Corporate Governance System

The Company has adopted the structure of a company with an Audit and Supervisory Committee to strengthen the supervisory function of the Board of Directors over the Representative Director amid the globalization and expansion of its business. This structure enables the Company to clearly distinguish between matters delegated to the executive side and those resolved by the Board of Directors, thereby establishing a framework that facilitates delegation of authority to ensure swift decision-making and promote in-depth discussions on company-wide mid- to long-term strategies while giving due consideration to the balance of stakeholders. Additionally, the Company has enhanced the development and operation of its internal control systems, allowing the Audit and Supervisory Committee to more effectively oversee the overall decision-making process of the executive side by leveraging its authority and working with the internal audit department.

The guidelines and procedures of the Board in the nomination of candidates for Directors are as follows :

 

<Guidelines>

In order to allow us to enhance business oversight by directors, improve management transparency, and ensure impartiality in management, the Company will nominate the candidates for directors in accordance with the following views and guidelines from the standpoint of diversity, in addition to the Company’s financial results, compliance status and other factors.

 

(1) Independent directors shall account for half or greater than half of the board.

(2) Various aspects including management experience, specialized knowledge in areas such as law and finance, medical and pharmaceutical viewpoints, and knowledge and experience in international business, as well as the overall balance of the Board of Directors, shall be considered.

(3) Ensuring diversity in terms of gender, age, nationality and expertise shall be considered.

 

In addition, when selecting Directors, the Company will nominate as candidates for Directors those who meet the criteria for appointment and reappointment separately established by the Board of Directors, in consideration of the above perspectives.

In selecting candidates for Directors who are Audit and Supervisory Committee Members, the Company’s policy is to nominate individuals who can express opinions in a fair and objective manner, contribute to enhancing the soundness and transparency of management, and possess the appropriate experience and capabilities required to fulfill their roles and responsibilities. These responsibilities include auditing the execution of duties by Directors (business audits), and auditing the appropriateness of accounting audits conducted by the Accounting Auditor and by the Corporate Auditors of group companies (accounting audits). Candidates should also have knowledge of legal affairs or appropriate insight into finance and accounting.

In the event of wrongdoing or a serious legal violation in the execution of duties by a director that causes a significant loss to the Group, or if an event occurs that disrupts the Group’s business operations, and after sufficient investigation, the Company will proceed with the dismissal procedures of said director. The Representative Director and Executive Directors shall be removed from office by resolution of the Board of Directors.

 

<Procedures>

The Nomination Advisory Committee, which is comprised of a majority of independent outside directors and is chaired by one of them, conducts fair, transparent, and rigorous deliberations, and the candidates are determined by the Board of Directors based on the Committee’s recommendations. Approval from the Audit and Supervisory Committee shall be required in the case of directors who are members of the Committee.

The Company has established a governance structure comprising seven Directors who are not Audit and Supervisory Committee Members and five Directors who are Audit and Supervisory Committee Members. Among the 12 Directors, three are women and one is a non-Japanese national, ensuring diversity in the Board. With the appointment of eight Outside Directors, who constitute the majority of the Board, the Company maintains a structure that enables fair and efficient management. All eight Outside Directors serve as independent directors, recognizing the Company’s corporate responsibilities and contributing to highly transparent management. The Chairperson of the Board of Directors is Director Keiichi Ando. The Board of Directors meets once a month in principle, and met 14 times in FY2025. Specifically, the Board of Directors made decisions on important matters affecting management, such as corporate governance, enterprise risk management, and the conclusion of material contracts, while also receiving reports on compliance activities and progress in business execution by each department, thereby supervising the execution of duties. The attendance rate of Directors was 100% for all Board meetings.

To ensure management decisions are equitable and to carefully assess the aptitude of candidates for director positions, the impact directors have on business management, and the appropriateness of their duties and compensation, the Board of Directors is advised by the Nomination Advisory Committee (six Outside Directors and two Inside Directors) and the Compensation Advisory Committee (six Outside Directors and two Inside Directors), which are chaired by Outside Directors.

To ensure the legality and appropriateness of duties carried out by Directors and each organizational unit, the Audit and Supervisory Committee and the Internal Control Department, which is responsible for internal audits, conduct audits of the status of business execution as appropriate, while exchanging opinions with the Representative Director and reporting to the Board of Directors, thereby establishing a system to take necessary actions. The Audit and Supervisory Committee consists of two Inside Directors who serve as full-time members and three Outside Directors who serve as members, and is chaired by Director Yoriko Goto. The Audit and Supervisory Committee conducts business and accounting audits in accordance with the “Standards for Audit and Supervisory Committee Audits” to verify the legality and appropriateness of the duties carried out by directors and persons responsible for business execution. It also receives reports from the Accounting Auditor on the content of accounting audits and takes actions such as exchanging opinions. In addition, Directors who are Audit and Supervisory Committee Members attend important meetings such as the Corporate Executive Meeting and express necessary opinions. Together with the newly established Audit and Supervisory Committee Office, efforts are being made to enhance deliberations at the Audit and Supervisory Committee. Furthermore, the Committee also receives regular reports from the Internal Control Department on the contents of internal audits and exchanges opinions, while issuing instructions to the department as appropriate, thereby ensuring coordination among the Audit and Supervisory Committee, the Accounting Auditor, and the Internal Control Department.

In addition, the Company has concluded an audit contract with Ernst & Young ShinNihon LLC as its Accounting Auditor. The certified public accountants who served as the designated engagement partners for the Company’s audit are Koichiro Kitaike and Naoki Nakazawa.

The Company has introduced an executive officer system to enable rapid and flexible business operations, in order to respond promptly to changes in the operating environment. As a decision-making body for business execution, the Company has established the Corporate Executive Meeting, which is composed of Internal Directors and key executives responsible for business execution and is, in principle, held weekly. At the Corporate Executive Meeting, thorough deliberations are conducted on a wide range of matters, from issues related to business execution to important matters.

The business execution framework consists of twelve divisions: the Drug Discovery Research Division, the Pharmaceutical Technology Research Division, the Drug Development Division, the Central Pharmaceutical Research Institute and the Development Business Division, which engage in R&D; the Pharmaceutical Commercial Division, which communicates pharmaceutical information; the Healthcare Strategy Division, which collects and analyzes healthcare-related information to maximize product and corporate value; the Vaccine Business Division, which establishes and promotes the vaccine business as a new business foundation; the Corporate Strategy Division, which formulates company-wide strategies for optimal allocation and utilization of managerial resources; the Sustainability Management Division, which strengthens engagement with stakeholders; the DX Promotion Division, which aims to create healthcare solutions by building a data utilization infrastructure using IT and digital technologies; and the Corporate Quality Assurance Division, which strengthens the compliance framework to provide trusted-quality products and services. These divisions are organized under a structure supervised by four major value chains. In executing business operations, thorough deliberations are held at the Corporate Executive Meeting, and matters that have a significant impact on management are decided by the Board of Directors.

The Board of Directors analyzed and evaluated its effectiveness in FY2025, by conducting questionnaires and interviews of individual directors, with a focus on (1) Framework, (3) Roles and Responsibilities, and (6) Operation in “6. Directors and the Board” in the “Basic Views and Guidelines on Corporate Governance” set by the Company.

The following is a summary of the results:

1. Organizational Structure 

We have evaluated that the Board of Directors currently has the necessary framework in place from the standpoint of diversity and various attributes, including expertise and experience, as demonstrated by the appointment of foreign nationals and women as directors. However, as a future challenge, the following needs were raised: responding to accelerating globalization in light of the Company’s business expansion and changes resulting from aggressive business investments made in FY2025; promoting human resources with the necessary skills from the standpoint of diversity, including expertise; and considering specific development plans for the next generation of management candidates from the perspective of succession planning.

The Board of Directors will continue to consider ways to further strengthen the framework, taking into account the future status and direction of business development.

 

2. Roles and Responsibilities

In FY2025, the Company transitioned to a company with an Audit and Supervisory Committee, which we believe has further strengthened supervisory functions over business execution. By sharing the details of discussions and matters reported at Audit and Supervisory Committee meetings with the Board of Directors at each meeting, we aim to reduce the information gap among directors regarding the business execution situation. This has also led the Board of Directors as a whole to engage in more active discussions by clarifying the matters on which the Board should focus more. Furthermore, the Board of Directors and related meetings hold discussions and exchanges of opinions on matters such as significant individual projects, the next medium-term business plan, and the development of senior management members. Reports on compliance and risk management are also regularly presented at these meetings. Therefore, we conclude that the Board of Directors exercises appropriate supervisory and advisory functions.

As future challenges, the Board of Directors identified the need to re-evaluate business risks and materiality in light of changes in the internal and external business environments and to focus on deliberating the re-establishment of human capital strategies following changes to the Group’s structure.

To fulfill the roles and responsibilities of the Board of Directors even more, it will continue to consider strengthening functions that lead to the enhancement of the Company’s medium- to long-term corporate value by optimizing the division of responsibilities with the Audit and Supervisory Committee.

 

3. Operation

In further stimulating and streamlining discussions at Board of Directors meetings, periodic pre-briefings on the agendas of Board of Directors meetings have continued to be provided, and reports on the progress of matters resolved at the meetings have been received on a timely basis. In addition, we have increased off-site meetings beyond Board of Directors meetings to further deepen discussions and enhance information sharing. We have also introduced flexible operation of the Board of Directors, such as holding extraordinary Board of Directors meetings on a timely basis. Through these initiatives, we have concluded that discussions on key projects that would significantly impact our medium- to long-term management strategy have been held swiftly.

As future challenges, the Board of Directors identified the need to manage the progress of key projects approved in FY2025, organize agenda to enhance discussions on medium- to long-term management strategies, review how to pre-brief matters for discussion, and secure time for discussions. To further enhance discussions, suggestions and requests were made regarding information provision opportunities in line with the direction of the Group’s business, as well as holding operating site tours.

The Board of Directors will continue to explore ways to improve its operation.

 

Based on the above, we assess that the Company’s Board of Directors has been operated appropriately and its effectiveness has been secured. We will use the results of this self-evaluation as a basis for making continuous improvements to make the Board of Directors even more effective.

 

 

For details on corporate governance, please refer to the “Corporate Governance Report”.