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Corporate Governance

As of May 9, 2017

Corporate Governance Principles

Sumitomo Corporation established the "Sumitomo Corporation Corporate Governance Principles" while keeping in mind that our backbone of corporate ethics is in the "Sumitomo's Business Philosophy" and the "Management Principles." "The Sumitomo Corporation Corporate Governance Principles" was established based on our view that the essence of corporate governance is "improving management efficiency" and "maintaining sound management," as well as "ensuring management transparency" to secure the first two. Following the "Sumitomo Corporation Corporate Governance Principles," we are always seeking to establish the most appropriate managerial system for the Company and are strengthening our corporate governance to realize management that serves the interests of shareholders and all other stakeholders.

 

Corporate Governance System

We have adopted corporate auditor system believing that it is the most legitimate means of improving the effectiveness of our corporate governance to enhance and reinforce it through auditing from diversified external viewpoints. We have five Corporate Auditors, three of which are Outside Corporate Auditors. Of these three, two are legal experts (a former Prosecutor-General and a President, Osaka High Court) and the other one is an accounting expert – ensuring an auditing system that incorporates a diversity of perspectives. Furthermore, two Outside Directors, who are diverse in experience and specialty, are elected so that through their diverse perspectives, Outside Directors help ensure appropriate decision-making in board meetings and further enhancement of supervisory function. We believe that we can achieve the ultimate goals of corporate governance that is "improving management efficiency", "maintaining sound management" and "ensuring management transparency" by reinforcing management oversight by independent Outside Directors and Outside Corporate Auditors.

Corporate Governance System

Framework for "Improving Management Efficiency" and "Maintaining Sound Management"

Directors and the Board of Directors

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

We have amended the standards related to the Board of Directors on July 1st, 2015, so that the Board of Directors can be concentrated in the deliberation of important matter regarding the company-wide management such as the business policy and management plan. At the same time, we have increased the submitting matters to the Board of Directors to make it possible for the Board of Directors to concentrate monitoring of execution of operation, so that the Board of Directors can enhance its monitoring function.

Optimal Size of Board of Directors

Currently, the Board has twelve members (including two Outside Directors). Through this optimized Board of Directors, which oversees the operations of the business and serves as the Company's decision-making body concerning key management matters, we aim to facilitate due deliberation and speedy and reasonable decision-making.

Terms of Directors

The terms of Directors are one year. We aim to clarify the responsibility of management among members of management each fiscal year. This, in turn, helps ensure fast reaction times to changes in business conditions.

Limits on Terms of the Chairman of the Board of Directors and the President and CEO

In principle, the positions of Chairman of the Board of Directors and the President and CEO are clearly defined and separate in order to ensure mutual supervision, and both positions cannot be held simultaneously by the one person. In principle, the Chairman of the Board of Directors and the President and CEO are each limited to terms of six years. These limitations on the tenure of top management help minimize the possibility of governance problems.

Establishment of the Advisory Body to the Board of Directors

We established the Nomination and Remuneration Advisory Committee (chairperson: outside director). Functioning as an advisory body to the Board of Directors, more than half of the Committee members are Outside Directors. The Nomination and Remuneration Advisory Committee is in charge of studying the standards for nomination of Directors and Corporate Auditors, nomination of Directors (including Outside Directors), members of Management Council and Corporate Auditors, the formula and level of remuneration and bonuses of Directors and Executive Officers, and the limit of remuneration of Corporate Auditors, and reports the results of its studies to the Board of Directors.

Election of Outside Director

For the purpose that Sumitomo Corporation ensures appropriate decision-making in board meetings and further enhancement of supervisory functions through diverse perspectives, two Outside Directors are elected. They fulfill the standards related to independence set by the Tokyo Stock Exchange and other exchanges, and the Standards for Independence set by Sumitomo Corporation.

Corporate Auditors and the Board of Corporate Auditors

Enhancement of Corporate Auditing Framework

To further strengthen external views within the corporate auditing framework, we bring the number of external auditors to three out of the five members on the Board of Corporate Auditors. Of these three, two are legal experts (a former Prosecutor-General and a President, Osaka High Court) and one is an accounting expert—ensuring an auditing system that incorporates a diversity of perspectives. They fulfill the standards related to independence set by the Tokyo Stock Exchange and other exchanges, and the Standards for Independence set by Sumitomo Corporation.

Ensuring Audit Effectiveness

Corporate Auditors attend meetings of the Board of Directors and all other important internal meetings, to obtain the information necessary for proper auditing. Corporate Auditors also meet the Chairman of the Board of Directors and the President and CEO every month to exchange opinions on material issues regarding management policy and auditing. Moreover, the Corporate Auditor's Administration Department is assigned to assist Corporate Auditors, so that the auditing system functions effectively and without hindrance.

Collaboration between Internal Auditing Department and Accounting Auditors

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

Internal Control System

The Company's Board of Directors resolved and implemented the systems set forth in the Companies Act, Article 362 of Paragraph (internal control system). The Company will endeavor to establish a superior system in line with requests made from time to time based on ongoing reevaluations.

Internal Audits

The Internal Auditing Department, which reports directly to the President and CEO, was established as an independent organization to monitor the operations of the Company and Group companies. All the internal audit results are reported directly to the President and CEO and also to the Board of Directors.

The Internal Auditing Department checks comprehensively the assets and risk-management, status of compliance and business processes to find their problems and risks inherent. The Internal Auditing Department helps to raise the quality of organizational management by encouraging voluntary improvements and evaluating the effectiveness and the validity of each process.

Standards for Independence

Standards for independence of outside directors and outside corporate auditors shall be prescribed in the Company's internal rules "Standards for Appointment and Independence of Outside Directors and Outside Corporate Auditors".

Management Council

On July 1st, 2015, we had changed the Management Council, which had been positioned as an advisory body to the President and CEO, into a decision-making body in order to make a decision through diverse opinion and multilateral discussions more than before. The Management Council deliberates on and renders decisions regarding specific key matters related to management within the scope of its mandate from the Board of Directors.

Introduction of an Executive Officer System

We have introduced an executive officer system with the aim of clarifying the responsibilities and authority for execution and strengthening the monitoring function of the Board of Directors. We currently have about forty Executive Officers selected by the Board of Directors. Of these, nine Executive Officers (President and CEO, Chief Strategy Officer, Chief Administration Officer, Chief Financial Officer, and five who are General Managers of Business Units) also serve concurrently as Directors. In this way, we have established the management system under which we can effectively execute the operation based on the decisions made at Board of Directors meetings.

Committees

Committees including Company Investment Committee, Medium-term Management Plan Promotion Support Committee, Internal Control Committee, Compliance Committee are established as advisory bodies for the President and CEO or the Management Council with regard to specific matters that are important from the perspective of Sumitomo Corporation as a whole.

System for Ensuring Management Transparency

Basic Policy on Information Disclosure

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

Communicating with Shareholders and Other Investors

Encouraging the Execution of Voting Rights at the General Meeting of Shareholders

We send out a Notice of Convocation to shareholders approximately three weeks prior to each regularly scheduled General Meeting of Shareholders. For the convenience of overseas shareholders, we also provide an English-language translation of the notice on our website in advance of sending a Notice of Convocation. We have allowed our shareholders to exercise their voting rights via the Internet using personal computers since 2004 and via the Internet using mobile phones since 2005. In 2007, we introduced the Electronic Voting Platform operated by Investor Communication Japan, Inc. (ICJ). The new platform allows institutional investors sufficient time to thoroughly examine the propositions to be resolved at the meeting.

Disclosing Various Information

The IR section of our corporate website provides various materials that may be useful in making investment decisions in a timely manner. These materials include financial results, yukashoken houkokusho (Japanese annual securities reports) and other Tokyo Stock Exchange filings as well as streaming and related documents of various meetings. Moreover, we provide our Annual Report and endeavor to ensure proactive disclosure.

Investor Relations

In order to ensure direct communication with shareholders and other investors, we hold quarterly meetings attended by top management to provide information on our financial results for analysts and institutional investors. Also, we periodically visit the United States, the United Kingdom, and other countries in Europe and Asia to hold one-on-one meetings with investors in each region. In addition, we regularly hold meetings with individual investors in Japan. While increasing management transparency, we aim to strengthen our relationships of trust with shareholders and investors.

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

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