Hoya : Corporate Governance Report (1,242KB)

HOYA Corporation

Corporate Governance Report

[TRANSLATION]

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. The Company assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.

Last Update: Dec. 21, 2023

HOYA CORPORATION

Eiichiro Ikeda, President & CEO

Contact: 03-6911-4820

Securities Code: 7741

https://www.hoya.com/en/

The corporate governance of HOYA CORPORATION is described below.

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

1. Basic Views

HOYA promotes management with the aim of maximizing its corporate value based on the recognition that corporate governance is a matter of utmost importance for management.

As the basis of taking a fair approach to stakeholders, we have adopted a "company with Nomination Committees, etc." structure simultaneously with the revision of the Companies Act, which enables us to better distinguish the execution and supervision of management to prevent management from being conducted based solely on in-house logic. We have also set forth in the Articles of Incorporation that the majority of Directors consist of Outside Directors, who actively supervise management by Executive Officers and provide advice in order to improve corporate value from an objective and broad perspective.

HOYA also gives Executive Officers the authority and responsibility for the execution of operations, in order to accelerate decision making and improve management efficiency.

HOYA has established HOYA Corporate Governance Guidelines at the meeting of the Board of Directors, and intends to enhance corporate governance structure and to introduce better governance systems by revising the guidelines.

HOYA Corporate Governance Guidelines:

https://www.hoya.com/wp-content/uploads/2022/06/Corporate-Governance-Guideline_EN_2022_6.pdf

[Reasons for Not Implementing Principles of the Corporate Governance Code]

This report is presented in accordance with the Code as it stands after its revision in June 2021. HOYA complies with all principles set forth in the Corporate Governance Code.

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

[Principle 1-4Cross-Shareholdings]

It is HOYA's policy not to cross-hold shares of other listed companies which is aimed for securing promanagement shareholders and this policy is stated in "HOYA Corporate Governance Guidelines". According to the policy, we do not have such shares. We dispose shares of listed or non-listed companies if meaning of holding those shares become diluted. When exercising the voting rights on shares, we will vote against to proposals which will adversely affect rational for holding the shares and/or to proposal which will adversely affect corporate value.

(HOYA Corporate Governance Guidelines, III-3)

https://www.hoya.com/wp-content/uploads/2022/06/Corporate-Governance-Guideline_EN_2022_6.pdf

Once a year, the board of directors review each listed share and those non-listed shares with book value of more than 25 mil. yen. The board assess rational and benefit of having these shares compared to disposing those shares. In fiscal year 2022, the Company held shares of three listed companies. The Company's Board of Directors decided to sell the shares of two of these because they judged it less significant to keep holding them.

[Principle 1-7 Related Party Transactions]

The Regulations of the Board of Directors stipulate that the Board of Directors should discuss transactions between executives or directors and the company or major shareholders.

Regulations of the Board of Directors

https://www.hoya.com/wp-content/uploads/2022/04/BOD_rule_E_en.pdf

[Supplementary Principle 2-4-1]

The Group has taken the policy of not discriminating on the basis of nationality, gender, age or any other distinguishing characteristic in the hiring and promotion of employees. The ratio of female employees in the HOYA Group as of FY2022, was 52.0% and the ratio of female managers was 35.9%. The ratio of female employees in the HOYA Group companies based in Japan as of March 31, 2023, was 29.9% and the ration of female managers was 14.2%, which was increase by 0.3% and decrease 0.1% compared with 29.6% and 14.3% as of March 31, 2022, respectively.

Furthermore, with regard to the promotion of mid-career hires and foreign employees, foreign employees have been promoted to managerial positions at six out of the eleven business divisions of the Group based on the previously mentioned policy of not discriminating on the basis of nationality, age or any other distinguishing characteristic.

Moreover, by actively promoting excellent human resources on site at overseas subsidiaries to top managerial positions, the overall globalization of the Group progresses, and the ratio of foreign top management at overseas subsidiaries, including overseas subsidiaries with head office functions, has been around 90%. Furthermore, 70% of employees at the Group Headquarters in Tokyo are mid-career hires, and 70% of the people responsible for each department in the Head Office are mid-career hires. The diversification of human resources and globalization are advancing under this policy, and the ensuring of diversity will be maintained with this policy going forward.

Respecting Human Rights

https://www.hoya.com/en/sustainability/society/human_rights/

Labor Management

https://www.hoya.com/en/sustainability/society/labor/

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

Hoya Group adopts defined-contribution plans for the employees respecting their autonomous decision-making in asset building. Hoya corporation provide e-learning and other education opportunities to these employees.

[Principle 3-1 Full Disclosure]

HOYA considers it important to disclose information that seems to be beneficial to stakeholders, and the company discloses such information actively. Annual activities are described in Integrated Report on the web site.

HOYA Integrated Report 2022

https://www.hoya.com/ir/2022/en/#section07

1. Management Mission and Principleshttps://www.hoya.com/en/company/mission/
2. HOYA Corporate Governance Guidelines

https://www.hoya.com/wp-content/uploads/2022/06/Corporate-Governance-Guideline_EN_2022_6.pdf

1. The Compensation Committee, which consists only of Outside Directors, decides on a remuneration package for each Director or Executive Officer.

https://www.hoya.com/en/sustainability/governance/committee/

1. The Nomination Committee, which consists only of Outside Directors, selects candidates for Directors and Executive Officers.

https://www.hoya.com/en/sustainability/governance/committee/

1. The reasons for the Nomination Committee's selection of candidates for Directors and candidates for Executive Officers serving also as Directors are explained in reference documents for the notice of a general

meeting of shareholders.

https://www.hoya.com/wp-content/uploads/2023/05/85thAGMPBDD_E.pdf

[Supplementary Principle 3-1-3]

The Company recognizes that generating appropriate profits by effectively utilizing assets entrusted to the Company for corporate management, namely human resources and capital from shareholders, and providing products and services needed throughout the world, as well as working on social issues, such as reducing the environmental load and preventing human rights violations, including in the supply chain, in carrying out corporate activities are important for the continuation of business in the medium to long term, and carries out activities.

Furthermore, as a responsible member of society, HOYA is addressing climate-change issues in order to protect the global environment that will be passed on to the next generation. In October 2021, HOYA identified four ESG materialities, including Reducing Greenhouse Gases (GHG). In December 2021, HOYA announced its endorsement of the recommendations of the Climate-Related Financial Disclosure Task Force (TCFD). In the following year, 2022, HOYA began analyzing scenarios based on TCFD.

.

Human capital

https://www.hoya.com/en/sustainability/society/hrd/

Climate change

https://www.hoya.com/en/sustainability/environment/environment/

Announced agreement with proposals of the Task Force on Climate-related Financial Disclosures (TCFD)

https://www.hoya.com/wp-content/uploads/2021/11/00-48-1.pdf

TCFD Disclosure

https://www.hoya.com/wp-content/uploads/2023/04/TCFD-Disclosure-E_Final-1.pdf

[Supplementary Principle 4-1-1 Scope of delegation to management]

The Regulations of the Board of Directors stipulate that many responsibilities regarding the execution of business operations are transferred to Executive Officers. The Board of Directors discusses and makes decisions on important matters related to the direction of business management, the setting of goals and strategic direction and the rights of shareholders.

Regulation of the Board of Directors https://www.hoya.com/wp-content/uploads/2022/04/BOD_rule_E_en.pdf

[Supplementary Principle 4-2-2]

The HOYA Group's materiality, which was proposed by the executive team in September 2021, was approved by HOYA's Board of Directors. The Board of Directors established a Sustainability Policy in May 2022. The The Board of Directors will continue to monitor our sustainability efforts, including the development of more specific KPIs.

HOYA Group's Materiality https://www.hoya.com/en/sustainability/materiality/

Sustainability Policy

https://www.hoya.com/en/sustainability/philosophy/

Personnel policy, engagement surveys, training, etc. is reported to the Board of Directors in a timely manner.

As of 31 Mar. 2023, the Company holds 11 businesses with different qualities as its portfolio. The Board of Directors deliberated the changes to the portfolio with a view to the positioning and the future of each business at the meetings, and carried out monitoring.

The Board of Directors discusses and monitors investments in intellectual property based on reports on research and development in each business division, and in terms of technology and brand value when considering mergers and acquisitions.

[Principle 4-8 Effective Use of Independent Directors]

The Articles of Incorporate state that Outside Directors should account for equal to or more than 50% of the Board of Directors.

https://www.hoya.com/wp-content/uploads/2022/06/AOI_E_en_20220628.pdf

(As of June 26, 2023, there are five Outside Directors and two internal Directors.)

All five Outside Directors are members of all committees (nomination, compensation, audit), and candid opinions, proposals and questions are made not only at the Board of Directors, but at each committee as well.

https://www.hoya.com/wp-content/uploads/2022/06/Corporate-Governance-Guideline_EN_2022_6.pdf

(HOYA Corporate Governance Guidelines II-2V-1)

【Principle 4-9 Independence Standards and Qualification for Independent Directors】

HOYA has established Basis for Election of Candidates for Directors set forth by the Nomination Committee.

https://www.hoya.com/wp-content/uploads/2022/06/Corporate-Governance-Guideline_EN_2022_6.pdf(HOYA Corporate Governance Guidelines II-3 VII-3)

[Supplementary Principle 4-11-1 Composition of Board]

The Company is a company with Nomination Committees, etc., and five out of the seven members of the Board of Directors are Outside Directors. Accordingly, the Board of Directors of the Company acts as a monitoring board, and as their role is to supervise the executive side of the management, the Company believes that experience in corporate management and insight cultivated from that are important skills for Outside Directors. Furthermore, the Company anticipates advice and supervision from wide-ranging perspectives that are not limited to the industries from which they come. Within corporate management experience, the Company prioritizes insight in matters such as corporate management, global business, finance and accounting, IT and technology, M&A, sustainability and ESG and medical, which the Company deems important.

Skill matrix https://www.hoya.com/en/sustainability/governance/skill-matrix/

[Supplementary Principle 4-11-2 Directors' Concurrent positions held at Other Companies]

The Basis for the Selection of Directors do not limit the number of positions that can be served concurrently by an Outside Director. But a precondition for selection or reappointment is that the percentage of attendance in meetings of the Board of Directors should be at least 75%. As for positions served concurrently by a Director, please refer to reference documents for the notice of a general meeting of shareholders and "Outside Directors" in 1, II of this report.

Reference Material for the General Meeting of Shareholders https://www.hoya.com/wp-content/uploads/2023/05/85thAGMPBDD_E.pdf

[Supplementary Principle 4-11-3 Board Evaluation]

A third-party survey is conducted on the operation of the Board of Directors, the results of which are analyzed and self- evaluated by the Board of Directors, and necessary improvements are made.

A summary of the results of FY2022 evaluation is as follows:

The Board of Directors is highly regarded for its open and active discussions based on the common understanding that it is important to fulfill its function of monitoring and supervising execution. Regarding the issues identified as major challenges in the evaluation of the effectiveness of the Board of Directors in FY2021, steady progress has been made in strengthening internal controls and risk management. On the other hand, the Board of Directors recognizes the need to further deepen discussions on medium- to long-term strategy formulation and the CEO succession plan, which were also identified as issues to be addressed. It is also recognized that deeper discussion of risks related to sustainability issues is also necessary. The committees are evaluated as having adequate discussions with appropriate size and composition of members. At the same time, it is recognized that the Nominating Committee is expected to discuss the CEO's succession plan and the future composition of the Board of Directors, and for Compensation Committee, to discuss the criteria for evaluating Executive Officers' compensation is an issue for the future, and the Audit Committee needs to continue reviewing risks on a regular basis.

HOYA will secure sufficient time and information in advance to further discuss each issue, improve agenda setting and allocation of time for deliberation, and enhance communication among directors to promote responses to issues.

https://www.hoya.com/wp-content/uploads/2022/06/Corporate-Governance-Guideline_EN_2022_6.pdf

（HOYA Corporate Governance Guidelines V-3）

[Supplementary Principle 4-14-2 Training Policy]

New Outside Directors receive explanations regarding the company's business and structure before taking office and the Company subsequently continue to explain the company's business at the Board of Directors meetings, facilities tours, etc. to promote understanding of the company's business.

When there is a law revision, etc., lectures by lawyers, etc. are arranged during the Board of Directors meeting and HOYA strives to assist Directors to acquire knowledge required of Directors also through provision of publications and materials regarding governance and notifications of external workshops.

https://www.hoya.com/wp-content/uploads/2022/06/Corporate-Governance-Guideline_EN_2022_6.pdf(HOYA Corporate Governance Guidelines V-7)

[Principle 5-1 Policy for Constructive Dialogue with Shareholders]

HOYA shall promote various opportunities for holding dialogues with shareholders in order to comprehend the shareholders' mindset amid an ever-changing management environment.

https://www.hoya.com/wp-content/uploads/2022/06/Corporate-Governance-Guideline_EN_2022_6.pdf

(HOYA Corporate Governance Guidelines IV)

Regarding the dialogue with shareholders, the company's CEO, CFO and other Executive Officers also engage

in direct dialogue with shareholders within reasonable limits. Furthermore, with regard to the role as a monitoring board, the Lead Independent Director and Outside Directors carry out explanations to investors within a rational scope.

(HOYA Corporate Governance Guidelines IV-1)

Regarding investor relations, mainly the company's CEO, CFO and Executive Officers are involved in the decision- making of the system and policy. IR staff cooperates closely with the staff in corporate planning, general affairs and legal affairs. They cooperate with the financial division regarding account closing and have formed an organic collaboration.

(HOYA Corporate Governance Guidelines IV-2)

The company's CEO and CFO attend quarterly financial result briefings and explain the results. In addition, the company holds business briefing sessions and facility tours as a means to enhance shareholders' understanding of the company. IR staff reports the opinions of shareholders they obtain from meetings, publications, etc. to the Executive Officers as appropriate and to the Board of Directors on a regular basis.

(HOYA Corporate Governance Guidelines IV-3)

The company requires those who directly engage in dialogue with shareholders to concentrate on acquiring knowledge of insider trading restrictions.

The company carries out surveys regarding practical shareholders on a regular basis and utilizes the result for confirming the shareholder ownership structure and examining the relationship with shareholders.

[Actions to achieve cost of capital and stock price conscious management] [Disclosure in English]

HOYA has long been "shareholder-oriented" and focused on corporate value, taking into account the cost of capital. The emphasis is on maximizing the profit generated from the total assets held by the company.

In addition, the HOYA Corporate Governance Guidelines make it clear that the goal in establishing a management structure is to enhance corporate and shareholder value over the long term, and indicate that generating earnings in excess of the cost of capital is fundamental to respecting shareholder rights.

https://www.hoya.com/wp-content/uploads/2022/06/Corporate-Governance-Guideline_EN_2022_6.pdf

(HOYA Corporate Governance Guidelines II-2)

The Articles of Incorporation set forth that 50% or more of the Board of Directors consist of outside directors so that the executive officers consistently execute their duties with a sense of vigilance, which, in turn, will contribute to the long- term enhancement of corporate value and ultimately to the enhancement of shareholder value.

(HOYA Corporate Governance Guidelines III-2)

HOYA ensures the right of the shareholder to receive profit sharing by making it its fundamental duty to generate profits that exceed capital costs, while deliberating and presenting to the shareholders a policy on the distribution of profits, including the payout of dividends from surplus that strikes balances between maintaining financial stability and making investments for growth.

[Dialogue with Shareholders]

In fiscal year 2022, we conducted the following dialogues with shareholders.

Meetings with domestic and overseas institutional investors (investment management divisions) and analysts: Approx. 600 meetings (including approx. 30 meetings attended by CEO, CFO, and other executive officers)

Meetings with domestic and overseas institutional investors (Responsible Investment Division): Approx. 15 meetings (including 5 meetings attended by CEO, CFO, and other executive officers)

Financial results briefings: 4 times (Simultaneous interpretation in English has been introduced since FY2021 to encourage participation by overseas institutional investors.)

General shareholders' meeting: 1 time

By investment style: We are in dialogue with investors of various investment styles, including growth, value, and alternative. Of these, the largest number of meetings are with growth investors.

Dialogue content: We had active dialogue with Mr. Ikeda, who assumed the position of CEO in March 2022, regarding management policies, strategies for acquiring growth businesses, capital allocation including shareholder returns, and ESG strategies, etc. Many investors requested more information disclosure, including ESG-related information, and in response, we are working to enhance information disclosure.

2. Capital Structure

Percentage of Foreign Shareholders

Equal to or more than 30%

[Status of Major Shareholders]

Name / Company Name	Number of Shares Owned	Ratio of shares held to
	(100)	total number of shares
		issued (excluding
		treasury stock) (%)
The Master Trust Bank of Japan, Ltd. (Trust Account)	719,233	20.31
Custody Bank of Japan, Ltd. (Trust Account)	260,455	7.35
SSBTC Client Omnibus Account	109,951	3.10
State Street Bank West Client - Treaty 505234	66,484	1.87
Deutsche Bank Trust Company Americas	62,346	1.76
BNYM AS AGT/CLTS NON TREATY JASDEC	52,572	1.48
JP Morgan Chase Bank 385781	46,067	1.30
Motoko Yamanaka	43,000	1.21
Government of Norway	41,966	1.18
JP Morgan Chase Bank 385632	40,468	1.14

Controlling Shareholder (except for Parent

Company)

Parent Company

N/A

N/A

Supplementary Explanation

For a supplemental explanation, please see the Supplemental Explanation of Capital Structure at the end of this report.

3. Corporate Attributes

Listed Stock Market and Market Section	Tokyo Stock Exchange Prime Section
Fiscal Year-End	March
Type of Business	Precision Instruments
Number of Employees (consolidated) as of the	Equal to or more than 1000
End of the Previous Fiscal Year
Sales (consolidated) as of the End of the	From ¥100 billion to less than ¥1 trillion
Previous Fiscal Year
Number of Consolidated Subsidiaries as of the	From 100 to less than 300
End of the Previous Fiscal Year

4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder

N/A

5. Other Special Circumstances which may have Material Impact on Corporate Governance

N/A

1. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management

1. Organizational Composition and Operation

Organization Form	Company with three Committees
(Nomination, Audit and Compensation)