Interview with an Outside Director I will contribute to improving the e ectiveness of the Board of Directors in regards to the corporate governance of Astellas, which continues to evolve.

Q1 In what ways do you think Astellas has good corporate governance?

Astellas is ahead of competitors in continually working to evolve its governance, in my view.

Astellas has been one of the pioneers of excellent corporate governance, since well before Japan’s Corporate Governance Code was introduced. The Company has actively accelerated efforts to make corporate governance stronger in various ways since I was appointed an outside Director.
Outside Directors have been in the majority on the Board of Directors since 2006, and this happened on the Audit & Supervisory Board as well in 2015. It is not just about numbers—the outside Directors also have a varied range of background. As corporate managers, lawyers and medical doctors from a range of specialties, we provide management oversight from an independent standpoint and are involved in making important business decisions. The lawyer can give compliance insight, the medical doctor can speak from a scientific perspective, and the business consultant woman can raise challenges regarding talent development to better inform the decisions made by the Board of Directors.
Another valuable aspect of governance is that we have access to information-sharing programs that help deepen our understanding of Astellas’ operations and the pharmaceutical industry.
As shown by the way that it responded to Japan’s Corporate Governance Code, Astellas is quick to seek outside opinions and advice and respond appropriately. The ability to anticipate important shifts and innovate is a major characteristic of Astellas, in my opinion.
For instance, Astellas has been quick to develop ways of evaluating Board effectiveness. While we evaluated that the Board as a whole is functioning very effectively, we have discussed how to make more progress in the future based on the results of the evaluations.
Furthermore, the Astellas guidelines on corporate governance also stipulate the need for planning for the CEO succession. The Nomination Committee that I chair can carry out the responsibility by making transparent discussions for the selection of the Company’s next executive leader.

Q2 What opportunities have you had to gain a better understanding of Astellasf operations?

I am gaining a deeper understanding through various information-sharing programs, including visits to operating sites.

Activities of Astellas are evolving year after year to draw on the abilities of the outside officers and make discussions by the Board of Directors more dynamic.
Astellas plans and organizes a program of events throughout the year to help the outside officers gain a greater, in-depth understanding of the Companyfs operations and the pharmaceutical industry. We are briefed on major developments prior to each meeting of the Board of Directors. Astellas also invites representatives of public-sector institutions or experts from the capital markets to make presentations to us on various industry-related issues. Twice a year we have off-site visits to Group R&D laboratories, factories or offices, where a Board meeting is held and we also receive presentations from executives and employees. These are valuable opportunities for us to get to know Astellas better.
In fiscal 2015, we also set up the Advisory Council, comprising the seven outside officers of Astellas. This body further supports communication between members and discussions with the Accounting Auditors and with the Audit & Supervisory Board Members so that we can improve our understanding of Astellas further.
My view is that, as outside officers, we need to study the new therapeutic areas and new technologies and modalities that Astellas is targeting. I expect there will be more opportunities in the future for M&As and alliances as the Company seeks good ways to manage time and risk. I think Astellas is already good at sharing information with outside officers, but I am hoping that we will be afforded more opportunities to learn about the new areas going forward.

Q3 What kind of discussions take place at meetings of the Board of Directors?

Our responsibility is to ask questions and to foster active debate on all Board resolutions.

Regardless of whether they are outside or not, Directors are charged with clarifying their position towards resolutions on solid grounds based on a good understanding of the related issues. To attend the Board, I work to understand resolutions as much as possible. My view is that outside Directors should take the resposibility to propose postponement of resolutions, request further discussions, or in some cases vote against them if they deem it necessary. I see that as the best route to ensuring transparent, sound management of Astellas. We have had some resolutions tabled at Board meetings where one or more outside Directors indicated they felt there had not been sufficient information for debate, and for these proposals we ensured that further discussions were held.
However, the fact that we, outside Directors, have had a majority on the Astellas Board of Directors for over 10 years means that any resolution tabled has to gain the understanding and support of the outside Directors. I believe this encourages sufficient preparation on the part of those tabling the proposal because they know that it will require a thorough explanation.
We examine each tabled Board resolution from the standpoints of impact on business performance; compliance, environmental and other risks; and the actual decision-making process itself. As part of ensuring the transparency and fairness of the decisions made by executive officers, I draw a mental line between myself and the executive who is making the proposal, and I ask questions if I am not convinced. Board meetings are very dynamic because all the other outside Directors will voice their opinions as well. I think questions from the outside officers tend to be the sorts that only outside stakeholders can raise. It is not just the outside officers who do this: the internal Audit & Supervisory Board Members also ask excellent questions based on an essential core understanding.
The multitude of questions and opinions at every Board meeting has resulted in close examination of M&A proposals in recent years, covering issues ranging from the valuation of the target business to the decision-making process and the potential for personnel leaving. We have adopted quite a strict stance on compliance issues, with demands for additional reporting. Mr. Hatanaka, the President and CEO, expects the outside Directors and the outside Audit & Supervisory Board Members to foster active debate of the proposals by asking questions from many and varied perspectives. The executives take our questions seriously and respond accordingly.
In serving as Chairman of the Board at Sojitz, I am always trying to foster active debate at Board meetings by eliciting the views of all the outside Directors and auditors, and by ensuring questions generate a considered response from the presenter or a Director. In this way, I work to ensure Board resolutions are properly debated. Based on this experience, I believe that Board meetings at Astellas achieve a high degree of openness and transparency.

Q4 What are your views on compliance as an outside Director?

Awareness and education are essential parts of promoting better compliance on an ongoing basis.

Astellas supplies products that relate to lives. In terms of compliance, we must not only observe laws and regulations, but also promote an internal culture that goes beyond regulatory compliance. We adopt a fairly strict stance on compliance issues. We must build systems that stop compliance breaches from occurring because the reputation of the Company is on the line in these cases.
With social attitudes tending to become stricter on compliance matters worldwide, our relationships with the medical community are always changing. Our sales, development and research organizations need to be aware of these shifts in each organization, and we must keep training our people and raising awareness.
We need to reinforce governance and compliance at overseas Group subsidiaries. In particular, it is vital we inculcate the importance of compliance in our operations within emerging countries. This is a question of employing people with integrity and placing a premium on good management.
I think it is part of the role of outside officers to emphasize the importance of compliance on a continuous basis. At the moment, I feel there is a need for outside officers to have an opportunity to visit overseas Group subsidiaries because our level of knowledge is not high enough to gauge fully the status of these operations. Astellas has actually responded to this desire already, and in 2016 we plan to hold our first ever Board meeting outside Japan, in Republic of Korea.
Astellas is making steady progress in terms of its financial results at the moment. That is why it is important we continue to treat compliance and manage risks properly so that we do not inadvertently pull the rug out from under our feet.

Q5 What issues do you think confront Astellas in today’s globalized business environment?

I see the issues as balancing speed with ethics, responding to international changes, and targeting the growth potential in developing countries.

Navigating the so-called “patent cliff” caused by the expiry of substance patents is a key issue for the management team. I recognize three major issues, however, from my standpoint as an outside Director.
Besides the domains that have driven the growth of Astellas to date, the challenge is to develop a presence in new therapeutic areas, including ophthalmology, and also in new technologies and modalities such as next-generation vaccines and cell therapy. The rapid innovation in medicine and IT will lead to fierce competition with other companies. Under such conditions, I believe Astellas will need to do more than ever to speed up the pace of innovation. On the other hand, new modalities such as cell and gene therapies throw up a range of ethical issues that demand caution in the processes followed by Astellas in developing these areas. So I regard the first issue as one of balancing the need for speed with the demands of ethical business management as Astellas takes up the challenge of developing these new therapeutic areas and technologies.
The second issue is about responding to global changes. The recent vote by the U.K. to leave the EU illustrates how rapidly the situation is changing these days, and shows how these problems are multifaceted. Astellas needs to anticipate such shifts and respond accordingly. I see the third issue as how to expand the business in growing overseas markets. The current innovative drug business of Astellas is heavily oriented towards advanced countries, where we still derive the bulk of our earnings. Yet the emerging countries of China, India, Southeast Asia and Africa make up a majority of the global population. By the end of the century, the global population is expected to grow from seven billion to over ten billion, of whom 80% will be living in Asia and Africa. With these two regions in the process of becoming huge, concentrated markets, succeeding there will undoubtedly help us to secure a stronger future for Astellas.
Establishing a presence in emerging markets will spawn a variety of issues such as the development of compliance structures. Along with the shifting international situation, I believe this will place a premium on human resource development, with a particular emphasis on flexibility and resilience. I see that as one of the key driving forces for the future growth of Astellas.

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