based on the annual internal audit plan, in accordance with the Audit Regulations. The results of the internal audit are reported to the Corporate Auditors, facilitating cooperation with the Corporate Auditors.
4. With regard to the accounting audit, the Company has appointed Deloitte Touche Tohmatsu LLC as its Accounting Auditor, and the Accounting Auditor executes the audit work based on the annual audit plan.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code]

[Supplementary Principle 2.4.1] Information disclosure on matters related to ensuring diversity of core human resources

The Company secures human resources through regular and midcareer hiring of employees including women and foreign nationals to address the declining birth rate and aging population in Japan as well as the global expansion of business.

The Company works on developing employees who can generate corporate value and self-actualize, in accordance with the Basic Policy on Human Resource Development.

To ensure diversity, the Company plans to increase the percentage of female managers to 9.5% in its Medium- Term Management Plan 2026 and to 11% in Vision2030.

Going forward, the Company will establish goals for securing and developing diverse human resources, including foreign nationals and mid-career hires, and disclose the status thereof as well as the information concerning human capital.

[Supplementary Principle 4.2.1] Setting appropriate proportions of performance-linked remuneration and stock-based remuneration

The Company has a remuneration system that consists of basic remuneration and a bonus based on comprehensive consideration of single-year results, within the scope of remuneration determined by the General Meeting of Shareholders, and it functions as a short-term incentive.

To further enhance this incentive function, the Board of Directors will actively use the voluntary Remuneration Committee to consider the introduction of a remuneration system linked to its medium- to long- term results and the balance of cash remuneration and stock remuneration.

[Disclosure Based on the Principles of the Corporate Governance Code] UPDATED

[Principle 1.4] Cross-shareholdingscross-shareholdings>

While the Company holds cross-shareholdings of other companies that are deemed rational in light of the impact on the medium- to long-term increase of corporate value and business operations, the Board of

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Directors specifically examines, annually, each cross-shareholding in terms of its economic rationality, benefits, risk as an asset, whether it covers the cost of capital, and other factors, in order to assess whether or not to hold the shares.

The Company sells or otherwise reduces the number of shares which it has deemed not necessary to continue holding.

cross-shareholdings>

When exercising voting rights on cross-shareholdings, the Company determines approval or disapproval of proposals upon appropriate examination of each proposal.

[Principle 1.7] Related party transactions

• The Company's corporate rules, the Regulations of the Board of Directors, stipulate that approval on competing transactions by Directors, as well as approval on transactions between the Company and its Directors, are matters that require a resolution by the Board of Directors.
• These regulations also prescribe that, with regard to resolutions by the Board of Directors, Directors with special interests may not participate in the resolutions, and that any Director who has conducted a competing transaction or a transaction with the Company shall be required to report to the Board of Directors the material facts about the transaction.

[Principle 2.6] Roles of corporate pension funds as asset owners

• In order to ensure the proper management of the corporate pension plan, the Company has formulated a basic policy at its Management Committee, which is a business execution body, and has established an Asset Management Committee to determine a medium-term portfolio and discuss, review, and make proposals on asset management.
• In order to maximize the benefit of corporate pension beneficiaries, the Asset Management Committee conducts evaluation and monitoring, including stewardship activities for each asset manager, and periodically reports to the Management Committee.
• In addition, the Company carries out appropriate pension management to prevent conflicts of interest between the corporate pension beneficiaries and the Company.
• Furthermore, a committee secretariat is staffed with specialist finance and labor relations personnel. The expertise of these personnel is enhanced through participation in training sessions, various seminars, etc., in coordination with financial institutions.

[Principle 3.1] Full disclosure

In addition to making information disclosure in compliance with relevant laws and regulations, the Company discloses and provides the following information, in order to enhance transparency and fairness in its decision- making and ensure effective corporate governance.

1. The following information on the Company's objectives, management strategies, and management plans is disclosed on the Company's website. (Please refer to the following URL.)

• Medium-termmanagement plans/Long-term visions:

https://www.sankyu.co.jp/ir/plan.html

• Medium-TermManagement Plan/Long Term Vision https://www.sankyu.co.jp/en/ir/midplan.html

1. As a listed company, the Company believes that the basis of corporate governance is to ensure management transparency for shareholders and other stakeholders, and to aim for continuous growth and development by improving management efficiency.
   
   ● Corporate governance: https://www.sankyu.co.jp/csr/governance.html
   
   ● Corporate governance: https://www.sankyu.co.jp/en/ir/governance.html
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1. Policies and procedures for the Board of Directors in determining the remuneration for senior management and Directors are as follows:
   
   The Company has stipulated a policy on determining the amounts of remuneration, etc. for Directors. The Company determines the remuneration for Directors and Corporate Auditors commensurate with their positions and responsibilities, taking into consideration social trends on remuneration for Directors, the performance of the Company, balance with employee salaries, and other factors that should be taken into consideration when determining the level of remuneration.
   Remuneration for Directors consists of basic remuneration and a bonus. The basic remuneration is paid monthly based on each position. On the other hand, the bonus is paid based on performance. As for the method for calculating the bonus, the amount of bonus is determined by multiplying the amount of the Company's ordinary profit for the relevant fiscal year being the total outcome of the business operation by a coefficient for each position.
   
   The amount of remuneration for the Company's Directors shall be resolved at the Board of Directors' meeting within an amount not exceeding the maximum amount of remuneration resolved at the General Meeting of Shareholders. The details of remuneration, etc. for each individual Director are approved by the Board of Directors, following deliberation by the voluntary Remuneration Committee.
2. The Board of Directors selects the most suitable persons for the positions of Director or Corporate Auditor on each occasion, based on a comprehensive assessment of the candidate's background, character, capabilities, insight, and other factors, following deliberation by the voluntary Nomination Committee for Directors and following consent by the Board of Corporate Auditors for Corporate Auditors, and nominates the candidates to be proposed to the General Meeting of Shareholders.
   The selection of senior management is conducted following deliberation by the Nomination Committee and upon adequate discussion in the Board of Directors about the granting of representative rights and other matters.
3. The Company discloses matters resolved regarding the selection of senior management in timely disclosure statements.
   In addition, the reasons for the nomination of individual candidates for Directors and Corporate Auditors are explained in the Reference Documents for the General Meeting of Shareholders.

[Supplementary Principle 3.1.3] Information disclosure on sustainability and investments

(i) Initiatives for sustainability

• The Company has formulated the Basic Policy on Sustainability to contribute to solving social issues through its business activities, aiming to achieve sustainable development for both companies and society. The Company will identify the materiality issues and promote efforts to address these issues in the Sustainability Committee.
• In particular, as a company listed on the Prime Market, the Company considers the impact of climate change on its business activities and revenues in line with the TCFD framework. The Company identifies risks and opportunities and publishes the details on its website.
  https://www.sankyu.co.jp/society/ https://www.sankyu.co.jp/en/society/

(ii) Investments in human capital and intellectual properties, etc.

• As the services in logistics and plant engineering offered by the Company are powered by people, the Company recognizes that securing and developing human resources is the most important issue and actively invests in it.
• Driven by the corporate philosophy of "valuing people," the Company actively engages in activities and capital investments to create a safe workplace environment. The Company will further develop an environment in which diverse human resources including the elderly, women, and foreign nationals can work more safely and comfortably.
• The Company secures and develops human resources on a global scale to maintain and expand its capability to "mobilizing workforce" in and outside Japan. The Company will establish a system that can flexibly accommodate the changing business environment and customer needs by appropriately placing
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highly skilled human resources with strong expertise in the right positions, in an effort to increase the mobility of human resources across borders.

• The Company will work on securing intellectual property rights such as patent rights arising from work and technological improvements and actively make investments to enhance its competitiveness.

[Supplementary Principle 4.1.1] Scope of the matters delegated to the management

• The Board of Directors is responsible for deciding on matters that are legally required to be resolved by the Board of Directors, such as disposal and transfer of important assets, appointment and dismissal of important employees, and establishment, revision, and abolition of important organizations, as well as for mutually supervising the business execution status of Directors.
• The abovementioned matters to be resolved are specifically set forth in the Regulations of the Board of Directors, which are the Company's corporate rules. Decision-making on other matters is delegated to the President and other Executive Directors, based on the Company's corporate rules, which also stipulate the scope of decision-making by contents and the monetary amount of each case.
• As for execution after a decision has been made, the Company has adopted a corporate officer system to promote the separation of oversight and execution, as well as to enhance the oversight function of the Board of Directors over business execution and speed up its decision-making process, in an effort to ensure efficient execution of business.

[Principle 4.9] Independence standards and qualification for Independent Directors

• When appointing Independent External Directors, the Company appoints candidates for Independent External Directors in accordance with the independence standards established by the Tokyo Stock Exchange, taking into account their personal, business, and capital relationships with the Company, as well as other interests in the Company, in order to ensure their independence.
• The Company endeavors to select candidates for the position of Independent External Director who are capable of fulfilling their roles and responsibilities to contribute to the Company's sustainable growth and improvement of corporate value, based on a comprehensive assessment of their backgrounds, characters, capabilities, insights, and other factors, following deliberation by the voluntary Nomination Committee.

[Supplementary Principle 4.10.1] Use of optional approach

The Company is a company with a board of corporate auditors, and in light of the fact that Independent External Directors do not compose a majority of the Board of Directors, the Company has established voluntary, independent Nomination Committee and Remuneration Committee under the Board of Directors. Independent External Directors shall comprise a majority of these committees, which shall be chaired by an Independent External Director to ensure their independence and objectivity.

The Nomination Committee will deliberate on matters including the appropriateness of policies and other matters concerning nomination and of appointment and dismissal criteria, the composition of the Board of Directors (qualities, skills, diversity, and other attributes required of Directors), the appointment and dismissal of Directors, and succession plans. The Remuneration Committee will deliberate on the appropriateness of decision policies and other matters concerning remuneration, etc. and on decisions on remuneration, etc. of individual Directors.

[Supplementary Principle 4.11.1] Stance toward the balance, diversity, and scale for the Board of Directors It is the policy of the Board of Directors to identify knowledge, experience, skills, etc. that should be possessed by Directors in light of the Company's management strategies, based on the reports of the voluntary Nomination Committee, and to ensure a balance of knowledge, experience, and capabilities, diversity, and size of the Board of Directors as a whole, and the Company prepares a skills matrix that lists these factors. In the Reference Documents for the General Meeting of Shareholders at the time of the appointment of Directors, the Company reports that the Board of Directors comprises a mix of skills and competencies appropriate for the management environment and business characteristics, among other factors, based on the above policy. Furthermore, Independent External Directors should include individuals with deep insight who can be expected to provide valuable opinions and suggestions on the Company's management and who have management experience at other companies.

[Supplementary Principle 4.11.2] Concurrent positions of officers serving concurrently as an officer of another listed company

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