KOSÉ

Basic Policy

The nucleus of the KOSÉ Group’s management policy is “consistently managing to heighten corporate value” by pursuing growth and greater efficiency. The Group recognizes corporate governance functions as essential from the standpoint of managing the Company to consistently increase its enterprise value, and positions corporate governance as one of its highest management priorities. Accordingly, the Group is working on establishing the necessary organizational systems and frameworks to ensure sound management and consistently earn the trust of society.

KOSÉ believes strongly in managing the Group so as to maintain harmonious relations with all stakeholders, including shareholders, investors, creditors, customers, business partners, employees and communities. Furthermore, KOSÉ is committed to enhancing transparency and fairness to earn support as a company with value. The Company strives to communicate sincerely with its stakeholders and considers building trust-based relationships to be fundamental.

Corporate Governance Structure

KOSÉ has adopted a Company with an Audit & Supervisory Board corporate governance structure and performs audits to confirm that directors are performing their duties properly.
For the swift and efficient execution of business, the Company employs the Board of Directors, the Management Committee chaired by the President & CEO, the Strategy Review Meeting, the Executive Committee, and other bodies as necessary. The Company has also voluntarily established the Nomination and Remuneration Committee, a majority of which is composed of independent officers, and which is chaired by an independent external director, to deliberate on the appropriateness of officer remuneration and officer appointments. The Company has determined that it is appropriate to have independent external directors and Audit & Supervisory Board members to provide audit and supervisory functions in addition to a system of checks and balances by officers familiar with the business

Nomination and Remuneration Committee

The Nomination and Remuneration Committee examines proposals concerning nominations, remuneration and other matters that are submitted by the President & CEO to the Board of Directors. This committee exists for the purpose of reinforcing the independence, objectivity and accountability of activities by the Board of Directors concerning nominations, remuneration and other matters involving the directors, Audit & Supervisory Board members and executive officers. The committee is chaired by an external director to ensure objectivity.

Risk Management and Compliance Committee

For the Company, compliance encompasses compliance with laws and regulations as well as behavior consistent with social ethics based on “Mind to Follow the Right Path.” The compliance promotion structure and activities are regularly reported to the Board of Directors via the Risk Management and Compliance Committee. The Compliance Promotion Committee conducts education activities, such as training for directors and employees. The Company has established internal and external consulting channels, creating a framework for responding to reports and consultations. In addition, to respond to risk factors that pose a threat to the sustainable development of the Company, particularly various risks such as problems involving compliance, quality, information security and markets as well as natural disasters, the Company has established Risk Management and Compliance Regulations and is working to enhance its risk management structure by establishing a Risk Management Promotion Committee. The Company has also created a framework based on its Crisis Management Regulations for minimizing damage in the event a major risk materializes.

The Sustainability Committee

The KOSÉ Group has identified sustainability-related issues in management and has established a promotion system to resolve them. We established the Sustainability Committee (chaired by the President & CEO) that proposes sustainability strategies to and receives approval from the Management Committee, and then reports the results to the Board of Directors.
The Board of Directors deliberates and makes decisions about material issues related to sustainability strategies and is responsible for supervising the sustainability promotion activities of the Company. With the aim of promoting more effective cross-departmental initiatives, the Sustainability Promotion Committee establishes subcommittees and projects for specific themes based on the KOSÉ Group’s sustainability strategies.

Management Introduction / Skills Matrix

Skills Matrix

Executives

Evaluation of the Effectiveness of the Board of Directors

To further strengthen corporate governance, the directors evaluate the Board’s effectiveness. The method for this evaluation is as follows.

1. Evaluation Method

   Directors and Audit & Supervisory Board members were asked to complete questionnaires regarding the following items. A third-party organization was used to determine items included in the questionnaires. It also collected and analyzed the results of the questionnaires. Based on the results, the Board of Directors performs an analysis and evaluation of the Board’s effectiveness and considers actions that should be taken.

2. Main Evaluation Item

   • Composition and operation of the Board
   • Management and business strategies
   • Corporate ethics and risk management
   • Performance monitoring
   • Evaluation and remuneration of management
   • Dialogue with shareholders

Overview of Officer Remuneration

For remuneration of Company officers, the Company has decided on a remuneration framework that emphasizes increasing corporate value over the medium to long term.

Composition of Remuneration

Composition of Remuneration for the President & CEO

Method for Determining Officer Remuneration

Officer remuneration shall be classified into (1) directors and (2)Audit & Supervisory Board members for voting at the General Meeting of Shareholders and allocated to each officer within the total amount allowed for each officer classification. The Nomination and Remuneration Committee, which is composed mainly of external officers, discusses the appropriateness and validity of remuneration, and the Board of Directors has resolved to re-entrust the final decision on remuneration to the President & CEO, premised on the results of this discussion. Remuneration of Audit & Supervisory Board members is determined by mutual agreement among the Audit & Supervisory Board members.

1. Basic Policy for Officer Remuneration

   For the remuneration of the Company’s directors and Audit & Supervisory Board members (officer remuneration), the basic policy is designed and implemented based on the following goals in order to achieve medium-to-long-term growth of corporate value.

   • A remuneration framework that enables the KOSÉ Group to achieve global and borderless growth
   • An appropriately competitive level of remuneration for attracting and retaining highly talented individuals
   • A highly independent, objective and transparent remuneration framework that fulfills the responsibility of accountability to business partners,

2. Remuneration Levels

   A suitable level of remuneration is determined by taking into account KOSÉ’s business environment as well as a survey and analysis using external databases and other sources to ascertain remuneration at companies in the same industry and of the same size.

3. Process for Determining Remuneration

   To ensure the objectivity and transparency of the officer remuneration system, the appropriateness and validity of the allocation to each director are first discussed by the Nomination and Remuneration Committee, which is composed mainly of external officers. Using the results of these discussions as the premise for determining remuneration, the final decisions about individual remuneration are entrusted to the President & CEO by the Board of Directors. The President & CEO has the authority to determine the basic remuneration for each director and the bonuses and stock remuneration based on results of operations of the business overseen by that director. The President & CEO is given this authority because, as the executive who oversees all business operations and in the role of representative director, that person is best suited to evaluate the businesses managed by each director.

Business and Other Risks

To ensure business continuity and stable growth going forward, the Company has established the Risk Management Promotion Committee as a cross-divisional Company-wide organization to conduct qualitative analysis and evaluation to comprehensively identify risks, and to take necessary countermeasures for those risks that may have a substantial impact.

Responding to Risks

Basic Policy on Internal Control Systems

The Company has the following internal control structure to ensure that business operations are conducted properly. The Company strives to enhance its internal control structure covering all Group executives and employees and ensure its effectiveness.

1. System for ensuring that Directors and employees perform their duties in compliance with laws and regulations and the Articles of Incorporation

   Meetings of the Board of Directors are held on a regular basis and additionally as needed in accordance with laws and regulations, the Articles of Incorporation, the Board of Directors Regulations, Regulations for Making Decisions and other guidelines. The Directors supervise each other regarding the performance of their duties. The Directors perform their respective duties in accordance with resolutions approved by the Board of Directors and internal regulations.
   Audit & Supervisory Board Members perform audits in accordance with the Audit & Supervisory Board Regulations and Audit & Supervisory Board Member Audit Standards to confirm that Directors are performing their duties properly.
   The Audit Office performs internal audits of all business operations based on the Internal Audit Regulations. Audits are performed on a regular basis to verify compliance with laws and regulations, the Articles of Incorporation and internal regulations and the suitability of procedures and other activities for conducting business operations. Results of internal audits are reported to the President and the Audit & Supervisory Board Members.
   At the Company, compliance encompasses laws and regulations as well as always behaving in a manner that is consistent with social ethics based on the “Mind to follow the right path.”
   The compliance structure and compliance activities are based on Risk Management and Compliance Regulations. The Risk Management and Compliance Committee submits a report about these activities on a regular basis to the Board of Directors.
   The Compliance Promotion Committee holds seminars and other training programs for Directors and employees.
   The Company has internal and external channels for reporting problems. This structure provides a framework for responding to reports from Directors and employees and performing consultations.

2. System for the storage and management of information about the performance of Directors’ duties

   Minutes of shareholders meetings and Board of Directors meetings, and important documents and information involving decisions made about business operations are stored and managed properly as stipulated in laws and regulations and internal regulations. Directors and Audit & Supervisory Board Members can see these materials at any time.
   The Company has a department that is responsible for the timely disclosure of important information and other disclosure activities. In addition, Directors collect information that should be disclosed in a rapid and comprehensive manner and then, in accordance with laws, regulations and other guidelines, this information is disclosed in an appropriate and timely manner.

3. Regulations and systems for the risk management of losses for the Company

   In order to respond to sources of risk, including a broad range of risk factors that pose a threat to the sustainability of the Company’s business operations, particularly problems involving compliance, quality, information security, markets, natural disasters, and other potential risks, the Company has established Risk Management and Compliance Regulations for properly recognizing and managing the risks. Based on these regulations, the Company designates individuals who are responsible for the oversight of individual risk factors and maintains a risk management system.
   The Risk Management and Compliance Committee supervises risk management. Discussions and activities of this committee are reported to the Board of Directors on a regular basis. The Risk Management Promotion Committee establishes risk management policies, inspects responses to risk factors and performs follow-up activities, discusses responses to problems that have occurred, and performs other activities for making further improvements to the risk management system.
   The Company has established Crisis Management Regulations and has a framework for rapid and appropriate responses in order to minimize the resulting damage in cases where a significant risk occurs.

4. System for ensuring that Directors perform their duties efficiently

   The scope of duties, authority and responsibilities of Directors are clearly defined and the Independent External Directors/Audit & Supervisory Board Members provide supervision and oversight. This results in the proper and efficient management of the Group by the Directors.
   The Board of Directors Regulations designate important items that should be submitted for decisions or as reports to the Directors for the purpose of operating the Board of Directors efficiently. In addition, the Company has a Management Committee for the purpose of making decisions about business operations efficiently.
   The Company uses the executive officer system in order to make decisions about business operations quickly.

5. System for ensuring the suitability of business operations of the corporate group consisting of the Company and its subsidiaries

   The Company assigns personnel responsible for the overall management of affiliated companies. Also, as a rule, the Company sends Directors and Audit & Supervisory Board Members to affiliated companies in order to strengthen the Group’s governance and monitor the management of these companies.
   The personnel responsible for the overall management of affiliated companies requires all subsidiaries to submit reports about their operations, financial condition and other important items in accordance with the Regulations on Management of Affiliated Companies.
   In addition, internal audits by the Audit Office include all of the activities of affiliated companies. In accordance with Internal Audit Rules, the Audit Office performs periodic internal audits regarding compliance with laws and regulations, the Articles of Incorporation and internal regulations and the suitability of procedures and other activities for conducting business operations.

6. System for ensuring the reliability of financial information

   To ensure the reliability of financial information, the Company establishes and operates internal controls related to financial reporting as prescribed in the Financial Instruments and Exchange Act and other legislation, and evaluates and reports on the effectiveness of these controls on an ongoing basis. Furthermore, the Company quickly takes actions when revisions or improvements are needed for internal controls.

7. System for reporting from Directors or employees to Audit & Supervisory Board Members and for other reporting to Audit & Supervisory Board Members

   Directors and executive officers submit periodic reports about the performance of their duties to Audit & Supervisory Board Members. In addition, executives and employees immediately report to Audit & Supervisory Board Members any serious violation of a law or regulation at the Company or a group company or any other serious matter involving compliance. The Company has a system that allows employees to submit directly to Audit & Supervisory Board Members any information about matters that may cause a significant loss to the Company.

8. System for ensuring no negative consequences for individuals who submit reports to Audit & Supervisory Board Members

   The Company has regulations concerning compliance and internal reports. In accordance with this manual, when a Director or employee of the Group makes a compliance violation report, there will be no negative consequences for that individual because of the submission of the report. In addition, information about the individual who submits the report and the contents of the report are handled in accordance with strict rules.

9. Other systems for ensuring that audits by the Audit & Supervisory Board Members are performed effectively

   The Audit Office and Audit & Supervisory Board Members exchange information periodically and work together in other ways concerning formulation of an internal auditing plan for each fiscal year, internal audit results and other matters.
   The Audit Office and Audit & Supervisory Board Members monitor and verify the status of implementation and operation of these systems.