Corporate Governance System

To ensure the performance of duties based on appropriate management decisions, the Company strengthens the monitoring functions of the Board of Directors, which deliberates matters mainly relating to the Company’s management foundation, such as its management philosophy and business plans, as well as important matters concerning business execution by tapping into the management experience and professional knowledge of outside directors and outside corporate auditors. This has resulted in the establishment of a framework in which each executive organization reports the progress of business execution on matters for which a management decision was made to the Corporate Executive Meeting, the Board of Directors, etc. on a timely basis. The Company has opted to be a company with a Board of Company Auditors to ensure such duties are executed in a legally compliant and smooth manner, by coordinating the audit functions of the corporate auditor, the business audits by the Internal Control Department, which is an internal audit function, and the supervisory functions of the Board of Directors. The Company has a framework that separates business management and business execution, under which the Board of Directors is responsible for developing the Group’s medium- to long-term plans and making management decisions in line therewith, while the Business Execution Framework that is mainly comprised of executive officers is responsible for business execution through rapid and flexible decision-making. The Board of Corporate Auditors and the Independent Accounting Auditors form the Audit Framework for overseeing management and auditing business execution. The Boards and the Frameworks form the structure that fulfills their respective roles and responsibilities from an independent perspective.

Aiming to strengthen the Board’s oversight of business execution, the Company appointed two outside directors for the first time at the Annual General Meeting of Shareholders in FY2009 and now has four outside directors in a team of six directors, two of whom are female, to promote highly transparent and impartial management by drawing on perspectives from outside the Company. The appointment of these outside directors (more than half of the six directors) is allowing the Company to maintain a system that ensures fair and efficient management. All four outside directors are independent appointments and understand corporate responsibility of the Company, contributing to increasing transparency in management.

The Board of Directors meets once a month, in principle, to make decisions on important matters that affect business and supervise business execution. In FY2023, the Board met 13 times and made decisions appropriately on important matters that required management decisions in accordance with the law and the Articles of Incorporation. The attendance rate of directors and corporate auditors was 100% for all Board meetings.

The Board of Directors is advised by the Nomination Advisory Committee (four outside directors, one inside director, one standing corporate auditor, and one outside corporate auditor) and the Compensation Advisory Committee (four outside directors, one inside director, one standing corporate auditor, and one outside corporate auditor), which are chaired by outside directors. To ensure management decisions are equitable, these committees carefully assess the aptitude of candidates for director positions, the impact directors have on business management, and the suitability of individuals for certain roles and their respective levels of remuneration.

To ensure directors and each organization in the Company conduct their duties in a legally compliant and appropriate manner, the Company has established systems to enable corporate auditors and the Internal Control Department, which is responsible for conducting internal audits, to carry out audits of business execution and exchange opinions with the representative directors as required. The Board of Corporate Auditors consists of two standing corporate auditors and three outside corporate auditors. Corporate auditors attend important meetings such as the Board of Directors and Corporate Executive Meeting, express necessary opinions, and conduct business audits and accounting audits in accordance with the “Code of Audit and Supervisory Board Member Auditing Standards” by directors and each person in charge of business execution regarding to verifying the legality and validity of our business. Corporate auditors receive reports from the Accounting Auditor on the details of the accounting audit and take measures such as exchanging opinions. Corporate auditors also regularly receive reports from the Internal Control Department on the content of internal audits and take measures such as exchanging opinions to ensure coordination among corporate auditors, the Accounting Auditor and the Internal Control Department.

In addition, the Company has concluded an audit contract under which Ernst & Young ShinNihon LLC serves as its external auditor for conducting accounting audits. The certified public accountants who are the employees who conduct accounting audits for the Company are Koichiro Kitaike and Naoki Nakazawa.

The Company has introduced an executive officer system to support dynamic and flexible business operations, enabling the Group to respond rapidly to significant changes in the operating environment. The Company has also established the Corporate Executive Meeting as a body to discuss business execution. It is composed of directors, standing corporate auditors and those responsible for business execution and meets every week in principle. The Corporate Executive Meeting is a forum for discussing issues related to business execution and important management matters.

Business execution involves ten divisions – the Drug Discovery Research Division, the Pharmaceutical Technology Research Division, and the Drug Development and Regulatory Science Division, which engage in research and development; the Pharmaceutical Commercial Division, which communicates information about drugs; the Integrated Disease Care Division, which collects and analyzes healthcare information to maximize the value of products and the Company; the Vaccine Business Division, which engages in the establishment and promotion of the vaccine business, a new business platform for the Company; the Corporate Strategy Division, which is responsible for formulating company-wide strategies for the optimal allocation and utilization of managerial resources; the Administration Division, which is in charge of enhancing engagement with stakeholders; the DX Promotion Division, which aims to create healthcare solutions by building infrastructure for data utilization using IT and digital technology; and the Corporate Quality Assurance and Ethics & Compliance Management Division, which is responsible for strengthening the compliance framework to provide products and services of reliable quality. These business divisions are supervised in terms of four major value chains.

The Corporate Executive Meeting thoroughly deliberates on the execution of business, and the Board of Directors makes decisions on matters that affect management significantly.

The Board of Directors analyzed and evaluated its effectiveness in FY2023 by conducting questionnaires and interviews of individual directors and corporate auditors, 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. Framework

We assess that the Board of Directors has currently secured the necessary framework from the standpoint of various attributes, including expertise and experience, and diversity. However, raised as a future challenge was the need to elect successor candidates and appoint directors of foreign nationality from the standpoint of diversity, including expertise, and succession, in light of the expansion of and changes in the Company’s business.

The Board of Directors will continue to consider ways to develop the optimal framework for the Company while taking the Company’s business development into account.

2. Roles and Responsibilities

Regarding the reporting and supervision of the status of senior management development, reports were continuously provided at opinion exchange meetings with outside directors and the President, and meetings between corporate officers and associate corporate officers (senior management candidates) and outside directors were held. In addition, matters related to compliance and risk management were regularly reported to the Board of Directors, who made provided its opinions.

Furthermore, matters related to sustainability and human capital were proposed and reported on multiple times, which were discussed and resolved at the Board of Directors meeting.

As a future challenge, the Board of Directors cited the need to enhance discussions regarding risk management, such as by reporting on the progress of the updated medium-term management plan and capturing changes in risks related to business development, and raising these issues at the Board of Directors meeting in an appropriate manner.

The Board of Directors will continue to explore ways to improve its roles and responsibilities.

3. Operation

In order to further stimulate discussions at Board of Directors meetings, the Board of Directors has continued to provide periodic pre-briefings on the agendas of Board of Directors meetings and has reported on the progress of matters resolved at the meetings as appropriate.

As future issues, opinions were expressed regarding further enriching discussions, such as improving measures to deepen understanding of the Company’s business, efficient management of Board of Directors meetings, and utilizing opportunities outside of Board of Directors meetings.

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”.