Organo : 【Delayed】Corporate Governance Report

Corporate Governance

Last updated: December 27, 2021

ORGANO CORPORATION

Masaki Uchikura Representative Director and President, President and Executive Officer Inquiries: Corporate Strategy and Planning Dept., Corporate Management and Planning [phone] Securities Code: 6368

https://www.organo.co.jp/english/

The corporate governance of ORGANO CORPORATION (the "Company") is described below.

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

1. Basic Views

The Company has been engaging in efforts to enhance corporate governance that conforms to the following basic views in order to realize fair and trustworthy management and improve management efficiency.

1. The Company will respect the rights of shareholders and ensure equality.
2. The Company will take into account the benefits for a wide range of stakeholders including shareholders/investors, consumers/customers, business partners, employees and local communities, and cooperate with these stakeholders appropriately.
3. The Company will disclose the Company's information timely and properly, and ensure transparency.
4. The Directors, Audit and Supervisory Board Members, and Executive Officers will recognize their fiduciary responsibilities, and will effectively fulfill their expected roles and duties.
5. The Company will hold constructive dialogue with shareholders.

The Company's basic views and basic policy on corporate governance are provided in the "Organo Corporate Governance Guidelines" available on the Company's website. (https://www.organo.co.jp/english/company/governance/guidance/)

[Reasons for Non-compliance With the Principles of Japan's Corporate Governance Code] [Update]

The Company describes the information based on the Corporate Governance Code revised in June 2021.

Supplementary Principle 4.1.3 Succession Plan for the CEO and other Top Executives, Supplementary Principle 4.3.2 and 4.3.3 Appointment and Dismissal of the CEO

The Company stipulates the "Qualifications required for the Director and President" as part of a succession plan and shares them with Tosoh Corporation, the parent company. In addition, the Company established the council between the Company's Nomination and Remuneration Advisory Committee and the parent company's Selection/Compensation Committee in the fiscal year 2019.

The Board of Directors will be involved in the succession plan through deliberations of the revision to the "Qualifications required for the Director and President." The revision to the "Qualifications required for the Director and President" is determined by the resolution of the Board of Directors after obtaining opinions based on review by the Nomination and Remuneration Advisory Committee.

Supplementary Principle 4.2.2 Sustainability Policy

In December 2021, the Company established the Sustainability Committee as an executive organ to promote the "sustainability management" that aims to enhance sustainability and further growth of the Company group (the "Group") where the corporate activities of the Group align with and contribute to maintaining the natural environment and social systems. The purpose of this committee, consisting of Executive Directors and

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Executive Officers with titles, is to deliberate the basic policy of sustainability management and target plans and then to implement the policy and plans prescribed by the Board of Directors. In future at the Company, it is planned that the Sustainability Committee will discuss the basic policy and materiality relating to the sustainability of the Company, and the Board of Directors will determine and monitor those matters.

[Disclosures Based on the Principles of Japan's Corporate Governance Code] [Update] Principle 1.4 Cross-Shareholdings

(1) Policy relating to cross-shareholdings

The Company adopts a basic policy of not acquiring or holding the shares of concerned companies except when it judges that the holdings contribute to enhancing the Company's corporate value such as strengthening medium- to long-term cooperation with customers, business partners, etc., expanding transactions and creating synergies.

At the Board of Directors each year, the Company comprehensively evaluates the benefits and risks of each individual cross-shareholding in light of the holding costs, and verifies the rationale of holdings from a medium- to long-term perspective. If the Board of Directors judges that the holdings are not deemed reasonable as a result of its verification, the Company will, in principle, proceed with reducing the amount of holdings through measures such as the sale or transfer of the shares.

Specifically, the Company implements the evaluation based on the following evaluation items and makes a judgement on sale or transfer.

• The presence or absence of a scandal such as the violation of laws and regulations or accounting frauds in the past one year
• Trends in business performance, stock prices, dividends and transactions with the Company in the past three fiscal years
• Opinions on holdings from the department in charge

In evaluating the trend in transactions with the Company, the Company sets criteria for each evaluation item such as designating the matter as a verification target for sale or transfer if no transactions or insignificant transactions were made during the past three fiscal years.

In a verification conducted in June 2021, the Company comprehensively verified all 18 issues of shares including the shares of unlisted companies regarding the rationale of their holdings based on the aforementioned policy.

As a result, the Company judged that the significance of holdings of some issues has diminished and has decided to gradually reduce those amounts in consideration of issuers' policies moving forward.

As of March 31, 2021, the total amount of cross-shareholdings recognized in the balance sheet was ¥696 million, which accounts for less than 1 percent of the consolidated total assets, and the Company considers the amount to be insignificant.

1. Criteria for exercising voting rights regarding cross-shareholdings

The Company makes a judgment regarding exercising voting rights for cross-shareholdings from the perspective of whether or not the exercising contributes to the medium- to long-term enhancement of corporate value for both the Company and investee companies. In particular regarding shares of listed companies, the Company prescribes the standards for approval or disapproval of proposals deemed to be of high importance, such as appropriation of surplus, election of officers, remuneration for officers and anti-takeover measures, and will respond in accordance with such standards.

Principle 1.7 Related Party Transactions

The Company shall require the approval from the Board of Directors for competitive transactions and conflict of interest transactions with Directors and the corporations, etc. substantially controlled by Directors, and shall report important matters relating to conflict of interest transactions between a Director and the Company to the Board of Directors. The Company examines the presence or absence of related party transactions between Directors as well as their close relatives and the Group companies each year, and monitors the situation.

In addition, regarding transactions between the Company and major shareholders, etc., the Company requires obtaining prescribed decision and approval for transactions in accordance with the size, characteristics, significance and other factors of the transactions, in a similar manner as with transactions with other companies that do not have a capital relationship with the Company. The Company and its parent company Tosoh Corporation have a relationship in which the Company purchases items such as some raw materials for water treatment chemicals from Tosoh Corporation and it also carries out other transactions with Tosoh Corporation such as selling various types of water treatment systems and related chemicals to the said company. However,

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the amount is insignificant and the transactions fall under the general activities belonging to the Company's business, and in light of the size and characteristics of the transactions, the Company judges that they do not harm the interests of the Company and its shareholders.

Supplementary Principle 2.4.1 Ensuring Diversity, Including Active Participation of Women

(1) Stance on ensuring diversity

The Company prescribes "ensuring a comfortable workplace where all employees can realize their full potential" in the "Organo Group Company Code of Conduct" and declares that it shall respect the human rights, diversity and individuality of each individual, and will not discriminate based on nationality, gender, creed, physical condition, or social status. Based on this foundation, the Company evaluates employees in a fair and impartial manner based on ability, regardless of their backgrounds including gender, age, nationality or disability, and recruits, trains and appoints them to managerial positions.

(2) Voluntary and measurable goals for ensuring diversity and their status

As of the end of March 2021, the number of women in managerial positions in the Company was 15 (the ratio of women in managerial positions was 3.9%), and the Company aims to increase the number to 30 by 2026. In addition, in accordance with the Act on Promotion of Female Participation and Career Advancement in the Workplace, the Company satisfies certain criteria regarding items such as the ratio of women hired and the continued employment ratio, and has been continuously granted the "Eruboshi (Three-star Rating)" certification since 2017. As of the end of March 2021, the Company has not appointed a foreign national employee to a managerial position, but has a certain number of foreign national employees and plans to appoint them to managerial positions based on its stance of appointing employees to managerial positions based on their ability in a fair and impartial manner, regardless of nationality. The Company recruits about 15 midcareer hires needed by the Company per year regardless of managerial or non-managerial positions, and will continue to recruit 15 or more midcareer hires per year.

(3) Human resource development policy and internal environment development policy to ensure diversity, and status of their implementation

Given that its workforce consists of a diverse range of employees possessing a variety of personalities and backgrounds, the Company aims to develop an environment where all employees are able to fulfill their potential and realize growth.

As of the end of March 2021, the Company is implementing initiatives such as assigning female employees to the departments in charge of construction management, which previously was staffed mainly by male employees, enriching Japanese language education for foreign national employees, giving consideration to the company cafeteria, and establishing a prayer room.

Please refer to the "ORGANO GROUP REPORT" for details. (https://www.organo.co.jp/english/ir/group-report/)

Principle 2.6 Roles of Corporate Pension Funds as Asset Owners

The Company adopts a contract-type defined benefit corporate pension fund and entrusts the administration and management of pension assets to asset management institutions that have expressed acceptance of the Stewardship Code. The Company strives to ensure safety and efficiency of pension asset management through activities such as periodically checking performance results and economic indicators and considering the revision to the fund management policy in a meeting body consisting of members with appropriate qualifications including General Managers of Human Resources Dept. and Accounting Dept.

In addition, the pension asset is managed in the joint account of multiple asset management institutions that have expressed acceptance of the Stewardship Code, and the exercising of voting rights, etc. cannot be ordered through the pension asset. Therefore, the Company considers the conflict of interest between the Company and the beneficiaries as appropriately managed.

Principle 3.1 Full Disclosure

(1) Management philosophy, management strategy, management plan, etc.

The Company prescribes its corporate philosophy, the "Management Philosophy" that expresses the Company's reason for existence and the "Long-term Management Vision" with an eye toward the direction of management in the next ten years and makes them available on its website. (https://www.organo.co.jp/english/company/philosophy/)

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With regard to the return of profit to shareholders in its capital policy, the Company strives to provide distribution of profits in a way that considers the Company's revenue status, while adhering to a basic policy of providing stable and continuous dividends. The Company will utilize internal reserve funds in business investments and R&D investments, etc., to achieve sustainable growth.

The Company has also formulated its three-yearMedium-term Management Plan. The Company adopts a rolling method of updating the plan every year without fixing the ending fiscal year to continue its business management with an eye toward the next three years at all times. The overview is posted on its financial results presentation materials and shareholder newsletters. Such materials are available on the Company's website.

(2) Basic views and basic policy on corporate governance

The Company's basic views and basic policy on corporate governance are provided in the "Organo Corporate Governance Guidelines" available on the Company's website. (https://www.organo.co.jp/english/company/governance/guidance/)

1. Policies and procedures in determining remuneration to Directors and Audit and Supervisory Board Members

1. Directors
   The following is a summary of the Company's "Policy for determining remuneration, etc. to Directors" resolved at the Board of Directors meeting held on February 1, 2021.
2. 1. Basic policy
      The remuneration system for Executive Directors, in addition to the fixed remuneration (cash), encourages business execution in line with management policies and management targets and establishes a remuneration framework and remuneration standards which provide strong incentive for the achievement of short-term and mid- to long-term management targets in order to achieve sustainable

growth and improve the corporate value of the Group. The remuneration system for Non-Executive Directors, including Outside Directors, shall be fixed remuneration (cash) only, for the purpose of effectively functioning their supervisory and monitoring functions.

1. Remuneration framework
2. 1. Executive Directors
      Remuneration to Executive Directors consists of fixed remuneration and performance-linked remuneration, and performance-linked remuneration consists of short-termperformance-linked remuneration (cash) and mid- and long-termperformance-linked remuneration (stock). The remuneration level is designed to be appropriate for each position by comparing and verifying it with objective data such as remuneration levels from external remuneration consultants and remuneration survey data from external research organizations.
   2. 1. Fixed remuneration
         The total amount of remuneration based on the remuneration table set for each position shall be paid in equal monthly installments from July to June of the following year.
      2. Performance-linkedremuneration
         The ratio of the total amount of performance-linked remuneration is designed to be approximately 50% to 60% when the performance evaluation index is the standard value set by the Board of Directors, and this ratio is higher for Directors of higher ranks. In addition, the ratio of short-termperformance-linked remuneration (cash) to medium-to-long-term performance- linked remuneration (shares) shall be designed to be approximately 7:3 in the case the performance evaluation index is at the standard value set by the Board of Directors.
      3. • Short-termperformance-linked remuneration (cash)
           The short-termperformance-linked remuneration shall be monetary remuneration. From the perspective of clarifying the relationship between business performance and remuneration, the Company shall use the consolidated operating profit, which is an important management index of the Group, as the performance evaluation index, and shall pay the total amount calculated by the remuneration table for each position according to the consolidated operating profit of the previous fiscal year in equal monthly installments from July to June of the following year. The amount paid varies in the range of 0-170% depending on the amount of consolidated operating profit.
         • Medium-to-long-termperformance-linked remuneration (shares)
           The medium-to-long-termperformance-linked remuneration is a stock-based remuneration plan using a trust. From the perspective of improving corporate values over the medium to
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long term and aligning the interests with those of shareholders, the Company shall use the consolidated return on equity (ROE), which is an important management indicator of the Group and indicates capital efficiency, as the performance evaluation indicator, and shall deliver shares of the Company calculated based on the performance-linked coefficient determined in accordance with the consolidated return on equity for the previous fiscal year and the basic amount for each position. The amount equivalent to the payment varies in the range of 0 to 200% depending on the consolidated return on equity. In addition, the Company has established a three-year transfer restriction period from the time of delivery of the shares to be delivered.

1. 1. 1. Non-ExecutiveDirector
         The remuneration for Non-Executive Directors consists of a fixed remuneration only, and the total remuneration based on their position is paid in equal monthly installments from July to June of the following year. The remuneration level is designed to be appropriate for each position by comparing and verifying it with objective data such as remuneration levels from external remuneration consultants and remuneration survey data from external research organizations, and by taking into consideration the appointment of each Director as a member of important committees and the nature of their duties.
   2. Process of determining remuneration
      The Company has established the Nomination and Remuneration Advisory Committee as a non-statutory advisory body to the Board of Directors in order to ensure objectivity and transparency in the process of determining remuneration, etc. and provide an appropriate amount of remuneration. The amount of remuneration to the Company's Directors and the method of calculating such amount shall be determined by resolution of the Board of Directors based on the opinion of the Nomination and Remuneration Advisory Committee and within the scope of the remuneration limit determined by resolution of the General Meeting of Shareholders.
      The Nomination and Remuneration Advisory Committee shall review matters such as the total amount of remuneration for Directors, confirmation of the amount of remuneration for individual Directors, and the policy of remuneration, etc. for Directors, and report to the Board of Directors. Among the remunerations for Directors, the amount of remuneration and the number of shares to be paid for performance-linked remuneration shall be determined in unison in accordance with a predetermined method.
      At the Nomination and Remuneration Advisory Committee during the 76th fiscal year, in addition to the policy relating to the decision of remunerations, etc. for Directors, the total and individual remuneration amounts for officers in the fiscal year under review were deliberated. In addition, the results of deliberations were reported to the Board of Directors.
2. Audit and Supervisory Board Members
   Remuneration to Audit and Supervisory Board Members is a fixed amount according to their respective positions in the Company. The amount of remuneration is determined through discussion by the Audit and Supervisory Board Members within the scope of the remuneration limit determined by resolution of the General Meeting of Shareholders.

(4) Policies and procedures in nominating the candidates for Directors and Audit and Supervisory Board Members and the dismissal of senior management

The Board of Directors determines the candidates for Directors through the consideration and opinions of the Nomination and Remuneration Advisory Committee based on the evaluation of the qualifications required for Directors such as personality, insight, ability, experience, ethical viewpoint, etc., in addition to performance and other factors. The candidates for Independent Outside Directors shall satisfy the independence criteria for outside officers prescribed by the Company. At the Nomination and Remuneration Advisory Committee during the 76th fiscal year, the expected roles for Outside Directors were deliberated in addition to the selection of the candidates for Directors.

In addition, the results of deliberations are reported to the Board of Directors.

In the selection of the candidates for Audit and Supervisory Board Members, the Director and President prepares a personnel proposal based on the evaluation of the qualifications, etc. required for Audit and Supervisory Board Members, such as personality, insight, ability, experience, ethical viewpoint, etc. and then the Board of Directors determines those candidates after obtaining the consent of the Audit and Supervisory Board.

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