Fancl : Corporate Governance Report updated on July 8, 2021

FANCL Corporation

CORPORATE GOVERNANCE

Last updated on July 8, 2021

FANCL Corporation

Kazuyuki Shimada, President & CEO, Representative Director

Contact: General Affairs Department, Administration Headquarters

Tel: [phone]

TSE Code: 4921https://www.fancl.jp/en/

I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic

Information

1. Basic Views

FANCL positions full and proper corporate governance as an important management issue to enable us to become a corporation that our shareholders and all our stakeholders can rely upon. While closely following corporate ethics and the law, our basic policy calls for the enhancement of our internal control systems (which include risk management), the efficiency of management and the maintenance of transparency.

In addition, based on the principles below, we will work to develop and improve internal control based on this philosophy.

• "Can achieve more"

The FANCL Group is a corporation that truly cares for people, and seeks to eliminate customers' "negative" experience and pursue gentleness, safety, and assurance. We always put ourselves in customers' shoes and the happiness of our customers forms the basis of everything we do.

Reasons for Non-compliance with the Principles of the Corporate Governance Code

The Company has implemented all principles of the Corporate Governance Code.

Disclosure Based on the Principles of the Corporate Governance Code [Updated]

(Principle 1.4) Cross-shareholdings

The Company does not have any cross-shareholdings. Furthermore, it is our basic policy not to have any cross -shareholdings unless the significance of such holdings is recognized. We will exercise the voting rights of the shares that we are deemed to hold appropriately, after examining the content of the agenda items to be voted upon and judging whether such items contributes to the improvement of shareholder value.

(Principle 1.7) Related Party Transactions

When the Company is to conduct related party transactions and/or transactions involving conflict of interest, the Board of Directors first deliberates on important matters such as the transaction conditions and makes its decisions based on our board meeting criteria.

(Principle 2.6) Roles of Corporate Pension Funds as Asset Owners

The Company has prepared basic policies and operational guidelines to ensure the safe and effective management of our reserve funds. After we grant permission to the trustees who will manage these, we periodically monitor their operations. In addition, by individually delegating to each investment management institution the selection of investees and the exercising of voting rights, there is no conflict of interest between the beneficiaries of our corporate pension and the Company. We have appointed our Human Resources Department to be the department in charge of our Group's corporate pension fund. The Department has acquired the necessary business knowledge by attending various seminars held by the investment institutions.

(Principle 3.1) Full Disclosure

1. Please see "1.1 Basic Views" in this report for information about our management philosophy.
   For information about our Medium-Term Management Plan, please visit our website. (https://www.fancl.jp/en/ir/management/plan/index.html)
2. Please see "1.1 Basic Views" for information about our basic policy concerning corporate governance.
3. Please see "2.1 Director Remuneration" for information about our policies for deciding the remuneration, etc., of Directors and Audit & Supervisory Board Members.
4. In the appointment of our Senior Management and in the nomination of Directors and Audit & Supervisory Board Members, we do not discriminate on the grounds of gender, age or nationality. We carefully consider the personal qualities and business insights of each person, and it is our policy to appoint people who properly understand and practice our Group's founding philosophy of "Eliminating the 'negatives' with a sense of justice" and our management philosophy of "Can achieve more" and can fulfill their duties and responsibilities. Candidates are considered and discussed by the Nomination and Compensation Committee (of which the Chairperson and the majority of Committee members are Independent Outside Directors) which then refers the nominees to the Board

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of Directors for final decision-making. With regard to outside members, we appoint people who possess a high level of insight and specialized expertise, and who can supervise and advise on management from an objective standpoint based on a wealth of experience.

The process of dismissal of Senior Management is as follows. If the qualities stipul ated in the appointment policy are found to be lacking, then following the advice and recommendations of the Nomination and Compensation Committee, the person is dismissed following comprehensive judgment by the Board of Directors.

1. The reasons for the nomination of Director and Audit & Supervisory Board Member candidates are published in our Convocation Notice.

(Supplementary Principle 4.1.1) Scope of delegation to Management

We have established the Board of Directors' meeting criteria, clarified the matters to be resolved at the meetings of the Board, and have delegated other decisions to Management. Management carries out their duties based on their authority to make decisions, depending on the size and nature of the transactions and operations c oncerned.

(Principle 4.9) Independence Standards and Qualifications for Independent Outside Directors

On the premise that the independence of our Outside Directors is able to satisfy the requirement of the Tokyo Stock Exchange' s requirements for independence, we appoint people to the position of Outside Director who have a high level of expertise and abundant experience, and who can actively come up with proposals in response to the management issues of the Company, and who can provide management oversight functions in their position.

(Supplementary Principle 4.11.1) Stance on Balance among Knowledge, Experience, and Skills, and on Diversity and Size of the Board of Directors

Our Articles of Incorporation permit us to appoint up to 15 Directors and up to 5 Audit & Supervisory Board Members.

We currently have 9 Directors, of which 4 are Outside Directors. We appoint Directors who have various forms of knowledge, experience and abilities for the execution of their duties, and who can function effectively in meetings of the Board of Directors.

In the appointment of our Directors, we do not discriminate on the grounds of gender, age or nationality. We carefully consid er the personal qualities and business insights of each person, and it is our policy to appoint people who properly understand and practice our Group's founding philosophy of "Eliminating 'Negatives' with a sense of justice" and our management philosophy of " Can achieve more" and can fulfill their duties and responsibilities. Candidates are considered and discussed by the Nomination and Compensation Committee (of which the Chairperson and the majority of Committee members are Independent Outside Directors) which then refers the names to a meeting of the Board of Directors for final decision-making. With regard to Outside Directors, we appoint people who possess a high level of insight and specialized expertise, and who can supervise and advise on management from an objective standpoint based on a wealth of experience.

(Supplementary Principle 4.11.2) Concurrent Positions of Directors

Important concurrent positions of Directors and Audit & Supervisory Board Members are published in our Convocation Notice.

(Supplementary Principle 4.11.3) Summary of the Results of Evaluation of the Effectiveness of th e Board of Directors

Every year beginning from FY Mar/2016, each Director and Audit & Supervisory Board Member conducts a self-evaluation of meetings of the Board of Directors, so that we can gain a better understanding of the state of the Board and enable it to operate more effectively. The evaluation is conducted by sending a questionnaire survey to each Director and Audit & Supervisory Board Member that asks them about general matters relating to the Board of Directors, such as the roles and responsibilities of the Board of Directors, its size, composition and diversity, and its state of operation, the role and activities of the Outside Directors , as well as the support system and training for Directors, and communication with stakeholders. The results of the questionnaire were assessed.

In the Board evaluations of FY Mar/2021, we determined that overall, the Board of Directors is operating appropriately, and that the effectiveness of the Board is being maintained.

Result of FY Mar/2021 Board evaluations

1. The Board of Directors meets freely and openly to discuss issues based on the founding philosophy and management philosophy. The Chairperson of the Board listens to all opinions and creates an atmosphere in which it is easy to express frank opinions, and the executive officers positively respond to issues raised by outside directors and promptly make improvements.
2. The Outside Directors have different areas of expertise and are well-balanced.
3. Themed sessions are held to address issues that cannot be fully discussed at the Board of Directors ' meetings, leading to the invigoration of the Board of Directors' meetings. The advance briefing sessions for Outside Directors held by senior management prior to the themed sessions are very useful in deepening understanding of business content and management issues.

It was pointed out that there is room for further improvement in diversity including the increase in the number of female directors, as well as in the activation of discussions other than those relating to business, and in the content of the report on business execution.

Regarding issues recognized in the FY Mar/2020 evaluation 1. Clarification of the main points of matters for resolution

A high evaluation was received with regard to the clarification of resolution items, carried out through a revision of materials, including creating additional summary materials separate from the explanatory materials that provide a brief description of agenda item s.

2. Further deepening discussions on medium- to long-term management strategy

Starting in FY Mar/2021, themed sessions and briefing sessions prior to the themed sessions were set up as a venue for free discussion of themes, and after sufficient information and explanations were provided to Outside Directors, acti ve discussions were

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held, which was evaluated as leading to the invigoration of the Board of Director's meetings.

In addition, the time of regular meetings of the Board of Directors was extended in order to secure sufficient time for delib eration.

Based on the results of this evaluation, we will strive to ensure and improve the function and effectiveness of the Board of Directors.

(Supplementary Principle 4.14.2) Measures for Training of Directors and Audit & Supervisory Board Members

When newly appointed Outside Directors or Outside Audit & Supervisory Board Members take their positions, in addition to explaining to them our management philosophy, business details, management strategy, the business environment and issues surrounding our operations, we use outside training courses to enhance their knowledge of their legal roles and duties.

In addition to this training, we make efforts annually to ensure that all Directors and Audit & Supervisory Board Members acq uire necessary knowledge and we promote the understanding of their roles and resp onsibilities. This is done through holding study sessions run by lawyers who cover the Companies Act and the latest situations. We also provide appropriate information about corporate governance and other areas that is necessary, and we endeavor to promote their acquisition of required knowledge and understanding of their roles.

(Principle 5.1) Policy for Constructive Dialog with Shareholders

The systems we have put in place and the initiatives we have taken to encourage constructive dialog with sharehold ers are as follows.

• In our dialogue with individual shareholders, we place the highest priority on the General Shareholder Meeting. By holding the

Meeting on Saturdays or Sundays it is easier for shareholders to attend, so many can be present. At the Meeting, we carefully explain our future business strategies and business prospects, using videos for ease of understanding, and the Director in charge or the Chairman can answer questions from the shareholders. The 2021 General Shareholder Meeting was streamed live via the Internet.

• Business Management Division Directors and Executive Officers engage in dialogs with analysts, institutional investors and ot hers.
• Individual discussions with analysts and institutional investors are held, and the details are reported to our Directors and Executive Officers.
• We hold financial results briefings for analysts and institutional investors (4 times a year) in which the Representative Dir ector explains the outcomes.
• Each of our divisions (IR, Corporate Planning, General Affairs, Accounting, and Legal) collaborate in the release of financial results and in the General Shareholder Meeting and other events, and strive to deliver accurate information.

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2. Capital Structure

Foreign Shareholding Ratio: At least 20% but less than 30%

Status of Major Shareholders	[Updated]
			Name/Company name		Number of Shares		Percentage (%)
			Kirin Holdings Company Limited		39,540,400		32.77
			The Master Trust Bank of Japan, Ltd. (trust account)	9,463,700		7.84
			Custody Bank of Japan, Ltd. (trust account)	7,173,400		5.95
			JP MORGAN CHASE BANK 385632		2,913,041		2.41
			J.P. MORGAN BANK LUXEMBOURG S.A. 381572		2,879,100		2.39
			The Nomura Trust and Banking Co., Ltd. (trust account)		1,763,500		1.46
			Custody Bank of Japan, Ltd. (trust account 5)		1,116,900		0.93
			THE BANK OF NEW YORK, NON-TREATY JASDEC ACCOUNT		1,100,000		0.91
			JPMCB USA RESIDENTS PENSION JASDEC LEND 385051		1,024,200		0.85
			FANCL Employee Stock Ownership Plan			1,021,852		0.85
		Controlling Shareholders (except for				--
		Parent Company)
		Parent Company		None

Supplementary Explanations [Updated]

• The Status of Major Shareholders is as of March 31, 2021.
• In addition to the above, the Company holds 9,690,596 treasury shares.
• A large shareholding report (change report) submitted by T. Rowe Price Japan, Inc. on January 21, 2021 stated that T. Rowe
  Price Japan, Inc. and T. Rowe Price Associates, Inc. each own shares of the Company as shown below as of January 15, 2021. However, as it is not possible for the Company to confirm the actual number of shares held as of March 31, 2021, the above Status of Major Shareholders has been stated based on the content of the shareholder registry.
  The content of the change report is as follows.

T. Rowe Price Japan, Inc.; Number of shares: 2,572,900 shares; Ratio of shareholding: 1. 97%

T. Rowe Price Associates, Inc.; Number of shares: 10,224,700 shares; Ratio of shareholding: 7.84%

3. Corporate Attributes

	Listed Stock Market and Market			Tokyo Stock Exchange, First Section
	Section
	Fiscal Year-end		March
	Type of Business		Chemicals
	Number of Employees
	(consolidated) as of the End of the			More than 1,000
	Previous Fiscal Year
	Sales (consolidated) as of the End			More than ¥100 billion but less than ¥1 trillion
	of the Previous Fiscal Year
	Number of Consolidated
	Subsidiaries as of the End of the			Less than 10
	Previous Fiscal Year

1. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder
   None
2. Other Special Circumstances which may have Material Impact on Corporate Governance

None

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II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management

1. Organizational Composition and Operation

Organizational form

Company with Audit & Supervisory Board Members

Directors

Maximum Number of Directors Stipulated in Articles of Incorporation

Term of Office of Directors Stipulated in Articles of Incorporation

Chairperson of the Board

Number of Directors

Appointment of Outside Directors

Number of Outside Directors

Number of Outside Directors who are designated as Independent Directors

15

1 year

President

9

Appointed

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Outside Directors' Relationship with the Company (1)

Name

Attributes

Relationship with the Company (%)

a

b

c

d

E

f

g

h

i

j

k

Mitsuaki Nakakubo

Lawyer

Keiichiro Hashimoto

From another company

Akira Matsumoto

Certified Public Accountant

Junko Tsuboi

From another company

〇

〇

• Categories for "Relationship with the Company"
• • "〇 " when the Director presently falls or has recently fallen under the category; "△" when the Director fell under the category in the past.
  • "●" when a close relative of the Director presently falls or has recently fallen under the category;

"▲" when a close relative of the Director fell under the category in the past.

a. Executive of the Company or its subsidiaries.

b. Non-executive Director or Executive of the parent company of the Company. c. Executive of a fellow subsidiary of the Company.

d. A party whose major client or supplier is the Company or an Executive thereof. e. Major client or supplier of the Company or an Executive thereof.

f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a Director.

g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a legal entity)

h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) (the director himself/herself only)

i. Executive of a company, between which and the Company outside directors/Audit & Supervisory Board Members are mutually appointed (the director himself/herself only)

j. Executive or a company or organization that receives a donation from the Company (the director himself/herself only) k. Other

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