Tokuyama : Corporate Governance Report (June 27, 2022)

(Note) This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Corporate Governance Report

Last Update: June 27th, 2022

Tokuyama Corporation

Representative Director., President and Executive Officer: Hiroshi Yokota

Contact: [phone]

Securities Code: 4043

http://www.tokuyama.co.jp/

The corporate governance of Tokuyama Corporation (the "Company") is described below.

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

Information

1. Basic Views

Amid the major transformations taking place throughout society, the Company has redefined its Mission as "To create a bright future in harmony with the environment, in collaboration with its customers, based on chemistry" in line with the business environment being faced today. This redefinition incorporates the Company's desire to continuously conduct business in harmony with the environment and to create the future together with its customers as a means of contributing to a sustainable society.

This only becomes possible with the trust and support of shareholders, customers, suppliers, employees, local communities, and all other stakeholders, which the Company believes will connect to sustainable growth and greater corporate value over the medium- to long-term.

Corporate governance comprises a priority issue for management in order for the Company to realize its Mission. The Company therefore recognizes the need to constantly make enhancements. This forms the Company's Basic Concept on corporate governance.

In light of the Corporate Governance Code, the Company's Basic Policy is to respect the rights and equality of shareholders, appropriately cooperate with all stakeholders, achieve a balance between proper disclosure and transparency, maintain the independence of the Board of Directors and enhance the Board's oversight function, accelerate decision-making, clarify responsibility, and strive for constructive dialogue with shareholders.

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

The Company complies with all Principles of the Corporate Governance Code.

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

Principle 1-4 [Policy on the Holding of Listed Shares for Purposes Other Than Pure Investment]

The Company holds shares of publicly listed companies on a strategic basis in accordance with the necessities of its business activities as a part of its overall management strategy.

This includes the need to maintain and bolster transactions, raise funds and stably procure raw materials. As far as the strategic holding of shares in publicly listed companies is concerned, the Company will limit its holdings to the minimum level possible taking into consideration the need to ensure efficient corporate management. It sold all shares of one listed issue in FY2021, resulting in a total of 21 listed issues of shareholdings as of March 31, 2022.

In addition, the Board of Directors takes steps to verify the economic rationality of holding shares in publicly listed companies by comparing capital costs that factor in associated risks with accrued benefits while confirming the propriety of its holdings based on an outlook of the future each year.

Principle 1-7 [Transactions with Related-Parties]

In accordance with the "Rules for the Board of Directors," the Company requires the prior approval of the Board of Directors, as well as subsequent reporting to the same, for any competitive transaction, proprietary transaction, or transaction that may involve a conflict of interest.

Supplementary Principle 2-4-1 [Ensure Diversity]

In addition to instilling the four values stated in the Tokuyama Vision, Tokuyama is actively engaged in developing talent and promoting diversity in a way that ensures every employee can make the most of their individuality and abilities.

Tokuyama's diversity promotion activities are aimed at creating a situation in which our employees can work with energy and succeed as a means of driving the sustainable growth of the Company. Tokuyama values diversity of knowledge and intelligence, and seeks to create workplaces that are pleasant and motivating, while aiming to

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improve productivity, by reforming the workplace culture. In March 2019, we included prioritizing diversity and motivation as one item of materiality that was extracted and identified as a very important issue from the perspective of practicing CSR. In the "Medium-Term Management Plan 2025," published in February 2021, we defined the practice of socially responsible management as one of our priority issues, and are working to solve and achieve materiality by concentrating management resources on this matter.

Moreover, Tokuyama introduced a multiple career-path personnel system in 2020 to accommodate employees with diverse value systems and work styles. Along with establishing training systems that correspond to the role and course of each employee, we are also engaged in developing talent by offering open-enrollment training programs.

Although Tokuyama has not set numerical targets related to foreign nationals and mid-career hires appointed to management positions, the Company employs these individuals in accordance with the spirit of "Fair Evaluation and Treatment" as a goal of the personnel system introduced in 2020. The ratio of management positions accounted for by mid-career hires increased from 6.8% in FY2018 to 8.7% in FY2021. At the current time, no foreign nationals have been promoted to management positions, but the Company will revise the promotion screening process to include a greater awareness of ensuring diversity as a means of advancing the appointment of foreign nationals to management positions.

Details on our human resources development system and targets regarding the promotion of opportunities for women are available on the Company's website (https://www.tokuyama.co.jp/eng/csr/employee.html).

Principle 2-6 [Roles of Corporate Pension Funds as Asset Owners]

The Company has established a basic investment policy with the goal of ensuring the income required to reliably provide pension benefits to beneficiaries over the long term. While striving to ensure the expertise and reliability of fund management through the use of management consultants, the Company in accordance with this policy also appoints investment trustees, monitors reports from the investment trustees on a regular basis, and conducts appropriate management operations, including quantitative and qualitative evaluations, to avoid any conflicts of interest. In addition, the Company has established a Pension Investment Committee chaired by the General Manager of the General Affairs and Human Resources Division and composed of pension investment managers with a high level of expertise in the field and the Chairman of the Labor Union Executive Committee, who acts as a representative of the beneficiaries. The committee meets on a regular basis to confirm financial conditions and investment performance, and provides reports directly to management.

Principle 3-1- (I) Corporate Mission (management philosophy, etc.), Management Strategies, and Management Planning

In recognition of greater environmental awareness around the globe and the rapid advancement of the digital revolution as the current historical context, the Company redefined its Mission in 2021.

In addition, the Company declared the Vision for which it aims in order to achieve its Mission. Each employee continuously moves forward to realize this Vision with four Values.

Mission

To create a bright future in harmony with the environment, in collaboration with its customers, based on chemistry

Visions

• Be a value-creative company that places first priority on R&D and marketing
• Be a company that never stops challenging new domains while refining and exploiting its unique strengths
• Be a company with healthy employees who have healthy families and take pride in their work at their company
• Be a company that fosters bonds with people in communities and societies worldwide

Values

• Commitment to customer satisfaction as a profit source
• A broader, loftier perspective
• Employees who consistently surpass their predecessors
• Integrity, perseverance, a playful sprit and boldness

The Management Policy and Medium-term Management Plan are available on the Company's public website

(https://www.tokuyama.co.jp/eng/).

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Principle 3-1- (Ⅱ) [Basic Views and Guidelines on Corporate Governance based on Each of the Principles of the Corporate Governance Code]

Please refer to "I-1 Basic Views" in this report.

Principle 3-1- (Ⅲ) [Board Policies and Procedures in Determining the Remuneration of the Senior Management and Directors]

For details regarding the policy for determining the remuneration of directors, please refer to the "Disclosure of Policy for Determining Remuneration Amounts and Calculations Methods" section in the portion dedicated to director remuneration in the "II-1. Organizational Composition and Operation" section of this report.

Principle 3-1- (Ⅳ) [Policies and Procedures When the Board of Directors Selects/Dismisses Management Executives and Nominates Director and Auditor Candidates]

To enable the direction of business execution as well as appropriate decision making with regard to the Company's business operations, which are centered on chemicals, the selection of executive officers appoints those with knowledge and experience in each business segment and area. When nominating director candidates, the Company selects candidates who are believed to have a high level of insight, diverse experience, and expertise in consideration of the balance and diversity of the Board of Directors in order to ensure the Board properly supervises and provides advice on important decisions and business execution.

When selecting and dismissing executive officers and nominating director candidates (excluding directors who

are Audit and Supervisory Committee members), discussions are held at a Human Resources Committee meeting in advance of the subject appearing on the agenda at a Board of Directors' meeting. The Human Resources Committee is an entity that comprises representative directors and external directors. The Board of Directors makes its decisions in response to the Human Resources Committee's report.

In regard to the selection and dismissal of the President and Executive Officer, the President Nomination Committee deliberates on these matters, and the details of these deliberations are then presented to the Board of Directors following a report by the Human Resources Committee, at which point the Board of Directors makes a decision.

In the case of the nomination of directors who are Audit and Supervisory Committee member candidates, the Board of Directors makes its decisions after receiving the assent of the Audit and Supervisory Committee.

Principle 3-1- (ⅴ) [Explanations with Respect to Individual Appointments and Dismissals when the Board

of Directors, based on (iv) above, Nominates Director Candidates or Appoints/Dismisses Senior Management Personnel.

For an explanation regarding the appointment and nomination of individual directors and executive officers, please see the appendix at the end of this report.

This report also covers matters related to the appointment and independence of outside directors.

Supplementary Principle 3-1-3 [Sustainability Disclosures]

In response to worsening climate change and the trend towards practicing ESG within society, the "Medium-Term Management Plan 2025," published in February 2021, raises the three priority issues of "transform business portfolio," "contribute to mitigation of global warming," and "practice socially responsible management."

"Transform business portfolio" aims to transform the Company's portfolio from its current reliance on

energy-intensive businesses to sustainable businesses that are energy efficient and serve to solve social issues. "Contribute to mitigation of global warming" raises and aims to steadily achieve the lofty goal of "carbon neutrality by FY2050."

As part of "Practice socially responsible management," we have positioned the CSR priority issue of "materiality" as a specific action objective for achieving the "Vision" included in the Medium-Term Management Plan, and will build a solid foundation for growth by faithfully engaging in these efforts.

Moreover, Tokuyama aims to be a company that creates value and provides solutions which places first priority on R&D and marketing, and recognizes that investing in intellectual property is essential for realizing this goal. In addition, we have raised developing human resources as a materiality, under which we aim to develop and strengthen those human resources that will serve as a source of corporate competitiveness, and to enrich those human resources that will be responsible for future generations. Similarly, we have clarified the types of personnel and skills required for each occupation, and are engaging in efforts to improve and enrich the education system. Tokuyama also introduced a multiple career path personnel system, and has established a framework for implementing rotations and assignments that realize employee career plans. Information regarding the Company's

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intellectual property and human resources development has been disclosed in the integrated report (Tokuyama Report).

Supplementary Principle 4-1-1 [Duties of the Board of Directors and the Scope of Management Delegation]

Matters requiring resolutions by the Board of Directors in accordance with laws and regulations or the Articles of Incorporation, as well as important management matters are resolved by the Board of Directors in accordance with the "Rules for the Board of Directors" and the "Rules for Decision Making," while matters related to business execution are delegated system specifically designed for the execution of business.

Supplementary Principle 4-1-3 [Chief Executive Officer Succession Plan]

In August 2021, Tokuyama newly established the "President Nomination Committee," which serves to formulate, implement, and deliberate on the Chief Executive Officer (President and Executive Officer) Succession Plan, and functions to report to the Human Resources Committee.

The actions of the President Nomination Committee are regularly reported to the Board of Directors by the Human Resources Committee, and are appropriately audited by the Board, in order to ensure that sufficient time and resources are invested in the systematic training of succession candidates based on the Mission, Vision and management strategies of the Company.

Principle 4-9 [Criteria for Defining the Independence of External Directors]

With regard to its Criteria for Defining the Independence of External Directors, the Company adjudges those who do not fall into any of the following categories as demonstrating sufficient independence.

1. Persons who are not currently nor in the past 10 years been engaged in the execution of business operations of the Company or its affiliated companies*1.
2. Persons who are not currently nor in the past three years been engaged in the execution of business operations of a major trading partner of the Company, or executives thereof. However, the Company's major trading partners are defined as those that fall into either of the following categories:
   (1) Financial institutions that have financed more than 2% of the Company's total borrowings.
   (2) Trading partners that account for more than 2% of the Company's consolidated net sales.
3. Persons who currently deem or in the past three years have deemed the Company or an executive thereof to be a major trading partner. However, persons who deem the Company to be a major trading partner are defined as those cases in which the amounts paid by the Company account for 2% or more of the said trading partner's consolidated sales.
4. Consultants, accountants or legal professionals who currently receive or in the past three years have received large financial considerations or other property*2 from the Company besides their compensation as a director/auditor. (If the entity in receipt of the assets is an organization, such as a legal entity or an association, the person who belongs to such organization.) However, includes those that fall into either of the following categories:
   (1) Auditors who are responsible for the statutory audit of the Company.
   (2) Law firms that serve as legal counsel to the Company.
5. Spouses or relatives within the second degree of kinship of the relevant persons in the sections above (but limited to important persons*3.
   *1 Pursuant to Article 2, Paragraph 3, Item 6 of the Ordinance for Enforcement of the Companies Act of Japan. *2 In the case of an individual, a substantial compensation payment is defined as an annual amount of
   compensation that exceeds 10.0yen million, and in the case of an organization, an amount of 2% or more of the annual total income of that organization.
   *3 In the case of a company, important persons are defined as those who hold the responsible positions of director, executive officer, operating officer and positions equivalent to manager; in the case of an accounting office and audit corporation, certified accountants; in the case of law offices and legal corporations, lawyers; and in the case of a tax accountant office and tax accountant corporation, tax accountants. In other organizations, an important person means directors, such as a director or a councillor.

Supplementary Principle 4-10-1 [Independent Nomination/Remuneration Committee]

To improve independency and objectivity, director and executive officer nominations and remuneration are deliberated by the Human Resources Committee, of which independent outside directors make up the majority of members in addition appropriate reports and recommendations are provided to the Board of Directors.

The Chief Executive Officer (President and Executive Officer) Succession Plan is implemented in a more focused, professional manner by the President Nomination Committee, which was established within the Human Resources Committee. The President Nomination Committee is only attended by one internal director, namely the President and Executive Officer), and independent outside directors account for the majority of members and serve as the chairperson.

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Supplementary Principle 4-11-1 [Concept on the Diversity of the Board of Directors]

The Company considers the composition of the Board of Directors with respect to the number of directors, the balance of fields in which Directors can be expected to contribute using their individual areas of expertise, experience, and abilities, and the Board's diversity in a way that enables the Board of Directors to hold effective debates in view of the Management Policy and Medium-term Management Plan established by the Company, and to appropriately exhibit the required decision-making and management execution supervising/auditing functions.

Please refer to the General Shareholder Meeting reference materials for the composition of the Board of Directors, including the skill matrix related to the above.

(https://www.tokuyama.co.jp/eng/ir/pdf/2022_Jun_Notification_e.pdf)

Supplementary Principle 4-11-2 [Status of Directors Concurrently Serving as Officers at Other Listed Companies]

When a director at the Company assumes the position of director or auditor at another company, the Board of Directors of the Company is charged with determining whether there is any conflict of interest. For outside directors, the Board of Directors confirms that individuals serving in concurrent positions have the time and ability to fulfill their roles and responsibilities to the Company.

Information regarding outside directors is disclosed in the portion dedicated to directors in the "II-1. Organizational Composition and Operation" section of this report.

Supplementary Principle 4-11-3 [Analysis and Evaluation of Overall Effectiveness of the Board of Directors]

Amid the major transformations taking place throughout society, the trust and support of stakeholders is essential for the Company to continuously conduct business in harmony with the environment and to continue to create the future together with its customers as a means of contributing to a sustainable society in line with the business environment being faced today. In order to realize this trust and support, the Company has positioned corporate governance as a material issue for management, and has determined to evaluate the effectiveness of the Board of Directors every year as a part of this effort.

[Evaluation Process]

In regard to the Board's effectiveness evaluation for the period ended March 2022, the Company conducted a questionnaire survey and interview of all directors, after which the Board members held discussions based on the results of the interviews.

Along with verifying those matters considered to be of material importance to the Board's ability to effectively fulfill its roles and responsibilities (composition and operations of the Board of Directors, discussions involving strategies, etc.), during the year under review the Company also confirmed the ways in which the Board should contribute to advancing "Medium-Term Management Plan 2025," and the related perspectives and measures. In order to objectively ascertain the opinions of each director, the evaluation utilized an external organization to conduct the questionnaire survey and interviews. In addition, the Company requested the external organization to facilitate the discussions in order to objectively organize the issues and to obtain opinions that will enhance the Board's effectiveness.

[Overview of Evaluation Results]

The evaluation results confirmed that the Company's Board of Directors consists of a diverse range of members and comprises a character that respects free and open discussions against the background of a corporate culture with a positive atmosphere. The results also confirmed that the Board functions effectively owing to the concrete accumulation of initiatives intended to improve the effectiveness of corporate governance.

One future issue for the Board of Directors of which the Board members share a common awareness is the need to hold deeper discussions regarding the two management challenges of carbon neutrality initiatives and business portfolio transformation, in particular, as raised in the Medium-Term Management Plan. The Company has confirmed that backing self-deprecating and self-reforming management, as well as deepening discussions from a strategic and overarching perspective, are important responsibilities of the Board in regard to how the Company addresses these management challenges.

In order to engage in these issues, the Company's Board of Directors will advance initiatives to enhance its effectiveness, including (1) deepening insight regarding changes in the business environment in which the Company is situated and creating opportunities to debate measures for handling the important management challenges of carbon neutrality initiatives and business portfolio transformation, (2) effectively monitoring the progress of priority measures, including human capital strategies and technology development strategies, in order to support the achievement of "Medium-Term Management Plan 2025," and (3) rationalizing the Board's operation method, including Board meeting agendas, materials, and presentations, etc., in order to fulfill these responsibilities.

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