Morinaga Milk Industry : Corporate Governance Report

Corporate Governance Report

Last Update: November 18, 2021

Morinaga Milk Industry Co., Ltd.

Yohichi Ohnuki, President & Representative Director

Contact: Taku Yamada

General Manager, IR&PR Dept.

Sustainability Division

TEL: [phone]

Securities code: 2264

URL:https://www.morinagamilk.co.jp/

The Company's corporate governance is explained below.

I. Basic approach to corporate governance, capital structure, corporate attributes, and other information

1. Basic Approach

The Group has the following Corporate Slogan and Corporate Philosophy as Corporate Mission.

Corporate Slogan: For Ever Brighter Smiles

Corporate Philosophy: Contribute to healthy and enjoyable lifestyles through offering unique products derived from advanced milk technology

The Group shall contribute to society through its business activities, based on its Corporate Mission, and shall continually work to develop and enhance a highly effective corporate governance system to achieve sustainable growth and increase corporate value, with the following basic policies.

1. Respect shareholders' rights, and ensure equal treatment.
2. Respect the perspectives and rights of various stakeholders including our shareholders, customers, business partners, local communities, employees, and build proper relationships with them.
3. Disclose corporate information appropriately, and ensure transparency.
4. Build a structure in which each of the bodies comprising the corporate governance system organically collaborates, and ensure the effectiveness of functions supervising the execution of operations by the Board of Directors.
5. Aim to achieve sustainable growth and improve corporate value, and have constructive dialogue with shareholders who expect these aims and medium- to long-term profits to be realized.
6. It should be noted that the Company has prescribed the basic Group's corporate governance approach in the form of the Morinaga Milk Group: Corporate Governance Guidelines, which have been published on the Company's website at

the URL below. https://www.morinagamilk.co.jp/english/ir/management/governance.html

[Reasons for not implementing the respective principles of the Corporate Governance Code] (Updated)The Company implements all the principles of the Corporate Governance Code.

For all the principles, information contained herein is based on the Corporate Governance Code revised in June 2021.

[Disclosures based on the various corporate governance code principles] (Updated)(Principle 1-4- Cross-shareholdings)

The Company holds cross-shareholdings only in cases where it deems that doing so will help increase the corporate value of the Company over the medium to long term, only after, however, thoroughly considering the economic rationale and the necessity for business operations.

Each year, the Board of Directors shall examine the significance of having individual cross-shareholdings based on the preceding paragraph, and the Company sells shares that are of little significance in terms of the effect they have on the market.

As a result of this review, the Company sold part of its shareholdings in the fiscal year ended in March 2021

In carrying out this review, the Company evaluates the investment losses/gains for each issue based on certain standards, taking into account the trade's profits, dividend yields, the risk of changes in the market price and capital costs. In addition,

the Company considers the economic merits and need of retaining the shares, and makes a decision on whether to continue holding the shares.

The Company appropriately exercises its voting rights for cross-shareholdings after carefully examining whether the

content of each proposal is likely to damage the Company's corporate value and whether it can be expected to prove useful for the sound management of the issuing company and increase its corporate value.

(Principle 1-7 - Related party transactions)

All significant or irregular transactions with officers or major shareholders must be approved by the Board of Directors to ensure the common interests of the Company and shareholders are not harmed.

(Supplementary Principle - 2-4-1 Diversity of human resources)

1. Approach to ensure diversity
   A corporate culture in which diverse individuals can realize their potential is essential to continuing corporate growth in a changing external environment. The Group aims to foster such a corporate culture by promoting diversity and inclusion.
2. Status in ensuring diversity (achievements specifically of Morinaga Milk Industry Co., Ltd.)
3. • Women in management: 47 (as of April 1, 2021)
   • Mid-careerhires: 33 (results for the fiscal year ended March 31, 2021)
4. Voluntary and measurable goals for ensuring diversity
5. • Targeting 80 women in management by 2026
   • With respect to mid-career hires and foreign national employees, recruitment and promotion to managerial positions will be pursued in line with the Group's business strategies.
6. Approach to human resources development and internal environmental development to ensure diversity, and status of

implementation-

The Group believes it is important not only to recognize diversity, but also to encourage all employees to fully realize their own individuality and abilities while accepting each other's differences, and to promote corporate activities. To this end, Morinaga Milk has published its Diversity and Inclusion Declaration and implements a variety of company-wide measures.

[Morinaga Milk Diversity and Inclusion Declaration] Management and employees will:

• Respect the diversity of employees and work to create a workplace in which all employees can maximize their potential.
• Support employees "smiles" and "vibrancy," both at and away from work.
• Continue to express Morinaga Milk's characteristic values to society through our employees' smiles and vibrant work ethic.

Further information is provided on the Company's website at the URL below. Website: https://www.morinagamilk.co.jp/english/csr/humanrights/ Integrated Report: https://ssl4.eir-parts.net/doc/2264/ir_material5/171135/00.pdf

Sustainability Data Book: https://www.morinagamilk.co.jp/english/csr/pdf/2021/morinaga2021e.pdf

(Principle 2-6 - Function as a Corporate Pension Asset Owner)

The Company has established an Asset Management Committee comprising directors responsible for financial matters and directors responsible for human resources, etc. and shall work to conduct periodic monitoring of asset management in order to invest appropriately in Defined Benefit Corporate Pension Plans. The Company shall allocate personnel with the necessary experience and temperament to responsible departments and strive to develop such personnel.

(Principle 3-1 - Enhancement of information disclosure)

1. Corporate Mission and management plan

The Group's Corporate Mission is as stated in 1. Basic Approach of this Report.

Further information on the management plan is provided on the Company's website at the URL below. https//www.morinagamilk.co.jp/english/ir/management/plan/

1. Basic approaches and policies in relation to corporate governance

The Group's basic concepts and policies on corporate governance are as stated in 1. Basic Concepts of this Report.

1. Policies and procedures for the determination of management executives and director remuneration by the Board of Directors

Remuneration for executive directors is linked to management performance, such as the realization of medium to long term profit. In the future, the policy will be made into one which can provide the executive directors with further motivation for maximizing the corporate value of the Company. In addition, the remuneration of independent outside directors shall not include stock related remuneration or other business performance linked elements.

In regard to the procedures for determining director remuneration, the Personnel Remuneration Committee conducts a review and provides its opinions, following which the Representative Director determines the amount of monetary remuneration for each director, and the Board of Directors determines the amount of stock remuneration for each director.

The amount of monetary remuneration for each director is determined by the Personnel Remuneration Committee, and the amount of stock remuneration for each director is determined by the Board of Directors following a fair review by and opinions from the Personnel Remuneration Committee.

1. Policies and procedures for when the Board of Directors appoints and dismiss management executives and nominates candidate directors, as well as Audit & Supervisory Board members

The Company selects persons of excellent character and insight who have the professional expertise, extensive business and management experience necessary to maintain the Company's sustainable growth, without regard to gender or nationality, as officer candidates.

Candidates for Director positions are determined by the Board of Directors after an examination and report by the Personnel Remuneration Committee.

Candidates to become Audit & Supervisory Board members (including deputy Audit & Supervisory Board members) are determined by the Board of Directors after an examination and report by the Personnel Remuneration Committee and the approval of the Audit & Supervisory Board.

If there is suspicion of negligence, improper conduct, or serious breach of the law or the Articles of Incorporation in relation to the fulfillment of the duties of officers, or if it becomes difficult for an officer to continue to fulfil duties for health reasons, the content of proposals concerning dismissal of the relevant officer for submission to the General Meeting of Shareholders and whether or not to dismiss the relevant officer from their position as a Representative Director or Executive Director shall be determined by the Board of Directors, following a review by and report from the Personnel Remuneration Committee.

1. Description of each appointed or nominated director and corporate auditor

1.Michio Miyahara（Chairman and Representative Director）

Aside from holding posts in the manufacturing and sales divisions of the Company, Mr. Michio Miyahara has served as an executive in related organizations, and possesses specialized knowledge regarding the dairy industry. Additionally, from 2007 onward, he has undertaken important duties as Senior Managing Director and Director, Executive Vice President, Vice President and Representative Director, and since 2012, he has managed the Group as Representative Director and President. By utilizing this knowledge and experience, the Company expects that he can contribute to further growth and improvement in Group corporate value, and so he was reappointed as Director at the 98th annual general meeting of shareholders held in 2021. Further, as Chairman and Representative Director, he will continuously be involved in Group management.

2.Yohichi Ohnuki（President and Representative Director）

Mr. Yohichi Ohnuki has held posts in the sales and administration division of the Company and possesses specialized knowledge regarding the dairy industry. Additionally, from 2011 onward, he has undertaken important duties as Managing Officer, and from 2015, he has been involved in management as Director, Managing Director and Senior Managing Director. By utilizing this knowledge and experience, the Company expects that he can contribute to further growth and improvement in Group corporate value, and so he was reappointed as Director at the 98th annual general meeting of shareholders held in 2021.Further, as President and Representative Director, he will be involved in Group management.

3.Teiichiro Okawa（Executive Vice President and Representative Director）

Aside from holding posts in the R&D division of the Company and involving in overseas business over many years, Mr. Teiichiro Okawa has served as an executive in related organizations in Japan and overseas and possesses specialized knowledge regarding the dairy industry and a wealth of experience both in Japan and overseas.

Additionally, from 2015 onward, he has experienced important duties as Managing Director and Senior Managing Director, and from 2020, he has managed the Group as Representative Director and Executive Vice President. By utilizing this knowledge and experience, the Company expects that he can contribute to further growth and improvement in Group corporate value, and so he was reappointed as Director at the 98th annual general meeting of

shareholders held in 2021.

4.Tsuyoshi Minato（Managing Director and Executive Managing Officer, General Manager of Special Affairs Division） Aside from holding posts in the administration division of the Company, Mr. Tsuyoshi Minato has served as an executive in related organizations, and possesses specialized knowledge regarding the dairy industry. Additionally, from 2010 onward, he has undertaken important duties as Managing Officer, and from 2015, he has been involved in management as Director and Managing Director. By utilizing this knowledge and experience, the Company expects that he can contribute to further growth and improvement in Group corporate value, and so he was reappointed as Director at the 98th annual general meeting of shareholders held in 2021.

5.Yasuhiko Yanagida（Managing Director and Executive Managing Officer General Manager of Manufacturing Division）

Mr. Yasuhiko Yanagida has held posts in the manufacturing division of the Company and possesses specialized knowledge regarding the dairy industry. He has played an important role as Managing Officer since 2015. By utilizing this knowledge and experience, the Company expects that he can contribute to further growth and improvement in Group corporate value, and so he was appointed as Director at the 98th annual general meeting of shareholders held in 2021.

6. Hitoshi Hyodo（Managing Director and Executive Managing Officer General Manager of Sales and Marketing Division）

Mr. Hitoshi Hyodo has held posts in the sales division of the Company and possesses specialized knowledge regarding the dairy industry. He has played an important role as Managing Officer since 2018. By utilizing this knowledge and experience, the Company expects that he can contribute to further growth and improvement in Group corporate value, and so he was appointed as Director at the 98th annual general meeting of shareholders held in 2021.

7.Shoji Kawakami（Independent External Director）

Mr. Shoji Kawakami possesses a wealth of experience, having served as General Manager of an Affiliated Business Department, in the Accounting Division of Toyota Motor Corporation. He has had a managerial role at AISAN INDUSTRY CO., LTD. He was also involved in an overseas business at Kuozui Motors, Ltd., and contributed to the management of the Group as an External Director from 2015.The Company expects that management will continue to receive advice and recommendations from his wide insights as well as effective supervision from an objective position that is independent from business execution, and so he was reappointed as Director at the 98th annual general meeting of shareholders held in 2021. The Company registered him with the Tokyo Stock Exchange as an independent director.

8.Takatomo Yoneda（Independent External Director）

Mr. Takatomo Yoneda was engaged in international operations for many years at the Industrial Bank of Japan, Limited, and also served at Nidec Group where he held such positions as the chief executive of Nidec Copal Corporation, and through which he has acquired high-level insight into corporate management and broad experience both in Japan and overseas. From 2015, Mr. Yoneda served as an External Audit & Supervisory Board Member」and contributed to the management of the Group as an External Director from 2019. The Company expects that management will continue to receive advice and recommendations from his wide insights as well as effective supervision from an objective position that is independent from business execution, and so he was reappointed as Director at the 98th annual general meeting of shareholders held in 2021.The Company registered him with the Tokyo Stock Exchange as an independent director.

9. Yukari Tominaga (Independent External Director)

Ms.Yukari Tominaga possesses extensive insight into corporate management and a wealth of experience, having served in key positions in various business fields at Hitachi Solutions, Ltd., where she served as Chief Diversity Officer, and she has contributed to the management of the Group as an External Director from 2020. The Company expects that management will continue to receive advice and recommendations from her wide insights as well as effective supervision from an objective position that is independent from business execution, and so she was reappointed as Director at the 98th annual general meeting of shareholders held in 2021. The Company registered her with the Tokyo Stock Exchange as an independent director.

10. Keiki Hirota（Full-time Audit & Supervisory Board Member）

Mr. Keiki Hirota has held posts in the sales division of the Company and possesses specialized knowledge regarding the dairy industry. Additionally, from 2005 onward, he has undertaken important duties as Managing Officer and has been involved in the management of affiliated companies as representative. The Company expects that he will perform effective audits by utilizing high level of information gathering skills thanks to his knowledge and his personal connections and so appointed him as corporate auditor at the 95th annual general meeting of shareholders held in 2018.

11. Mitsumasa Saito (Full-time Audit & Supervisory Board Member)

Mr. Mitsumasa Saito possesses specialized knowledge regarding the dairy industry and, since 2016, has been involved in management of the Company as Director. He possesses capabilities, knowledge, experience and personal connections that will enable him to perform accurate and fair audits of execution of duties. The Company therefore judged that he is suitable as a member of the Audit & Supervisory Board and appointed him to the position at the 97th annual general meeting of shareholders held in 2020.

12.Masahiko Ikaga（Independent External Audit & Supervisory Board Member）

Mr. Masahiko Ikaga has financial and accounting knowledge as a certified public accountant, and a wealth of experience and extensive insight as a corporate manager. He has been providing effective advice concerning management of the Company as an External Audit & Supervisory Board Member of the Company since 2016. In order for the Company to continue to benefit from his auditing of the Company from an objective and expert viewpoint, he was reappointed as Audit & Supervisory Board Member at the 97th annual general meeting of shareholders held in 2020. The Company registered him with the Tokyo Stock Exchange as an independent director.

13. Mayumi Yamamoto (Independent External Audit & Supervisory Board Member)

Although Ms. Mayumi Yamamoto has no experience of direct involvement in corporate management, she possesses a high level of expertise as an attorney at law and has extensive experience in commercial matters. The Company expects that she will perform audits of the Company's management from an objective and expert viewpoint, and so appointed her as an external Audit & Supervisory Board member at the 96th annual general meeting of shareholders held in 2019. The Company registered her with the Tokyo Stock Exchange as an independent director.

(Supplementary Principle - 3-1-3 Efforts in sustainability)

1. Efforts in sustainability
   In 2019, the Group created its 10-year Vision, outlining a plan for the next decade under which the Group aims to become "a company that balances delicious and pleasurable food with health and nutrition," "a global company that exerts a unique presence worldwide," and "a company that persistently helps make social sustainability a reality."
   Based on this concept, the Group has established seven priority issues and set KPIs for each under its basic policy of
   "performing business with an ESG focus aligned with our Corporate Philosophy," which is one of the three core policies outlined in the Medium-Term Business Plan that runs until the fiscal year ending March 31, 2022, to solve social issues through its products, services and activities with the aim of realizing sustainable growth with society. By addressing these seven priority issues, the Group will contribute to the creation of a society in which people can enjoy happiness and fulfillment.
   Information on the Group's efforts in sustainability (including investments in human capital and intellectual property) is provided on the Company's website at the URL below.
   Website: https://www.morinagamilk.co.jp/english/csr/establish/
   Integrated Report: https://ssl4.eir-parts.net/doc/2264/ir_material5/171135/00.pdf
   Sustainability Data Book: https://www.morinagamilk.co.jp/english/csr/pdf/2021/morinaga2021e.pdf
2. Efforts in climate change
   The Group is committed to making efforts to address the climate change issues. In 2020, as a preliminary step toward information disclosure aligned to TFCD, the Group set up a TCFD Working Group under the CSR Committee, and conducted a business risk scenario analysis to evaluate the impact of climate change on business activities. This exercise has made clear the serious impact that climate change risks have on business activities. In March 2021, the Group expressed its support for TCFD and in April 2021, a report was presented to the CSR Committee. Subsequently, in October 2021, following deliberation by the Sustainability Committee (formerly the CSR Committee, renamed in June 2021), the TCFD Working Group was upgraded to the Climate Change Action Subcommittee for enhanced corporate governance structure.
   The Climate Change Measures Subcommittee is a body whose membership has been revised to comprise general manager level officers of Morinaga Milk Head Office, tasked to making proposals to the management team on climate change strategy as an element closely linked with the Company-wide business strategy, for the Subcommittee members to take up in their respective divisions to be firmly reflected on the divisions' strategy. The Subcommittee members, who also serve as work-site promotion representatives in the ISO14001-based activities of Morinaga Milk Head Office, set environmental action targets for their respective divisions with due consideration given to Group-wide strategy to address climate change issues as well as risk management. To ensure progress in achieving each division's action targets, measures are taken to improve the quality of such actions by implementing the PDCA cycle of ISO 14001 environmental management system.