TOKYO ELECTRON LIMITEDANNUAL REPORT 07

CORPORATE GOVERNANCE
Tokyo Electron maintains a management philosophy that puts
emphasis on maximizing corporate value and enhancing shareholder satisfaction. To this end, the Company is striving toenhance corporate governance by building an optimal corporate
governance structure and managing it effectively. Efforts in thisregard are founded on three basic principles.
Tokyo Electron’s Basic Principles of Corporate Governance
1. Ensure the transparency and soundness of business operations
2. Facilitate quick decision-making and the efficient execution ofbusiness operations
3. Disclose information in a timely and suitable manner

directorships for submission to the annual shareholders’ meeting,as well as candidates for CEO, which it submits to the board ofdirectors for approval. Each of these committees is composed ofmembers of the board of directors, excluding the Chairman &CEO and the President & COO.
The Board of Statutory Auditors
The Company has four statutory auditors, two of whom are outside
auditors. The statutory auditors not only attend meetings of theboard of directors and other important business meetings, theyalso conduct operations audits, accounting audits and risk evaluation, in addition to auditing the performance of duties by directors.
During fiscal 2007, the board of statutory auditors met five times.

The Corporate Governance Framework
Tokyo Electron uses the statutory auditor system, and has also
adopted the executive officer system to separate the businessexecution function from the board of directors.
The Board of Directors
The board of directors consists of 13 directors, two of whom areexternal directors. During fiscal 2007, the board of directors meton 14 occasions. In order to ensure that the Company can
respond quickly to changing business conditions, and to moreclearly define management accountability, the term of office fordirectors is set at one year.
The board of directors has two committees: the Compensation
Committee and the Nomination Committee, whose activities areintended to improve corporate governance. The Compensation
Committee proposes the remuneration to be paid to the Chairman& CEO and the President & COO to the board of directors forapproval. The Nomination Committee selects candidates for

The Executive Officer System
In order to further clarify the roles of the board of directors andexecutives in charge of business operations, Tokyo Electron
adopted the executive officer system in April 2003. This systempromotes fast decision-making and the quick establishment andexecution of business strategies.

Internal Controls and Risk Management
In order to enhance corporate value and ensure that all businessactivities are carried out responsibly, in the interests of all stakeholders, Tokyo Electron is taking steps to strengthen its internal
control systems, and make them more effective. The Company isimplementing specific activities based on the basic policy forinternal control systems established in May 2006. It is also making
progress on a project to develop a system of internal control overfinancial reporting which is based on the Financial Instruments
and Exchange Law.

Diagram of the Corporate Governance,
Internal Control System and Risk Management System
Annual Shareholders’ Meeting
Board of Nomination Committee
Directors Compensation Committee
Chief Business Ethics Director

Statutory Auditors

Independent Auditors

Confirm the progress of improvements and give instructions

ChairmanPresident
Request for improvement

Audit and improvement reports

ReportExecutive Officers

Report
Audit

ReportReportRequest forimprovement

Request forimprovement

Internal Audit Dept.
(Global Audit Center)

Audit

Risk Management
Function

Request for
improvement
Monitoring
Monitoring
Check and balance
Administrative

Business Depts.

26Depts.

Audit
Audit

Internal Audit Department (GlobalAudit Center)
The Global Audit Center oversees theinternal auditing activities of Tokyo
Electron and its corporate group. The
Center is responsible for auditing thebusiness activities of domestic andoverseas bases of the Group, as wellas their compliance and systems, andevaluating the effectiveness of internal
control systems. When necessary, theGlobal Audit Center also providesguidance to operating divisions. TheCenter reports the results of its audits
to Company management on a regularbasis, and organizes meetings toreport its findings and exchange
information with the statutory auditors.

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Risk Management Function
The General Affairs Department is responsible for crisis management, including measures involving business risk and operationalrisk, as well as for establishing the necessary internal regulations for
managing each risk category and activities for training and raising
employees’ awareness of risk management. These internal regulations include compliance standards, risk management regulations,rules governing the handling of personal information, standards for
managing documents, guidelines for the timely disclosure of important information, and rules to prevent insider trading.
Coordination Between Statutory Auditors and Internal
Audit Department
The Global Audit Center, which is responsible for internal
auditing activities, makes regular reports to Company management on the results of its audits, and holds periodic meetings(25 times a year) to report its findings and exchange information with the statutory auditors.
Coordination Between Statutory Auditors andIndependent Auditors
Tokyo Electron has engaged KPMG AZSA & Co. as its independent auditor. The Company provides the independent auditor
with all required information and data to ensure that it canconduct its audits efficiently and effectively.
The statutory auditors obtain reports from KPMG AZSA & Co.
describing a summary of audit plans during the fiscal year. They
also receive opinions for the half-year and annual audits of thefinancial statements.

Compliance Framework
Trust is the cornerstone of Tokyo Electron’s business foundation.
The fundamental requirements for maintaining trust are rigorous
conformity to ethical standards and compliance with the law, byindividual employees and by each of our organizations.
The Group maintains high standards of ethics and a clear
awareness of compliance, placing the utmost priority on compliance with laws, regulations and international business standards
in all of its corporate activities.
Ethical Standards, Ethics Committee and Chief Business
Ethics Director
Recognizing the need to establish uniform standards to govern allof its global business activities, in 1998, the Company formulated
the “Tokyo Electron Code of Ethics,” which concretely describes
the Company’s basic views on ethics. The same year, the Company established the Ethics Committee, which is responsible forpromoting business ethics awareness, and appointed a Chief
Business Ethics Director to supervise these efforts.

TOKYO ELECTRON LIMITEDIn June 2007, the Tokyo Electron Code of Ethics was rewritten
to make it easier to understand, and to reflect the changing
ethical norms of the current era.
Compliance Regulations
In 2004, the Company established compliance regulations basedon its ethical standards. These regulations are intended to ensurethat all individuals who take part in business activities for theGroup clearly understand the pertinent laws, regulations, international standards and internal company rules, and continuously
apply these rules in all of their activities.
Compliance Education for Employees
Information on compliance issues is available to employees via theCompany intranet. The Company also conducts web-based
training programs for employees, and takes other steps to promote broad awareness of compliance.
Internal Reporting System: hotline
In the event that an employee becomes aware of any activity which
may violate laws, regulations or principles of business ethics, theCompany operates an internal reporting system (hotline) thatemployees may use to report their concerns. Strict confidentiality is
maintained to protect the whistleblower, and ensure that they are
not subject to any disadvantage or repercussions.
Protection of Personal Information
Following the full introduction of Japan’s personal information protection law, the Company formulated a basic directive and regulations toprotect personal information. The Company conducts training
programs to educate employees on how to handle such information,and to ensure that the rules and policies are widely understood. TheCompany uses software to monitor any personal information stored
on PCs provided to employees in Japan, and has installed servers
exclusively for storing personal information, among other actions.

Remuneration for Directors, Executive Officers
and Statutory Auditors
The Company and its subsidiaries (excluding listed companies)
have introduced incentive systems, such as business resultsbased remuneration, and stock options linked to share prices.
Effective from fiscal 2006, the Company revised its executive
remuneration system to link remuneration more closely to financial
performance and shareholder value and also improve management transparency and its competitive strength.
New Remuneration System for Executives
1. The remuneration for Company directors and executive officers
is composed of two elements: a fixed monthly salary, and anannual bonus which is linked to earnings performance.
2. The total amount of performance-linked remuneration (annualbonuses) for directors and executive officers of the Group is set

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TOKYO ELECTRON LIMITEDANNUAL REPORT 07

at a maximum of 3% of consolidated net income. This remuneration is split between cash bonuses and stock-based
remuneration (stock options), at a ratio of roughly two to one.
The stock-based remuneration takes the form of new stock
warrant contracts with an exercise price of one yen per share.
This is because current securities and exchange regulations
make it difficult to introduce and implement direct share issuance, or the sort of transfer-restricted shares that are used incountries such as the United States. The restricted period on
exercising stock options is set at three years.
3. The earnings-linked remuneration (annual bonuses) of external
directors does not include stock options.
4. In order to ensure that statutory auditors maintain full independence from management pressures, the compensation ofstatutory auditors consists of a fixed monthly salary only.
5. Retirement allowances for directors, statutory auditors andexecutive officers were abolished at the end of fiscal 2005, aspart of the revisions to Tokyo Electron’s remuneration systemfor executives.
Performance-linked remuneration comprises a relatively large
share of executives’ total remuneration. Tokyo Electron thinksthat this will give executives a strong incentive to improve theCompany’s earnings performance and elevate the share price,
since they share in both the benefits and the risks experiencedby shareholders.
Disclosure of the Individual Compensation ofRepresentative Directors
In order to increase transparency and reflect shareholders’ interests, Tokyo Electron discloses the remuneration paid to each
representative director (Chairman & CEO and President & COO), as
well as the aggregate remuneration paid to directors and statutory
auditors, in its business report, which is sent to shareholders alongwith the Notice of Annual General Meeting of Shareholders.

Disclosure Policy
Tokyo Electron is committed to disclosing information about theCompany in a fair, prompt and accurate manner, to ensure that all
stakeholders, including shareholders and other investors, canobtain an accurate, in-depth understanding of the Company andits activities, and evaluate the Company’s corporate value appropriately. The Company also solicits feedback from its stakeholders
as part of its information disclosure activities, and uses the feedback as a point of reference to guide corporate management.
Information Disclosure Standards
Tokyo Electron complies fully with the Securities and Exchange
Law, and the rules on timely disclosure established by the Tokyo
Stock Exchange.
Furthermore, even when the information is not subject toregulations on timely disclosure, the Company discloses theinformation proactively, in a fair, prompt and accurate manner if

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the information is deemed useful in providing stakeholders with anaccurate understanding of the Company.
Disclosure Practices
If it is subject to the rules on timely disclosure (material information), Tokyo Electron will release the information simultaneously ina press release, and via the Tokyo Stock Exchange’s “TimelyDisclosure Network” (TDnet), and will post the information on its
website as soon as possible, following the official announcement.
Even when it does not fall into the category of “materialinformation,” the Company will voluntarily disclose information
which may be of interest to stakeholders, in a fair, accurate,and easy-to-understand manner, either on its website or inprinted form, through various means of communication.
Tokyo Electron conducts meetings to discuss its financial
results with securities analysts and investors; these meetings arealso open to members of the press. The company makes audio
and video recordings of its fiscal year-end and mid-term financial
results meetings, and posts these recordings on the Company’swebsite. All of the documents distributed at its quarterly financial
results meetings are also posted on the website.
To ensure that foreign investors have fair and equal access to theinformation, in principle, the Company strives to disclose all information simultaneously in Japanese and English. However, due tothe time required for translation, there may be cases where theposting of English information to the website is delayed slightly.
IR Spokespersons
To ensure that information is accurate and disclosure is fair, theCompany’s major investor relations activities will be undertaken
by official IR spokespersons—either the CEO, the COO, the IR
director, or representatives of the IR department. In principle,
information on the Company shall not be provided to the press, orto persons connected with the securities market, by any executive
or employee of Tokyo Electron acting alone other than official IR
spokespersons. When necessary, IR spokespersons may formallyappoint other executives or employees to speak on their behalf.

Shareholder Measures
Tokyo Electron mails a “Notice of Annual General Meeting ofShareholders” to shareholders more than three weeks in advanceof the meeting, as one of its measures to vitalize these meetings
and to promote smooth and efficient voting. It also sets the dateof the Company’s meeting to avoid days on which many suchmeetings are concentrated. Shareholders are also free to casttheir votes via the Internet. Tokyo Electron also participates in theweb-based voting platform for institutional investors operated byInvestor Communications Japan Inc. (ICJ). To supplement theabove shareholder meeting-related initiatives, Tokyo Electron’s
website carries notices, resolutions and presentation materials ofshareholders’ meetings. An English version of the “Notice ofAnnual General Meeting of Shareholders” is also provided.