Corporate Governance

Overview of Corporate Governance

(a) Policy for Nomination of Candidates for Director
Our basic approach to the structure of the Board of Directors, which fulfills the roles of determining the direction of management and exercising supervision over the progress of business execution, is to ensure that it comprises a diverse range of human resources with different expert knowledge, experience, and other qualities. In particular, the Nomination Committee will consider candidates for Outside Director to ensure that they comprise individuals who possess experience and knowledge in corporate management (business similar to or different from the Group's business, etc.) and organizational management, and individuals who possess broad and advanced expert knowledge and extensive experience in relation to finance and accounting, legal affairs, production engineering, research and development, sales and marketing, or international relations, etc.
In light of the basic policy on the structure mentioned above, the Nomination Committee will nominate and select individuals who satisfy the following requirements as candidates for Director, regardless of individual attributes concerning gender, nationality and race, etc.:

• - An individual of exceptional insight and character;
• - An individual with a strong sense of ethics and a law-abiding spirit; and
• - An individual who can properly fulfill his or her duties concerning the exercise of supervision over the management of the Company and the determination of the direction of management.

Further, with respect to candidates for Independent Outside Director, the Nomination Committee will nominate and select individuals who satisfy the following requirement in addition to the above requirements:

• - An individual who has no material interest in the Group and who can remain independent. The specific selection of personnel shall be decided after deliberation by the Nomination Committee.

Provided that the Company considers that an Outside Director is not independent if he or she falls under any of the conditions listed below in addition to meeting the standards for independence established by Tokyo Stock Exchange, Inc.

1. An individual who falls under or has fallen under any of items (1) or (2) below, either presently or in the past:

1. (1) An executive or non-executive Director of the Company; or
2. (2) An executive or non-executive Director of the Company's subsidiary.

2. An individual who falls under any of items (1) through (5) below:

1. (1) An executive of a client or supplier company of the Company, whose value of transactions amounted to 2% or more of the consolidated net sales of the Company or the client or supplier company as of the end of the previous fiscal year;
2. (2) A person who received, as a professional or consultant, etc., consideration of not less than 10 million yen from the Company in the previous fiscal year, excluding his/her consideration as a Director;
3. (3) An executive of an organization that received a donation of not less than 10 million yen from the Company in the previous fiscal year;
4. (4) A shareholder who directly or indirectly holds at least 10% of the total number of voting rights of the Company or an executive of such shareholder; or
5. (5) The Company's Accounting Auditor or its employee, etc.

3. An individual who has fallen under any of items (1) to (5) of 2 above at any time in the past three (3) years:

4. A close relative of any of the persons listed in item (1) or (2) of 1 above, items (1) to (5) of 2 above, or 3 above (excluding unimportant persons); or

5. A person who has served as the Company's Outside Director for a period of more than eight (8) years.

(b) Policy for Election and Dismissal of Executive Officers
In electing Executive Officers responsible for the execution of business tasks, the Nomination Committee will elect individuals who satisfy the following requirements, regardless of individual attributes concerning gender, nationality and race, etc.:

• - An individual of exceptional insight and character;
• - An individual with a strong sense of ethics and a law-abiding spirit; and
• - An individual well-versed in management and the business activities of the Group.

In relation to the election process, the Chief Executive Officer will first draft a proposal for the election of Executive Officers after consulting with relevant officers as necessary. The Chief Executive Officer will then submit a proposal for the election of Executive Officers to the Board of Directors based on the deliberations and responses to inquiries at a Nomination Committee meeting, and Executive Officers will be elected by resolution of the Board of Directors based on a comprehensive review of the candidates' personal history, achievements, specialist knowledge, and other capabilities.
In addition, if any event occurs that makes an Executive Officer highly ineligible in light of these standards, the Executive Officer shall be dismissed by resolution of the Board of Directors following a review by the Nomination Committee.

Analysis and evaluation of the effectiveness of the Board of Directors

The Company analyzes and evaluates the effectiveness of the Board of Directors based on the evaluation by each Director on an annual basis. In FY2022, the evaluation was conducted using a third-party organization for the first time (In the future, a third-party evaluation shall be conducted once every three years).
In FY2023, the Company evaluated the effectiveness of the Board of Directors by way of a questionnaire-based self-evaluation.
The evaluation method and a summary of the results are outlined below.

1. Method of analysis/evaluation
   1. (1) Evaluation process
      
      • - October 2022 / At the Board, Directors discussed the evaluation implementation policy for the current fiscal year and following years in the future. As a result, the Board confirmed that a self-evaluation shall be conducted in FY2023, and a third-party evaluation shall be conducted once every three years.
      • - From December 2022 to January 2023 / Under the leadership of the Chairperson of the Board of Directors, a questionnaire was distributed to all ten Directors and responses were retrieved.
      • - February 2023 / The Directors discussed the effectiveness of the Board of Directors based on an analysis of the questionnaire results.
      • - March 2023 / Following the discussions in February, the Board of Directors passed a resolution on the effectiveness of the Board of Directors for FY2023.
   2. (2) Questionnaire items
      The questionnaire uses a five-grade evaluation for the questions below (1. Strongly agree, 2. Agree, 3. Neither agree nor disagree, 4. Disagree, 5. Totally disagree) and provides a free comment space where needed.
      
      • ･Scale and composition of the Board of Directors
      • ･Status of operations of the Board of Directors
      • ･Composition, roles and status of operations of each of the Nomination Committee, Audit Committee, Remuneration Committee, and Sustainability Committee
      • ･Support system for Outside Directors
      • ･Relationship with investors and shareholders
      • ･Other matters concerning the Board of Directors in general, etc.
2. Evaluation of the status of initiatives concerning the issues for FY2023 based on the FY2022 evaluation

   There was an evaluation of initiatives concerning the following matters taken by the Board of Directors in FY2023, based on the results of evaluating the effectiveness of the Board of Directors for FY2022. It was confirmed that "certain measures were taken and improvements have been made" in general, though "measures were not taken sufficiently" on certain matters.

   1. (1) Matters pertaining to the operation of the Nomination Committee, Audit Committee and Remuneration Committee
      
      • - In the evaluation process, it was pointed that while the details of in-depth discussions by each committee need to be shared more with the Board of Directors as a whole, for matters discussed by the Nomination Committee and the Remuneration Committee in particular, the presence of stakeholders (mainly internal Directors) at meetings of the Board of Directors also needs to be taken into account. Accordingly, the frequency of Outside Directors' informal meetings, where discussions take place only among Outside Directors, was increased.
      • - While certain measures have been taken as mentioned above, the evaluation regarding a question whether communication between the Nomination Committee Members and Directors who are not Committee Members is sufficient suggested that there was not enough communication. On the other hand, there was also an opinion, "Excessive requests for sufficient communication may step into a discussion at the Nomination Committee, which must be avoided from the perspective of independence of the Committee."
   2. (2) Matters pertaining to supervision of growth strategies by the Board of Directors
      
      • - When formulating the next Medium-Term Management Strategy, the details of measures including growth strategies, such as the next Medium-term Management Strategy, Group-wide strategy, individual business strategy, R&D and intellectual property strategy, business restructuring, and investment, were explained by the execution side at briefing for Directors, and discussed from a multilateral perspective.
      • - There were opinions concerning operational issues of briefings for Directors stating, "Since materials are distributed right before the meeting, it is impossible to secure time to review them," and "I hope there is an opportunity for discussion, based on input from a briefing for Directors." However, the evaluation of the responses themselves was favorable in general.
   3. (3) Matters pertaining to the establishment of the Sustainability Committee
      
      • - The Sustainability Committee was established under the Board of Directors on June 28, 2022. The Committee considers monitoring methods and issues related to sustainability management and others as matters at the request of the Board of Directors for advice.
      • - The evaluation of the Committee's role and the direction of discussion, etc. was favorable in general. However, the number and composition of the Committee was evaluated to be not necessarily appropriate, as seen in opinions stating, "The Committee should be downsized as a level of other Committees" and "The Committee seems to be slightly oversized." The composition of each Committee was determined by a resolution of the Board of Directors held on June 23, 2023, and the Sustainability Committee was downsized to the level of other Committees, thus this issue was resolved.
3. Summary of FY2023 evaluation results

   As a result of deliberations by the Board of Directors, it was confirmed that the effectiveness of the Board of Directors was secured in FY2023. The results of the questionnaire and a summary of Board of Directors' deliberations on the issues identified as challenges based of the result of the evaluation, are as follows.

   1. (1) Matters pertaining to the medium- to long-term competitive advantage of the Company
      
      • - According to the questionnaire respondents, discussion at the Board of Directors on "Developments of technology and innovation, and medium- to long-term competitive advantage" and "Establishment of competitive advantage with the use of data and digital technology" was evaluated to be not necessarily sufficient. The evaluation also suggested that the Company's long-term competitive advantage (e.g., in business strategies, qualification of management, and corporate governance system) is not fully conveyed to the capital market.
      • - In the discussion by Directors, there were opinions stating, "Explanation by the executive side must be provided with an awareness of where the Company is positioned relative to where competitors are," and "What the executive side explains is too technical for us to understand what desired effects are and where the Company is headed."
   2. (2) Matters pertaining to sharing of information between the Nomination Committee and other Directors
      
      • - A summary of the questionnaire results is described in 2. (1) Matters pertaining to the operation of the Nomination Committee, Audit Committee and Remuneration Committee.
      • - In the discussion by Directors, there was an opinion stating, "On the matters that require an approval by the Board of Directors finally, including an agenda for the election and responsibilities of Executive Officers, it is necessary to improve the sharing of information to other Directors, and deepen a discussion at the Nomination Committee."
   3. (3) Matters pertaining to the supervision of human resources strategy by the Board of Directors
      
      • - According to the questionnaire respondents, "Discussion at the Board of Directors on the promotion of internal diversity" and "Discussion at the Nomination Committee on the succession plan for Executive Offices" were evaluated to be insufficient.
      • - In the discussion by Directors, there were opinions stating, "Development of global human resources must also be regarded as a matter to be addressed," and "It is difficult to see the progress of diversity promotion of individual business divisions, and the Corporate division seems to have no authority to manage and supervise it."
   4. (4) Others
      
      • - According to the questionnaire result, the evaluation of "Sufficient time and information to prepare for a discussion at the Board of Directors" was low. We have worked to improve this matter continuously and will keep making continuous efforts toward future.
      • - According to the questionnaire results, many Outside Directors expressed hope for on-site visits. In light of the pandemic of COVID-19, we organized on-site visits mainly by newly appointed Outside Directors in FY2023. In FY2024, we plan to restart on-site visits by all Outside Directors.
4. FY2024 Initiatives to further improve effectiveness

   The following are the Company's measures to improve effectiveness in FY2024 based on the results of evaluating the effectiveness of the Board of Directors in FY2023.

   1. (1) Response to opinions on the medium- to long-term competitive advantage of the Company
      
      • - Explanatory materials for Directors from the execution side need to be prepared in a simpler, easier-to-understand manner with clearer directions, keeping in mind "Focus on important management matters that Directors should know and discuss," "Items that are progressing as scheduled should be described as concisely as possible," and "Describe the background and history of changes in the external environment including trends of competitors, and the current situation surrounding the Group." At the same time, regarding the provision of information on the Company's business, which is a prerequisite for management decisions, an explanation needs to be provided in briefings for Directors in order to eliminate information asymmetry between the Company and Outside Directors.
      • - Appeal to the capital market by communicating and disseminating the new Medium-term Management Strategy FY2031, which was formulated based on the Company's medium- to long-term advantages. Specifically, hold strategy briefings for each business to deepen investors' and analysts' understanding of Medium-term Management Strategy FY2031. In addition, in order to promote understanding of the Company's existing businesses and the initiatives of Medium-term Management Strategy FY2031, conduct tours for securities analysts and institutional investors in both domestic and overseas sites.
   2. (2) Response to opinions on sharing of information between the Nomination Committee and other Directors
      
      • - On the matters that require an approval by the Board of Directors (items to be reported from the Nomination Committee to the Board of Directors; they mainly cover information related to the election of Executive Officers, the selection of senior Executive Officers and the division of duties among Executive Officers), deepen discussions at the Nomination Committee and share information with Directors other than Committee members. Specifically, share and discuss the status of consideration regarding the election of Executive Officers more broadly in advance within the Nomination Committee, and share the specific process of considering the candidate selection method with Directors other than Committee members. In addition, regarding materials submitted to the Board of Directors in connection with the election of Executive Officers, enhance the description of reasons so that the background of the election, etc. can be better understood.
      • - Furthermore, share information on other general matters discussed by the Nomination Committee (such as the process of nominating candidates for Directors) by enhancing reports at the Board of Directors meetings.
   3. (3) Response to opinions on the supervision of human resource strategy by the Board of Directors
      
      • - Regarding matters related to the promotion of diversity, explain the status of the promotion and issues in the Company at briefings for Directors.
      • - Regarding the succession plan for Executive Officers, deepen discussions at the Nomination Committee as with "(2) Matters pertaining to sharing of information between the Nomination Committee and other Directors" above.

   The Board of Directors will keep making efforts to improve the effectiveness toward future.