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Corporate Governance Structure and Initiatives

Corporate Governance Structure

Board of Directors

The Board of Directors deliberates from various perspectives, including the evaluation of risks, on the overall direction of management including management strategy, and monitors from multiple viewpoints whether the management strategy is being properly implemented. It also puts in place an environment conducive to aggressive management that also clearly identifies risks, by establishing an internal control system and risk management system.

Audit & Supervisory Board

Composed of Full-time Audit & Supervisory Board Members who are familiar with the company's internal matters, and Outside Audit & Supervisory Board Members who possess a high level of specialist expertise and know-how in the fields of finance, accounting or legal affairs, the Audit & Supervisory Board engages in in-depth discussion from an independent, objective viewpoint. The Audit & Supervisory Board Members realize effective auditing by attending important meetings, such as meetings of the Board of Directors and of the Management Board, as well as through coordination with the Accounting Auditor, the internal auditors of each division and the auditors of affiliated companies, and through the implementation of audits at individual divisions within the company and of surveys at affiliated companies.

Management Board

With a membership that consists mainly of personnel at Managing Executive Officer level or higher, the Management Board makes decisions relating to the execution of the mid- to long-term direction and strategy that has been deliberated on and decided on by the Board of Directors. Delegating wide-ranging authority to the Management Board helps to speed up decision-making and execution.

Committee for the Examination of the Nominees for Directors and Audit & Supervisory Board Members

Comprising all Outside Directors and Outside Audit & Supervisory Board Members, this committee examines and deliberates on the appropriateness and other qualities of Director nominees, including nominees for the positions of Chair, President and Chief Executive Officer and Representative Director, as well as Audit & Supervisory Board Member nominees, and submits its opinions to the Board of Directors. The committee also discusses issues relating to the scale, composition and diversity of the Board of Directors and the Audit & Supervisory Board, as well as the qualities and capabilities required by their members, and reports on its findings to the Board of Directors.

Compensation Advisory Committee

The Compensation Advisory Committee is composed of all Representative Directors, the Chair of the Board of Directors, all Outside Directors and all Outside Audit & Supervisory Board Members. The committee examines and deliberates on compensation systems and compensation levels for Directors and Executive Officers, and submits its opinions to the Board of Directors.

Compensation Advisory Committee for Audit & Supervisory Board Members

Comprising all Outside Audit & Supervisory Board Members, the President and Chief Executive Officer, and one Outside Director, this committee examines, from an external perspective, the appropriateness of the amount of compensation awarded to Audit & Supervisory Board Members by the decision of the Shareholders Meeting, and the transparency of the process by which this decision was made, and submits its opinions to the Board of Directors.

ESG Managing Committee

To gain the support and trust of all stakeholders, the ESG Managing Committee discusses and determines the direction of the group's activities pertaining to the ESG Strategy, aiming to contribute to the sustainable development of the Kao as a company with a global presence, and of society. The concrete embodiment of ESG Strategy is promoted by the ESG Promotion Meeting, and developed through activities carried out by individual divisions. The overall direction of ESG activity is confirmed and adjusted as necessary by the committee based on the current state of company-wide ESG activity promotion and the recommendations received from the ESG External Advisory Board.

Internal Control Committee

The Internal Control Committee oversees and promotes internal control activities throughout Kao, with the aim of ensuring the accuracy of financial reporting and enhancing the quality of internal control establishment and operation through cross-organizational integration of functions pertaining to internal control.

Department of Internal Audit

Conducts internal audits on management activities in general from the perspective of comply with laws and regulations, the appropriateness of financial reporting, and administrative effectiveness and efficiency. It also regularly makes reports to the Management Board and the Board of Directors.

Accounting Auditor

Deloitte Touche Tohmatsu LLC is the audit firm appointed as the Accounting Auditor based on the Companies Act, and for accounting audits based on the Financial Instruments and Exchange Act.

Stance on Balance among Knowledge, Experience and Skills, and on Diversity and the Size of the Board of Directors

At the Board of Directors meetings, Directors present the major directions of management strategies, etc., and Directors and Audit & Supervisory Board Members deliberate on their appropriateness and risks involved in their implementation from objective and multifaceted perspectives, while appropriately supervising and auditing the execution of these strategies. To this end, we believe that it is essential that Inside and Outside Directors and Audit & Supervisory Board Members with diverse knowledge, experience, and skills exchange opinions and engage in constructive dialogue from a variety of perspectives.
Based on the vision of "protecting future lives" and promoting "sustainability as the only path," as stated in K25 in order to realize a Kirei World in which all life lives in harmony, which is our purpose, we deliver products and services that protect the healthy lives of people and consumers and customers by leveraging our advanced technologies developed through extensive R&D including fundamental research from an ESG perspective. In addition, we make further strategic investments and expand existing businesses with the aim of creating new business that protect future lives by utilizing digital transformation with an eye toward the global environment and human life.
To support these activities, we supervise from objective and diverse perspectives and build systems that can be verified from professional perspectives such as accounting, finance, and legal with the aim of achieving continuous improvement.
To achieve these objectives, the Board of Directors considers it is important for Inside and Outside Directors and Audit & Supervisory Board Members to complement each other with each of their knowledge, experience, and abilities and to be able to demonstrate high effectiveness as a whole.

Attributes Experience / Knowledge / Expertise Main reasons for marking "✓"
Period of appointment
(upon conclusion
of the March 2022
Shareholders
Meeting)
Gender Nationa
-lity
ESG Manage
-ment
Global Develop
-ment /
Manufa
-cturing
Business /
Sales
Business
inno
-vation
Risk /
legal
regula
-tions
Finance /
accoun
-ting
Directors 13 years and 9 months Male Japan - Experience in the Company's Research and Development
- Experience as the Company's Representative Director, President and CEO
- Chairman of Japan Clean Ocean Material Alliance (CLOMA)
6 years Male Japan - Experience in the Company's Research and Development (including knowledge of ESG)
- Experience in the Company's Strategic Innovative Technology
8 years Male Japan - Representative Director, President of Kao Group Customer Marketing Co., Ltd.
3 years Male Japan - - President of Consumer Products, Global;
- Experience in management of the Company's overseas subsidiaries
*1 Male United States - Experience as the head of research and chief of business at the Company's overseas subsidiary
- Senior Vice President of ESG, Global
4 years Male Japan - Experience as the top executive of a major international airline
3 years Female Japan - Medical Doctor, astronaut
- Experience in taking on challenges in new fields, such as serving as an astronaut and in academic research
3 years Male Japan - Experience as the top executive of a major international financial institution
*1 Female Japan - - Experience as the regional head of a major international chemical company
- Experience as an outside director of major corporations
Audit & Supervisory Board Members 3 years Female Japan - Experience as the Company's Managing Executive Officer
- Experience in the Company's Product Quality Management
- Commissioner of the consumer-related commissions of the government
1 year Male Japan - Experience in the Company's Finance Department (including overseas experience)
- Experience in the Company's Department of Internal Audit
5 years Male Japan - Certified Public Accountant (including experience serving overseas)
4 years Male Japan - Attorney-at Law
- Professor at Keio University Law School
2 years Male Japan - Certified Public Accountant
  • * 1 Appointed to and assumed the position at the March 2022 Shareholders Meeting.
  • * 2 The areas of experience, knowledge, and expertise of each Director and Audit & Supervisory Board Member that are particularly expected of them are marked with a "✓."

In addition to knowledge, experience and ability, we recognize the diverse perspectives that come from diversity of the Board of Directors in terms of gender, nationality, race and age contribute to the promotion of business, global expansion and proper supervision and auditing, and promotes the appointment of such diverse personnel as Directors and Audit & Supervisory Board Members. Our target for the ratio of female on the Board of Directors is 30% by 2025.
We set the appropriate size of the Board of Directors in consideration of the balance between having diverse personnel required to conduct the proper deliberations and supervision of execution and a small Board of Directors to accelerate decisionmaking for dealing with business expansion and other matters, on the premise of the delegation of responsibility to appropriately placed Executive Officers. We aim to have Outside Directors comprise approximately half of the Board of Directors to ensure its diversity and influence and emphasizes their independence. In addition, we aim to have a majority of Outside Audit & Supervisory Board Members who meet the Standards for Independence.

Attending Members for Meetings of the Board of Directors, the Audit & Supervisory Board and Other Committees

◎ Indicates Chairman of the Board or specified committee. ○ Indicates attending member.

Name Age/
Gender
(As of March 25, 2022)
Period of
appointment
(upon conclusion
of the March
2022 Shareholders
Meeting)
Board of
Directors
Audit &
Supervisory
Board
Committee
for the
Examination
of the
Nominees
for
Directors
and Audit &
Supervisory
Board
Members
Compensation
Advisory
Members
Compensation
Advisory
Committee or
Audit &
Supervisory
Board
Members
Attendance (FY2021)
Board of
Directors
Audit &
Supervisory
Board
Directors 66/Male 13 years 9 months 15/15
61/Male 6 years 15/15
63/Male 8 years 15/15
62/Male 3 years 15/15
61/Male *1
Outside/
Independent
69/Male 4 years 15/15
Outside/
Independent
69/Female 3 years 15/15
Outside/
Independent
64/Male 3 years 15/15
Outside/
Independent
61/Female *1
Board Members
Audit & Supervisory
67/Female 3 years 15/15 10/10
62/Male 1 year 13/13*2 8/8*2
Outside/
Independent
68/Male 5 years 15/15 10/10
Outside/
Independent
58/Male 4 years 15/15 10/10
Outside/
Independent
63/Male 2 years 15/15 10/10
  • * 1 Appointed to and assumed the position at the March 2022 Shareholders Meeting.
  • * 2 The Board of Directors met 13 times, and the Audit & Supervisory Board met 8 times, since Mr. Kawashima assumed the position.

Major Topics Discussed by the Board of Directors in FY2021

a. Corporate Philosophy/Medium- to long-term Business Plan

  • Deliberations on the revision of the Kao Way
  • Report on medium- to long-term strategies (strategies for realizing the Kao Group Medium-Term Management Plan "K25")
  • Strategic meeting reporting
  • Digital Life Platform reporting
  • "Reborn Kao" and "Anther Kao" progress report

b. Capital Policy

  • Financial strategy reporting

c. Corporate Governance

  • Department of Internal Audit report
  • Audit & Supervisory Board Member audit summary report
  • Deliberations on disclosure of Corporate Governance

d. Others

  • Report on human capital strategy
  • ESG Committee activity report

In addition to the above, each month the Company has business execution reports from Directors currently serving as Executive Officers, as well as on matters discussed during the Management Board from Executive Officers in charge.

Evaluation of the Effectiveness of the Board of Directors

On at least an annual basis, an evaluation is conducted at a meeting of the Board of Directors, in order to make improvements aimed at enhancing the effectiveness of the Board of Directors. Based on the idea that the roles and responsibilities of the Board of Directors must be shared by the entire Board of Directors, the Company believes that it is effective for all members who participate in meetings of the Board of Directors, including Audit & Supervisory Board Members, to conduct an evaluation by expressing their own opinions and engaging in free and open discussions. Accordingly, evaluation of effectiveness of the Board of Directors is currently conducted through self-assessment by the participating members at the Board of Directors meeting, without the evaluation by a third-party consultant from outside the Company. However, the Company recognizes the usefulness of an objective evaluation by a third party and continues to consider the introduction of third-party evaluations in order to lead it to activities that further enhance the effectiveness of the Board of Directors.

For the FY2021 evaluation, prior to the exchange of opinions for self-assessment at the meeting of the Board of Directors held in January 2022, a survey of the eight (8) Directors and the five (5) Audit & Supervisory Board Members was conducted on the topics below. Feedback on the results was then provided before the meeting, during which the discussions and exchange of opinions were conducted. The following is a summary.

1. Efforts to address issues pointed out in the previous fiscal year's evaluation of effectiveness of the Board of Directors

  • Kao Group Mid-term Plan "K25" The principal themes of K25 were frequently raised by the Board of Directors, with active discussions conducted in a timely manner. Going forward, necessary measures will include deepening discussions of issues that impede the achievement of K25, measures to resolve those issues, and actions to be prioritized, as well as conducting regular verification with greater awareness of PDCA for the realization of K25.
  • Human capital strategy Measures that emphasize the furtherance of K25 are being conducted, including promotion of global-minded personnel and young employees, and active utilization of external human capital. There have also been reports on the status of the introduction of the new Objectives and Key Results (OKR) employee empowerment system. Human capital strategy is a management issue for ongoing consideration, and it is necessary to deepen discussions of issues including the promotion of human capital needed for realizing K25, assignment and training of human capital for that purpose, and the evaluation of executive staff.
  • Internal control system development and status of operation Negative information and information on risks are being reported in a timely and appropriate manner. In addition, the system now enables rapid response when a problem occurs. Going forward, it will be necessary to continuously verify and discuss whether potential internal control issues are latent in the organization, and ongoing supervision is also necessary because problems may arise that were not apparent due to the COVID-19 pandemic.

2. Understanding and monitoring the status of ESG activities

A system that enables appropriate monitoring has been established and is in operation. The person in charge of the ESG Division reports on its activities, and there are reports on other agenda items that touch on their relevance to ESG.
The above-mentioned reports also confirm that the governance system is properly established and operated, as various discussions and efforts are being made to integrate the K25 and Kao's ESG strategy, the Kirei Lifestyle Plan mainly by the ESG Committee, and that the ESG Advisory Board, which consists of external members, is making constructive proposals on Kao's ESG strategy.
Going forward, it would be desirable to further enhance reports on the status of specific activities in each country and division, sharing of information on comparisons between Kao's ESG activities and social trends and other matters, and discussions on ways of disseminating information outside the Company and on collaboration with other companies.

3. Board of Directors' status of operation, status of deliberations, and support from the Company

  • Status of operation: Materials are distributed before meetings of the Board of Directors to promote understanding of the content of the various agenda items. In addition, the Chairperson of the Board of Directors (an Outside Director), who attends Management Board, provides supplementary information as appropriate to improve the effectiveness and efficiency of discussions. The frequency of meetings is also set appropriately.
  • Status of deliberations: Discussions and exchanges of opinion are free, open, constructive and active. In addition, important matters are proactively incorporated, and agenda items are set appropriately. In order to ensure adequate time for discussions on priority issues, meetings consisting of all Outside Directors and the President and Chief Executive Officer and meetings of only Outside Directors are held separately from the meeting of the Board of Director. Further improvements are expected to be made to ensure substantial discussions, including using effective presentation methods at meetings of the Board of Directors.
  • Support from the Company: In addition to the information provided at meetings of the Board of Directors, information is also properly provided and appropriate support is given through measures including visits to business sites and attendance at internal research forums. On the other hand, it is necessary to increase opportunities for exchanging opinions with employees during site visits to further deepen understanding of the site.

4. Operation of the Committee for Examination of Nominees for Directors and Audit & Supervisory Board Members and the Compensation Advisory Committee

  • Both committees have been conducting discussions appropriately and the results have generally been shared appropriately with the Board of Directors.
  • The Committee for Examination of Nominees for Directors and Audit & Supervisory Board Members has been able to conduct some discussions about the composition of the Board of Directors required for accomplishing K25 and the ESG strategy, but it is necessary to further enhance discussions for structural reinforcement. It is also necessary to conduct ongoing discussions of the succession plan for senior management.
  • The Compensation Advisory Committee has generally been able to conduct appropriate discussions. Going forward, it should continue to proactively discuss compensation for Directors, Audit & Supervisory Board Members and Executive Officers overall, including performance-based compensation, with objectivity and transparency.

5. Issues to be addressed by the Board of Directors

  • Continuation of in-depth discussions of issues and measures toward the realization of K25
  • Continuation of discussions focused on human capital strategy
  • Supervision of development and operation of an internal control system capable of responding to potential issues and those that have newly arisen
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