A Talk between Our Outside Directors

Ryoko Ueda
Outside Director

Naokuni Motoda
Outside Director
Full-time Audit & Supervisory
Committee member

We will work to enhance the medium- to long-term corporate
value of the Company through fulfilling our responsibility as directors.
Outside Director and Full-time Audit and Supervisory Committee Member Naokuni Motoda, who has been participating in the management of the Company since his appointment as a full-time Audit & Supervisory Board member(outside Audit & Supervisory Board member) in 2015 and Outside Director Ryoko Ueda, who has been involved in therevision of the Japanese Stewardship Code and Corporate Governance Code as an academic expert, exchanged views
on corporate governance to enhance the Company’s corporate value over the medium to long term.

Completion of the First Year of the Medium-Term Management Plan
Motoda During the first year of the Medium-Term
Management Plan, which started in fiscal 2022, orders
received were at a record high. However, I believe there
are issues with the Company’s operating profit and operating profit ratio. Our Medium-Term Management Plan is athree-year plan, but in order to achieve sustainable growth,
it is always necessary to formulate management strategies
that look 10 to 20 years into the future. While it is natural
to be particular about achieving the numerical targets ofthe Medium-Term Management Plan, it is also necessary todeepen discussions on the Company’s vision for the futurewith an eye to the future. Through these efforts, I believethat the achievement of the numerical targets of the current
Medium-Term Management Plan will become more realistic,
so I think it is important for the Board of Directors to discuss
it from a medium- to long-term perspective.
Also, in the process of promoting the Medium-Term
Management Plan, I think there are some issues in reviewing the progress of the plan. It is necessary to review not

only the degree of achievement of numerical targets but
also whether various measures are functioning effectively.
As an Audit and Supervisory Committee member, I havealready made recommendations on this point, and progress
management is being improved.
Ueda I agree. It is important for the Board of Directors
to thoroughly discuss the vision for the future and shareit internally. The Medium-Term Management Plan sets
three-year targets for realizing our vision for the future.
There are many companies that simply follow the numbersin the plan, achieving first-year targets, but, because they
will not achieve targets in the second year, do everything in
the third year, which is the last year of the plan. This meansthat accomplishing the plan is the objective. Clarifying whatkind of company we want to be and what kind of presence
we want to have in society in the future will change theway we manage our business. First of all, I think it is important to clarify the Company’s vision for the future.

Full Implementation of Sustainability Management
Ueda The Sustainability Promotion Committee, aCompanywide committee, which started full-scale
operation in fiscal 2023, has set targets for each materiality
issue identified and has been materializing action plans toachieve those targets.

However, the demands and expectations of society are
drastically changing more than we think, so we need to beflexible enough to keep up to date with the latest information.
I believe that our current form of sustainability management isat the stage of raising the quality of our initiatives with a uniquecorporate identity while being fully aware of external feedback.
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Hirata’s Sustainability

A Talk between Our Outside Directors

specific theme, which raise a variety of issues and report on
progress toward resolving each issue.
Prior to the establishment of the Sustainability Promotion
Committee, the Audit & Supervisory Board (now the Auditand Supervisory Committee) had proposed specific initiatives
for issues such as human capital, risk management, andcompliance. These initiatives are being embodied in theactivities of the various working groups of this committee. Ifeel that management centered on sustainability has begun
to move in a systematic manner.

The Sustainability Promotion Committee, which meetsregularly and in which I participate as an observer, has
specific discussions with an awareness of the issues. In
the future, as an outside director, I would like to evaluate
efforts, taking into account the perspectives of external
stakeholders such as shareholders and investors, anddisseminate them externally as necessary.
Motoda The Sustainability Promotion Committee iscomposed of five working groups, each dedicated to aUeda We must proactively expand information disclosure
regarding the recognition of sustainability issues and theprogress and results of our initiatives. As the next step, it isnecessary to set specific KPIs to trace the degree of achievementof targets and the progress of initiatives for each materiality
and to formulate a concrete road map for implementation.
In the future, discussions on these issues, which areindispensable for improving our corporate value, will takeshape, but in setting them, we need not only an internal
perspective but also an objective viewpoint from outside
the Company. As an outside director, I would like to be fully
involved and supportive of these discussions.

Toward Strengthening Human Capital
Motoda As one of the important themes of theSustainability Promotion Committee, various initiatives tostrengthen human capital are being considered and promoted. However, I believe that an accurate understandingof the current status of human resources with what abilities
and to what extent they are available within our Groupis necessary for carrying out those initiatives. The specificdirection in which human resource investment is headed
is closely related to management strategy. This means thatif the management strategy for the future is clarified, therequired human resources will be determined. I am awarethat the extent to which management strategy and humanresource strategy are aligned is an important theme for theBoard of Directors.

Ueda On the other hand, we as directors must always
think about how we can keep employees motivated andworking with a positive mindset.
Especially among the younger generation, the feelingsof belonging to the Company and workstyle needs arebecoming more diverse. Only by respecting such diversity
and motivating employees to continue working will theyrealize growth and make a greater contribution to theCompany.
I think that it is important for us to always consider whata corporate culture and work environment should be like inwhich individuals and organizations can grow sustainably.

Contributing to the Enhancement of Corporate Value throughAppropriate Risk Management
Motoda Various risks are always present in the execution of all business operations. Through my many years at
a financial institution, I have learned various forms of risk
management and have experienced many successes andfailures.
As a member of the Audit and Supervisory Committeeof the Company, I would like to make use of the correct
approach to risk management that I have experienced in
discussions at Board of Directors’ meetings and in my daily

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activities. It is essential to hedge the risk of loss in advance.
On the other hand, there are situations in which drastic risktaking is necessary by management judgment in order toincrease corporate value.
I would like to contribute to the sustainable enhancement of corporate value by utilizing my knowledge tosupport the Board of Directors’ prompt and decisivedecision-making from both risk-hedging and risk-taking
perspectives.

Strengthening Governance for Sustained Corporate Value Enhancement.
Motoda In June 2023, in accordance with the transition
to a Company with an Audit and Supervisory Committeeorganizational design, we established a new basic policy
for fiscal 2023 in the form of the Audit and Supervisory
Committee. One of our stated goals is to establish a highquality Group governance system that lives up to the trustof society. In the past, we made recommendations on
strengthening governance every year, and in fiscal 2023,
Group governance remains a priority audit item for theAudit and Supervisory Committee. The way we manage
our business in a rapidly changing business environment isto establish a high-quality Group governance system. I am
confident that this will lead to the sustainable developmentof the Company and the enhancement of corporate value.

Ueda As a member of the Japanese government’s panelof experts, I am involved in the revision of the Corporate
Governance Code, and I believe that the main purposeof strengthening corporate governance is to sustainably
increase corporate value from a medium- to long-term perspective. Although corporate value is fundamentally basedon shareholder value, we must also enhance corporate value
for all stakeholders. We feel that the Company has a goodbalance between those two types of value. While being very
conscious of corporate value for shareholders and investors,
the Company’s management also emphasizes consideration
for its customers, suppliers, employees, and local communities. The executive side is making efforts to further enhance
corporate value, and through my duties as a director, I would
like to support management while maintaining an awarenessof all stakeholders.

What the Transition to a Company with an Audit andSupervisory Committee Organizational Design Has Brought About
Motoda Before the introduction of the Corporate
Governance Code and the outside director system, each
Audit & Supervisory Board Member actively asked ­questions
and made recommendations at meetings of the Boardof Directors. This culture has continued to this day, andeven after the transition to a Company with an Audit andSupervisory Committee organizational design, directors whoare Audit and Supervisory Committee members actively
speak during meetings of the Board of Directors. We haveconducted not only legal audits but also audits on appropriateness since the days of the Audit & Supervisory Board, andour basic role has not changed even after said transition.
As a result of the formation of the Audit and Supervisory
Committee, Audit and Supervisory Committee members
have received new voting rights in the Board of Directors.
In addition, I have been granted the legal authority andresponsibility of expressing opinions on the nomination andremuneration of directors at the Shareholders’ Meeting,so I believe that I must participate more responsibly indecision-making.

Supervisory Committee members will have new voting
rights at the Board of Directors and will be able to­contribute to strengthening governance beyond the­conventional framework. I also believe that the addition oflegal authority and responsibility has established moreclearly the position and role of Audit and Supervisory
Committee members in management.
We do not have a mindset of "I can only say so muchbecause I am an Audit and Supervisory Committee
member." In addition, each Audit and Supervisory
Committee member possesses a high level of expertise,so I believe that we have a very well-balanced structure.
The opinions of the Board of Directors as a whole,including Audit and Supervisory Committee members,
are always respected based on mutual trust and respect,and ­relationships are fostered that allow free and open
exchange of opinions. By all means, I would like to playa role in contributing to the sustainable growth of theCompany and the enhancement of corporate value overthe medium to long term, while valuing such relationships.

Ueda Whether a Audit & Supervisory Board or a Audit
and Supervisory Committee, the important thing is whether
it fulfills its substantive functions and roles. What surprised
me when I was appointed as outside director of theCompany is that Audit & Supervisory Board members madevery in-depth comments on the execution of the Company
and that the execution side was taking these comments
very seriously and applying them to their initiatives, rather
than simply saying that they had listened to them.
With the transition to a Company with an Audit andSupervisory Committee organizational design, Audit andHirata Integrated Report 2023

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