Basic Concept for Corporate Governance

The Shiseido Group including the Company has established “BEAUTY INNOVATIONS FOR A BETTER WORLD” as OUR MISSION in its Corporate Philosophy, THE SHISEIDO PHILOSOPHY, and defines the corporate governance as our “platform to realize sustainable growth through fulfilling OUR MISSION”.
We began full-fledged initiatives toward strengthening corporate governance in 2001. Our continuous reforms to date can be divided into three stages.

The first stage initiated a corporate governance reform. Initiatives to separate the functions of management oversight and execution included the introduction of the corporate officer system. At the second stage, we implemented various initiatives to create the framework of our corporate governance such as the establishment of the Nomination & Remuneration Advisory Committee (formerly, “the Nomination Advisory Committee”) and the appointment of External Directors. In this way, we have set out objective quantitative and pro forma standards for corporate governance. We enhanced the quality of corporate governance by rigorously employing this framework and actively disclosing the outcomes. At the third stage, we targeted corporate governance that furthers sustainable growth, where we aimed to achieve “tense collaboration” by balancing management oversight and supervision with the broad authority vested in the CEO, which he needs in order to exercise ultimate leadership. This tense collaboration did not excessively limit or decrease the CEO’s authority, but rather, given the broad authority vested in the CEO, established a process of regular evaluation of the CEO and management execution by the Board of Directors and other supervisory organs, to whom the CEO is fully accountable. This process also involved regular CEO evaluations by the Nomination & Remuneration Advisory Committee.

We have entered the fourth stage of our corporate governance. The Company has transitioned to a Company with Three Statutory Committees in order to ensure effective implementation of its strategies even in the increasingly volatile business environment by clearly separating the functions between management oversight and execution of the Company’s business while strengthening each of these functions. The oversight function of the Board of Directors will be reinforced by focusing on determining the basic management policy and management strategy while overseeing the implementation thereof in order to accelerate the overall business execution of the Company in a rapidly changing environment. Nominating Committee and Compensation Committee, each composed solely of Independent Directors are responsible for appointment of Directors and remuneration of Directors and Corporate Executive Officers with fairness, transparency, and objectivity for successful implementation of our business strategy. Furthermore, with the strengthened function of the Internal Audit Department, the Audit Committee conducts highly effective audit, whereas Corporate Executive Officers and Executive Officers are responsible for the execution of the Company’s business through an accelerated decision-making process under the direct supervision of Representative Corporate Executive Officers.

The Company’s Articles of Incorporation set the maximum number of Directors at fourteen (14). The optimum number of Directors for appropriate management oversight is determined based on this upper limit and such factors as the Company’s business portfolio and scale.
In addition, from the perspective of ensuring of effectiveness of the oversight function, in principle, the majority of the Board of Directors shall be composed of Independent External Directors.

The Company believes that its Board of Directors should be composed of Directors with various viewpoints and backgrounds in addition to diverse and sophisticated skills, required for effective oversight of the execution of business and important decision making.
When selecting candidates, we place importance on ensuring diversity, taking into account not only gender equality, but also other attributes such as age, nationality, race, personality, and insights and experiences in various fields related to management. In addition, the Company has set a certain maximum term of office for External Directors in order to reflect their independent views to the management of the Company.

The Company establishes its own “Criteria for Independence of External Directors” (the “Criteria”) with reference to foreign laws and regulations and listing rules, etc. for the purpose of making objective assessment on the independence of the External Directors.
In connection with selecting candidates for External Directors, the Company places emphasis on a high degree of independence of the candidate from the viewpoint of strengthening corporate governance and accordingly, the Company makes judgment on whether the candidate has a high degree of the independence in accordance with the Criteria.

The selection of Director candidates is considered and decided by the Nominating Committee, which consists of four Independent External Directors. This process aims to build a Board of Directors and committees that contribute to the realization of the company's mission and the enhancement of corporate value.

The Company recognizes that the CEO succession plan, which plays a central role in ensuring the sustainable growth of the company and enhancing corporate value in the medium to long term, is an important management agenda. The selection of succession candidates for the CEO and the development of the succession plan are carried out by the Nominating Committee with the cooperation of the incumbent CEO.
The Nominating Committee and the CEO formulate the succession plan based on the Company’s business environment from a medium-to-long-term perspective upon sufficient discussions on various viewpoints such as the qualifications for a CEO, policies for the selection of a successor, and his or her training policies. The progress of the formulated succession plan is regularly reported to the Nominating Committee, which monitors its status of implementation.
Regarding selection of specific candidates for the CEO, the Nominating Committee is committed to ensuring adequate time and a structured process for the selection, development, evaluation, and assignment of responsibilities necessary for qualified CEO candidates. Furthermore, when actually selecting the CEO’s successor, the Nominating Committee deliberates fully on matters such as the final candidate and their selection process and reporting the result of the deliberations to the Board of Directors, prior to the resolution of the Board of Directors.

The Company provides new Directors with training regarding legal and statutory authorities and obligations, etc. In addition, when a new independent External Director come on board, the Company provides training regarding the industry it operates in, its history, business overview, business strategy and material risks, etc.
Furthermore, to promote understanding of the Company among independent External Directors, they are provided with such opportunities as attending internal meetings and lectures by external experts on annual business strategies and business management issues.