Kao | Results of the Evaluation of the Effectiveness of the Board of Directors

With an eye to enhancing its corporate value in a sustainable manner, Kao Corporation (the “Company”– Ticker Code: 4452) aims to improve the functions of the Board of Directors by evaluating and analyzing the effectiveness of the Board of Directors as a whole, including through a self-assessment of each Director, and discloses a summary of the results.
Since FY2015, evaluations have been conducted once a year based on a survey of all Directors and Audit & Supervisory Board Members and discussions by the Board of Directors. In FY2023, the Company sought to improve objectivity by receiving advice from a third-party organization regarding the preparation of the survey and the analysis of the results. In FY2024, with the aim of further enhancing these evaluations and improving objectivity, some Directors were interviewed, and a third-party organization conducted an evaluation of the effectiveness of the Board of Directors. The Committee for Examination of Nominees for Directors and Audit & Supervisory Board Members (the “Committee for Examination of Nominees”) and the Compensation Advisory Committee for Directors and Executive Officers (the “Compensation Advisory Committee”) were evaluated at the same time. Going forward, the Company plans to have a third-party organization conduct evaluations once every three years.

1. Method of effectiveness evaluation

(1) Survey (prepared by a third-party organization)

Respondents: All Directors and Audit & Supervisory Board Members (eight Directors and five Audit & Supervisory Board Members)
Response period: October 17, 2024 to October 31, 2024
Type of questions: Multiple choice and open-ended (attributed survey)
Number of questions: 46
Survey items: The approach and composition of the Board of Directors, operation of the Board of Directors, discussions held by the Board of Directors, monitoring function of the Board of Directors, performance of Directors, support systems and training for Directors and Audit & Supervisory Board Members, dialogue with shareholders (investors), personal initiatives, operation and deliberation of the committees, and overview

(2) Interview (conducted by a third-party organization)

Interviewees: President and Chief Executive Officer, Chairperson of the Board of Directors, Chairperson of the Committee for Examination of Nominees, Chairperson of the Compensation Advisory Committee
Implementation period: November 22, 2024 to November 26, 2024
Main topics: The approach of the Board of Directors, the composition of the Board of Directors, discussions held by the Board of Directors, operation of the Board of Directors, monitoring function of the Board of Directors, support systems for Directors and Audit & Supervisory Board Members, dialogue with shareholders (investors), and the committees

(3) Final evaluation

Based on the third-party analysis, the Board of Directors verified, discussed, and evaluated the results, and confirmed the direction of future initiatives to address the issues that were identified.

2. Results of the effectiveness evaluation

(1) General summary

The overall average score for the survey (multiple choice) was 4.2 points (out of 5 points), with scores for all items rated equal to or better than the average scores of other companies,^* indicating that the Board of Directors and committees are generally functioning effectively. Efforts were made to improve the issues raised in the previous effectiveness evaluation, and progress in improvement was seen.
Moreover, Inside and Outside Directors’ evaluations and recognition of issues were generally consistent, and it was confirmed that there was sufficient communication between Inside and Outside Directors through active discussions at Board of Directors meetings.
Opinions were also expressed regarding areas where there is room for further improvement, and recognition of issues and the direction of future initiatives were discussed and shared at Board of Directors meetings.

* The average score of other companies that have outsourced evaluations to the same third-party organization

(2) Positive feedback

Composition of the Board of Directors
As a result of ongoing discussions by the Board of Directors and the Committee for Examination of Nominees, steady progress has been made in terms of diversity, including gender, internationality, and skills.
Discussions held by the Board of Directors
The introduction of ROIC by business as an indicator has enabled discussions on the profitability of businesses to be held from more medium- to long-term perspectives. At each meeting, the Board of Directors was able to continue discussions on focus topics and business segments that are facing issues, which has led to improvement. Results have already been seen in some areas, particularly in the Sanitary, Hair Care, and transferred businesses.
Monitoring function of the Board of Directors
At the monthly Board of Directors meeting, the status of execution is monitored using the Management Strategy Dashboard.^* Growth and ROIC management KPIs have been introduced throughout the company and are reflected in the Management Strategy Dashboard.
Dialogue with shareholders
Conducting engagement that integrates investor relations (IR), shareholder relations (SR), and public relations (PR) has increasingly enabled the issuance of clearer messages. The Board of Directors has also begun proactively reporting and holding discussions on IR and SR.

* Management Strategy Dashboard: In order to accurately monitor execution status, indicators such as net sales, profit, market share, price increase status, and ROIC by business are set and reported on a regular basis using the same format.

(3) Issues that should be focused on going forward

Composition of the Board of Directors
It is necessary to continue discussing the skills required of Board members from the perspective of the future approach of the Board of Directors and value creation.
Discussions held by the Board of Directors [Key issues]
To achieve the Mid-term Plan K27, ongoing follow-up on its progress is needed alongside further discussion regarding global growth strategies, global brand strategies (including corporate branding), and business segments that are experiencing issues, such as Cosmetics. Discussions are to be carried out with a view to the next long-term strategy to follow after K27. Deeper discussions will also be held on human capital strategies, including the succession plan for appointing future Presidents and the development of the next generation of leaders.
Monitoring function of the Board of Directors
There is room for further enhancement of governance and monitoring businesses outside of Japan and subsidiaries in implementing global strategies.
Dialogue with shareholders
Concrete and realistic growth strategies need to be actively disclosed in a more easy-to-understand manner. There is also room to consider opportunities for Outside Directors to further engage in dialogue.

3. Status of ongoing improvements

In order to disclose the status of ongoing improvements based on effectiveness evaluations, the issues raised in the previous evaluation, the results of improvement initiatives, and the most recent evaluation have been summarized as follows. The Board of Directors, the Committee for Examination of Nominees, and the Compensation Advisory Committee for the current fiscal year will continue to address the issues raised in the most recent evaluation.

(1) Board of Directors

	FY2023 Evaluation and Issues	FY2024 Initiatives	Most Recent Evaluation and Future Initiatives
Composition	The disclosure of the Corporate Governance Policy was given a positive evaluation. The composition of the Board of Directors was in line with the policy.	There were ongoing discussions regarding the composition of the Board of Directors, including diversity (gender, internationality, skills, etc.).	Steady progress was made regarding the diversity of the Board of Directors. Continuous discussions are needed based on the future vision of the Board of Directors.
Discussions and monitoring function	K27 was formulated and progress was made in both discussing and implementing structural reforms. Further discussion was needed regarding growth strategies and business segments that are experiencing issues. Further improvements should be made to the monitoring of management indicators under ROIC management. Discussions and decisions on the structural reforms in relation to human capital were given a positive evaluation. It was necessary to discuss what is required of the human capital responsible for growth strategies, and how to develop and acquire said human capital.	There were ongoing discussions regarding business segments that are experiencing issues. Monitoring indicators were refined, then reflected and reported in the Management Strategy Dashboard. Discussions were held on the succession plan for appointing future Presidents and appointment plans for next-generation leaders.	Continued to discuss business segments that are experiencing issues, which produced results. Introduction of ROIC by business enabled discussions on the profitability of businesses to be held from more medium- to long-term perspectives. Follow up on K27 and discussions on growth strategies and business segments that are experiencing issues (especially Cosmetics) are needed. Deeper discussions will be held on the succession plan for appointing future Presidents and other human capital strategies. There is room for further enhancement of governance and the monitoring businesses outside of Japan and subsidiaries.
Operation	The Board of Directors was appropriately fulfilling its supervisory functions. Presenters should make discussion points clear.	Used the presentation format at all meetings of the Board of Directors, and clearly indicated discussion points.	Clarification of discussion points is helping secure more time for discussion. Ensure materials are distributed in advance, as scheduled.
Dialogue with shareholders	Deliberations were being conducted with greater attention paid to stakeholders, including investors. Growth strategies need to be demonstrated more clearly.	Conducted efforts to integrate IR and SR, which was also reported on and discussed at Board of Directors meetings. Held strategy briefings on digital transformation (DX) and the Hair Care Business following discussions by the Board of Directors.	Conducted engagement integrating IR, SR and PR. Disclosure of growth strategies should be enhanced further. Opportunities for dialogue by Outside Directors will also be considered.

(2) Committee for Examination of Nominees and Compensation Advisory Committee

	FY2023 Evaluation and Issues	FY2024 Initiatives	Most Recent Evaluation and Future Initiatives
Discussions and operation	Discussions were sufficient. More concrete discussions were needed regarding the succession plan for future Presidents and other human capital requirements and training plans.	There were ongoing deliberations regarding the composition and diversity of the Board of Directors. There were ongoing discussions regarding the succession plan for future Presidents.	Discussions on the succession plan should continue to be deepened further. A way to report and share information with the Board of Directors needs to be devised.

Japanese Version