CORPORATE GOVERNANCE

FUNDAMENTAL POLICY CONCERNINGCORPORATE GOVERNANCE

is responsible for establishing the necessary internal regulations for
managing each category of risk, as well as for activities for training andraising employees’ awareness of risk management.

Reflecting the ongoing globalization of management practices, ourfundamental policy is to strictly observe standards for corporate
ethics and comply with laws and regulations. We are also dedicatedto establishing and reinforcing internal control and risk management
systems, and to maintaining the transparency and objectivity of ourbusiness activities. The primary objective of this policy is to conduct
management that prioritizes the creation of corporate value for thebenefit of shareholders and all other stakeholders.

■ Other Corporate Governance Units
Compensation for each of the three representative directors isdisclosed in our “Notice of Annual General Meeting of Shareholders.”
This action is based on our belief that management transparency
is vital to conducting shareholder-oriented management. At theannual shareholders’ meeting held in June 2002, the term of officefor directors was shortened from two years to one. This revisionenables us to respond quickly to changes in our business environment as well as to further clarify management accountability.

MEASURES CONCERNING CORPORATE
GOVERNANCE FRAMEWORKTokyo Electron regards the strengthening of corporate governance asvital to increasing its corporate value and shareholders’ satisfaction.
For this purpose, we concentrate on three aspects of corporate governance: 1) ensuring the transparency and soundness of business operations; 2) facilitating quick decision-making and the efficient execution ofbusiness operations; and 3) building an effective system for the timelyand suitable disclosure of information.

COMPENSATION FOR DIRECTORS, EXECUTIVE OFFICERS
AND STATUTORY AUDITORS
Beginning with the fiscal year that ended in March 2005, retirement
allowances were eliminated from the compensation of directors,
statutory auditors and executive officers. This action was aimed atachieving further gains in corporate value and management transparency. Along with this revision, a part of the compensation for directors, statutory auditors and executive officers was linked to operating
results, with an upper limit of 3% of consolidated net income. As aresult, there is now clearly a higher correlation between consolidated
net income and the portion of result-linked compensation.

■ The Corporate Governance Framework
Tokyo Electron has a board of directors with twelve members,including two external directors. We have adopted the statutory
auditor system, due to our belief that statutory auditors are aneffective means of conducting management that reflects the interestsof shareholders. Accordingly, we have four statutory auditors, twoof whom are from outside the company. In addition, we have separated the roles of the directors and executives who oversee business operations. The compensation of directors is determined by aCompensation Committee that is composed of some of the boardof directors. The Nomination Committee, which is composed of three
directors other than the president, selects candidates for director for
submission to the annual shareholders’ meeting and a candidate tobe elected as president by the board of directors. Through thesemeasures we are constantly working on improving corporate governance. In April 2003, we adopted the executive officer system tofurther clarify the roles of the board of directors and executives in chargeof business operations. This system facilitates the speedy establishment and execution of business strategies.

Compensation for directors and statutory auditors
Amount paid to internal directors
Amount paid to external directors
Amount paid to internal statutory auditors
Amount paid to external statutory auditors

Note: The above amounts do not include annual bonuses and retirement allowances paidto directors.

Compensation for auditing
Amount paid for audit¥45 million

Note: The above amount is paid in accordance with an audit contract between the Companyand KPMG AZSA & Co.

Diagram of the corporate governance,internal control system and risk management system■ Internal Controls and Risk Management
All activities at Tokyo Electron are based on adherence
to the highest standards of corporate ethics and compliance with laws, regulations and international rules. To
accomplish this, a director has been named as Chief
Business Ethics Director, to oversee ethics, and ethics
standards have been established and measures aretaken to see that these standards are strictly observed.
Reflecting the even greater importance we now place oninternal control and risk management systems, we haveupgraded the internal audit functions of the Global Audit
Center. We have also added to the General Affairs Department crisis management functions, such as measuresinvolving business risk and operational risk. This department¥297 million¥7 million¥46 million¥26 million

Annual Shareholders’ Meeting
Board ofDirectors

Nomination Committee
Compensation Committee
Chief Business Ethics Director

Statutory Auditors

Confirm the progress of improvements and give instructions

ChairmanPresident

Audit and improvement reports

Request for improvement
ReportAudit

Executive Officers
ReportInternal Audit Dept.
(Global Audit Center)

Request for
improvement

Audit

Risk Management
Function
Monitoring

Monitoring
Check and balance

Business Depts.

Administrative
Depts.

Audit
Audit

Independent Auditor