Basic Policy on Corporate Governance

1.Basic Concept on Corporate Governance

Sumitomo Dainippon 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 our Corporate Mission and Management Mission.

Corporate 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

Management Mission

  • To contribute to healthcare and people's well-being based upon the principles of patient-oriented management and innovative research
  • To continuously strive to maximize corporate value through constant business development and to fulfill shareholder expectations
  • To create an environment in which employees can fulfill their potential and increase their creativity
  • To maintain the trust of society and to contribute to the realization of a better global environment

2.Relationship with Stakeholders Including Shareholders

(1) Relationship with Shareholders, Investors, etc.

  • The Company shall take appropriate measures to secure equal treatment of shareholders in accordance with the features and number of shares they hold.
  • The 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.
  • The 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.
  • The Company shall strive to facilitate purposeful dialogues with shareholders, investors, etc., in accordance with Exhibit 2 "Basic Policy for Promoting Constructive Dialogues with Shareholders, Investors, etc."
  • The 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.
  • The 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

  • The 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.
  • The 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.
  • The Company shall take appropriate measures, including establishing and implementing an environmental policy, to contribute to addressing sustainability issues, including social and environmental matters.
  • The 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, Audit & Supervisory Board Members, 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

  • The 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.
  • The Company shall have the Board of Directors evaluate the reasonableness and the economic rationale of major strategic shareholdings on an annual basis.
  • With 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.

5.Information Disclosure

  • To 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.
  • In 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.

6.Organization

  • The Company shall elect the organizational structure of a "Company with an Audit & Supervisory Board" as stipulated by the Companies Act. The Company shall have the Nomination and Compensation Committee as a consultative body 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 Audit & Supervisory Board Members, and decisions on compensation of Directors.
  • The Company shall set up the Management Committee as a consultative body to the Representative Director, President and CEO for the decision making for important business matters.
  • The Company shall set up the Executive Committee for the purpose of appropriately sharing among the Directors and Audit & Supervisory Board Members, including Outside Directors and Outside Audit & Supervisory Board Members, 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

The Board of Directors shall consist of a diverse group of Directors who have various knowledge, experience and abilities and meet the criteria set forth in Exhibit 1 "Nomination Criteria for Candidates for Directors and Audit & Supervisory Board Members." The number of Directors shall be set to ensure that the Board of Directors performs its duties effectively and efficiently. Two (2) or more members of the Board of Directors shall be Independent Outside Directors.

(2) Roles and Duties of the Board of Directors

  • The Board of Directors shall establish the Corporate Mission and Management 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.
  • The Board of Directors shall conduct constructive discussions on matters such as business strategies and mid- to long-term business plans, and shall actively contribute to the Company's sustainable growth and the enhancement of its corporate value over the mid to long term.
  • The 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.
  • The 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, and supervise the implementation of these systems.

(3) Operations of the Board of Directors

  • The 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.
  • The 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.
  • The 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 of Directors

  • The 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.
  • The 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 abilities, 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.
  • The 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) Qualifications and Roles of Outside Directors

  • The Outside Directors shall be persons who satisfy the criteria set forth in Exhibit 1 "Nomination Criteria for Candidates for Directors and Audit & Supervisory Board Members," in addition to the requirements for outside directors stipulated in relevant laws and regulations.
  • The 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 Audit & Supervisory Board Members. The Outside Directors shall appropriately cooperate and collaborate with the other Outside Directors, the Outside Audit & Supervisory Board Members, the Accounting Auditor and the department which is in charge of internal audit, as necessary.
  • The Independent Outside Directors shall be persons who are Outside Directors and satisfy the independence requirements for outside directors stipulated by the financial instruments exchanges, and the independence requirements for Outside Directors of the Company set forth in Exhibit 1 "Nomination Criteria for Candidates for Directors and Audit & Supervisory Board Members."
  • From the independent standpoint, the Independent Outside Directors shall strive to fulfill their expected roles in decision making at meetings of the Board of Directors and supervision of conflicts of interest, among others, based on their knowledge, experience and insights in their respective fields of expertise.

8.Audit & Supervisory Board, and Audit & Supervisory Board Members

(1) Composition and Duties of the Audit & Supervisory Board

  • The Audit & Supervisory Board shall consist of the Audit & Supervisory Board Members who meet the criteria set forth in Exhibit 1 "Nomination Criteria for Candidates for Directors and Audit & Supervisory Board Members." One (1) or more of the Audit & Supervisory Board Members shall have considerable expertise in finance and accounting. The number of the Audit & Supervisory Board Members shall be set to ensure that the Audit & Supervisory Board performs its duties effectively and efficiently. At least half of the Audit & Supervisory Board Members shall be Outside Audit & Supervisory Board Members. The Independent Audit & Supervisory Board Members shall be persons who meet the independence requirements for outside audit & supervisory board members set forth by the financial instruments exchanges, and the independence requirements for Outside Directors of the Company.
  • The Audit & Supervisory Board shall 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 & Supervisory Board Members. The Audit & Supervisory Board shall also prepare audit reports, and express its opinion to the Directors or the Board of Directors as necessary.
  • The Audit & Supervisory Board 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.

(2) Roles of Audit & Supervisory Board Members

  • The Audit & Supervisory Board Members shall strive to spend sufficient time to fulfill their expected roles for the Company, and shall perform their duties as Audit & Supervisory Board Members, making the most of their knowledge, experience and abilities, and enlisting advice from outside experts as necessary. The Audit & Supervisory Board Members shall report to the Nomination and Compensation Committee on the status of the positions they concurrently hold at other companies or organizations.
  • The Audit & Supervisory Board 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 & Supervisory Board Members shall provide their opinions and recommendations on the performance of duties by the Directors in a timely and appropriate manner.
  • The Audit & Supervisory Board Members shall cooperate and collaborate with the Outside Directors, including sharing information they have acquired with the Outside Directors to assist the Outside Directors in improving the knowledge required by them for properly performing their roles and responsibilities.
  • The Audit & Supervisory Board Members shall cooperate and collaborate with the department in charge of internal audit in order to conduct audits effectively and efficiently.
  • The Audit & Supervisory Board Members shall strive to improve the quality of the financial audits by enhancing cooperation and collaboration with the Accounting Auditor.
  • The Company shall appoint staff to exclusively support the Audit & Supervisory Board Members in performing their duties, and shall secure an environment in which necessary information will be provided to the Audit & Supervisory Board Members in a timely and appropriate manner.

9.Nomination and Compensation Committee

  • The 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.
  • The 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 appointment, dismissal and compensation of the Audit & Supervisory Board Members with the consent of the Audit & Supervisory Board.
    1)Agenda for Shareholders' Meetings regarding the election and dismissal of Directors and Audit & Supervisory Board Members;
    2)Appointment of, changes of or removal of the Representative Directors, the President and other Directors with special titles;
    3)"Nomination Criteria for Candidates for Directors and Audit & Supervisory Board Members";
    4)Policy for appointing a successor of the President;
    5)Agenda for Shareholders' Meetings regarding the compensation of the Directors and the Audit & Supervisory Board Members; and
    6)Compensation policy and procedures for the Directors and their respective compensation.
    7)Appointment and removal of Executive Officers

10.Training

  • The Company shall provide opportunities for newly elected Directors and Audit & Supervisory Board Members to deepen their understanding of the Corporate Mission and the Management 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.
  • The Company shall continuously provide and arrange training opportunities that suit each of the Directors and Audit & Supervisory Board Members 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.
  • The Company shall report to the Board of Directors about the implementation status of the training provided to the Directors and Audit & Supervisory Board Members on an annual basis.