I. Management Policies

1. Basic Corporate Policies
Shiseido's basic management policies for the 21st century are embodied in its "Global No. 1" long-term vision. The plan entails becoming a truly distinctive company in the eyes of customers worldwide, rated highly and supported by customers for quality, not only of products and services, but also of employees, marketing, and management itself.
At Shiseido, we interpret the "benefit desired by customers" as the "desire of customers for enhanced beauty." Our mission as a company is to accelerate and reinforce our efforts to provide such "customer benefit."
"The Shiseido Way" is a charter of principles guiding our corporate activities. This charter incorporates our ideas and determination to work together with our customers, business partners, shareholders, employees, and society. Our determination to work with shareholders is clearly defined in our stated desire to "strive to earn the understanding and responsiveness of all shareholders and other investors, by achieving appropriate and sound business performances, based on high-quality growth, and by pursuing transparent corporate policies."

2. Basic Income Distribution Policy
We believe our most important management goal is to maximize return to all shareholders while strengthening our corporate foundation as we target improved profitability. This means providing ample dividends in addition to medium- and long-term share price gains. Based on our "total return policy," which combines stable dividends, based on a target dividend payout ratio of at least 30%, with share buybacks, we intend to achieve future profit growth, thus raising the value of the Company's shares in the medium and long terms.
To this end, in allocating internal funds we will prioritize (a) strategic investments linked to renewed growth and (b) continued implementation of share buybacks.

3. Medium- and Long-Term Management Strategies and Numerical Management Targets
In line with our Global No. 1 initiative, we are implementing a medium-term plan focusing on "strategic growth" and "structural reform of management." Based on this plan, we will concentrate on our core businesses-the "pursuit of beauty"-and promote operations geared toward simultaneous increases in profitability and growth.
A fundamental goal of our medium-term plan is to raise consolidated return on equity (ROE). In support of this effort, we will build a profit-oriented corporate framework and implement management initiatives that recognize the needs of shareholders and other investors.
We are targeting a specific consolidated ROE objective of 7% for fiscal 2003, ending March 2003. We intend to achieve this objective as the first step in raising our corporate value as a global company. To this end, we will set clear profitability and asset efficiency targets for each business and determine specific objectives for each business from the perspective of pursuing return.
At the same time, we plan to broaden the scope of our operations, targeting consolidated net sales of 800 billion yen in fiscal 2003. We plan to reach this target mainly by expanding overseas operations, which are expected to account for at least 25% of net sales in fiscal 2003.

4. Upgrading the Company's Management Control System
In fiscal 1998, we formulated "The Shiseido Way" as a charter of corporate principles. We devised a set of specific standards of ethical conduct entitled "The Shiseido Code," which we will actively implement throughout the Company.
In fiscal 1999, we developed a list of "stakeholder indexes" that will enable us to evaluate how we can respond to the expectations and complaints of each group of stakeholders.
In addition, we are working to activate, accelerate, and improve decision-making by top management, while reforming management in various ways, such as by strengthening our disclosure system.

5. Issues to Be Addressed
We recognize that simultaneous increases in profitability and growth will depend on our efforts to further raise brand value on a global scale by reinforcing our ability to create value, and on enhanced cost efficiency achieved through structural reform of management.
In our cosmetics business, we will strengthen brand strategies based on world-market perspectives, while building a highly profitable business foundation. In the counseling market, we will promote establishment of Shiseido's position as a prominent "skin-care house" centering on the Shiseido brand, while reinforcing counseling and services that match the individual needs of customers. In the self-selection market, we will offer individual product brands that do not bear the Shiseido brand name. To this end, we will promote market activities that are responsive to changes in sales channels, as well as purchasing activities.
Overseas, our regional headquarters in Europe, the Americas, and Asia Pacific will provide a support framework for the global development of the Shiseido Group. At the same time, each headquarters will reinforce its marketing activities to meet the specific characteristics of its region.
In our toiletries and salon businesses, which face a different competitive environment from the cosmetics business, we will further raise the distinctiveness of our business development activities while promoting higher management efficiency. Consistent with this strategy, we will actively work to globalize our toiletries business through our strategic alliances with Johnson & Johnson of the United States.
In response to the increasingly individualized and diversified needs of customers and the rapid social changes fueled by the growing importance of information, we will establish a "Consumer Communication Center" and build a framework to facilitate creation and transmission of new values via real-time two-way communication.
In research and development, we will strive to develop highly value-competitive products by matching the fruits of our leading-edge dermatological research with the advanced expectations of our customers.
In production and distribution, we will set up a new production division that will integrate our domestic and overseas production, procurement, and distribution operations, thus creating a global network and raising cost efficiency.
In the course of pursuing the initiatives outlined above, we will promote "cost-best activities" aimed at achieving the ideal cost structure for the Company. Through these efforts, we will actively strengthen our consolidated management foundation while raising asset efficiency and ROE.

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