Roundtable Discussion of Outside Directors

KAGA ELECTRONICS downsized its Board of Directors,
with the Board’s membership being split between outside
and internal directors. Please provide your assessments
regarding recent revisions executed to update theCompany’s governance structure.

KAGA ELECTRONICS Is Pursuing
an Ideal Governance Structure
Based on Our Suggestions
Here, we present the summary of a roundtable talk among our three outside directors, Susumu Miyoshi, Akira
Tamura and Noritomo Hashimoto, all of whom are seasoned corporate managers, to discuss the Kaga Electronics
Group’s ideals for corporate governance.

27

Akira Tamura

Susumu Miyoshi

Noritomo Hashimoto

Outside Director

Outside Director

Outside Director

KAGA ELECTRONICS CO.,LTD.

Miyoshi: The downsizing of the Board’s membership resulted in abetter governance structure. This move will help the Board of
Directors narrow its focus on determining the future direction the
Company must take, identify priority agenda items, respond tochanges in the external situation, and handle crisis management,
information disclosure, M&A and other important matters even as
it delegates authority over business execution to the executive
officers. Although the Board is also expected to address andupdate its vision regarding how it should look going forward,
I consider the downsizing of its membership a positive move in theright direction.
Having reduced the number of members, the Board of Directors
is better positioned to spend time discussing each topic in depth.
In addition, the roles to be borne by the Board have become muchclearer. While supervising business execution is an importantfunction of the Board of Directors, I believe that enabling the Board
to robustly discuss what the Company should aim to accomplish isa matter of utmost importance. I believe the Board is now fully
equipped to conduct future-oriented discussions.
Tamura: Attendees of Board of Directors meetings, Nomination
and Compensation Committee meetings, Management Meetings,
budget meetings and other important meetings are engaged in afree-spirited exchange of unfettered opinions. What supports these
discussions are relationships of mutual trust among
officers. At the same time, the differences in their standpoints
enable them to avoid growing complacent and too cozy with eachother. This is especially true of individuals from outside the Group
with different backgrounds and are capable of providing fresh
insights to those who have built their careers mostly within theGroup. Moreover, the external environment surrounding theCompany encompasses a diverse range of aspects. Accordingly,
bringing multilateral perspectives into discussions will help us
yield better results. On the other hand, a reduction in the numberof Board members to the smallest possible extent was necessary
in light of the importance of enabling the Board to engage inmeaningful discussions.
Previously, separation between the Company’s executivefunctions and its monitoring / supervisory functions had not been
so clear. However, the Company transitioned to a structure inwhich authority over detailed management matters is delegated to
executive officers to accelerate business execution, with the Boardof Directors tasked with deliberating matters deemed particularly
important for the Company as a whole. Although the three of us
have repeatedly suggested that the Board of Directors focus on
monitoring and providing necessary advice to executives, therecent revisions enabled the Board to realize just that.
Furthermore, the downsizing of the Board has put its members
in a position in which they can harness their diverse
backgrounds in discussions.
For the Company to maintain sustainable growth, it is importantto secure excellent human resources capable of handling
corporate management. To that end, we attend various importantinternal meetings, including Nomination and Compensation
Committee meetings, in order to identify candidates from amongindividuals in a rank immediately under top management. We also
conduct interviews to assess their awareness of issues
confronting the Company.
To date, the Company has upheld KAGA-ism, which summarizes
principles to be observed by employees and features various
quotes selected from remarks by Chairman Tsukamoto in line witha corporate philosophy of “Everything we do is for our customers.”
Although these principles have taken root among the workforce
and provided employees with action guidelines, I believe theCompany should update and align them with social norms, which
evolve over time. Businesspeople who operate solely within thescope of a specific business could end up becoming ignorant tochanges in society. I feel that the Board of Directors is called upon
to stay apprised of such changes, believing that to do so is one
form of the supervisory functions it is expected to exercise.
Hashimoto: A corporation can only exist by keeping its businessrunning. Accordingly, the Management Meeting is deemed an
extremely important meeting to support business execution. While
this meeting is aimed at thoroughly deliberating on ways toaccumulate sales and profit, the Board of Directors, including thethree of us, will focus on discussing the Company’s reason forbeing and the true value of its business as well as how it shouldlook and what it aims to achieve going forward, based on thehard-earned results of its business operations. In short, theCompany has secured a proper separation between supervisory
functions, which employ an overarching perspective that takes thestatus of the entire Group into account, and executive functions,which are provided by the Management Meeting to robustly
accumulate operating results.
For the former functions to be fully exercised, securing objectivity is of the utmost importance. In this light, the Board of Directors
has gained a greater ability to objectively address issues affecting
the entire Group while avoiding losing touch with what external
stakeholders would say about its operations. I consider this ability
to be the Board’s most notable feature deserving appreciation.
Currently, KAGA ELECTRONICS adopts a system of a company
with a board of corporate auditors with considerations toward a
possible transition to a company with an audit committee systemin the future. In addition, transitioning to a system of a company
with three committees could one day become a viable option in thecourse of pursuing further corporate growth. In any case, theBoard of Directors has now developed full capabilities to addressthese and other future-oriented subjects.
The updating of the governance structure also bears relevanceto the Group’s net sales target of ¥1 trillion. Doubling net sales
from ¥100 billion to ¥200 billion is one thing, but doubling net salesof ¥500 billion to ¥1 trillion is something totally different. The latter
will very likely cause various stakeholders in society to scrutinize
whether the Company’s conventional management structure iscapable of maintaining this scale of operations. Employees will
similarly be anxious about the same issue. I believe that,
therefore, the Company must continue to update its governancestructure in one way or the other.
Miyoshi: Since joining the Company’s Board of Directors, I havebeen vocal about the necessity of female officers and havesuggested appointing a female outside auditor as a first step. I am
happy about the recent reconfiguration of the Board’s membership,
which included the appointment of the right person.
Although Mr. Hashimoto has touched on a topic associated with
the Company’s net sales target of ¥1 trillion, the Board of Directors
will be called upon to discuss it as an important subject. I will
elaborate on this subject from the following three aspects.
First, the pursuit of this target requires the alignment of theCompany’s business model. Previously, KAGA ELECTRONICS haslargely been focused on procuring electronic parts from manufacturers and selling these parts. However, the Company needs toincrease its emphasis on the provision of modules, namely, theEMS business, to meet customer requests. Failing to do so will
deprive KAGA ELECTRONICS of its potential for corporate growth.
Second, M&A must be considered. Although nearly 30 listedcompanies operate in the electronics industry, there is an ongoing
trend toward reorganization and mergers among them. This trend
will continue. KAGA ELECTRONICS should similarly examine an
option of merging with a partner capable of achieving mutual

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Roundtable Discussionof Outside Directors
introduced based on our suggestions aimed at invigorating the
Employee Shareowners Association. When a growing proportion of
employees become shareowners, employee affection and loyalty
toward the Company will grow stronger. Share ownership among
employees could also support share prices. We can conclude that
our suggestions have contributed to a rise in share prices, expansion
in sales and the enhancement of operating results as a whole
while helping realize a virtuous cycle of these improvements.

Director Tamura

development with the Company itself. In addition, in order toexpand its EMS business overseas at an even faster pace, theCompany must consider forming alliances with EMS corporations
abroad or signing M&A deals with them. It is about time for the
Board of Directors to robustly deliberate on these issues tocrystalize its strategies.
The third aspect is diversity. I consider promoting diversity to bea matter of extreme urgency. Specifically, the Company needs toempower women to serve as key workforce members in addition toeffectively utilizing capabilities of employees of an advanced age
and hiring foreign nationals. In particular, managers of overseas
bases should be appointed from among employees local to thearea. In this regard, the Company has recently decided to do justthat in China. As employees local to the area are well-versed inlocal affairs, the Company should fully utilize their capabilities andnetworks in the course of expanding its EMS business overseas.
The Board of Directors needs to thoroughly address these three
aspects going forward.
The aforementioned net sales target of ¥1 trillion must be
achieved in a few years subsequent to the close of the current
Medium-Term Management Plan. It is not a target for 2040.
Rather, the Company is called upon to meet this target by 2028, in
which it will celebrate the 60th anniversary of its founding.
Accordingly, gaining greater momentum to this end is theforemost issue.
Tamura: The ¥1 trillion net sales target is not far-fetched, while, inthe context of gaining the momentum for achieving it, theCompany has thus far earned operating results in excess of its
targets under its Medium-Term Management Plan. These results
have, in turn, positively affected the morale of the Company’s
officers and employees as well as the market participants’assessment of its potential. KAGA ELECTRONICS should keep up
the good work. In this regard, the appointment of a female corporate auditor is yet another positive move. Securing diverse humanresources in terms of backgrounds and expertise is essential toenhancing the quality of discussions by key bodies, be it the Boardof Directors or the Board of Auditors. Therefore, benefits arisingfrom the aforementioned appointment transcend mere conformity
with the growing public call for promoting diversity.
Meanwhile, the Sales Planning Department and other business
units are currently striving to develop new businesses, to this end
taking a forward-looking approach while abolishing the silo-based
internal structure. Moreover, to better motivate employees,
incentives granted to top-tier salespersons were substantially
increased. Biannually, employees who achieved excellent performance are being commended in front of their peers. In addition,
the overall salaries of employees have been upwardly revised.
The Company has also begun providing employees with special
subsidies for the purchase of its shares. This measure was

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KAGA ELECTRONICS CO.,LTD.

The Company’s operating results forecasts for FY2024/3
include decreases in sales and profit due to a recoil froma temporary surge in demand during the COVID-19
pandemic and an inventory adjustment to be undertaken
by customers. Please share your thoughts on initiatives
the Kaga Electronics Group should undertake at this pointof time to achieve further growth.
Hashimoto: Although recovery in market demand from previous
stagnation brought on by the COVID-19 pandemic resulted inwidespread shortages of goods, the Kaga Electronics Group wasable to expand sales as it handles a diverse range of parts without
limiting the scope of markets it serves. Furthermore, the Group
has succeeded in translating rises in raw material prices and othercost items into sales prices. It can be said that thisachievement is a testament to customers’ appreciation for theGroup’s procurement capabilities.
Taking these factors into account, I believe that it is not fair topass a superficial judgment on the Company’s single-year operating
results, which were down from the previous fiscal year. Rather,
KAGA ELECTRONICS has performed robustly despite unfavorable
external conditions. This is where I give a positive assessment to
the Company in light of its genuine function as a trading company.
Miyoshi: In the course of achieving business growth, plateaus areinevitable. It is important for companies to determine what should
be done while facing a plateau. At present, KAGA ELECTRONICS
should therefore work to improve internal operational efficiency inpreparation for the coming of the next growth opportunity. It is time
for the Company, in my opinion, to plan these and otherpreparatory measures.
When a corporation continues to grow, there is little time topause and think. However, corporations that fail to do so will growweaker in the long term. Experiencing a plateau could be a golden
opportunity to think, plan and implement measures to grow evenstronger. In summation, discussing what should be done at timesof stagnation is of particular importance. As a director, I think that
all of us at the Board are called upon to fulfill this crucial mission.
Tamura: From the management crisis amid chaos in theimmediate aftermath of the World War II, Toyota learned theimportant lesson of securing cash and empowering humanresources being vital to the company.
With regard to the former, a corporation with robust
cash-generating capabilities is, indeed, better positioned toexercise management freedom. These capabilities will provide us
with a basis for the execution of genuinely essential strategies. Inline with Chairman Tsukamoto’s remark that “Inventory is aliability,” KAGA ELECTRONICS is currently striving to reduce thevolume of inventories while also developing a foundation
supporting its endeavors to attain a next growth stage.
As for the latter, a corporation whose employees work vibrantly
typically achieves growth. I believe that the Company is about toestablish a virtuous cycle of generating a robust volume of cash
and motivating employees to work energetically.
Hashimoto: Concerns over a possible shortage of products isalways on the minds of employees at the sales front lines as thatwill, in turn, cause them to fail to meet customer requests. On theother hand, inventories are a source of risks as they could turninto dead inventories at any time. While inventories of raw
materials may possibly be used for alternative purposes, KAGAELECTRONICS handles parts and products. Once they become
obsolete, these offerings could not be sold at even ¥1. Accordingly,
inventories held by the Company are entirely based on orders
placed by customers. Although the volume of inventories has been
accumulated over the course of the period leading up to December
31, 2022, this volume was successfully reduced in the threemonths ended March 31, 2023 to a level below the volume at the
beginning of the previous fiscal year.
Miyoshi: The phrase “bare minimum” has recently become
customary among us when discussing the volume of inventories.
In this regard, there is always a conflict of interest between sales
and administrative departments. If we reduce the volume ofinventories to zero, there would be no sales at all. Therefore, weshould work to visualize an optimal level of inventories, issue analert when the volume of inventories exceeds such a level andreplenish them when the level is less than optimal. It is important
to constantly monitor the volume of inventories to keep it at an
optimal level.
Tamura: When it comes to empowering employees, establishing a
positive cycle of achieving corporate growth, improving stock
prices and raising wages for employees is of importance. Recently,
KAGA ELECTRONICS placed 27th in a ranking complied by Nikkei
Newspaper of listed companies that substantially increased wages
for employees. Going forward, employee shortages will become
even more widespread in regions across Japan. Improvement inwages will help prevent the resignation of young employees.
Accordingly, it is important to create a Company in which
employees are highly motivated to pull together to support ongoing
corporate growth.

Although “business management conscious of stock prices”
is a subject of public discourse, could you explain the
stance taken by KAGA ELECTRONICS in this regard?
Tamura: The Company’s stock prices are trending stably whilegarnering robust market appreciation. For the Company tomaintain these trends, it is extremely important to steadily
implement IR and other activities aimed at gaining deeper public
understanding of the good points of KAGA ELECTRONICS.
We often discuss these activities at Board of Directors meetings
and remain aware of their importance.
Miyoshi: Stock prices are determined by the market. No
corporations are in a position to manipulate the value of theirshares. The Company is just called upon to do what it should do
while maintaining proper information disclosure. I hope that theCompany will take a more proactive approach to IR activities
Director Miyoshi

Director Hashimoto

because doing so could help it earn market appreciation, which
will, in turn, lead to an improvement in stock prices and theestablishment of an even better corporate image among thegeneral public. Of course, achieving robust operating results is abasis for the success of these activities. Stock prices typicallyreflect the market’s trust in a corporation. Accordingly, thespeed-oriented execution of the management plan is anothermatter of importance.
Looking at ESG initiatives undertaken by the Company,
discussions are underway regarding the near-future installation ofsolar panels at domestic manufacturing bases. Meanwhile, thesepanels have already been installed and are in operation at two
overseas manufacturing bases. I think that it would be even better
if solar panels are introduced at all the Group factories. I expect
the Company to pursue this initiative, beginning in areas fromwhich it can currently work on.
Hashimoto: Stock prices always involve a complex issue. For
example, if all shareholders decided not to sell their shares, stock
prices would no longer increase. When I joined the Company’s
Board of Directors, I was curious as to why its stock prices had not
risen despite achieving solid sales and being in good shape. I also
discussed this with my fellow outside directors to address thisquestion from diverse perspectives.
Although the Company’s stock prices have since risen in recent
years, we must also stay alert about the possible consequence ofstably high stock prices, which could lead to lower liquidity. Thiscan also be detrimental to us, making it difficult to assess thegenuine market reputation of the Company. Because of this, wecannot simplistically focus solely on pursuing higher stock prices.
Given these factors, if stock prices were to stay at the current
level, we may need to consider reducing the minimum number ofshare units to enable shareholders to easily buy and sell, or
execute a share spilt. These would be viable options for measures
to be implemented by the Company to counter the possible
deterioration of liquidity. I believe that discussing these subjects is
another important role to be borne by the Board of Directors.
Tamura: In the course of IR activities, sincerely heeding opinions
voiced by shareholders and investors is important. I deem it
essential to directly engage with investors, both domestic andoverseas, take heed of what they say about the Company andrespond to their requests.
Hashimoto: For the Company to achieve higher stock prices
backed by solid market reputation for its operating results andshareholder returns, IR activities are indeed a matter of extreme
importance. As Mr. Miyoshi has noted, however, improving
operating results will be a basis for the success of these activities.
The Company therefore should swiftly execute measures toachieve goals of its management plan so that it can maintain themarket’s trust, which will, in turn, affect stock prices.

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