1. Basic Approach to Corporate Governance

A company is a social institution. It is more than merely an economic entity pursuing profits through free competition. We understand that a company must be of service to the greater society. This is why we, Topcon Corporation, believe that in addition to maintaining healthy management practices and transparency, corporate governance must also provide improved business efficiencies. As a company, we work to achieve all of our social responsibilities, while keeping in mind that our decisions affect all of our stakeholders.

In April 2011, we revised and combined our Management Philosophy, Management Policies, and Code of Business Conduct, creating the TOPCON WAY, the highest shared values of the Topcon Group. As each Group employee puts the TOPCON WAY into practice, we become a company worthy of the long-term empathy and trust of our stakeholders. At the same time, as we approach our 100th anniversary, we have recommitted to improving profitability by acting ahead of changes in the business environment, as well as to continue to improvement the quality of our management.

* Read more about the TOPCON WAY here.

2. Corporate Governance Structure

Topcon has adopted the Executive Officer System of management. By entrusting day-to-day execution to executive officers, the Company has separated the supervisory function of directors/Board of Directors and the operations function of executive officers. This system allows for the appropriate and timely response to rapid changes in the business environment. Topcon is a company with designated corporate auditors in which director decisions and performance are subject to internal audit.

As a rule, the Executive Officers Meeting (attended by directors, corporate auditors, and executive officers) is held weekly. Meeting agenda items will include analyses of the business environment, discussions of medium-term business plans and budgets, information sharing of budget-versus-actual and other data, discussions of important corporate decisions, thoroughness of the points of compliance activities, and discussions of a variety of other matters to ensure the fairness and transparency of management decisions.

<Board of Directors>
The Board of Directors (consisting of six members) meets once per month (and on other occasions as needed) to deliberate issues and receive reports about regular agenda items related to management policies, laws, articles of incorporation, or other important matters related to the management of the Company, practicing and strengthening the supervisory function over the Company.
(Corporate auditors may also attend Board of Director meetings, adding their comments as necessary.)

<Audit Structure>
The Board of Auditors consists of four members (including two external corporate auditors) who audit the decisions and performance of Company directors. The Company has established Corporate Audit Division to serve as the internal audit department under the direction of the President. This Corporate Audit Division is part of a system ensuring legal compliance, as well as the appropriateness and efficiency of business performance. Topcon believes in the importance of a comprehensive and consistent internal audit system through financial/operational audits performed by corporate auditors (Board of Auditors), financial statement audits performed by accounting auditors, and internal audits performed by the Corporate Audit Division. The Company maintains a high level of coordination among all parties, ensuring effective communication and work flow.

Topcon's Coroprate Governance Structure

3. System of Internal Controls

Basic policies related to the Company’s system of internal controls are as enumerated below:

(1)System for preserving and managing information related to director execution of duties

- Minutes, documents, approval forms, and other important materials related to Board of Directors and Executive Officers Meeting are preserved and maintained based on internal Company rules.
(This includes Executive Officers Meeting information, as the Company has adopted the Executive Officer System)

(2)Rules and Systems for Managing Risk of Loss

- Basic Rules for Risk and Compliance
The Company has appointed individuals responsible for risk management, and has established systems capable of responding to risks in a timely and appropriate manner

- Internal Reporting System (under the authority of the Corporate Audit Division)
A system whereby individuals who discover risks may directly communicate such information, ensuring that the Company uncovers risk information at earlier stages, aiding the timely and appropriate response.

- The Company has established the Basic Regulation for Personal Data Protection and the Basic Regulation for Information Security —as well as lower-level rules—for protecting private information and sensitive business information respectively. While protecting information itself, these rules also make it possible for the Company to respond in a timely and appropriate manner in the event that such risks occur.

(3)System to Ensure the Efficient Execution of Director Duties

- Board of Directors Meeting (monthly and other times as necessary)
Discuss management policies, laws, articles of incorporation, or other important matters related to the management of the Company, practicing and strengthening the supervisory function over the Company.

- Adoption of the Executive Officer System
By entrusting day-to-day execution to executive officers, the Company has separated the supervisory function of directors/Board of Directors and the operations function of executive officers. This system allows for the appropriate and timely response to rapid changes in the business environment.

- Executive Officers Meeting (weekly)
This meeting is attended by directors, corporate auditors, and executive officers. Meeting agenda items include analyses of the business environment, discussions of medium-term business plans and budgets, information sharing of budget-versus-actual and other data, discussions of important corporate decisions, thoroughness of the points of compliance activities,and discussions of a variety of other matters to ensure the fairness and transparency of management decisions.   

(4)System to ensure that the performance of director and employee duties are in compliance with the law and Company articles of incorporation

- The Board of Directors receives regular reports about the status of business execution from directors. The Board of Directors makes timely reports to the corporate auditors regarding matters having a significant impact on management/earnings.

- The Topcon Code of Business Conduct
The Topcon Code of Business Conduct is a system of compliance followed by all Company directors and employees; Group companies are expected to adopt their own codes of business conduct.

- Internal Reporting System
A system to help uncover issues quickly, allowing the Company to make a timely and appropriate response.

- Corporate Audit Division (internal audit department under direction directly of the president)
Verifies the appropriateness/effectiveness of compliance and other internal management systems within the Company, reporting significant issues to the President/Board of Directors in a timely manner

- A system and work processes to ensure the visual representation of the status of the execution of duties and disclosure of important Company information

- Legal Compliance
The Company has established internal rules and management systems to strengthen compliance with respect to Anti-Monopoly Act, export restrictions, insider tradingrestriction, the protection of private/sensitive information, and environmental protection.

(5)System for Ensuring the Appropriate Activities of the Corporate Group, Comprised of the Company, Parent Companies, and Subsidiaries

- The Topcon Code of Business Conduct
Serves as a guideline for all employees as they perform their work duties. The Code of Business Conduct has been adopted by all Group companies, which conduct educational programs to ensure employee awareness of legal compliance issues.

- Affiliate Company Management Rules
These rules clarify prescribed (and/or agreed-upon) reports between affiliates and the Company concerning important matters, serving to improve information-sharing and awareness of legal compliance.

- Corporate Audit Division
The Corporate Audit Division coordinates with corporate auditors and accounting auditors in their respective audits to ensure the appropriate conduct of Topcon Group business.

(6)Matters related to Employees Asked to Assist Corporate Auditors
- In response to a requestby corporate auditors, employees assigned to the Corporate Audit Division may be asked to assist corporate auditors in their responsibilities.

(7)Matters related to Employee Independence from Directors
- The duties of Corporate Audit Division shall not be subject to influence by directors or executive officers. The assignment of Corporate Audit Division employees shall be determined beforehand in discussions with the Board of Auditors.

(8)System for directors/employees to report to corporate auditors, other reports to corporate auditors
- Corporate auditors shall have access to information by attending Board of Director meetings, Executive Officers meetings, or other important internal meetings, or by reading meeting minutes or other records/materials.
- Corporate auditors may request operational reports from operating departments within the Company. Corporate auditors shall establish a system for auditing the operations of Company Group subsidiaries.
- Corporate auditors may, when deemed necessary, require operational reports from Company and/or subsidiary directors, executive officers, or employees.

(9)System to Ensure Practicality of Corporate Auditor Audits
- The Board of Directors shall exercise consideration to allow unhindered performance of audit activities, allowing corporate auditors to attend Board of Director meetings, Executive Officers meetings, or other important internal meetings (including such meetings at subsidiaries). Corporate auditors shall ensure opportunities for regular audits of Company (including subsidiary) operations, and appoint staff to assist in audit duties.
- Corporate auditors and directors shall establish regular opportunities to exchange opinions, ensuring that the input of corporate auditors is appropriately reflected in management decisions.

4. Directors and Corporate Auditors Compensation

Topcondirectors and corporate auditors compensation consists of a monthly salary (basic pay plusadditional compensation) and bonuses. Monthly salary is based on standards at each classification of directors, and bonuses are based on standards calculated by multiplying thebasic monthly salary by a constant coefficient (number of months, evaluated based on performance). Based on these standards, directors compensation is determined by approval of the Board of Directors, and corporate auditors compensation is determined by the negotiation among corporate auditors

Total compensation of directors and corporate auditors for the fiscal year ended March 2011 was as shown below:

Classification	Total Compensation (million yen)	Compensation by Position (million yen)	Number of Individuals
		Basic Compensation
Directors (excluding external directors)	99	99	7
Corporate Auditors (excluding external corporate auditors)	21	21	3
ExternalOfficers	16	16	3

(Note)
1. As of March 31, 2011, the Company had 7 directors, 2 corporate auditors, and 2 external corporate auditors.
2. In addition to the compensation presented above, 29 million yen in compensation (including bonuses) was paid to directors who also servedas Company employees
3. Directors compensationis limited to a maximum 150 million yen annually (not including employee compensation for directors who also serve as employees), as established in a resolution bythe Ordinary General Meeting of Shareholders for the 103rd Fiscal Period held June 27, 1996.
4. Corporate auditors compensation is limited to a maximum 56 million yen annually, as established in a resolution by the Ordinary General Meeting of Shareholders for the 111th Fiscal Period held June 29, 2004.

5. ExternalDirectors and Corporate Auditors

The Company has two external corporate auditors.

Mr. Chikahiro Yokota is a Company external corporate auditor who also serves as an advisor for Toshiba Corporation (no operational responsibilities); Mr. Yokota is fully capable of conducting fair and impartial audits of the Company. Company sales to Toshiba Corporation account for only a small percentage of overall Company net sales, and do not represent a significant issue of reliance.

Audits conducted by external corporate auditors play an important role in the independent monitoring of Company management. Given the importance of this management oversight function, corporate auditors must have a solid working knowledge of Company operations and be independent of management influence. One of the corporate auditors is an independent officer to be required to inform by the Tokyo Stock Exchange, Inc.

The Topcon Board of Auditors (including corporate auditors) works to maintain a close, cooperative relationship with the Company's internal audit department (Corporate Audit Division) and accounting auditors, regularly sharing information and coordinating audit plans and implementation prior to audits to improve audit efficiency and practicability.

6. Parent Company

The Company belongs to the corporate group of Toshiba Corporation. However, the Company is not restricted in the nature or operations of its business by Toshiba. Toshiba is a major Company shareholder, owning 35.5% of Company voting shares (including indirect ownership). Sales to Toshiba, however, represent less than 0.8% of total Company net sales. As such, the Company exercises independence in its business decisions. One or more former Toshiba employees serve as Company directors or corporate auditors; however, this does not hinder the Company from making its own management decisions, and the Company believes that it is independent from Toshiba.

The Company does not have a fundraising relationship (including bond guarantees) with Toshiba Corporation.

7. Risk and Compliance

The Company has established Basic Rules for Risk and Compliance, has appointed individuals responsible for risk management, and has established systems capable for responding to any Topcon Group risks in a timely and appropriate manner. Significant risks are addressed in the Risk-Compliance Committee.

The Company trains and educates its employees in the Code of Business Conduct, human rights, harassment, workplace safety, environmental issues, export management, information security and other matters related to risk and compliance, maximizing corporate value and minimizing risk.

 

8. Pertinent material

Corporate Governance Report (Translation of report filed with the Tokyo Stock Exchange) [62KB]

（note）
※The contents of this page are based on information contained in the disclosed materials toward the Financial Services Agency and the Tokyo Stock Exchange, and other disclosed materials. They have been translated for reference purposes only. Topcon Corporation assumes no responsibility for direct, indirect or any other forms of damages caused by misunderstanding from the translation.