Corporate Governance

• Basic Approach to
  Corporate Governance
• Corporate Governance Structure
• Corporate Governance Structure:
  Quick Reference Chart
• Structure and Overview of
  the Board of Directors and
  Main Meeting Bodies
• Evaluation of Effectiveness of
  the Board of Directors
• Compensation of Officers
• Reasons for Appointment
• Auditors and the Audit &
  Supervisory Board
• Group Governance
• Cross-Shareholdings

Basic Approach to Corporate Governance

Shofu conducts business activities in fields of a highly public nature under its corporate philosophy, "Contribution to dentistry through innovative business activities." To sustainably conduct such business activities, it is essential for us to fulfill our social responsibilities. To do so, it is necessary for us to maintain medium- to long-term sustainable growth through the enhancement of corporate governance. It is our policy to enhance corporate governance in accordance with the five basic approaches presented below.

We have compiled our fundamental framework and approach to corporate governance into the Corporate Governance Guidelines. Please refer to the link below for the full text of the Guidelines.

We provide an overview of our corporate governance approach and related initiatives in the Corporate Governance Report. Please refer to the link below for the full content of the Report.

Corporate Governance Structure

Corporate Governance Structure: Quick Reference Chart

Structure and Overview of the Board of Directors and Main Meeting Bodies

Evaluation of Effectiveness of the Board of Directors

In accordance with our Corporate Governance Guidelines, we conduct an annual analysis and evaluation of the overall effectiveness of the Board of Directors, with the aim of enhancing board effectiveness and improving corporate value. We disclose a summary of the results each year.

Results of Board of Directors Effectiveness Evaluation and Efforts to Improve

Analysis and Evaluation of the Effectiveness of the Board of Directors in FY2024

Compensation of Officers

The total amount of compensation of Directors and Auditors is determined within the amount resolved at the shareholders meeting. The amount of each Director's compensation is determined by the Representative Director, Chairman (or the President, if the office of the Chairman is vacant) who is authorized by the Board of Directors after consultation with the Nomination and Compensation Council consisting of Representative Directors and Independent Outside Directors.

The amount of each Auditor's compensation is determined by deliberation among the Auditors.

Status for FY2024

• The amount of restricted share-based compensation is the amount of expenses posted for the fiscal year under review.

Officer

Reasons for Appointment

Reasons for Appointment and Status of Activities of Outside Officers

Director Skills Matrix

Auditors and the Audit & Supervisory Board

The Audit & Supervisory Board holds regular monthly meetings and convenes extraordinary meetings as necessary to receive reports on important audit-related matters, to deliberate and resolve such matters, and to exchange opinions. In addition, the Shofu Group Audit & Supervisory Board--comprising auditors from Group companies--meets at least twice a year and works to strengthen audit functions through close coordination among auditors to ensure the sound management of the Group.

Furthermore, our full-time Auditors attend weekly meetings of the Managing Executive Board, which serves as a preparatory deliberative body for the Board of Directors. At these meetings, they verify the appropriateness of agenda items submitted for discussion as part of their audit duties and provide feedback as necessary.

Auditors receive explanations from the Accounting Auditor on audit plans and results, and they also participate in interim audits, year-end audits, and physical inventory audits as required. Through this close coordination, they monitor the progress of accounting audits and work to ensure the appropriateness of financial statements and the establishment and maintenance of internal controls.

They also receive explanations and reports from the Internal Audit Department on audit plans and results, enabling the exchange of audit-related information and contributing to the enhanced effectiveness of auditor oversight.

Group Governance

The role of Group companies within our corporate group has been increasing year by year. A key challenge is how to ensure that the activities of these Group companies contribute to enhancing the corporate value of the entire Group, while at the same time appropriately controlling the various risks that may arise at the Group company level. To address this, we are working to establish and strengthen the necessary governance systems.

Cross-Shareholdings

For individual cross-shareholdings, the Board of Directors conducts detailed examinations to verify the appropriateness of the purpose of each holding and whether the income generated from the holding is commensurate with the cost of capital. As a result of verification, for cross-shareholdings where the significance or justification for holding them is deemed weak, our policy is to strive to carefully explain the situation to the counter-party and work towards reducing holdings. Based on this policy, we have decided to proceed with the sale of cross-shareholdings in a systematic manner, taking into account the viewpoint of improving capital efficiency and securing growth investment funds. We plan to sell 4.0 billion yen in cross-shareholdings during the period of the fifth medium-term management plan (by March 31, 2028), and reduce the ratio of cross-shareholdings to consolidated net assets from the current level of around 20% to around 10%.