Takeda Pharmaceutical : Corporate Governance Report (July 19, 2021)

Corporate Governance Report

July 19, 2021

Takeda Pharmaceutical Company Limited

https://www.takeda.com

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

1. Basic Views Update

The Company's purpose is to provide "Better Health for People, Brighter Future for the World." In line with this mission, the Company is pursuing a management framework appropriate for an R&D-driven biopharmaceutical company that operates on a global scale. We are strengthening internal controls, including thorough compliance and risk management, and establishing a structure that will allow agile decision-making that is also sound and transparent. Through these efforts, we will further improve our corporate governance, thereby maximizing corporate value.

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

The Company is in compliance with all of the principles of the Corporate Governance Code (effective as of June 1, 2018). The Company will submit a revised corporate governance report based on the new Code (effective as of June 11, 2021) by the end of December 2021.

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

This report covers every principle that should be disclosed under the Corporate Governance Code, and addresses each principle according to its item number.

1. Company objectives, business strategies, and business plans a. Company objectives and business strategies…Principle 3.1 (i)
   The Company's Corporate Philosophy consisting of 'purpose, values, vision and imperatives' can be found on the "Corporate Philosophy" section of the Company's website. For details on the Company's business strategies, please look at the quarterly results and the presentation materials on the "Investor Relations" section.
   Corporate Philosophy: https://www.takeda.com/who-we-are/corporate-philosophy/Investor Relations: https://www.takeda.com/investors/

1. Business plans …Principle 3.1 (i)
   Please refer to the quarterly results and the presentation materials on the ''Investor Relations'' page of the Company's website (link above) for the latest information on the fiscal year 2021 Management Guidance (underlying revenue growth, underlying Core Operating Profit growth and margin, and Underlying Core EPS growth).
2. Basic views and guidelines on corporate governance… Principle 3.1 (ii) Please refer to "Basic Views" in Part I section 1 of this report.

1. Securing the Rights and Equal Treatment of Shareholders d. General shareholders meeting
2. • The Company sends a notice of convocation of its Ordinary General Meeting of Shareholders three weeks prior to the day of the meeting and discloses it on its website so that the shareholders will have sufficient time to review the agenda of the meeting.
   • The Company translates the full text of the notice of convocation into English and discloses it on its website. The Company utilizes an electronic platform for voting so that institutional and foreign investors can execute their voting rights easily.

1. Cross-Shareholdings…Principle1.4
2. • The Company only holds a minimum number of shares of other companies with which it has business relationships. In relation to such shareholdings, the Company determines and assesses whether or not each shareholding contributes to the corporate value of the Company Group by considering the Company's mid-to-long term business strategy, and comparing the benefits of such ownership (dividends, business transactions, expected returns from strategic alliance, etc.) with the Company's cost of capital. As a result of the review, the Company divests shares from shareholdings that are deemed to be of little significance after taking the financial strategy and market environment into consideration.
   • The Company makes a decision on the exercise of its voting rights regarding its cross-shareholdings after comprehensively reviewing whether a relevant proposal makes a positive contribution to shareholder value as well as the value of the issuing

companies. The Company will object to any proposals that are deemed detrimental to shareholder value or the corporate governance of the issuing companies.

1. Related Party Transactions…Principle 1.7

• The Company investigates the existence of related party transactions, such as transactions involving Directors and their close relatives, through various methods including seeking direct confirmation from Directors.
• The Company has procedures that comply with the provisions of the Companies Act on competitive and conflict-of-interest transactions by a Director. In addition, transactions involving the Director's close family members and the Takeda Executive Team member (which consists of the President & CEO and the function heads of the Takeda Group who report directly to the President & CEO; the "TET") and their close family members require the approval of the Board of Directors.
• Transactions such as investments in, and loans and guaranties provided to, subsidiaries/affiliated companies require the approval of the Business Review Committee or other decision-making bodies depending on the amount of the investment, loan, or guarantee.
• In addition to the above, the Company will investigate any unusual transaction between the Company and its affiliated companies and consider the accounting treatment and disclosure of such transaction in advance, confirm whether the value of the transaction is significant, and, where the amounts are significant, monitor the content and conditions of such transaction on a quarterly basis.
• As stipulated in the Financial Instruments and Exchange Act, the Company considers any shareholder who holds 10% or more of the voting rights of all shareholders (excluding those specified by the Cabinet Office Ordinance) as a "major shareholder." Although the Company has no "major shareholders" at present, the Company will apply the above procedures to any "major shareholders" in the future.

1. Appropriate Cooperation with Stakeholders other than Shareholders

• The Company takes into account the interests of various stakeholders including patients, healthcare professionals, employees, clients such as suppliers and vendors, creditors, local communities, and shareholders in order to improve long-term corporate value.

1. Ensuring Appropriate Information Disclosure and Transparency

• The Company makes timely and appropriate disclosures in a fair, detailed, and understandable manner to keep all shareholders informed in accordance with applicable laws, including the Companies Act, the Financial Instruments and Exchange Act and the U.S. Exchange Act, as well as the Financial Instruments Exchange rules in Japan and rules and regulations of the U.S. Securities and Exchange Commission ("SEC").
• The Company promptly discloses financial and non-financial information, including Environment, Social and Governance (ESG)-related information, beneficial to its stakeholders such as shareholders, in addition to information required to be disclosed by laws and regulations.

(5) Responsibilities of the Board of Directors

1. Roles of the Board of Directors… Supplementary Principle 4.1.1
2. • The Board of Directors focuses on discussing and resolving strategy or particularly important matters such as the establishment of and amendments to the Company Group's corporate philosophy, as well as important management policies and plans such as mid- to long-term strategies and corporate plans. In addition, the Board of Directors delegates the responsibilities for decision-making with respect to some of the important business decisions to management under the Company's Articles of Incorporation. The Bylaws of the Board of Directors specify the matters for resolution by the Board of Directors. In addition to the deliberation and resolution of matters, the Board of Directors is responsible for the supervision of the business executed by the Directors.
   • As to the aforementioned matters delegated to management, in particular, they are delegated to the Business Review Committee (which is responsible for corporate and business development matters), the Portfolio Review Committee (which is responsible for R&D and product-related matters), and the Risk, Ethics and Compliance Committee (which is responsible for risk management, business ethics and compliance matters). The Board of Directors supervises the management's execution of these matters through the reports of the aforementioned committees.
   • Matters not requiring the approval of the aforementioned committees are delegated to the TET based on the Takeda Group's Management Policy (T-MAP). The Company aims for agile and efficient decision-making across the group.
3. Composition of the Board…Supplementary Principle 4.11.1
4. • In order to strengthen supervisory functions and further deliver objectivity and transparency through the deliberations, Independent External Directors comprise a majority of the Board of Directors of the Company. The Company has 16 Directors (including four Directors who are Audit and Supervisory Committee Members), of which 12 are Independent External Directors (including four Independent External Directors who are Audit and Supervisory Committee Members) at the time of writing. The Board of Directors is chaired by an Independent External Director.

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1. • The Company makes appropriate Director appointments, and constitutes the Board of Directors based on the following principles:
     o Appoint individuals from inside and outside the Company, irrespective of nationality, gender, career or age, who can contribute to the balance of knowledge, experience, and capacity needed for the governance of the Company's global operations.
     o The Board of Directors shall be of a size that allows effective and agile decision-making and appropriate supervision of management. The Company's Articles of Incorporation limit the maximum number of Directors who are not Audit and Supervisory Committee Members to 12 and Directors who are Audit and Supervisory Committee Members to four.
2. Policies and procedures nomination of candidates for Directors… Principle 3.1 (iv), (v)
3. • The Company nominates candidates for Directors who are not Audit and Supervisory Committee Members considering, among other things, whether the candidate has appropriate experience and expertise to either complement or supplement the current capabilities in the Board of Directors, has the gravitas and reputation required for directorship of a large pharmaceutical company or high-level performance required of business managers, and has deep understanding of the Company's corporate philosophy.
   • The Company nominates candidates for Directors who are Audit and Supervisory Committee Members among those who have outstanding integrity and assume a firm attitude in carrying out their duties in all circumstances, and have a wide range of expertise and/or knowledge that guarantees the sound audit of the Company's global operations.
   • The Board of Directors selects the candidates who will become members of the Board of Directors. The Nomination Committee (advisory committee to the Board of Directors), chaired by an External Director, with all members being External Directors, ensures the appropriateness of the candidate. Candidates for External Directors are elected based on the "Internal criteria for independence of External Directors" (Refer to "Independent Directors" in Part II section 1 of this report). Candidates for Directors who are Audit and Supervisory Committee Members are nominated by the Board of Directors, after obtaining the agreement of the Audit and Supervisory Committee.
   • Regarding the reappointment of Directors, the Company has internal rules that define the criteria for the non-reappointment of current Directors and if the criteria are met, the Board of Directors will determine that such Directors will not be reappointed as Directors after consultation with, and the recommendation of, the Nomination Committee.
   • The profiles and reasoning for the individual appointments of the nominated Director candidates are disclosed in the "Notice of Convocation of Ordinary General Meeting of Shareholders" and the Securities Report.
4. Remuneration of the Directors, etc. … Principle 3.1 (iii)
5. • Please refer to "Policies determining the amount of remuneration or the method for calculating remuneration" in Part II section 1 of this report.
6. Independent External Directors… Principle 4.9, Supplementary Principle 4.11.2
7. • The Company has established its "Internal criteria for independence of External Directors" to ensure such Directors are of a character that we believe is truly important for realizing the common interests of the shareholders.
   • Please refer to "Internal Criteria for Independence of External Directors of the Company" under the title of "Independent Directors" in Part II section 1 of this report.
   • The concurrent director positions of External Directors at other organizations are stated in the "Notice of Convocation of Ordinary General Meeting of Shareholders" and the Securities Report. In addition, the Company believes the concurrent holding of these positions does not prevent External Directors from allocating sufficient time and attention in their performance of the roles and duties of their offices.
8. Director Training… Supplementary Principle 4.14.2
9. • The Company provides necessary information about the Company (Takeda-ism, governance, business strategies, etc.), industry trends and legal responsibilities (duty of care, duty of loyalty, etc.) to the Directors when they take office. Also, the Company continues to provide useful information and learning opportunities, etc. even after the Directors take office.
   • With respect to External Directors, in addition to the above, the Company provides information about the Company and the pharmaceutical industry when they take office, and, even after that, the Company continually provides such information to them and also provides them with study sessions and site visits, as appropriate.
   • The Company bears the expenses for all the foregoing training.
10. Analysis and Evaluation of Board Effectiveness… Supplementary Principle 4.11.3
11. • An evaluation of the performance and effectiveness of the Board of Directors is conducted once a year, in principle, by third party organizations in such a way that the individual opinions of the Directors are efficiently obtained. Each Director individually completes a questionnaire and/or is individually interviewed. Based on the results of the evaluation, the Board of Directors analyzes and evaluates their effectiveness and acts on any opportunities for improvement.
    • In the fiscal year 2020, an evaluation of the performance and effectiveness of the Board of Directors was conducted by third

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party organizations through a questionnaire and the subsequent individual interviews of all the Directors. The questionnaire focused on the evaluation of subject items such as "Strategic Alignment & Engagement," "Composition & Structure," "Processes & Practices," "Management Oversight," "Board Culture and Dynamics," as well as "Oversight by Audit and Supervisory Committee, Nomination Committee and Compensation Committee," through which the Directors made self- evaluations about the effectiveness.

Following that, and after incorporating the analysis and recommendations made by the third party organizations, the review was explained by such third party organizations and discussed by all of the Directors. During the discussion, it was concluded that the Board of Directors was working effectively, confirming that (i) there was no important matter which was newly pointed out, and (ii) there exist effective leadership and good board dynamics.

In addition, the Board of Directors confirmed the necessary improvements, which focus on the important matters that were pointed out in fiscal year 2019 and remained as priorities in fiscal year 2020, such as "content of Board discussions and practice of Board meeting", and formed a consensus on the necessity to continuously conduct further discussions on "robust strategic discussion" etc. though they confirmed the improvements thereon to some extent.

(6) Dialogue with Shareholders… Principle 5.1

• The Company is structured to continue a "purposeful dialogue" with its shareholders on topics including corporate governance, measures addressing environmental and social issues, corporate and financial strategy, research and development, capital policy, business performance, and business risk, each from a short-term and mid-to-long-term perspective. This dialogue is conducted with transparency, based on valid information, and in adherence to the Fair Disclosure Rules, to enable the Company to build strong relationships of trust with its shareholders, who share with the Company the common interest of realizing "sustainable growth of corporate value."

1. The Chief Financial Officer ("CFO") is responsible for the overall engagement with the shareholders, and the Global Head of Investor Relations (IR) in the Global Finance department is accountable for the operational IR activities. When planning and conducting meetings with shareholders, the Head of IR determines the meeting style and participants from management (which may include the President & CEO, the CFO, or other senior management members), taking into consideration the objectives and impact of the meeting, and the characteristics of each shareholder.

1. The IR team promotes dialogue with the shareholders by collecting necessary information from various internal divisions such as finance, R&D, and commercial, and endeavors to find ways to deliver concise and effective communication to shareholders through close collaboration with these divisions.

1. The Company continues to enhance the activities aiming to deepen the shareholders' understanding on topics including the Company's management policy, ESG matters, managerial and financial strategies, research and development, capital policy, financial performance, and risks. With respect to engagement with institutional investors and security analysts, in addition to one-on-one meetings, the Company holds quarterly earnings conferences and hosts multiple IR events that focus on topics of high shareholder interest. Information about these events is disclosed to individual investors through postings on the IR section of the corporate website, and the Company also holds company presentation meetings specifically for individual investors. A presentation video and a message from the President & CEO are also posted on the website to report on the Company's management policy and financial performance.

1. The senior management understand shareholders' interests and concerns, which are raised during the dialogue with the Company, and utilize them for business analysis, for business strategy planning, and for considering the optimal way of disclosing information.

1. Based on feedback received from our shareholders, the Company started disclosing individual product revenues and cash flow forecasts from fiscal year 2019. The Company also started disclosing performance against KPIs and the individual compensation of Directors from fiscal year 2020.

1. 1. When communicating with shareholders, the Company appropriately manages insider information in compliance with internal rules and applicable regulatory requirements, and fairly and timely discloses that information. In advance of earnings announcements, the Company implements a "silent period," during which no communication with shareholders regarding earnings information is permitted.
2. Company's measures with respect to the Corporate Pension Funds as the Managing Organization... Principle 2.6
3. • The Takeda Pharmaceutical Pension Association is administered by the designated or selected expert staff mainly from the areas of HR and Finance, who are knowledgeable about corporate pension and pension fund management. Insights and consulting services from external professionals are taken into consideration in the pension fund management policy, as securing long-term pension payment for employees is critically important. In addition, the pension fund investment is practically managed by external consigned institutions so that conflicts of interest which could arise between pension fund beneficiaries and companies are appropriately managed, since the Company should not be involved in directing pension fund investments or exercising voting rights. The Company is mindful of the potential impact to financial conditions, as well as of maximizing the benefits to the participants and beneficiaries of the Company's corporate pension program, periodically monitoring the pension fund condition in the asset management committee, or flexibly changing the portfolio strategy.
   • In operating the Corporate Pension Funds, the Company carefully considers the importance that the pension fund

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management plays in potentially impacting employees' stable asset formation and the Company's financial conditions. The Company continues to strengthen its systems to fulfil its responsibilities as the asset owner.

2. Capital Structure

Foreign Shareholding Ratio: More than 30% (as of end of March 2021) [Status of Major Shareholders] Update

		Name	Number of Shares Owned		Percentage (%)
		The Master Trust Bank of Japan, Ltd. (Trust account)	150,520,500		9.55
		Custody Bank of Japan, Ltd. (Trust account)		84,158,600		5.34
		THE BANK OF NEW YORK MELLON AS DEPOSITARY BANK FOR		78,566,014		4.98
		DEPOSITARY RECEIPT HOLDERS
		Nippon Life Insurance Company		35,360,385		2.24
		Custody Bank of Japan, Ltd. (Trust account 5)		25,510,100		1.62
		State Street Bank West Client-Treaty 505234		25,342,502		1.61
		Custody Bank of Japan, Ltd. (Trust account 6)		22,617,500		1.43
		JP Morgan Chase Bank 385632		21,669,216		1.37
		Custody Bank of Japan, Ltd. (Trust account 7)		20,368,200		1.29
		Custody Bank of Japan, Ltd. (Trust account 1)		20,304,700		1.29
Controlling Shareholder (except for Parent Company): None
Parent Company: N/A
3. Corporate Attributes
		Listed Stock Market and Market Section			Tokyo 1st Section, Nagoya 1st Section, Sapporo
						Existing Market, Fukuoka Existing Market
		Fiscal Year-End			End of March
		Type of Business			Pharmaceuticals
		Number of Employees (consolidated) as of the End of the Previous Fiscal Year		More than 1,000 persons
		Sales (consolidated) as of the End of the Previous Fiscal Year			More than 1 trillion Yen
		Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year		More than 100 and less than 300
		Update

1. Policy on Measures to Protect Minority Shareholders when Conducting Transactions with Controlling Shareholders
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2. Other Special Circumstances which may have a Material Impact on Corporate Governance

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1. Business Management Organization and Other Corporate Governance Systems regarding Decision- making, Execution of Business, and Oversight in Management

1. Organizational Composition and Operation

Organization Form: Company with Audit and Supervisory Committee

[Directors]

Maximum Number of Directors Stipulated in the Articles of	16 persons
Incorporation
Term of Office Stipulated in the Articles of Incorporation (Directors	2 years
who are members of the Audit and Supervisory Committee)
Term of Office Stipulated in the Articles of Incorporation (Directors	1 year
who are NOT members of the Audit and Supervisory Committee)
Chair of the Board Meeting	Independent External Director
Number of Directors	16 persons
Election of External Directors	Elected
Number of External Directors					12 persons
Update
Number of Independent Directors				12 persons
Update

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