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 FY2024, the Company evaluated the effectiveness of the Board of Directors by way of a questionnaire-based self-evaluation.
In addition, starting in FY2024, we adopted an initiative where Directors (excluding those who concurrently serve as Executive Officers) mutually comment on the contributions of other Directors to the Board of Directors, etc.
The evaluation method and a summary of the results are outlined below.

1. Method of analysis/evaluation
   1. (1) Evaluation process
      
      • - From December 2023 to January 2024 / Under the leadership of the Chairperson of the Board of Directors, a questionnaire was distributed to all eleven Directors and responses were retrieved.
      • - Early February 2024 / Response forms for comments on the contributions of other Directors were distributed to Directors (excluding those who concurrently serve as Executive Officers), and responses were retrieved.
      • - Late February 2024 / The Directors discussed the effectiveness of the Board of Directors based on an analysis of the questionnaire results.
      • - March 2024 / Following the discussions in February, the Board of Directors passed a resolution on the effectiveness of the Board of Directors for FY2024. In addition, the response forms for comments collected in early February were fed back to each respective Director with comments marked as anonymous.
   2. (2) Questionnaire items
      The questionnaire uses a four-grade evaluation for the questions below (1. Strongly agree, 2. Agree, 3. Disagree, 4. Totally disagree) and provides a free comment space where needed.
      
      • - Self-evaluation on the role to be fulfilled by Directors and the Board of Directors
      • - 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 FY2024 based on the FY2023 evaluation
   There was an evaluation of initiatives concerning the following matters taken for further improvement by the Board of Directors in FY2024 based on the results of the evaluation of the effectiveness of the Board of Directors in FY2023. It was confirmed that although "improvements have been made" in general, "initiatives were not adequate" for a certain matter.
   1. (1) Initiatives related to explanations (explanatory materials) to Directors
      
      • - In order to make the explanatory materials for Directors from the executive side simpler and easier to understand with clearer directions, attention was paid to the following points: "The content should focus on important management matters that officers should know and discuss," "Items that are progressing as scheduled should be described as concisely as possible," and "The materials should include the background and history of changes in the external environment including the trends of competitors, and the circumstances surrounding the Group." In addition, efforts were made to keep the explanations from Executive Officers clear and concise, and initiatives were taken to receive questions from Directors on matters to be discussed by the Board of Directors in advance.
      • - Meanwhile, in regard to the provision of information on the Company's business, which serves as a prerequisite for making management decisions, such matters were explained in briefings to the Board of Directors to eliminate any information asymmetry between the executive side and Outside Directors.
      • - In the questionnaire, opinions such as "It is requested that the explanation from the executive side be further elaborated on to focus on more important points" were found, but the initiatives taken were highly evaluated in general.
   2. (2) Initiatives related to the Company's medium- to long-term competitive advantage
      
      • - The Company appealed to the capital market by disseminating its Medium-term Management Strategy FY2031 (FY2031 Strategy), which was formulated based on the Company's medium- to long-term competitive advantage, and sending out relevant messages. Specifically, in order to deepen investors' and analysts' understanding of FY2031 Strategy, we held Business Strategy IR Meeting, etc. and also organized plant tours at domestic bases for securities analysts and institutional investors in order to promote their understanding of the Company's existing businesses and the various initiatives under FY2031 Strategy.
      • - While initiatives were taken as described above, the questionnaire revealed comments such as the following: "I believe that the Company's philosophy and direction have been explained in a timely manner, but operating results do not justify them," and "Efforts are more likely made on individual measures to realize short-term profit plans, and we are not in the state to convey our medium- to long-term competitive advantage."
   3. (3) Initiatives related to sharing of information between the Nomination Committee and other Directors
      
      • - We deepened discussions on matters requiring resolution by the Board of Directors (mainly information on the appointment of Executive Officers, etc. that are to be reported back to the Board of Directors from the Nomination Committee) and shared information with Directors who are not committee members. Specifically, Outside Directors received an explanation from the Chief Executive Officer regarding the succession plan for Executive Officers and other matters and discussed these matters at the informal meetings of Outside Directors.
      • - Further, information was provided by the Chief Executive Officer at the informal meetings of Outside Directors on the status of examination of the succession plan for the Chief Executive Officer. In addition, the Nomination Committee made progress reports to the Board of Directors on the status of examining candidates for Outside Directors.
      • - As a result of the above initiatives taken, the evaluation in the questionnaire improved from the previous fiscal year.
   4. (4) Initiatives related to the supervision of a human resource strategy by the Board of Directors
      
      • - At the briefings for Directors, explanations were received on the status of diversity promotion (Diversity, Equity & Inclusion (DE&I)) in the organization under the management of each Executive Officer, and discussions were held.
      • - In addition, as a non-financial evaluation item for the annual bonuses of Executive Officers, targets related to DE&I were set for all Executive Officers, and progress was regularly reported to the Board of Directors for discussion.
      • - As a result of the above initiatives taken, the evaluation in the questionnaire improved from the previous fiscal year.
3. Summary of FY2024 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 FY2024.
   Through the evaluation, it was confirmed that "Efforts will be made to further improve the management of the Board of Directors in order to enhance corporate value, which is one of the most important missions of the Board of Directors, and initiatives will be taken to further improve the following matters in FY2025."
   • - Development of core management personnel
   • - Medium- to long-term competitive advantage of the Company
   *To the following questions in the questionnaire, six (6) of 11 Directors answered "Disagree" and five (5) responded "Agree," with negative responses outnumbering positive responses.
   • - Do you think that the Board of Directors holds sufficient discussions on the development of core management personnel?
   • - Do you think that the Company's medium- to long-term competitive advantage (business strategy, quality of management, governance system, etc.) has been adequately conveyed to the capital market?
   A summary of the opinions of the Directors regarding the above is as follows.
   1. (1) Development of core management personnel
      
      • - Through evaluations, etc. it was pointed out that there was still room for improvement in the Company's next-generation management personnel development program, succession plan for Executive Officers and other plans, in terms of the following points.
        • -- Diversification of successor personnel
        • -- Increase in the number and ratio of candidates selected for the Next-Generation Leadership Talent Development Program among candidates for Executive Officer successors
        • -- Strengthening the linkage between the Next-Generation Leadership Talent Development Program and personnel policies such as promotion and selection
        • -- Early identification and planned stretch assignment of the Next-Generation Leadership Talent at the managerial and junior levels
      • - The Board of Directors will deepen discussions on the development of core management personnel including the above.
   2. (2) Medium- to long-term competitive advantage of the Company
      • - For the results of the questionnaire, please see 2. (2).
      • - In Directors' discussions, it was pointed out that "There is a need to separate the discussions on the Company's competitive advantage and management strategy from the contents of external explanations and disclosures. The Company must first examine and discuss the former even more deeply."
      • - The Board of Directors will deepen discussions on the Company's medium- to long-term competitive advantage and management strategies.
      *In order to further improve the management of the Board of Directors, the following points will be considered.
      • - Further increasing the appropriateness of matters to be discussed by the Board of Directors
      • - Method of selecting agenda for briefings for Directors
      • - Method of deliberation that encourages more substantive discussions

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