[Translation for Reference and Convenience Purposes Only]

CORPORATE GOVERNANCE REPORT

Kuraray Co., Ltd.

Last Update: December 25, 2018
Kuraray Co., Ltd.
Masaaki Ito
Representative Director and President
Contact: +81-3-6701-1075
Securities Code: 3405
http://www.kuraray.com
The corporate governance of Kuraray Co., Ltd. (hereinafter “Kuraray” or the “Company”) is described
below.

I

Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other
Basic Information

1. Basic Views
The Company believes that the maintenance of appropriate relationships with various stakeholders and thefulfillment of social responsibilities through establishing a corporate governance system that ensures effective
and fair management would contribute to the long term and sustainable enhancement of corporate value.
The Company has adopted the governance system as “a company with the board of corporate auditors.” Under
this framework, the Company has established corporate governance mechanism centered on its Board of
Directors and Board of Corporate Auditors to improve the effectiveness of supervisory and monitoringmechanism while maintaining management efficiency and to handle issues including management remuneration,
selection of new company officers, internal control and risk management.
Through the above establishment of mechanism, the Company believes that the effectiveness of supervisory andmonitoring mechanism would be improved while maintaining management efficiency, contributing to the longterm and sustainable enhancement of corporate value.
Reasons for Non-compliance with the Principles of the Corporate Governance Code[Principle 1-4: Disclosure of Content of Examination on the Propriety of Holding Cross-Held Shares]
At a Board of Directors meeting held in November 2018, the Company revised its “Policy on
Cross-Shareholdings,” as described below. Examination on individual stock and disclosure of the content of
the examination, pursuant to the revision, will be implemented from the next examination (examination on
cross-held shares as of the end of December 2018).
[Supplementary Principle 4-10-1: Independent Advisory Committee]
The Company has established “Management Advisory Committee” comprised of Outside Directors, Outside
Corporate Auditors (hereinafter “Outside Officers”) and outside experts, as an advisory organ to the Boardof Directors, with a view to enhancing transparency, fairness and objectively in decision making concerning1

important matters of management, including nomination and remuneration of Directors, and further
strengthening its corporate governance.
The Management Advisory Committee was comprised of five members: one Outside Director, one Outside
Corporate Auditor and three outside experts, as of the submission date of this Report.

Disclosure Based on the Principles of the Corporate Governance Code[Principle 1-4: Cross-Shareholdings]
1. Coming from the viewpoint of stable and long term business operation, the Company may hold the sharesof its business partners, etc. if maintaining and strengthening the relationships with such business partners
are deemed to contribute to corporate value enhancement.
2. Regarding the shares held pursuant to the preceding paragraph (hereinafter, “cross-held shares”), theCompany regularly examines economic rationality and significance of holding individual stock at the Boardof Directors meetings in consideration of benefits and risks associated with such holding, capital cost andother factors. The Company will sell shares of stocks, as necessary, whose holding was deemed not to beappropriate based on the examination to reduce such stocks.
3. Concerning the voting rights pertaining to the cross-held shares, the Company appropriately exercises
such voting rights in light of the objectives of shareholdings set forth in the preceding two paragraphs,
taking into consideration the business conditions of the companies and potential impact to the business
operation of the Company or a subsidiary of the Company (hereinafter “the Group”). Particularly, theCompany carefully exercises such voting rights in a case where performance of the companies has beensluggish for a long period of time or a serious scandal has occurred or in a case where a proposal that would
impair shareholders’ value was made.
[Principle 1-7: Related Party Transactions]
The Company stipulates that transactions with competitors held by a Director, transactions between the
Company and a Director, and transactions involving any conflict of interests would require the approval of
the Board of Directors (with the attendance of Outside Directors and presence of Corporate Auditors).
[Principle 2-6: Roles of Corporate Pension Funds as Asset Owners]
Regarding the management of corporate pension funds of the Company, the Finance Department, which
specializes in fund management, monitors management policy, method and status through an externalmanagement agency.
[Principle 3-1: Full Disclosure](i) Company objectives (e.g., business principles), management strategies and management plans<Company objectives (e.g., business principles)>Based on our history and moving towards the future, we at the Company develop our corporate activities
by adhering to “Our Mission” that represents how the Group should act to meet the society’s expectations
and make contribution thereto, and act in accordance with “Our Values” and “Our Commitment.”[Our Mission]
We are committed to developing new fields of business using pioneering technology that improves theenvironment and enhances the quality of life throughout the world.
For people and the planet ̶ to achieve what no one else can.
[Our Values]
Philosophy:
Respect for individuals,
Close cooperation to attain shared goals,
Constant creation of new value
Guiding Principles:
Safety is the cornerstone of everything we do

2

Customers’ needs are our top priority
We act on ideas in the workplace[Our Commitment]
We will constantly develop and provide safe, high-quality products and services.
We will maintain a sound relationship with society through good communication.
We will strive to preserve and improve the global environment, and to secure safety and health inall our workplaces.
We will value all members of the Kuraray community and respect their rights.
We will always conduct businesses in a free, fair and transparent manner.
We will honor all intellectual property and secure data and information in a proper manner.
The Company formulated “The Kuraray Group Code of Conduct” as our guiding principles by breaking
down “Our Commitment” and ensures that the officers and employees of the Group are fully aware of it, ofwhich implementation status is checked as necessary.
<Management strategies and management plans>
The Company also formulated “PROUD 2020,” its mid term management plan that started in the fiscal
year ended December 31, 2018. Details of the plan have been announced on the Company’s website.
(URL: http://www.kuraray.com/ir/strategy/plan/)(ii) Basic views on corporate governance
The Company believes that the maintenance of appropriate relationships with various stakeholders and thefulfillment of social responsibilities through establishing a corporate governance system that ensures effective
and fair management would contribute to the long term and sustainable enhancement of corporate value.
(iii) Policies and procedures for determining the remuneration of Executives and Directors
1. Remunerations for Directors are determined by taking into consideration the remuneration level of othercompanies and other factors so that the remuneration will function as one of the incentives for mid to longterm and sustainable enhancement of the corporate value.
2. Remunerations for Directors are comprised of monetary remuneration consisting of fixed remuneration
by position and performance-linked remunerations, and stock option-based remunerations. However,monetary remuneration for Outside Directors does not include performance-linked remunerations.
3. Remuneration for each Director is determined based on the calculation method stipulated by the Boardof Directors within the limit amount resolved at the General Meeting of Shareholders. The remuneration
for the President which serves as the basis for calculating the remuneration for each Director is determined
after the deliberation at the Management Advisory Committee comprised of Outside Officers and outside
experts.
Changes in the remuneration system and structure as well as the amount of remuneration for Directors arealso determined by the Board of Directors after the deliberation at the aforementioned Management
Advisory Committee.
(iv) Policies and procedures for the election and dismissal of executives and for the appointment of thecandidates for Directors and Corporate Auditors
1. The Company appoints individuals who have experience, knowledge and capabilities required for
Directors of the Company as candidates at the Board of Directors meeting with the attendance of Outside
Officers and elect them as Directors with the resolution of the General Meeting of Shareholders. However,the candidates for Outside Directors shall satisfy the criteria of independence provided separately.
2. The Company appoints individuals who have experience, knowledge and capabilities required for
Corporate Auditors of the Company as candidates at the Board of Directors meeting with the presence ofOutside Officers, and elect them as Corporate Auditors with the resolution of the General Meeting of3

Shareholders after obtaining the consent of the Board of Corporate Auditors. However, the candidates for
Outside Corporate Auditors shall satisfy the criteria of independence provided separately.
The election and dismissal of Directors and the appointment and removal of Representative Directors andDirectors with special titles are determined by the Board of Directors after deliberation at the
aforementioned Management Advisory Committee.
(v) Explanations on the election and dismissal of executives and the appointment of each candidate for
Director and Corporate Auditor
Regarding the reasons for nominating each candidate for Director and Corporate Auditor, please refer to
the Notice of Convocation of the General Meeting of Shareholders.
[Supplementary Principle 4-1-1: Scope of the Matters Delegated to the Management]
The Company clearly defines the scope of the matters delegated to the management by specifying the matters tobe judged and determined by the Board of Directors as matters to be discussed in the Board of Directors’Regulations, regarding the matters relating to the basic policies of the management and other important matters,in addition to those required by the Companies Act and the Articles of Incorporation.
[Principle 4-9: Independence Standards for Outside Officers]
1. The Company judges that its Outside Officers and the candidates for the Outside Officers are fully
independent from the Company if they do not fall under any of the following items:(1) A business executive of the Group(2) A counterparty which has transactions principally with the Group, or its business executive thereof(3) A major business partner of the Group, or its business executive thereof(4) A major lender of the Group, or its business executive thereof(5) A counterparty that receives a large amount of donations from the Group, or its business executive thereof(6) A major shareholder of the Company (who possesses 10% or more of the total voting right either directly or
indirectly), or its business executive thereof(7) A business executive of the party whose major investor (who possesses 10% or more of the total voting righteither directly or indirectly) is the Group(8) A consultant, certified public accountant or other accounting professional, attorney or other legal
professional who receives a large amount of monetary or other assets from the Group other than the executive
remunerations (in case of a legal entity, association or other organization, a person belonging thereto)(9) A person who belongs to an accounting firm that conducts the statutory audit of the Company(10) A person who has fallen under the above criteria (1) in the past ten years(11) A person who has fallen under any of the above criteria (2) through (9) in the past three years(12) A person whose position constitutes him/her as having an Outside Officer’s interlocking relationship with
the Group(13) A relative of the persons listed in the above criteria (1) through (11)
2. Even in cases where a person falls under any of the above items, if the person is deemed to be appropriate forthe post of an independent Outside Officer in light of his/her personality, knowledge and other qualities, theCompany may appoint him/her as independent Outside Officer on the condition that the reasons why the person
is deemed appropriate for the post are explained to the public.
[Supplementary Principle 4-11-1: Policies on the Structure and Size of the Board of Directors]
1. The Company’s Board of Directors shall be comprised of the Directors with diverse backgrounds intheir knowledge, experience and expertise, and the number of Directors shall not exceed twelve asprescribed in the Articles of Incorporation in order to enable swift and bold decision making.
2. In the light of the importance of the Outside Directors’ functions in corporate governance, the Company
stipulates that, in its Board of Directors, two or more independent Outside Directors shall be appointed toensure transparency and fairness in its decision making.

4When appointing candidates for Directors pursuant to the above policies, the Company takes into
consideration diversity, including gender and internationality, as well.
[Supplementary Principle 4-11-2: Status of Concurrent Posts Held by Directors and Corporate Auditors]
The Company regularly confirms the status of concurrent posts held by all of its Directors and Corporate
Auditors at the Board of Directors meetings and is notified of the changes in such status in advance if any.
The status of concurrent posts is also stated in the business report.
[Supplementary Principle 4-11-3: Analysis and Evaluation of the Effectiveness of the Board of Directors]
1. Analysis and Evaluation Method
The Company distributed "Questionnaire on Evaluation of the Effectiveness of the Board of Directors"(non-anonymous) to all the Directors and Corporate Auditors in December 2017 and collected responses
and opinions from all members in January 2018. The secretariat of the Board of Directors aggregated the
responses, and analyzed and evaluated the effectiveness of the Board of Directors based on the data.
<Questionnaire > (20 questions in total) Concerning Structure of the Board of Directors
 Concerning Agenda of the Board of Directors
 Concerning Operations of the Board of Directors
 Systems Outside the Board of Directors
2. Outline of Analysis and Evaluation Results
 The evaluation confirmed that the Company’s Board of Directors is generally functioning properly
and that the effectiveness of the Board of Directors is secured in all aspects such as its size,
composition, diversity, agenda selection, the scope of matters to be discussed or reported, the timing
for scheduling the Board of Directors meetings, frequency of the meetings, operations of the Board of
Directors including deliberation time, provision of additional information to the Directors, systems
outside the Board of Directors such as those for providing training opportunities, etc.
 Furthermore, proposals made during evaluation last year in order to enhance the effectiveness, namely“the timing of material distribution” and “content and quantity of materials,” were confirmed to have
improved through efforts such as thorough distribution of materials in advance, and preparation of
written summaries of proposals.
 In light of the results from this evaluation, the Company will examine and implement necessary
measures in the future to make discussions more lively and productive at the Board of Directors
meetings.
[Supplementary Principle 4-14-2: Training Policy for Directors and Corporate Auditors]
1. The Company continuously provides lectures and trainings by the internal specialist team or outside
experts to its Directors and Corporate Auditors at the time when they assume their offices or when needed
thereafter, regarding the Company’s management strategies, organization, financial status, legal
compliance, corporate governance and other important matters.
2. The Company shall provide the summary of the business and organization of the Group to its Outside
Officers at the time when they assume their offices or when needed thereafter, and create opportunities of
the Company’s on-site tour, etc. as needed.
[Principle 5-1: Policy for Dialogue with Shareholders]
1. The Company engages in constructive dialogue with shareholders and investors with an aim to maintainits growth and enhance its corporate value and the common interests of its shareholders over the mid-term.

5

2. In order to promote dialogue with shareholders and investors, the Company prepares a framework basedon the following policies:(1) President or an officer responsible for investor and public relations deal with the interviews withshareholders to the extent reasonable.
(2) President and an officer responsible for investor and public relations oversee the dialogue withshareholders and the measures related thereto.
(3) An officer responsible for investor and public relations holds information exchange on a day-to-day
basis among divisions responsible for corporate management planning, general affairs, finance, accounting
and legal affairs to establish an organic coordination system.
(4) In addition to holding individual interviews with shareholders and investors, the Company works for a
full provision of information through financial briefing sessions, explanatory meeting on mid term
management plan and other means.
(5) President or an officer responsible for investor and public relations report to the Board of Directors
about the opinions and concerns obtained from the dialogue with shareholders and investors as necessary.
(6) Insider information shall be strictly managed based on the internal regulations during the dialogue withshareholders and investors.

2. Capital Structure
Foreign Shareholding Ratio

30% or more

[Status of Major Shareholders]Name / Company Name
The Master Trust Bank of Japan, Ltd. (Trust account)

Number of Shares
Owned (Shares)
31,928,000

Percentage (%)
9.00

Japan Trustee Services Bank, Ltd. (Trust account)

19,776,400

5.57

Nippon Life Insurance Company

10,448,963

2.94

National Mutual Insurance Federation of Agricultural
Cooperatives

10,102,700

2.85Japan Trustee Services Bank, Ltd. (Trust account 7)

6,799,800

1.92Japan Trustee Services Bank, Ltd. (Trust account 5)

6,722,200

1.89

STATE STREET BANK WEST CLIENT ‐ TREATY
505234

6,205,632

1.75

Meiji Yasuda Life Insurance Company

5,969,412

1.68

NORTHERN TRUST CO. (AVFC) RE-SSD00

5,764,400

1.62Japan Trustee Services Bank, Ltd. (Trust account 1)

4,993,500

1.41

Controlling Shareholders (excluding Parent
Company)
Parent Company

—
None

6

Supplementary Explanation
The information above is the status of major shareholders as of December 31, 2017.
In addition to those stated in the Status of Major Shareholders, there are 4,040,182 shares of treasury stock(percentage: 1.14%) owned by the Company as of the same date.

3. Corporate Attributes
Listed Stock Market and Market Section

Tokyo Stock Exchange, First Section

Fiscal Year-End

DecemberType of Business

Chemicals

Number of Employees (consolidated) as of
the End of the Previous Fiscal YearSales (consolidated) as of the End of thePrevious Fiscal Year
Number of Consolidated Subsidiaries as of
the End of the Previous Fiscal Year

1,000 or more
¥100 billion to less than ¥1 trillion
10 to less than 50

4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling
Shareholders—
5. Other Special Circumstances which may have Material Impact on Corporate Governance

—

7

II

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

1. Organizational Composition and Operation
Organization Form

Company with Corporate Auditors[Directors]
Maximum Number of Directors Stipulated in
Articles of Incorporation
Terms of Office Stipulated in Articles ofIncorporation

12
1 yearChairperson of the Board

President

Number of Directors

9

Appointment of Outside Directors

Appointed

Number of Outside Directors

2

Number of Independent Directors

2Outside Directors’ Relationship with the Company (1)NameAttribute

Tomokazu Hamaguchi

From another company

a

b

c

Relationship with the Company (*)
d
e
f
g
h
i

j

k
〇

Jun Hamano
From another company〇* Categories for “Relationship with the Company”* “” When the person currently falls or has recently fallen under the category“” When the person fell under the category in the past
* “” When a close relative of the person currently falls or has recently fallen under the category“” When a close relative of the person fell under the category in the pasta. Executive of the Company or its subsidiaries
b. Non-executive director or executive of a parent company of the Company
c. Executive of a fellow subsidiary company 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 orother property from the Company besides remuneration as a director
g. Major shareholder of the Company (or an executive of 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 the Company’s Outside Directors/Corporate Auditors are mutually8

appointed (the director himself/herself only)
j. Executive of a company or organization that receives a donation from the Company (the director
himself/herself only)
k. Others
Outside Directors’ Relationship with the Company (2)Name
Tomokazu

Designationas
Independent
Director○

Supplementary Explanation of theRelationship—

Mr. Tomokazu Hamaguchi has
been appointed as Outside
Director based on the judgmentthat his wealth of experience andbroad insight gained as amanagement executive of NTT
DATA Corporation would allow
him to provide opinions andsuggestions that would be usefulfor helping further improve theCompany’s corporate
governance. In addition, he has
been designated as Independent
Director based on the judgmentthat there would be no conflict ofinterest with ordinary
shareholders.

Mr. Jun Hamano is concurrently
serving as President of The Ohara
Memorial Institute for Science ofLabour. The Ohara Memorial
Institute for Science of Labour
was established by Mr.
Magosaburo Ohara, theCompany’s first president, in
1921 with the purpose ofpromoting sound business
management, enhancing thewelfare of the laborers andcontributing to the improvementand development of social
welfare.
As a part of its CSR activities, theCompany pays annual
membership fee to support the
research activities of the Institute.
The amount of annual payment of

Mr. Jun Hamano has been
appointed as Outside Director
based on the judgment that his
wealth of experience and broad
insight gained through economic
administration and other roles at
the Economic Planning Agencyof Japan and the Cabinet Officewould allow him to provide
objective opinions andsuggestions that are useful for theCompany’s management. In
addition, he has been designatedas Independent Director based on
the judgment that there would be
no conflict of interest withordinary shareholders.

Hamaguchi

Jun Hamano○

Reasons of Appointment

9

Designationas
Independent
Director

Name

Supplementary Explanation of theRelationship

Reasons of Appointment

the said membership fee is lessthan 1 million yen.

A Discretionary Committee Corresponding to a
Nomination Committee or Remuneration Committee

Yes

Committee’s Name, Composition, and Attributes of Chairperson

Committee’s
NameCommittee
Corresponding toNomination
Committee
Committee
Corresponding to
Remuneration
Committee

The
Management
Advisory
Committee
The
Management
Advisory
Committee

All

Full-time

InsideOutsideOutside

Other

Chairperson

Committee

Members

Directors

Directors

Experts

5

0

0

1

3

1

None

5

0

0

1

3

1

None

Members

Supplementary Explanation
The Company has established “Management Advisory Committee” comprised of Outside Officers and outside
experts, as an advisory organ to the Board of Directors, with a view to enhancing transparency, fairness andobjectively in decision making concerning important matters of management, including nomination andremuneration of Directors, and further strengthening its corporate governance.
The Management Advisory Committee was comprised of five members: one Outside Director, one Outside
Corporate Auditor and three outside experts, as of the submission date of this Report.

[Corporate Auditors]
Establishment of the Board of Corporate Auditors

Established

Maximum Number of Corporate Auditors Stipulated
in Articles of Incorporation
Number of Corporate Auditors

5
5

Cooperation among Corporate Auditors, Accounting Auditors, and Internal Audit Department

10

The Corporate Auditors regularly have meetings with the Accounting Auditor receive reports on audit
planning, implementation status and audit content. Also, the Corporate Auditors receive reports on internal audit
results by the Internal Auditors Office (consisting of nine members). The Corporate Auditors also serve as
corporate auditors of core subsidiaries to conduct subsidiary audits as needed and attend periodic Group Auditor
Liaison Meetings consisting of the subsidiary auditors to deepen their understanding of each company.
Appointment of Outside Corporate Auditors

Appointed

Number of Outside Corporate Auditors

3

Number of Independent Corporate Auditors

3

Outside Corporate Auditors’ Relationship with the Company (1)NameAttribute

Mie Fujimoto

Attorney

Yoshimitsu Okamoto

From another companyab

Relationship with the Company (*)
c d e
f g h
i
j
k

l

m




Mitsuhiro Nagahama From another company
* Categories for “Relationship with the Company”* “” When the person currently falls or has recently fallen under the category“” When the person fell under the category in the past
* “” When a close relative of the person currently falls or has recently fallen under the category“” When a close relative of the person fell under the category in the pasta. Executive of the Company or its subsidiaryb. Non-executive director or accounting adviser of the Company or its subsidiaries
c. Non-executive director or executive of a parent company of the Company
d. Corporate Auditor of a parent company of the Company
e. Executive of a fellow subsidiary company of the Company
f. A party whose major client or supplier is the Company or an executive thereof
g. Major client or supplier of the Company or an executive thereofh. Consultant, accountant or legal professional who receives a large amount of monetary consideration orother property from the Company besides remuneration as a Corporate Auditor
i. Major shareholder of the Company (or an executive of said major shareholder if the shareholder is a legal
entity)j. Executive of a client or supplier company of the Company (which does not correspond to any of f, g, or h)(the Corporate Auditor himself/herself only)
k. Executive of a company, between which the Company’s Outside Directors/Corporate Auditors are mutually
appointed (the Corporate Auditor himself/herself only)
l. Executive of a company or organization that receives a donation from the Company (the Corporate Auditor
himself/herself only)
m. Others

11Outside Corporate Auditors’ Relationship with the Company (2)Name
Mie Fujimoto

Designationas
Independent
Auditor○Supplementary Explanation of theRelationship

Reasons of Appointment—

Ms. Mie Fujimoto has been
appointed as Outside Corporate
Auditor because she has a wealthof experience in and highly
professional knowledge ofcorporate legal affairs throughher service as an attorney. In
addition, she has been designatedas Independent Corporate
Auditor based on the judgmentthat there would be no conflict ofinterest with ordinary
shareholders.

Yoshimitsu
Okamoto○Mr. Yoshimitsu Okamoto has
served as Director of Sumitomo
Mitsui Auto Service Company,
Limited (formerly: SB Auto
Leasing Company), one of theCompany’s business partners, inthe past. The sales of Sumitomo
Mitsui Auto Service Company to
the Company for the most recent
fiscal year were less than 0.1% of
Sumitomo Mitsui Auto Service
Company, Limited’s net sales forthe same period.

Mr. Yoshimitsu Okamoto has
been appointed as Outside
Corporate Auditor because he hasa wealth of experience atfinancial institutions and broad
insight in management in general,
as well as track record at othercompanies as outside auditor. In
addition, he has been designatedas Independent Corporate
Auditor based on the judgmentthat there would be no conflict ofinterest with ordinary
shareholders.

Mitsuhiro
Nagahama○

Mr. Mitsuhiro Nagahama hasserved as Chairman and in otherpositions of Mizuho Securities
Co., Ltd. in the past. The sales ofMizuho Securities Co., Ltd. to theCompany for the most recent
fiscal year were less than 0.1% ofMizuho Securities Co., Ltd.’s net
sales for the same period.
Furthermore, Mr. Mitsuhiro
Nagahama has served as Deputy
President and in other positionsof Mizuho Bank Ltd. (formerly:
Mizuho Corporate Bank, Ltd.) in
the past. The balance of loans

Mr. Mitsuhiro Nagahama has
been appointed as Outside
Corporate Auditor because he hasa wealth of experience atfinancial institutions and broad
insight, as well as track record atother companies as outside
auditor. In addition, he has been
designated as Independent
Corporate Auditor based on the
judgment that there would be no
conflict of interest with ordinary
shareholders.

12

Name

Designationas
Independent
AuditorSupplementary Explanation of theRelationship

Reasons of Appointment

outstanding from Mizuho Bank,
Ltd. to the Company for the mostrecent fiscal year was less than
0.2% of the Company’s total
consolidated assets for the same
period.

[Independent Directors/Corporate Auditors]
Number of Independent Directors/ Corporate Auditors

5

Matters relating to Independent Directors/Corporate Auditors
The Company has appointed all Outside Officers as Independent Directors /Corporate Auditors, insofar as
they meet the qualifications thereof.
[Incentives]
Status of the Measures Regarding Incentives for
Directors

Introduction of a Performance-linked Remuneration
System, Introduction of a Remuneration-Type Stock
Option Scheme

Supplementary Explanation(1) Introduction of a performance-linked remuneration system: the Company abolished the prior bonus
scheme to Directors and introduced a performance-linked remuneration system in July 2006, thereby
strengthening the incentive for increasing the Company’s corporate value. In addition, to respond to theincrease in the amount of performance-linked remuneration in conjunction with the improved businessperformance, it was resolved to increase the maximum amount of annual remunerations to Directors from ¥450
million to ¥800 million (including ¥100 million annually for Outside Directors) at the Company’s 131st
Ordinary General Meeting of Shareholders held on June 22, 2012.
(2) Calculation method of performance-linked remuneration: as a short term performance incentive, theperformance-linked remuneration for the President shall be the amount that is obtained by multiplying theamount of actual consolidated net income for the prior fiscal year with a predetermined coefficient. The
performance-linked remuneration for Directors shall be determined by dividing the said amount in proportion
to the index corresponding to each position of Directors. The Company does not have a performance-linked
remuneration system for Outside Directors based on the above calculation method.
(3) Introduction of a remuneration-type stock option scheme: the Company abolished the prior severance
and retirement benefits system for Directors in July 2006 and introduced a remuneration-type stock option
scheme that entails the issue of share acquisition rights for the purpose of further boosting Directors’
sensitivity and motivation towards improving the Company’s performance. The stock option-based
remunerations under this scheme shall not exceed ¥90 million, separately from the maximum amount of annual
remunerations to Directors. The number of share acquisition rights to be granted shall not exceed 120 each13

year (the number of common stock to be issued upon exercise of share acquisition rights shall not exceed
60,000 shares each year).
Inside Directors, Outside Directors, employees,
directors of subsidiaries, employees of subsidiaries
and others

Recipients of Stock Options

Supplementary Explanation
Separately from the stock option scheme mentioned in preceding (3), the Company granted stock options in
October 2002, October 2003 and October 2010 with the purpose of raising the sense of participating in theGroup’s management and boosting the willingness and motivation towards improving the performance.
[Director’s Remuneration]
Disclosure of Individual Director’s Remuneration

No Individual Disclosure

Supplementary Explanation
Details of the disclosure status are as follows:・Total amount of remuneration paid by classification, amount of monetary remuneration paid by type of
remuneration, and the number of eligible Directors and Corporate Auditors, as well as the method for
determining the remuneration, etc. for Directors and Corporate Auditors are disclosed on the securities report.
(Reference) Page 47 of the securities report dated March 23, 2018 for the 137th fiscal period (Status ofcorporate governance)
http://www.kuraray.co.jp/ir/library/pdf/securities/137_4y_jp.pdf (Japanese Only)
・Total amounts of remuneration by classifying Inside Director and Outside Director, and number of
Directors and Corporate Auditors paid are disclosed on the business report.
(Reference) Page 22 of Notice of Convocation of the 137th Ordinary General Meeting of Shareholders(Total Amounts of Remuneration, etc., Paid to Directors and Corporate Auditors)
http://www.kuraray.com/ir/presentation/pdf/meeting_137_01_en.pdf
Policy on Determining Remuneration Amounts andEstablishedCalculation Methods

Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods
Details of the policy on determining remuneration amounts paid to Directors and Corporate Auditors and themethod for determination are as follows:
In respect to remunerations for Directors and Corporate Auditors, the Company has designed its standards andstructure to be commensurate with the responsibilities of each Director and Corporate Auditor under the basic
recognition and policy that such remuneration is a remuneration for achieving the long term and sustainableimprovement in business performance and corporate value.
・ Type of remuneration paid to Directors and Corporate Auditors
Remuneration to Directors is comprised of monetary remunerations (fixed remuneration by position andperformance-linked remuneration) and stock option-based remunerations.
・ Maximum amount of annual remunerations to Directors

14Regarding the maximum amount of annual remunerations to Directors of the Company, the following was
resolved at the 125th Ordinary General Meeting of Shareholders of the Company held on June 28, 2006 andthe 131st Ordinary General Meeting of Shareholders of the Company held on June 22, 2012.
<1> Amount of annual remunerations to Directors: under ¥800 million resolved at the 131st Ordinary
General Meeting of Shareholders<2> Amount of stock option-based annual remunerations to Directors (aside from <1> above):under ¥90 million resolved at the 125th Ordinary General Meeting of Shareholders
・ Calculation method of remuneration, etc. paid to Directors and Corporate Auditors
The President, as authorized by the Board of Directors, determines the remuneration for each Director within
the limit of the total amount above, based on a certain criteria defined by the Board of Directors. The
calculation method of the remuneration by type is as following. The remuneration for the President which
serves as the basis is determined after the deliberation at the Management Advisory Committee led by outside
experts.
Fixed remuneration by position: Fixed remuneration by position, in principle, is the amount obtained bymultiplying the amount of fixed remuneration by position for the President which serves as the basis with thecoefficients predetermined according to each position.
Performance-linked remuneration: as a short term performance incentive, the performance-linked
remuneration for the President shall be the amount that is obtained by multiplying the amount of actual
consolidated net income for the prior fiscal year with a predetermined coefficient. The performance-linked
remuneration for Directors shall be determined by dividing the said amount in proportion to the index
corresponding to each position of Directors. The Company does not have a performance-linked remuneration
system for Outside Directors based on the above calculation method.
Stock option-based remunerations: As a mid to long term incentive, stock options with the exercise price of¥1 per share are granted (the exercising period is limited to a certain predetermined period after retirement).
The number of stock options to be granted is determined based on the base amount defined by the positions.
(Reference) Page 47 of the securities report dated March 23, 2018 for the 137th fiscal period (Status ofcorporate governance)
http://www.kuraray.co.jp/ir/library/pdf/securities/137_4y_jp.pdf (Japanese Only)[System for Supporting Outside Officers]
The information is shared among Outside Officers through distributing and explaining in advance theproposals to be deliberated at the regular and extraordinary meetings of the Board of Directors. Two membersof Secretariat Group, General Affairs Department assist in the sharing of this information to the Outside
Directors. The Company appoints staff for Corporate Auditor to assist Corporate Auditors including Outside
Corporate Auditors. The staff collects and provides information necessary for auditing activities and offers
other forms of support.

15

[Status of Retired Representative Directors and Presidents, etc.]
Status of retired Representative Directors andRecordedPresidents, etc.

Names, etc. of Advisers and Counselors, etc. Formerly Served as Representative Directors and Presidents, etc.

Name

Yasuaki Wakui

Position

Responsibilities

Form andConditions of Work
(Full-time/Part-time; Compensation,etc.)

Primary
Adviser

Chairman, etc. ofaffiliates, etc. with
an emphasis onsocial contribution;social contribution
activities, etc. (notinvolved inmanagement)

Form of work:
Full-time
Compensation: Yes

Date of
Retirement as
President, etc.

Term of
Employment

April 1, 2008

Indefinite

Activities ofForm of work:
economic bodies,Part-time
Hiroto Matsuo
June 29, 2000
Indefinite
etc. (not involved
Compensation: Yes
in management)
Total number of Advisers, etc. formerly served as Representative Directors and Presidents, etc.: 2
SeniorAdviser

Other matters
Mr. Yasuaki Wakui serves as a chairman or a member of the board at affiliates with an emphasis
on social contribution in the Company’s noncore businesses, such as hospitals, an art museum, agolf course, etc., and provides them with management guidance.

2. Matters on Functions of Business Execution, Auditing, Oversight, and Decision-Making ofNomination and Remuneration (Overview of Current Corporate Governance System)(1) Board of Directors and business execution body
The Board of Directors (convenes at least once a month), according to the Board of Directors’ Regulations,deliberates and decides important management matters, including legal matters, and supervises the executionof business. The maximum number of Directors is 12 in order to promote agile management decision-making
by the Board of Directors, and the term of office is one year to clarify their responsibilities to the shareholders.
There are currently 9 incumbent Directors including two Outside Directors with wealth of experience in andbroad insight into economy, finance, management and other fields. These two Outside Directors aresupervising the management from an independent third-party standpoint.
No personal, capital, transactional or other relationship that would present a conflict of interest exists
between the Company and the Outside Directors.

16

・ Mr. Tomokazu Hamaguchi is providing opinions and suggestions that are useful for helping further
improve the Company’s corporate governance based on a wealth of experience and broad insight gained as amanagement executive of NTT DATA Corporation. He is supervising the management of the Company and isproviding useful opinions and suggestions as Outside Director.
・ Mr. Jun Hamano supervises the management from an objective standpoint as Outside Director and isproviding opinions and suggestions based on his wealth of experience and broad insight gained througheconomic administration and other roles at the Cabinet Office, etc.
Pursuant to Article 427, Paragraph 1 of the Companies Act, the Company has entered into contracts with
Outside Directors which limit their liability for damages under Article 423, Paragraph 1 of the same Act. The
maximum liability amount under such contracts shall be the amount stipulated in laws and regulations.
However, the aforementioned liability limitation shall be applied only in cases where such Outside Directors
performed their duties in good faith and without gross negligence. As the chief executive responsible forbusiness execution, the President appointed by the Board of Directors exercises control over the execution ofbusiness in the Group. Every executive officer (one-year term of office) appointed by the Board of Directors is
responsible for business execution in the Group organization. As the heads of internal companies, divisions
and major functional organizations, the executive officers bear responsibilities for operations and businessresults. In this way, the Company clearly separates the responsibilities of Directors, that is, decision-making
and supervision on the management, from the responsibilities of business execution. Some Directors holdconcurrent positions as executive officers. The President has established the Executive Committee (in principle,
convenes twice a month) and various other councils and committees to deliberate and report on importantmatters concerning the Group’s management policies and business execution.
(2) Board of Corporate Auditors and Internal Audit
2) Board of Corporate Auditors and Internal Audit
The Board of Corporate Auditors consists of five Corporate Auditors, of which four are males and one isfemale, and three of them are independent Outside Corporate Auditors, the majority thereof. The current
number of Corporate Auditors is five, including three Outside Corporate Auditors with extensive experience inand broad insight into areas such as finance, law and management, who perform their duties from an
independent third-party standpoint.
No personal, capital, transactional or other relationship that would present a conflict of interest exists
between the Company and the Outside Corporate Auditors.
・Ms. Mie Fujimoto conducts audit as Outside Corporate Auditor based on her broad experience andprofessional knowledge in corporate legal affairs gained during her service as an attorney.
・Mr. Yoshimitsu Okamoto conducts audit as Outside Corporate Auditor based on his wealth of experiencein financial institutions, broad insight into the overall management and achievements as outside auditor ofother companies.
・Mr. Mitsuhiro Nagahama is appointed as Outside Corporate Auditor based on his wealth of experience andbroad insight in financial institutions and achievements as outside auditor of other companies.
Corporate Auditors attend meetings of the Board of Directors and other important meetings, and monitor the
Directors’ performance of duties through inquiries conducted by such means as the examination of important
documents and requests for explanations of the state of business affairs. In principle, the Board of Corporate
Auditors convenes monthly.
The Corporate Auditors regularly have meetings with the Accounting Auditor receive reports on audit
planning, implementation status and audit content. Also, they receive reports on internal audit results by theInternal Auditors Office (consisting of nine members). The Corporate Auditors also serve as corporate auditors17

of core subsidiaries to conduct subsidiary audits as needed and attend periodic Group Auditor Liaison
Meetings consisting of the subsidiary auditors to deepen their understanding of each company.
Pursuant to Article 427, Paragraph 1 of the Companies Act, the Company has entered into contracts with
Corporate Auditors which limit their liability for damages under Article 423, Paragraph 1 of the same Act. The
maximum liability amount under such contracts shall be the amount stipulated in laws and regulations.
However, the aforementioned liability limitation shall be applied only in cases where such Corporate Auditors
performed their duties in good faith and without gross negligence.
In addition, staff for corporate auditors are appointed to assist the duties of Corporate Auditors.
(3) Status of Accounting Auditor
No special interests exist between the Company and the Accounting Auditor, PricewaterhouseCoopers
Aarata LLC, or the engagement partners of the auditing firm who audit the Company. In addition, the auditing
firm voluntarily takes steps to ensure the engagement partners are not involved in audits of the Company for
longer than the prescribed period of time. The names of the certified public accountants who engaged in theduties of accounting auditor and the composition of assistants of audit engagement during the fiscal year ended
December 31, 2017 were as follows:
Names of the certified public accountants who engaged in the duties of accounting auditor:
Designated limited liability partners: Akio Kobayashi (continuous audit years: 5 years) / Takeshi Shioya(continuous audit years: 5 years)
Composition of assistants of audit engagement:
Seven certified public accountants; four employees who have passed the qualification exam foraccountants; and fourteen other staff

3. Reasons for Adoption of Current Corporate Governance System
The Company has adopted the structure of “a company with the board of corporate auditors,” whereby thefairness and transparency in the management is deemed to be secured, by having Outside Corporate Auditors
who offer a wealth of management experience and professional knowledge added to the existing structure
where Outside Directors are elected to provide valuable opinions and suggestions to the management also froman objective perspective.

18

III Implementation of Measures for Shareholders and Other Stakeholders
1. Measures to Vitalize the General Meeting of Shareholders and Smooth Exercise of Voting Rights
Supplementary Explanation
We dispatch the notification of General Shareholder Meeting, in principle,
Early Notification of Generalthree weeks prior to the meeting. The convening notice for the 137th
Shareholder Meeting
Ordinary General Meeting of Shareholders (held on March 23) was
dispatched on March 1.
Scheduling of General
We hold the General Meeting of Shareholders in March to avoid the peakMeeting of Shareholders
season of other companies’ shareholders meetings.
Avoiding the Peak Day
The exercise of voting rights via electromagnetic means has been
Electronic Exercise of Voting
introduced from the 126th Ordinary General Meeting of Shareholders held
Rightson June 20, 2007.
Participation in Electronic
An electronic voting rights exercise platform for institutional investors
Voting Platform
operated by ICJ, Inc. (Investors Communication Japan) can be used.
The convening notice of the General Meeting of Shareholders is prepared
Provision of the Convocation
in English and posted on the Company’s website and the electronic voting
Notice in English
rights exercise platform.
Video of the General Meeting of Shareholders is available on the
Company’s website on the following day of the meeting.
Other
From the 135th Ordinary General Meeting of Shareholders held on March
29, 2016, the convening notice for the General Meeting of Shareholders
was posted on the Company’s website prior to dispatching by postal mail.
2. IR Activities
Supplementary Explanation
Preparation and Publication ofDisclosure Policy
Regular Investor Briefings for
Individual Investors
Regular Investor Briefings forAnalysts and Institutional
Investors

Disclosure policies were prepared and announced in2007. It is currently disclosed on the Company’s
website:http://www.kuraray.com/disclosure.html
Investor briefings for individual investors are regularly
held.
The Company holds meetings for analysts andinstitutional investors twice a year. Video archives ofsuch meetings are available (English version alsoavailable) on the Company’s website on the same day
to eliminate the information gap between the analysts
and institutional investors who can attend the briefings
and those including individual investors who cannot

19

Presentation byRepresentatives

None

Available

Supplementary Explanation

Regular Investor Briefings forOverseas Investors

Posting of IR Materials on
WebsiteEstablishment of Department
and/or Manager in Charge ofIR

due to location in remote areas.
The Company holds investor briefings mainly inEurope and the United States three times orthereabouts a year in principle.
The Company also participates in conferences held bysecurities companies several times a year.
In addition to financial results, materials for timely
disclosure, press releases, videos and materials of theresults briefings, explanatory materials of mid term
management plan, status of corporate governance andstock information, etc., other materials such as
dividend policy, past business performance data (inexcel format), contents to provide the Company’s
overview and other materials are posted for theconvenience of investors.
IR-related services are handled by Corporate
Communications Department, Corporate Management
Planning Office.

Presentation byRepresentatives

None

3. Measures to Ensure Due Respect for Stakeholders
Supplementary Explanation
Stipulation of Internal Rules for
Respecting the Position of
Stakeholders

Internal rules for respecting the position of stakeholders are set forth in“Our Commitment” and “The Kuraray Group Code of Conduct” and havebeen announced.

Implementation ofEnvironmental Activities andCSR Activities, etc.

In 2003, Kuraray instituted the CSR Committee and bolstered its CSR
promotion structure on a Group level. So far there were three specialist
committees under the CSR Committee (the Social Responsibility andEconomic Subcommittee, Environmental and Industrial Safety
Subcommittee, and Risk Management and Compliance Subcommittee).
These committees examined Company-wide policies and goals, andpropose these policies to the management. In May 2017, as an effort tofurther strengthen risk management and compliance and enhance internal
control, the Risk Management and Compliance Subcommittee has been
separated from the CSR Committee, and made into an independent
committee that reports matters at the Board of Directors meetings. At thesame time, the two subcommittees under the CSR Committee have beenabolished, and the mobility of the working team underneath it will beenhanced to increase the proposal capability to the management. Throughthis reorganization, we aim to enhance the effectiveness of the CSR
promotion structure.
For the specific activities regarding CSR, the theme-specific working
groups making up the two subordinate committees collaborate with variousorganizations of the Group in addressing their respective themes. The

20

Supplementary Explanation
results of these CSR activities are disclosed as CSR Report on an annual
basis.

Development of Policies on
Information Provision to
Stakeholders

The policies on information provision to stakeholders are set forth in the
Disclosure Policy of the Kuraray Group and the Company Disclosure
Guidelines.

Other

Policies on and measures for the active participation by female employees:
By formulating the Kuraray Group Global Human Resources (HR) Policy,
the Company is promoting the employment of not only females but also
foreigners, persons with disabilities and seniors under the policies to ensure
non-discrimination on any ground such as gender, race and nationality, andto respect diversity and individuality (Transferring contract workers tofull-time permanent employees is also actively underway.)
In particular, for female employees, we have been preparing the systems tohelp them continue working with our own monetary support system during
their leave. We also established a scheme through which the employees are
given temporary leave, allowing them to accompany their spouse when
their spouse is assigned to overseas posts, and re-employment system for
retirees who left due to family reasons, both of which are achieving actual
results.
With regard to the Act on Promotion of Women’s Participation andAdvancement in the Workplace which went into full effect on April 1,
2016, we formulated and announced the business owner action plan withthe purpose of raising the ratio of female employees in the managerial
positions by April 2020 to more than double that of the fiscal year ended
December 31, 2015. The Company is promoting related actions including
the measure for refining working style so that the female staff will be able
to develop careers inclusive of promotion, advancement, and broader rangeof positions, while balancing work with childcare and other householdchores. Under the workplace management with the focus on work-lifebalance, the total annual average working hours of the employees remains
around 1,800 hours, while the rate of taking yearly paid vacations ismoving around just under 80%.

21

IV Matters Related to the Internal Control System
1. Basic Views on the Internal Control System and the Progress of System Development(Basic Views on the Internal Control)
Recognizing that developing and operating the internal control system is an important management issue, theGroup has determined at its Board of Directors the Basic Policy for Establishment of an Internal Control
System as following:
1. Systems to ensure compliance of execution of duties of Directors and employees with laws, regulations
and the Articles of Incorporation(1) The Board of Directors, based on the Articles of Incorporation, Regulations of Board of Directors,
and other internal regulations, will make decisions concerning important management items of theGroup, in addition to supervising the execution of duties by Directors and Executive Officers. To
strengthen the supervisory functions of the Board of Directors, Outside Directors will be elected.
(2) The Management Advisory Committee will be established, comprised of outside experts withbroad experience in corporate management and corporate law, and it will provide advice on theexecution of duties of the President from the viewpoint of complying with laws and regulations,protecting shareholder rights, and ensuring transparency of management.
(3) To promote corporate activities from the standpoint of CSR, a CSR Committee will be establishedat the management level.
(4) Policies regarding compliance with laws and regulations will be defined as The Kuraray Group
Code of Conduct. In order to conduct systematic development and operation of a compliancestructure as the Group, a Risk Compliance Committee will be established, which reports directly
to the President.
(5) As an internal reporting point for discovering unfair and illegal actions and unethical actions
within the Group at an early stage and aiming for independent resolution, a Kuraray Group
Employee Counseling Room and the Global Compliance Hotline will be established.
(6) As a prevention measure against the violation of the antitrust laws, regular education and training
will be held for executives and employees from each Kuraray Group company, raising awarenessof the internal guidelines regarding the antitrust laws and conducting regular monitoring of thecompliance status.
(7) The Internal Auditors Office, in compliance with the Internal Audit Regulations, will audit theconditions of business execution within the Group.
(8) Based on the Financial Instruments and Exchange Act, an internal control system will beestablished to ensure propriety of financial reporting, and will be operated appropriately.
(9) The Kuraray Group Code of Conduct will prescribe that the Group will deal with Anti-social
forces and groups in a firm manner, and will not have any association with such forces and groups,
thoroughly disseminating the rules throughout the Group.
2. Systems concerning storage and management of information regarding execution of duties of Directors
Records regarding execution of duties of Directors such as approval documents, request documents, etc.,
and minutes and materials of General Meetings of Shareholders, Meetings of Board of Directors, and othermain meetings will be stored and managed appropriately in accordance with laws and regulations andinternal regulations.

22

3. Regulations and other systems regarding management of risk of loss
(1) Based on the Group Risk Management Regulations, systematic risk management will be
conducted throughout the Group.
(2) Based on the Company Emergency Headquarters Operational Regulations, in the event of asignificant crisis regarding the business activities of the Group, the Company Emergency
Headquarters will be established headed by the President to deal with the issue.
(3) Assuming a significant crisis such as a large-scale natural disaster, etc., a business continuity plan
(BCP) will be defined on a per-division basis to minimize any interruption of business, and the
BCP will be reviewed regularly.
4. Systems to ensure efficient execution of duties by Directors(1) For decisions made by the President or requests of approvals by the Board of Directors regarding
significant management items of the Group, preemptive deliberations will be held by the
Executive Committee and various committees, aiming for swift management decision-making andefficient business execution.
(2) Authority to operate businesses as managers of Companies, Divisions, and key organizations will
be delegated to Executive Officers, etc., appointed by the Board of Directors, and execution ofbusiness at each organization will be made in an appropriate and efficient manner.
5. Systems to ensure the propriety of business operations at the corporate group, composed of the Company
and subsidiaries(1) Business operation of each Kuraray Group company will be conducted according to the
management policies of the Group as a whole, as defined in the mid term management plan andannual management plan. Based on the Domestic Affiliated Companies Management Standards
and the Overseas Affiliated Companies Management Standards, each Kuraray Group company
will seek approval and report to the Board of Directors or Executive Committee of the Company
concerning important items.
(2) Decision-making standards will be defined for each Kuraray Group company within the Domestic
Affiliated Companies Management Standards and the Overseas Affiliated Companies
Management Standards, and will be managed appropriately and efficiently. Additionally, topromote unified operations through aiming for communication of views within the Group, aliaison meeting will be held as required between the President of the Company and the Presidentsof each Kuraray Group company.
(3) Based on The Kuraray Group Code of Conduct, the system will be put in place to enableappropriate execution of duties by Directors and employees of each Kuraray Group company. In
addition, officers will be seconded from the Company to each Kuraray Group company, tosupervise business execution by Directors and employees of each company, and the Internal
Auditors Office will conduct internal audits in accordance with the Internal Audit Regulations.
6. Independence from Directors of employees assisting the duties of Corporate Auditors and items regarding
ensuring the effectiveness of instructions given to these employees
Staff for Corporate Auditor will be assigned to assist the duties of Corporate Auditors. Staff for
Corporate Auditor will receive direction and orders from Corporate Auditors, and concerning personnel
affairs and salary of Staff for Corporate Auditor, decisions will be made after deliberations between the
Director supervising personnel affairs and the Corporate Auditor.
7. Systems regarding reporting to Corporate Auditors of the Company and systems to ensure persons whomake reports do not receive detrimental treatment as a result of making a report(1) Corporate Auditors will attend Meetings of Board of Directors and receive reports concerning23

conditions of business execution at the Company and each Kuraray Group company throughliaison meetings, etc., with Presidents of significant subsidiaries.
(2) The Internal Auditors Office will periodically report to the Board of Corporate Auditors
concerning conditions of internal audits at the Company and each Kuraray Group company.
(3) Upon discovering important issues regarding significant violations of laws and regulations orother compliance issues, Directors and officers of the Company and each Kuraray Group
company will swiftly report to Corporate Auditors. Corporate Auditors may request reports
regarding these items as required from employees of the Company and the Group.
(4) Regarding persons who make the above reports, internal regulations will stipulate that persons
who make reports do not receive detrimental treatment on the grounds of making the report.
8. Items regarding prepayment of expenses, procedures for reimbursement, and policies regarding processingof other expenses and liabilities arising from execution of duties by Corporate Auditors
When Corporate Auditors request prepayment or reimbursement, etc., for expenses arising during thecourse of execution of duties, unless the contents are especially unreasonable, payment will be processed
without delay.
9. Other systems to ensure that audits by Corporate Auditors are made effectively
In order to exchange opinions regarding challenges facing the Company, important audit issues, etc.,
Corporate Auditors will periodically meet with the Representative Directors, and implement interviews
with Directors, Executive Officers, and important employees.
(Progress of the System Development for Internal Control and Risk Management in the fiscal year ended
December 31, 2017)
1. Initiatives relating to compliance(1) E-learning comprehension tests for the Compliance Handbook were implemented for employeesof the Overseas Affiliated Companies, with the aim of promulgating the Kuraray Group Code of
Conduct. In addition, work-shop style compliance seminars were organized for all managers of
the Domestic Affiliated Companies. The managers then provided compliance education to thestaff in their respective departments.
(2) The Global Compliance Hotline has newly been established. This is an internal reporting system
available to all employees of the Group, including those of the Overseas Affiliated Companies.
Operation of the Hotline began in all regions, except in Europe, where operation restrictions exist
due to regulations on the protection of personal information.
(3) In order to further strengthen the compliance with antitrust laws after an investigation by theJapan Fair Trade Commission in March 2016, followed by another in February 2017, theCompany held group training for employees of all business organizations in the Domestic
Affiliated Companies, obtained declarations from said employees, and, through the compliancesystem for antitrust laws, implemented a system for prior approvals for transactions and meetings
with other companies in the industry. Furthermore, the Company has been working on graduallydistributing compliance manuals to the Overseas Affiliated Companies, as well as conducting
surveys and interviews.
(4) The Internal Auditors Office implemented audits for the Group in accordance with the Internal
Audit Regulations, and reported the results to the President and the Board of Corporate Auditors.
Also, follow-up actions regarding comments made for improvements in past audits were
implemented.
2. Initiatives relating to risk management(1) In order to ensure that the internal control system of the Group is used to its full potential, the24Risk Management and Compliance Subcommittee (meetings held twice a year) now operates
independently of the CSR Committee, as a body that reports directly to the Board of Directors.
(2) Self-assessment of risks was implemented at each domestic and overseas organization based on
the Group Risk Management Regulations. Following discussions with the Risk Management andCompliance Subcommittee, the President specified significant business risks and reported them tothe Board of Directors. Measures to avoid and reduce such risks are being promoted, led bysupervisors appointed by the President for each business risk.
(3) Emergency drills and other trainings were conducted assuming that offices and plants weredamaged by large-scale natural disasters, and emergency response systems were reviewed.
(4) Based on the Group Risk Management Regulations, the BCP (business continuity plan fordisasters) was updated and reviewed.
3. Initiatives relating to internal control of the corporate group
Business operation of each Kuraray Group company is conducted according to the management
policies as defined in the mid term management plan and annual management plan. Based on theDomestic Affiliated Companies Management Standards and the Overseas Affiliated Companies
Management Standards, each Kuraray Group company will seek approval and report to the Board of
Directors or Executive Committee of the Company concerning important items.
4. Initiatives relating to audit systems of Company Auditors
In order to exchange opinions regarding challenges facing the Company, important audit issues, etc.,
Corporate Auditors will periodically meet with the top management, and implement interviews witheach Director executing business, Executive Officers, and important employees.
5. Basic Views on Eliminating Anti-Social Forces and the Progress of System Development
The Kuraray Group declares in Corporate statement, “Our Commitment” how the Group fulfills its
accountability and responds to the expectation from the society in regard with the diverse connections tothe society. In the Kuraray Group Code of Conduct, which embodies “Our Commitment,” we havepledged that we take a resolute stance against, and will not associate with, anti-social groups ororganizations. In order to ensure that its Directors and employees comply with this code of conduct, theCompany strives to familiarize them with this code through creating and distributing Kuraray Group
Compliance Handbook, which offers explanations of the Kuraray Group Code of Conduct, and holding
training on corporate ethics. In addition, the Company separately stipulates the prohibition of illegal profit
offering and handling of donations, etc. and is working on educational activities on a Group-wide basis tomaintain a sound relationship with the society. In case of any unreasonable demands, etc. made byanti-social forces, the Company has a system in place whereby General Affairs Department of the Head
Office, the responsible division, collects and collates information, and Manager of General Affairs
Department deals with the case as a person in charge of preventing unreasonable demands throughcoordinating with the relevant external authorities including the police and attorneys.

V

Other

1. Adoption of Anti-Takeover Measures
Adoption of Anti-Takeover Measures

Not adopted

25

Supplementary Explanation
Since the Company made the decision to introduce the countermeasures to large-scale purchases of theCompany’s shares (the “Plan”) through the resolution of the Board of Directors meeting held on April 26,
2007, and gained approval of shareholders at the Company’s General Meeting of Shareholders held on June 20,
2007, continuation of the Plan was approved at the Company’s General Meetings of Shareholders held on June
19, 2009, June 22, 2012, and March 27, 2015, respectively.
The effective term of the Plan expires at the conclusion of the General Meeting of Shareholders scheduledin March 2018. Therefore, the Company carefully considered the issue, taking into account factors such as
promulgation of the Corporate Governance Code and the recent trends surrounding takeover defense. As aresult, due to the fact that regulations regarding large-scale purchases of shares stipulated by the Financial
Instruments and Exchange Act are promulgated, in addition to changes in the operating environment
surrounding the Company, the Company believes that the objectives of the plan are secured to a certain extent,
and that the need for such a Plan is relatively declining. Thus, the Company has decided to discontinue thePlan as of the conclusion of the General Meeting of Shareholders scheduled in March 2018, based on the
resolution of the Board of Directors meeting held on February 21, 2018.
Regardless of the existence of the Plan, the Company will continue to protect and enhance its corporate
value and the shareholders’ common interests. Also, the Company shall take appropriate measures based on
relevant laws and ordinances, such as the Financial Instruments Exchange Act and the Companies Act, against
parties conducting or planning to conduct large-scale purchases of shares. Efforts include necessary andsufficient provision of information in order for shareholders to appropriately evaluate each case of large-scalepurchase of shares, the disclosure of opinions stated during Board of Directors meetings, and to secure the timeand information for shareholders to consider each case.

2. Other Matters concerning Corporate Governance System
1. Basic Stance toward DisclosureWith our mission of “We are committed to developing new fields of business using pioneering technology that
improves the environment and enhances the quality of life throughout the world. For people and the planet ̶
to achieve what no one else can,” the Group is striving to enhance its corporate value. Under this mission, ourbasic stance toward disclosure is to fulfill our accountability to the society through timely and sufficient
disclosure of information.
Our basic policy on disclosure is to strictly control the corporate confidential information while at the sametime actively disclosing information as a corporate group that is open to society through implementing theprinciples of “We will maintain a sound relationship with society through good communication” and “We will
honor all intellectual property and secure data and information in a proper manner” both stipulated in ourcommitment (comprised of six principles).
In accordance with the Disclosure Policy of the Kuraray Group which is a written outline of such basic stanceand the Company Disclosure Guidelines specifying the principles and practice of disclosure, the Company has
established the internal system as following in order to accurately execute the disclosure of “corporate
information required for disclosure” (hereinafter, “important corporate information”) as set forth in the rules of
the Tokyo Stock Exchange for timely disclosure.
2. The Timely Disclosure System of the Company’s Information(1) Organization in charge of disclosure

26

Corporate Communications Department, Corporate Management Planning Office takes charge as thedivision responsible for the disclosure of important corporate information of the Group.
(2) Collection and control of information
Important information of the Group (determining events, occurring events, or information related tofinancial results) is reported from each business execution organization to the top management and its staff,
that is, the General Manager of Corporate Management Planning Office. Matters requiring the judgement anddetermination of the top management are presented for discussion at the Executive Committee.
Corporate Communications Department, Corporate Management Planning Office responsible for disclosure
obtains the important information in a timely manner via managers in charge of disclosure that are placed ineach business execution organization, Corporate Management Planning Department of the Corporate
Management Planning Office, administrative organization of the Head Office and other divisions.
In the event of accidents, disasters and other emergencies, Corporate Communications Department,
Corporate Management Planning Office obtains the information in a timely manner via the communication
network provided in the “Corporate Emergency Headquarters Operating Specifications” or through the duties
at the Emergency Headquarters.
(3) Judgement and Determination regarding Disclosure
Matters relevant to the important corporate information are disclosed in a timely manner by Corporate
Communications Department, Corporate Management Planning Office. Matters that are uncertain whether they
are relevant to the important corporate information are subject to the judgment by Manager of Corporate
Communications Department, Corporate Management Planning Office after discussion by the Corporate
Communications Department, the Corporate Management Planning Office and Legal Department, CSR
Division.
Even when information is not deemed to be relevant to the important company information, if such matters
are required to be disclosed in fulfilling the Group’s accountability to the society, President makes decision
after the discussion at Executive Committee. Notwithstanding the foregoing, in the event of emergencies,
President or an officer authorized by the President shall make decision regarding disclosure after the discussion
with Manager of Corporate Communications Department, Corporate Management Planning Office.

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