Building a Transparent and Strong
Management SystemGovernanceCorporate GovernanceDirector skills matrix

Corporate governance structure
Sakai Chemical Industry has adopted a system for a company with a board of statutory auditors. The three members of the Board of Statutory Auditors,
including two permanent outside auditors, play their roles from a neutral and objective standpoint, based on their vast professional experience andextensive knowledge, by asking questions at meetings of the Board of Directors, giving advice to directors, and exchanging opinions with directors. They
also cooperate with the Company’s department in charge of internal audits and accounting auditors in ensuring that the auditing function is fulfilled
completely. In addition, on June 28, 2022, the Company appointed an auditor in reserve in case the number of the Statutory Auditors required by law is
no longer met, in order to achieve perfect operation of the system.
The Board of Directors comprises eight members (as of the end of June 2023). Three of them are outside directors, each of whom has worked in thefood industry, at a general electrical appliance manufacturer, or in the pharmaceutical industry and has extensive experience in corporate management.
To ensure that the Company will fulfill its mission “Chemistry for a Friendly Future,” the Board of Directors makes important decisions on business
management and supervises its members’ execution of duties. Since FY2021, the Company has adopted an executive officer system and clearly defined
the executive officers’ responsibility and authority for operational execution in order to make the Company’s management more agile and strengthen its
corporate governance. For the Basic Policy on Corporate Governance and the Corporate Governance Report, visit Sakai Chemical Industry’s website.

Appointment and dismissal

Board of Directors
Eight members
including threeoutside directors

AuditsBoard ofStatutory Auditors

Representative Director,President and Executive Officer

AuditsReportingDirections
Reporting

Cooperation

Accounting
Auditors
Accounting
auditsCooperation

Management
Audit Department

Cooperation

Environmental Management
Committee

Executive Officers (business and corporate divisions)Group Companies

Board of Directors
The Board of Directors meets at least once amonth, in principle, with the attendance of thestatutory auditors. Throughout FY2022, 17 Boardof Directors meetings were held. The subjects andnumbers of resolutions adopted and reports
deliberated on at the Board meetings in FY2022
are as shown in the table on the right.

6 2023 Environmental & Social Report

R&D andproduction
technology

Business strategyand marketing

Masaaki Yabe●●

Toshiyuki Yagura●●

Shinji Nakahara●●* Mitsunori Matsuda

Human resources
Legal affairs andand organizationalrisk managementadministration

ESG andthe SDGs
●

●

●

●

●

●

●
●

●

●
●

●
●
●

●

●

●
●

●

●

●

Definitions of skills
Field of skills
Corporate management

Definition of necessary skills
Skills in detecting current trends and implementing structural changes, including business reforms, business expansion, and theselling of businesses, based on one’s experience of serving as CEO of a Sakai Chemical Industry subsidiary or another company

R&D and production
technology

Skills in creating new businesses based on one’s mastery of R&D, manufacturing, quality control, etc.

Business strategyand marketing

Skills in working as a person responsible for business strategy based on one’s mastery thereof
Skills in accurately assessing the Company’s business performance, making right investment decisions, and communicating effectivelywith the capital market

Human resources andorganizational administration

Skills in organizational development and personnel management based on one’s mastery of human resources and organizational
administration

Legal affairs
and risk management

Skills in addressing obvious business and management risks based on one’s mastery of legal affairs concerning corporate activities

ESG and the SDGs

Skills in submitting proposals on sustainability-focused corporate management and performing such management based on
one’s understanding of the positioning and roles of the Company’s businesses in society

Assessment of the effectiveness of the Boardof Directors
Function of operational execution

Subjects and numbers of resolutions and deliberated reports recordedin the minutes of the Board of Directors meetings in FY2022
Resolutions

Deliberated
reports

Matters related to corporate management, the operation of the Board of Directors, and corporate governance

411

Matters related to research and development, production technology, and capital investment

41

Matters related to business strategy and marketing

16

Matters related to finance, accounting, and settlement of accounts

93

Matters related to human resources and organizational administration

71

Legal affairs and risk management

一5ESG and the SDGs

32Other

36Subjects

Finance andaccounting●Yasuhiro Okamoto

Finance andaccounting

Operational audits

Compliance and Risk
Management Committee

Quality Management Committee

Corporatemanagement* Outside director

Assessment

Management Council

Sustainability Committee

Gender* Hiromi Wada

Appointment
and dismissal

Appointment and dismissal

Three members
including two
outside auditors

Electionand dismissal

Director* Yoshikazu Ito

General meeting of shareholders

AdviceSkills matrix

Hiroyuki Hattori

Overview of Sakai Chemical’s corporate governance (as of the end of June 2023)

Nomination andCompensationCommittee

Embracing “Chemistry for a Friendly Future” as its mission, Sakai Chemical Industry aims to solve various social issues by leveraging the power ofchemistry. We have examined and defined the skills that directors and other management team members need to have to ensure that theCompany will completely execute its management plan by transforming into an “Exciting Company” that can not only achieve organizational
growth but also allow its employees to achieve personal growth and can share joy with its stakeholders. Below are the skills matrix for the current
directors and the definitions of skills necessary in each field.

As a measure for the Board of Directors’ self-evaluation, theCompany conducts an annual questionnaire survey on theeffectiveness of the Board of Directors with all members of the Boardof Directors and the Board of Statutory Auditors as respondents. To
clearly divide between responsibility for supervision and responsibilityfor execution, the Company introduced an executive officer system inFY2021. Under this system, executive officers who are not directors
also attend Board of Directors meetings once every three months toreceive reports on the status of business operations.
Based on the results of the FY2022 assessment of its
effectiveness, the Board of Directors will not only make improvementsin the fields where Board members assessed their own effectivenessas inadequate but also work to further increase its effectiveness in theother fields. By doing so, the Board aims to operate the Company
through more active and productive discussions.

Nomination and Compensation Committee
Sakai Chemical Industry has in place a Nomination and Compensation
Committee as a voluntary advisory body in order to ensure the fairness,
objectiveness and transparency of the Board of Directors’decision-making processes concerning the appointment of andcompensation for directors and other personnel. The Nomination andCompensation Committee comprises five members, three of whom areindependent members, to take independent, objective perspectives. This
committee deliberates on the appointment and dismissal of directors andother personnel, plans and training for management member
candidates, compensation for current directors and other personnel, andso on, and it reports the deliberation results to the Board of Directors.
In FY2022, the Nomination and Compensation Committee met fourtimes mainly to confirm progress in the development of managementhuman resources, discuss whether the current compensation systemfor directors, executive officers, etc. should be reviewed, and deliberateon the structure of the management team for the next fiscal year.
2023 Environmental & Social Report7Governance● Compliance awareness-raising activities

Risk Management
Compliance and risk management (CRM) system
Sakai Chemical Industry has formed a Compliance and Risk Management (CRM) Committee as an organization that facilitates both complianceand risk management activities, with the Compliance Promotion Subcommittee and the Risk Management Subcommittee under its umbrella.
Under this CRM system, the Company has designated risks that can have considerable impacts on the Group’s business operations as “significantGroup-wide risks” to devote united efforts to risk management.
Overview of the compliance and risk management promotion system

Management
Audit Department

President

Compliance and Risk Management(CRM) Committee

Compliance & Risk Management
Department

Contacts for whistleblowing

Compliance Promotion Subcommittee

Compliance awareness-raising
activities

Risk Management Subcommittee

Risk management activities

Sakai Chemical managementand employees

Board of Directors

Compliance promotion activities● Compliance Promotion Month

Compliance Handbook

Compliance slogan poster● Measures to address significant Group-wide risks
Sakai Chemical Industry has created a Company-wide risk map. Based on this map, the Company designates significant risks for every fiscal year
and devotes efforts to addressing them. The significant Group-wide risks designated as targets of our focused efforts in FY2022 were the risk ofinformation leakage, environmental risks (air and water pollution risks), and the risks of fires and explosions, all of which had been designated in
the previous fiscal year, plus cyber security risks, which were designated in response to a ransomware-based cyber attack on Kaigen Pharma Co.,
Ltd., a Sakai Chemical Group company, in FY2021. In the next fiscal year as well, we will implement comprehensive countermeasures against
various risks, including those that we are currently addressing. We will also identify new significant high-priority risks while updating theCompany-wide risk map in consideration of emergent risks in order to devote further efforts to addressing those risks.

● Risk management training
Enhancing the risk management system requires increasing each employee’s skills in implementing risk management measures (identifying risks,creating risk scenarios, assessing risks, creating risk maps, and devising countermeasures).
In FY2022, we identified problems and necessary improvements in the training on risk management methods provided for section managers in
FY2021 with the aim of improving that training. We then designed a new training program that reflects those improvements and provided it for awider range of trainees, including department managers and the heads of other in-house organizations. We also conducted a follow-up
questionnaire survey on the training contents. The survey results will be used to increase the effectiveness of risk management training. We willcontinue to provide risk management training while enhancing its contents with the aim of improving the accuracy of our risk assessment andbecoming able to identify more significant risks to the Company.

Sakai Chemical Industry has established a Company-wide information management system and formulated the following information-related rules:
Information Management Rules, which define the basic method of managing confidential corporate information; Information Security Rules, whichdefine the appropriate handling of electronic information assets; Rules on the Handling of Designated Personal Information, which define theappropriate handling of designated personal information concerning the Company’s employees and other people; and Rules on the Protection of
Personal Information, which are aimed at preventing the Company from losing corporate profits due to the leakage of personal information or otherinformation-related problems.
In FY2022, we mainly implemented information security measures on a regular basis, focusing on increasing employees’ skills: conducting drills
against targeted email attacks and providing information security education. We also used an external vulnerability diagnosis service to investigate
our network and the status of information leakage, thereby confirming that there was no major problem.

We will continue to implement technical, administrative, operational, and employee-focused measures to address diversifying information
security risks.

● Enhancement of systems and regulations

8 2023 Environmental & Social Report

Risk management activities

Information security

The Company has defined every October as “Compliance Promotion
Month,” during which various activities are conducted to raisecompliance awareness among employees, including holding
department-level case study workshops, administering mini-tests forexecutives and managers, and calling for compliance slogans andsenryu poems. From among the submitted slogans, excellent entries
are selected and displayed on posters put up at each workplace.
The Company therefore strives to instill greater complianceawareness into every employee.

[Creation of a compliance manual]
1) Whistleblowing
In response to the revision of the Whistleblower Protection Act inJune 2022, the Company has revised its whistleblowing system. The
main feature of the revised system is the designation of contacts forwhistleblowing in the former system as “persons engaged in theactivity of dealing with whistleblowing disclosures” to ensure higher
importance being placed on the protection of whistleblowers in thenew system. In addition, the Company clearly explains about the
new whistleblowing system to all employees so that they areappropriately informed of and educated about the new system.
2) Handling of entertainment and gifts
To conduct business in a transparent manner and maintain soundand fair business transactions, the Company prohibits all
management members and employees from requesting
counterparties to offer entertainment or gifts, whether explicitly orimplicitly. Even if they are offered entertainment or gifts within thescope of generally accepted common practice, they are obligated toreport the fact to their superiors and keep records thereof in the
management register of the receipt of entertainment and gifts.
Through these thorough measures, we prevent corruption.

Sakai Chemical Industry provides compliance education for new employees, new managers, and mid-career hires. Specifically, we have them viewcompliance education videos, hold a department-level Compliance Handbook reading session every six months, and deliver weekly online reports
on compliance-related cases. Additionally, to raise compliance awareness among our employees, we provide them with training on the subjects
shown below. In FY2022 in particular, the training was aimed at preventing the leakage of trade secrets, whose importance as a social issue has
recently been increasing. We also broadened the scope of our awareness-raising activities to encompass our Group companies with the aim ofenhancing group governance. We will continue to constantly hold training sessions focusing on various applicable laws and regulations in order tofurther heighten compliance awareness among our employees.
1) Lecture on contract work (July 2022) 2) Seminars on the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors(Subcontract Act) (July and August 2022) 3) Lecture on prevention of the leakage of trade secrets (November 2022) *Intended for managers
4) Briefing on contracts and lecture on the Subcontract Act (November and December 2022) *Intended for Group companies 5) Lecture on
the Antimonopoly Act (March 2023)[Operation of the whistleblowing system in FY2022]
In FY2022, six whistleblowing reports were submitted, andappropriate responses were made to all of them in line with theapplicable regulations. Those reports were all on harassment, withnone of them concerning serious compliance violations (seriousviolations of the Act on Prohibition of Private Monopolization andMaintenance of Fair Trade [Antimonopoly Act] or serious cases ofcorruption). If any case of a possible serious violation is detected in
the future, we will adopt necessary corrective measures and strive toprevent the occurrence of similar cases.

Basic Business Continuity Management (BCM) Policy
1. Always put the security of people’s lives first.
2. Strive to prevent secondary disasters so as not to inconvenience local communities.
3. In the event of a disaster, work for the recovery of affected areas in collaboration with local communities, local governments,
business partners, etc.
4. In the event of a disaster, reduce the risks of losing customers and market share, lowering corporate value, etc. by avoiding
suspending important operations or, even if business activities are suspended, by striving to resume the operations within thetarget recovery time.

Initiative to formulate and implement business continuity plans (BCPs)
Sakai Chemical Industry has formulated Rules on the Business Continuity Management System (BCMS Rules) and a business continuity plan(BCP) for each of its major bases in Onahama, Sakai and Tokyo.
The Sakai Manufacturing Site in particular faces many potential disaster risks, including the risk of being affected by tsunamis caused by apossible Nankai megathrust earthquake, the risk of being flooded with water from the nearby Yamato-gawa River when it overflows, and the riskof being flooded by a typhoon-caused storm surge because the site is located near a port. The Company is currently adopting countermeasuresagainst these risks mainly in facility terms.
In FY2022, we conducted a drill in a simulation of the occurrence of a Nankai megathrust earthquake to train executives in initial emergency
responses.
2023 Environmental & Social Report

9