Governance

The Company transitioned to a "Company with Nominating Committee, etc." (then called "Company with Committees") as early as 18 years ago in June 2004. Even now, there are only 86 listed companies in Japan with this type of committee system (as of April 12, 2022).

The purposes for adopting the system are as follows: (1) Strengthen the governance of the Group as a whole; (2) Improve the transparency of management for shareholders and investors; (3) Clarify the business execution roles of each Group company and the Group's management, and improve the efficiency and quality of the Group's strategy; and (4) Implement strategies with a broader perspective by making active use of the abilities of outside directors while increasing the speed of change.
The Nominating Committee considers and makes decisions on the appointment and dismissal of director and executive officer candidates in light of the standards for appointment with the aim of contributing to the establishment of appropriate management systems for the Group. The Remuneration Committee considers and decides the basic remuneration and incentives and evaluation items on the remuneration of directors and executive officers with the aim of making the Group's management more transparent. The Nominating Committee and the Remuneration Committee are composed of the Chief Executive Officer (Chairperson) and 3 outside directors.

The Audit Committee has been established to secure legitimate, appropriate and efficient operations of the Group, which means operations based on the annual policy and medium- to long-term management policy. The Audit Committee is composed of 3 outside directors.

The Board of Directors is composed of 5 Directors including 3 Independent Outside Directors, considering to diversity. The Internal Directors have extensive and diversified experience such as management in general including management strategy, responsibility for Group companies, and operation of overseas businesses.

Meanwhile, the Outside Directors have abundant experience and insights as: an attorney-at-law, a certified public accountant, a person responsible for safety and disaster prevention as well as manufacturing centered on the field of technology and development, and a top manager of a listed company. Of the 5 Directors, one is female. While the nationality of all Directors is Japanese, the Board of Directors comprises Directors with abundant and extensive knowledge, and a broad range of experience and capabilities, such as business experience in foreign countries.

The Board of Directors holds four regular meetings annually and additional extraordinary meetings when needed.
In FY2021, the Board of Directors held four times for two days of deliberations (eight days in total) and seven times for one day of deliberations, for a total of 15 days, and over 46 hours were spent on discussions and deliberations. Additionally, 20 written resolutions were made, which are deemed to have been resolved by the Board of Directors in accordance with the provisions of Article 370 of the Companies Act and Article 22 of the Articles of Incorporation of the Company.

In order to assess the effectiveness of the Board of Directors, Fuji Seal International regularly conducts surveys and deliberations on the effectiveness of the Board of Directors itself, following a self-evaluation questionnaire by internal and external directors and a compilation by an external organization in May 2016.
In March and April 2022, a survey on the "Evaluation of the Effectiveness of the Board of Directors" was conducted among all directors, and the Board of Directors deliberated on the results of the survey and future issues. In conducting the survey and deliberations, FSG's "Materiality" was selected as the theme, and opinions were gathered regarding the status of discussions at the Board of Directors and points for future improvement.
Based on these evaluations and suggestions, we will continue our discussions to further improve the effectiveness of the Board of Directors.

• Interviews with Outside Directors in FY2022

The policy, remuneration system, and performance-linked system for directors and executive officers are deliberated and decided by the Compensation Committee.

The remuneration system should be based on the following principles.
a. The remuneration system should enable and reward diverse and talented human resources (human resources) who agree with the corporate philosophy.
b. The remuneration system should encourage the achievement of performance targets based on the management strategy for sustainable growth.
c. The remuneration system should encourage the sustainable enhancement of corporate value and share profits with shareholders.
d. The decision-making process for the remuneration system should be objective, transparent, and transparent.

Directors, including outside directors, receive only "base remuneration" as fixed remuneration, while executive officers receive "base remuneration" and variable remuneration consisting of "performance-linked remuneration" as a short-term incentive and "restricted stock remuneration" as a medium- to long-term incentive.

The level of base remuneration is determined in accordance with each person's career, professional background, duties, and responsibilities, and in consideration of the Company's business performance and business environment. Performance-linked compensation is determined by the Compensation Committee based on the degree of achievement of the division under the control of each executive officer, and the percentage of the total compensation varies between 0% and 30%. Calculation items include consolidated sales and operating profit margin for a single fiscal year, financial indicators important for management strategy, and non-financial indicators such as environmental indicators and human resource development. When the performance-linked remuneration reaches a certain amount, a portion of it will be paid in the Company's shares.
Restricted stock compensation is paid as a medium- to long-term incentive to executive officers in order to share the same values as shareholders and to sustainably increase the corporate value of the Group.

FSG has established the "Group Risk Management Rule" concerning the basic policy and management systems to respond to risks around us, and aims to improve the interests of shareholders and social credibility through sound and stable management and increased management efficiency.

The Group Compliance Committee considers that it is the basic frame of risk management to establish a system in which potential risks present in the entire Group and each business regional section are identified and the seriousness of each risk is shown on a risk map following the deliberation of the Board of Directors. Based on this risk map, action plans are formulated in each business regional section, and the relevant initiatives are put into practice on a continuous basis. At the same time, an emergency contact network has been also prepared in case of the occurrence of an unexpected event likely to have a serious impact on the Group's management.

Furthermore, based on the said Regulations, the Group's disaster prevention system and the crisis management system have been improved, disseminating and sharing assumed risks. We are working to implement quick and appropriate information transmission and responses in case of the occurrence of risks and for the prevention of recurrence.

With respect to risk monitoring functions, an internal audit is conducted by the Group Audit Office under the instruction of the Audit Committee, and an audit of risk management system is conducted by a third party when necessary, the results of which are reported to the Audit Committee and Representative Executive Officer.

The Board of Directors supervises and discusses the status and the effectiveness of FSG's risk management based on the report concerning the status of risk management received from Representative Executive Officer, the Audit Committee and Group Compliance Committee.

The Company has established the Fuji Seal Group (FSG) Code of Ethics, and delivers Compliance Cards to all officers and employees as part of their training. Through these initiatives, the Company makes it clear that it expects officers and employees to not only abide by laws and ordinances as well as internal rules but also this code of ethics in accordance with the Company's corporate ethics.

Furthermore, the Company holds "Group Compliance Committee Meetings" periodically to determine themes concerning compliance and initiatives, implements awareness-raising activities, and planning and reporting. The officers of the Group are signatories to the Compliance Declaration.

FSG conducts training as one of its compliance promotion and awareness-raising activities. In FY2020, e-learning training programs on "Code of Conduct," "Competition and Antitrust," "Anti-Corruption Anti-Bribery," and "Data Privacy" were provided for the next generation of management candidates.

The Fuji Seal Group has a whistle-blowing system in place which allows employees to lodge a direct internal report (Consultation Hotline) of doubtful conduct in order to detect human rights, harassment, bribery and other misconduct, and other compliance-related problems at an early stage and respond appropriately. As a consultation and reporting desk, not only internal windows (including the Group Internal Audit Office) but also external lawyers and external specialist companies are available for reporting.

The Consultation Hotline ensures strict confidentiality and prohibits any disadvantageous treatment and the anonymity of whistle-blowers will be protected.
The status of reporting is regularly reported to the Compliance Committee, the Board of Directors, and the Audit Committee to improve the compliance and risk management of the Group.

The Company believes that the philosophy of corporate governance must penetrate not only the management team but also each employee. Awareness-raising activities are held by making the most of every possible opportunity so that employees will be able to understand the mission statement and the basic policy, and take appropriate action.
One example of such activities is the "Family Festival," which the Fuji Seal Group holds on the anniversary of the Company's foundation at each business location in Japan and abroad by inviting employees and their families.
This Family Festival dates back to 1985, when a party was held concurrently with the establishment of the "Fuji Seal Employees Shareholding Association." This festival serves as an opportunity for the employees' families to know and understand the Company's concept, history, products, workplaces and colleagues, not just to deepen friendships.

Furthermore, the Compliance Card that employees always carry contains this phrase: "Can you explain that judgment (action) of yours to your family (loved ones)?" This phrase means that the Company believes it is important to continue a style of open management that can be explained to one's family and supported by one's family.