Ube Industries : (Delayed) Corporate Governance Report

Note: This English translation is for reference purposes only and is based on an original document submitted to the Tokyo Stock Exchange on July 5, 2021, in Japanese. In the event of any discrepancy between the Japanese original and this English translation, the original shall prevail. Ube Industries assumes no responsibility for this translation or for any direct, indirect or other form of damages arising from the translation.

Corporate Governance Report

Last Update: July 5, 2021

Ube Industries, Ltd.

Masato Izumihara, President and Representative Director

Contact: Finance & Investor Relations Department.

Securities Code: 4208

http://www.ube.co.jp

The corporate governance of Ube Industries, Ltd. ("UBE" or the "Company") is described below.

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

1. Basic Views

The basic mission of the UBE Group, comprising UBE and its Group companies, is to secure sustainable growth throughout the Group and enhance corporate value over the medium and long term. To achieve these goals, as a company with an Audit and Supervisory Committee, UBE believes it is important to establish effective corporate governance to enable the UBE Group to ensure the sustainability of appropriate business activities, and fulfill its responsibilities to all stakeholders including shareholders, customers, business partners, employees, and communities, while striving to earn their confidence. This is achieved through the establishment of a system by which directors who are Audit and Supervisory Committee members with the right to conduct audits and state opinions have voting rights at the Board of Directors, thereby strengthening the supervisory function of the Board of Directors over business execution and speeding up business execution by delegating important decisions on business execution to the President and Representative Director.

Going forward, UBE will continue striving to enhance corporate governance, which includes streamlining management, increasing transparency, speeding up decision-making, clarifying management responsibility, and strengthening management oversight functions.

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

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With regard to Supplementary Principle 4-8-1, which was one of the items that the Corporate Governance Report dated April 1, 2021 stated had not been implemented, UBE has held meetings composed solely of independent outside directors since April 2021.

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[Supplementary Principle 4-8-1]

With the aim of exchanging information and creating a common awareness, UBE holds meetings composed solely of independent outside directors as well as meetings with the participation of a non-executive inside director (Chairman of the Board) as well as the independent outside directors regularly as needed, in order to provide internal information and deepen discussion.

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[Principle 4-11]

In order to achieve appropriate decision-making and management supervision for a wide range of business activities in sectors including chemicals,, construction materials, and machinery, UBE appoints and nominates persons with a wealth of business and operational experience as directors (excluding directors who are Audit and Supervisory Committee members and outside directors), and persons with an independent and objective viewpoint and a high level of insight who are able to actively express their opinions and make recommendations as outside directors. In addition, the Board of Directors is composed of directors with extensive experience and a high level of expertise in the areas of general business management and management strategy, finance and accounting, manufacturing, technology and research and development, sales and marketing, compliance and risk management, human resource management, and internationalization, which ensures diversity. UBE appoints persons with the appropriate experience and skills as well as the required knowledge of finance, accounting and law as directors who are Audit and Supervisory Committee members. The number of directors is specified as 10 or less (excluding directors who are Audit and Supervisory Committee members), and the number of directors who are Audit and Supervisory Committee members is specified as five or less in the Articles of Incorporation. The Board of Directors is currently composed of six directors, two of whom are outside directors (excluding directors who are Audit and Supervisory Committee members), and three directors who are Audit and Supervisory Committee members, two of whom are outside directors. UBE has determined that the effectiveness of the Board of Directors and the Audit and Supervisory Committee can be ensured through these measures.

UBE convenes an annual Evaluation Meeting for Effectiveness of the Board of Directors composed of outside directors and non-executive inside directors to hold deliberations on evaluating the effectiveness of the Board of Directors, based on directors' self-assessment of the Board of Directors (to be obtained through questionnaires, etc.). The Board of Directors receives a report on these deliberations and conducts an evaluation of its effectiveness. As a result, an evaluation was obtained that the composition and operation of the Board of Directors is appropriate and that vigorous discussion and deliberation is conducted, determining that the effectiveness of the Board of Directors is ensured.

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

[Principle 1-3]

UBE considers a balance of sustained growth and a stable financial base to be conducive to the interests of shareholders. Consequently, in view of the outcomes of financial structure reform to date, the Company plans to actively implement capital expenditure and M&As required to expand profits and strengthen the business base while being fully aware of the risks posed by a deterioration in the financial position over the long term.

UBE's basic policy is to pay stable dividends consistently. In principle, the Company will set a dividend on equity ratio (DOE) of at least 2.5% as well as a total return ratio (consolidated) combined with the buyback of shares that is 30% or higher over the three-year period of the Medium-Term Management Plan from 2019. The Company will also actively engage in growth investment in accordance with the status of equity capital and cash flow to contribute to the enhancement of corporate value, thereby further enhancing future shareholder returns.

[Principle 1-4]

UBE may hold listed stock when it is deemed necessary to maintain and strengthen business alliances and trading relationships and to smoothly promote the Company's business activities. Every year, the Board of Directors verifies individual securities and comprehensively determines whether the shareholding is appropriate in consideration of the Company's capital costs, based on a policy of reducing cross-shareholdings for which there is considered to be insufficient justification.

Moreover, in the exercise of voting rights for strategic shareholdings, UBE determines its approval and disapproval for proposals after a comprehensive judgement based on whether the proposal will produce a return for the Company through an increase in the shareholder value of the investee company.

[Supplementary Principle 1-4-1]

When a cross-shareholder indicates an intention to sell shares, UBE accepts the sale without obstruction.

[Supplementary Principle 1-4-2]

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UBE does not and will not engage in transactions with cross-shareholders which may harm the common interests of the companies or their shareholders by, for instance, continuing the transactions without carefully examining the underlying economic rationale.

[Principle 1-6]

UBE understands that its capital strategies have a major impact on the interests of shareholders and does not implement capital strategies that are likely to unfairly damage the interests of existing shareholders. When a capital increase is required such as for a large-scale M&A, the Board of Directors and Audit and Supervisory Committee thoroughly study the necessity and rationality from the viewpoint of fulfilling the fiduciary responsibility to shareholders and ensure the appropriate procedures in addition to providing a full explanation to shareholders.

[Principle 1-7]

The Board of Directors has stipulated in the Regulations of the Board of Directors that transactions between directors and the Company shall be approved by the Board of Directors. With regards to an actual transaction, the Board of Directors will deliberate on and approve the appropriacy of the substance of the transaction in advance from the viewpoint of whether it will damage the common interests of the Company and the shareholders in addition to receiving a report on the outcome of the transaction. The same procedure shall also be followed when a transaction with a major shareholder is to take place.

[Principle 2-6]

UBE has established an Asset Management Committee composed of officers and employees with knowledge and experience in personnel, finance, and investor relations in order to ensure the appropriate management of pension fund assets. The Asset Management Committee has formulated a policy asset mix and investment style that forms the basis for controlling risk and achieving the prospective yield. Based on this, the committee entrusts asset management to asset management institutions and receives periodic reports from each institution on investment performance, management systems, status of stewardship activities, and so forth, so that it may perform comprehensive evaluations and remove or appoint asset management institutions. The committee also manages any conflict of interest that may arise between the beneficiaries of the corporate pension plan and the Company appropriately.

[Principle 3-1]

1. The management philosophy has been set forth as "coexistence and mutual prosperity" and "from finite mining to infinite industry" since the foundation of the Company. UBE has also published its management strategy and management plan on its corporate website.
   https://www.ube-ind.co.jp/ube/en/corporate/management/vision.htmlhttps://www.ube-ind.co.jp/ube/en/corporate/management/strategy.html
2. Basic approach and basic policy on corporate governance

The basic approach and policy on corporate governance of the UBE Group, comprising UBE and its Group companies, are as described in "I-1. Basic Views," "II-3. Reasons for Adoption of Current Corporate Governance System" and "IV-1. Basic Views on Internal Control System and the Progress of System Development" in this report.

1. The policy and procedures for determining the remuneration of directors are as described in "Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods" in "Director Remuneration" under "II-1. Organizational Composition and Operation" in this document.
2. In order to achieve appropriate decision-making and management supervision for a wide range of business activities in sectors including chemicals, construction materials, and machinery, UBE nominates and appoints persons with a wealth of business and operational experience as directors (excluding outside directors) as well as management executives, and persons with an independent and objective viewpoint and a high level of insight who are able to actively express their opinions and make recommendations as outside directors. UBE also dismisses such persons when it is deemed that these functions are not adequately performed.
   Moreover, in terms of the procedures for appointments, dismissals and nominations of directors (excluding directors who are Audit and Supervisory Committee members), the Board of Directors makes resolutions following deliberations by the Nominating Committee, which is under the Board of Directors, and
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the resolutions of the Board of Directors are discussed and approved by the general meeting of shareholders. For appointments, dismissals and nominations of directors who are Audit and Supervisory Committee members, the Board of Directors makes resolutions following deliberations by the Nominating Committee, and after obtaining the agreement of the Audit and Supervisory Committee, the resolutions of the Board of Directors are discussed and approved by the general meeting of shareholders. The Board of Directors determines appointments, dismissals and nominations of management executives following deliberations by the Nominating Committee.

1. The reasons for the appointment or dismissal of directors (excluding directors who are Audit and Supervisory Committee members) and directors who are Audit and Supervisory Committee members are published in the notice of convocation for the ordinary general meeting of shareholders.
   https://www.ube-ind.co.jp/ube/en/corporate/shareinfo/meeting.html

[Supplementary Principle 3-1-1]

In disclosing the aforementioned information (including disclosures in compliance with laws and regulations), the Board of Directors strives to ensure accuracy while making the disclosures as easy to understand as possible.

[Supplementary Principle 4-1-1]

In accordance with legislation, the Articles of Incorporation, and the Regulations of the Board of Directors, the Board of Directors decides on key management matters (including basic company policies and important matters from the viewpoint of monetary amounts and risks), and decisions for other matters are delegated to the President and Representative Director.

[Supplementary Principle 4-1-3]

The Nominating Committee, which is a subordinate committee to the Board of Directors, holds deliberations regularly on succession planning for the President and Representative Director and other officers, and the Board of Directors provides supervision based on these deliberations. The Nominating Committee ensures independent and objective advisory functions, since outside directors (excluding directors who are Audit and Supervisory Committee members) account for a majority of the members and an outside director serves as the chair.

[Supplementary Principle 4-2-1]

The Remuneration Committee, which is a subordinate body to the Board of Directors, holds deliberations on remuneration for the directors (excluding directors who are Audit and Supervisory Committee members) and executive officers, which is then determined by the Board of Directors. The Remuneration Committee ensures independent, objective, and effective advisory functions, since outside directors (excluding outside directors who are Audit and Supervisory Committee members) account for a majority of the members and an outside director serves as the chair. Remuneration for directors who are Audit and Supervisory Committee members is determined by the Audit and Supervisory Committee. The details of remuneration are as described in "Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods" in "Director Remuneration" under "II-1. Organizational Composition and Operation" in this document.

[Supplementary Principle 4-3-2] and [Supplementary Principle 4-3-3]

The Nominating Committee, which is a subordinate committee to the Board of Directors, holds deliberations on the appointment or dismissal of the President and Representative Director, which is determined by the Board of Directors. The Nominating Committee ensures independent, objective, and effective advisory functions, since outside directors (excluding directors who are Audit and Supervisory Committee members) account for a majority of the members and an outside director serves as the chair.

[Principle 4-8]

UBE appoints four of its nine directors as independent outside directors who fulfill the standards on independence stipulated by financial instruments exchanges and the Company. The Company believes that the four independent outside directors contribute to its sustained growth and enhancement of corporate value over the medium and long term.

[Principle 4-9]

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In addition to the standards of independence stipulated by financial instrument exchanges, UBE's criteria for independence include judgements based on the confirmation of current circumstances in the event that there has been any conflict with standards of independence in the past.

Moreover, in addition to independence, the Board of Directors endeavors to select persons who can be expected to contribute to constructive discussions at the Board of Directors in a candid and active manner as candidates for independent outside directors.

[Supplementary Principle 4-10-1]

UBE has adopted a "company with an audit and supervisory committee" system. The Audit and Supervisory Committee consists of three directors including two outside directors. In addition, four of the nine directors at UBE are independent outside directors, which is not a majority. However, UBE has established a structure which obtains appropriate involvement and advice from independent outside directors through the Nominating Committee and the Remuneration Committee. Both are optional committees under the law, and two of the three members of each committee are independent outside directors, accounting for a majority, and an independent outside director serves as the chair of each committee.

[Supplementary Principle 4-11-1]

In order to ensure appropriate decision-making and management supervision for a wide range of business activities in sectors including chemicals, construction materials, and machinery, the Board of Directors has a basic policy of appointing and nominating persons with a wealth of business and operational experience as directors (excluding directors who are Audit and Supervisory Committee members), and persons with an independent and objective viewpoint and a high level of insight who are able to actively express their opinions and make recommendations as outside directors. In addition, the Board of Directors is composed of directors with extensive experience and a high level of expertise in the areas of general business management and management strategy, finance and accounting, manufacturing, technology and research and development, sales and marketing, compliance and risk management, human resource management, and internationalization, which ensures diversity. The Articles of Incorporation specify the number of directors (excluding directors who are Audit and Supervisory Committee members) as 10 or less, and the number of directors who are Audit and Supervisory Committee members as five or less. The Board of Directors is currently composed of six directors, two of whom are outside directors (excluding directors who are Audit and Supervisory Committee members), and three directors who are Audit and Supervisory Committee members, two of whom are outside directors. The appointment of candidates for director (excluding directors who are Audit and Supervisory Committee members) is discussed and approved by the general meeting of shareholders after a resolution of the Board of Directors following deliberation by the Nominating Committee. The appointment of candidates for director who are Audit and Supervisory Committee members is discussed and approved by the general meeting of shareholders after a resolution of the Board of Directors based on the agreement of the Audit and Supervisory Committee following deliberation by the Nominating Committee.

[Supplementary Principle 4-11-2]

UBE reports on the situation of important concurrent service for directors in the notice of convocation for the ordinary general meeting of shareholders.

https://www.ube-ind.co.jp/ube/en/corporate/shareinfo/meeting.html

Moreover, when an outside director of UBE is to serve concurrently as an officer at another listed company, UBE confirms in advance that there will be no impediment to the Company's operations.

[Supplementary Principle 4-11-3]

UBE convenes an annual Evaluation Meeting for Effectiveness of the Board of Directors composed of outside directors and non-executive inside directors to hold deliberations on evaluating the effectiveness of the Board of Directors, based on directors' self-assessment of the Board of Directors (to be obtained through questionnaire, etc.). The Board of Directors receives a report on these deliberations and conducts an evaluation of its effectiveness.

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