Tokai Carbon : Corporate governance report (as of March 30,2023)(339KB)

Corporate Governance Report

Last Update: March 30, 2023

Tokai Carbon Co., Ltd.

Hajime Nagasaka, President and CEO

Contact: [phone]

Securities Code: 5301

The corporate governance of Tokai Carbon Co., Ltd. (the "Company") is described below.

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

Basic Information

1. Basic Views

Tokai Carbon recognizes that enhancing the corporate value over the mid-to-long term is the most important management objective and believes that responding to the expectations of all stakeholders, including customers and shareholders, and building favorable relationships with them, is essential in achieving this objective. To this end, the Company sets forth its basic corporate philosophy, "Ties of Reliability." Based on this philosophy and taking into account the views defined in its Guidelines and the Global Code of Conduct, the Company strives to develop an effective corporate governance structure.

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

The Company recognizes that it puts into practice all principles of the Corporate Governance Code.

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

Disclosure is provided in accordance with the Corporate Governance Code revised in June 2021 (including its Principles applicable for the Prime Market effective from April 2022).

[Principle 1-4]

1. The Company's policy is to acquire and own shares of business partners, etc. only when it judges that it can create further business opportunities and increase its corporate value in the mid-to-long term through building, maintaining and reinforcing business partnerships and collaborative relationships. In making decisions on holding of other stocks, the Company appoints the responsible department, which analyzes factors such as the significance and profitability of holding the stocks and whether risks associated with such holding are commensurate with the capital cost, and periodically verifies the appropriateness from the Company-wide and strategic standpoints at the meetings of the Management Committee and the Board of Directors. The Company will reduce the holding of the stocks if the verification finds holding them not sufficiently reasonable.
2. In regard to the voting rights for investee companies, we make judgment on the exercise of voting rights from the perspective of increasing corporate value of the Company and the respective investee companies in the medium-to-long term.

[Principle 1-7]

With respect to the competitive transactions and conflict of interest transactions of Directors, the Company's policy is to have the Board of Directors deliberate such transactions in advance in accordance with relevant laws and regulations and the Rules of the Board of Directors. As for the transactions approved, the results are reported to the Board of Directors.

[Supplementary Principle 2-4-1]

1. Approach for ensuring diversity, and its goals and status
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Aiming to contribute to the realization of a sustainable society, the Company will actively hire and promote diverse human resources, regardless of race, region, nationality, age, sex, sexual orientation or disability, in order to create innovation and new values. At the same time, we will make education available and create a work environment for employees with diverse characteristics. For managerial positions that play a central role in management, we believe it is particularly important to ensure diversity, and we will continue to appoint women, foreign nationals, and mid-career hires.

1. 1. Appointment of women to managerial positions
      We set a goal for the ratio of female hires to 30% or more among total new graduates hires for career- track positions in our Action Plan for General Business Operators based on the Act on Promotion of Women's Career Advancement. While the percentage of female employees has been on the rise, that of female employees in managerial positions at present remains at 3.8% (five persons). We aim to double the number of female managers of three (3) persons (2.3%) in FY2021 to six (6) persons (4.6%) by 2024 by actively appointing diverse female human resources, based on the concept of the right skills in the right positions regardless of job function or number of years in service.
   2. Appointment of foreign employees to managerial positions
      In conjunction with the promotion of globalization, we are working to hire more foreign nationals. Currently we have six employees of foreign nationality, with two persons in managerial positions (accounting for 1.5% in such positions), on a Tokai Carbon non-consolidated basis. We plan to continue to hire and appoint foreign employees, and aim to increase the number of foreign managers by 2024.
   3. Appointment of mid-career hires to managerial positions
      We have been appointing mid-career hires to assign persons with the right skills in the right positions according to various business themes such as overseas expansion and technology development, with 38 mid-career hires in managerial positions (accounting for 29.0%). We plan to continue to hire and appoint more mid-career persons, and aim to increase their percentage of the managerial positions by 2024.
2. Human resource development policy and internal environment development policy for ensuring diversity The Company strives to develop human resources and improve the internal environment in order to support the employees' taking on challenges on their own and to make the Company attractive to a wide variety of global human resources. We have been working on human resource development aimed at ensuring diversity, through rank-based training and career design training. Going forward, we will expand training aimed at encouraging independent learning, and add global human resource exchange among young employees and re-education of the senior generation. In addition, as a system to support diversity, we have been promoting a career self-report system for career-track employees and reducing scheduled working hours. Going forward, we aim to become a more rewarding company by further improving engagement and promoting health management.

[Principle 2-6]

In regard to the investment management of reserve funds for the defined-benefit pension plan, the Company has formulated internal regulations and invests the reserve funds in accordance with the regulations. Specifically, the Company has established the investment management guidelines and the basic policy for investment management, and a person in charge of pension management assigned in the Human Resources Department confirms that the pension reserves are managed appropriately in accordance with the policy asset mix by referring to quarterly reports from asset managers. In addition, the Company appropriately carries out functions as an asset owner, such as having the person in charge of pension management report the results of investment management of pension assets for each fiscal year at meetings of the Management Committee.

[Principle 3-1]

1. Company objectives (e.g., business principles), business strategies, business plans (Basic Philosophy) "Ties of Reliability"
   Stakeholders as represented by customers, business partners, employees, society and shareholders are essential partners for the Company to contribute to the realization of a sustainable society through its corporate activities. Achieving co-existence and co-prosperity with our stakeholders is an earnest desire of the Company, and we believe that mutual trust is the key to creating new value together with our
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stakeholders. The Tokai Carbon Group will continue to work unremittingly to strengthen the "Ties of Reliability" with its stakeholders. To this end, the Group as a whole will continue to strive for integrity at all times, maintain appropriate communication with its stakeholders, boldly taking on challenges to bring innovation while conducting fair and transparent corporate activities, and work to achieve results that exceed stakeholders' expectations in a timely, continuous and long-term manner.

(Mid-Term Management Plan)

The Company discloses "T-2025," a rolling-format,three-year,mid-term management plan for the period from 2023 to 2025 on its website:

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

(2) Basic views and policy on corporate governance

Our basic views on corporate governance are disclosed in "I. 1. Basic Views" and in "II. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)" of this report.

(3) Board policies and procedures in determining remuneration

Policies and the method of determining remuneration of Directors of the Company are disclosed in the "Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods" in "II. 1. Organizational Composition and Operation" of this report.

1. Board policies and procedures for the appointment and dismissal of senior management and the nomination of candidates for Directors and Audit & Supervisory Board Members
   At the Company, the Nomination Committee (composed of one (1) internal Director and three (3) External Directors), which is an advisory organ of the Board of Directors, deliberates and confirms the requirements for senior management and the basic policies on the appointment and dismissal of senior management members. In addition, the election and dismissal of Executive Officers as well as their roles, etc. are determined based on deliberation by the Board of Directors. The policies and procedures for nominating and dismissing candidates for Directors and Audit & Supervisory Board Members as well as each of the individual proposals for nomination and dismissal are deliberated on by the Nomination Committee and resolved by the Board of Directors before they are addressed at a general meeting of shareholders.
2. The Company discloses the reasons for nominating candidates for all Directors and Audit & Supervisory Board Members, including External Directors and External Audit & Supervisory Board Members, in the Reference Document for an Annual Meeting of Shareholders.

[Supplementary Principle 3-1-3, and Supplementary Principle 4-2-2]

In November 2021, the Board of Directors of the Company resolved to revise the Basic Sustainability Policy (formerly the Basic CSR Policy), thereby clarifying its intent to incorporate sustainability and ESG into its business strategies, with the aim of resolving social issues through its business and realizing a sustainable society.

(Basic Sustainability Policy)

Tokai Carbon Group engages in corporate activities based on the corporate philosophy of "Ties of Reliability" with its stakeholders. In order to make sure that we are a reliable partner for our stakeholders, we develop business strategies with due consideration to ESG (Environmental, Social and Governance) and work to resolve social issues through our business activities, thereby contributing to the realization of a sustainable society while improving our corporate value on a sustainable basis.

(Structure)

In January 2022, we established the Sustainability Committee, as an advisory organ to the Board of Directors. It is chaired by the President & CEO and composed of the Executive Officer responsible for the General Affairs and Legal Affairs Department, the Executive Officer responsible for the Corporate Planning Department, the Executive Officer responsible for the Human Resources Department, the General Manager for the R&D Strategy Division, the General Manager for the Technology & Engineering Division, and General Managers of four major divisions, and in principle, it is to be held each quarter. The Committee is responsible for discussing important sustainability-related matters, bringing matters for deliberation and submitting

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reports to the Board of Directors, and overseeing information disclosure concerning sustainability through the preparation of Integrated Reports and other means.

Important managerial issues (Materiality) and goals are disclosed on the Company's website: https://www.tokaicarbon.co.jp/sustanability/csr_management.html

(Response to climate change)

Recognizing that responding to climate change is an important managerial issue, the Company resolved to support the Task Force on Climate-related Financial Disclosures (TCFD) at its Board of Directors' meeting in November 2021.

Aiming to realize a low-carbon society and a decarbonized society, we identify the impact of climate change on the Company's business, take appropriate measures, and disclose information in accordance with the TCFD recommendations on the Company's website: https://www.tokaicarbon.co.jp/sustanability/climate-change.html

[Supplementary Principle 4-1-1]

The Company defines matters stipulated by laws and regulations and the Articles of Incorporation, the formulation, etc. of management policies and plans, and other important business management matters as items to be resolved by the Board of Directors and delegates all other business execution decision-making to the management team.

[Principle 4-9]

The Company appoints External Directors, who are independent officers, in accordance with the requirements for external directors set forth in the Companies Act and the independence standards defined by the financial instruments exchanges, and the Independence Standards for External Officers set forth by the Company.

[Supplementary Principle 4-10-1]

The Nomination Committee and Remuneration Committee are described in "Establishment of Voluntary Committee(s), Composition of Committee and Attributes of Chairman" and "Supplementary Explanation."

[Supplementary Principle 4-11-1]

The Board of Directors of the Company works to make accurate and timely business decisions in order to promote sustainable growth and increase corporate value in the medium- to long-term.

To achieve this objective, the Board of Directors of the Company takes into account the size, contents, etc. of the Company's business and elects candidates for business-executing Directors who are well versed in the operations of each business division and corporate division so as to optimize the composition of the Board of Directors in terms of diversity and have an appropriate balance between knowledge, experience and skills of the Board as a whole.

External Directors are elected by taking into account the requirements for external directors as set forth in the Companies Act and the independence standards defined by the Tokyo Stock Exchange, as well as the Independence Standards for External Officers set forth by the Company. Also, the Company receives advice from External Directors from viewpoints independent from business execution based on their wide-ranging experience and insights not only in their specialized fields but also in a broad range of areas, including management experience at other companies.

The skill matrix of each Director and Audit & Supervisory Board Member is disclosed in the Notice of FY2022 Annual Meeting of Shareholders of the Company: https://www.tokaicarbon.co.jp/ir/shareholders-meeting.html

[Supplementary Principle 4-11-2]

Concurrent positions held by Directors and Audit & Supervisory Board Members are indicated on pp. 8-14 and pages 32 and 36 of the Notice of FY2022 Annual Meeting of Shareholders.

[Supplementary Principle 4-11-3]

In order to strengthen the effectiveness of the Board of Directors, the Company analyzes and evaluates the effectiveness of the Board of Directors on an annual basis. The implementation status of the evaluation for FY2022 is summarized as below.

(1) Method of evaluation

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The Board of Directors analyzed and evaluated its effectiveness based on the results of (i) qualitative and quantitative analysis of the operational results, status, and other details of the corporate governance system, including the Board of Directors and the Management Committee, in 2022; (ii) a survey on the composition/operation of the Board of Directors, information provision to External Directors, and other

relevant matters conducted with respect to all Directors and Audit & Supervisory Board Members; and (iii) individual interviews with External Directors.

(2) Overview of results of evaluation

The results of the evaluation of the effectiveness of the Board of Directors in FY2016 indicated that the Company has strengthened its corporate governance system, centered on the Board of Directors, by establishing the Nomination Committee, the Remuneration Committee, the Management Committee, and the Risk Management & Compliance Committee in 2016. This has contributed to making significant improvements from the previous year in various aspects, including the selection of agenda proposals, content of materials/explanations, content of deliberations, and meeting minutes. In the evaluation, it was pointed out that each of the External Directors has gained a better understanding of important cases by attending all Board of Directors meetings and proactively attending other important meetings. Neutral and objective opinions from External Directors have contributed greatly to enhancing the supervisory functions of the Board of Directors.

This year marked the seventh year of the evaluation. The evaluation concluded that the current corporate governance system has largely been established, and in addition to maintaining the achievements delivered in the early stage of the system's launch, further improvements have been made in effectiveness through the measures taken in 2022. These included steering toward reinforcing sustainability management and portfolio management in accordance with the Basic Sustainability Policy and the Basic Policy on Business Portfolio Management that were newly established in the previous year, enhancing matters reported to the Board of Directors, and deliberating on crisis events such as the impact of the Ukraine crisis and the response to the Taiwan emergency.

Going forward, we will continue to work on the issue of addressing higher-level themes, such as (i) coordination between sustainability (including actions for CN (carbon neutrality)) and management strategies and (ii) increased sophistication of the business portfolio management.

[Supplementary Principle 4-14-2]

In order to ensure that the management supervision and auditing functions of Directors and Audit & Supervisory Board Members are adequately demonstrated, a secretariat for the Board of Directors is put in place to provide information required for executing duties in an appropriate and timely manner. Further, from the perspective of promoting contribution to sustainable growth into the future, training opportunities are set.

[Principle 5-1]

It is provided in "III. 2. IR Activities" of this report.

[Supplementary Principle 5-2-1]

In November 2021, the Board of Directors of the Company resolved to adopt the "Basic Policy on Business Portfolio Management" and decided to deliberate on the direction of the business portfolio annually at the Board of Directors' meetings, taking into account the consistency with the Company's long-term vision and perspectives on medium- to long-term growth, in addition to setting and monitoring targets for profitability and capital efficiency based on the Company's capital cost. The mid-term management plan announced in February 2023, "T-2025," also presents our views on this business portfolio, along with our basic policies for profit planning and capital policy, after deliberations by the Board of Directors.

2. Capital Structure

Foreign Shareholding Ratio

10% or more but less than 20%

[Status of Major Shareholders]

Name / Company Name

Number of shares owned

Percentage (%)

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