Corporate Governance Report [Last Updated: August 25, 2022]（323.9KB）

Notice: This document is a translation of the original Japanese document and is only for reference purposes. In the event of any discrepancy between this translated document and the original Japanese document, the latter shall prevail.

Corporate Governance

Last Updated: August 25, 2022

SAKATA SEED CORPORATION

Hiroshi Sakata, President and Representative Director Contact: Kazuo Kuroiwa Director, Managing Executive Officer Securities Code: 1377 https://corporate.sakataseed.co.jp/

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

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

1. Basic Views [Updated]

The Company's governing ideal is to contribute to development in agriculture, horticulture and related businesses while complying with the corporate ethics, based on the spirits of "Quality," "Reliability," and "Service," which are the motto of the Company.

Based on this ideal, we promote the management with the aim of achieving the following by providing high- quality products and services:

1. Contribute to improving the lives and cultural conditions of people around the world
2. Become the world's leading seed company

■Securing the rights and equal treatment of shareholders

The Group strives to provide information to all stakeholders according to the basic policy of rapidness, accuracy, fairness and continuity in compliance with the related laws and regulations, including the Financial Instruments and Exchange Act, and the rules on timely disclosure, etc. prescribed by the Tokyo Stock Exchange (hereinafter, "the Timely Disclosure Rules"). Also, our policy is to disclose other information which does not fall under the scope of the Timely Disclosure Rules in a rapid, accurate and fair manner by an appropriate method based on the purpose of timely disclosure.

■Appropriate cooperation with stakeholders other than shareholders

We recognize that we should endeavor to appropriately cooperate with a range of stakeholders in order to achieve sustainable growth and create medium- to long-term corporate value.

The Company's governing ideal is to contribute to development in agriculture, horticulture and related businesses while complying with the corporate ethics, based on the spirits of "Quality," "Reliability," and "Service," which are the motto of the Company.

In addition, we are confident that our motto, management philosophy and other important beliefs are alive as the code of conduct in each employee because those beliefs are conveyed to and shared with employees in every scene, such as the ceremony of the Company's anniversary of the foundation, which is held every year.

■Ensuring appropriate information disclosure and transparency

We recognize that information disclosure is an important management priority and it is essential to appropriately disclose information in order to obtain our stakeholders' understanding. In order to assure such recognition, information deemed to be important for shareholders and other stakeholders (including non-financial information) is voluntarily disclosed, in addition to disclosure required by laws and regulations. Also, we actively disclose additional information on our website to deepen the understanding on the Company.

■Responsibilities of the Board of Directors

The Company's Board of Directors has set the direction of corporate strategy. We have established an environment where appropriate risk-taking by the senior management is supported by formulating the Board of Directors Rules, Job Assignment Regulations, Authority Regulations, and other related regulations and clarifying

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the duties and responsibilities of the Directors and each senior managerial position. We have also built a highly effective supervisory system for Directors by appointing outside Directors, and a highly independent audit system for Directors' execution of duties by appointing outside Audit & Supervisory Board Members.

■Dialogue with shareholders

In order to achieve sustainable growth and increase corporate value over the medium to long term, we recognize that it is important to engage in active dialogue with shareholders on a daily basis, reflect their opinions and requests in the management, and nurture the Company together with shareholders.

We create opportunities to engage in dialogue with shareholders and investors, and actively respond to interviews from shareholders and investors, in order to gain their understanding of the Company's business strategies and management plans, on the initiative of the Director, Managing Executive Officer in charge of the Corporate Communication Department, in cooperation with the manager, etc. in charge of IR in each department.

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

[Principle 3.1.3] Disclosure of Sustainability Initiatives in the Disclosure of Business Strategies, Etc. Disclosure Related to Climate Change in the TCFD Framework, Etc.

The Company has been contributing to society through its seeds, holding up Quality, Reliability, and Service as the Company motto, under the management philosophy of Mutual Prosperity and Mutual Interest. The Company formulates and implements a long-term management plan, and in August 2022 it has established a basic sustainability policy, while also adding Mutual Harmony to its management philosophy, which is based on the principle of aiming for continuous coexistence between nature on earth, the society which nature surrounds, and companies that belong to society. Going forward, the Company will continue to invest in human resources and intellectual property to realize its goals of resolving sustainability issues in its businesses.

Regarding human resources, the Company builds an education system in line with its human resource philosophy and human resource policy, in order to create an environment that allows its employees to enhance their abilities and capacity, and to display their strengths. The Company considers that human resource training is one of its most important tasks as it is necessary for the Company's internationalization as it carries out global business development.

Specifically, the Company carries out correspondence education for the acquisition of business knowledge, stratified training according to each grade of qualification, from newly-hired employees to managerial-level positions, purpose-specific training matching each functions and objective, and language education consisting of an extensive curriculum, etc. The Company also holds training in which employees are dispatched to overseas companies so that they can gain experience on actual work (global human resource training programs), aiming to train human resources and have them acquire skills so that they can lead the Company in its global business development, such as: communication skills to build human relationships with people from all around the world, understanding differences in lifestyles and culture, being able to look at things from a managerial perspective, ability to convey the common philosophy and values of the Company's employees. The Company will continue to work on international human resource training, with the aim of consolidating its position as a leading company around the world.

Regarding intellectual property, the Company carries out optimal protection of intellectual property either by securing intellectual property rights such as patent rights and breeder's rights under the appropriate governance system and governing regulations with regard to inventions and new varieties of seeds obtained through business activities, and through breeding and research, or by concealing such inventions and new varieties of seeds as trade secrets. The Company also actively utilizes intellectual property under appropriate utilization regulations. In other words, the Company makes efforts to maximize the value of the Group's intellectual property by protecting, while also utilizing its intellectual property.

The Company, breeds varieties of vegetables and flowers, which are its main products, and caries out research and development, for markets all around the world, at 5 R&D centers in Japan and 14 centers in North America, Europe and South America. With R&D expenses reaching over 10% of its net sales, the Company has established itself as a seed breeding and research company and has become a source of high-quality intellectual property.

(R&D expenses, etc.) *Consolidated total at the time of the Company's settlement period (consolidated) FY2021: ¥8,132 million

・No. of patent rights held*: Japan 26 (10), overseas 346 (109)

・No. of trademark rights held*: Japan 328 (14), overseas 358 (43)

・No. of breeder's rights held*: Japan 227 (60), overseas 824 (213)

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*The number of rights held includes registered rights as well as rights applied for. Numbers between parentheses represent rights applied for.

Information on R&D and awards won by the Company's products is disclosed on the Company's website. ・https://corporate.sakataseed.co.jp/innovation/research.html

・https://corporate.sakataseed.co.jp/innovation/award/index.html

In order to promote initiatives for "Sustainable Development Goals: SDGs," which were adopted in September 2015 at the "United Nations Sustainable Development Summit" and "Japan's 2050 Carbon Neutral Goal," which was declared in October 2020 by the Prime Minister of Japan, the Company has determined its basic sustainability policy in August 2022 and has disclosed it on its website.

・https://corporate.sakataseed.co.jp/sustainability/policy/basic-policy.html

In terms of our TCFD response, as a seed business, the Company recognizes that climate change may have a large impact on our own operations. Because we breed varieties that are suitable for diverse environments, climate change presents an earnings opportunity for the Company. However, because the production of our seed products is strongly impacted by climate change, we recognize climate change as a risk in stable product supply. Regarding the latter issue, we are dispersing the risk factors by carrying out production in multiple locations, etc.

In addition, we recognize that policies on energy use in the value chain and on direct and indirect greenhouse gas emissions, as well as the clarification of reduction targets and evaluation indicators, are important issues that must be evaluated within the Company.

Taking into such circumstances, we carry out proactive surveys and evaluations regarding TCFD, and we strive to disclose information that is specific and easy to grasp.

[Principle 5.2] Establishing and Disclosing Business Strategies and Management Plans

We have formulated a long-term management plan, and set milestones mid-term in order to achieve the plan. We make the best possible efforts to achieve goals while reviewing the business plan in a timely manner by analyzing causes and taking appropriate measures. We also formulate a business plan for individual investment projects, and determine our actions by examining the effectiveness of investment on a quantitative basis.

However, due to the fact that financial results may depend on unpredictable changes of the weather and the fact that our business involves by nature long periods for R&D, the Company's policy is not to announce figures for medium- to long-term management plans, and instead announce plans for each year and achieve steady results. Although we have a grasp of capital costs, using the opinion of external organizations as reference and based on certain assumptions, we have not yet directly connected such costs to any specific target value of a management index at this point in time. However, we are deliberating within the Company on what a suitable distribution of management resources should look like from the perspective of our business portfolio, and we will carry out even deeper evaluations going forward, in order to formulate management plans and make investment decisions based on appropriate capital costs.

[Principle 5.2.1] Provision of the Basic Policy and Revision Status of Business Portfolio in Establishing and Disclosing Business Strategies, Etc.

Our long-term business plan including our business portfolio and investment plan is reviewed as necessary with a mid-term milestone based on the business environment, trends in our financial results, and the social and economic conditions at the time. Where this review involves changes in our management policies, etc., explanations are given at the General Meeting of Shareholders or at our financial results meetings.

[Disclosure Based on the Principles of Japan's Corporate Governance Code] [Updated]

[Principle 1.4] Cross-Shareholdings

We hold shares as cross-shareholdings with the aim of continuously improving corporate value and realizing stable corporate operation by maintaining and strengthening business relationships.

We hold shares as cross-shareholdings with the aim of continuously improving corporate value, improving social value by maintaining and strengthening business relationships, and realizing stable corporate operation.

We establish internal rules, and the Board of Directors examines the economic rationale every year in terms of the matters listed in the following items, based on the purpose and costs of holding for each individual share. We will reduce the cross-shareholdings that are not appropriate.

1. Necessity in business activities, such as capital and business alliances, maintenance and strengthening of transactions
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1. Profitability and risk relating to the performance of issuing company, share price trends, and dividends, etc.
2. Growth, potential, current or future profitability of the issuing company

Cross-shareholdings are examined from a medium- to long-term standpoint and based on returns and risks, etc., and the Board of Directors examines the purpose of holding and the rationale of the main cross-shareholdings that reflect the above conditions.

In exercising the voting rights related to cross-shareholdings, the General Manager of General Administration Division checks each proposal and determines approval or disapproval from the standpoint of maintaining and improving share value with reference to non-financial information rather than making an external or uniform judgment based on short-term results, share prices, etc., and the results of all exercises will be reported to the Board of Directors once a year, as a general rule. In particular, important matters such as M&A, and proposals on companies that are judged to have a significant damage on share value and have significant concerns on corporate governance, we individually examine the cases. Based on investees' business strategy, financial strategy, and shareholder return policy, etc., as well as the non-financial elements and the contents of dialogues, approval or disapproval is determined, and then the exercise results are reported to the Board of Directors.

When shareholders who hold our shares for the purpose of cross-shareholding indicate their intention to sell their shares, we will give appropriate response through adequate consultation with them.

We also engage in transactions with cross-shareholders based on the economic rationale.

[Principle 1.7] Related Party Transactions

We require discussion and resolution at the meetings of the Board of Directors regarding the transactions with conflicts of interest with Directors and entities that are substantially controlled by Directors.

Regarding transactions with Directors, Audit & Supervisory Board Members, and their close relatives, we quarterly prepare a confirmation report on the examination related to the existence of such transaction, and report any important facts to the Board of Directors, if any.

Related party transactions are disclosed in conformity with the Companies Act, the Financial Instruments and Exchange Act, and other applicable laws and regulations, as well as the rules stipulated by the Tokyo Stock Exchange.

[Supplementary Principle 2.4.1] Disclosure of Our Approach to Securing Diversity in Core Human Resources by Appointing Women, Foreigners, and Mid-career Hires to Management Positions

More than two thirds of the Company's consolidated employees are of foreign nationalities. The Company has long recognized the importance of diversity and believes that the viewpoints and values of diverse human resources are essential in continuous growth and in enhancing our corporate value. We appoint human resources with focus on capabilities and achievements, regardless of nationality, gender, the presence of disabilities, or whether the individual is a new-graduate or mid-career hire. Furthermore, to create an environment that allows diverse human resources starting with women to flourish while achieving work-life balance, in Japan, we are building short-time work and telework systems to allow for childcare and nursing care, in addition to our maternity and childcare leave system.

To ensure diversity in the management class that acts as the core of the Company's management, we will continue to promote women's advancement at the Company.

(Changes in ratio of women managers) Total at the time of the Company's settlement period (consolidated) May 2020: 19.4%

May 2021: 19.7%

May 2022: 20.0%

[Principle 2.6] Roles of Corporate Pension Funds as Asset Owners

We entrust the management of pension assets to an asset management company in order to steadily secure the future source of pension payments over the long term. With regard of the management of the assets, trustees and management methods are discussed by the Human Resource Planning Department and the Finance Department, and are determined with the approval of the Board of Directors in accordance with the Company's basic policy. In addition, we take appropriate measures, including regular monitoring on whether the management is being operated properly.

[Principle 3.1] Full Disclosure

1. The Company's management philosophy is disclosed on the Company's website. Business policies based on our management philosophy are outlined in "Business policies, Operating environment and issues requiring action" in the Securities Report.
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(ⅱ) Please refer to "1. Basic Views" shown above of this report.

1. The policy on determining director remuneration, etc. has been disclosed in "Remuneration for Directors and Audit & Supervisory Board Members, etc." in the Securities Report. Please refer to the said report.
   (ⅳ) The Company's Directors are individuals with specialized knowledge and extensive experience in various fields, such as management, finance, agriculture and horticulture, research and development, quality management, marketing, systems, production and logistics, so that the Board of Directors holds a structure with both diversity and appropriate scale to effectively fulfill its roles and responsibilities. In addition, when electing candidates for Directors, Audit & Supervisory Board Members, and Representative Director, we comprehensively determine individuals who can lead the Company's development, such as those who have objective judgment skills, abundant experience, deep insight, and a high level of expertise in business management, regardless of nationality, race, gender, age, etc.
   More specifically, when electing candidates for Directors, we select persons in a comprehensive manner from the viewpoint of the right person in the right place, taking into account a balance among the abilities to contribute to appropriate and prompt decision-making, develop risk management system, manage and supervise business execution, and cover all departments. When electing candidates for Audit & Supervisory Board Members, we select persons in a comprehensive manner from the viewpoint of the right person in the right place, taking into account the balance of the possession of respectable knowledge in finance and accounting, experience and knowledge of corporate management, knowledge of the Company's business activities, among others.
   With regard to the nomination of candidates for Directors, Audit & Supervisory Board Members, and Representative Director, the Nominating Committee, which consists of all independent outside Directors, prepares a proposal as an advisory body to the Board of Directors, and reports the results to the Board of Directors. Based on the report, candidates for Directors are determined by the Board of Directors. Candidates for Audit & Supervisory Board Members are determined by the Board of Directors, and the proposal is then submitted as a proposed item at a General Meeting of Shareholders with the consent of the Audit & Supervisory Board.
   With regard to the dismissal of Directors, Audit & Supervisory Board Members, and Representative Director, if they are deemed not to meet the Company's criteria, such as those who have objective judgment skills, abundant experience, deep insight, and a high level of expertise in business management, or not to perform the function as an officer, the Nominating Committee reports the proposal for dismissal to the Board of Directors.

1. Explanations of the election and nomination of each officer are as described in the Notification of the General Meeting of Shareholders and are disclosed on the Company's website.

[Supplementary Principle 4.1.1] Roles and Responsibilities of the Board of Directors

To focus on management supervision as the role of Directors and to further improve the supervising functions of the Board of Directors, the Company has introduced an executive system and has built a flexible and agile system for business execution.

Based on the stipulations of laws and regulations and our Articles of Incorporation, the Board of Directors deliberates on items requiring a resolution by the Board of Directors and on items important to management as provided by the Company's "Board of Directors Rules" as proposals at the Board of Directors.

Furthermore, the Board of Directors has established the "Authority Regulations" and the "Individual Authority Standards Table," which clarify the scope of execution allowed for Executive Officers, and delegates decision- making authority for business execution, etc.

[Principle 4.9] Independence Standards and Qualification for Independent Outside Directors

Based on the standards stipulated by the Companies Act and the Tokyo Stock Exchange, we have established our own independence standards. The details are as follows. Based on the said standards, candidates for independent outside Directors are selected through discussion and deliberation by the Board of Directors.

(Independence Standards for Outside Directors and Audit & Supervisory Board Members)

Outside Directors and Audit & Supervisory Board Members of the Company shall not fall under any of the following:

1. A person who is executive director, executive officer or other employee (hereinafter, "Executive") of the Company and its subsidiaries and associates (hereinafter, "the Company, Etc.") or had served as Executive of the Company, Etc. within the last ten years before assuming office as outside Director or Audit & Supervisory Board Member
2. A person who is major shareholder (person who holds 10% or higher of the total voting rights at the end of the most recent fiscal year of the Company or its client or supplier) or an Executive thereof
3. A person who is an Executive of a company, or its parent company or an important subsidiary thereof that has an important business relationship with the Company, Etc. (where a company to which sales were made
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