Tokai Carbon : Corporate Governance Report

Corporate Governance Report

Last Update: March 31, 2021

Tokai Carbon Co., Ltd.

Hajime Nagasaka, President and CEO

Contact: [phone]

Securities Code: 5301

The corporate governance of Tokai Carbon Co., Ltd. (the "Company") is described below.

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

Basic Information

1. Basic Views

Tokai Carbon recognizes that enhancing the corporate value over the mid-to-long term is the most important management objective and believes that responding to the expectations of all stakeholders, including customers and shareholders, and building favorable relationships with them, is essential in achieving this objective. To this end, the Company sets forth its basic corporate philosophy, "Ties of Reliability." Based on this philosophy and taking into account the views defined in its Guidelines and the TOKAI CARBON Code of Ethics, the Company strives to develop an effective corporate governance structure.

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

The Company recognizes that it puts into practice all principles of the Corporate Governance Code.

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

[Principle 1-4]

1. The Company's policy is to acquire and own shares of business partners, etc. only when it judges that it can create further business opportunities and increase its corporate value in the mid-to-long term through building, maintaining and reinforcing business partnerships and collaborative relationships. In making decisions on holding of other stocks, the Company appoints the responsible department, which analyzes factors such as the significance and profitability of holding the stocks and whether risks associated with such holding are worth the capital cost, and periodically verifies appropriateness from company-wide and strategic standpoints at meetings of the Management Committee and the Board of Directors. The Company will reduce holdings of stocks if the rationality of holding such stocks is deemed insufficient as a result of the verification.
2. In regard to the voting rights of investee companies, judgment on the exercise of voting rights is made from the perspective of increasing corporate value of the Company and the respective companies in the medium-to-long term.

[Principle 1-7]

With respect to the competitive transactions and conflict of interest transactions of Directors, the Company's policy is to have the Board of Directors deliberate such transactions in advance in accordance with relevant laws and regulations and the Rules of the Board of Directors. As for the transactions approved, the results are reported to the Board of Directors.

[Principle 2-6]

In regard to the investment management of reserve funds for the defined-benefit pension plan, the Company has formulated internal regulations and invests the reserve funds in accordance with the regulations. Specifically, the Company has established the investment management guidelines and the basic policy for investment management, and a person in charge of pension management assigned in the Human Resources

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Department confirms that the pension reserves are managed appropriately in accordance with the policy asset mix by referring to quarterly reports from asset managers. In addition, the Company appropriately carries out functions as an asset owner, such as having the person in charge of pension management report the results of investment management of pension assets for each fiscal year at meetings of the Management Committee.

[Principle 3-1]

1. Company objectives (e.g., business principles), business strategies, business plans
   The Company's corporate philosophy is "Ties of Reliability". It believes in the importance of trust between Tokai Carbon and our stakeholders (as represented by customers, shareholders, employees, and society). This idea of mutual reliability, which is based on common values shared with our stakeholders, is the foundation of our continued business and existence.
   This concept allows the Company to provide added value to its stakeholders, thus enabling them to achieve their individual goals. Through this cycle of trust, the Company will strive to further enhance its ties of reliability.
   The Company discloses its 3-yearMid-Term Management Plan T-2022 for the period from 2020 to 2022 on its Japanese-language company website: https://www.tokaicarbon.co.jp/news/
2. Basic views and policy on corporate governance
   Basic views on corporate governance are disclosed in "I. 1. Basic Views" and in "II. 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System)" of this report.
3. Board policies and procedures in determining remuneration
   Policies and the method of determining remuneration of Directors of the Company are disclosed in the "Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods" in "II. 1. Organizational Composition and Operation" of this report.
4. Board policies and procedures for the appointment and dismissal of senior management and the nomination of candidates for Directors and Audit & Supervisory Board Members
   At the Company, the Nomination Committee (composed of one (1) internal Director and three (3) External Directors), which is an advisory organ of the Board of Directors, deliberates and confirms the requirements for senior management and the basic policies on the appointment and dismissal of senior management members. In addition, the election and dismissal of Executive Officers as well as their roles, etc. are determined based on deliberation by the Board of Directors. The policies and procedures for nominating and dismissing candidates for Directors and Audit & Supervisory Board Members as well as each of the individual proposals for nomination and dismissal are deliberated on by the Nomination Committee and resolved by the Board of Directors before they are addressed at a general meeting of shareholders.
5. The Company discloses the reasons for nominating candidates for all Directors and Audit & Supervisory Board Members, including External Directors and External Audit & Supervisory Board Members, in the Reference Document for an Annual Meeting of Shareholders.

[Principle 4-1-1]

The Company defines matters stipulated by laws and regulations and the Articles of Incorporation, the formulation, etc. of management policies and plans, and other important business management matters as items to be resolved by the Board of Directors and delegates all other business execution decision-making to the management team.

[Principle 4-9]

The Company appoints External Directors, who are independent officers, in accordance with the requirements for external directors set forth in the Companies Act and the independence standards defined by the financial instruments exchanges, and the Independence Standards for External Officers set forth by the Company.

[Principle 4-11-1]

The Board of Directors of the Company works to make accurate and timely business decisions in order to promote sustainable growth and increase corporate value in the mid-to-long term. To achieve this objective,

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the Board of Directors of the Company takes into account the size, contents, etc. of the Company's business and elects candidates for business-executing Directors who are well versed in the operations of each business division and corporate division so as to optimize the composition of the Board of Directors in terms of diversity and the appropriate balance between knowledge, experience and skills of the Board as a whole. External Directors are elected by taking into account the requirements for external directors as set forth in the Companies Act and the independence standards defined by the Tokyo Stock Exchange, as well as the Independence Standards for External Officers set forth by the Company, and the Company receives advice from External Directors from viewpoints independent from business execution based on their wide-ranging experience and insights not only in their specialized fields but also in a broad range of areas.

[Principle 4-11-2]

Concurrent positions held by Directors and Audit & Supervisory Board Members are indicated on pp. 6-15 of the Notice of FY2020 Annual Meeting of Shareholders.

[Principle 4-11-3]

In order to strengthen the effectiveness of the Board of Directors, the Company analyzes and evaluates the effectiveness of the Board of Directors on an annual basis. The implementation status of the evaluation for FY2020 is summarized as below.

(1) Method of evaluation

The Board of Directors analyzed and evaluated its effectiveness based on the results of (i) qualitative and quantitative analysis of the operational results, status, and other details of the corporate governance system, including the Board of Directors and the Management Committee, in 2020; (ii) a survey on the composition/operation of the Board of Directors, information provision to External Directors, and other relevant matters conducted with respect to all Directors and Audit & Supervisory Board Members; and (iii) individual interviews with External Directors.

(2) Overview of results of evaluation

The results of the evaluation of the effectiveness of the Board of Directors in FY2016 indicated that the Company has strengthened its corporate governance system, centered on the Board of Directors, by establishing the Nomination Committee, the Remuneration Committee, the Management Committee, and the Risk Management & Compliance Committee in 2016. This has contributed to making significant improvements from the previous year in various aspects, including the selection of agenda proposals, content of materials/explanations, content of deliberations, and meeting minutes. In the evaluation, it was pointed out that each of the External Directors has gained a better understanding of important cases by attending almost all Board of Directors meetings (according to 2016-2020 records) and proactively attending other important meetings. Neutral and objective opinions from External Directors have contributed greatly to enhancing the supervisory functions of the Board of Directors.

This year marked the fifth year of the evaluation. The evaluation concluded that the current corporate governance system has largely been established, and in addition to maintaining the achievements delivered in the early stage of the system's launch, further improvements have been made in effectiveness through the measures taken in 2020, including the efforts to diversify the members of the Board of Directors and proactive involvement in the establishment of an ESG management base and expansion of disclosure.

A further issue pointed out is the need for expanding discussions to include higher-level themes, such as a review of the long-term vision in light of significant changes in the environment, including the acceleration of trends toward decarbonization, and the re-development of management strategies based thereon.

[Principle 4-14-2]

In order to ensure that the management supervision and auditing functions of Directors and Audit & Supervisory Board Members are adequately demonstrated, a secretariat for the Board of Directors is put in place to provide information required for executing duties in an appropriate and timely manner. Further, from the perspective of promoting contribution to sustainable growth into the future, training opportunities are set.

[Principle 5-1]

It is provided in "III. 2. IR Activities" of this report.

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2. Capital Structure

		Foreign Shareholding Ratio	Less than 10%
[Status of Major Shareholders]
		Name / Company Name		Number of Shares Owned	Percentage (%)
		The Master Trust Bank of Japan, Ltd.		25,726,100	12.07
		(Trust Account)
		Japan Custody Bank, Ltd. (Trust Account)		15,006,100	7.04
		MUFG Bank, Ltd.		7,958,779	3.73
		SMBC Nikko Securities Inc.		7,686,600	3.61
		Mitsubishi Corporation		6,748,990	3.16
		Mitsubishi UFJ Trust and Banking		6,290,000	2.95
		Corporation
		The Master Trust Bank of Japan, Ltd.
		(Mitsubishi Chemical Corp. Retirement		5,900,000	2.77
		Benefit Trust Account)
		Japan Custody Bank, Ltd. (Trust Account		3,149,900	1.47
	9)
		Japan Custody Bank, Ltd. (Trust Account		3,102,900	1.45
	5)
		Japan Custody Bank, Ltd. (Trust Account		2,801,000	1.31
	6)
		Controlling Shareholder
		(except for Parent Company)
		Parent Company	None

Supplementary Explanation

The above is based on the shareholder registry as of December 31, 2020.

The Company holds 11,771,256 shares of treasury stock.

In the Change Report made available for public disclosure as of November 20, 2020, shares owned by Mizuho Securities Co., Ltd. and its joint holders as of November 13, 2020 are indicated as follows. However, since the Company cannot confirm the numbers of shares substantially held by them as of December 31, 2020, they are not included in the above Status of Major Shareholders. The contents of the Change Report are as follows.

Name		Address	Number of shares held	Shareholding
	(thousand shares)	(%)
Mizuho Securities Co., Ltd.	5-1	Otemachi 1-chome,	318	0.14
Chiyoda-ku, Tokyo
Asset Management One	8-2	Marunouchi 1-chome,	8,225	3.66
Co., Ltd.	Chiyoda-ku, Tokyo

In the Change Report made available for public disclosure as of December 4, 2020, shares owned by Nomura Securities Co., Ltd. and its joint holders as of November 30, 2020 are indicated as follows. However, since the Company cannot confirm the number of shares substantially held by them as of December 31, 2020, they are not included in the above Status of Major Shareholders. The contents of the Change Report are as follows.

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	Name	Address	Number of shares held	Shareholding
	(thousand shares)	(%)
	Nomura Securities Co., Ltd.	13-1 Nihombashi 1-chome,	1	0.00
	Chuo-ku, Tokyo
	NOMURA	1 Angel Lane, London
	EC4R 3AB, United	900	0.40
	INTERNATIONAL PLC
	Kingdom
	Nomura Asset Management	2-1 Toyosu 2-chome, Koto-	19,299	8.58
	Co., Ltd.	ku, Tokyo

In the Change Report made available for public disclosure as of January 8, 2021, shares owned by Mitsubishi UFJ Financial Group, Inc. as of December 28, 2020 are indicated as follows. However, since the Company cannot confirm the number of shares substantially held by them as of December 31, 2020, they are not included in the above Status of Major Shareholders. The contents of the Change Report are as follows.

Name	Address	Number of shares held	Shareholding
(thousand shares)	(%)
MUFG Bank, Ltd.	7-1 Marunouchi 2-chome,	7,958	3.54
Chiyoda-ku, Tokyo
Mitsubishi UFJ Trust and	4-5 Marunouchi 1-chome,	10,762	4.78
Banking Corporation	Chiyoda-ku, Tokyo
Mitsubishi UFJ Kokusai	12-1 Yurakucho 1-chome,
Asset Management Co.,	5,919	2.63
Chiyoda-ku, Tokyo
Ltd.
Mitsubishi UFJ Morgan	9-2 Otemachi 1-chome,	2,506	1.11
Stanley Securities Co., Ltd.	Chiyoda-ku, Tokyo

In the Change Report made available for public disclosure as of January 7, 2021, shares owned by Sumitomo Mitsui Trust Bank, Limited and its joint holders as of December 31, 2020 are indicated as follows. However, since the Company cannot confirm the number of shares substantially held by them as of December 31, 2020, they are not included in the above Status of Major Shareholders. The contents of the Change Report are as follows.

Name	Address	Number of shares held	Shareholding
(thousand shares)	(%)
Sumitomo Mitsui Trust	1-1 Shibakoen 1-chome,	7,865	3.50
Asset Management Co., Ltd.	Minato-ku, Tokyo
Nikko Asset Management	7-1 Akasaka 9-chome,	8,285	3.68
Co., Ltd.	Minato-ku, Tokyo

3. Corporate Attributes

	Listed Stock Market and Market Section		Tokyo Stock Exchange
		First Section
	Fiscal Year-End		December
	Type of Business		Glass & Ceramics Products
	Number of Employees (consolidated) as of	More than 1,000
	the End of the Previous Fiscal Year
	Sales (consolidated) as of the End of the	From ¥100 billion to less than ¥1 trillion
	Previous Fiscal Year
	Number of Consolidated Subsidiaries as of	From 10 to less than 50
	the End of the Previous Fiscal Year

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