Corporate Governance

Why SUMCO Tackles Corporate Governance

SUMCO recognizes that it is a critical management challenge to fulfill its mandate from shareholders by achieving sustainable growth and improving corporate value in the medium-to-long-term, while building and maintaining positive relationships with other stakeholders. Based on this recognition, SUMCO pursues a range of measures related to corporate governance, such as reinforcing the auditing and supervisory functions of the Board of Directors, ensuring efficiency in how Directors execute their duties and improving internal controls within the SUMCO Group, in order to achieve swift management decision-making and to ensure transparency and fairness in the execution of business.

Basic Stance on Corporate Governance Structure

SUMCO is organized as a company with an Audit and Supervisory Committee. By adopting this system, the effectiveness of supervision and auditing has been enhanced through audits conducted by Directors who are Audit and Supervisory Committee Members and have voting rights at Board of Directors meetings. In addition, the effectiveness of internal controls has been enhanced through audits conducted in cooperation with the Internal Audit Department.

Corporate Governance Structure

Board of Directors

SUMCO's Board of Directors comprises internal Directors with a proven record of performance in their respective areas of responsibility and outstanding management abilities, along with Outside Directors with expert knowledge and extensive experience, based on the basic stance of SUMCO to ensure an overall balance and diversity in knowledge, experience and capabilities of the Board of Directors. The Board of Directors comprises six Directors (excluding Directors who are Audit & Supervisory Committee Members; one of whom is an Independent Outside Director) and six Directors who are members of the Audit & Supervisory Committee (five of whom are Independent Outside Directors).
In accordance with legal statutes, the Articles of Incorporation and the Rules of the Board of Directors, the Board of Directors makes decisions on management strategy, management plans, and other such important matters relating to business. It receives reports from every Director on the status of the execution of duties and it exercises supervision of compliance, internal controls, risk management, and important business execution at affiliated companies. With the participation of Independent Outside Directors, the Board of Directors also engages in the free exchange of opinions regarding the appropriate evaluation of company performance and related matters, and reflects that evaluation in the personnel administration of senior management members.
It is also our basic company policy that matters relating to financial results and so on, matters relating to management plans, and the execution of other such important operations should be decided after adequate discussion by the Board of Directors, including the Independent Outside Directors. For this reason, the Articles of Incorporation do not stipulate that decisions on the execution of important business can be delegated to each Director.
The effectiveness of the Board of Directors is evaluated each year in order to continually enhance the effectiveness of corporate governance.
In fiscal year 2023, the Board of Directors met 16 times to discuss important matters concerning management, address issues identified in the Board of Directors effectiveness evaluation conducted in the previous fiscal year, and discuss the remuneration policy and method for determining remuneration of Directors (excluding Directors who are Members of the Audit & Supervisory Committee) and the amount of remuneration for individuals.

Directors

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Position in the Company	Name	Skills (expertise, experience, capability, etc.) possessed by each Director
Position in the Company	Name	Corporate Management	Finance/ Accounting	Legal Affairs/ Compliance	Sales/ Marketing	Internationality/ Globality	Technology/ Manufacturing/ IT	Human Resources Management/ Human Resources Development
Director^*1 Chairman of the Board	Mayuki Hashimoto	●	●			●	●	●
Director^*1	Toshihiro Awa	●			●	●		●
Director^*1	Jiro Ryuta	●			●	●	●	●
Director^*1	Shinichi Kubozoe	●	●					●
Director	Takeo Katoh	●			●	●	●	●
Director^*2	Akane Kato	●				●		●
Director Full-time Audit and Supervisory Committee member	Atsuro Fujii	●	●	●		●		●
Director^*2 Audit and Supervisory Committee member	Hitoshi Tanaka			●				●
Director^*2 Audit and Supervisory Committee member	Masahiro Mitomi	●	●			●		●
Director^*2 Audit and Supervisory Committee member	Shinichiro Ota	●		●		●		●
Director^*2 Audit and Supervisory Committee member	Masahiko Sue					●	●	●
Director^*2 Audit and Supervisory Committee member	Amy Shigemi Hatta	●	●			●		●

*1Representative Director
*2Independent Outside Director

Independent Outside Directors

SUMCO has appointed six Independent Outside Directors. One is a person with expert knowledge of human resource development and organizational operation as well as experience in corporate management; one is an attorney; one is a certified public accountant and management consultant who has considerable knowledge and experience in finance and accounting; one is a person with wide experience and knowledge cultivated through experience in the public sector as well as many years of experience in corporate management; one is a person with expert knowledge and experiences in data science, etc., cultivated through experience in the public sector and education fields; and one is a person with expert knowledge and experience related to the capital market, cultivated through experience in pension investment institutions and institutional investors.
Each Outside Director satisfies SUMCO's "Criteria of Independence" established in accordance with Tokyo Stock Exchange standards on the independence of Independent Directors, and has been verified to be free of potential conflicts of interest with general shareholders.
In an effort to ensure the sustained growth of the SUMCO Group and increase its corporate value over the medium-to-long-term, the Independent Outside Directors provide advice on important matters related to management based on their own individual knowledge and take the perspective of minority shareholders and other stakeholders in supervising management. They participate in the appointment of candidates for Director and other important decision-making by the Board of Directors, and supervise business execution by the Board of Directors, senior management and others as well as conflicts of interest between SUMCO and senior management and others.

Audit and Supervisory Committee

SUMCO's Audit and Supervisory Committee is made up of six Directors who are Audit and Supervisory Committee Members (five, a majority, of whom are Independent Outside Directors). In order to ensure the effectiveness of Audit and Supervisory Committee activities, permanent Audit and Supervisory Committee Members are put in place by mutual voting among Audit and Supervisory Committee Members. In addition, it is SUMCO's basic policy to take steps to ensure that at least one Audit and Supervisory Committee Member has considerable knowledge and experience pertaining to finance and accounting. Currently, this is Mr. Masahiro Mitomi, who is also a certified public accountant. Additionally, SUMCO has established the Audit and Supervisory Committee Office and assigns staff to support the activities of the Committee and facilitate the smooth performance of its audit and supervisory functions.
The Audit and Supervisory Committee exercises its statutory right of investigation and audits the Directors' execution of their duties from the viewpoints of appropriateness and conformance with laws and regulations and the Articles of Incorporation by inspecting and confirming the status of compliance with laws and regulations, Articles of Incorporation, and so on, and by monitoring and otherwise supervising the development of and operational status of the system of internal controls, including the internal control of financial reporting.

Nomination and Remuneration Committee

In an effort to further enhance its corporate governance, SUMCO has established a Nomination and Remuneration Committee composed of one Representative Director (Director Mayuki Hashimoto) and three Independent Outside Directors (Directors Hitoshi Tanaka, Masahiro Mitomi and Shinichiro Ota) to serve as a discretionary advisory body for the Board of Directors. The Nomination and Remuneration Committee receives requests from the Board of Directors for advice on the process for selection of candidate Directors and Executive Officers of SUMCO, their qualifications, the reasons for their designation, the structure of remuneration for Directors (excluding Directors who are Audit and Supervisory Committee Members) and Executive Officers, and related matters. The committee deliberates on the appropriateness and other aspects of the matter referred, including the perspectives of gender and other diversity as well as expert knowledge and experience, and, also taking evaluations of SUMCO’s performance into account, delivers its advice. The Board of Directors, receiving the findings of the Nomination and Remuneration Committee, designates candidate Directors and Executive Officers, and decides on the remuneration and other payments for Directors (excluding Directors who are Audit and Supervisory Committee Members).
The Nomination and Remuneration Committee convened three times in fiscal year 2023, with full attendance each time. The main activities undertaken by the Nomination and Remuneration Committee are as follows:

Deliberation over the selection of candidate Directors and personnel matters concerning Executive Officers
Deliberation over the systems for remuneration of Directors (excluding Directors who are Audit and Supervisory Committee Members) and Executive Officers
Deliberation concerning the individual remuneration amounts of Directors (excluding Directors who are Audit and Supervisory Committee Members)

Board of Directors/Audit & Supervisory Committee Meetings in Fiscal Year 2023

Board of Directors

Name	Times Attended/ Times Held	Attendance
Mayuki Hashimoto	16/16	100%
Michiharu Takii	16/16	100%
Toshihiro Awa	16/16	100%
Jiro Ryuta	16/16	100%
Akane Kato^(*)	16/16	100%
Fumio Inoue	16/16	100%
Hitoshi Tanaka^(*)	16/16	100%
Masahiro Mitomi^(*)	16/16	100%
Shinichiro Ota^(*)	16/16	100%
Masahiko Sue^(*)	16/16	100%

Audit & Supervisory Committee

Name	Times Attended/ Times Held	Attendance
Fumio Inoue	13/13	100%
Hitoshi Tanaka^(*)	13/13	100%
Masahiro Mitomi^(*)	13/13	100%
Shinichiro Ota^(*)	13/13	100%
Masahiko Sue^(*)	13/13	100%

(*)Independent Outside Director

Executive Remuneration

Matters regarding policy regarding amounts of remuneration and other payments to officers and determination of calculation method

Details of the Remuneration Policy

The Company’s basic policy for the remuneration of Executive Directors stipulates that the remuneration of Executive Directors comprises a basic remuneration, performance-linked monetary remuneration based on short-term performance, and performance-linked stock remuneration based on medium-to-long term corporate value, which are set within the total remuneration amount determined by resolution of the General Meeting of Shareholders and according to their office and rank. This policy aims to allow Executive Directors to share the interests and risks with shareholders and encourage them to contribute to the improvement of business performance and the medium-to-long term enhancement of corporate value.
Outside Directors and Directors who are Audit and Supervisory Committee Members receive basic remuneration that is only fixed remuneration from the perspective of ensuring the appropriate conduct of their duties such as auditing and the supervision of the execution of business operations. Remuneration for Directors who are Audit and Supervisory Committee Members is determined through deliberations of the Audit and Supervisory Committee Members within the total amount determined by resolution of the General Meeting of Shareholders, and by taking into account the role and duties of each such Member and whether he or she is a full-time or part-time Member.
The total remuneration for all Directors (excluding Directors who are Audit and Supervisory Committee Members) is set to be within 460 million yen annually (of which, the total remuneration for Outside Directors is within 50 million yen annually, excluding employee salary) and the total remuneration for all Directors who are Audit and Supervisory Committee Members is set to be within 110 million yen annually pursuant to the resolution at the 17th Ordinary General Meeting of Shareholders held on March 29, 2016. In addition, the introduction of a performance-linked stock remuneration plan for the Company’s Executive Directors was resolved at the 24th Ordinary General Meeting of Shareholders held on March 29, 2023. This stock remuneration plan includes malus system and clawback system.
The proportion of fixed remuneration (the portion of basic remuneration that is not reduced by performance) to total remuneration for Executive Directors is expected to be approximately 20% to 30%, depending on office and rank, when the result for FY 2023 are applied.
The outline of each remuneration plan is as follows.

Basic remuneration (monetary remuneration)
In principle, the basic remuneration for Directors is a fixed amount determined for each office and rank, and paid in cash each month. However, if a net loss attributable to owners of the parent is recorded, the remuneration amount for Executive Directors is reduced gradually depending on the amount of loss, to the amount of fixed remuneration set by their office and rank.
Performance-linked remuneration (monetary remuneration)
For Executive Directors, the Company has judged that it is appropriate to use the semi-annual net income attributable to owners of the parent as an index for remuneration, and performance-linked monetary remuneration is paid annually according to the calculation method multiplying a coefficient for each office and rank. However, if net income attributable to owners of the parent does not meet certain criteria set by the Board of Directors, performance-linked monetary remuneration will not be paid.
The result of the index pertaining to performance-linked monetary remuneration of Executive Directors for FY2023 is 62,154 million yen in total. (calculated excluding Subsidy income (amount after tax: 1,730 million yen))
Performance-linked stock remuneration
The plan is a stock remuneration plan in which a trust set up by the Company through money contributions acquires shares of the Company, and the number of shares of the Company corresponding to the number of points granted to each Executive Director by the Company will be distributed to each Executive Director through the trust.

The outline of the plan is as follows.

a.	Persons eligible for stock remuneration	Executive Directors
b.	Target period	From the fiscal year ending December 31, 2023, to the fiscal year ending December 31, 2025 (May be extended for a period of up to three years by resolution of the Board of Directors)
c.	Maximum amount of money that the Company will contribute as funds for the acquisition of shares of the Company necessary for distribution to persons eligible for the plan in a. during the target period in b.	Total of 675 million yen (In case of extension, the maximum amount is 225 million yen per year.)
d.	Method of acquiring shares of the Company	Through the disposal of the Company’s treasury stock or through the exchange market (including off-auction trading)
e.	Maximum number of points granted to persons eligible for the plan in a.	210,000 points per fiscal year
f.	Criteria for granting points	Points are granted based on position, degree of achievement of performance targets, etc. Performance targets are set as ROE, EBITDA margin, and GHG emissions reduction rate, as they have been regarded as conducive to the enhancement of corporate value. If net income attributable to owners of the parent, etc. do not meet certain criteria set by the Board of Directors, points will not be granted.
g.	Time of distribution of shares of the Company to persons eligible for the plan in a.	In principle, when the Company’s Directors retire
h.	Voting rights pertaining to shares of the Company in the trust	Not exercised uniformly
i.	Dividend income from shares of the Company in the trust	Used for the acquisition of shares, payment of trust fees, etc.

(Notes)

The composition ratio of indicators used for calculating the granting points is as follows: ROE at 45%, EBITDA margin at 45%, and GHG emissions reduction rate at 10%.
The objective values and actual values of ROE and EBITDA margin used for calculating the granting points in the business year under review are as follows: (ROE: calculated excluding Subsidy income (amount after tax: 1,730 million yen))

Indicators ROE EBITDA margin

Objective values 10.0% 40.0%

Active values in FY 2023 11.3% 34.0%

Indicators	ROE	EBITDA margin
Objective values	10.0%	40.0%
Active values in FY 2023	11.3%	34.0%

We have introduced a similar stock-based remuneration plan for the Presidents of our major domestic subsidiaries and for Executive Officers and other management-level employees of the Company.

For details of the Company’s performance-linked stock remuneration plan, please refer to the press release below.
Announcement regarding Introduction of Performance-Based Stock Compensation Plan for Directors

Remuneration Determination Process

The amounts of remuneration and other payments to Directors (excluding Directors who are Audit and Supervisory Committee Members) and their calculation methods are discussed by the Nomination and Remuneration Committee comprising one representative Directors and three Independent Outside Directors and finalized with the resolution by the Board of Directors. The Nomination and Remuneration Committee, in response to the consultations by the Board of Directors, discusses the appropriateness of the remuneration structure, etc. of the Company’s Directors (excluding Directors who are Audit and Supervisory Committee Members) and Executive Officers, and submits a report to the Board of Directors also taking into consideration an evaluation of the Company’s business results. Upon receiving the report from the Nomination and Remuneration Committee, the Board of Directors determines remuneration and other payments to Directors (excluding Directors who are Audit and Supervisory Committee Members).
In fiscal year 2023, after discussions and considerations by the Nomination and Remuneration Committee, the Board of Directors meeting held on February 21, 2023 resolved on the policy and determination method of remuneration and other payments to Directors (excluding Directors who are Audit and Supervisory Committee Members), including performance-linked stock remuneration. Pursuant to the policy and determination method, the Board of Directors meetings held on June 28, 2023 and December 27, 2023 approved the individual amounts taking into consideration the semi-annual business results outlook.

Amount of remuneration in the recent fiscal year (disclosure by officer category)

Remuneration for Directors for fiscal year 2023