Corporate Governance Report

CORPORATE GOVERNANCE

Last update: June 24, 2024

Harmonic Drive Systems Inc.

Akira Maruyama, President and Representative Director
Contact: Makiko Ono, Executive Officer, Head of Corporate Planning and Investor Relations
TEL: +81-3-5471-7810
Securities Code: 6324
https://www.hds.co.jp/english/

The corporate governance of Harmonic Drive Systems Inc. (the “Company”) is described below.

I. Basic views on corporate governance, capital structure, corporate profile, and other basic information
1. Basic views
The Company’s fundamental policy for corporate governance is based upon ensuring sound and transparent corporate management andachieving swift and effective decision-making, with the aims to meet the expectations of our stakeholders, achieve sustainable growth, andenhance our corporate value over the long term. We do so through the implementation of our Management Principles, which consist of fourpillars: Respect for the Individual, A Meaningful Company, Coexistence and Co-prosperity, and Contribution to Society.
The Company has adopted a Board of Corporate Auditors system, which is based on the institutional system under the Company with an
Audit and Supervisory Board format. The Board of Corporate Auditors consists of four corporate auditors, of whom two are outside corporate
auditors. They actively attend not only meetings of the Board of Directors but also other important meetings concerning business execution,as part of a structure the Company considers effective for continuously auditing the status of business execution.

Reasons for non-compliance with the principles of the corporate governance code
[Supplementary Principle 4.1.3: CEO succession planning]
The Board of Directors of the Company recognizes that succession planning for the CEO position is an important matter, and the president andrepresentative director assumes the main responsibility for the planning and training of successors.
In addition to supervising the execution of business at the Board of Directors meetings, outside directors attend other important meetings tounderstand and oversee the competencies of successor candidates and provide necessary advice as appropriate to the president andrepresentative director regarding the development of those candidates. In addition, at the Board of Directors meeting held on March 25, 2024,
the Company established a voluntary Nomination and Remuneration Advisory Committee to serve as an advisory body to the Board of
Directors. The committee will consider succession planning as part of its activities.
[Supplementary Principle 4.3.3: Procedures for dismissal of the CEO]
Currently, the Company does not have evaluation criteria or procedures for the dismissal of the CEO. Should a member of the Company's
senior management commit an act that violates or may violate laws and regulations or the Articles of Incorporation, or if any other event
occurs that makes it difficult for a member of the Company's senior management to fulfill his or her duties properly, the matter will be
submitted for deliberation by the Board of Directors after the reasons for dismissal are discussed and recognized in a timely manner, including
for cases where the dismissal is proposed by an outside director.
In addition, the Company will continue to review the procedures from various angles to establish more objective, timely, and transparent procedures.
[Supplementary Principle 4.11.3: Analysis and evaluation of the effectiveness of the Board of Directors]
The Company conducts a questionnaire survey of all directors and corporate auditors regarding the effectiveness of the Board of Directors. After
aggregating and analyzing the results, the Board of Directors also shares the results of its self-evaluation on effectiveness and holds
discussions to ensure further improvement.
We do not currently disclose the results of these evaluations but will consider doing so in the future.

Disclosure based on the principles of the corporate governance code
[Principle 1.4: Cross-shareholdings](1) Policy on cross-shareholdings
Regarding cross-shareholdings, it is the Company's policy to hold shares deemed to help raise the corporate value of the Group in the medium
to long term, in overall consideration of business strategy and relationships, based on the policy of carefully selecting the minimum crossshareholdings necessary. The policy on exercising voting rights related to strategically held shares is to decide whether to use such rights basedon criteria as to whether this will help raise the medium- to long-term corporate value of the Company and the entity whose shares are held.
(2) Cross-shareholding verification details
The Company verifies the appropriateness of continuing to hold certain shares once a year in a Board of Directors meeting based on the above
policy. The shares to be held, the number of shares, the purpose and effect of shareholdings, and other factors are disclosed in the Company’s
Annual Securities Report.
(3) Criteria for exercising cross-shareholding voting rights
The policy on exercising voting rights related to strategically held shares is based on the decision of whether exercising such rights will enhance themedium- to long-term corporate value of the Company and the entity whose shares are held.
[Principle 1.7: Related Party Transactions]
In case transactions are to be carried out with related parties, deliberation and decision by the Board of Directors are required, and directors
having a conflict of interest are prohibited from exercising voting rights on the matter. Moreover, all directors, corporate auditors, and executive
officers are periodically required to confirm in writing whether they have transactions with related parties.
[Supplementary Principle 2.4.1: Ensuring diversity in the promotion of key personnel]
The Company positions “Respect for the Individual” at the forefront of its Management Principles, and has established an environment,
including policies and systems related to human capital, that respects the rights of each employee with the aim of being a Company whereindividuals can pursue a meaningful and cultural life; a Company that believes in the ambition of each individual and supports their
independent activities; a Company that creates an environment where employees can maximize their capabilities through work; and a
Company that rewards abilities and performance.

<Approach to ensuring diversity, measurable goals, and status of progress>
The Company aims to create a work environment in which all employees, regardless of gender, nationality, or age, whether new graduates, midcareer hires, or people with disabilities, can demonstrate their abilities and play active roles. We set targets for the number of female managers,
female directors, and non-Japanese employees, and are working to ensure a diverse workforce.
(1) Promotion of women to management positions
Regarding hiring women, the Company promotes the hiring of new female graduates, and in mid-career hiring, we are actively hiring womenand promoting them to management positions. The target for the number of female managers is five on a non-consolidated basis, and as ofMarch 31, 2024, there were two female managers. As for the promotion of women to management positions, the percentage of potential
candidates among all employees is small at this time, but we will continue to expand the candidate pool by strengthening support for careerdevelopment and recruitment. As of March 31, 2024, we have appointed one female outside director and two female executive officers.
Furthermore, one female director has been appointed at a subsidiary of the Company.
(2) Promotion of foreign nationals to management positions
To retain human resources who share our Management Principles and possess abilities required by the Group, the Company makes no
distinction between Japanese and foreign national employees when recruiting new graduates and mid-career hires with the aim of creating adiverse organization. The Company has long promoted foreign nationals to management positions based on their abilities without regard fornationality or other factors. As of March 31, 2024, foreign nationals accounted for only 1.3% (seven people) of our workforce on anonconsolidated basis, most of whom are new graduates. We have not set targets for the ratio of foreign national employees in management
positions or the number of management positions. We will first give priority to retaining foreign nationals, then consider targets for the number ofmanagers at a later stage.
(3) Promotion of mid-career hires to management positions
To retain human resources who share our Management Principles and have abilities required by the Group, we actively recruit mid-careerhires with various experience, skills, and qualifications who can be expected to achieve immediate results, in addition to the regular hiring of
new graduates, with the aim of creating a diverse organization. The Company has long promoted new graduates and mid-career hires without
distinction to management positions, based on their abilities. Since the ratio of mid-career hires and the number of management positions issufficient, no specific targets have been set.
As of March 31, 2024, mid-career hires in management positions or higher were as follows.
 Percentage of mid-career hires in management positions: 55.4%
 Percentage of mid-career hires in executive officer positions (excluding those concurrently serving as directors): 80.0%<Summary and status of human resource development and internal environment improvement policies to ensure diversity>(1) Human resource development policy
Our basic policy is to develop human resources capable of realizing the Company’s Management Principles. We strategically develop humanresources based on our human resource development policy, which is divided into the following three phases.
Phase I Education and training: Adhering to the basics of the type of employee the Company seeks.
Phase II Practical application: Supporting individual efforts as employees improve their competencies and establish their expertise, primarily
through practical work. Also, nurturing future executive candidates.
Phase III Demonstration of expertise: Leveraging abilities and experience in management and specialized skills and techniques accumulated
up to now, and contributing to division operations and younger employee development (nurturing role).
(2) Internal environment improvement policy
To create an organization in which individuals are motivated to play an active role, the Company strives to create a workplace environment inwhich a diverse range of employees can play an active role. Main initiatives are as follows.
Human resource system
The Company’s human resource system is based on the idea that improving employee abilities and motivation to work will enable it to achieve its
management vision and goals.
A variety of other systems are also in place, including job rotation for the purpose of developing skills, a self-reporting system enabling
employees to report directly to the director in charge of human resources regarding their future career path and desired skills development,
and childcare and nursing care leave systems that can be used regardless of employment status. Specifically, to strengthen support aimed atbalancing work and childcare, we strive to create a comfortable work environment through various systems offering employees engaged inchildbirth and childcare paid days off, leaves of absence, a system supporting the return to work, shorter working hours, and telework options.
As part of its promotion of the active participation of women and reforms in the way employees work, the Company also actively promotes theuse of the childcare leave system for male employees. In the fiscal year ended March 31, 2024, the utilization rate of the male employee
childcare leave system was 81.8% on a non-consolidated basis.
Skill development system
Regarding skill development, the Company formulates systematic, medium- to long-term human resource development plans and has
established a system that enables employees to effectively and continuously improve and develop the skills required of them.
Skill development training includes the following: mandatory level-based training for employees in all positions that enables them to demonstrate thecapabilities required for their position; basic training necessary for job performance and career development; area-of-expertise training aimed atincreasing specialization in work activities and the acquisition of specialized skills necessary for career development; and, in light of moresophisticated economic environments, technological standards, and the advance of globalization, the Company provides special training programs
supporting employee acquisition of MBA, MOT, and other degrees from universities and other institutions of higher learning in Japan and overseas,
as well as training at overseas affiliates and language study through AEI programs at overseas universities to further enhance skills through selfdevelopment.
Health management system
The Company regards employee health as an important management resource and promotes health and safety and health management initiatives.
Specific initiatives are as follows.
 Provision of periodic physical exams, stress checks, and other efforts aimed at preventing employee physical and mental health issues
 Establishment of the Health Promotion Center, which specializes in promoting employee health, and provision of detailed health consultation andguidance using in-house nurses
 Establishment of contact points both inside and outside the Company for reporting and consultation pertaining to harassment and other issues
 Provision of telework environments, etc.
Human capital initiative details are also published in the Integrated Report and Annual Securities Report and on the Company website
 Integrated Report: https://www.hds.co.jp/english/csr/hdsreport/
 Annual Securities Report: https://contents.xj-storage.jp/xcontents/AS06879/f4bb57e7/4d05/4d18/9aa2/c5ca4bb97608/S100TR1D.pdf (InJapanese) Sustainability section of the Company website: https://www.hds.co.jp/english/csr/

[Principle 2.6: Roles of Corporate Pension Funds as Asset Owners]
The Company has both defined-benefit and defined-contribution pension plans. With respect to asset management (including selection of
investees, exercise of voting rights, etc.) for the covenant-type defined-benefit pension plan, the Company formulates the basic investment
policy, selects asset management institutions that are expected to appropriately fulfill their fiduciary responsibilities, including stewardship
activities, and entrusts the management of the assets to these institutions. In addition, the department in charge of the asset management of
the Company requests regular reports from the relevant asset management institutions and verifies their investment performance andsystems.
Regarding the defined-contribution pension plan, the Company provides eligible officers and employees with educational opportunities related toasset management institutions and investment products as appropriate.
[Principle 3.1: Full Disclosure](1) Management Principles, business strategies, and business plans
The Company defines Management Principles, business strategies, and mid-term business plans and discloses them on its website.
Management Principles (https://www.hds.co.jp/english/company/idea/)
Business strategies and medium-term business plan (https://www.hds.co.jp/english/ir/management_policy/strategy/)(2) Basic views on corporate governance
These are described in “I. Basic views on corporate governance, capital structure, corporate profile, and other basic information, 1. Basic
views” of this report.
(3) Policies and procedures for determining remuneration of directors
These are described in this report in “II. Management organization and other corporate governance systems regarding decision-making,execution, and management oversight, 1. Matters concerning the organizational structure and operation, Director remuneration, Disclosure ofpolicy on determining remuneration amount and the calculation methods thereof.”(4) Policies and procedures for nominating candidates for director and corporate auditor positions
When appointing or reappointing directors, the Board of Directors consults with and receives reports from its advisory body, the Nomination andRemuneration Advisory Committee. After considering the content of such reports, the Board of Directors resolves an agenda for the General
Meeting of Shareholders, and a final decision is reached by resolution at the General Meeting of Shareholders.
The appointment of corporate auditor candidates is recommended by the Board of Directors and submitted to the General Meeting of Shareholders
after obtaining the consent of the Board of Corporate Auditors.
In appointing outside directors and outside corporate auditors, we comprehensively consider the personal, capital, and business relationships
between the Group and the potential candidates and companies to which they belong, and only those individuals deemed able to fulfill therequired functions and roles from an independent standpoint are nominated as candidates.
(5) Explanation of nomination and appointment of director and corporate auditor candidates
When candidates for director and corporate auditor positions are submitted for discussion at the General Meeting of Shareholders, theCompany provides a summary of their career history and assessment materials that include achievements and experience. The Company also
discloses the reasons for appointment and the expertise required by the Company in the form of a skills matrix included in the reference
documents and at the end of this report.
(6) Policies and procedures for the dismissal of senior management
In the event that a member of the Company's senior management commits an act that violates or may violate laws and regulations or the
Articles of Incorporation, or if any other event occurs that makes it difficult for a member of the Company's senior management to perform hisor her duties properly, the matter will be decided by the Board of Directors after the reasons for the dismissal are discussed and recognized ina timely manner through consultation with and reporting from the Nomination and Remuneration Advisory Committee, including for cases
where the dismissal is proposed by an outside director.
[Supplementary Principle 3.1.3: Sustainability initiatives]<Sustainability initiatives>
Recognizing the importance of sustainability initiatives, the Company established the Sustainability Committee on April 1, 2023, as anorganization to promote, oversee, and manage overall sustainability to strengthen and promote the Group's overall sustainability in a strategicmanner. The Sustainability Committee consists of executive directors and is chaired by the president and representative director.
In addition, we regularly review materiality in preparation for formulating new mid-term business plans and promote initiatives in our mid-termbusiness plans and annual plans.
Response to climate change
We recognize that addressing climate change is an important management issue, so we have set a long-term goal of “Net Zero by 2050” andare working to achieve it. Specifically, we have identified climate change-related risks and opportunities that may affect the Group’s
operations, conducted scenario analyses as recommended by the TCFD under the 1.5℃ and 4.0℃ scenarios, and analyzed the impact ofindividual risks and opportunities on our operations and their likelihood under the various suppositions of their manifestation in the short,medium, or long term. Based on the results of these scenario analyses, we promote initiatives to create opportunities and minimize risks,
mainly via the Sustainability Committee. We include details of risk management and greenhouse gas emissions performance in our Integrated
Report and Annual Securities Report.
Please refer to our Integrated Report, Annual Securities Report, and Company website for information on sustainability initiatives.
 Integrated Report: https://www.hds.co.jp/english/csr/hdsreport/
 Annual Securities Report: https://contents.xj-storage.jp/xcontents/AS06879/f4bb57e7/4d05/4d18/9aa2/c5ca4bb97608/S100TR1D.pdf (InJapanese) Sustainability section of the Company website: https://www.hds.co.jp/english/csr/<Investments in human capital and intellectual property>
We have identified investment in human capital and intellectual property in our materiality as “maximizing the value of human capital” and“creating and using new technologies and skills adapted to changes in the environment.”
Information on human capital is also disclosed in the sustainability section of the Company website (https://www.hds.co.jp/csr/) as employee,customer, and social initiatives, and in this report under “I. Basic views on corporate governance, capital structure, corporate profile, and otherbasic information, 1. Basic views, Disclosure based on the principles of the corporate governance code, [Supplementary Principle 2.4.1:
Ensuring diversity in the promotion of key personnel]” and in our Annual Securities Report.
Regarding investments in intellectual property, the Company is proactively working on the rights and protection of intellectual property createdthrough research, development, and manufacturing, the details of which are disclosed on the Company website.
(https://www.hds.co.jp/english/deveakajima lopment/intellectual_property/)[Supplementary Principle 4.1.1: Scope of delegation to management]
The Company stipulates matters to be decided by the Board of Directors in the Board of Directors Regulations and operates the Board of
Directors in accordance with laws and regulations, the Articles of Incorporation, and the Board of Directors Regulations, while delegating
specific business execution to executive directors. In addition, the Company has adopted an executive officer system. Executive officers,
under the direction of the president and representative director, execute business operations in accordance with the decision-making authority
stipulated in the Rules on Administrative Authority to enable prompt decision-making.
[Principle 4.9: Independence standards and qualifications for independent outside directors]
In appointing independent outside directors, an overall assessment is made following determination of the applicability of each item of the
independence standards set by the Tokyo Stock Exchange. The details are disclosed in the Independent Officers Notifications submitted to
the Tokyo Stock Exchange and in this report in “II. Management organization and other corporate governance systems regarding decisionmaking, execution, and management oversight, 1. Matters concerning organizational structure and operation, Directors.”
In selecting independent outside director candidates, we consider various perspectives, such as each candidate’s background, knowledge,
personality, gender, international experience, ability of required expertise, and other factors, and select people who we expect will help bringnew perspectives to the Board of Directors.
[Supplementary Principle 4.10.1: Use of voluntary committees when independent outside directors do not constitute a majority of the Board of
Directors]
At the Board of Directors meeting held on March 25, 2024, the Company established a voluntary Nomination and Remuneration Advisory
Committee to serve as an advisory body to the Board of Directors. Rules stipulate that a majority of the committee’s members shall be
independent outside directors and that the chair shall be selected from among the independent outside directors, so we believe thecommittee’s fairness, transparency, and objectivity are ensured.
Please refer to “II. Management organization and other corporate governance systems regarding decision-making, execution, andmanagement oversight, 1. Matters concerning organizational structure and operation, Voluntary establishment of committee(s) equivalent toNomination Committee or Remuneration Committee, Supplementary explanation” for detail pertaining to the committee.
[Supplementary Principle 4.11.1: Views on the balance, diversity, and scale of the Board of Directors as a whole and disclosure of skills, etc.]
The Company’s Articles of Incorporation stipulate that the number of directors shall not exceed 15. Given that the Company is aninternationally expanding technology and technical group, basic policy regarding the appointment of directors is to have the Board of Directors
comprised of executive directors with specialist skills and knowledge relating to overall management, manufacturing, development, sales,finance, accounting, etc., and outside directors with abundant management experience in other companies and industries as well as ininternational fields. We began disclosing a skills matrix starting with the Notice of the Ordinary General Meeting of Shareholders in June 2022.
The information is also posted on the Company website (https://www.hds.co.jp/english/ir/management_policy/governance/) and at the end of
this report. The Company's five independent outside directors all have management experience at other companies.
[Supplementary Principle 4.11.2: Status of concurrent positions held by directors and corporate auditors]
The status of concurrent positions held by directors and corporate auditors is disclosed in the business report accompanying the Notice of theOrdinary General Meeting of Shareholders and in the Annual Securities Report. The number of concurrent positions held at other companies bydirectors and corporate auditors is limited to the extent that they remain capable of fulfilling their roles and responsibilities as officers of theCompany.
Notice of the Ordinary General Meeting of Shareholders: https://www.hds.co.jp/english/ir/event/stockholder/
Annual Securities Report: https://www.hds.co.jp/ir/data/securities/ (In Japanese)[Supplementary Principle 4.14.2: Training policy for directors and corporate auditors]
To enable directors and corporate auditors to obtain the knowledge and information necessary for fulfilling their roles, the Company provides
opportunities to take outside training courses related to such matters as overall management and the Companies Act, to attend important
conferences that will enhance their understanding of the business, to tour main facilities, and to visit subsidiaries, with the expenses in eachcase paid by the Company. We disclose details on the Company website. (https://www.hds.co.jp/english/ir/management_policy/governance/)[Principle 5.1: Policy for constructive dialogue with shareholders]
We consider our shareholders and investors to be important stakeholders and believe it is our responsibility as a listed company to establish
and develop systems for promoting constructive dialogue. To that end, we have appointed an executive officer in charge of investor relations,and the IR division works in close cooperation with other relevant departments and actively carries out activities within a reasonable scope.
Specific activities include financial results briefings for institutional investors, corporate briefing sessions for individual investors, plant tours forshareholders, holding of small-group or individual meetings with institutional investors, issuance of an Integrated Report, and enhanced content
on the Company website. Through these and other means, we seek to enhance communication with shareholders and investors. For moredetails, please refer to the “Status of IR-related activities” section of this report.
[Measures to achieve management style that is conscious of cost of capital and share price]
Regarding cost of capital, the Company's cost of shareholder’s equity and WACC are calculated based on finance theory with the assistanceof outside experts, and the actual results and trends of such figures are shared with the Board of Directors. We recognize that our WACC,
calculated using the Capital Asset Pricing Model (CAPM), is approximately 8%. On the other hand, we use the DCF method when making
decisions on capital investments, etc., and set the discount rate used in the calculation at a hurdle rate of 10%, which is higher than our
WACC and which we verify and deem rational.
Furthermore, we are working to achieve the policies and management targets of our medium-term business plan covering fiscal 2024 through2026 with the mission of “To contribute to innovation in the society by our motion control technology.” Profitability targets for the final year of
the plan, fiscal 2026, are an operating profit margin of 15–20% and an EBITDA margin of 25–30%; efficiency targets are ROE and ROIC eachabove cost of shareholders’ equity, at least 10%; the stability target is an equity ratio of at least 70%; and the shareholder return target is a
dividend payout ratio of at least 30%. The mid-term business plan is discussed and approved by the Board of Directors, and progress isreported at the Board of Directors meeting at the end of each fiscal year, with the management team taking the initiative in examining,
analyzing, and evaluating the plan to ensure appropriate allocation of management resources.
The representative director and director/CFO explain these initiatives and their progress at financial results briefings for analysts, and thematerials and scripts for the briefings are published on the Company website.
 Mid-term business plan: https://www.hds.co.jp/english/ir/management_policy/strategy/
 Results briefing materials: https://www.hds.co.jp/english/ir/data/briefings/[Status of dialogue with shareholders]
The Company positions shareholders and investors as important stakeholders and maintains a policy of actively responding to inquiries andmeeting requests from shareholders and institutional investors. Response is led by the representative director/general manager of Corporate
Planning, director/CFO, and the executive officer in charge of Corporate Planning and Investor Relations.
Dialogues with shareholders and investors in fiscal 2023 were as follows.
 For institutional investors: 195 IR meetings for single institutional investors; 10 small meetings (attended by 293 investors); participation in five IR
conferences (attended by 54 investors)
 For individual investors: One Company briefing (attended by 376 individual investors)

2. Capital structure
Foreign Shareholding Ratio

30% or higher

Status of major shareholders
Name or corporate entity

Shares held

Ratio (%)

KODEN Holdings Co., Ltd.

33,490,700

35.26

SSBTC CLIENT OMNIBUS ACCOUNT

7,058,264

7.43

The Master Trust Bank of Japan, Ltd. (Trust Account)

3,752,900

3.95

Custody Bank of Japan, Ltd. (Trust Account)

3,345,900

3.52

Norimitsu Ito

3,041,600

3.20

Control trust (A030) trustee SMBC Trust Bank Ltd.

2,176,800

2.29

JP MORGAN CHASE BANK 385632

1,986,230

2.09

STATE STREET BANK WEST CLIENT-TREATY 505234

1,681,500

1.77

JP MORGAN BANK LUXEMBOURG S.A. 381572

1,571,000

1.65

NORTHERN TRUST Co. (AVFC) RE IEDU UCITS CLIENTS NON-LENDING 15 PCT
TREATY ACCOUNT

1,448,550

1.52

Controlling shareholders, if applicable(excluding parent company)--

Parent company

None

Supplementary explanation*The “Status of major shareholders” section and this supplementary explanation are as of March 31, 2024.
1) The above percentages are calculated by deducting 1,339,057 shares of treasury stock from the total number of shares
outstanding.
2) The following two companies jointly submitted a change report on 6,486,950 shares on October 20, 2023. However, since it was
not possible to confirm the actual number of shares held in the name of those companies as of March 31, 2024, they are notincluded in the “Status of major shareholders.”
 Capital Research and Management Company
 Capital International K.K.
3) The following two companies jointly submitted a change report on 7,955,200 shares on January 11, 2024. However, since it was
not possible to confirm the actual number of shares held in the name of those companies as of March 31, 2024, they are notincluded in the “Status of major shareholders.”
 T. Rowe Price Japan, Inc.
 T. Rowe Price Associates, Inc.

3. Corporate attributes
Listed stock exchange and market
segment

Tokyo (Standard Market)

Fiscal year-end

March

Business sector

Machinery

Number of employees (consolidated)
as of the end of the previous fiscal year

1,000 or more

Net sales (consolidated) as of the endof the previous fiscal year

¥10 billion or more and less than ¥100 billion

Number of consolidated subsidiaries asof the end of the previous fiscal year

10 or more and less than 50

4. Policy on measures to protect minority shareholders in conducting transactions with controlling shareholder--

5. Other special circumstances which may have material impact on corporate governance
KODEN Holdings Co., Ltd., a major shareholder of the Company, falls under the category of other affiliated companies. KODEN Holdings held
35.26% of voting rights in the Company as of March 31, 2024.
KODEN Holdings is a holding company that formulates group strategies and manages group companies including Koden Electronics Co., Ltd.
KODEN Holdings’ key subsidiaries, Koden Electronics and Tokyo Aircraft Instrument Co., Ltd., are engaged in the manufacture and sale ofelectronic devices and various instruments, so their business domain differs from that of our Group, which manufactures and sells various
actuators and reducers for precision motion control. As a result, there is a minimal business relationship between the two groups, so we canconduct our business activities freely and are not subject to any business restrictions from the KODEN group.
In addition, as of the submission date of this report (June 28, 2024), there are no dispatches of executives or other personnel between thegroups, so we have sufficient independence when making management decisions.

II. Management organization and other corporate governance systems regarding decision-making, execution, andmanagement oversight

1. Matters concerning the organizational structure and operation
Corporate governance system

Company with an Audit and Supervisory Board

Directors
Number of directors under Articles ofIncorporation

15

Directors’ term of office under Articles ofIncorporation

1 yearChairperson of the Board of Directors

Chairperson (excluding those concurrently serving as President)

Number of directors

10Election of outside directors

ElectedNumber of outside directors

5

Number of outside directors appointed
as independent officers

5

Relationship with the Company (1)NameAttributes

Haruhiko Yoshida

From another company

Masanobu Nakamura

From another company

Yoshio Fukuda

From another company

Kazuhiko Hayashi

From another company

Kaeko Kitamoto

From another companyaRelationship with the Company (*)
b c d e
f
g h i
j

k

△

*Categories for “Relationship with the Company”* “○” indicates the director presently falls or has recently fallen under the category; and “△” indicates the director fell under the category in the past
* “●” indicates a close relative of the director presently falls or has recently fallen under the category; and “▲” indicates a close relative of the director
fell under the category in the pasta.
Executive officer of a listed company or its subsidiaryb.
Executive or non-executive officer of the parent company of a listed companyc.
Executive officer of the Company's sister companiesd.
Person whose main business partner is a listed company or a person who executes the businesse.
Major business partner of a listed company or a person who executes the businessf.
Consultant, accounting professional, or legal professional who receives large amounts of money or other assets from a listed company otherthan compensation for their services as director or officerg.
Major shareholder of a listed company (if such major shareholder is a corporation, an executive of such corporation)h.
Executive of business partners of a listed company (not falling under any of d, e and f; only for the individual).
i.
Executive (only for the individual) of the party with whom the external officers have a relationship of mutual appointment (only for theindividual)j.
Executive of the party to which a listed company has made a donation (only for the individual)
k.
Other

Relationship with company (2)Name

Designation as
independent
officer

Haruhiko Yoshida〇

Masanobu Nakamura〇

Yoshio Fukuda〇

Supplementary
explanation of theapplicable relationship

Reasons for appointment

Mr. Haruhiko Yoshida has served in prominent positions at
Mitsui & Co., Ltd., and possesses abundant experienceand superior insight regarding corporate management, in
addition to extensive international experience. Based on
the above, the Company has judged that he has been
helping further strengthen the Company’s management
system by making recommendations and supervising theoverall management of the Company utilizing his ability and―――experience.
(Designation as an independent officer)
Mr. Yoshida is designated and filed as an independent
officer because he does not fall under any of the criteria for
independence set forth by the Tokyo Stock Exchange andhas a high degree of independence, and the Company has
determined that there is no risk of a conflict of interest
between him and ordinary shareholders.
Mr. Masanobu Nakamura has served in prominent
positions in major banks and securities companies, andpossesses abundant experience and superior insight
Mr. Masanobu Nakamura
served as executive officer of regarding corporate management, in addition to extensive
the Company’s main bankinternational experience. Based on the above, theUFJ Bank Ltd. (currently
Company has judged that he has been helping further
MUFG Bank, Ltd.) from June strengthen the Company’s management system by making
1999 to January 2002. Herecommendations and supervising the overall management
then served as managing
executive officer at the bank of the Company utilizing his ability and experience.
(Designation as an independent officer)
from January to May 2002,
Mr. Nakamura was previously an executive officer of theand as representative
director and executive
Company’s main bank, but approximately 19 years haveoperating officer from May
elapsed since his retirement. The Company did not invite
2004 to June 2005.
him at the request of a financial institution, but rather at its
However, approximately 19 own discretion, to utilize his extensive management
years have elapsed since his
experience and broad insight into management of theretirement. The Company’s
Company. Furthermore, the Company has transactions
borrowings from MUFG
with multiple financial institutions and is not influenced by
Bank, Ltd., totaled 6,982
any one financial institution in its management decisionmillion yen as of March 31,
2024, accounting for 7.7% of making. Based on consideration of all these factors, thetotal assets.
Company has concluded that there is no conflict of interest
with ordinary shareholders and has registered him as anindependent officer.
Mr. Yoshio Fukuda has served in prominent positions at
Teijin Limited and Teijin Group and possesses abundant
experience and superior insight regarding corporate
management, in addition to extensive international
experience. In addition, he has a high level of knowledge ofstrategic planning, establishment of joint ventures, M&A,
etc. Based on the above, the Company has judged that hehas been helping further strengthen the Company’s
management system by making appropriate
recommendations and supervising the overall managementof our internationally expanding Group from an―――
independent standpoint. There are no material transactions
between the Company and Teijin Limited or the TeijinGroup, where he served as an executive officer until 2016,or Toyo Construction Co., Ltd., where he served as an
outside director until June 27, 2023.
(Designation as an independent officer)
Mr. Fukuda is designated and filed as an independent
officer because he does not fall under any of the criteria for
independence set forth by the Tokyo Stock Exchange andhas a high degree of independence, and the Company has
determined that there is no risk of a conflict of interest
between him and ordinary shareholders.

Kazuhiko Hayashi〇―――

Kaeko Kitamoto〇―――

Voluntary establishment of committee(s)equivalent to Nomination Committee orRemuneration Committee

In place

Mr. Kazuhiko Hayashi has leadership experience as the
person in charge of development and design at the Toyota
Group and possesses abundant experience and a highdegree of insight into corporate management gained during
his tenure in prominent positions at the Sumitomo ElectricIndustries Group. The Company assesses that he has
been helping further strengthen the Company’s
management system by making recommendations andsupervising the overall management of the Company froma research and development standpoint, given the natureof the Company’s business as a development-type
manufacturer. There are no material transactions between
the Company and Sumitomo Electric Industries, Ltd.,
Sumitomo Wiring Systems, Ltd., or AutoNetworks
Technologies, Ltd., where he was an executive officer until
2017.
(Designation as an independent officer)
Mr. Hayashi is designated and filed as an independent
officer because he does not fall under any of the criteria for
independence set forth by the Tokyo Stock Exchange andhas a high degree of independence, and the Company has
determined that there is no risk of a conflict of interest
between him and ordinary shareholders.
As a certified public accountant at Ernst & Young
ShinNihon LLC, Ms. Kaeko Kitamoto has been involved in
the accounting audits of various listed companies and has
served as a partner and managing director of that firm,
giving her a wealth of experience and deep insight into
financial accounting. She is currently also a member of theElectricity and Gas Market Surveillance Commission of the
Ministry of Economy, Trade and Industry, and has expertisein CO2 reduction and the introduction of renewable energy.
Based on the above, the Company concluded that she has
been helping further strengthen the Company’s
management system by making recommendations andsupervising the overall management of the Company andsustainability initiatives, including climate change anddiversity, equity, and inclusion. There are no materialtransactions between the Company and Ernst & Young
ShinNihon, where she served as an auditor. Although she
currently serves as a member of the Electricity and Gas
Market Surveillance Commission of the Ministry of
Economy, Trade and Industry, and as an outside corporate
auditor at Daikin Industries, Ltd., there are no materialtransactions between the Company and the Electricity and
Gas Market Surveillance Commission or Daikin Industries.
(Designation as an independent officer)
Ms. Kitamoto is designated and filed as an independent
officer because she does not fall under any of the criteria
for independence set forth by the Tokyo Stock Exchange
and has a high degree of independence, and the Company
has determined that there is no risk of a conflict of interest
between her and ordinary shareholders.

Status of establishment of voluntary committees, member composition, attributes of chair
Committee nameTotal
members

Full-timemembers

Insidedirectors

Outsidedirectors

Outsideexperts

OthersChair

Committee
equivalent to anominating
committee

Nomination andRemuneration
Advisory
Committee

3

0

1

2

0

0

Outsidedirector

Committee
equivalent to a
remunerationcommittee

Nomination andRemuneration
Advisory
Committee

3

0

1

2

0

0

Outsidedirector

Supplementary explanation
At the Board of Directors meeting held on March 25, 2024, the Company established a voluntary Nomination and Remuneration Advisory
Committee. The regulations stipulate that the committee will have at least three members, a majority of whom are to be independent outside
directors, and that the chair shall be selected from among the independent outside directors. Currently, the members are independent outside
directors Haruhiko Yoshida and Masanobu Nakamura and President and Representative Director Akira Maruyama, with Mr. Yoshida serving
as chair.
As an advisory body to the Board of Directors, the committee studies and deliberates on the appointment and dismissal of directors, theselection of representative directors, the selection and dismissal of directors with titles, director remuneration, the succession plan for andtraining of the president, and other matters, and decides on matters to be reported to the Board of Directors.
The secretariat of the committee is the department serving as secretariat for the Board of Directors.

Corporate Auditors
Establishment of Board of Corporate
Auditors

In place

Number of corporate auditors stipulated
in the Articles of Incorporation

5

Number of corporate auditors

4

Cooperation among corporate auditors, accounting auditors, and internal audit departments
The Corporate Auditors exchange opinions with the accounting auditor regarding audit plans, receive reports on audit results, discuss andevaluate the content of audits, and ensure cooperation. Furthermore, regarding key audit matters (KAM), the corporate auditors holddiscussions with PricewaterhouseCoopers Japan LLC, receive reports on the status of their audits, and request explanations as necessary.
The Internal Control and Audit Office is responsible for internal audits. The general manager of the Internal Control and Audit Office and threeauditors conduct internal audits of the Company and its subsidiaries throughout the year based on a pre-determined audit schedule.
In addition, matters identified by internal audits are reported as audit results to the president and the Board of Corporate Auditors through adual reporting line system. The results are also reported to the Board of Directors. In the audit process, the Internal Control and Audit Office,the Board of Corporate Auditors, and the accounting auditors mutually share information and collaborate closely with each other, such as bymeeting with the general manager of the Internal Control and Audit Office and the corporate and accounting auditors.

Appointment of outside corporate
auditors

Appointed

Number of outside corporate auditors

2

Number of outside corporate auditors
designated as independent officers

2

Relationship with the Company (1)NameAttributes

Yoshitsugu Yokogoshi

From another company

Eisaku Imazato

From another companyab

Relationship with the Company (*)
c d e f g h i j k l△△m*Categories for “Relationship with the Company”* “○” indicates the director presently falls or has recently fallen under the category; and “△” indicates the director fell under the category in the past
* “●” indicates a close relative of the director presently falls or has recently fallen under the category; and “▲” indicates a close relative of thedirector fell under the category in the pasta.
Executive officer of a listed company or its subsidiaryb.
Non-executive officer or accounting advisor of a listed company or its subsidiariesc.
Executive or non-executive officer of the parent company of a listed companyd.
Corporate auditor of the parent company of a listed company
e.
Executive officer of the listed company's sister companiesf.
Person whose main business partner is a listed company or a person who executes the businessg.
Major business partner of a listed company or a person who executes the businessh.
Consultant, accounting professional, or legal professional who receives large amounts of money or other assets from a listed company otherthan the director’s remunerationi.
Major shareholder of a listed company (if such major shareholder is a corporation, an executive person of such corporation)j.
Executive of a business partner of a listed company (not falling under any of f, g and h; only for the individual)k.
Executive of the party with whom the external officers have a relationship of mutual appointment (only for the individual)l.
Executive of the party to which a listed company has made a donation (only for the individual)
m. OtherRelationship with the Company (2)Name

Designation as
independent
officer

Yoshitsugu Yokogoshi〇

Eisaku Imazato〇

Supplementary
explanation of theapplicable
relationship

Reasons for appointment

Mr. Yoshitsugu Yokogoshi possesses abundant
management experience and broad insight gained at amajor banking group. In addition, he possesses a wealth ofexperience in auditing operations and substantial
knowledge of finance and accounting since he has served
as a full-time corporate auditor at a major oil company.
Mr. Yoshitsugu Yokogoshi
Since his appointment as a full-time corporate auditor ofserved as executive officer
the Company in June 2020, he has providedof the Company’s main
recommendations from a neutral and objective perspective
bank UFJ Bank Ltd.
as a member of the Board of Directors and Board of(currently MUFG Bank,
Corporate Auditors, contributing to the improvement ofLtd.) from May toauditing functions. Based on the above, the Company has
December 2005. He thenjudged that he can further strengthen the corporate
served as executive officer
governance structure of the Group from an independent
for the Bank of Tokyostandpoint, and therefore appointed him as an outside
Mitsubishi UFJ, Ltd.
corporate auditor.
(currently MUFG Bank,Ltd.) from January 2006 to (Designation as an independent officer)
Mr. Yokogoshi was previously an executive officer of theApril 2007 before
Company’s main bank, but approximately 15 years havebecoming managing
elapsed since his retirement. The Company did not invite
executive officer at thehim at the request of a financial institution, but rather at its
bank from May 2007 to
December 2008. However, own discretion, to utilize his extensive management
experience and broad insight into auditing the Company, as
approximately 15 years
well as his considerable knowledge of audit-related financehave elapsed since hisretirement. The Company’s and accounting gained through his experience as a full-time
auditor of a major oil company. Further, the Company hasborrowings from MUFG
transactions with multiple financial institutions and is not
Bank, Ltd., totaled 6,982
influenced by any one financial institution in its
million yen as of March 31,
2024, accounting for 7.7% of management decision-making. Moreover, the Company
does not have any significant transactions with Cosmo Oil
total assets.
Co., Ltd., where Mr. Yokogoshi served as a full-time
corporate auditor or other Cosmo Energy Group
companies. Based on consideration of all these factors, theCompany has concluded that there is no conflict of interest
with ordinary shareholders and has registered him as anindependent officer.
Mr. Eisaku Imazato possesses abundant management
experience and broad insight gained at major securities
companies. Since his appointment as a corporate auditorof the Company in June 2020, he has provided
From May 2010 to June
recommendations from a neutral and objective perspective
2014, Mr. Eisaku Imazato
served as executive officer of as a member of the Board of Directors and Board of
Corporate Auditors, contributing to the improvement of
Mitsubishi UFJ Financial
Group, Inc., the parent of the auditing functions. Based on the above, the Company has
judged that he can further strengthen the corporate
Company’s main bank
MUFG Bank, Ltd. However, governance structure of the Group from an independent
10 years have elapsed since standpoint, and therefore appointed him as an outside
corporate auditor.
his retirement. The
Company’s borrowings from (Designation as an independent officer)
Although Mr. Imazato is a former executive officer at
MUFG Bank, Ltd., totaled
Mitsubishi UFJ Financial Group, Inc., the parent of the6,982 million yen as ofMarch 31, 2024, accounting Company’s main bank MUFG Bank, Ltd., 10 years haveelapses since his retirement. He was also an executive
for 7.7% of total assets.
Mr. Imazato also served as officer of a securities company with which the Company
principal executive officer at has a business relationship, but has already been retiredfor 10 years. The Company did not invite him at the
Mitsubishi UFJ Morgan
Stanley Securities Co., Ltd., request of a financial institution, but rather at its own
discretion, to utilize his extensive management experience
until June 2014, but 10
and broad insight in auditing the Company. Furthermore,
years have elapsed since
his retirement. The amount the Company has transactions with several financial
institutions and securities companies and is not influencedof business transactions
between the Company and by any one financial institution or securities company in its
management decision-making. Moreover, the Company
Mitsubishi UFJ Morgan
Stanley Securities Co., Ltd., does not have any significant transactions with Marusan
Securities Co., Ltd., where Mr. Imazato currently serves asin fiscal 2023 was small.
an outside director. As such, the Company believes that
Mr. Imazato’s appointment poses no risk of a conflict ofinterest with ordinary shareholders, and has registered him
as an independent officer.

Matters concerning independent officers
Number of independent officers

7

Other matters concerning independent officers
The Company has appointed five outside directors and two outside corporate auditors who meet the qualifications of independent officers.
■Criteria for judging the independence of outside directors and corporate auditors
The company appoints as independent officers those who are outside directors as defined in Article 2 (xv) of the Companies Act or outsidecompany auditors as defined in Article 2 (xvi) of the Companies Act and who fall under the category of outside officers as defined in Article 2(3) (v) of the Regulations for Enforcement of the Companies Act (Ministry of Justice Order No. 12 of February 7, 2006), but do not fall under
any of the following items and have a high degree of independence preventing conflicts of interest with general shareholders.
(1)

A major business partner of the Group or an executive thereof(2)

A major shareholder who directly or indirectly holds 10% or more of the total voting rights of the Company or an executive thereof(3)

An executive of a Group company(4)

An accounting auditor of the Group or an employee thereof(5)

A consultant, accounting professional, or legal professional who receives large amounts of money or other assets from the Group other thanofficer remuneration (if the recipient of the money or assets is a corporation or association, this refers to a person who belongs to said body)(6)

An executive of a Group company at any time within the 10 years prior to assuming his/her position, or a director, corporate auditor, or
executive officer who is an executive of the Group or any relative within the second degree of kinship or who cohabits with them

However, even if an individual falls under any of the above (1) to (6), if it is determined that the individual in question is substantiallyindependent, the underlying reasons are explained and disclosed at the time of appointment.
■Activities of independent outside directors in fiscal 2023
Outside Director Haruhiko Yoshida
In terms of his main activities during fiscal 2023, Mr. Yoshida attended all 18 meetings of the Board of Directors held during the year andmade necessary remarks as appropriate. He also attended other important meetings, such as executive officer meetings and Business
Process Innovation meetings, and, based on his international business experience and broad knowledge of corporate management
cultivated at a general trading company, made useful remarks from an independent, objective, and multifaceted perspective that differsfrom that of the management team that executes the Company’s business. He has therefore appropriately fulfilled the role expected ofhim as an outside director.
Number of shares held: 22,011 (as of March 31, 2024)
Outside Director Masanobu Nakamura
In terms of his main activities during fiscal 2023, Mr. Nakamura attended all 18 meetings of the Board of Directors held during the year andmade necessary remarks as appropriate. He also attended other important meetings, such as executive officer meetings and Business
Process Innovation meetings, and, based on his international business experience and broad knowledge of corporate management cultivated
at a major financial institution, made useful remarks from an independent, objective, and multifaceted perspective that differs from that of
the management team that executes the Company’s business. He has therefore appropriately fulfilled the role expected of him as an
outside director.
Number of shares held: 13,205 (as of March 31, 2024)
Outside Director Yoshio Fukuda
In terms of his main activities during fiscal 2023, Mr. Fukuda attended all 18 meetings of the Board of Directors held during the year and madenecessary remarks as appropriate. He also attended other important meetings, including executive officer meetings, Business Process
Improvement meetings, and Development Promotion meetings, and, based on his knowledge cultivated in a major manufacturing company
engaged in a wide variety of businesses, made useful remarks from an independent, objective, and multifaceted perspective that differs fromthat of the management team that executes the Company’s business. He has therefore appropriately fulfilled the role expected of him as an
outside director.
Main concurrent positions: Auditor at Japan Indonesia Association, Inc.; auditor at Japan-Sri Lanka Association
Number of shares held: 1,265 (as of March 31, 2024)
Outside Director Kazuhiko Hayashi
In terms of his main activities during fiscal 2023, Mr. Hayashi attended all 18 meetings of the Board of Directors held during the year andmade necessary remarks as appropriate. He also attended other important meetings, including executive officer meetings, Business Process
Improvement meetings, and Development Promotion meetings, and, based on his specialized knowledge of design and development and his
deep insight into corporate management cultivated especially at a major automaker, made useful remarks from an independent, objective, andmultifaceted perspective that differs from that of the management team that executes the Company’s business. He has therefore appropriately
fulfilled the role expected of him as an outside director.
Number of shares held: 234 (as of March 31, 2024)
Outside Director Kaeko Kitamoto
In terms of her main activities during fiscal 2023, Ms. Kitamoto attended 12 of 13 meetings of the Board of Directors held during the remainderof the year after her appointment as an outside director and made necessary remarks as appropriate. She also attended other important
meetings, including executive officer meetings, Business Process Improvement meetings, and Development Promotion meetings, and, basedon her wealth of experience and deep insight into financial accounting cultivated at a major accounting firm and expertise in CO2 reduction
and the introduction of renewable energy as a member of the Electricity and Gas Market Surveillance Commission of the Ministry of Economy,
Trade and Industry, made useful remarks from an independent, objective, and multifaceted perspective that differs from that of the
management team that executes the Company’s business. She has therefore appropriately fulfilled the role expected of her as an outside
director.
Main concurrent positions: Certified public accountant; outside corporate auditor at Daikin Industries, Ltd.; member of the Electricity and Gas Market
Surveillance Commission of the Ministry of Economy, Trade and Industry

Outside Corporate Auditor Yoshitsugu Yokogoshi
In terms of his main activities during fiscal 2023, Mr. Yokogoshi attended all 18 meetings of the Board of Directors held during the year and all
17 meetings of the Board of Corporate Auditors and made necessary remarks as appropriate. He also attended other important meetings,
including executive officer meetings, Business Process Improvement meetings, and Development Promotion meetings, and, drawing on his
business experience cultivated at major financial institutions and extensive experience in corporate management, appropriately audited andadvised directors on the execution of their duties.
Outside Corporate Auditor Eisaku Imazato
In terms of his main activities during fiscal 2023, Mr. Imazato attended all 18 meetings of the Board of Directors held during the year and all 17
meetings of the Board of Corporate Auditors and made necessary remarks as appropriate. He also attended other important meetings,
including executive officer meetings, Business Process Improvement meetings, and Development Promotion meetings, and, drawing on his
business experience cultivated at major financial institutions and extensive experience in corporate management, appropriately audited andadvised directors on the execution of their duties.
Main concurrent position: Outside director at Marusan Securities Co., Ltd.

Incentives
Implementation status of measuresrelated to incentives granted todirectors

Other

Supplementary explanation for applicable items
Directors’ bonuses are decided at the General Meeting of Shareholders based on a proposal from the Board of Directors after consultation
with and reporting from the Nomination and Remuneration Advisory Committee and comprehensive consideration of business results for eachfiscal year (approximately 4% of non-consolidated profit) and the degree of achievement of the annual business plan.

Persons eligible for stock options

Supplementary explanation for applicable items―――

Director remuneration
Status of disclosure of individual
directors’ remuneration

Individual remuneration is not disclosed.

Supplementary explanation for applicable items
Individual remuneration is not disclosed because there was no director whose total amount of remuneration, etc., was 100 million yen or more infiscal 2023.
[Detail of director remuneration]
The details of director remuneration for fiscal 2023 (April 1, 2023 to March 31, 2024) are as follows.
 Annual remuneration for directors: 265,987,000 yen (including 66,600,000 yen for outside directors)
 Annual remuneration for corporate auditors: 81,600,000 yen (including 52,800,000 yen for outside corporate auditors)
Notes: 1. The amount paid to directors does not include employee salaries of directors who concurrently serve as employees.
2. Additional detail is disclosed in the Company’s Annual Securities Report (https://contents.xjstorage.jp/xcontents/AS06879/f4bb57e7/4d05/4d18/9aa2/c5ca4bb97608/S100TR1D.pdf). (In Japanese)

Policy on determining remuneration
amount and the calculation methods
thereofIn place

Disclosure of policy on determining remuneration amount and the calculation methods thereof
1. Basic policy
Director remuneration consists of fixed cash remuneration as base remuneration, restricted share-based remuneration as stock compensation,and bonuses linked to the Company’s fiscal year performance as variable remuneration. It takes into consideration the responsibility of directors
for increasing the Group's corporate value over the medium to long term as well as for improving performance in each fiscal year.
Outside directors do not receive share-based remuneration but are paid base remuneration and bonuses in the form of cash.
2. Policy on determining the amount of base remuneration for individuals
The base remuneration for directors shall be paid in the form of a fixed monthly remuneration, and it shall be set within the range of
remuneration that was resolved at the Fiscal 2022 General Meeting of Shareholders held on June 21, 2023 (320 million yen including 100
million yen for outside directors). The base remuneration shall be determined after comprehensively considering the Company’s businessperformance and the level of employee salaries, including for executive officers, etc., depending on whether they have representative rights or
not, their position, and responsibilities.
3. Policy on determining the details and calculation method for performance-linked remuneration
To raise awareness for improving business performance in each fiscal year, performance-linked remuneration for directors shall be decided at
the General Meeting of Shareholders following a resolution by the Board of Directors after consultation with and reporting from the Nomination
and Remuneration Advisory Committee and comprehensive consideration of business results for each fiscal year (approximately 4% of nonconsolidated profit) and the degree of achievement of the annual business plan. The payment is made once a year.
4. Policy on determining the ratio of base remuneration and performance-linked remuneration to the amount of remuneration for individual directors
The Company’s director remuneration consists of base remuneration (cash remuneration and restricted share-based remuneration) andvariable remuneration (performance-linked bonuses). Since non-consolidated profit, which becomes the source of bonuses, fluctuates alongwith business performance, we do not determine the ratio of the different types of remuneration in advance but instead, determine the ratio
subsequently depending on the determined amount of bonus for each fiscal year calculated by the method described in paragraph 3.
5. Policy on determining the amount of restricted share-based remuneration
The total amount of monetary remuneration claims to be paid as restricted share-related remuneration, etc., to directors (excluding outside
directors) shall not exceed the 100 million yen resolved at the Fiscal 2021 General Meeting of Shareholders held on June 22, 2022, and theamount of remuneration for each director shall be determined by the Board of Directors based on the amount calculated in accordance withthe standards set forth in the Officer Regulations resolved by the Board of Directors.
6. Matters concerning decisions related to the details of remuneration, etc. for each director
Determination of the amount of remuneration for individual directors shall be entrusted to the president and representative director, based ona resolution by the Board of Directors after consultation with and reporting from the Nomination and Remuneration Advisory Committee, which
was established on March 25, 2024, by resolution of the Board of Directors and a majority of whose members are independent outside
directors.

Support system for outside directors and/or outside corporate auditors
The Corporate Planning and Investor Relations Office of the Corporate Planning Division, which serves as secretariat for the Board of Directors,
provides support to outside directors, while the Internal Control and Audit Office and Corporate Auditor Office provide support to outside
auditors as necessary and appropriate.
The Corporate Planning and Investor Relations Office of the Corporate Planning Division also provides advance explanations and all necessary
information to outside directors and outside auditors regarding agenda items to be discussed at Board of Directors meetings.

[Status of retired president and representative director]
Name, etc., of former president and representative director, etc. who serve as advisors, consultants, etc.
Name

Mitsumasa Ito

Position

Honorary
AdvisorResponsibilities

Advice upon request of
management

Work style/ conditions(full-time/ part-time/compensated, etc.)
Full-time
Compensation provided

Date of
Length of term
retirement aspresident
June 21, 2024

Not specified

Number of advisors, consultants, etc., who areformer CEOs, etc.

Other matters―――

2. Matters concerning functions of business execution, auditing and supervision, nomination, and remuneration
decisions (overview of current corporate governance system)
The Company has adopted a Board of Corporate Auditors system, which is based on the institutional system under the Company with an
Audit and Supervisory Board format as stipulated in the Companies Act. The Company believes that its corporate governance is functioning
adequately and that the current system is effective since the Company has established the following systems.
1. Business execution and supervisory functions and their status
1) Board of Directors
In addition to formulating basic policies and strategies for the Group, the Board of Directors makes decisions on important matters, including
matters stipulated by law and regulations and the Articles of Incorporation, and supervises business execution.
The Board of Directors consists of 10 members, five of whom are outside directors. Outside directors provide a supervisory function over the
management of the Company from a standpoint independent from executive directors, drawing on their own experience and insight into
corporate management.
The status of activities of the Board of Directors in fiscal 2023 is described on page 55 of the Company’s Annual Securities Report(https://contents.xj-storage.jp/xcontents/AS06879/f4bb57e7/4d05/4d18/9aa2/c5ca4bb97608/S100TR1D.pdf) (In Japanese).
2) Corporate Auditors (Board of Corporate Auditors)
Based on audit policies and plans established by the Board of Corporate Auditors, corporate auditors audit the execution of duties by directors,
attend meetings of the Board of Directors and other important meetings, review important approval documents, and conduct onsite audits ofbusiness offices and subsidiaries, allowing for the regular auditing of the status of management execution.

The Board of Corporate Auditors consists of four members, two of whom are full-time auditors and two of whom are outside auditors.
The status of activities of the Board of Corporate Auditors in fiscal 2023 is described on page 66 of the Annual Securities Report (https://contents.xjstorage.jp/xcontents/AS06879/f4bb57e7/4d05/4d18/9aa2/c5ca4bb97608/S100TR1D.pdf) (In Japanese).
3) Advisory Members to the Board of Directors
Advisory Members to the Board of Directors, including experts from Japan and overseas, are appointed to advise the Board of Directors on
management issues on a regular basis.
4) Executive officer meetings
In June 2003, the Company introduced an executive officer system to strengthen business execution supervisory functions and acceleratemanagement decision-making. This clearly separated the policy and strategy formation, decision-making, and supervisory functions of theBoard of Directors from the business execution functions of executive officers. In addition, monthly executive officer meetings are held todeliberate important matters and issues related to business execution.
Executive officer meetings have 15 members and are chaired by the president and representative director. In addition to the executive
officers, directors and corporate auditors attend the meetings to supervise and audit the status of business execution by the executive officers.
5) Nomination and Remuneration Advisory Committee (voluntary committee)
At the Board of Directors meeting held on March 25, 2024, the Company established a voluntary Nomination and Remuneration Advisory
Committee. The committee stipulates in its regulations that a majority of the committee’s members shall be independent outside directors andthat the chair shall be selected from among the independent outside directors. Currently, the committee has three members, including two
independent outside directors.
As an advisory body to the Board of Directors, the committee studies and deliberates on director candidates, candidates for directors with titles,
director remuneration proposals, and other matters, and decides on matters to be reported to the Board of Directors.
6) Sustainability Committee
To strengthen the Group’s overall sustainability promotion framework, the Company established the Sustainability Committee on April 1, 2023,
as an organization to promote, oversee, and manage the Group’s overall sustainability initiatives. The committee is chaired by the president
and representative director, and its members are executive directors.
Main roles of the committee are to formulate and revise sustainability-related policies and strategies, identify materiality, formulate long-termtargets and KPIs and manage their progress, identify and manage risks and opportunities, plan and disseminate information on promotional
activities, regularly report and make recommendations to the Board of Directors, and submit basic policies for consideration.
The status of activities of the Sustainability Committee in fiscal 2023 is described on page 18 of the Annual Securities Report(https://contents.xj-storage.jp/xcontents/AS06879/f4bb57e7/4d05/4d18/9 aa2/c5ca4bb97608/S100TR1D.pdf) (In Japanese).
2. Status of audits
The Board of Corporate Auditors comprises four corporate auditors, two of whom are full-time and two part-time (including two outside
corporate auditors). After the Ordinary General Meeting of Shareholders, the Board of Corporate Auditors determines audit policies, plans,
and work assignments, and each Board of Corporate Auditors member audits the execution of duties by directors, executive officers, andothers in accordance with the “Board of Corporate Auditors Regulations,” “Board of Corporate Auditors Auditing Standards” and“Implementation Standards for Internal Control Systems.” Specifically, the Board of Corporate Auditors audits the execution of duties bydirectors through attendance at important meetings, including Board of Director meetings, executive officer meetings, Business Process
Innovation meetings, Development Promotion meetings, affiliated company meetings, and the president's audit. Furthermore, the Board of
Corporate Auditors meets with representative directors, shares information with outside directors, exchanges opinions with directors,
executive officers, division heads, office managers, divisional sales managers, and presidents of domestic and overseas subsidiaries, andinspects important documents including approval requests and credit application forms. The Board of Corporate Auditors also plans and holds
Group corporate auditor liaison meetings with auditors from affiliated companies to share information among Group companies and take thelead in improving knowledge related to auditing duties.
The Internal Control and Audit Office is responsible for internal audits, with one manager and three auditors conducting internal audits of theCompany and its subsidiaries throughout the year based on a pre-planned audit schedule.
In addition, the Corporate Planning and Investor Relations Office of the Corporate Planning Division serves as secretariat and implements a“president’s audit” twice a year in which the Company president directly audits the status of business execution by those in charge of eachdivision and monitors progress on the Company’s business plan and the status of risk management, etc. The certified public accountants
performing the accounting audit of the Company in fiscal 2023 were Mr. Tatsuya Chiba and Mr. Yoshitaka Sakurai, both of whom aredesignated limited liability partners at the Tokyo office of PricewaterhouseCoopers Japan LLC. They were assisted by two certified public
accountants, one associate member of the Japanese Institute of Certified Public Accountants, and eight other staff members.
3. Status of audits by the accounting auditor
In terms of accounting audits, PricewaterhouseCoopers Japan LLC conducts strict accounting audits based on an audit contract and theCompany exchanges opinions on the audit results and receives recommendations for improvements.

3. Reasons for adoption of the current corporate governance system
As stated in section 2 above, we believe that the current corporate governance system is functioning effectively and that the number of outside
directors, outside corporate auditors, and independent officers is already sufficient considering the size of the Company and the number ofmembers of the Board of Directors and the Board of Corporate Auditors.

III. Implementation of measures for shareholders and other stakeholders
1. Status of efforts to vitalize shareholders' meetings and facilitate the exercise of voting rights
Supplementary explanation

Early dispatch of Convocation Notice for
the General Meeting of Shareholders

The Notice of the Ordinary General Meeting of Shareholders is sent out two weeks prior tothe meeting, but electronic provision measures (posting on the Tokyo Stock Exchange’s
website, ICJ’s Electronic Voting Platform, and the Company website) begin
approximately two weeks before mailing begins (four weeks before the meeting) toimprove convenience for shareholders and ensure sufficient time for them to consider
agenda items. The Notice of the Ordinary General Meeting of Shareholders for fiscal
2023 was posted on the Tokyo Stock Exchange’s website, ICJ’s Electronic Voting
Platform, and the Company website (https://www.hds.co.jp/ir/event/stockholder/) 30
days prior to the meeting.

Scheduling of the General Meeting of
Shareholders during non-peak days

The Company sets a date for the General Meeting of Shareholders that avoids peakdays. The Ordinary General Meeting of Shareholders for fiscal 2022 was held on June21, 2023 (Wednesday), and for fiscal 2023 on June 21, 2024 (Friday).

Electronic exercise of voting rights

Beginning with the Ordinary General Meeting of Shareholders for fiscal 2016, theCompany introduced a system for exercising voting rights by electromagnetic
means. Specifically, we have introduced two ways to exercise voting rights: (1) bydirectly entering the URL and logging in to the "Voting Website" with an ID andpassword, and (2) by "Smart Exercise," whereby shareholders can easily exercise
their voting rights without an ID and password by reading the QR code on the
Voting Form after logging in to "Convocation via Internet" from their smartphones ortablets. This way, users can exercise their voting rights not only from PCs but also
from smartphones and tablets.
Regarding advance resolutions (based on the number of resolutions) for theOrdinary General Meeting of Shareholders for fiscal 2023, 38% of voting rights were
executed in writing, 2% by computer, 55% by smartphone, and 5% by ICJ’s
Electronic Voting Platform.

Participation in a platform for theelectronic exercise of voting rights andother initiatives to enhance environment
for institutional investors to exercise
voting rights

 To provide an appropriate voting environment for institutional investors both inJapan and overseas, we started using ICJ’s Electronic Voting Platform from theOrdinary General Meeting of Shareholders for fiscal 2017.
 Prior to mailing, the Notice of the Ordinary General Meeting of Shareholders isposted in both Japanese and English (reference documents and summary only) on
the Tokyo Stock Exchange’s website, Electronic Voting Platform (ICJ), and theCompany website. Japanese is posted about 30 days before the meeting andEnglish 24 or 25 days before the meeting.

Provision of notice (or summary ofnotice) of the General Meeting of
Shareholders in English

We started submitting for disclosure an abridged version of our reference
documents in English from the Ordinary General Meeting of Shareholders for fiscal
2017 and English versions of the reference documents together with a summary
starting with the Ordinary General Meeting of Shareholders for fiscal 2022 to theTokyo Stock Exchange’s website and ICJ’s Electronic Voting Platform. We also
display these documents on our website.
(https://www.hds.co.jp/english/ir/event/stockholder/).

Other To vitalize the General Meeting of Shareholders, in explaining the content of items
to be reported and resolved, we strive to make the content visually easy to understandby displaying materials with graphs and charts using a projector.
 We post convocation notices, resolution notices, voting results, and presentationmaterials on matters to be reported, etc., on the Company website.
Japanese: https://www.hds.co.jp/ir/event/stockholder/
English: https://www.hds.co.jp/english/ir/event/stockholder/2. Status of IR-related activities
Supplementary explanation

Formulation and publicationof disclosure policies

Regular investor briefings
held for individual investors

Explanation by arepresentative
director

The IR section of the Company website contains our information disclosure
policy and framework for timely disclosure in both Japanese and English.
Japanese: https://www.hds.co.jp/ir/management_policy/ir_policy/
English: https://www.hds.co.jp/english/ir/management_policy/ir_policy/
We hold corporate briefings for individual investors at least once a year tooutline the Group and our business strategies, business performance, etc.
In fiscal 2023, this meeting was held on March 30, 2024 (Saturday).
Not held*The material used for individual investor briefings can be accessed from theindividual investor briefing page on the Company website.
https://www.hds.co.jp/ir/event/investor/ (In Japanese)
When we announce our interim and full-year business results, we holdhybrid financial results briefings for analysts and institutional investors,
combining in-person and live streaming, where the president andrepresentative director, the representative director and general manager ofCorporate Planning, and the CFO provide explanations and answer
questions. The meetings for fiscal 2023 were as follows.

Regular investor briefings
held for analysts andinstitutional investors■Q2 fiscal 2023 results briefing
Date and time: November 17, 2023 (Friday) 1 0 A M
Place: Bellesalle Tokyo Nihonbashi, Rooms 10 and 11, 5th floor, Tokyo
Nihonbashi Tower, 2-7-1 Nihonbashi, Chuo-ku, Tokyo
Speakers: Akira Nagai, President and Representative Director
Akira Maruyama, Representative Director and General Manager ofCorporate Planning
Kazutoshi Kamijoh, Director and General Manager of FinanceAccounting and Tax
Participants: 25 in person, 116 via streaming■Full-year fiscal 2023 results briefing (final accounting)Date and time: May 13, 2024 (Monday) 1 0 A M
Place: Bellesalle Tokyo Nihonbashi, Rooms 10 and 11, 5th floor, Tokyo
Nihonbashi Tower, 2-7-1 Nihonbashi, Chuo-ku, Tokyo
Speakers: Akira Nagai, President and Representative Director
Akira Maruyama, Representative Director and General Manager ofCorporate Planning
Kazutoshi Kamijoh, Director and General Manager of FinanceAccounting and Tax
Participants: 20 in person, 113 via streaming

Held*We post the materials and scripts for the briefing on the financial results
section of the Company website.
Japanese: https://www.hds.co.jp/ir/event/accounts/
English: https://www.hds.co.jp/english/ir/data/briefings/

Regular investor briefings
held for overseas investors

 We hold small meetings for overseas investors arranged by securities
companies each time we announce quarterly business results. In fiscal 2023,
we held a total of 10 small meetings.
 To explain our financial results and business strategies, we hold individualinterviews with overseas institutional investors on a quarterly basis. 89
overseas investors attended individual meetings in fiscal 2023.
 We participate in conferences organized by securities companies at least
once a year. In fiscal 2023, we attended five such conferences.

Online disclosure of IR
information

We have set up an Investor Relations section on the Company website andseek to display all our IR information in a readily understandable format
using charts and graphs and in a timely way. Timely disclosure means
disclosure that is nearly simultaneous with disclosure by the Tokyo Stock
Exchange.
Japanese: https://www.hds.co.jp/ir/
English: https://www.hds.co.jp/english/ir/

Establishment of department
and/or placement of amanager in charge of IR

 The executive officer in charge of corporate planning oversees all IR
operations as the head of IR, and conducts IR operations in cooperation
with the Executive Officers in charge of finance, accounting, and taxation.
 The Corporate Planning and Investor Relations Office of the Corporate
Planning Division has been established as the department in charge ofinvestor relations, and specific investor relations activities are being
implemented.

Held

3. Status of measures to ensure due respect for stakeholders
Supplementary explanation
By contributing to technological innovation in society with our motion control
technology, we aim to enrich the lives of people around the world, realize asustainable society, and increase our corporate value. To realize the Management
Principles established in the early days of the company, we strive to build
relationships with all stakeholders, including employees, shareholders and investors,
customers, suppliers, local communities, and future generations.
■Management Principles
I. Respect for the Individual
We aspire to be a company where the rights of every individual employee arerespected, and where individuals can pursue a meaningful, cultural, and worthwhile
life. We aim to be a company that believes in each employee’s aspirations, supports
independent activities, creates an environment where employees can maximize
their abilities through work, and where abilities and performance are rewarded.

Establishment of internal rules
stipulating respect for the position of
stakeholders

II. A Meaningful Company
We want to be recognized as a meaningful, superior company that manifests
creativity, has personality and distinctive characteristics, and whose managementfoundation is based on ceaseless research and development activities and a constantemphasis on quality—a company where the entire organization finds meaning indoing its utmost.
III. Coexistence and Co-prosperity
We are supported by many different parties including our employees, customers,
shareholders, materials and parts suppliers, affiliated companies, and trading
partners. We do our best to generate attractive products, services, compensation,
working environments, and business relations to satisfy all concerned parties.
IV. Contribution to Society
We broadly contribute to society and industry through our corporate activities as agood corporate citizen. The products and services we provide directly and indirectly
contribute to the betterment of society. We aspire to be a company that helps toimprove the environment and the quality of the communities where we are located.
Please refer to our Integrated Report (https://www.hds.co.jp/english/csr/hdsreport/) for
more information on stakeholder engagement.
■Environmental conservation activities
The Group has always been deeply aware of our corporate social responsibility
toward the global environment and strives to maintain and improve our environmental
management system based on ISO 14001. To substantially reduce our environmental
impact, we have set targets for reducing CO2 emissions, water intake and discharge,
and waste, and actively engage in efforts to achieve those targets.

Implementation of environmental
preservation activities and CSR
activities, etc.

■Climate change response
We recognize that addressing climate change is an important management issue, so
we have set a long-term goal of “Net Zero by 2050” and are working to achieve it.
Specifically, we have identified climate change-related risks and opportunities that
may affect the Group’s operations, conducted scenario analyses as recommended
by the TCFD under the 1.5℃ and 4.0℃ scenarios, and analyzed the impact ofindividual risks and opportunities on our operations and their likelihood under thevarious suppositions of their manifestation in the short, medium, or long term. Basedon the results of these scenario analyses, we promote initiatives to create
opportunities and minimize risks, mainly via the Sustainability Committee.
■Sustainability activities, etc.
We recognize that sustainability initiatives are an important management issue, andin accordance with our basic sustainability policy based on our Management
Principles comprising Respect for the Individual, A Meaningful Company,
Coexistence and Co-prosperity, and Contribution to Society, we strategically promotesustainability activities led by the Sustainability Committee, which is chaired by thepresident and representative director, and attended by executive directors.
Our environmental conservation activities and sustainability initiatives are posted in
the sustainability section of the Company website and our Integrated Report.
Sustainability section of the Company website
 Japanese: https://www.hds.co.jp/csr/
 English: https://www.hds.co.jp/english/csr/
Integrated Report Japanese: https://www.hds.co.jp/csr/hdsreport/
 English: https://www.hds.co.jp/english/csr/hdsreport/

The Company provides information to stakeholders by posting it on our website(https://www.hds.co.jp/english/).

Formulation of policies regarding theprovision of information to
stakeholders

Our policy on timely disclosure is posted on the IR Disclosure Policy section of theCompany website (https://www.hds.co.jp/english/ir/management_policy/ir_policy/).
It is also provided in “I. Basic views on corporate governance, capital structure,corporate profile, and other basic information, Disclosure based on the principles of
the corporate governance code, [Principle 3.1: Full Disclosure]” of this report.

Ⅳ Matters related to the internal control system
1. Basic views on the internal control system and progress of system development■ Basic Views on the Internal Control System
The Company has established the following fundamental policies on establishment of internal control systems, which are necessary toensure that Directors' execution of duties is in compliance with laws, regulations and the Articles of Incorporation and to ensure theappropriateness of other operations. In accordance with the fundamental policies, the Company will continue to ensure theappropriateness of operations and review and improve the internal control system with the aim of building a more effective system.
■ Status of development of internal control system
1. System for the preservation and management of information related to the execution of duties by Directors
The handling of information and documents relating to the execution of duties by Directors shall be appropriately stored and managed in accordancewith the Company’s internal rules on document management.
2. Regulations and other systems for managing risk of loss
(1) The Company shall stipulate risk management rules, establish a Group-wide risk management structure in accordance with the rules andimplement risk management.
(2) In the event of a risk should arise, the Company shall establish a system to take appropriate measures in accordance with the "Code of Conduct," "Crisis and Risk Management Regulations," and "Crisis Management - Code of Conduct in the Event of a Crisis"
established by the Company.
(3) Responsibility and authority relating to risk management are segregated as follows:
・The President and Representative Director shall have authority and responsibility for establishing risk management systems throughout the Group.
・The Executive Officer responsible for general affairs shall promote maintenance and improvement of risk management systems
throughout the Group and manage the systems in accordance with the instructions and supervision of the President and Representative
Director.
・Executive officers shall recognize the importance of identification, assessment, monitoring and management of risks with respect to the fields forwhich they are responsible and establish systems for clarification and management of risks.
3. System ensuring efficient execution of duties by Directors(1) The Company shall employ the Executive Officer system and separate functions of the Board of Directors, including strategy
formulation, decision-making, and supervision, from the function of Executive Officers, namely execution of operations. The Company shalldefine the responsibility and authority concerning execution of duties in the Authority Rules to clarify responsibility, improve efficiency ofdecision-making, and accelerate decision-making.
(2) The Company shall continuously monitor the situations of business operations and risks and ensure efficiency of duty execution by
Directors, Executive Officers, and the Directors of subsidiaries based on the following management control systems:
・Board of Directors Meeting (decision-making of important management policies, monitoring of the progress of the mid-term business plan andthe annual business plan)
・Executive Officer Meeting (reporting and deliberation of the status of Executive Officers' business execution, deliberation and decision-making on
execution of important management matters)
・President's Audit (direct audit by the President on business execution policies of persons responsible for each division, targets, and status ofbusiness execution)
・Business process innovation meeting (deliberation on monthly business results, initiatives for business process innovation, etc.)
・Affiliated company meeting (reporting and deliberation of the status of management at affiliated companies)
・Internal audit (audit of appropriateness and efficiency of activities related to operations, accounting, quality, and the environment)
4. System ensuring execution of duties by Directors and employees in compliance with laws, regulations, and the Articles of Incorporation(1) The Company shall ensure that everyone working at the Company and its subsidiaries complies with the Charter of Corporate Behavior
and the Code of Conduct, and foster a high level of awareness of compliance among individual employees.
(2) In the event of any unfavorable compliance-related eventuality at the Company and its subsidiaries, the Company shall establish a systemby which the President and Representative Director, the Chairperson and Representative Director, the Board of Directors, and the Board of
Corporate Auditors receive reports on the details of the event and countermeasures via the Executive Officer responsible for general affairs.
(3) The Company and its subsidiaries shall establish a system for ensuring reliability and appropriateness of financial reporting and evaluate
the status of development and operation of such system regularly.
(4) As a system for ensuring (1), (2), and (3) above, the Company shall establish a system to ensure business execution is being conducted
appropriately by having Internal Auditors primarily led by the Internal Control and Audit Office, to conduct internal audits of the Company andits subsidiaries.
(5) The Company and its subsidiaries shall adhere to the basic policy to comply with laws and regulations and have no relationshipwhatsoever with anti-social forces or organizations.
5. System ensuring the appropriateness of operations of the corporate group consisting of the Company and its subsidiaries(1) The Company shall foster a high level of awareness of compliance by thoroughly communicating the Code of Conduct to the employees of
its subsidiaries as well.
(2) The Company shall establish an appropriate system for managing its subsidiaries in accordance with the Rules for Management ofAffiliated Companies.
(3) The Company shall continuously monitor the status of execution of operations at subsidiaries and risks by periodically holding AffiliatedCompanies Meeting.
(4) Internal Auditors primarily led by the Internal Control and Audit Office shall periodically conduct operational audit of Group companies.
(5) The Company shall promote personnel exchange between the Company and its subsidiaries in order to achieve close collaboration of theGroup.
6. Matters concerning employees who provide assistance to Corporate Auditors upon request
The Company shall establish an organization to assist with the duties of Corporate Auditors and assign appropriate personnel to thatorganization.
7. Matters concerning the independence of employees mentioned in 6. above from Directors
Transfer of the employees who provide assistance to Corporate Auditors and their performance evaluation shall require the consent of the Board of
Corporate Auditors and its members.
8. System for Directors and employees of the Company and its subsidiaries to report to Corporate Auditors, and other systems regarding reports tocorporate auditor

(1) Corporate Auditors shall attend important meetings to gain important information on the execution of duties by Directors and employees.
(2) Directors and employees of the Company and its subsidiaries shall swiftly notify the Board of Corporate Auditors and its members of mattersthat may have a material impact on the Group, in addition to matters designated by law.
(3) Any matters discovered through internal audits of the Company and its subsidiaries shall be reported to the Board of Corporate Auditors andits members by the General Manager of the Internal Control and Audit Office.
(4) Directors and employees of the Company and its subsidiaries are required to provide the necessary reports and information in response torequests from the Board of Corporate Auditors and its members.
(5) Any whistleblowing reports from the Company and its subsidiaries shall be handled according to the whistleblowing system and reported to theBoard of Directors and its members and the Board of Corporate Auditors and its members periodically or as necessary. Furthermore, the identityand personal information of any whistleblowers shall be protected to ensure they are not treated disadvantageously.
9. Other Systems Ensuring the Effectiveness of Audits Conducted by Corporate Auditors(1) The Board of Corporate Auditors and its members shall periodically meet with the Company's Accounting Auditors to exchange opinions.
(2) If deemed necessary for auditing, the Board of Corporate Auditors and its members may appoint lawyers, certified public accountants, or otherexternal experts, in addition to internal staff, at the expense of the Company.

2. Basic views on measures for eliminating anti-social forces and status of development
The Company has prescribed the following basic policy concerning the elimination of anti-social forces in the Charter of Corporate Behavior:
・The Company shall not compromise with anti-social forces and shall maintain a resolute attitude.
Regarding the above-mentioned Charter of Corporate Behavior, we regularly conduct group awareness-building training sessions to ensure
all employees are thoroughly familiar with the charter’s contents and distribute the content on a pocket-sized card to all employees.
In addition, regarding responses to anti-social forces, we have created an internal control manual that serves as an internal regulation, andstrive to implement its specific operations.
We also receive information on anti-social forces and advice on appropriate ways to respond, through cooperation with the police and theSpecial Violence Prevention Coalition.

Ⅴ Other
1. Adoption of anti-takeover defense measures
Adoption of anti-takeover measures

None

Supplementary explanation for applicable items―――

2. Other matters concerning the corporate governance system
The status of the Company’s internal system for timely disclosure of corporate information is described below.
1. Basic Stance on Timely Disclosure
The Company’s basic stance is to disclose corporate information that could have a significant impact on investors’ investment decisions ina timely and appropriate manner in accordance with our internal regulations such as the Insider Trading Management Rules.
2. Status of Internal System for Timely Disclosure
There is a system in place under which important corporate information relating to the Company and its subsidiaries, whether it be information
on decisions, occurrences, or financial results, is consolidated to the officer in charge of information handling (Director and Chief Financial
Officer), who is appointed by the President and Representative Director.
The officer in charge of information handling (Director and Chief Financial Officer) who receives the reports on corporate information decides,
after consulting with the relevant departments, whether the information received is required to be disclosed under the Rules for Timely
Disclosure, and then determines the content and timing, etc. of any disclosure after obtaining the approval of the President and Representative
Director.
Regarding matters that require a resolution of the Board of Directors, any decisions are communicated to the officer in charge of information
handling (Director and Chief Financial Officer) immediately following a resolution, and the implementation of timely disclosure of that information
is determined.
The officer in charge of information handling (Director and Chief Financial Officer) who has decided to implement a timely disclosure of
information then instructs the division in charge of IR on the disclosure procedures and handling of the disclosure of the relevant corporate
information.
The information is disclosed by registering it on TDnet and, if necessary, sending materials to the media. The same information is disclosed on
the Tokyo Stock Exchange (TDnet) and posted on the Company website (https://www.hds.co.jp/)