SCREEN : Corporate Governance Report

Corporate Governance Report

This corporate governance report has been prepared in line with the specifications of the Tokyo Stock Exchange. The numbering of the principles and supplementary principles is based on Japan's Corporate Governance Code.

Last update: December 8, 2021

SCREEN Holdings Co., Ltd.

Toshio Hiroe

President, Member of the Board and

Chief Executive Officer

Contact: Yoshiyuki Higuchi

Corporate Officer, General Manager,

Corporate Planning Dept.

Tel: [phone]

Securities code: 7735

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

Corporate governance at SCREEN Holdings Co., Ltd. (hereinafter "SCREEN Holdings" or the "Company") and its consolidated subsidiaries (collectively, the Group or the SCREEN Group) is executed in accordance with the following:

I. Basic Concepts regarding Corporate Governance, Capital Structure, Corporate Profile, and Other Fundamentals

1. Basic Concepts

By striving to improve corporate governance in pursuit of enhanced transparency, soundness, and efficiency in business management, the SCREEN Group aims to ensure that shareholders and all other stakeholders benefit in line with its Corporate Philosophy of "Sharing the Future," "Human Resource Development," and "the Pursuit of Technology." The Group recognizes that effective corporate governance is essential to the achievement of this goal, thus it has strengthened its capabilities to govern through the establishment of its "Management Grand Design," which is SCREEN's vision and guideline for SCREEN Value enhancement; "SCREEN Group CSR Charter," which describes the principles of action for all executives and employees of the Group; and the "SCREEN Group Code of Management," which regulates the controlling policies and systems of Group companies as well as other regulations with which all executives and employees should comply.

Reasoning for Noncompliance with the Principles of the Corporate Governance Code Update

The Company has complied with all principles of the Corporate Governance Code which was published on June 11, 2021.

Disclosure Based on the Principles of the Corporate Governance Code Update

Principle 1.4: Cross-Shareholdings

In order for the Company to enjoy sustainable corporate development, it is essential to maintain partnerships with a broad range of external corporations. Because of this, the Company may retain cross-shareholdings as long as said shareholdings are deemed strategically necessary in light of its pursuit of medium- to long- term improvements in corporate value. To assess the necessity of such shareholdings, the Board of Directors engages in annual reviews aimed at comprehensively verifying the status of transactions with investees, the impact of shareholdings on the Company's financial position, the quantitative benefits of such shareholdings vis-à-vis capital cost, and whether the purposes of shareholdings have been met. If verification results reveal that certain shareholdings are no longer necessary, the Company negotiates with the investees to ensure that

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the shareholdings in question can be smoothly divested. As of the end of the most recent fiscal year, the Company had divested shares of 31 investees, totaling ¥7.6 billion, over the six years since the enactment of Japan's Corporate Governance Code.

In addition, the Company exercises voting rights associated with its shareholdings in a way that respects the management policies of its investees while making voting judgments from the perspective of enhancing its own corporate value over the medium to long term. It should be noted that if an investee is found to be involved in major misconduct or has submitted a proposal that is deemed potentially detrimental to shareholder value, the Company will take a particularly cautious approach when making its voting judgment, engaging in dialogue with the investee prior to voting as necessary.

Principle 1.7: Related Party Transactions

When a director intends to engage in a transaction deemed to be competing with any of the Company's businesses or that may result in a conflict of interest ("Competition and Conflicting Interest Transactions" as defined by law), the director is obliged to obtain the approval of the Board of Directors in accordance with the Company's Rules of the Board of Directors. Moreover, the Board will review reports on the content and value of such transactions on a quarterly basis and grant approval on those transactions that are judged legitimate. In addition, no current shareholder of SCREEN Holdings possesses a voting rights ratio of 10% or greater. However, if a major shareholder were to surpass this ownership threshold, the Company would ensure that any possible transaction with said shareholder be properly examined by the Board of Directors based on the aforementioned procedure before being greenlit.

Supplementary Principle 2.4.1: Ensuring Company Diversity in Core Personnel Hiring Update

(i) Ensuring diversity

Based on the philosophy of supporting the activities of diverse human resources set forth in the CSR Charter, which is the Group's Code of Conduct, the Company actively recruits human resources with diverse attributes including women, non-Japanese people, and mid-career hires, as well as trains and promotes individuals to management positions based on their abilities, qualities, and aptitudes regardless of their attributes. In addition, by continuously exchanging human resources between overseas Group companies and the Company and its business operating and functional support companies, efforts are being made to develop human resources with broad perspectives.

In addition, the Company is striving to create a comfortable working environment that allows all employees to demonstrate their abilities regardless of gender despite changes resulting from various life stages. The Company will continue to emphasize the diversity of its human resources in order to improve the working environment and to ensure strong growth.

Promotion of Women to Management Positions

At the Company and its business operating and functional support companies, women are taking on a wide range of positions, including as general managers, section managers, and subsidiary executives. In order to encourage their growth, the Company offers career development for promotion to management positions according to their qualifications and aspirations, such as overseas assignments, dispatch to overseas MBA programs, and appointment as company-wide project leaders.

By the fiscal year ending March 31, 2031, the Company aims to double the percentage of women in management positions and increase the percentage amongst all employees to at least 15%, or to a level that is appropriate for the changing business conditions. The Company is actively recruiting and training women, and is working to create an environment that encourages them to play an active role, thereby increasing the number of women in core positions in decision making for the Group.

The number of women hired is on the rise, and the Company would like to expand the percentage of new graduates hired from around 20% to even more in the future, taking into account the business situation.

	Current	Fiscal year ending March 31,
		2031
Ratio of women in management	2.8%	Approximately 6%
positions
Percentage of women among all	10%	15% or higher
employees
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Promotion of Non-Japanese to Management Positions

Within the Group, there are about 50 international employees in the Company and its business operating and functional support companies, and six of them are active in management positions. In overseas subsidiaries, more than half of the 46 full-time executive positions are currently held by locally hired foreign nationals, and international employees account for 40% of the Group as a whole. In addition, the Company continues to exchange human resources with overseas Group companies by appointing them to general manager or higher positions in the Company and its business operating and functional support companies.

Promotion of Mid-Career Hires to Management Positions

The Group actively recruits mid-career workers in line with changes in its core businesses and other factors, and the number of such workers accounts for one third of the total number of employees in domestic Group companies. In management positions, mid-career hires account for one-third of the total, and appointments are made regardless of hiring attributes.

1. Human resource development policies, internal environment development, and other conditions to ensure diversity
   In order for each individual to maximize his or her abilities and enhance the performance of the Group, it is crucial to provide opportunities for growth, a supportive environment, and promote diversification, regardless of an individual's attributes. The Company will continue to implement hiring from diverse demographics, and while taking into account business conditions, strive to increase the number of diverse employees, including mid-career hires, women, and non-Japanese, to more than 50% by the fiscal year ending March 31, 2031.

Principle 2.6: Roles of Corporate Pension Funds as Asset Owners

The Company wishes to provide its employees with opportunities for stable asset formation via the administration of corporate pension funds while staying vigilant to the impact of fund administration performance on its consolidated financial position. Accordingly, the Company has put in place the Corporate Pension Fund Administration Committee consisting of individuals equipped with experience and competencies in this field. In this way, the Company monitors its asset managers and ensures that its pension funds are managed appropriately.

Principle 3.1: Full Disclosure

1. Company objectives (e.g., business principles), business strategies, and business plans As presented earlier in "1. Basic Concepts."
2. Basic views and guidelines on corporate governance based on each of the principles of Japan's Corporate Governance Code
   As presented earlier in "1. Basic Concepts."
3. Board policies and procedures regarding the determination of remuneration for senior management and directors
   The remuneration policy for directors is determined by a resolution of the Board of Directors held on February 26, 2021. This is in response to the proposal of the Nomination and Compensation Advisory Committee composed of outside directors (the majority) and the Chairman of the Board of Directors. Compensation for corporate officers is decided by representative directors after seeking the advice of the Nomination and Compensation Advisory Committee.
   Compensation as an incentive for directors is determined on the basis of individual roles and responsibilities in order to live up to the stakeholders' expectations and enhance medium- to long-term corporate value. Specifically, compensation for directors and corporate officers now consists of three elements: (a) basic remuneration for fixed cash payment, (b) a short-termperformance-linked cash bonus, and (c) share compensation linked with the short- and medium- to long-term performance, and corporate value (shareholders' value). Outside directors' compensation does not include performance-linked share compensation.
   After seeking the advice of the Nomination and Compensation Advisory Committee, compensation for each director is now determined by the representative directors under authorization from the Board of Directors.
4. Board policies and procedures regarding the appointment/dismissal of senior management and the

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nomination of director and corporate auditor candidates

Regarding the nomination of candidates for director and corporate auditor positions, candidates are selected in accordance with prescribed criteria listed below and approved by the Board of Directors after seeking the advice of the Nomination and Compensation Advisory Committee composed of outside directors (the majority) and the Chairman of the Board of Directors.

Criteria for Appointing Candidates for Directors

1. Candidates must be equipped with sufficient business experience and robust expertise in the area of their specialty and be capable of living up to stakeholder expectations and contributing to medium- to long-term growth in the SCREEN Group's corporate value.
2. Candidates must be capable of making fair judgment based on a neutral viewpoint without sectional partiality and be equipped with risk management abilities.
3. Candidates must be able to secure sufficient time and resources to appropriately fulfill their roles and responsibilities as directors.
4. Candidates must be knowledgeable individuals with integrity and high moral bearing.
5. Candidates must not fulfill any of the conditions disqualifying directors under Article 331-1 of the Japanese Corporate Law.
6. Candidates for outside director positions must fulfill SCREEN Holding's "Criteria for Independence of Outside Directors and Outside Corporate Auditors."
7. Candidate selection must be undertaken with the intention of securing diversity in experience and specialty, thereby maximizing the Board of Directors' functional efficiency and effectiveness and maintaining a balanced composition that helps SCREEN Holdings exercise management oversight covering all business units.

Criteria for Appointing Candidates for Corporate Auditors

1. Candidates must be equipped with abundant experience and capable of conducting audits from a neutral and objective viewpoint without sectional partiality.
2. Candidates must be independent from those charged with business execution and well-positioned to maintain fair and impartial standing.
3. Candidates must be able to secure sufficient time and resources to appropriately fulfill their roles and responsibilities during their term of office.
4. Candidates must be knowledgeable individuals with integrity and high moral bearing.
5. Candidates must not fulfill any of the conditions disqualifying directors under Article 331-1 of Japan's Companies Act, which also apply to corporate auditors in accordance with Article 335-1 of said law.
6. Candidates for outside corporate auditor positions must fulfill SCREEN Holding's "Criteria for Independence of Outside Directors and Outside Corporate Auditors."
7. Candidate selection must be undertaken with the intention of securing a balanced composition in terms of knowledge, experience and specialties. In addition, at least one corporate auditor must be equipped with considerable expertise in finance and accounting.

Regarding the dismissal of directors, after seeking the advice of the Nomination and Compensation Advisory Committee, the Board of Directors may propose dismissing an individual to whom one of the following criteria apply. Approval of the dismissal is then required at a shareholders' meeting based on the resolution passed by the Board of Directors.

Criteria for Dismissing Directors

1. A director who obviously fails to fulfill "Criteria for Appointing Candidates for Directors"
2. A director who is or has been involved in conduct or a significant violation of laws, regulations, or in-house rules, including the Articles of Incorporation

1. Explanations with respect to the individual appointments/dismissals and nominations based on (iv) The details of individual candidates for directors and corporate auditors appointed by the Board of Directors are disclosed via the Company's corporate website. Please refer to the latest notice of the General Meeting of Shareholders, which includes descriptions of such candidates and is posted on said website.https://www.screen.co.jp/download_file/get_file/N_GM_210601_E.pdf
   When the Company dismisses a director, it discloses the details of such dismissal via its corporate website.

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Supplementary Principle 3.1.3: Sustainability Update

The Company is committed to collaborating with a wide range of stakeholders, proactively disclosing information, and improving transparency. For more information about the Company's approach to sustainability and our efforts to enhance social value (Sustainable Value 2023), please refer to the Company's website.

In addition, the Company has collected and analyzed the necessary data on the impact of climate change- related risks and opportunities on our business activities and earnings. The Company has decided to become a signatory of the Task Force on Climate-related Financial Disclosures (TCFD) and, in accordance, is preparing to disclose such data in its annual reports and other publications.

Supplementary Principle 4.1.1: The Scope of Matters Delegated to the Management

In addition to assuming its duties as defined by laws, the Articles of Incorporation, and the SCREEN Group Responsibility and Authority Rules, the Board of Directors determines basic policies and strategies as well as other important matters associated with the Group's operations. Based on the aforementioned policies and strategies, the Company's business is executed by directors in charge of particular operations as well as corporate officers, business operating companies, and functional support companies, while the Board of Directors supervises the status of their business execution.

Supplementary Principle 4.1.3: The Succession Plan for President & CEO

In principle, the succession plan for securing an ideal successor to the position of President & CEO and the defining criteria and procedures for appointing such an individual, are determined by the Board of Directors after seeking advice from the Nomination and Compensation Advisory Committee composed of outside directors (the majority) and the Chairman of the Board of Directors.

Supplementary Principle 4.3.3: Procedures for Dismissing President & CEO

In cases where the Company's President & CEO meets prescribed criteria, the dismissal of such individual from his/her position will be determined by the Board of Directors after seeking advice from the Nomination and Compensation Advisory Committee composed of outside directors (the majority) and the Chairman of the Board of Directors.

Principle 4.8 Effective Use of Independent Directors Update

The Company appoints qualified and independent outside directors and corporate auditors according to its Criteria for Independence of Outside Directors and Outside Corporate Auditors. It also maintains four outside directors and ensures discussion based on their independent, objective opinions following the Company's Rules of the Board of Directors. The aforementioned rules also mandate that outside directors account for at least one third of the entire membership of the Board. Four outside directors were appointed at the 80th Ordinary General Meeting of Shareholders which was held on June 24, 2021. That ensures a balanced perspective that allows the Board of Directors to operate with maximum efficiency and effectiveness, while keeping management oversight over the entire Group securely in place. Of the eight directors elected at the 80th General Meeting of Shareholders held on June 24, 2021, four are outside directors, which enables Board of Directors' discussions based on independent and objective opinions.

Principle 4.9 Independence Standards and Qualifications for Independent Directors

The Company has in place its Criteria for Independence of Outside Directors and Outside Corporate Auditors that clarify its standards for securing the independence of outside directors and outside corporate auditors from management. Currently, four outside directors engage in Board of Directors meetings, freely bringing their insights backed by extensive knowledge and experience in such fields as corporate management from a fair and neutral standpoint. These individuals contribute to active and constructive discussions at the Board, thereby fulfilling their roles and responsibilities as outside directors who are independent from management.

Supplementary Principle 4.10.1: Appropriate Involvement and Advice from Outside Directors through the Establishment of an Independent Nominating and Compensation Advisory Committee Update

The Company has established the Nominating and Compensation Advisory Committee, consisting of outside directors (the majority) and the chairman of the Board of Directors, to strengthen the independence, objectivity, and accountability of the Board of Directors' functions related to nomination (including

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