Basic Policy on Corporate Governance

Notice: This is an English translation of a document issued in Japanese made solely for the convenience of non-Japanese readers. In case of any discrepancy between this translation and the Japanese original, the latter shall prevail.

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1. Basic Concept on Corporate Governance

Sumitomo Pharma Co., Ltd. (the “Company”) commits itself to continuously pursuing the establishment of a corporate governance system which is highly effective, aiming for the fuller realization of its Mission.

Mission

To broadly contribute to society through value creation based on innovative research and development activities for the betterment of healthcare and fuller lives of people worldwide

2. Relationship with Stakeholders Including Shareholders

(1) Relationship with Shareholders, Investors, etc.

  1. ①The Company shall take appropriate measures to secure equal treatment of shareholders in accordance with the features and number of shares they hold.
  2. ②The Company shall regard Shareholders’ Meetings as an important forum for the Company to engage in direct dialogues with shareholders, and shall strive to provide information to shareholders in an appropriate and understandable manner.
  3. ③The Company shall take appropriate measures to substantially secure shareholders’ rights, and shall strive to develop an environment in which shareholders may appropriately exercise their rights, including voting rights.
  4. ④The Company shall strive to facilitate purposeful dialogues with shareholders, investors, etc., in accordance with Exhibit 4 “Basic Policy for Promoting Constructive Dialogues with Shareholders, Investors, etc.”
  5. ⑤The Company shall seek to distribute dividends to shareholders in a stable and continuous manner, while securing both continuous investments for future growth and maintenance of internal reserves for a strong financial structure.
  6. ⑥The Company shall secure its independence from Sumitomo Chemical Co., Ltd., the parent company, while respecting the group operation policy.

(2) Relationship with Stakeholders Other Than Shareholders

  1. ①The Company shall strive to continue improving relationships not only with its shareholders, but also with other various stakeholders, including its employees, customers, business partners, creditors and local communities, to enhance its corporate value over the mid to long term.
  2. ②The Board of Directors of the Company shall establish the Declaration of Conduct for the cultivation of a corporate culture in which the rights and positions of stakeholders as well as corporate ethics are respected, and shall supervise the status of its implementation.
  3. ③The Board of Directors shall establish policies on the environment, etc. with respect to issues of sustainability (sustainability over the mid to long term, including ESG factors), such as social and environmental matters. In addition, the Board of Directors shall deepen its examination, to engage in these issues in a positive and active manner from the perspective of enhancing corporate value over the mid to long term.
  4. ④The Company shall seek to enhance its corporate value through diversification, including the acceleration of the participation of female employees, and shall strive to develop an environment where each employee would be encouraged to fully demonstrate his/her capabilities.

3. Related Party Transactions

The Board of Directors shall supervise transactions between the Company and any of its Directors, major shareholders, etc. (i.e., related party transactions) appropriately in light of the importance of such transactions, and in accordance with the Company’s relevant procedures such as the requirement of approval at a meeting of the Board of Directors at which Independent Outside Directors are present, in order to ensure that such transactions are fair and reasonable from the viewpoint of enhancing the corporate value.

4. Strategic Shareholdings

  1. ①The Company shall not hold any shares of other companies except when such shareholding supports the sustainable enhancement of its corporate value, such as establishment or maintenance of corporate alliances and other types of relationships with important business partners and customers.
  2. ②The Company shall have the Board of Directors evaluate the reasonableness and the economic rationale of respective strategic shareholdings on an annual basis, and when the Board of Directors finds any such shareholdings not reasonable, the Company shall proceed to reduce the relevant shareholdings or sell the relevant shares.
  3. ③With respect to exercising voting rights for such strategic shareholdings, the Company shall examine the proposal from the viewpoint of whether it will lead to enhancing not only the corporate value of the relevant issuing company, but also that of the Company.
  4. ④The Company shall conduct transactions on reasonable terms with shareholders who hold the Company’s shares for the purpose of strategic shareholdings.

5. Information Disclosure

  1. ①To enhance transparency in management practices and proactively meet the demands of shareholders and other stakeholders for information, the Company shall disclose corporate information in a timely and appropriate manner pursuant to relevant laws and regulations as well as separately established internal standards and procedures. The Company shall appropriately disclose information in English to the extent reasonable.
  2. ②The Company shall appropriately disclose its measures for sustainability in the disclosure of its business strategies.
  3. ③In releasing its business strategies and business plans, the Company shall strive to provide sufficient information in an easily understandable manner, by presenting its basic principles for the earnings and capital policy, and the financial targets, including those for profitability and capital efficiency, as well as allocation of business resources, among other things. In addition, the Company shall review its business strategies, etc. as necessary, and strive to provide sufficient information regarding the state of such review in an easily understandable manner.

6. Organization

  1. ①The Company shall elect the organizational structure of a “Company with an Audit and Supervisory Committee” as stipulated by the Companies Act.
  2. ②The Company shall have the Nomination and Compensation Committee as a consultative body to the Board of Directors for enhancing the objectivity and independence of the functions of the Board of Directors in relation to matters such as nomination of candidates for Directors, and decisions on remuneration of Directors (excluding Directors who are Audit and Supervisory Committee Members).
  3. ③The Company shall set up the Supervisory Committee for Conflict of Interests in Transactions between Group Companies as a consultative body to the Board of Directors in order to ensure that the Company’s significant transactions, etc. with its parent company or any subsidiary of the parent company (excluding the Company and its subsidiaries) (hereinafter referred to as the “Parent Company’s Group”) are fair and reasonable and help protect the interest of minority shareholders of the Company.
  4. ④The Company shall set up the Global Management Committee as a consultative body to the Representative Director, President and CEO for the decision making for important business matters.
  5. ⑤The Company shall set up the Executive Committee for the purpose of appropriately sharing among the Directors, including Outside Directors, Executive Officers and others, the status of the execution of business operations and material matters related thereto.

7. Board of Directors and Directors

(1) Composition of the Board of Directors

  1. ①The Board of Directors shall consist of a diverse group of Directors who have various knowledge, experience and skills based on Exhibit 1 “Nomination Criteria for Candidates for Directors” and Exhibit 2 “Knowledge, Experience and Skills to be Held by the Board of Directors.”
  2. ②The Board of Directors shall have an appropriate number of Directors to ensure that the Board of Directors performs its functions effectively and efficiently. One third (1/3) or more of the Directors shall be Independent Outside Directors.
  3. ③One (1) or more of the Independent Outside Directors shall be persons who have experience in management at other companies.
  4. ④The Independent Outside Directors shall be persons who meet the independence requirements for outside directors set forth by financial instruments exchanges, and Exhibit 3 “Independence Criteria for Outside Directors.”

(2) Roles and Responsibilities of the Board of Directors

  1. ①The Board of Directors shall establish the Mission of the Company, make decisions swiftly and appropriately for the realization thereof, and in the implementation of decided matters, support healthy risk-taking by the senior management, and supervise the effective management of the business.
  2. ②The Board of Directors shall conduct constructive discussions on matters such as business strategies, mid to long term business plans and allocation of business resources, and shall actively contribute to the Company’s sustainable growth and the enhancement of its corporate value over the mid to long term.
  3. ③The Board of Directors shall expedite the decision-making process by having in place the Board of Directors’ approval policy and delegating certain authority to the senior management, and shall supervise the execution of business operations by requesting reports on important business matters from the respective senior managements.
  4. ④The Board of Directors shall establish the “Basic Policy for Developing the Internal Control System,” have in place systems such as the risk management system and compliance promotion system of the entire group, and supervise the status of implementation of these systems while utilizing the internal auditing department.

(3) Operations of the Board of Directors

  1. ①The Company shall prepare an annual schedule of meetings of the Board of Directors, secure sufficient time to review agenda items in advance of the meetings by distributing information materials to the Directors, and shall appropriately set up the time for deliberations at the meetings of the Board of Directors.
  2. ②The Board of Directors shall evaluate the effectiveness of its operation as a whole on an annual basis, use the outcome of such evaluation to improve its operation, and enhance the transparency of management practices by externally releasing a summary of the outcome.
  3. ③The Company shall develop a system in which effective communication and coordination can be made between the Company and the Outside Directors, and shall assist the Outside Directors in collecting information necessary for performing their duties effectively and efficiently. The Board of Directors shall periodically assess whether the information requested by the Directors has been smoothly provided.

(4) Roles and Responsibilities of Directors

  1. ①The Directors shall prepare well for meetings of the Board of Directors by proactively collecting the information necessary for promoting discussions at the meetings. The Directors shall also actively contribute to swift and proper decision making for achieving the Company’s sustainable growth and the enhancement of the corporate value over the mid to long term.
  2. ②The Directors shall strive to spend sufficient time to fulfill their expected roles and responsibilities for the Company, and shall perform their duties as Directors, making the most of their knowledge, experience and skills, and enlisting advice from outside experts as necessary. The Directors shall report to the Nomination and Compensation Committee on the status of the positions they concurrently hold at other companies or organizations.
  3. ③The Directors shall perform their duties for the common interests of both the Company and the shareholders, recognizing their fiduciary responsibilities to shareholders and fully understanding the importance of appropriate communication and cooperation with stakeholders.

(5) Roles and Responsibilities of Outside Directors

  1. ①The Outside Directors shall strive to collect the information necessary for performing their duties effectively and efficiently through efforts such as attending important meetings at the Company, including meetings of the Board of Directors, and appropriately cooperating and collaborating with other Directors. The Outside Directors shall appropriately cooperate and collaborate with the Accounting Auditor and the department in charge of internal auditing, as necessary.
  2. ②From the independent standpoint, the Independent Outside Directors shall strive to fulfill their expected roles and responsibilities in decision making at meetings of the Board of Directors and supervision of conflicts of interest, among other things, based on their knowledge, experience and insights in their respective fields of expertise.

8. Audit and Supervisory Committee and Audit and Supervisory Committee Members

(1) Composition of the Audit and Supervisory Committee

  1. ①The Audit and Supervisory Committee shall consist of the Audit and Supervisory Committee Members who have the necessary and appropriate knowledge, experience and skills based on Exhibit 1 “Nomination Criteria for Candidates for Directors” and Exhibit 2 “Knowledge, Experience and Skills to be Held by the Board of Directors.”
  2. ②The Audit and Supervisory Committee shall have the appropriate number of Audit and Supervisory Committee Members to ensure that the Audit and Supervisory Committee performs its duties effectively and efficiently. At least half of the Audit and Supervisory Committee Members shall be Outside Directors.
  3. ③One (1) or more of the Audit and Supervisory Committee Members shall be persons who have considerable expertise in finance and accounting.
  4. ④The Audit and Supervisory Committee Members who are Independent Outside Directors shall be persons who meet the independence requirements for outside directors set forth by the financial instruments exchanges, and Exhibit 3 “Independence Criteria for Outside Directors.”

(2) Roles and Responsibilities of the Audit and Supervisory Committee

  1. ①The Audit and Supervisory Committee shall conduct audits of the execution of duties by Directors as a statutory independent organization entrusted by the shareholders by playing a role in the supervisory function of the Company, determine the audit policies, detailed plans for investigating the Company’s business and financial status, and other matters regarding the execution of duties of the Audit and Supervisory Committee, prepare audit reports, determine its opinion regarding matters such as the election, etc. and remuneration, etc. of the Directors (excluding Directors who are Audit and Supervisory Committee Members), and conduct other duties stipulated in relevant laws and regulations as well as the Articles of Incorporation. The Audit and Supervisory Committee shall also express its opinion to the Directors (excluding Directors who are Audit and Supervisory Committee Members) or the Board of Directors as necessary.
  2. ②The Audit and Supervisory Committee shall strive to realize effective and efficient auditing by closely cooperating and collaborating with the department in charge of internal auditing, receiving reports of auditing plans and auditing results from the department in charge of internal auditing, and as necessary, requesting investigation or giving specific instructions to the department in charge of internal auditing.
  3. ③The Audit and Supervisory Committee shall strive for qualitative improvement of accounting audits in close cooperation and collaboration with the Accounting Auditor.
  4. ④The Audit and Supervisory Committee shall evaluate the Accounting Auditor based on the evaluation standards established by it, and determine proposals regarding the appointment, dismissal and non-reappointment of the Accounting Auditor to be resolved at Shareholders’ Meetings.
  5. ⑤The Company shall assign one (1) or more Audit and Supervisory Special Officers and full-time staff members who are independent of the directions and orders of the officers and employees who execute operations, to assist the duties of the Audit and Supervisory Committee, and secure an environment in which necessary information will be provided to the Audit and Supervisory Committee in a timely and appropriate manner.

(3) Roles and Responsibilities of Audit and Supervisory Committee Members

  1. ①The Audit and Supervisory Committee Members shall strive to spend sufficient time to fulfill their expected roles and responsibilities for the Company, and shall perform their duties as Audit and Supervisory Committee Members, making the most of their knowledge, experience and skills, and enlisting advice from outside experts as necessary.
  2. ②The Audit and Supervisory Committee Members shall strive to proactively collect the information necessary for performing their duties effectively and efficiently through efforts such as attendance in important meetings at the Company, including meetings of the Board of Directors, and the exercise of their right to conduct an investigation under the law. The Audit and Supervisory Committee Members shall provide their opinions and recommendations on the performance of duties by the Directors in a timely and appropriate manner.
  3. ③The Audit and Supervisory Committee Members shall cooperate and collaborate with the Outside Directors, including sharing information with the Outside Directors (excluding Directors who are Audit and Supervisory Committee Members) to assist the Outside Directors (excluding Directors who are Audit and Supervisory Committee Members) in improving their ability to collect information.

9. Nomination and Compensation Committee

  1. ①The Nomination and Compensation Committee shall consist of three (3) or more members, the majority of which shall be Independent Outside Directors, and the chairperson shall be an Independent Outside Director.
  2. ②The Nomination and Compensation Committee shall prepare and provide the Board of Directors with a recommendation in response to a consultation request therefrom, on the matters listed below. The Nomination and Compensation Committee shall submit to the Board of Directors a recommendation with respect to the agenda for Shareholders’ Meetings regarding the election, dismissal and remuneration of the Directors who are Audit and Supervisory Committee Members with the consent of the Audit and Supervisory Committee.
    1. 1)Agenda for Shareholders’ Meetings regarding the election and dismissal of Directors;
    2. 2)Appointment of, changes of or removal of the Representative Directors, the President and CEO and other Directors with special titles;
    3. 3)Criteria for nomination of candidates for Directors;
    4. 4)Knowledge, experience and skills to be held by the Board of Directors;
    5. 5)Independence criteria for Outside Directors;
    6. 6)Policy for appointing a successor of the President and CEO, etc. and other related matters;
    7. 7)Agenda for Shareholders’ Meetings regarding the remuneration of the Directors;
    8. 8)Policy and procedures for determining remuneration for the Directors (excluding Directors who are Audit and Supervisory Committee Members) and their respective remuneration;
    9. 9)Appointment and dismissal of Executive Officers; and
    10. 10)Appointment and dismissal of Audit and Supervisory Special Officers.
  4. ③The Board of Directors shall respect recommendations from the Nomination and Compensation Committee.

10. Supervisory Committee for Conflict of Interests in Transactions between Group Companies

  1. ①The Supervisory Committee for Conflict of Interests in Transactions between Group Companies shall consist of all the Independent Outside Directors, and the chairperson shall be appointed from among the members by mutual vote of the members.
  2. ②The Supervisory Committee for Conflict of Interests in Transactions between Group Companies shall deliberate significant transactions, etc. with the Parent Company’s Group from the viewpoint of protecting the interest of minority shareholders and provide the Board of Directors with a recommendation in response to a consultation request therefrom.
  3. ③The Board of Directors shall respect recommendations from the Supervisory Committee for Conflict of Interests in Transactions between Group Companies.

11. Training

  1. ①The Company shall provide opportunities for newly elected Directors to deepen their understanding of the Mission of the Company, to obtain the necessary knowledge regarding the Company’s business such as corporate strategies, finance and organizations, and to fully understand the roles and responsibilities that they are required to fulfill.
  2. ②The Company shall continuously provide and arrange training opportunities that suit each of the Directors so that they can obtain and renew the knowledge necessary for performing their respective duties. The Company shall bear the expenses incurred for training opportunities.
  3. ③The Company shall report and assess the implementation status of the training provided to the Directors at a meeting of the Board of Directors on an annual basis.