Sumitomo Mitsui Construction : CORPORATE GOVERNANCE

Corporate Governance

CORPORATE GOVERNANCE	Sumitomo Mitsui Construction Co., Ltd.
	Last Update: June 1, 2021
	Sumitomo Mitsui Construction Co., Ltd.
	President and Representative Director Shigetoshi Kondo
	Inquiries: 03-4582-3000
	Securities Code: 1821
	https://www.smcon.co.jp

The status of our corporate governance is as described below.

• Basic concepts on corporate governance, capital structure, corporate attributes, and other basic information

1. Basic approach

The Group has constructed an efficient and fair management system, and in order to maintain close relationships with all stakeholders, including all shareholders, as well as customers, the local community, and employees, etc., as well as for transparent, fair, prompt, and decisive decision making, by improving sustainable growth and medium to long term corporate value, has adopted the following five points as the basic policy for its corporate governance.

1. Prompt management decision making
2. Highly strategic organizational design
3. Ensuring the transparency and rationality of corporate acts
4. Establishing an appropriate internal control system
5. Performing accountability through proper disclosure

Under this basic policy, we shall construct and operate an appropriate internal control system as a corporate group, shall work on the preparation and enhancement of the compliance system on an ongoing basis, and shall conduct a prompt and accurate response to various risks that have a significant effect on management.

[Reasons for not implementing each of the principles of the Corporate Governance Code]

The Company implements each of the principles of the Corporate Governance Code.

[Disclosures based on each of the principles of the Corporate Governance Code] Updated

1-4>[Cross-shareholdings policy]

The Group, in comprehensive consideration of business strategy and business relationships with trading partners, etc., and from the perspective of maintaining and strengthening trading relationships with the companies that we have invested in to improve corporate value in the medium to long term, has cross-shareholdings. For individual cross-shareholdings, we verify the economic rationality, including the objective of the holding and whether or not the benefits and risks in conjunction with the holding are commensurate with the cost of capital, etc., as well as the future outlook, etc.

Based on the results of the verification, the Group's policy is to reduce the number of shares with diminished meaning behind their holding by selling them. Based on the results of the 2020 verification, we sold shares of two companies held by our affiliates (34 million yen).

In regard to the exercising of voting rights for cross-shareholdings, we make decisions of approval or disapproval based on whether or not the content of the proposal is contrary to the medium to long term improvement in corporate value of the company being invested in, and whether or not any major issues have arisen in relation to corporate governance at the company being invested in.

1-7> [Transactions between related parties]

Transactions with officers: Pursuant to the Board of Directors Rules, these are subject to the passing of a resolution at a meeting of the Board of Directors.

Transactions with major shareholders (holdings of 10% or more of voting rights): The Board of Directors verifies market price and transaction conditions, etc., in the same manner as for other general transactions, and a resolution is passed at a meeting of the Board of Directors.

2-6> [Demonstration of function as corporate pension asset owner]

The Company has introduced a defined contribution pension plan, and conducts on going education for employees once per year. 3-1> [Enhancement of information disclosures]

1. We publish our management philosophy and management strategy (medium term management plan) on our website. Management Philosophy: https://www.smcon.co.jp/en/corporate/corporate-principles.html

Medium Term Management Plan: https://www.smcon.co.jp/en/investor/

1. Our basic concepts and basic policy on corporate governance are as stated in "I. Basic concepts on corporate governance, capital structure, corporate attributes, and other basic information 1. Basic concepts" of this report.
2. The policies and procedures for determining individual officer remuneration are as described in "II. Overview of management organizations and other corporate governance systems related to managerial decision making 2. Matters relating to functions such as the execution of business, auditing, supervision, nomination, and the determination of remuneration (overview of the current corporate governance system)" of this report.
3. The policies and procedures for appointment and dismissal of management level executives as well as the nomination of candidate directors and audit & supervisory board members by the Board of Directors are as described in "II. Overview of management organizations and other corporate governance systems related to managerial decision making 2. Matters relating to functions such as the execution of business, auditing, supervision, nomination, and the determination of remuneration (overview of the current corporate governance system)" of this report.
4. The reasons for the individual appointment (dismissal) of management level executives, directors, and audit & supervisory board

member candidates are disclosed on the Company's website.

Notification of convocation of general meeting of shareholders: https://www.smcon.co.jp/investor/stock-information/generalmeeting/

4-1-1>

The Company has introduced an executive officer system to separate the supervisory function of the Board of Directors from the business execution function of executive officers. In regard to matters to be entrusted to executive officers, these matters are made subject to a clear

resolution of a meeting of the Board of Directors, and the responsibilities, division of duties, and decision-making authority are clarified in subordinate rules, in accordance with the matter being entrusted.

4-8> [Effective use of independent outside directors]

In order to further enhance the independence and objectivity of the supervisory function of the Audit & Supervisory Board and the monitoring and supervisory function of the Board of Directors, we have appointed three independent, outside directors, and communications and coordination, etc., with management being handled by the General Affairs Department, which is the secretarial office of the Board of Directors. In addition, outside directors and the Audit & Supervisory Board regularly hold meetings at which they share information and exchange opinions on important managerial issues and the state of the Board of Directors, etc., and aim to work together.

4-9> [Independent determination criteria and qualities of independent outside directors]

The Company selects persons as independent outside directors on the condition that they meet the requirements for independent officers set forth by the Tokyo Stock Exchange. It should be noted that for persons involved in transactions, there is the requirement of not being a stakeholder of a "specified related business operator". In addition, we regard persons affiliated with an advising law firm or corporate accounting office as not being independent.

4-11-1>

When appointing directors, the Company, from the perspective of being a general construction company that is mainly focused on domestic and overseas civil engineering and construction businesses, selects persons who have a suitable level of knowledge in both businesses. In addition, from the perspective of maintaining a system that is suitable for the performance of business activities as a company which is listed on the First Section of the Tokyo Stock Exchange, we select persons who are familiar with governance, fundraising, and corporate management as members of a well-balanced Board of Directors, in consideration also of diversity, including in relation to gender and nationality.

The number of persons is determined in consideration of current sales and business content.

4-11-2>

The main concurrent positions of directors and audit & supervisory board members are disclosed on the Company's website.

Notification of convocation of ordinary general meeting of shareholders: https://www.smcon.co.jp/investor/stock- information/generalmeeting/

Securities report: https://www.smcon.co.jp/investor/library/security-report/

4-11-3>

An overview of the results of assessments on the current situation concerning the effectiveness of the Board of Directors conducted by directors and audit & supervisory board members is disclosed on the Company's website. We seek advice and opinions for further improvements, and endeavor to contribute to the effectiveness of the Board of Directors.

Overview of the results of assessments on the effectiveness of the Board of Directors: https://www.smcon.co.jp/investor/corporate- governance/

4-14-2>

We endeavor to utilize opportunities to provide executive training, etc., for directors, and to cultivate their qualities as managers. In addition, we provide members of the Board of Directors with opportunities to learn the knowledge required for business management, including corporate law and corporate governance, as well as for regular training on management information, and aim to cultivate their skills so that they can achieve their missions as members of the Board of Directors.

5-1> [Policy on constructive dialog with shareholders]

1. We hold various meeting as an opportunity for communication with shareholders and investors, including general meetings of shareholders, annual financial results briefings for analysts, and individual meetings, and we endeavor to provide explanations on the corporate management and business activities of the Company, and aim to enhance content based on the opinions and requests, etc., of shareholders and investors.
2. These aforementioned dialogs with shareholders and investors are supervised by the Division Director the Corporate Planning Division and the Division Director the Administration Division, and assistance is provided by the managers of the Public Relations Office, Planning Department, and General Affairs Department. The related internal departments that assist with dialog engage in business while actively collaborating in matters such as the creation and review of disclosure materials and the sharing of information, towards the realization of constructive dialog.
3. The content of dialog with all shareholders and investors is reported by the Division Director the division concerned to the Board of Directors, and an explanation is provided on the Company's response policy as necessary.
4. When engaging in dialog with shareholders and investors, we appropriately manage insider information in accordance with our internal regulations entitled "Insider Trading Management Regulations". It should be noted that the period from the day following the quarterly settlement date until the settlement announcement date has been positioned as a "silent period" in which we refrain from dialog concerning settlement information.

5-2> [Formulation and publication of management strategy and management plan]

The Company regularly calculates the cost of capital. We formulate our business operations and management strategy based on the calculated cost of capital, and are aware of achieving an ROE (return on equity) that is at a level which exceeds the cost of shareholders' equity in the Company.

In addition, in regard to the formulated management strategy, we check and analyze the progress status each year, and conduct reviews on the allocation of management resources, including investment in new technology development and human resource development. In the future as well, towards improving corporate value, we shall endeavor to secure profits that exceed the cost of shareholders' equity.

2. Capital Composition

Foreign stockholding ratio	Between 20% and 30%

[Status of Major Shareholders] Updated

		Name or Title	Number of Shares	Ratio (%)
		Held (Shares)
		The Master Trust Bank of Japan, Ltd. (Trust Account)	12,443,500	7.91
		Custody Bank of Japan, Ltd. (Trust Account)		5,756,100	3.66
		Mitsui Fudosan Co., Ltd.		5,397,965	3.43
		Sumitomo Realty & Development Co., Ltd.		5,340,413	3.39
		Morgan Stanley MUFG Securities Co., Ltd.		5,280,271	3.35
		Custody Bank of Japan, Ltd. (Trust Account 9)	3,422,400	2.17
		NORTHERN TRUST GLOBAL SERVICES SE, LUXEMBOURG RE LUDU RE:UCITS	3,301,120	2.10
		CLIENTS 15.315 PCT NON TREATY ACCOUNT
		MSIP CLIENT SECURITIES		2,946,800	1.87
		JUNIPER		2,449,700	1.55
		Custody Bank of Japan, Ltd. (Trust Account 5)	2,330,700	1.48
	Presence or absence of controlling	―――
	shareholders (excludes parent company)
	Presence or absence of parent company	None

Supplementary Explanation Updated

• [Status of major shareholders] Described based on the registry of shareholders current as of March 31, 2021.
• The Company hold 5,511,000 treasure shares, however, when calculating the ratio in [Status of Major Shareholders], these treasury shares were not included in the total number of issued shares.
• In the large volume holdings report (change report) made available for public viewing on August 21, 2019, although it is stated that Sumitomo Mitsui Trust Asset Management Co., Ltd., and one of its co-owners held the following shares as of August 15, 2019, the Company was unable to confirm the number of shares actually held as of March 31, 2021, and so said company has not been included in the status of major shareholders above.
• • Holder: Sumitomo Mitsui Trust Asset Management Co., Ltd. and one other company
  • Number of shares held: 13,123,000
  • Holding ratio: 8.07%
• In the large volume holdings report (change report) made available for public viewing on December 4, 2019, although it is stated that JPMorgan Asset Management (Japan) Limited and one of its co-owners held the following shares as of November 29, 2019, the Company was unable to confirm the number of shares actually held as of March 31, 2021, and so said company has not been included in the status of major shareholders above.
• • Holder: JPMorgan Asset Management (Japan) Limited
  • Number of shares held: 6,600,000
  • Holding ratio: 4.06%

3. Corporate Attributes

Listed exchange and market classification

Settlement Date

Industry

Number of (consolidated) employees as of the end of the immediately preceding fiscal year

(Consolidated) sales in the immediately preceding fiscal year

Number of consolidated subsidiaries as of the end of the immediately preceding fiscal year

Tokyo 1st Section

March

Construction

Over 1,000

Between 100 billion yen and 1 trillion yen

Between 10 and 50

4. Guidelines on measures to protect minority shareholders at the time of transactions, etc., with controlling shareholders

―――

5. Other special circumstances that have a major impact on corporate governance Updated

• About listed subsidiaries

The corporate group of the Company includes the listed subsidiary SUMIKEN MITSUI ROAD CO., LTD., and the ratio of voting rights in said company held by our Company is 53.94% (current as of March 31, 2021).

Said subsidiary, through the laying of roads and parking lots, the construction of condominium exteriors, as well as the manufacture and sale of asphalt mixes, is involved in a part of the construction business of the Group, and conducts corporate activities that emphasize profitability in order to contribute to mutual development, under the basic policy of the maintenance of voluntary action and independence. The situation of it being a listed company leads to the maintenance of social credibility, and as it is a major tool for expanding public works, we are aiming to ensure that the company maximizes its corporate value against the background of its social credibility as a listed company; we believe that this will directly lead to an increase in the corporate value of the Group itself.

The Company respects the interest of minority shareholders in the management of subsidiaries that have minority shareholders, and performs appropriate procedures for the setting of transaction conditions, etc., as well, based on the same principle of competition as other partner companies, so as to ensure that no unjust or unreasonable transactions are forced.

The Company has constructed an internal control system to cover the corporate group, and in order to improve the corporate value of the Group, engages in ongoing initiatives to improve and strengthen the compliance system, provides a prompt and accurate response to various risks that may have a significant impact on management, and in addition, has formed a highly transparent corporate group through the making of proper information disclosures to stakeholders and society.

• Status of business management organizations for the determination, execution, and supervision of management decisions, as well of other corporate governance systems

1. Matters relating to institutional composition and organizational management, etc.

	Organizational Form			Company with an Audit & Supervisory Board

[Director-related]

Number of Directors Under the Articles of Incorporation

Tenure of Directors Under the Articles of Incorporation

Chair of the Board of Directors

Number of Directors

Appointment Status of Outside Directors

Outside Directors

Number of Outside Directors Designated as Independent Officers

18

1 year

President

9

Number of Appointed

3

3

Relationship with the Company (1)Updated

Name

Affiliation

Relationship with the Company (*)

a

b

c

d

e

f

g

h

i

j

k

Sakio Sasamoto

From

another

△

company

Jun Sugie

Other

Tamao Hosokawa

Other

△

*Options for relationship with the Company

*If the individual falls applicable under "current / recent" for each item, then "○", if applicable in the "past", then "△" *If the near relative falls applicable under "current / recent" for each item, then "●", if applicable in the "past", then "▲"

1. Business executor of listed company or subsidiaries thereof
2. Business executor or non-executive director of parent company of listed company
3. Business executor of sibling company of listed company
4. Party that has a listed company as a major trading partner, or the business executor of such a party
5. Major trading partner of a listed company, or the business executor thereof
6. Consultants, accounting professionals, and legal professionals who have obtained large sums of money or other property from a listed company other than in the form of officer remuneration
7. Major shareholders of listed company (in the case of a major shareholder being a corporate entity, the business executor of said corporate entity)
8. Business executor (individual only) of trading partner of listed company (which does not fall applicable under any of d, e, and f)
9. Business executor (individual only) of company at which an outside officer concurrently serves
10. Business executor (individual only) of recipient of donation from a listed company
11. Other