Terumo : Corporate Governance Report

Corporate Governance

	TERUMO CORPORATION
	Last update: December 20th, 2021
	Terumo Corporation
Representative:	Shinjiro Sato, President and CEO
Contact:	Kenichi Hata, General Manager
	Investor Relations Dept.
	Tel.: [phone]
Stock code:	4543
Website:	https://www.terumo.co.jp/
	(https://www.terumo.com/)

The status of corporate governance at Terumo Corporation is as detailed below.

I. Basic Stance on Corporate Governance, Capital Structure, Company Profile, and Other Basic Information

1. Basic Stance

Terumo's Group mission is "Contributing to Society through Healthcare." Guided by its mission, Terumo provides valuable products and services to achieve sustainable growth, maximize long-term corporate value and meet the expectations of its worldwide stakeholders, including its customers, shareholders, associates, business partners, and communities.

To guide it in the accomplishment of its Group mission, Terumo has articulated the Core Values, which represent the values and beliefs on which all Terumo associates worldwide should base their actions, as follows:

Respect - Appreciative of others Integrity - Guided by our mission Care - Empathetic to patients Quality - Committed to excellence Creativity - Striving for innovation

Based on its Group mission and the Core Values, Terumo has established these guidelines, which are intended to promote timely decision making while helping maintain transparency and objectivity in management.

Terumo continuously strives to earn the understanding and trust of its internal and external stakeholders by exercising accountability toward its stakeholders and promoting dialog and other means of communication with its shareholders.

Informed by Japan's Corporate Governance Code, Terumo has developed a global platform for its activities as a good corporate citizen. Terumo strives diligently to foster a corporate culture of "a highly motivating and challenging workplace with open and candid communication," because Terumo believes a culture of this nature is essential to effective corporate governance.

A diagram of Terumo's corporate governance structure is shown as an attachment.

[Reasons why each general provision of the Corporate Governance Code is not implemented]

Terumo implements each of the basic principles set forth in the Corporate Governance Code revised in June 2021, which includes principles for companies listed on the Prime Market applicable after April 4, 2022.

[Disclosure under each general provision of the Corporate Governance Code] Update

This report is written based on the Corporate Governance Code revised in June 2021, which includes principles for companies listed on the Prime Market applicable after April 4, 2022.

Terumo has formulated the TERUMO Corporate Governance Guidelines to achieve sustainable growth and high corporate value over the long-term, based on its group missions and the Core Values. It is posted on the company website. https://www.terumo.com/about/governance/index.html

The following subset of items requiring disclosure under the Corporate Governance Code are disclosed in the TERUMO Corporate Governance Guidelines.

• Principle 1-4: Corporate Governance Guidelines "3. Securing Shareholders' Rights and Equality (4) Holding of Shares in Other Companies for Strategic Purposes"
• Principle 1-7: Corporate Governance Guidelines "3. Securing Shareholders' Rights and Equality (6) Related Party Transactions"
• Principle 2-6: Corporate Governance Guidelines "3. Securing Shareholders' Rights and Equality (5) Function as Asset Owner of Corporate Pension Fund"

 Principle 3-1(ii):	Corporate Governance Guidelines "1. General Provisions" and Overall Policy
 Principle 3-1(iii):	Corporate Governance Guidelines "2. Corporate Governance Structure (11) Determination policy on individual remuneration
	for Directors"
 Principle 3-1(iv):	Corporate Governance Guidelines "2. Corporate Governance Structure (9) Selection/dismissal of Directors"

• Supplementary Principle 4-1-1: Corporate Governance Guidelines "2. Corporate Governance Structure (2) Board of Directors"
• Principle 4-9: Corporate Governance Guidelines "2. Corporate Governance Structure (9) Selection/dismissal of Directors" and Appendix 2
• Supplementary Principle 4-10-1: Corporate Governance Guidelines "2. Corporate Governance Structure (4) Nomination Committee (5) Remuneration Committee (6)Corporate Governance Committee"
• Supplementary Principle 4-11-1: Corporate Governance Guidelines "2. Corporate Governance Structure (2) Board of Directors" and "(9) Selection/dismissal of Directors"
• Supplementary Principle 4-11-2: Corporate Governance Guidelines "2. Corporate Governance Structure (9) Selection/Dismissal of Directors"
• Supplementary Principle 4-11-3: Corporate Governance Guidelines "2. Corporate Governance Structure (13) Board Evaluation"
• Supplementary Principle 4-14-2: Corporate Governance Guidelines "2. Corporate Governance Structure (12) Training Policy"
• Principle 5-1: Corporate Governance Guidelines "5. Appropriate Disclosure" and Appendix 3
• Principle 1-4: Holding of Shares in Other Companies for Strategic Purposes

Terumo may hold shares of other companies with a view to creating business opportunities and/or enhancing corporate value.

The Board of Directors verifies the economic, strategic and other rationales for each such holding using a medium- to long-term perspective on an annual basis. Terumo discloses holding securities as specified equity securities in the Annual Securities Report unless selling them. Terumo exercises its voting rights taking into consideration the impact of its voting on the corporate value of each of Terumo and the company in which Terumo has invested.

Terumo has continued to reduce its holding of such shares. In fiscal 2020, Terumo sold the shares of one company, and aggregate market value held at the end of March 2021 was 7,497 million yen.

Terumo currently has collaborative relationships with the companies issuing shares that it holds for strategic purposes, and has judged the holding of these shares to be fully justified.

• Supplementary Principle 2-4-1: "Ensuring diversity in the promotion of core human resources"
  As a global company with unique excellence with its origin in Japan, it is essential to ensure diversity of our human capital. In the principle of "Respect: Appreciative for others", which is one of the Terumo Group Core Values, and under the" Diversity & Inclusion in the Workplace "stipulated in the Terumo Group Code of Conduct, "We are promoting diversity in areas such as gender and cultural background in our recruitment and development initiatives. By accepting various values and respecting diversity that everyone brings, we aim to be a company where individual and organization grows together and creates new value.
  (1) Promotion of female managers

In order to continue to grow in a diverse global society, the active participation and career advancement of women in the workplace is important for the company. We will disclose and monitor the ratio of female managers and above across the Terumo Group. Especially in Japan, we will set a target ratio of female manager and aim to foster an environment where female associates (employees) can maximize their abilities, raise their awareness & skills as managers and enable the organization to make decisions from various perspectives.

(2) Promotion of non-Japanese to managers

We will continue to work to diversify our leaders according to our business strategy. We will disclose and monitor the non-Japanese & regional ratio of nationalities in executive officers and global key positions holders (Key positions for realizing the global management strategy).

(3) Promotion of mid-career hires to managers

Terumo deploys a wide range of human capital, both inside and outside the company, with the necessary expertise and capabilities. As a result, the number of mid-career hires who is appointed to managers and above positions in Japan is steadily increasing.

[Terumo Corporation Non-consolidated]

Act on Promotion of Women's Participation and Advancement in the Workplace, General Employers Action Plan: 8% or more of female managers by March 31, 2022

* The target has already been achieved ahead of schedule and new target will be set at the time of next action plan.

1. Promotion of female managers [Terumo Group]

Ratio of female manager: 29.8% * As of March 31, 2021 [Terumo Corporation Non-consolidated]

Ratio of female manager: 8.1% * As of March 31, 2021 (Status of initiatives)

• Launching and promoting a women's participation and advancement project team
• Fostering potential female leaders by systematically providing opportunities to attend programs for female leaders by external training institutions
• Implementing initiatives to improve diversity management skills for managers responsible for developing female leaders
• Ratio of female in the potential managers pool (chief class) increased to 15.3% (13.3% in the previous year)
• Continuing to achieve 50% or more female in new graduate recruitment in sales and back office functions. *Among the initiatives above, major ones are described in Sustainability Report posted on our website.

1. Promotion of non-Japanese managers

[Terumo Group]

Ratio of non-Japanese executive officers at Terumo Corporation: 17.9% * As of November 1, 2021

Ratio of non-Japanese in global key position: 56.6% * As of November 1, 2021

1. Promotion of mid-career hires managers [Terumo Group]
   Ratio of mid-career hires: 32.1% * As of November 1, 2021 [Terumo Corporation Non-consolidated]
   Ratio of mid-career hires: 17.7% * As of March 31, 2021

Global DE& I Council, which consists of diverse associates in terms of gender, nationalities (cultural background), job families, levels, etc., was established in July 2021 and formulated Diversity, Equity and Inclusion Philosophy, Guiding Principle. The guidelines of developing human resources and building internal environment to ensure diversity will be formulated. Terumo is also promoting activities at group/region/country and each company level so that the philosophy, guiding principles and guidelines come live in the organization. Examples of initiatives, as such as leadership development program and global talent reviews at the group level, as well as leveraging those talents across the group based on succession planning and development plans.

• Principle 3-1: "Substantial Disclosure of Information"

1. In addition to posting the company's goals (group mission), management strategy, and management plans in the Corporate Policy and Top Management Message on the company website, Terumo strives to share information widely with all of its shareholders and investors through disclosure in its Terumo Report, financial results presentations, and other investor relations activities.

• Group Mission and Core Values:https://www.terumo.com/about/mission-and-corevalues/index.html

• Top Management Message:https://www.terumo.com/investors/management/message/index.html

1. Explanation with respect to the individual appointment and nominations of directors.

Reasons for selection of individual directors are described in the Notice of Convocation of the 106th Annual General Meeting of Shareholders. https://www.terumo.com/investors/stocks/shareholders_meeting/index.html

Supplementary Principle 3-1-3: "Disclosures related to sustainability, etc."

Terumo defines the Group Mission of "Contributing to Society through Healthcare" as the goal of our sustainability initiatives. To achieve this goal, we developed the Terumo Group Sustainability Policy and revised the sustainability priorities in December 2021. Executive officer in charge of sustainability reports to the Board of Directors about the status of the initiatives regarding sustainability priorities generally once a year. In addition, the matters pointed out in the Board of Directors meetings are given feedback to the relevant departments for improving the initiatives. The Company also discloses the status of the initiatives regarding sustainability priorities on the corporate website and in the sustainability reports.

Terumo undertakes an analysis of the risks and opportunities that climate change will have on our business. In fiscal 2020, we identified the risks and opportunities and the degree of impact on our business based on two climate scenarios by utilizing the Task Force on Climate-related Financial Disclosures (TCFD) framework. The results were disclosed on the Terumo Report and the Sustainability Report in fiscal 2021.

• Investments in human capital

Please refer to "Supplementary Principle 2-4-1: "Ensuring diversity in the promotion of core human resources" and Terumo report.

• Investments in intellectual properties

Looking to the future of healthcare, to create technologies, products, and services with even higher added value that contribute to resolving medical challenges with significant social impact, the Terumo Group is strengthening in-house development capabilities by evolving its core technologies and

making optimal use of its technologies and infrastructure through in-house collaborations that transcend business boundaries. In conjunction with these efforts, by anticipating technological trends, we are promoting external collaboration to develop solutions of value. Further, we establish priorities for allocating resources based on R&D and business strategies to create intellectual property that will help strengthen the Terumo Group's competitiveness.

We are committed to sharing details on our investments in technology and intellectual property broadly with our shareholders and investors, including on our website under the "Technology" section and in publications such as the Terumo Report.

Please refer to our website, Sustainability report and Terumo report for more detailed discloses related to investments in human capital and intellectual properties.

• The Company's sustainability website :https://www.terumo.com/sustainability/(Sustainability top page) https://www.terumo.com/sustainability/management/(Sustainability policy and priorities)
• Sustainability Reports:https://www.terumo.com/sustainability/reports/
• Terumo Reports:https://www.terumo.com/investors/library/annual-reports/
• Technology:https://www.terumo.com/technology/

• Principle 4-11: "Prerequisites for Ensuring Effectiveness of the Board of Directors"

1. Evaluation of the Overall Effectiveness of the Board of Directors and Summary of Results [Board evaluation process]
   We conducted self-evaluation of board effectiveness in fiscal 2020 in order to further improve board effectiveness. All board members answered anonymous self-assessment surveys, and we conducted interviews with certain members of the Board of Directors and the Secretary of the Board. In order to maintain objectiveness of the board evaluation process, we used a third-party company to collect all survey sheets, and conduct interviews and analysis.
   After reviewing the findings of the analysis, the Corporate Governance Committee, of which a majority of members is independent directors, discussed and proposed major opportunities and action plans to the board in order to enhance board effectiveness.

[Fiscal 2019 Board evaluation results and actions]

The main items identified as requiring further consideration in the fiscal 2019 evaluation of board effectiveness and the actions taken in fiscal 2020 for each item are as follows.

Development Area	Actions executed in 2020
There are more opportunities for the board to spend time	In order to clearly separate the supervision of the business execution from the
discussing longer term strategy regarding issues such as	discussion of mid-andlong-term issues, the meetings have been divided into two
market dynamic changes in healthcare industry and digital	parts. As a result, time management has been improved, allowing for the
disruption in society	discussion of important matters related to the mid-andlong-term direction of
	management.
Continue to maintain rigid monitoring of global risk	Important themes related to global risk management, such as strengthening risk
management including manufacturing, quality issues and	management and the internal control of overseas subsidiaries, the monitoring of
compliance	large-scale overseas manufacturing projects, global compliance, and global
	quality, were discussed at the board meetings.
Continued discussion regarding board composition to align	In order to make a sincere effort to realize the ideal Board of Directors, the
with future corporate strategy	Corporate Governance Committee and other committees held ongoing
	discussions, including the ideal design of the organization.
Clearer definition of the role of each committee	We continued to discuss the need to organize and review the roles of each
	advisory committee and its composition. As a result, it was judged that the
	committees are currently operating effectively under their clearly defined roles,
	and therefore, no reorganization or review has been conducted.

[Fiscal 2020 Board evaluation results (overview)]

The evaluation results mainly indicated the following items, confirming the maintenance of the high effectiveness of the Board of Directors and the continuous and steady improvement of governance.

• The Board of Directors has been delegating authority for business execution and the clarification of the division of responsibilities, and is exercising a check-and-balance function as a board. The members of internal directors are made up of corporate directors, and as Terumo is oriented toward a supervisory type board of directors, it is successfully strengthening the monitoring of execution.
• In addition to the well-balanced composition of the Board of Directors, a culture of frank and open exchange of opinions among directors with diverse backgrounds has been fostered, which enables the Board of Directors to have effective discussions.
• Although an internal director (the Chairman) chairs the meeting, the Board of Directors as a whole finds that choice reasonable due to such merits as the early identification of issues that external directors are not aware of, fair and transparent proceedings, and an attitude that encourages the active expression of opinions and discussion.

[Evaluation results (Development opportunities)]

While the results of the above evaluation were positive, the following issues were mainly identified as requiring further consideration.

• Involvement in long-term management direction: Further deepen discussions that contribute to enhancing corporate value, including from the perspective of new management issues (e.g., ESG, DX).
• Risk management with a focus on overseas subsidiaries: Establish a system for continuous evaluation, and further ensure that the vision is shared between the headquarters and overseas subsidiaries.
• Interaction with executive members: Improve the understanding of internal human capital on the business side and execution side, especially on a global basis.
• Board composition: Ongoing discussions on further diversity and human capital development

We will take measures to address these and other issues that we have identified in our Board of Directors meetings and committee activities in fiscal 2021 and will continue to consider and implement measures to further ensure the effectiveness and enhance the functionality of the Board of Directors.

■ Supplementary Principle 4-11(1): "Stance on Diversity of Board of Directors"

Terumo considers the diversity of board of directors to have rich experiences and knowledge of directors to make discussions and decisions in the board, based on the management strategies and the external environment required .

(Corporate Governance Guidelines "2. Corporate Governance Structure (9) Selection/dismissal of Directors")

In addition, the Corporate Governance Committee and other committees have continued to discuss the appropriate size of the Board of Directors, it has been judged that the size of the Board of Directors is appropriate with the current situation.

The knowledge, experience, and abilities that the Board of Directors (internal and independent directors) are supposed to have are confirmed by making a skill matrix in the process of evaluating the effectiveness of the Board of Directors conducted every year. The skill matrix is published in Terumo Reports from 2021.

・Terumo Reports：https://www.terumo.com/investors/library/annual-reports/

■ Principle 5-2: "Establishing and Disclosing Business Strategies and Business Plans

From the earliest days of the modernization of Japanese medicine right through to today, we have tackled social issues according to the demands of each era. Today, the environment surrounding healthcare is undergoing major changes, including policies placing increasing downward pressure of healthcare expenditure around the world and growing societal demands to improve patients' quality of life as our societies age. The COVID-19 pandemic will further accelerate such changes. In order for us to remain a company required by society, it is essential that we provide patient-centric solutions to the new healthcare challenges arising amidst the constant change of the 21st century, and that we further the evolution of healthcare.

In light of the above, discussion and review shall be based on the following perspectives, and will form the basic policy of the business portfolio review:

The group operates seven businesses across three companies, working to solve problems in medical settings by providing products and services to treat a wide range of diseases. Drawing on the stable business foundation created by our wide range of business areas and the diversity of our technologies, we will tirelessly pursue opportunities to create new businesses in order to achieve market-beating growth while maintaining and improving profitability.

To optimize the structure of our existing businesses, we will be examining the performance of each business unit over the past several years in terms of both growth and earnings, making necessary adjustments with consideration for mid- to long-term measures based on product life-cycle analysis, and taking into account the potential for company-wide synergies and brand creation arising from business diversity as well as social needs.

At the same time, with a view to the creation of new business considering possibilities involving both internal and external production, we will examine the potential for market expansion from a variety of angles, including disease, region, customer and technology, and assess their strategic suitability from the standpoint of our existing business capabilities and management resources; i.e., the pros and cons of their implementation will be determined on the basis of whether the company's strengths can be leveraged to do so.

Aiming to achieve sustainable and profitable growth, and while maintaining the independence of each company and business, in order to meet market expectations for the group as a whole, we will continue to optimize our business portfolio by strengthening compliance and increasing autonomy from a corporate perspective.

2. Capital Structure

Percentage of shares held by foreign nationalsMore than 30%

[Major Shareholders] Update

		Name or Title			Number of Shares Held			Percentage of Total Shares Issued
	The Master Trust Bank of Japan ,Ltd. (Trust Account)	160,608,200	21.24%
	Custody Bank of Japan, Ltd. (Trust Account)	71,841,200	9.50%
	The Dai-ichi Life Insurance Company, Limited	34,651,000	4.58%
	Meiji Yasuda Life Insurance Company	24,422,400	3.23%
	Mizuho Bank, Ltd.	15,736,000	2.08%
	STATE STREET BANK AND TRUST COMPANY 505223	14,796,796	1.96%
	TERUMO LIFE SCIENCE FOUNDATION	14,720,444	1.95%
	Custody Bank of Japan, Ltd. (Securities Investment Trust	12,358,000	1.63%
	Account)
	STATE STREET BANK AND TRUST COMPANY 505001	11,764,559	1.56%
	Tokio Marine & Nichido Fire Insurance Co., Ltd.	11,579,520	1.53%
		Controlling shareholders (excluding the parent company)			
		Parent company			None

Supplementary Explanation Update

Major shareholders as of September 30, 2021.

The percentage of Total Shares Issued is calculated by deducting 3,251 thousand shares of treasury stock.

3. Company Profile

	Stock exchange and market segment			Tokyo Stock Exchange, First Section
	Fiscal year-end			March
	Industry type			Precision instruments
	No. of employees as of the end of the previous fiscal year			1,000 employees or more
	(consolidated basis)
	Revenue in the previous fiscal year (consolidated basis)			¥100 billion to less than ¥1 trillion
	No. of consolidated companies in the previous fiscal year			100 to less than 300

1. Guidelines on Measures to Protect Minority Shareholders When Engaging in Transactions, etc. with Controlling Shareholders
   
2. Other Special Circumstances that could have a Material Impact on Corporate Governance
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