Tokuyama : Corporate Governance Report (December 23, 2021)

(Note) This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Corporate Governance Report

Last Update: December 23rd, 2021

Tokuyama Corporation

Representative Director., President and Executive Officer: Hiroshi Yokota

Contact: [phone]

Securities Code: 4043

http://www.tokuyama.co.jp/

The corporate governance of Tokuyama Corporation (the "Company") is described below.

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

Information

1. Basic Views

Amid the major transformations taking place throughout society, the Company has redefined its Mission as "To create a bright future in harmony with the environment, in collaboration with its customers, based on chemistry" in line with the business environment being faced today. This redefinition incorporates the Company's desire to continuously conduct business in harmony with the environment and to create the future together with its customers as a means of contributing to a sustainable society.

This only becomes possible with the trust and support of shareholders, customers, suppliers, employees, local communities, and all other stakeholders, which the Company believes will connect to sustainable growth and greater corporate value over the medium- to long-term.

Corporate governance comprises a priority issue for management in order for the Company to realize its Mission. The Company therefore recognizes the need to constantly make enhancements. This forms the Company's Basic Concept on corporate governance.

In light of the Corporate Governance Code, the Company's Basic Policy is to respect the rights and equality of shareholders, appropriately cooperate with all stakeholders, achieve a balance between proper disclosure and transparency, maintain the independence of the Board of Directors and enhance the Board's oversight function, accelerate decision-making, clarify responsibility, and strive for constructive dialogue with shareholders.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code] Supplementary Principle 4-11-1 [Concept on the Diversity of the Board of Directors]

As described in Principle 3-1- (IV) "Board Policies and Procedures in Appointing/Dismissing Senior Management and Nominating Director Candidates," the Company has made a certain degree of progress in achieving balance and diversity among the Board of Directors as a whole. The Company will investigate means of promoting greater diversity in the future on an ongoing basis.

In terms of the skill matrix, the Board of Directors is currently debating the format of the Board of Directors in light of those changes in the environment that are expected to occur in the future. Tokuyama is investigating a skill matrix that reflects these discussions. The skill matrix is scheduled to be published in the Notice of Convocation of next General Shareholder Meeting.

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

Principle 1-4 [Policy on the Holding of Listed Shares for Purposes Other Than Pure Investment]

The Company holds shares of publicly listed companies on a strategic basis in accordance with the necessities of its business activities as a part of its overall management strategy.

This includes the need to maintain and bolster transactions, raise funds and stably procure raw materials. As far as the strategic holding of shares in publicly listed companies is concerned, the Company will limit its holdings to the minimum level possible taking into consideration the need to ensure efficient corporate management. It sold all shares of two listed issue in FY2020, resulting in a total of 22 listed issues of shareholdings as of March 31, 2021.

In addition, the Board of Directors takes steps to verify the economic rationality of holding shares in publicly listed companies by comparing capital costs that factor in associated risks with accrued benefits while confirming the propriety of its holdings based on an outlook of the future each year.

Principle 1-7 [Transactions with Related-Parties]

In accordance with the "Rules for the Board of Directors," the Company requires the prior approval of the Board of Directors, as well as subsequent reporting to the same, for any competitive transaction, proprietary transaction, or transaction that may involve a conflict of interest.

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Supplementary Principle 2-4-1 [Ensure Diversity]

In addition to instilling the four values stated in the Tokuyama Vision, Tokuyama is actively engaged in developing talent and promoting diversity in a way that ensures every employee can make the most of their individuality and abilities.

Tokuyama's diversity promotion activities are aimed at creating a situation in which our employees can work with energy and succeed as a means of driving the sustainable growth of the Company. Tokuyama values diversity of knowledge and intelligence, and seeks to create workplaces that are pleasant and motivating, while aiming to improve productivity, by reforming the workplace culture. In March 2019, we included prioritizing diversity and motivation as one item of materiality that was extracted and identified as a very important issue from the perspective of practicing CSR. In the "Medium-Term Management Plan 2025," published in February 2021, we defined the practice of socially responsible management as one of our priority issues, and are working to solve and achieve materiality by concentrating management resources on this matter.

Moreover, Tokuyama introduced a multiple career-path personnel system in 2020 to accommodate employees with diverse value systems and work styles. Along with establishing training systems that correspond to the role and course of each employee, we are also engaged in developing talent by offering open-enrollment training programs. We have also begun increasing the number of mid-career hires appointed to management positions, and are promoting initiatives that enable a diverse range of employees to succeed.

Details on our human resources development system and targets regarding the promotion of opportunities for women are available on the Company's website (https://www.tokuyama.co.jp/csr/employee.html).

Principle 2-6 [Roles of Corporate Pension Funds as Asset Owners]

The Company has established a basic investment policy with the goal of ensuring the income required to reliably provide pension benefits to beneficiaries over the long term. While striving to ensure the expertise and reliability of fund management through the use of management consultants, the Company in accordance with this policy also appoints investment trustees, monitors reports from the investment trustees on a regular basis, and conducts appropriate management operations, including quantitative and qualitative evaluations, to avoid any conflicts of interest. In addition, the Company has established a Pension Investment Committee chaired by the General Manager of the General Affairs and Human Resources Division and composed of pension investment managers with a high level of expertise in the field and the Chairman of the Labor Union Executive Committee, who acts as a representative of the beneficiaries. The committee meets on a regular basis to confirm financial conditions and investment performance, and provides reports directly to management.

Principle 3-1- (I) Corporate Mission (management philosophy, etc.), Management Strategies, and Management Planning

In recognition of greater environmental awareness around the globe and the rapid advancement of the digital revolution as the current historical context, the Company redefined its Mission in 2021.

In addition, the Company declared the Vision for which it aims in order to achieve its Mission. Each employee continuously moves forward to realize this Vision with four Values.

Mission

To create a bright future in harmony with the environment, in collaboration with its customers, based on chemistry

Visions

• Be a value-creative company that places first priority on R&D and marketing
• Be a company that never stops challenging new domains while refining and exploiting its unique strengths
• Be a company with healthy employees who have healthy families and take pride in their work at their company
• Be a company that fosters bonds with people in communities and societies worldwide

Values

• Commitment to customer satisfaction as a profit source
• A broader, loftier perspective
• Employees who consistently surpass their predecessors
• Integrity, perseverance, a playful sprit and boldness

The Management Policy and Medium-term Management Plan are available on the Company's public website

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(http://www.tokuyama.co.jp/).

Principle 3-1- (Ⅱ) [Basic Views and Guidelines on Corporate Governance based on Each of the Principles of the Corporate Governance Code]

Please refer to "I-1 Basic Views" in this report.

Principle 3-1- (Ⅲ) [Board Policies and Procedures in Determining the Remuneration of the Senior Management and Directors]

For details regarding the policy for determining the remuneration of directors, please refer to the "Disclosure of Policy for Determining Remuneration Amounts and Calculations Methods" section in the portion dedicated to director remuneration in the "II-1. Organizational Composition and Operation" section of this report.

Principle 3-1- (Ⅳ) [Policies and Procedures When the Board of Directors Selects/Dismisses Management Executives and Nominates Director and Auditor Candidates]

To enable the direction and supervision of business execution as well as appropriate decision making with regard to the Company's business operations, which are centered on chemicals, the selection of executive officers and the nomination of internal candidates for directorships appoints people who are well-balanced in terms of their knowledge of each business segment and area as well as the experience they possess. Taking into consideration the balance and diversity of the Board of Directors as a whole, steps are also taken to add external directors with a high level of insight and diverse experience.

When selecting and dismissing executive officers and nominating director candidates (excluding directors who

are Audit and Supervisory Committee members), discussions are held at a Human Resources Committee meeting in advance of the subject appearing on the agenda at a Board of Directors' meeting. The Human Resources Committee is an entity that comprises representative directors and external directors. The Board of Directors makes its decisions in response to the Human Resources Committee's report.

In regard to the selection and dismissal of the President and Executive Officer, the President Nomination Committee deliberates on these matters, and the details of these deliberations are then presented to the Board of Directors following a report by the Human Resources Committee, at which point the Board of Directors makes a decision.

In the case of the nomination of directors who are Audit and Supervisory Committee member candidates, the Board of Directors makes its decisions after receiving the assent of the Audit and Supervisory Committee.

Principle 3-1- (ⅴ) [Explanations with Respect to Individual Appointments and Dismissals when the Board

of Directors, based on (iv) above, Nominates Director Candidates or Appoints/Dismisses Senior Management Personnel.

For an explanation regarding the appointment and nomination of individual directors and executive officers, please see the appendix at the end of this report.

This report also covers matters related to the appointment and independence of outside directors.

Supplementary Principle 3-1-3 [Sustainability Disclosures]

In response to worsening climate change and the trend towards practicing ESG within society, the "Medium-Term Management Plan 2025," published in February 2021, raises the three priority issues of "transform business portfolio," "contribute to mitigation of global warming," and "practice socially responsible management."

"Transform business portfolio" aims to transform the Company's portfolio from its current reliance on

energy-intensive businesses to sustainable businesses that are energy efficient and serve to solve social issues. "Contribute to mitigation of global warming" raises and aims to steadily achieve the lofty goal of "carbon neutrality by FY2050." As part of "Practice socially responsible management," we have positioned the CSR priority issue of "materiality" as a specific action objective for achieving the "Vision" included in the Medium-Term Management Plan, and will build a solid foundation for growth by faithfully engaging in these efforts.

In February 2021, Tokuyama publicly endorsed the "Task Force on Climate-Related Financial Disclosures (TCFD)" recommendations. Going forward, we will actively disclose climate-related information with the potential to financially impact the Company through an analysis of risks and opportunities based on the TCFD recommendations.

Moreover, Tokuyama aims to be a company that creates value and provides solutions which places first priority on R&D and marketing, and recognizes that investing in intellectual property is essential for realizing this goal. In addition, we have raised developing human resources as a materiality, under which we aim to develop and strengthen those human resources that will serve as a source of corporate competitiveness, and to enrich those

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human resources that will be responsible for future generations. Similarly, we have clarified the types of personnel and skills required for each occupation, and are engaging in efforts to improve and enrich the education system. Tokuyama also introduced a multiple career path personnel system, and has established a framework for implementing rotations and assignments that realize employee career plans. Information regarding the Company's intellectual property and human resources development has been disclosed in the integrated report (Tokuyama Report).

Supplementary Principle 4-1-1 [Duties of the Board of Directors and the Scope of Management Delegation]

Matters requiring resolutions by the Board of Directors in accordance with laws and regulations or the Articles of Incorporation, as well as important management matters are resolved by the Board of Directors in accordance with the "Rules for the Board of Directors" and the "Rules for Decision Making," while matters related to business execution are delegated system specifically designed for the execution of business.

Supplementary Principle 4-1-3 [Chief Executive Officer Succession Plan]

In August 2021, Tokuyama newly established the "President Nomination Committee," which serves to formulate, implement, and deliberate on the Chief Executive Officer (President and Executive Officer) Succession Plan, and functions to report to the Human Resources Committee.

The actions of the President Nomination Committee are regularly reported to the Board of Directors by the Human Resources Committee, and are appropriately audited by the Board, in order to ensure that sufficient time and resources are invested in the systematic training of succession candidates based on the Mission,Vision and management strategies of the Company.

Principle 4-9 [Criteria for Defining the Independence of External Directors]

With regard to its Criteria for Defining the Independence of External Directors, the Company adjudges those who do not fall into any of the following categories as demonstrating sufficient independence.

1. Persons who are not currently nor in the past 10 years been engaged in the execution of business operations of the Company or its affiliated companies*1.
2. Persons who are not currently nor in the past three years been engaged in the execution of business operations of a major trading partner of the Company, or executives thereof. However, the Company's major trading partners are defined as those that fall into either of the following categories:
   (1) Financial institutions that have financed more than 2% of the Company's total borrowings.
   (2) Trading partners that account for more than 2% of the Company's consolidated net sales.
3. Persons who currently deem or in the past three years have deemed the Company or an executive thereof to be a major trading partner. However, persons who deem the Company to be a major trading partner are defined as those cases in which the amounts paid by the Company account for 2% or more of the said trading partner's consolidated sales.
4. Consultants, accountants or legal professionals who currently receive or in the past three years have received large financial considerations or other property*2 from the Company besides their compensation as a director/auditor. (If the entity in receipt of the assets is an organization, such as a legal entity or an association, the person who belongs to such organization.) However, includes those that fall into either of the following categories:
   (1) Auditors who are responsible for the statutory audit of the Company.
   (2) Law firms that serve as legal counsel to the Company.
5. Spouses or relatives within the second degree of kinship of the relevant persons in the sections above (but limited to important persons*3.
   *1 Pursuant to Article 2, Paragraph 3, Item 6 of the Ordinance for Enforcement of the Companies Act of Japan. *2 In the case of an individual, a substantial compensation payment is defined as an annual amount of
   compensation that exceeds 10.0yen million, and in the case of an organization, an amount of 2% or more of the annual total income of that organization.
   *3 In the case of a company, important persons are defined as those who hold the responsible positions of director, executive officer, operating officer and positions equivalent to manager; in the case of an accounting office and audit corporation, certified accountants; in the case of law offices and legal corporations, lawyers; and in the case of a tax accountant office and tax accountant corporation, tax accountants. In other organizations, an important person means directors, such as a director or a councillor.

Supplementary Principle 4-10-1 [Independent Nomination/Remuneration Committee]

To improve independency and objectivity, director and executive officer nominations and remuneration are deliberated by the Human Resources Committee, of which independent outside directors make up the majority of members in addition appropriate reports and recommendations are provided to the Board of Directors.

The Chief Executive Officer (President and Executive Officer) Succession Plan is implemented in a more

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focused, professional manner by the President Nomination Committee, which was established within the Human Resources Committee. The President Nomination Committee is only attended by one internal director, namely the President and Executive Officer), and independent outside directors account for the majority of members and serve as the chairperson.

Supplementary Principle 4-11-2 [Status of Directors Concurrently Serving as Officers at Other Listed Companies]

When a director at the Company assumes the position of director or auditor at another company, the Board of Directors of the Company is charged with determining whether there is any conflict of interest. For outside directors, the Board of Directors confirms that individuals serving in concurrent positions have the time and ability to fulfill their roles and responsibilities to the Company.

Information regarding outside directors is disclosed in the portion dedicated to directors in the "II-1. Organizational Composition and Operation" section of this report.

Supplementary Principle 4-11-3 [Analysis and Evaluation of Overall Effectiveness of the Board of Directors]

To secure a highly transparent and fair process, the Company undertook an evaluation of the effectiveness of its Board of Directors through an external organization.

This organization conducted a survey of all directors in April 2021, the results of which it then analyzed and reported to the Board of Directors in May 2021.

Although issues pointed out during the previous fiscal year were found to have improved to a certain degree, the report indicated there were still several issues with Group company risk management.

The report largely confirmed that the effectiveness of the Board of Directors during the fiscal year under review had been secured. However, it also indicated there were needs beyond simply effectively monitoring the priority issues formulated in the Medium-term Management Plan and sporadically discussing investment matters at such times. These needs included the importance of organizing issues from a groupwide perspective, conducting risk analyses, and establishing a location for concrete discussions regarding plans to overcome these risks.

The Company will improve the effectiveness of the Board of Directors on an ongoing basis.

Supplementary Principle 4-14-2 [Policy on Training Directors]

The Company has maintained a policy of requiring newly appointed directors to participate in external executive training since 2001. Since the introduction of the executive officer system in 2011, the Company has maintained a policy of also involving newly appointed executive officers who are candidates to be future directors.

The content of the training program can be based on the experience and knowledge of the individual, but with corporate governance in mind, required content includes "legal affairs and corporate governance" and "accounting and finance." The Company also allows participants to attend external seminars related to their corporate responsibilities on their own.

Outside directors are given the opportunity to learn about the Company when they take office, including through facility visits and in respect to the current condition of operations and the Company's businesses.

Finally, the Company also holds study sessions when needed for all directors in order to better understand domestic and international economic conditions, legal revisions, and new systems.

Principle 5-1 [Policy on Constructive Dialogue with Shareholders]

In order to gain the understanding and trust of our shareholders and investors, the Company strives to disclose not only management and financial information, but also non-financial information, including in regard to the products and services it provides to society, as well as in regard to information related to environmental and social subjects in a timely, appropriate, and easy-to-understand manner. For information on the Company's basic stance on disclosing information and its timely disclosure system, please see "V-2. Other Matters Concerning to Corporate Governance System in this report.

The section chief of the Corporate Communication and Investor Relations Department will take the role of promoting constructive dialogue with shareholders and investors.

The Corporate Communication and Investor Relations Department works closely with other internal departments, including the Corporate Strategic Planning Department , the Corporate Accounting Department, the Finance and Investment management Department, the Corporate Social Responsibility Planning Department, the General Affairs Department, the Research and Development Division, and business divisions in the planning and promotion of dialogue.

In regard to IR activities in which executives communicate with shareholders and investors directly, the Company holds a results briefing session for analysts and institutional investors four times a year, and participates in conferences and small meetings held by securities firms whenever necessary. The Corporate Communication and Investor Relations Department, which is in charge of IR activities, holds interviews with institutional investors

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