Corporate Governance Principles

Sumitomo’s Business Philosophy and the Sumitomo Corporation Group’s Management Principles form the backbone of the corporate ethics and represent the foundation underpinning our corporate governance. Based on this, we established the Sumitomo Corporation Corporate Governance Principles, recognizing that the essence of corporate governance is enhancing management efficiency and maintaining sound management, as well as ensuring management transparency to secure the first two. Efforts to build a better corporate governance system and carry out business activities following these principles help the Company achieve sustainable growth, enhance corporate value over the medium to long term, and fulfill its mission as a good corporate citizen, as well as benefits the interests of shareholders and all other stakeholders. For this reason, we continuously work to further enhance and improve our corporate governance.

Sumitomo Corporation Corporate Governance Principles

System and features of corporate governance

The Company believes that it is the most appropriate system for the Company by securing the effective supervisory and monitoring function of management oversight by electing independent Outside Directors and Outside Audit & Supervisory Board Members and by establishing the Nomination and Remuneration Advisory Committee, comprised mainly of independent Outside Directors, under an audit & supervisory board member system. The Company has elected multiple independent Outside Directors (as of June 21, 2024, the number of independent Outside Directors is five.) with a wealth of experience and a high degree of specialized knowledge and expertise in different fields. This ensures appropriate decision-making in board meetings and further reinforces the oversight function through further diverse perspectives. Also, the Company has established the Nomination and Remuneration Advisory Committee (chaired by an Outside Director) as an advisory body of the Board of Directors in which the majority of members are Outside Directors. This enhances independence, objectivity and transparency of the Board of Directors’ function with respect to nomination and remuneration of Executive Officers. To strengthen the oversight framework from an external perspective, three of five Audit & Supervisory Board Members are the independent Outside Audit & Supervisory Board Members, one has an experience in business management, one is a legal expert, and the other is a certified public accountant with considerable knowledge of finance and accounting, thereby ensuring an auditing system that incorporates a diversity of perspectives. Furthermore, in addition to attending the Board of Directors Meeting, Audit & Supervisory Board Members are permitted to attend all internal meetings, enabling them to obtain sufficient information essential for auditing. By implementing the measures above, the Company believes that it has developed an effective, enhanced corporate governance system.

Our Material Issues which were updated in 2024, include “Maintain and strengthen governance.” To strengthen the functions of the Board of Directors, the Company will strive to further improve the functions of the Board of Directors in monitoring the execution of operations through the effective supervision of key management policies and strategies (allocation of management resources, strategies related to　business portfolio, sustainability management, etc.) and enhancing organizations for further strengthening the objectivity of the Board of Directors.

The Company's Corporate Governance System

Corporate Governance Report

Directors and the Board of Directors

Election of Outside Director

To facilitate thorough debate and prompt, rational decision-making, the Board of Directors is composed of an appropriate number of members and diversity is ensured in terms of attributes including experience, knowledge, expertise, and gender. In addition, of the eleven Directors elected, five are Outside Directors with a wealth of experience and a high degree of specialized knowledge and expertise in different fields. This ensures appropriate decision-making in board meetings and further reinforces the oversight function through diverse perspectives. All Outside Directors meet the standards related to independence set by the financial instruments exchange that the Company is listed on, and the Standards for Independence set by Sumitomo Corporation.

Standards for Appointment and Independence of Outside Directors and Outside Audit & Supervisory Board Members

Improvement of Deliberation and Enhancement of Monitoring Function at the Board of Directors

The Board of Directors enhances its deliberations and strengthen its monitoring functions by the following initiatives:

• Agenda items for the Board of Directors are carefully selected by the Board of Directors to promote more focused discussion of management policies and plans and other important matters for companywide management. Members of the Board of Directors also select items that should be taken up for more intensive discussion at the Board of Directors meetings each year (agenda setting).
• The Board of Directors receives reports from each business group on the state of progress on its strategies, any associated issues and its response to those issues, and carries out a discussion focusing on such issues. The Board of Directors also periodically monitors the state of business execution companywide by receiving reports on the activities of the main corporate committees.
• The Board of Directors holds off-site meetings in addition to regular meetings, for free and open discussions on important management topics, including management policies and plans and ESG (Environment, Social and Governance) issues. Moreover, to ensure that Outside Directors and Outside Audit & Supervisory Board Members actively contribute to the discussions at the Board of Directors, a monthly meeting is held, which is comprised of Outside Directors and Outside Audit & Supervisory Board Members, in which they engage in robust discussion.
• Prior to every meeting of the Board of Directors, Outside Directors and Audit & Supervisory Board Members are briefed on the agenda items due for discussion.

Separation of Duties between the Chairman of the Board of Directors and the President and Chief Executive Officer, and Limits on Their Terms of Office

In principle, the positions of Chairman of the Board of Directors and the President and Chief Executive Officer are clearly defined and separate in order to ensure mutual supervision, and both positions cannot be held simultaneously by the one person. The role of the Chairman of the Board of Directors is to supervise the management of the Company; the Chairman has no involvement in day-to-day execution of operations and no authority to represent the Company.

In principle, the Chairman of the Board of Directors and the President and Chief Executive Officer are each limited to term of six years. This limitation on the tenure of top management helps eliminate the possibility of governance problems occurring as a result of the top management not being changed over for a long period of time.

Evaluation of the Board of Directors

To maintain and enhance the effectiveness of the Board of Directors, each year Directors and Audit & Supervisory Board Members engage in analysis and evaluation of the Board’s effectiveness through evaluation and several discussions. This is followed by the disclosure of overviews of the results. The effectiveness evaluation for fiscal 2023 and the overview of the results is as follows.

Establishment of the Nomination and Remuneration Advisory Committee

The Nomination and Remuneration Advisory Committee, of which a majority of members are Outside Directors, and which is also chaired by an Outside Director, has been established as an advisory body to the Board of Directors. The Committee meets as necessary, and is in charge of deliberating the matters on (1) policies and procedures regarding appointment and dismissal of the President and Chief Executive Officer, (2) policies and procedures regarding appointment and dismissal of the Chairman of the Board of Directors, (3) nomination criteria for Directors and Audit & Supervisory Board Members, (4) appointment and dismissal of the President and Chief Executive Officer (including the nomination of a successor of the President and Chief Executive Officer), (5) nominations of candidates for Directors and Audit & Supervisory Board Members (including determination of Representative Directors and Executive Directors), (6) appointment of Management Council members, (7) the structures/levels of remuneration and bonuses for Directors and Executive officers and the limit of remuneration for Audit & Supervisory Board Members, and (8) the advisor system, and will submit the results thereof as recommendations to the Board of Directors. Additionally, the committee also deliberates and determines any matters delegated by the Board of Directors that are not included in (1) to (8) above, and reports the outcome of such deliberation or decision to the Board of Directors. In FY2023, the Nomination and Remuneration Advisory Committee met 9 times to deliberate the abovementioned matters, and submitted the results thereof as recommendations to the Board of Directors.

Composition of the Nomination and Remuneration Advisory Committee

The Skills such as knowledge, experience and competencies, etc., that the Board of Directors is required to possess, and Skills that Directors or Audit & Supervisory Board Members currently in office possess (as of June 2024)

The Skills that the Board of Directors is required to possess

All Directors and Audit & Supervisory Board Members of the Company, regardless of whether they are internal or Outside Directors or Audit & Supervisory Board Members, are required to be honest in character, as well as highly insightful and capable, in accordance with their respective qualifications. Also, the Company raises "No.1 in Each Field" as a theme under the Medium-Term Management Plan 2026, and the Company accelerates business portfolio transformation through growth of business which has strengths and strengthening people and organizations, which are the driving forces for growth. Through such initiatives, the Company will strive to enhance the Group's competitive advantages and achieve growth by addressing social challenges. For successful implementation of this management plan, we have identified the types of knowledge, experience, and competencies, etc. (hereinafter "Skills") which enables the Board of Directors to adequately fulfill its roles of making decisions on important business matters and supervising business execution. "Governance" and "Global perspective" are Skills that all Directors and Audit & Supervisory Board Members are required to possess, while we believe that the Board of Directors as a whole should possess the other seven Skills. Of these seven Skills, for Audit & Supervisory Board Members we place a particularly high priority on "Corporate Management", "Finance/Accounting", and "Legal/Risk Management". As the Skills that the Board of Directors is required to possess may vary according to business strategies or changes in the external environment, the Board of Directors will continue to discuss the skills required, make necessary changes, and disclose such changes.

Skills that all Directors and Audit & Supervisory Board Members are required to possess and reasons why these Skills are necessary

Skills that the Board of Directors as a whole is required to possess and reasons why these Skills are necessary

Skills that Directors or Audit & Supervisory Board Members currently in office possess

Of the Skills identified above as necessary for the Board of Directors as a whole, Skills currently possessed by individual Directors or Audit & Supervisory Board members are shown in the table below. The skills of individual Directors or Audit & Supervisory Board Members are determined after considering all their attributes, including their careers, knowledge, experience, capabilities, qualifications, and specific achievements, and discussing these with the individuals concerned.

• A brief history of each of the incumbent Directors and Audit & Supervisory Board Member is disclosed.
  Management

Directors(Internal)

Directors(Outside)

Audit & Supervisory Board Members(Internal)

Audit & Supervisory Board Members(Outside)

Currently, 2 of the 11 members of the Board of Directors and 1 of the 5 members of the Audit & Supervisory Board are female.

Audit & Supervisory Board Members
and the Audit & Supervisory Board

Enhancement of Auditing capabilities

The Audit & Supervisory Board comprises five members—two Inside Fulltime Audit & Supervisory Board Members and three Outside Audit & Supervisory Board Members (including one woman). The Inside Audit & Supervisory Board Members must have a sincere character, deep insight, and high-level skills as well as specialized business knowledge and a broad range of experience, and they are appointed without regard for gender, nationality, and other such characteristics.
The Outside Audit & Supervisory Board Members must also have a sincere character, deep insight, and high-level skills as well as advanced specialized knowledge, particularly in fields such as corporate management, law, or accounting and extensive experience, and they too are appointed without regard for gender, nationality, and so on. Among the Outside Audit & Supervisory Board Member, one is a fulltime Audit & Supervisory Board Member of a listed company and has an experience in business management, and one is a legal expert (a former Prosecutor-General), and the other is a certified public accountant with considerable knowledge of finance and accounting. All of the Outside Audit & Supervisory Board Members satisfy the criteria on independence set by financial instruments exchanges on which the Company is listed, as well as the Standard for Independence established by Sumitomo Corporation.

Ensuring Audit Effectiveness

Each Audit & Supervisory Board Member attends important meetings such as the Board of Directors Meeting, receives reports form Directors and employees, etc. regarding the execution of their duties, asks them for explanations as necessary, inspects important internal authorization documents and examines the status of operations and the financial status regarding the head office and important operating locations. As for subsidiaries, each Audit & Supervisory Board Member promotes communication and exchange of information with Directors and Audit & Supervisory Board Members, etc. of subsidiaries, and receives reports on the subsidiaries’ business as necessary.
The Audit & Supervisory Board Members' Administration Department (five employees) has been established as a specialized organization to support the work of the Audit & Supervisory Board Members. The Audit & Supervisory Board Members participate in personnel evaluations and transfers and so on regarding these employees to ensure their independence from the Board of Directors.

Collaboration between the Internal Auditing Department and Accounting Auditors

To ensure audit efficiency, Audit & Supervisory Board Members interact closely with the Internal Auditing Department, receiving reports on internal audit plans and their results in a timely manner. In addition, Audit & Supervisory Board Members exchange information with and monitor the auditing activities of the accounting auditors through regular meetings. By attending audit review meetings and observing inventory audits by the accounting auditors, the Audit & Supervisory Board Members constantly work to improve audit efficiency and quality.

On taking office, Outside Directors and Audit & Supervisory Board Members have the opportunity to receive a briefing on areas including the Sumitomo Corporation Group’s Management Principles, management policy, business activities, finances, organization, medium-term management plan, and risk management system. To enable Directors and Audit & Supervisory Board Members to acquire the necessary knowledge and update it as appropriate, we additionally provide access to resources including seminars and e-learning facilities, offering financial support to cover the necessary costs.

To deepen their understanding of “Sumitomo’s Business Philosophy” and the Company’s business activities, Outside Directors and Outside Audit & Supervisory Board Members, in principle, visit Sumitomo-related facilities during the first fiscal year of their term in office and have opportunities to observe at least one workplace in Japan and at least one workplace overseas every year. In fiscal 2023, in addition to one Japanese workplace and two overseas workplaces visits, Sumitomo-related facility visits were conducted.

Matters related to policy for deciding the remuneration for individual directors

The decision making policy for the remuneration of individual Directors was resolved at the Board of Directors meeting after deliberation within the Nomination and Remuneration Advisory Committee (chaired by Outside Director), a majority of whose members are Outside Directors.

1. System for remuneration (● indicates such Director eligible for each type of remuneration)

   Type of Remuneration		Director Type
   		Executive Director	Chairman of the Board of Directors/Director, Vice Chairman	Outside Director
   Fixed	Monthly Remuneration	●	●	●
   Variable	Performance Linked Bonus	●	—	—
   	Stock-based remuneration	●	●	—

2. Ratio and remuneration standards regarding each types of remuneration

   The Company will establish an appropriate ratio, etc. between fixed remuneration (monthly remuneration) and variable remuneration (“performance linked bonus” which is linked with short term performance of the Company and “stock-based remuneration” which is linked with middle and long term performance of the Company and shareholder value) which corresponds to Director’s position, (i) by setting an appropriate remuneration standards to acquire and retain highly capable management who will bring about the Company’s sustainable growth and increase of corporate value in the middle to long term, and (ii) to design as healthy incentive to sustainable growth of the Company, based on its business environment, management strategy and human capital strategy, with reference to objective remuneration market research data, etc. provided by external specialized agencies.

3. Policy and method on the decision of the amount of each remuneration
   • Policy on the decision of the amount of each remuneration: as follows
   • Method on the decision of the amount of each remuneration: Remuneration of each Directors is resolved by the Board of Directors within the limit resolved at the General Meeting of Shareholders. For the resolution by the Board of Directors, the details are deliberated by the Nomination and Remuneration Advisory Committee and the results thereof are reported to the Board of Directors. For other method, as follows

Remuneration system

1. Executive remuneration plan (● indicates the persons eligible for each type of remuneration, etc.)

   Type of remuneration, etc.		Eligibility
   		Executive Directors/ Executive Officers	Chairman of the Board of Directors/Director, Vice Chairman	Outside Directors	Audit & Supervisory Board Members
   Fixed	Monthly Remuneration	●	●	●	●
   Variable	Performance Linked Bonus	●	—	—	—
   	Restricted Performance Share Unit-Based Remuneration	●	●	—	—

2. Remuneration standards and remuneration composition ratios of Executive Directors and Executive Officers

   • We have set competitive remuneration standards and remuneration composition ratios in light of the current business environment, business strategies, and human capital strategy. We have done so with reference to remuneration market research data, etc. provided by independent external specialized agencies.
   • We have increased the ratio of variable remuneration accounted for by restricted performance share unit-based remuneration to further strengthen the incentive to increase the Company’s corporate value over the medium to long term and to pursue business management that is more concerned than ever before with the Company’s stock price and with a focus on sharing value with the shareholders.
   • We have amended the overall remuneration standard for Executive Directors and Executive Officers in light of current business results and the level of business results we seek to achieve, with the aim of setting a standard that assists in acquiring and retaining our management personnel.
   • The image of the remuneration of Representative Director, President and Chief Executive Officer is as shown below.

   	Fixed remuneration	Variable remuneration
   	Monthly Remuneration	Performance Linked Bonus	Restricted Performance Share Unit-Based Remuneration
   Before change	34%	33%	33%
   	Total 34%	Total 66%

   

   	Fixed remuneration	Variable remuneration
   	Monthly Remuneration	Performance Linked Bonus	Restricted Performance Share Unit-Based Remuneration
   After change	27%	33%	40%
   	Total 27%	Total 73%

   Note: The above breakdown is calculated based on the rate of achievement of business results, the stock price growth rate, and the results on non-financial indicators all being 100%. The composition ratios for each type of remuneration vary according to changes in these rates.

3. Performance linked bonus

   • Each fiscal year the Company sets the full-year forecast (consolidated net income for the year) or the consolidated net income for the year when ROE is 12% (whichever amount is higher) as the target business result and decides the total amount of performance linked bonuses to be paid according to the rate of achievement of this target business result.
   • The potential range of business results is assumed to be up to 50% above or below the target business result set each fiscal year and the standard for the total amount of performance linked bonuses to be paid is set at 100% when the target business result is achieved, with a range of variation from 25% to 175% in line with the potential range of business results.
   • If business results fall outside this range, the total amount of performance linked bonuses to be paid is decided separately by the Board of Directors based on a report from the Nomination and Remuneration Advisory Committee.
   • The amount to be paid to individual officers is distributed according to their position and personal evaluation and paid after the end of the fiscal year.
   • Each officer is evaluated on the basis of both financial indicators (achievement of business plans, etc. in the respective areas of responsibility) and non-financial indicators (such as individual Strategic Business Units’ achievement of KPIs and KAIs, and progress in addressing important company-wide issues) so that they can become more aware regarding their commitment to management strategy and results.
   • The ratio of financial indicators to non-financial indicators in personal evaluation is 50:50, and of evaluation based on non-financial indicators, 20% relates to the important company-wide issues of business reform through digital transformation (DX), enhancement of sustainability management, and promotion of Diversity, Equity & Inclusion.
   • As a result of increasing the ratio of stock-based remuneration, the stock price growth rate will no longer be included as an element in the calculation of performance linked bonuses.

   

4. Restricted Performance Share Unit-Based Remuneration

   • With the aim of promoting efforts to increase the Group’s corporate value over the medium to long term and pursue business management that ensures a focus on sharing value with the shareholders, the number of the Company’s common shares (restricted) to be provided is calculated according to the Company’s stock growth rate (ratio of the Company’s stock price growth to the growth rate of the TOPIX (Tokyo Stock Exchange Stock Price Index)) during the three-year evaluation period.
   • Evaluation based on non-financial indicators (measures to tackle climate change, promotion of women’s empowerment, and employee engagement) is used to calculate the number of the Company’s common shares to be granted as restricted shares. In this way the Company aims to enable increased awareness of its commitment to the enhancement of sustainability management by linking non-financial indicators (related to environment and/or society) more closely to stock-based remuneration and further promoting efforts to address its Key Social Issues.
   • To enable a shared focus on shareholder value over the medium to long term, the restriction period will be from the day the shares are provided until the day the recipient resigns or retires from all their positions as Director or Executive Officer of the Company or any other position determined by the Board of Directors.

   

   

The Internal Audit Department that reports directly to the President and Chief Executive Officer, is an independent organization that monitors the operations of the Group, and audits organizations and operating companies of the Group. As well as reporting the internal audit results directly to the President and Chief Executive Officer, in principle on a monthly basis, periodic reports are also made to the Board of Directors and the Audit & Supervisory Board. The department regularly conducts audits on all aspects of internal control, comprising asset and risk management, compliance and business operations. It evaluates the effectiveness and adequacy of the internal controls of auditees, taking into account the significance of the inherent risks. At the same time, it provides appropriate advice for improvements and expedites improvement and maintenance on the auditee’s own initiative, thereby contributing to the improvement of governance and internal controls within the Sumitomo Corporation Group.

Corporate Strategy Promotion Committee, Global Innovation and Portfolio Committee, Company Investment Committee, Internal Control Committee, Compliance Committee, Corporate Sustainability Committee, Corporate Communication Committee, IT Strategy Committee, and Pension Management Committee are established as advisory bodies for the Management Council with regard to specific matters that are important from the perspective of Sumitomo Corporation as a whole.

Basic Policy on Information Disclosure

To bring an accurate understanding of the Company's management policies and business activities to all our stakeholders, we shall strive to make full disclosure, not limiting ourselves to the disclosure of information required by law but also actively pursuing the voluntary disclosure of information.

Corporate Disclosure Policy

Measures relating to the General Meeting of Shareholders

We send out a convening notice describing how to access the material for the General Meeting of Shareholders (for shareholders who requested the delivery of such material in paper, the printed material for the General Meeting of Shareholders) to shareholders approximately three weeks prior to each Ordinary General Meeting of Shareholders. For the convenience of shareholders, we also provide the notice on our corporate website in advance of sending a Notice of Convocation, together with its English-language translation. We allow shareholders and investors sufficient time to thoroughly examine the propositions to be resolved at the Meeting by enabling them to exercise their voting rights via internet (including through the Electronic Voting Platform for institutional investors operated by Investor Communication Japan, Inc. [ICJ]). In addition, we stream the General Meeting of Shareholders live for shareholders on internet and the streaming video of the meeting is posted on our website for a certain period after the close of the meeting. Furthermore, we accept questions from shareholders on internet prior to the General Meeting of Shareholders.

Disclosing Various Information

The IR section of our corporate website provides various materials that may be useful in making investment decisions in a timely manner. These materials include financial results, yukashoken houkokusho (Japanese annual securities reports) and other Tokyo Stock Exchange filings as well as documents from company briefings. Moreover, we endeavor to ensure proactive disclosure of not only financial information but non-financial information as well on our Integrated Report and our Sustainability Website.

Investor Relations and Shareholder Relations

In order to ensure direct communication with shareholders and other investors, we hold quarterly meetings attended by top management to provide information on our financial results for analysts and institutional investors in Japan, as well as one-on-one meetings with them. For individual investors, we hold company briefings online as well as in major cities across Japan. For overseas, we continuously hold one-on-one meetings with institutional investors mainly in Europe, North America and Asia. In addition to these, we ensure regular and constructive engagement with domestic and overseas institutional shareholders who substantially hold the Company’s shares. Such engagement primarily addresses our initiatives and policies, etc. relating to ESG (Environment, Social and Governance) issues. While increasing management transparency, we aim to strengthen our relationships of trust with shareholders and investors.

While working to improve and enhance our corporate governance structure and systems, from the perspectives of "improving management efficiency" and "maintaining sound management" by implementing the measures above, we will continue to further strengthen internal auditing, risk management, compliance, to further improve the effectiveness of internal control.

Status of Compliance with the Japan's Corporate Governance Code

The Company complies all Principles of the Corporate Governance Code. Please refer to Corporate Governance Report for details.

Corporate Governance Report

Policy on Cross-shareholdings and Standards for Exercising Voting Rights

As a general rule, the Company will neither acquire nor hold shares in other listed companies for purposes other than pure investment.

However, the Company may decide to hold shares in listed companies in some exceptional cases when the Company determines that it is appropriate. For such determination, the Company will comprehensively assess and verify the capital cost of individual stocks and the economic rationality and significance of holding the stocks in light of the necessity of partnering or other business needs. Each year, the Board of Directors reviews whether or not the Company’s holding of listed shares is appropriate.

If such annual review concludes that specific shareholdings are of little significance, the Company will push ahead with the sale of the shares.

In FY 2023, the Company sold shares of 18 listed stocks (either in whole or in part), amounting to 20.6 billion yen in total. As of the end of March 2024, the Company’s shareholdings in listed companies cover 48 stocks, with the total balance of 272.2 billion yen.

When exercising voting rights, the Company examines various aspects through both quantitative and qualitative approaches in accordance with its own guidelines. Such examination focuses on whether each proposal presented to shareholders will lead to the enhancement of shareholder value and medium- to long-term corporate value of both the Company and the investee company. In this way, the Company tries to make adequate decisions as to whether to vote in favor of or against each proposal based on comprehensive judgments.

If an entity holding shares in the Company for purposes other than pure investment indicates its intention to sell the shares, the Company will, in principle, respect such intention, and the business relationship between the entity and the Company will not be affected.

History of Strengthening Governance

Sumitomo Corporation has worked continuously to strengthen governance. This has included introducing the Audit & Supervisory Board system, increasing the number of Outside Audit & Supervisory Board Members and Outside Directors, and evaluating the effectiveness of the Board of Directors. Looking ahead, we will make further efforts toward enhancing the effectiveness of governance by strengthening group governance and reinforcing the functions of the Board of Directors.