Kao : Corporate Governance Report updated on July 5, 2021

(Translation)

Kao Corporation

Corporate Governance

Last updated on July 5, 2021

Kao Corporation

Yoshihiro Hasebe, President and CEO

Contact: Legal, Legal & Compliance [phone] TSE Code: 4452

www.kao.com/global/en/

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

1. Basic Views

Our targets for 2030 is to make Kao a company with a global presence, valuable to society. In order to become an essential company in a sustainable world , Kao Corporation (hereinafter referred to as the "the Company") is significantly shifting its direction to ESG (environmental, social, and governance) management . While aiming to become a high-profit global company, the Company is also working toward raising the level of social contribution by capturing changes in business environments surrounding the Company and changes in stakeholders' values. In order to gain trust from society, which is indispensable for these corporate activities and business activities, the Company is constantly strengthening its corporate governance in both systems and operations. The Company views accomplishing its corporate governance as one of its most important management issues and the Company's basic stance on measures related to corporate governance is to set up and operate a management structure and an internal control system, timely implement necessary measures and achieve accountability so that the Company can swiftly respond to changes, realize efficient management that is sound, fair, and highly transparent, and continuously enhance corporate value. The Company has been actively engaging i n activities to listen to stakeholders' voices and based on input from stakeholders and social trends, it conducts reviews of its corporate governance and implements the necessary measures and improvements, as needed, in an appropriate manner.

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

The following information is based on the Japan's Corporate Governance Code prior to its revision in June 2021.

Ensure Adequate Coordination with External Accounting Auditor and Outside Directors (Principle 3.2.2 (iii))

The Company expects Audit & Supervisory Board Members, including Outside Audit & Supervisory Board Members, to fulfill the role of coordination with the external Accounting Auditor as contact points on the Company's side, and the external Accounting Auditor's views, issues and other matters are shared with Directors, including the Outside Directors, through the Audit & Supervisory Board Members. In the course of such information sharing, if Directors judge it necessary, they ensure efficiency and adequate c oordination by establishing opportunities for direct exchange of information with the external Accounting Auditor.

Regular Exchange of Information Solely among Independent Outside Directors (Principle 4.8.1)

To promote discussions from diverse perspective s, independent Outside Directors and Outside Audit & Supervisory Board Members hold meetings exclusively for independent outside members on their own initiative to exchange information and share awareness of issues related to the Company's management and the activities of the Board of Directors, development of future Senior Management, and other matters. Given the current situation of having good communications, a d hoc meetings among independent outside members are considered more appropriate for such communication than regular meetings scheduled by the Company. Also, a newly appointed member who attended the meeting expressed his view that he was reassured by the fact that outside members can make their proposals directly to the Company through frank exchanges of opinions undertaken at the meeting.

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

With the exception of Principles 4 .11 and 4.11.1, the following information is based on the Japan's Corporate Governance Code prior to its revision in June 2021.

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As used in these matters to be disclosed, the definitions of the following terms shall be as follows: "Management" means executive Directors and Executive Officers.

"Senior Management" means Executive Officers with titles.

1 Corporate Philosophy (Principle 3.1(i)) [Updated]

The "Kao Way" has been prescribed as a corporate philosophy which constitutes the foundation of the business activities of the Kao Group.

1. Mission

As one, we create a Kirei life for all - providing care and enrichment for the life of all people and the planet

As one Kao, we work together with passion to provide comprehensive care and enrichment to create a Kirei life - a cleaner, more beautiful, and healthier life for all people and the planet. Through innovation that provides excellent value, we share joy and create a safer, more harmonious world for all.

As The Japanese word kirei describes something that is clean, well -ordered, and beautiful all at once. For Kao, this concept of Kirei not only describes appearance but also attitude -a desire to create beauty for oneself, for other people, and for the natural world around us. At Kao , Kirei is the value we want to bring to everyday life through our brands, products, technologies, solutions, and services -now and in the future.one Kao, we work together with passion to provide comprehensive care and enrichment to create a Kirei life - a cleaner, more beautiful, and healthier life for all people and the planet. Through innovation that provides excellent value, we share joy and create a safer, more harmonious world for all.

1. Vision

To be closest to the individual and beyond their expectation

By deeply knowing and understanding our world and its people, we aim to improve people 's lives beyond their expectations for a future where humans and nature thrive together.

1. Values

1. Integrity as the only choice
2. Yoki-Monozukuriin plan & action
3. Innovation for today & tomorrow

1. Principles

1. We care for people & the planet
2. We think from the Genba
3. We trust, respect, and need each other
4. We act with courage

(For further details regarding "The Kao Way," please see www.kao.com/global/en/about/policies/kaoway/ )

2 Long-termBusiness Strategy (Principle 3.1(i)) Long-term Targets

Our targets for 2030 (K30) is to make Kao a company with a global presence, valuable to society.

K30 Objectives:

1)Become an essential company in a sustainable world

2)A high-profit global company that also significantly contributes to society 3)Returns to stakeholders according to levels of growth

K30 Financials (as a result):

Record-high sales and profit growth: Net sales 2.5 trillion yen / Operating income 400 billion yen

Dividend: 41 consecutive years

3 Mid-term Business Plan (Principle 3.1(i))

The Company has developed the Kao Group Mid-term Plan 2025 (K25), covering the five -year period from fiscal 2021 to 2025, for the realization of an enriched sustainable world.

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Thus far, the Kao Group has developed its business for nearly 130 years, mainly in the areas of cleanliness, beauty, and health, according to the changes of the times. Today, faced with compelling social issues such as the global pandemic and global environmental issues, the responsibilities and roles of companies are undergoing significant changes. For the future, the Kao Group will begin a new challenge with the aim of establishing an economy where all of the following are realized: the wholehearted satisfaction and enrichment of the lives of people globally and the sustainability of the world.

As part of this effort, we will aim to create a new business that is not an extension of a conventional business, but instead is in the new area of "Save lives, protect people". This challenge involves starting an "Another Kao" business that contributes to solving people 's urgent problems by making the most of our core technology that we have not to date been able to use fully.

By contributing to an "enriched sustainable world" and growing the businesses of the company through proactive engagement in ESG activities and investment, the Kao Group will aim to be an essential company in a future world.

Outline of Kao Group Mid -term Plan K25

• Vision

Sustainability as the only path

• Concept

Kirei-Making Life Beautiful

• Policy of the K25

Objective (1) Become an essential company in a sustainable world Goal

Take leadership in a self -propelling sustainable society (ESG Investment = Reflection of future earnings)

Key Results

• Carbon recycling (Conversion of carbon dioxide into raw materials)
• Positive recycling (Creation of new business through re-use)
• Stop pandemic (Eradicate the source of infectious diseases)

Objective (2) Transform to build robust business through investment Goal

Create another Kao and reinforce current Kao (Expand global business by focusing on saving lives)

Key Results

• New Business: Launch digital and precision healthcare business (high -precision bioanalysis and homeostasis enhancement solution)
• Current Business: Invest in outstanding products development and expand business
• Cosmetics Business, Sanitary Business: Pursue next innovation

Objective (3) Maximize the power and potential of employees Goal

Double the productivity of our business activities (Make challenges visible and pursue open innovation)

Key Results

• Fair compensation according to challenge an d contribution (implementation of OKR* globally)
• Active promotion of talent from outside Kao and doubling the results of collaboration
• Reform to become "digital Kao" to be completed by 2023

* Objectives and Key Results: New employee empowerment system to be launched in January 2021

(For further details regarding K25, please see

https://www.kao.com/content/dam/sites/kao/www -kao-com/global/en/investor- relations/pdf/presentations_fy2020_k25_01.pdf)

4 Basic Position and Policy on Corporate Governance (Principle 3.1(ii), Principle 4.9)

(1) Basic Position on Corporate Governance

As described above "Basic Views" of "I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information ".

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(2) Roles and Duties of the Board of Directors, etc. (Effective Utilization of the Diversity of Directors, Audit & Supervisory Board Members and Executive Officers)

In order to properly carry out the formulation of the business strategies including the improvement of profitability and capital efficiency, their execution, and the supervision and audit of execution, it is extremely important to place persons with the diverse experience and knowledge, high level of expertise and insight necessary for these purposes in a well -balanced fashion as the Directors and Audit & Supervisory Board Members who attend the Board of Directors meetings and as the Management that lead execution. By doing so, the Company believes it can raise the level of management by enabling each to properly fulfill their respective roles and duties as follows:

1. The members of Management, who have diverse experience and knowledge regarding the operation of each of the Kao Group 's businesses and divisions, conduct discussions based on the ir understanding of the business environment in which the Company operates and the strengths and issues of the Kao Group to create proposals for the business strategies. In the event that consideration from more diverse perspectives, including evaluation o f risks, is appropriate when planning and otherwise dealing with business strategies, the members of Management strive to utilize external experts.
2. Inside Directors and Full -time Audit & Supervisory Board Members who are familiar with the status of the Kao Group's management and businesses, its strengths and issues, and other matters, and Outside Directors and Outside Audit & Supervisory Board Members with diverse experience and knowledge of business and other areas, a high level of expertise and insight , and a neutral, objective perspective deliberate from their diverse perspectives, including evaluating risks, at Board of Directors meetings and make decisions on proposed business strategies submitted by the Management.
3. The members of Management quick ly and properly execute the business strategies utilizing their respective diverse experience and knowledge.
4. Each year, the members of Management ascertain changes in the business environment that forms the premises of the business strategies, consider the status of progress of the strategies, issues in their achievement and response to such issues, the necessity of changes to the strategies and other matters and report to the Board of Directors.
5. In response to the above report from the members of Management, the Outside Directors and Outside Audit & Supervisory Board Members through their diverse perspectives supervise and audit whether the business strategies and other matters have been executed properly and makes decisions on the necessity of changing the business strategies and other matters at the Board of Directors meetings.

1. Effective Utilization of Independent Directors and Audit & Supervisory Board Members, etc. (Principle 4.10.1)

The Company uses a structure with the appropriate number of independent Outside Directors and Outside Audit & Supervisory Board Members who satisfy the "Standards for Independence of Outside Directors/Corporate Auditors of Kao Corporation " (hereafter, the "Standards for Independence") to provide a check on the status of deliberations of the Board of Directors from an objective perspective independent of the Company's Management so that the Company's management judgment is not biased toward the logic of persons inside the Company.

To conduct examinations from an objective perspective independent from the Management, the Committee for the Examination of Nominees for Directors and Audit & Supervisory Board Members, which examines appropriateness of candidates (including election or re -election) for Director (including Representative Directors, Chair and President & CEO) and Audit & Supervisory Board Member and the Compensation Advisory Committee, which examines the compensation system and remuneration levels of Directors and Executive Officers, both include all independent Directors and independent Audit & Supervisory Board Members, Outside Directors and Outside Audit & Supervisory Board Members (hereafter, the "Independent Directors and Audit & Supervisory Board Members, etc. ").

(For further details regarding the Standards for Independence, please see

www.kao.com/content/dam/sites/kao/www -kao-com/global/en/about/pdf/governance_002.pdf)

(For information concerning appointment of Independent Director s and Audit & Supervisory Board Members, etc., please see "Outside Directors' Relationship with the Company (2)" in "Directors" below, as well as "Outside Audit & Supervisory Board Members ' Relationship with the Company (2)" in "Audit & Supervisory Board Members" below.)

(4) Non-executive Director as Chairperson of the Board of Directors (Principle 4.6)

To more thoroughly separate execution and supervision, the Company uses a structure in which a non-executive Director serves as Chairperson of the Board o f Directors.

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(5) Company with an Audit & Supervisory Board

The Company has chosen to be a company with an Audit & Supervisory Board for the following reasons.

1. In addition to Outside Directors that include people with management experience, Outside Audi t & Supervisory Board Members that include lawyers, certified public accountants and people with academic experience further increase the diversity of the Board of Directors by expressing opinions with a high level of expertise and insight and are useful f or proper deliberation and supervision and audit of execution.
   (For the Company's stance on nomination of Outside Directors and Outside Audit & Supervisory Board Members, please see "7. Stance on Balance among Knowledge, Experience and Skills, and on Diversity and Size of the Board of Directors" below.)
2. Unlike in companies with a nominating committee and other committees or an audit committee, Audit & Supervisory Board Members with an independent perspective who do not concurrently serve as Directors enable objective audits of the execution of duties because they do not have the right to vote* at Board of Directors meetings. In particular, independent Outside Audit & Supervisory Board Members enable audits from a perspective that is more independent from the Management.
3. Ability of Full-time Audit & Supervisory Board Members to Collect Necessary Information for Audits
   The Company ensures cooperation on information collected by the Audit & Supervisory Board Members so that it is reported to the Outside Directors as necessary, in addition to audit reports to the Board of Directors.

• Audit & Supervisory Board Members do not have the right to vote, however the Companies Act guarantees their attendance at Board of Directors meetings and certain resolutions require their approval. Further, Audit & Supervisory Board Members are legally guaranteed the right to provide their opinion in their Audit Report and/or at the Annual General Meeting of Shareholders .

(6) Promoting Communications with Shareholders

In order to enhance its corporate value, the Company considers it important to communicate with shareholders and other stakeholders, thereby having better understanding of mutual views and positions, and taking appropriate measures based on the same. The C ompany has developed a structure to promote constructive communications with shareholders, and create opportunities to communicate with institutional investors and individual shareholders. In communication with shareholders, the members of Management participate to the extent possible in order to reflect the opinions of the shareholders in management properly. Also, the Company communicates with shareholders through its various publications, which communication includes messages not only from the CEO and other members of Management, but also from the Outside Directors, in their words. Pertaining to information of the Kao Group which is the basis for communication with stakeholders, the Company established Disclosure Guidelines that took into account fair disclosure, and is committed to timely, accurate and fair disclosure of information and proactively discloses information of social relevance as well as information which it is obligated to release publicly.

(For further details regarding IR Related Activities, etc., please see "14. Policy Concerning Measures and Organizational Structures to Promote Constructive Dialogue with Shareholders " and "2. IR Activities" in "III Implementation of Measures for Shareholders and Other Stakeholders " below.)

(For further details regarding Disclosure Guidelines, please see www.kao.com/global/en/investor- relations/management -information/disclosure/)

(7) Basic Strategy for Capital Policy

The Company's capital policy follows a basic strategy of securing a sound financial structure to make investments for sustainable growth and tolerate the related risks, and to make stable, continuous returns to shareholders. To realize this policy, the Company uses Economic Value Added (hereinafter "EVA**"), a management indicator that takes capital cost into account, as its main indicator and works to enhance its corporate value by improving EVA. Guided by EVA management which places importance on both continuous enhancements in corporate value and long-term profits for all stakeholders, the Company develops its business strategy and business plan.

The Company manages all equity and interest -bearing liabilities as subject of capital cost and intends to optimize capital cost from the viewpoint of safety and capital efficiency. For equity, the

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