Corporate Governance Structure

Corporate governance overview

Basic approach to corporate governance

The Group's corporate philosophy is "to contribute to society through the development of powder technology". In line with this corporate philosophy, we will continue to be a leading global company through the formation of a "Mountain range of powder technology". To create the next generation of advanced industries through the development and commercialization of process equipment, system engineering and new materials, and to realize the new development of the "Powder Technology Chain". This is our corporate vision.
In order to realise these basic principles, the Group regards corporate governance as an essential element for its survival as a global company, and as the most important management issue as a fundamental corporate governance concept for improving the soundness and efficiency of management and for practising rapid decision-making. In line with this view, we have established the following principles In line with this view, we will continue to work to establish and strengthen a corporate governance structure that maximises the company's sustainable growth and corporate value, particularly for shareholders, in relation to the stakeholders surrounding the Group, namely shareholders, business partners, local communities and employees.

Outline of the corporate governance structure

The Company is a company with a board of auditors, in which the board of directors makes important management decisions and supervises the execution of business, and the corporate auditors audit the directors' performance of their duties through attendance at meetings of the board of directors and other important meetings. The outline of each organization and department in the Company's corporate governance system is as follows.

Diagram of our corporate governance structure

Board of Directors

The Company has 10 directors, 5 of whom are outside directors, and the Chairman of the Board and President until the Board of Directors meeting held in April 2021, and the President and Representative Director since May, following the change of Representative Director. The Board of Directors is composed of all directors and is managed with the attendance of three corporate auditors (including two outside corporate auditors). In addition to the regular monthly meetings, extraordinary meetings of the Board of Directors are held flexibly as necessary. In addition to matters stipulated by law or the Articles of Incorporation, decisions and reports are made on the basic policies of the Hosokawa Micron Group, mainly the Company, and important matters related to business execution. The Board of Directors fulfills its function of mutual supervision and monitoring.
In addition, the Company has appointed five Outside Directors who, from an independent standpoint, provide appropriate advice and opinions at the Board of Directors meetings as appropriate to contribute to the enhancement of corporate value over the medium to long term based on their extensive knowledge and rich experience.
During the fiscal year under review, 14 meetings of the Board of Directors and one written resolution were held. However, in response to the spread of the new coronavirus infection, 13 of the 14 meetings of the Board of Directors were held using the web conference system.
In addition, the term of office of directors is set at one year in order to further clarify the management responsibility of directors.

Voluntary nomination and remuneration committees

tary advisory body to the Board of Directors, the Company has established the Nomination and Compensation Committee, which consists of the President and Representative Director and five outside directors. In response to consultations from the Board of Directors, the committee has established a system to enhance the fairness, objectivity and transparency of the decision-making process regarding the appointment and dismissal of directors, etc. and the remuneration of directors, etc. The committee is chaired by Mr. Tatsuo Fujioka, an outside director.

Internal Audit Office

The Internal Audit Office (two members), which reports directly to the President, conducts internal audits and internal control audits of the Company and its domestic and mainly Asian group companies in accordance with the internal audit plan approved by the President, and evaluates whether business activities in general are conducted in a legal, appropriate and rational manner. The results of the internal audits are reported to the Representative Director. The results of the internal audits are reported directly to the representative directors and auditors as well as to the relevant departments, and are also reported to the Board of Directors and the Management Committee.

Mutual cooperation between supervision or auditing by outside directors or outside corporate auditors and internal audit, audit by corporate auditors and accounting audit, and relationship with internal control department

In order to enable outside directors to exercise management supervision from an independent standpoint, the Company has a system in place to provide necessary materials and explanations of circumstances as needed, in cooperation with corporate auditors, the internal audit division and accounting auditors. In addition to attending meetings of the Board of Corporate Auditors and the Board of Directors, the Outside Corporate Auditors confirm the status of the systems for ensuring the appropriateness of the Group's business operations through interviews with the Representative Director, the Accounting Officer, the Internal Audit Department, certified public accountants, and others. The Board of Directors also monitors management from various perspectives by asking questions and making statements at important meetings.

Audit status

1. Audit by the auditors

Audits by the Company's corporate auditors are conducted by a total of three auditors, two part-time auditors and one full-time auditor from within the Company, in accordance with the audit policy and audit plan formulated through discussions at the Board of Corporate Auditors. Of these, two part-time auditors are external auditors.
Of these, two part-time corporate auditors are outside corporate auditors and have a considerable degree of specialized knowledge and experience in corporate accounting and legal affairs. In order to audit the appropriateness and legality of the execution of duties by Directors, Corporate Auditors attend meetings of the Board of Directors and other important meetings in accordance with the audit plan to verify the legality and appropriateness of the management decision-making process and results. In addition, to gain a better understanding of the Company's situation, they communicate with representative directors and other executive directors through meetings to exchange opinions, inspect important documents, and listen to the status of business execution in each department. The results of audits by each corporate auditor are, in principle, reported at the monthly meetings of the Board of Corporate Auditors, where information is shared and opinions are exchanged among the corporate auditors. In addition, we hold regular meetings with the accounting auditor and the internal audit office to discuss and exchange opinions on the status of audits, as well as to receive explanations from the accounting auditor on major audit considerations that are to be included in the accounting audit report, and to exchange opinions.

Meetings of the Board of Directors for the year under review

Name	Number of events	Number of attendances
Yuji FUKUI	17	17
Hiroshi KOKUBU	17	17
Kozou ARAO	4	4
Yoshimitsu KATSUI	13	13

Note : Attendance of Mr. Kozo ARAO, Outside Corporate Auditor, at the Board of Corporate Auditors meetings covers the meetings of the Board of Corporate Auditors held prior to his retirement on December 16, 2021. Attendance of Outside Corporate Auditor Mr. Yoshimitsu KATSUI at the Board of Corporate Auditors meetings covers the Board of Corporate Auditors meetings held after his appointment on December 16, 2021.

Major Issues to be Discussed at the Supervisory Board

• Monitoring policy and planning
• Evaluation of the audit methodology and comparability of results by the accounting auditor
• Establishment of an audit report
• Agreement on monitoring remuneration etc. by an audit supervisor
• Evaluation of the reappointment of an auditor
• Review of the content of investigations in the internal reporting system
• Review of the contents of the General Meeting of the Board of Directors at regular intervals, etc.

As for the activities of the full-time corporate auditors, they mainly audit the legality of the directors' performance of their duties by attending important meetings, inspecting important approval documents, etc., and visiting business execution departments, and express their opinions as necessary and report to the Board of Corporate Auditors.

2. Status of internal audit

The Internal Audit Office, which reports directly to the President, conducts audits of the Company's operations and organizational systems, and evaluates internal controls over financial reporting at the Company and its Group companies, in accordance with the Internal Audit Regulations. They assess compliance with laws, regulations and internal rules relating to business activities, and conduct audits to help prevent fraud, improve the effectiveness and efficiency of operations, and ensure the reliability of financial reporting. The results of the internal audits are reported directly to the Representative Director, and follow-up audits are planned and carried out by attending important management meetings to monitor the status of action.
Corporate auditors and accounting auditors exchange opinions and collaborate effectively as appropriate on the evaluation of the status of the development and operation of internal controls and the implementation of internal audits at the Company and its group companies.

3. Auditing of accounts

a. Name of auditing firm

KPMG AZSA LLC

b. Years of continuous auditing

19years (Including 3 years of joint auditing with Shin Nihon & Co.)

c. Certified Public Accountants who performed the work

Mr. Kenta TSUJII
Mr. Kazuki SATO

d. Composition of assistants for audit work

Our accounting audit assistants consist of certified public accountants (7) and others (11).

e. Audit firm selection policy and reasons

In selecting and evaluating the accounting auditor, the Company confirms matters concerning the independence of the accounting auditor, the system to ensure expertise in hiring, education and training, the system of rotation, the system of examination, and other matters concerning the system to ensure the proper execution of duties. In addition, the Company selects the accounting auditor comprehensively, taking into account the content of the audit, audit hours, level of audit fees, and other factors that are appropriate to the Company's circumstances. With regard to the reappointment of the accounting auditor, the Company considers that there is no problem as a result of comprehensive consideration of the performance of the accounting auditor's duties.

f. Evaluation of the Audit Firm by the Corporate Auditors and the Board of Corporate Auditors

The Board of Corporate Auditors of the Company evaluates the audit corporation every fiscal year, and evaluates that KPMG AZSA LLC is capable of conducting appropriate audits, with sufficient audit quality and no occurrence of any event that would impair its qualification or independence as an accounting auditor.

4. Details of audit remuneration

4-1. Remuneration to auditors and certified public accountants

Classification	Classification Previous consolidated FY		Current consolidated FY
	Remuneration for audit certification services (Millions of yen)	Remuneration for non-audit services (Millions of yen)	Remuneration for audit certification services (Millions of yen)	Remuneration for non-audit services (millions of yen)
Submitting company	48	-	51	-
Consolidated subsidiaries	5	-	4	-
Total	54	-	55	-

4-2. Remuneration to the same network (KPMG member firms) as the Certified Public Accountants (excluding a.)

Classification	Classification Previous consolidated FY		Current consolidated FY
	Remuneration for audit certification services (Millions of yen)	Remuneration for non-audit services (Millions of yen)	Remuneration for audit certification services (Millions of yen)	Remuneration for non-audit services (millions of yen)
Submitting company	－	－	－	－
Consolidated subsidiaries	83	56	100	44
Total	83	56	100	44

*Non-audit services provided by consolidated subsidiaries for the previous and current financial years include advisory services relating to general taxation matters.

4-3. Details of remuneration for other significant audit attestation work

Not applicable.

4-4. Policy for determining audit remuneration

Not applicable.

e. Reasons for the Board of Statutory Auditors' agreement to the remuneration of the Accounting Auditor

The Board of Statutory Auditors of the Company has reviewed the trends in audit hours and audit fees by audit item, as well as the status of audit plans and actual results for previous years, and has considered the appropriateness of the estimates of audit hours and fees in the audit plan for the current fiscal year, and as a result has given its consent to the remuneration of the Accounting Auditor in accordance with Article 399, paragraph 1 of the Companies Act.

Directors' remuneration

1. Matters relating to the policy on the determination of the amount of remuneration, etc. of directors and auditors and the method of calculation thereof

Remuneration for directors and corporate auditors of the Company is determined within the scope of the total amount of remuneration previously resolved by the General Meeting of Shareholders. Remuneration for directors is determined by the representative director with the authority of the Board of Directors after due consideration by the Board of Directors, which is attended by outside directors, and remuneration for corporate auditors is determined by consultation with the corporate auditors. The Board of Directors decides on the remuneration of the auditors. In addition, a voluntary Nomination and Remuneration Committee consisting of the representative director and three outside directors has been established to enhance and strengthen the corporate governance system in order to build a system to improve the fairness, objectivity and transparency of the decision-making process regarding directors' remuneration.
The remuneration of directors, excluding outside directors, depends on their position and responsibilities and consists of a fixed monthly remuneration, a bonus reflecting the short-term performance of the Group's consolidated companies and divisions under their control, and stock acquisition rights (stock options) that can reflect medium- to long-term performance. The level of remuneration is determined by referring to survey data conducted by an external organization, and by examining the relative position of the Group in relation to other comparable companies, such as in terms of business scale. The performance-linked portion (bonus) is determined by taking into account indicators such as the level of consolidated operating profit and the level of consolidated ROE, which are determined independently by the Company.
Remuneration for outside directors and auditors is fixed remuneration only, but in addition to the monthly payment, it is paid in the year-end bonus month.
At the 62nd Ordinary General Meeting of Shareholders held on 21st Dec.2006, a resolution was passed to limit the amount of remuneration for directors of the Company to 400 million JPY per year, and at the 70th Ordinary General Meeting of Shareholders held on December 16, 2014, a resolution was passed to limit the amount of remuneration for corporate auditors to 50 million JPY per year. In addition, a resolution was passed at the 67th Ordinary General Meeting of Shareholders held on 10th Dec.2011 to allot stock acquisition rights as stock-based compensation in an amount not exceeding 30 million JPY per year, separately from the above limit on remuneration for directors (excluding outside directors). However, based on the purpose of the Corporate Governance Code, the 76th Ordinary General Meeting of Shareholders to be held on December 17, 2020 resolved to allot stock acquisition rights with stock-based compensation in an amount not exceeding 50 million JPY per annum and a total of not more than 5.000 shares of the Company's common stock per annum, separately from the aforementioned maximum amount of remuneration for directors (excluding outside directors), for the purpose of providing incentives for the sustainable enhancement of the Company's corporate value and promoting further value sharing with shareholders, At the 76th Ordinary General Meeting of Shareholders, the Board of Directors approved the introduction of a stock-based compensation plan with restrictions on the transfer of shares. In line with the introduction of this restricted stock compensation plan, the Company will cease to grant new stock acquisition rights as stock-based compensation and will not issue stock acquisition rights as stock-based compensation thereafter.

Policy on basic remuneration

The amount of remuneration to be paid shall be determined in accordance with the director's position, responsibilities, and years in office.

Policy on Performance-Linked Remuneration

The amount of performance-linked remuneration shall be determined by multiplying the base remuneration, which is a fixed monetary remuneration, by the standard amount set according to the director's position, weighted by indicators such as consolidated net sales, consolidated operating income and consolidated return on equity (ROE) for each fiscal year. The planned values of the performance-linked remuneration indicators for the current fiscal year are consolidated net sales of 53,000 million yen, consolidated operating income of 4,000 million yen, and consolidated return on equity (ROE) of 6.6%. The actual figures are consolidated net sales of 60,754 million yen, consolidated operating income of 6,370 million yen, and consolidated return on equity (ROE) of 10.9%. The reason for the selection of this indicator is that it is a performance target in the management plan, so it has been adopted as an indicator.

Policy on Non-Monetary Remuneration, etc.

In order to provide incentives for the sustainable enhancement of the Company's corporate value and shareholder value over the medium to long term, shares with transfer restrictions shall be granted as non-monetary remuneration, and the number of shares to be granted shall be determined in accordance with the position. The period of restriction on transfer shall be from the date of allotment of such restricted shares to the date of retirement, and the restriction on transfer of all of the Allotted Shares shall be cancelled upon expiration of the period of restriction on transfer, provided that the retirement of the Subject Director is due to a reason recognized as legitimate by the Board of Directors of the Company.

Policy on the Ratio of Remuneration

The ratio of basic remuneration, which is fixed monetary remuneration, bonuses, which are performance-linked remuneration, etc., and restricted stock, which is non-monetary remuneration, etc., shall be approximately 55-60%: 30-35%: 10-15%.

Policy on timing of delivery of remuneration, etc.

The basic remuneration shall be fixed monthly monetary remuneration. Bonuses, which are performance-linked remuneration, etc., shall be paid twice a year in July and December for Directors other than Outside Directors, and once a year in December for Outside Directors, and restricted stock, which is non-monetary remuneration, etc., shall be granted to Directors other than Outside Directors on the allotment date in February each year. Restricted stock, which is non-monetary remuneration, shall be granted to Directors excluding Outside Directors on the allotment date in February of each year.

Policy on Delegation of Decisions on Remuneration, etc.

With respect to basic remuneration, which is monthly fixed monetary remuneration to be paid to each director, and bonuses, which are performance-linked remuneration, etc., the Company had delegated the determination of specific details to the President and Representative Director based on a resolution of the Board of Directors.

Matters concerning the determination of remuneration, etc. other than the above

With respect to the restricted transferable shares to be paid as non-monetary remuneration, etc., the Company shall naturally acquire all or part of these allotted shares without compensation in the event that certain events specified in the Allotment Agreement, etc. are met, such as when a Director commits a non-compliant act.

Method of determining the details of remuneration, etc. for each individualUnder the resolution of the Board of Directors that the President and Representative Director shall decide the details of remuneration, etc. at the discretion of the President and Representative Director, remuneration, etc. had been determined in accordance with the role, responsibilities, etc. of each Director within the scope of the total amount of remuneration, etc. resolved at the General Meeting of Shareholders, taking into consideration the Company's business performance, etc. Effective from the basic remuneration and bonuses for calendar year 2022, however, the Company has changed its policy to have the voluntary Remuneration Committee deliberate However, starting with the basic remuneration and bonuses for the calendar year 2022, the Company has adopted a policy of reporting to the Board of Directors the remuneration, etc. of each individual director after deliberation by the voluntary Remuneration Committee, and having the Board of Directors decide on the amount of remuneration. Regarding remuneration for corporate auditors, within the scope of the annual amount of 50 million yen resolved at the 70th Ordinary General Meeting of Shareholders held on December 16, 2014, the allocation of such remuneration is determined through discussions among the corporate auditors.

Resolution of the General Meeting of Shareholders on Remuneration for Directors and Corporate AuditorsAt the 62nd Ordinary General Meeting of Shareholders held on December 21, 2006, a resolution was passed to limit the annual amount of remuneration for directors to 400 million yen, and at the 70th Ordinary General Meeting of Shareholders held on December 16, 2014, a resolution was passed to limit the annual amount of remuneration for corporate auditors to 50 million yen. In addition, a resolution was passed at the 76th Ordinary General Meeting of Shareholders held on December 17, 2020 to introduce a stock-based compensation plan with restrictions on the transfer of shares (excluding outside directors), which will replace the stock acquisition rights as stock-based compensation with an annual amount not exceeding 50 million yen and a total number of the Company's common shares not exceeding 5,000 shares per year. The Company has adopted a resolution to introduce a restricted stock compensation plan. In accordance with the introduction of the said stock-based compensation plan with restrictions on transfer, the Company stopped granting new stock acquisition rights of the conventional stock-based compensation type and has not issued any stock acquisition rights as stock-based compensation type stock acquisition rights since then.

2. Total amount of remuneration, etc., by category of officer of the submitting company, total amount of remuneration, etc., by type of remuneration, etc., and number of officers covered

Classification of directors	Total amount of remuneration (millions of yen)	Total amount of remuneration, etc. by type (Millions of yen)			Number of officers eligible for basic remuneration Number of Directors
		Base pay	Performance-linked compensation, etc. (Bonuses)	Non-monetary compensation, etc. (Stock-based compensation)
Directors (excluding outside directors)	185	96	67	20	5
Statutory auditors (excluding external statutory auditors)	13	11	1	-	1
Outside directors	40	27	12	-	8

3. Total amount of consolidated remuneration, etc. for each director of the submitting company

Not stated because there is no person whose total amount of consolidated remuneration, etc. is 100 million JPY or more.