Corporate Governance Report
CORPORATE GOVERNANCE

AIR WATER INC.

Last Update:

May 16, 2024
AIR WATER INC.

Chairman, Chief Executive Officer Kikuo Toyoda
Contact: Governance Office
TEL：06-6252-1757
Securities code: 4088
https://www.awi.co.jp/en/index.html

The corporate governance of [AIR WATER 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 believes that conducting fair corporate activities in accordance with social common sense and earning the trust of
all stakeholders, including shareholders, customers, local communities, and employees, is essential to the sustainable
development of a company and maximization of its corporate value. We also recognize that the enhancement of our corporate
governance, including internal control systems, is the most important management issue in earning the trust of stakeholders andfulfilling its corporate social responsibility.
We will build a management system that fully functions for proper management decision-making, appropriate and prompt
business execution based on such decision-making, as well as supervision and monitoring of such business execution. Along with
that, we will enhance corporate governance by ensuring management transparency through disclosure of a wide range of
information.

Reasons for Non-compliance with the Principles of the Corporate Governance Code
The Company complies with all of the principles of Japan’s Corporate Governance Code.

Disclosure Based on the Principles of the Corporate Governance Code【Update】[Principle 1-4] (Strategically held shares)
The Company holds shares for the purpose of maintaining relationships, expanding transactions, and creating business
opportunities with business partners. The Company’s decision to acquire new shares or to continue to hold such shares is madebased on whether the business relationship, partnership, collaboration, or other cooperative relationship with individual issuers
will contribute to the enhancement of the Group’s corporate value over the medium- to long-term.
<Verification of strategically held shares>
Every year, the Company’s Board of Directors closely examines strategically held shares per individual issuer to determine
whether the benefits and risks associated with holding such shares are worth the capital cost of the Company and whether holding
such shares serves the purpose of contributing to the Group’s corporate value over the medium-to long-term. If significance or1

rationality of holding an issue is not recognized, such shares are sold and reduced, or reviewed by other means.
<Criteria for exercising voting rights attached to strategically held shares>
As to whether or not to exercise voting rights attached to strategically held share, the Company makes decisions on a per-proposal
basis taking into consideration whether the content of the proposal will contribute to the sustainable growth and medium-to long-term
enhancement of corporate value of the investee and whether there is any risk of damaging the Group’s shareholder value.

[Principle 1-7] (Transactions between related parties)
In accordance with the Companies Act and other applicable laws and regulations as well as the Company’s “Rules of the Boardof Directors,” any competing transactions and conflict-of-interest transactions by directors require approval of the Company’s
Board of Directors. If any of these transactions is conducted, such material fact shall be reported to the Board of Directors without
delay. With regard to transactions between the Company and related parties, the Company investigates the details of eachtransaction and, in accordance with applicable laws and regulations, discloses the details of such transactions, if any, in the notes
to its financial statements and in the Securities Report.

[Supplementary Principle 2-4-1]
The Company’s action policy for fiscal years of 2021 to 2024 sets out the promotion of empowerment of female employees byoffering more opportunities for their activities through strengthening recruitment and supporting their training, as well as theenhancement of the organizational strength by diversifying the human resource base.
<Recruitment Plan>
We aim to raise the ratio of women to 40% or more of all new graduate hires through active public relations for job seekers thatemphasize our working environment in which women can play an active role. (FY2023 actual average 53.8%)<Support for training>
To increase the ratio of female managers (5.1 % in FY 2022, target 10 %), we are planning and implementing a female leader
development program, a mentoring system, and career vision interviews.
<Acquisition rate of male employees taking childcare leave/absence>
In order to establish a workplace culture in which employees can achieve work-life balance regardless of gender, we aim toincrease the combined rate of male employees taking childcare leave and absence to 40% or more. (33.3% acquisition rate and30.9 days on average in FY2022)<Promotion of women, foreign nationals, and mid-career hires to management positions>
We evaluate performance and abilities of women, foreign nationals, and mid-career hires and assign them to managerial
positions in the same manner as other employees, based on the principle of placing the right person in the right job. (53
mid-career hires in FY2022 (including 14 in management positions), 21 foreign national employees (including 2 in management
positions)[Principle 2-6] (Fulfilling functions as owner of corporate pension assets)
The Company has a system in place to fulfill its expected role in managing reserves in corporate pension funds (DB plan) by
assigning personnel with expertise to the Administrative Board, an executive body, and the Secretariat.
In addition, the Asset Management Committee is composed of personnel with expertise in such functions from the humanresources, accounting, and finance divisions, and a system is in place to confirm sound management of pension funds from the2perspective of expertise and protection of beneficiaries.
All pension funds have been transferred to the defined contribution pension system (DCPS) after October 1, 2021.

[Principle 3-1] (Enhancement of information disclosure)(i) Our goals, Management strategy and Management plan
We have set and disclosed our Group’s Management Philosophy. For details, please see our website.
(https://www.awi.co.jp/en/company/idea.html)
We have also formulated and announced a new medium-term management plan, “terrAWell30 1st stage,” covering the three-year
period from fiscal 2022 to 2024. For details, please see our website.
(https://www.awi.co.jp/en/ir/management/plan.html)(ii)

Basic view on corporate governance

Please refer to I-1. “Basic Concept” of this Report.

(iii) Policies and procedures for determining remuneration of senior management and directors
As for remuneration of individual directors, the proportion of base remuneration, performance-linked remuneration, andnon-monetary rewards for directors is set at 7:2:1 as a guide, based on the remuneration range of other companies in the same
industry or the same scale of operation.
In addition, the remuneration of directors is determined by the Board of Directors based on a proposal prepared by the
Nomination and Compensation Committee, a voluntary advisory body to the Board of Directors, after thorough deliberation,
within the range of the amount preliminarily resolved at the General Meeting of Shareholders. The decision on the specific timingof payment and proportion of remuneration for each director shall be entrusted to Kikuo Toyoda, Chairman and Representative
Director, Chief Executive Officer (CEO).
Regarding the policies and procedures for determining remuneration of directors and corporate auditors, please refer to II-1.
“Organizational Composition and Operation [Remuneration of directors]” of this Report.

(iv) Policies and procedures for appointing/dismissing senior management and nominating candidates for directors and corporate
auditors
With respect to the appointment/dismissal of senior management and the nomination of candidates for directors and corporate
auditors, the Company’s policy is to nominate suitable candidates, regardless of gender, age, or nationality, who can fulfill theirroles and responsibilities toward the sustainable growth of the Group as well as the enhancement of its corporate value over the
medium-to long-term, after comprehensively evaluating their personality, insights, abilities, and other factors.
The Company also factors in “the importance of fulfilling responsibilities entrusted by shareholders in corporate management as
director” when nominating director candidates and “the importance of auditing and the functions of corporate auditors incorporate management” when nominating candidates for corporate auditors.
As for the appointment/dismissal procedure, the Board of Directors, members of which include independent outside directors
with expertise and experience, discusses a wide range of opinions and makes decisions after thorough deliberation. In the eventthat any significant lack of qualification is observed in light of the above policy, etc., the Company considers dismissal by aresolution of the Board of Directors.

3

The Company has established the Nomination and Compensation Committee as a voluntary advisory body to the Board of
Directors. The Nomination and Compensation Committee deliberates on the appointment and dismissal of senior management
and the nomination of director candidates, and then the Board of Directors makes decisions based on the report of the Nomination
and Compensation Committee.

(V) Explanation of individual appointments/dismissals and nominations of candidates for directors and corporate auditors when
appointing/dismissing senior management and nominating candidates for directors and corporate auditors
Reasons for the individual appointments, dismissals and nominations of candidates for directors and corporate auditors aredisclosed in the reference materials of Notice of Convocation to General Meeting of Shareholders. For details, please refer topages 3-6 of the reference materials for the “Notice of Convocation to the 23rd Ordinary General Meeting of Shareholders”
posted on our website.
(https://www.awi.co.jp/en/ir/stock/investor/main/00/teaserItems1/0114/linkList/0/link/syousyuutsuuchisyo23c.pdf)[Supplementary principle 3-1-3](1) Our sustainability initiatives
Please refer to our website and Integrated Report for more information on our sustainability philosophy, policies, and initiatives.
(https://www.awi.co.jp/en/sustainability.html

Integrated Report: https://www.awi.co.jp/en/ir/library/report.html)(2) Investment in human capital, etc.
The Company places great importance on diversity throughout the Group and is committed to developing human resources tomake the most of diverse individuality. Recognizing that diverse human resources are essential for the continued corporate
growth through global business activities in a range of domains, we are implementing reforms in the four areas of “recruitment,”“human resource utilization and development,” “treatment and systems,” and “education, training, and health and productivity
management.” Please refer to our Integrated Report for more information on our initiatives.

(3) Investment in intellectual property
We have formulated our Sustainable Vision for 2050 toward a recycling-oriented society through coexistence with the earth andsociety. With the Group Technology Center as the core, we will work on various development themes, especially on“decarbonization and resource recycling technology” and “telemedicine and sensing technology,” which will be elemental
technologies that support the environmental systems business and wellness business to be focused on in the future. In addition,
the Intellectual Property Strategy Group established within the Group Technology Center is strategically promoting patentapplication and utilization for new inventions related to these themes. Please refer to our Integrated Report for the details of ourinitiatives.

(4) TCFD-based disclosure
Recognizing that addressing climate change is an important issue for a company to tackle, in August 2021 we expressed our
support for TCFD, an international disclosure framework. Our response to the TCFD recommendations will contribute to theenhancement of our corporate value over the medium to long term. In order to achieve sustainable growth, a company is required4not only to view its response to climate change issues as a “corporate social responsibility” but also link it to “opportunities for
growth.” Based on scenario analysis, we will work to assess the financial impact of risks and opportunities posed by climatechange and enhance information disclosure.
Please refer to our website for information disclosed in line with the TCFD framework.
(https://www.awi.co.jp/en/sustainability/environment/tcfd/.html)[Supplementary Principle 4-1-1]
The Company has established the “Regulations of the Board of Directors” and the “Agenda Standard of the Board of Directors”
to clarify matters to be resolved and reported at the Board of Directors meetings, in addition to matters stipulated by laws andregulations and the Articles of Incorporation. The Board resolution is required for decisions on management plans, establishment
or abolition of important organizations, important personnel matters, important investments and loans, business transfers, andother matters. As for the division of duties and decision-making authority of executive directors and heads of organizations, thescope of delegation is clearly defined in the “Organizational Regulations” and the “Regulations on Administrative Authority.”[Principle 4-9] (Independence criteria and requirements for independent outside directors)
The Company appoints as independent outside directors those who meet the “Criteria for Independence of Outside Officers”
established by a resolution of the Board of Directors, in addition to the requirements and standards stipulated by the Companies
Act and financial instruments exchanges. In selecting candidates for independent outside directors, the Company places
importance on a high level of expertise and a wealth of experience to provide candid and constructive advice, etc. regarding
management of the Company.
Please refer to our website for the “Criteria for Independence of Outside Officers.
(https://www.awi.co.jp/en/sustainability/governance/governance.html)[Supplementary Principle 4-10-1]
The Company established the Nomination and Compensation Committee on August 4, 2022, to increase the independence andobjectivity of the Board of Directors’ functions related to the nomination and compensation of directors, strengthen
accountability, thereby enhancing the Company’s corporate governance. The Nomination and Compensation Committee
maintains its independence and, in consultation with the Board of Directors, reviews particularly important matters, such as
nomination and compensation, and reports to the Board of Directors.

[Supplementary Principle 4-11-1]
The Company’s Articles of Incorporation stipulate that the number of directors shall not exceed 20, and currently, the Board of
Directors consists of 9 directors, including 3 independent outside directors (including 1 female director). The Company’s Boardof Directors has created a skills matrix of seven basic areas of (1) corporate management, (2) finance and accounting, (3) risk
management and legal affairs, (4) business strategy and marketing, (5) technology and R&D, (6) human resources management,and (7) globalization, as the experience and skills required to cover each function and business domain of the Company. Using
this skills matrix, and from the viewpoint of placing the right person in the right job for proper and prompt decision-making, we
appoint multiple numbers of directors who are familiar with the Group’s businesses and independent outside directors who have5

extensive experience and knowledge outside the Company, including those with experience in other companies as a manager andcertified public accountants, in an effort to ensure that the balance and diversity of the Board of Directors as a whole is optimized
for the Company.
For skill matrix of our directors and corporate auditors, please refer to page 17 of the reference documents of the “Notice ofConvocation to the 22nd Ordinary General Meeting of Shareholders” posted on our website.
(https://www.awi.co.jp/en/ir/stock/investor/main/00/teaserItems1/0114/linkList/0/link/syousyuutsuuchisyo23c.pdf)[Supplementary Principle 4-11-2]
When our directors and corporate auditors serve concurrently as an officer of other listed companies, the Company confirms thatsuch concurrent positions do not interfere with the performance of their duties as director or corporate auditor of the Company.
Concurrent positions held by our directors and corporate auditors as an officer other listed companies of serving concurrently as
an officer of other listed companies are disclosed in Notice of Convocation to the General Meeting of Shareholders and Securities
Report for information.
Notice of Convocation to the General Meeting of Shareholders: (https://www.awi.co.jp/en/ir/stock/investor.html)
Securities Report: (https://www.awi.co.jp/en/ir/library/report.html)[Supplementary Principle 4-11-3]
For the purpose of improving the effectiveness of the Board of Directors as a whole, every year, the Company analyzes andevaluates the effectiveness of the Board of Directors as a whole through self-evaluation conducted by directors and corporate
auditors and by other means, and discloses a summary of the results.
In fiscal 2023, we conducted a questionnaire survey targeting all directors and corporate auditors who are members of the Boardof Directors as part of the self-evaluation, while obtaining knowledge from external organizations. In the questionnaire, we asked
respondents’ name, and the main question items included “operation of the Board of Directors”, “discussions at the Board of
Directors meetings”, “monitoring functions of the Board of Directors” and “support systems for directors and corporate auditors”.
Based on the results of the questionnaire, the Board of Directors analyzed and evaluated the current status and issues regarding
the effectiveness of the Board of Directors as a whole.
As a result, the Board of Directors of the Company received generally positive evaluations, including that the Board of Directors
has an appropriate size and diversity for deliberations, that it ensures sufficient time for the external directors and corporate
auditors to be briefed on the agenda in advance and for the Board of Directors to deliberate, leading to lively discussions, and thatthe remuneration system for the management team, which was an issue in the previous fiscal year, has been appropriately decided
after receiving a report from the Nomination and Remuneration Committee, which was consulted by the Board of Directors.
In view of the above, it has also been confirmed that the Board of Directors as a whole is fulfilling its roles and responsibilities
as stipulated in the Corporate Governance Code, and that the effectiveness of the Board of Directors is sufficiently ensured.
Members of the Board of Directors continued to share issues to be considered for further improvement of effectiveness:
providing explanations of agenda items and reference materials in a more organized manner, monitoring the Board of Directors
resolutions, strengthening support systems for directors and corporate auditors, and other matters.
Based on this effectiveness evaluation, the Company’s Board of Directors will implement initiatives on a continual basis tofurther enhance the functions of the Board of Directors.

6

[Supplementary Principle 4-14-2]
For directors and corporate auditors to acquire and update the knowledge necessary to properly fulfill their roles andresponsibilities, the Company provides them with opportunities to participate in training sessions by outside experts, not only
when they take office but also after that, as necessary.
In addition, new outside directors and outside corporate auditors are given an opportunity to receive an explanation about theCompany’s management philosophy, business description, organization, etc. when they take office.

[Principle 5-1] (Policy on constructive dialogue with shareholders)
We recognize that, in order to achieve sustainable growth and enhance corporate value over the medium to long term, it isessential to build long-term relationships of trust with shareholders and investors by disclosing accurate information on ourmanagement, finance, etc. to them in a timely and fair manner and by engaging in constructive dialogue with them.
Administration officer in charge of investor relations oversees dialogue with shareholders and investors, and the Corporate
Communications Office, the department in charge of investor relations, plays a central role in organic cooperation with related
departments within the Company to provide appropriate information and set up opportunities for dialogue with the management.
In addition to the General Meeting of Shareholders, the Company holds annual financial results briefing attended by representative
directors and a teleconference for analysts and institutional investors on the day of the announcement of quarterly financial results.
Plant tours, small meetings, visits to overseas institutional investors, etc. and other events are also held as needed.
Opinions and concerns about the Company’s management obtained through dialogue with shareholders and investors are reported
to the representative directors and other senior management as necessary.
When holding dialogue with shareholders and investors, the Company has set a “quiet period” during which it refrains from
dialogue with shareholders and investors prior to the announcement of financial results. Moreover, the Company has adopted
strict measures to prevent the leakage of insider information.

[Actions to achieve management conscious of capital cost and stock prices] [Disclosed in English]
Toward fiscal 2030, the Company is committed to increasing its corporate value in terms of both economic value and social value
as we create new value by solving social issues. Going forward, with even greater emphasis placed on profitability and capitalefficiency, we will strive to achieve an ROE of 12% or more and an ROIC of 8% or more over the medium to long term. We
believe that these levels are well above the cost of shareholders’ equity, which was estimated based on the characteristics of ourbusiness and the current stock market conditions.
With regard to dialogue with the capital market, we will pursue improvements in information disclosure to promote understandingof shareholders and investors to realize more constructive dialogue through disclosure of information on profitability and capitalefficiency, in addition to the business lines and areas of interest to the capital market.

The outline of our initiatives up to fiscal 2024 is disclosed in the medium-term management plan. For details, please see below.
[Medium-term management plan on our website]
https://www.awi.co.jp/en/ir/management/plan.html

7

2. Capital Structure
Foreign Shareholding Ratio

20% or more and less than 30%

Status of Major Shareholders
Name or Company Name

Number of Shares Owned

Percentage (%)

The Master Trust Bank of Japan, Ltd. (trust account）

29,278,200

12.78

Custody Bank of Japan, Ltd.

13,388,100

5.84

Sumitomo Mitsui Trust Bank, Limited

7,936,000

3.46

NIPPON STEEL CORPORATION

6,900,000

3.01

Sumitomo Mitsui Banking Corporation

6,259,198

2.73

Air Water Customers' Stockholding

5,999,248

2.62

STATE STREET BANK AND TRUST COMPANY 505001

5,688,854

2.48

National Mutual Insurance Federation of Agricultural Cooperatives

4,951,500

2.16

North Pacific Bank, Ltd.

4,574,473

2.00

Air Water Group Stockholding

4,167,964

1.82(trust account)

Name of Controlling Shareholder, if applicable⎯(excluding Parent Company)
Name of Parent Company, if applicable

None

Supplementary Explanation
1. The number of shares held by Sumitomo Mitsui Banking Corporation includes 3,000,000 shares contributed by the bank as trust
assets for a retirement benefit trust, for which the bank retains the right to instruct the exercise of voting rights. The name on theshareholder registry for these shares is “SMBC Trust and Banking Corporation (Sumitomo Mitsui Banking Corporation Retirement
Benefit Trust Account).

2. The Change Report to Large Shareholding Report submitted on November 21, 2022 by Mitsubishi UFJ Financial Group, Inc. to
the Director-General of the Kanto Local Finance Bureau says that, as of November 14, 2022, MUFG Bank, Ltd. and two other joint
holders own the Company’s shares as follows. However, the Company could not confirm the number of shares actually held as of theend of the fiscal year under review, except for MUFG Bank, Ltd. Accordingly, the above “Status of Major Shareholders” indicatesthe number of shares held based on the shareholder registry.

Name
Address8

Number of share certificates, etc. held (thousands of shares)
Percentage of share certificates, etc. held (%)

MUFG Bank, Ltd.
2-7-1, Marunouchi, Chiyoda-ku, Tokyo, Japan
1,349
0.59

Mitsubishi UFJ Trust and Banking Corporation
1-4-5, Marunouchi, Chiyoda-ku, Tokyo, Japan
6,828
2.97

Mitsubishi UFJ Kokusai Asset Management Co., Ltd. (currently Mitsubishi UFJ Asset Management Co., Ltd.)
1-12-1, Yuraku-cho, Chiyoda-ku, Tokyo, Japan
1,401
0.61

3. Corporate Attributes
Listed Stock Exchange and Market Segment

Prime Market, Sapporo Securities Exchange Main Market

Fiscal Year-End

MarchBusiness Sector

Chemicals

Number of Employees (Consolidated) as of the End
1,000 or moreof the Previous Fiscal YearNet Sales (Consolidated) as of the End of the¥1 trillion or more
Previous Fiscal Year
Number of Consolidated Subsidiaries as of the End
100 or more and fewer than 300of the Previous Fiscal Year

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
Air Water Inc. is the parent company of Kawamoto Corporation, a listed company.
Regarding the management policy of Kawamoto after it became a consolidated subsidiary, the Company recognizes the9

importance of maintaining its unique corporate culture and autonomy in management for Kawamoto to continue increasing its
corporate and stock values through sustainable development.
Regarding the personal relationship between Kawamoto and the Company, one of our advisors concurrently serves as a director(audit and supervisory committee member) of Kawamoto. One director of the Company concurrently serves as a director of
Kawamoto, which is less than half of 9 directors comprising the Kawamoto’s Board of Directors, and 3 outside directors who are
independent of the Company’s corporate group have also concurrent positions. Judging from the above, we believe that
Kawamoto is in a position to secure a certain degree of independence and to make their own management decisions as a listedcompany.

As for the details of specific measures to be taken in the future, Kawamoto and the Company currently expect business synergies
in the following respects.
(1) Restoration of trust in the Kawamoto brand and rebuilding of Kawamoto’s customer base through Kawamoto’s credit
enhancement by the Company(2) Kawamoto’s new customer development by selling its products through the Company’s nationwide sales network involving
approximately 160 locations of medical-related companies(3) Mutual cooperation in the operating room field, including development of advanced medical hygiene products that accurately
meet the needs and provision of higher value-added services that combine the services and products of both companies(4) Mutual cooperation to expand the product lineup through mutual supply of products by both companies; the Company
supplies its food, beverages, and other products and in return Kawamoto supplies its hygiene materials, medical supplies, andnursing care products.

II. Business Management Organization and Other Corporate Governance Systems regarding
Decision-making, Execution of Business, and Oversight in Management
1.

Organizational Composition and Operation
Corporate Governance System

Company with Audit and Supervisory Board

Directors
Number of Directors Stipulated in Articles of
20
Incorporation
Directors' Term of Office Stipulated in Articles of
1 year
Incorporation
Chairperson of the Board

Chairperson (excluding those concurrently serving as President)

Number of Directors

9Election of Outside Directors

ElectedNumber of Outside Directors

3

Number of Independent Directors

310Outside Directors’ Relationship with the Company (1)Relationship with the Company*
Name

AttributesaYukiko Sakamoto

Other

Takao Matsui

CPA

Yoshihiro Senzai

From another company

b

c

d

e

f

g

h

i

j

k



*Categories for “Relationship with the Company”.
(Use “○” when the director presently falls or has recently fallen under the category; “” when the director fell under the category
in the past; “●” when a close relative of the director presently falls or has recently fallen under the category; and “▲” when a close
relative of the director fell under the category in the past.)
a. Person who executes business of the Company or a subsidiary
b. Person who executes business or a non-executive director of a parent company
c. Person who executes business of a fellow subsidiaryd. Person/entity for which the Company is a major client or a person who executes business for such person/entity
e. Major client of the Company or a person who executes business for such clientf. Consultant, accounting expert, or legal expert who receives large amounts of cash or other assets in addition to director/Audit
and Supervisory Board Member compensation from the Company
g. Major shareholder of the Company (in cases where the shareholder is a corporation, a person who executes business of thecorporation)h. Person who executes business for a client of the Company (excluding persons categorized as any of d, e, or f above) (applies
to self only)
i. Person who executes business for another company holding cross-directorships/cross-auditorships with the Company (applies
to self only)
j. Person who executes business for an entity receiving contributions from the Company (applies to self only)
k. OtherOutside Directors’ Relationship with the Company (2)Name

Designation as
Independent
Director

Supplementary Explanation of
the Applicable Relationship

11

Reasons for Appointment

Ms. Yukiko Sakamoto has successively served inimportant positions at the Ministry of Health, Labourand Welfare, as Vice Governor of Shizuoka Prefecture
and as a member of the House of Councillors.

With

her extensive experience and deep insight, she provides
useful advice, etc. on overall management of theCompany, and therefore we believe that she is suitable
to serve as an outside director of the Company.
Yukiko

Additionally, she does not fall under any of the items⎯

Sakamotothat may create conflict of interest with generalshareholders stipulated by the Tokyo Stock Exchange
and satisfies the “Criteria for Independence of Outside
Officers” (see “[Matters Concerning Independent
Directors and Statutory Board Members] Other Matters
Concerning Independent Directors and Independent
Audit and Supervisory Board Members”) stipulated by
the Company. Considering the above, the Company
appointed her as an independent director.
Mr. Takao Matsui has broad experience and thoroughknowledge accumulated over many years as a certified
public accountant, based on which he provides usefuladvice, etc. on the Company’s overall management.

Takao MatsuiMr. Takao Matsui once worked

Therefore, we believe that he is suitable to serve as anfor KPMG AZSA LLC,

outside director. Additionally, he does not fall underAccounting Auditor of the

any of the items that may create conflict of interest with

Company. He retired from thegeneral shareholders stipulated by the Tokyo Stockfirm in June 2018 and is not in a

Exchange and satisfies the “Criteria for Independence

position to be influenced by theof Outside Officers” (see “[Matters Concerningfirm’s intentions.

Independent Directors and Statutory Board Members]
Other Matters Concerning Independent Directors andIndependent Audit and Supervisory Board Members”)
stipulated by the Company. Considering the above, theCompany appointed him as an independent director.

12Mr. Yoshihiro Senzai has long years of experience as amanager and engineer of another company. With his
extensive experience and broad insight, he is expected
to provide useful advice, etc. on overall management of
the Company, and therefore we believe that he issuitable to serve as an outside director of the Company.
Additionally, he does not fall under any of the items
Yoshihiro

that may create conflict of interest with general⎯

Senzaishareholders stipulated by the Tokyo Stock Exchange
and satisfies the “Criteria for Independence of Outside
Officers” (see “[Matters Concerning Independent
Directors and Statutory Board Members] Other Matters
Concerning Independent Directors and Independent
Audit and Supervisory Board Members”) stipulated by
the Company. Considering the above, the Company
appointed him as an independent director.

Voluntary Establishment of Committee(s) equivalent toEstablished
Nomination Committee or Remuneration Committee

Status of Voluntarily Established Committee(s), Attributes of Members Constituting the Committee and the Committee
Chair (Chairperson)
Committee’s
Name
Voluntarily
Established
Committee
Equivalent toNomination
Committee
Voluntarily
Established
Committee
Equivalent toRemuneration
Committee

All
Members

Full-timeMembers

InsideDirectors

OutsideDirectors

OutsideExperts

3

0

1

1

0

1

Inside Directors

3

0

1

1

0

1

Inside Directors

Other

Chairperson

Nomination andCompensation
Committee
Nomination andCompensation
Committee

Supplementary Explanation
One “Other” is an outside corporate auditor of the Company (independent officer).
Established on August 4, 2022 as a voluntary advisory body to the Board of Directors, The Nomination and Compensation
Committee performs the functions of both the Nomination Committee and the Compensation Committee aiming to enhance theindependence and objectivity of the Board’s functions related to the nomination and compensation of directors, as well as to13

strengthen accountability, thereby enriching the Company’s corporate governance.

[Composition of the Nomination and Compensation Committee](1) The Committee shall consist of at least three (3) directors or corporate auditors elected by the Board of Directors.
(2) A majority of the Committee members shall be outside directors or outside corporate auditors (all of whom shall be
independent officers).

[Main roles of the Nomination and Compensation Committee]
The Committee shall deliberate and report to the Board of Directors on the following matters in response to consultations fromthe Board of Directors.
(1) Matters related to the proposals of election/dismissal of directors (general shareholder meeting agenda item)(2) Matters related to the proposals of election/dismissal of representative directors (board meeting agenda item after general
meeting of shareholders)(3) Matters related to the remuneration system and evaluation of directors(4) Matters related to succession planning

Audit and Supervisory Board Member**Referred to in Corporate Governance Code reference translation as "kansayaku"
Establishment of Audit and Supervisory Board

Established

Number of Audit and Supervisory Board Members
6
Stipulated in Articles of Incorporation
Number of Audit and Supervisory Board Members

5

Cooperation among Audit and Supervisory Board Members, Accounting Auditors and Internal Audit Departments
Corporate auditors and KPMG AZSA LLC, the Accounting Auditor, meet regularly and exchange opinions whenever necessary.
Corporate auditors receive explanations from and exchange opinions with the Accounting Auditor regarding its audit plan, audit
implementation status, quarterly review results, and year-end audit results (including internal control audits related to financial
reporting). Corporate auditors explain to the Accounting Auditor the plans, status, and results of auditor’s audit, and exchange
opinions.
Corporate auditors and the CSR Promotion Office Audit Group (hereinafter, the “Audit Group”), which is an internal audit
department, meet regularly and exchange opinions to ensure the effectiveness of their respective audits whenever necessary. In
addition, corporate auditors receive explanations from the Audit Group regarding the status of internal audits and audit results,
exchange opinions, and when necessary, request the Audit Group for investigations.

Appointment of Outside Audit and Supervisory
Appointed
Board Members
Number of Outside Audit and Supervisory Board

3

14

Members
Number of Independent Audit and Supervisory
3
Board Members

Outside Audit and Supervisory Board Members’ Relationship with the Company (1)Relationship with the Company*
Name

AttributesaKunihiko Tsuneyoshi

From another company

Atsushi Hayashi

LawyerNobuo Hayashi

Academic

b

c

d

e

f

g

h

i

j

k

l

m



*Categories for “Relationship with the Company”.
(Use “○” when the director presently falls or has recently fallen under the category; “” when the director fell under the category
in the past; “●” when a close relative of the director presently falls or has recently fallen under the category; and “▲” when aclose relative of the director fell under the category in the past.)
a. Person who executes business of the Company or a subsidiaryb. A non-executive director or an accounting advisor of the Company or its subsidiaries
c. Person who executes business or a non-executive director of a parent company
d. An Audit and Supervisory Board Member of a parent company of the Company
e. Person who executes business of a fellow subsidiaryf. Person/entity for which the Company is a major client or a person who executes business for such person/entity
g. Major client of the Company or a person who executes business for such clienth. Consultant, accounting expert, or legal expert who receives large amounts of cash or other assets in addition to director/Audit
and Supervisory Board Member compensation from the Company
i. Major shareholder of the Company (in cases where the shareholder is a corporation, a person who executes business of thecorporation)j. Person who executes business for a client of the Company (excluding persons categorized as any of f, g, or h above) (applies
to self only)
k. Person who executes business for another company holding cross-directorships/cross-auditorships with the Company (applies
to self only)
l. Person who executes business for an entity receiving contributions from the Company (applies to self only)
m. OtherOutside Directors’ Relationship with the Company (2)Name

Designation as
Independent
Director

Supplementary Explanation of the
Applicable Relationship

Reasons for Appointment

Kunihiko

Mr. Kunihiko Tsuneyoshi previously worked

Mr. Kunihiko Tsuneyoshi has professional

as an operating officer of Sumitomo Mitsui

knowledge and experience obtained while

Trust Bank, Limited, a major lender to theworking for a financial institution and basedGroup. After retiring from the bank in Marchon which he fully performs the auditing

2012, he worked as an operating officer at afunction as we expect by making usefulgroup company of the bank until Marchsuggestions and proposals to ensure the2019. He is not in a position to be influenced

appropriateness of business execution in theby the intentions of Sumitomo Mitsui Trust

Company. We believe that he is qualified toBank, Limited, as a considerable period ofserve as an outside corporate auditor of thetime has passed since he retired from theCompany. Additionally, he does not fallbank which he worked for once.

under any of the items that may create

Although Sumitomo Mitsui Trust Bank,

conflict of interest with general shareholders

Tsuneyoshi

15

Limited holds shares of the Company, it does

stipulated by the Tokyo Stock Exchange andnot fall under the category of a major

satisfies the “Criteria for Independence ofshareholder (a shareholder holding 10/100 or

Outside Officers” (see “[Matters Concerning

more of the outstanding shares with voting

Independent Directors and Statutory Board

rights as defined in the Financial Instruments

Members] Other Matters Concerningand Exchange Act).

Independent Directors and Independent

In addition, although the Group has a

Audit and Supervisory Board Members”)

business relationship with Sumitomo Mitsui

stipulated by the Company. Considering theTrust Bank, Limited, including borrowing ofabove, the Company appointed him as anfunds, the management of the Company is

independent officer.

not affected by the bank because the Group
has transactions with multiple financial
institutions and is not prominently dependent
on the bank.
Atsushi———

Mr. Atsushi Hayashi has abundant

Hayashiexperience and deep insight as a judge andlawyer and based on which he fully performs
the auditing function as we expect bymaking useful suggestions and proposals toensure the appropriateness of businessexecution in the Company. We believe that
he is qualified to serve as an outside
corporate auditor of the Company.
Additionally, he does not fall under any of
the items that may create conflict of interest
with general shareholders stipulated by the
Tokyo Stock Exchange and satisfies the“Criteria for Independence of Outside
Officers” (see “[Matters Concerning
Independent Directors and Statutory Board
Members] Other Matters Concerning
Independent Directors and Independent
Audit and Supervisory Board Members”)
stipulated by the Company. Considering theabove, the Company appointed him as anindependent officer.

16

Nobuo———

Mr. Nobuo Hayashi has extensive experience

Hayashiand deep insight accumulated over many
years as a researcher and university professor
and based on which he fully performs theauditing function as we expect by making
useful suggestions and proposals to ensure
the appropriateness of business execution in
the Company. We believe that he is qualified
to serve as an outside corporate auditor of
the Company. Additionally, he does not fallunder any of the items that may create
conflict of interest with general shareholders
stipulated by the Tokyo Stock Exchange andsatisfies the “Criteria for Independence ofOutside Officers” (see “[Matters Concerning
Independent Directors and Statutory Board
Members] Other Matters Concerning
Independent Directors and Independent
Audit and Supervisory Board Members”)
stipulated by the Company. Considering theabove, the Company appointed him as anindependent officer.

Matters Concerning Independent Directors and Independent Audit and Supervisory Board Members
Number of Independent Directors and Independent
6
Audit and Supervisory Board Members

Other Matters Concerning Independent Directors and Independent Audit and Supervisory Board Members<Criteria for Independence of Outside Officers>
The Company deems an outside director and outside corporate auditor (hereinafter collectively referred to as “outside officer”) ora candidate for outside officer to have sufficient independence against the Company, if none of the following attributes applies to.
1.

A person who is a business executive1 of the Company and its subsidiaries (hereinafter collectively referred to as “theGroup”) or a person who was a business executive of the Group within the last 10 years

2.

A person who was a non-executive director or corporate auditor of the Group within the last 10 years and also served as an
executive of the Group within 10 years prior to his/her appointment as the aforementioned non-executive post3.

A person to whom the Company is a major business partner2, or a business executive of that person

17

4.

A major business partner of the Company3, or its business executive

5.

A major shareholder of the Company (a person who directly or indirectly holds 10% or more of the total number of voting
rights. The same applies hereinafter.), or its business executive

6.

A business executive of a person for which the Company is a major shareholder

7.

A person who belongs to an auditing firm that is the accounting auditor of the Group8.

A legal professional, certified public accountant, tax accountant, consultant, etc. who receives a large amount of money4 or
any other financial benefits from the Group other than executive remuneration(If the person receiving such financial benefits is an organization, such as corporation or association, a person who belongs tosuch organization.)9.

A person who receives a large amount4 of donation or grant from the Group, or a business executive of that person

10. When a business executive of the Group serves as an outside director of another company, the business executive of thatcompany or its parent company or subsidiary
11. A person who has fallen under any of the above 3. through 10. in the last three years
12. A spouse or a relative within the second degree of kinship of a person who falls under any of the above 1. through 11. and is
an important business executive5

Please note that, even in cases where none of the above attributes apply, an outside officer may not be designated as anindependent officer if there is sufficient ground for judging that he/she cannot fulfill his/her responsibilities as an independent
officer.
End

1

A business executive refers to an executive director, operating officer, executive officer, executive member, administration
officer, or any other person who executes the business of a person equivalent to these officers and employees.

2

A person to whom the Group is a major business partner refers to a person who has received 2% or more of its annual
consolidated net sales from the Group in any of the last three fiscal years.

3

A person who is a major business partner of the Group refers to a person who has paid 2% or more of its annual consolidated
net sales to the Group in any of the last three fiscal years, or a person who has provided the Group a loan worth 2% or moreof the Company’s consolidated total assets as of the end of the most recent fiscal year.

4

A “large amount” refers to an average amount of at least ¥10 million per year over the last three fiscal years for an individual,
or in the case of an organization, such as corporation or association, an amount equivalent to 2% of the consolidated net sales
or gross income of that organization or ¥10 million per year, whichever is higher.

5

An “important business executive” refers to a business executive who executes important business such as executive director,
operating officer, executive officer, and department head.

(Note) “Fiscal year” above shall be read as the year for which income tax is calculated in the case of individuals.

Incentives
Implementation Status of Measures related toIntroduction of Performance-linked Remuneration Scheme, Other
Incentives Granted to Directors

18Supplementary Explanation for Applicable Items
For details, please refer to “Disclosure of Policy on Determining Remuneration Amounts and the Calculation Methods Thereof”
below.

Persons Eligible for Stock Options

Supplementary Explanation for Applicable Items⎯

Director Remuneration
Status of Disclosure of Individual Directors’
Disclosure for Selected Directors
Remuneration

Supplementary Explanation for Applicable Items
The amount of remuneration, etc. paid to directors (9 persons) and corporate auditors (5 persons) in the immediately preceding
fiscal year (fiscal 2021) was 629 million yen and 93 million yen, respectively. Of which, the amount of remuneration, etc. paid to
outside directors (6) was 78 million yen.

(Note) The above amount of remuneration, etc. for directors includes 44 million yen of monetary remuneration claims provided tosix directors as remuneration, etc. related to restricted stock, which was recorded as expenses for the current fiscal year.

Policy on Determining Remuneration Amounts andEstablished
the Calculation Methods Thereof

Disclosure of Policy on Determining Remuneration Amounts and the Calculation Methods Thereof
1. The maximum amount of remuneration for directors and corporate auditors is as follows.
(1) The maximum amount of remuneration for directors was resolved at the 17th Ordinary General Meeting of Shareholders heldon June 28, 2017 to be 1,130 million yen or less per year. Of which, the maximum amount of remuneration for outside
directors approved at the 22nd Ordinary General Meeting of Shareholders held on June 28, 2022 is 80 million yen per year.
(2) Aside from the maximum amount of remuneration for directors stated in (1) above, the Company resolved at the 19th
Ordinary General Meeting of Shareholders held on June 26, 2019 that the total amount of monetary remuneration claims to be
paid to the Company’s directors (excluding outside directors) as remuneration for restricted stock should not be more than
100 million yen per year.
(3) The maximum amount of remuneration for corporate auditors was resolved at the 7th Ordinary General Meeting of
Shareholders held on June 28, 2007 to be 98 million yen per year.

2. Matters concerning the policy for determining the amount of remuneration, etc. of directors and the calculation method thereof

19Based on the resolution of the Board of Directors, the Company has set a basic policy to build a remuneration system for its
directors that functions sufficiently as an incentive for each director to play a maximum role in his/her duties and enables toattract and retain excellent human resources for the continuous improvement of its corporate value. Under this policy,
remuneration of each director shall be determined at an appropriate level in light of his/her role, responsibility, and businessperformance. Specifically, directors’ remuneration consists of base remuneration as fixed remuneration, performance-linked
remuneration, and stock-based remuneration (excluding outside directors).

Base remuneration is a monthly fixed remuneration, and is determined by taking into comprehensive consideration of theCompany’s business lineup and various fundamentals of the management environment, other companies’ standards in terms of
position and duties, the Company’s business performance, and employee’s pay standard.

Performance-linked remuneration shall be cash remuneration that reflects performance indicators as a short-term incentive toachieve business targets for each fiscal year. The Company pays an amount calculated based on the achievement percentage
against consolidated revenue, operating profit, each division’s targets (divisional operating profit and mission), etc. for each fiscal
year, as a bonus at a designated time each year. Target performance indicators and their values are set to be consistent with the
management plan at the time the plan is formulated, and are reviewed as needed to reflect changing circumstances.

As non-monetary rewards shall be paid in the form of restricted stock. The Company’s common shares are issued after adesignated period during which the transfer is restricted, for the purpose of promoting efforts to enhance corporate value over the
medium to long term and further pursuit of value sharing with shareholders.

The restricted stock shall be the Company’s common shares issued every year, in principle, and the number of which isdetermined according to the grantee’s position after a transfer restriction agreement (a restricted stock allotment agreement) is
concluded between the Company and the grantee. In order to realize the sharing of shareholder value over the medium to longterm, the transfer restriction period starts from the share issuance date and ends on the date when a director retires or resigns boththe offices of director and any other position specified by the Board of Directors of the Company.

With respect to the ratio of director’s remuneration by type, the representative directors shall, based on the appropriateness of therange of remuneration levels of other companies in the same industry or of the same size, discuss and prepare a draft of the
remuneration amount for each director. he Board of Directors then seeks opinions of the independent outside directors and leaves
entirely all decisions up to the Chairman, Chief Executive Officer. The standard ratio of remuneration by type is 7:2:1 for baseremuneration, performance-linked remuneration, and non-monetary rewards, respectively.

The remuneration for outside directors and corporate auditors is limited to base remuneration only. The amount of remunerationfor each corporate auditor is determined through discussions among the corporate auditors within the range of the total amount of
remuneration determined resolved by the General Meeting of Shareholders.

203. Matters concerning delegation of decisions on the content of individual directors’ remuneration, etc.

The total amount of remuneration for each individual director shall be determined by the Board of Directors based on a proposal
prepared by the Nomination and Compensation Committee, a voluntary advisory body to the Board of Directors, after thoroughdeliberation, within the range of the amount preliminarily resolved at the General Meeting of Shareholders. The decision on thespecific timing of payment and proportion of remuneration for each director shall be entrusted to Kikuo Toyoda, Chairman and
Representative Director, Chief Executive Officer (CEO). The scope of such authority shall be the amount of base remuneration
and bonus and the number of shares of restricted stock for each director.
The reason for delegating such authority is that the Chairman and Representative Director is best suited to evaluate the areas of
responsibilities and duties of individual directors while keeping a bird’s-eye view of the Company’s overall performance.
The details of remuneration, etc. for each individual director for the current fiscal year were determined considering the above,and the Board of Directors believes that such details are in line with the policy for determining remuneration resolved by the
Board of Directors.

Support System for Outside Directors and/or Outside Audit and Supervisory Board Members
Governance Office, the Secretariat of the Board of Directors, distributes materials related to agenda items and reporting items at
the Board of Directors meetings to outside directors in advance and, if necessary, provides explanations of the contents of suchmaterials in advance.
Corporate information and materials that are requested by outside corporate auditors or deemed necessary to be shared amongcorporate auditors are mainly communicated or submitted to outside corporate auditors by standing statutory auditors.

Status of persons who retired from the position of President and Representative Director, etc.
Names, etc. of (senior) advisors, etc. who have served as President and Representative Director, etc.

Working style and conditions

Name

Position / Status

Duties and(full-timeorpart-time,

Retirement date of

Responsibilities

with or wihiout

President, etc.

termPart-time, remunerated

2023/03/31

1 year update

Part-time, remunerated

2023/03/31

1 year update

Part-time, remunerated

2023/03/31

1 year update

cimpenstation, etc.
Masahiro
ToyodaHonorary
Senior Advisor

ShiraiAdvice to current
management
Advice to current

Senior Advisor
Kiyoshimanagemen

MasatoAdvice to current
Advisor

Machidamanagemen

Total number of (senior) advisors, etc. who

321

have served as President and Representative
Director, etc.
Other matters
Mr. Masahiro Toyoda, Mr. Kiyoshi Shirai, and Mr. Masato Machida provide advice, etc. to the incumbent
management making use of their knowledge accumulated through long years of experience in the management of
the Company, but they do not have any authority regarding managerial judgment or business execution of theCompany.

2.

Matters Concerning Functions of Business Execution, Auditing and Supervision, Nomination, andRemuneration Decisions (Overview of Current Corporate Governance System)
The Company’s Board of Directors makes important management decisions and supervises the execution of business operations,and as a company with auditors, our corporate auditors audit the directors’ performance of duties by attending the Board of
Directors meetings and other important meetings.
The following summarizes each organization and department in the Company’s corporate governance system.
(1) Directors / Board of Directors
The Company’s Board of Directors consists of seven (7) inside directors (no female directors) and four (4) outside directors(including 1 female director), totaling 11 members. The Board of Directors makes decisions and reports on important mattersrelated to the Group’s management and business execution, in addition to matters stipulated by laws and regulations or the
Articles of Incorporation, and fulfills the function of mutual supervision and monitoring of directors. Furthermore, the Company
has appointed four (4) outside directors who provide useful advice to the Company’s management from an objective outsider’s
perspective, thereby strengthening the management supervisory function.
The term of office of directors is one year so we can flexibly build an optimal management structure in a rapidly changing
business environment and further clarify the management responsibilities of directors for each fiscal year.
(2) Corporate Management Committee
As an organization that supports right and prompt decision-making in the Group’s extensive business areas, the Corporate
Management Committee, which is composed of inside directors and managers of each business division, meets once a month inprinciple. The Committee conducts prior deliberates on matters to be discussed at the Board of Directors meetings from a broadand diverse perspective, and also deliberates on important matters related to the execution of the Group’s business operations.
(3) Corporate Auditors / Audit & Supervisory Board
The Company’s Audit & Supervisory Board (14 meetings were held in fiscal 2022) consists of two (2) inside corporate auditors(no female directors) and three (3) outside corporate auditors (no female directors), totaling five (5) members. The Company iscommitted to strengthening the monitoring and supervisory functions of management by receiving useful advice, etc. on its audit
from the three (3) outside corporate auditors from an objective outsider’s perspective. In accordance with the audit policy, audit
standards, and so on established by the Audit & Supervisory Board, corporate auditors are striving to grasp and monitor the statusof management execution by attending the Board of Directors meetings and other important meetings. They also monitor and22verify the status of the development and operation of internal control systems, including internal control over financial reporting,to ensure that the execution of duties by directors is in compliance with laws, regulations, and the Articles of Incorporation, andthat the Company’s business is being executed appropriately. Additionally, corporate auditors regularly receive explanations fromthe Accounting Auditor and the Internal Audit Department regarding the status and results of their audits, and exchange
information and opinions with them.
(4) Internal Audit Department
Regarding internal audit, the CSR Center Audit Group (hereinafter, the “Audit Group”) comprising 23 members in total
periodically audits the status of compliance with laws and regulations, as well as the appropriateness and validity of businessprocess of the Group. The “Audit Group” monitors and supervises the construction and operation status of the internal control
system to ensure the reliability and appropriateness of financial reporting. It also serves as the department in charge of theevaluation of the system’s effectiveness under the responsibility and direction of representative directors. In addition to the “Audit
Group,” the Company has established the “CSR Center Compliance Group” comprising 11 members in total as a dedicateddepartment that manages and controls compliance, security and disaster prevention, and environmental protection across theGroup. If any fact that may have a significant impact on the Company's management is confirmed through each internal audit, theCompany has a system in place to report it to its corporate auditors and representative directors as appropriate.

(5) Accounting Auditor
The Company has signed an audit contract with KPMG AZSA LLC, which conducts audit of the Company. In fiscal 2021,
accounting audits of the Company were performed by three certified public accountants (designated limited liability partners andexecutive partners): Mr. Masashi Kanda, Mr. Tatsuya Kido, and Mr. Hiroto Fujimoto.
Currently, the Company has concluded contracts with each outside director and each corporate auditor to limit their liability fordamages under Article 423, Paragraph 1 of the Companies Act up to the minimum liability amount stipulated in Article 425,
Paragraph 1 of the Companies Act if they have performed their duties in good faith and without gross negligence.

3. Reasons for Adoption of Current Corporate Governance System
We have adopted a company with auditors system because we believe that it enables us to ensure prompt and agile management
in a rapidly changing business environment and to sufficiently ensure objectivity and neutrality in our management monitoringand supervisory functions through the corporate governance system described in 2. above.

III.

Implementation of Measures for Shareholders and Other Stakeholders

1. Measures to Vitalize the General Shareholder Meetings and Facilitate Exercise of Voting Rights
Supplementary Explanation
In addition to the conventional written ballot, the Company has introduced aElectronic Exercise of Voting Rights

system that allows exercise of voting rights via the Internet (Electronic Voting
System).

Participation in a Platform for the Electronic

23

Exercise of Voting Rights and Other Initiatives

The Company participates in the Electronic Voting Platform for institutional

to Enhance Environment for Institutional

investors operated by ICJ, Inc.

Investors to Exercise Voting Rights
Provision of Notice (or Summary of Notice) of

The English version of the Convocation Notice (summary) is posted on the

the General Shareholders Meeting in English

Electronic Voting Platform.
Convocation Notices, Notices of Resolutions, and the aggregate results of theexercise of voting rights are posted on the Company’s website.

Other

Convocation Notice is posted on the Company’s website seven days before it issent by post.

2.

Status of IR-related Activities
Supplementary Explanation

Explanation by arepresentative
director or arepresentative
executive officer

In addition to holding a financial results briefing attended
by representative directors once a year, the Company
conducts teleconferences, etc. for analysts andinstitutional investors on the day of quarterly financial
Regular Investor Briefings held for Analysts

results announcements, as well as plant tours, small

and Institutional Investors

meetings, etc. as needed.

Held
Financial results briefing for fiscal 2022 was
implemented by integrating it in the teleconference on the
day of financial results announcement, from theperspective of preventing the spread of the COVID-19.
About once a year, our director in charge of IR makes
individual visits to overseas institutional investors to
explain the progress of our medium-term management
plan and financial results.
About once a year, our director in charge of IR makes
individual visits to overseas institutional investors toRegular Investor Briefings held for Overseas

explain the progress of our medium-term management

Investors

plan and financial results.

Held
In fiscal 2022, overseas IR activities were carried out byattending IR conferences held by securities firms in Japanand through web conferences and teleconferences fromthe viewpoint of preventing the spread of COVID-19.
In fiscal 2021, overseas IR activities were carried out bymeans of web conference and teleconference from the24viewpoint of preventing the spread of the COVID-19.
IR-related URL (https://www.awi.co.jp/en/ir/)
The Company’s website contains financial resultspresentation materials, medium-term management plans,
financial highlights, IR news, IR calendar, earnings
summaries, annual securities reports, quarterly reports,
integrated reports, information on general meetings ofshareholders, shareholder returns and dividends,
Online Disclosure of IR Information

shareholder reports, etc.
The Company’s website contains financial resultspresentation materials, medium-term management plans,
financial highlights, IR news, IR calendar, earnings
summaries, annual securities reports, quarterly reports,
integrated reports, information on general meetings ofshareholders, shareholder returns and dividends,
shareholder reports, etc.
Department in charge: Corporate Communications Office

Establishment of Department and/or Placement
Responsible person: Koichi Nakai, Executive Officer,of a Manager in Charge of IR
General Manager, Corporate Communications Office3.

Status of Measures to Ensure Due Respect for Stakeholders
Supplementary Explanation
Establishment of Internal Rules Stipulating

As the Group-wide code of corporate ethics, we have established the “Air

Respect for the Position of Stakeholders

Water Group Code of Ethical Conduct” which stipulates that each and every
employee, including officers, shall act in a manner that respects and earns thetrust of shareholders, customers, business partners, employees, and otherstakeholders.

Implementation of Environmental Preservation

In its Basic Environmental Policy, the Group has established the corporate

Activities and CSR Activities, etc.

vision “a group to preserve our natural environment” and contributes to theglobal environment through its business activities by manufacturing and selling
products with reduced environmental impact and by making efforts to conserve
resources and energy. Moreover, we prepare integrated report once a year on
our basic stance on the environment, efforts to reduce environmental impact,
CSR activities, and other matters, which are introduced on our website.

Formulation of Policies, etc. on Provision of

As the Group-wide code of corporate ethics, we have established the “AirInformation to Stakeholders

Water Group Code of Ethical Conduct”, which stipulates that information
related to the Company and its stakeholders be disclosed proactively in a fair,equitable and timely manner.

25

IV. Matters Concerning the Internal Control System
1. Basic Views on Internal Control System and Status of Development
The Company has set the following basic policy on the establishment of “systems to ensure that the execution of duties bydirectors complies with the laws and regulations and the Articles of Incorporation, and other systems to ensure theappropriateness of operations of a company and operations of corporate group comprising the company and its subsidiaries” inaccordance with the Companies Act. Under the systems established based on this basic policy, the Company is striving to ensure
the appropriateness and efficiency of operations executed by itself and its subsidiaries.

(1) System to ensure that the execution of duties by directors and employees complies with laws and regulations and the Articles
of Incorporation
a. As the basis of the compliance system, the Company shall stablish the “Air Water Group Code of Ethical Conduct” as a codeof conduct for the Group’s officers and employees to comply with laws and regulations and to respect social ethics in theiractivities, provide training and raise the awareness of social ethics and legal compliance, and develop rules regarding legal
compliance.

b. The “CSR Promotion Office Compliance Group” (hereinafter, the “Compliance Group”), an organization under the directcontrol of Representative Directors, shall be established as a controlling department to centrally manage compliance issues
within the Group. The Compliance Group shall appoint a responsible person from among directors, executive officers, or
administration officers. In addition, the “Compliance Committee” shall be established as a body to discuss importantcompliance-related matters, and a whistleblower system shall be established and operated for officers and employees of theGroup to report directly to the “Compliance Group” and outside attorneys, etc. and consult with them when they becomeaware of any act suspected of violations of compliance, etc., without having to go through ordinary reporting lines.

c. Directors shall report on the execution of their duties at the Board of Directors meetings held regularly or as necessary andsupervise the execution of one another’s duties. In addition, corporate auditors shall attend meetings of the Board of Directors
and other important meetings in accordance with the auditing standards for corporate auditors established by the Audit &Supervisory Board, and conduct audits of business execution by directors of the Group through examinations of the businessexecution in the Group including its subsidiaries.

d. The “CSR Center Audit Group” (hereinafter, the “Audit Group”), an internal audit department, shall conduct internal audits toensure the compliance of the Group’s business activities with internal regulations and laws and regulations, etc., in
accordance with the internal audit regulations and internal audit plan. The results of internal audits shall be reported toRepresentative Directors and Corporate Auditors.

e. With respect to compliance with the Antimonopoly Law, the Group shall regularly receive advice from outside experts,
continuously provide its officers and employees with training regarding the Antimonopoly Law, thoroughly control contacts
with other companies in the same industry. The “Compliance Group” shall regularly monitor the Group’s operation of internal26

rules and regulations concerning compliance with the Antimonopoly Law as well as the status of compliance with such rules
and regulations.

(2) System concerning storage and management of information on the execution of duties by directors
Information on the execution of duties by directors, such as minutes of the Board of Directors meetings and approval
documents, shall be recorded in documents or electromagnetic media, and shall be stored and managed appropriately andsecurely in accordance with the internal rules for document management. Additionally, a system shall be put in place toimmediately submit such documents, etc. when requested by a director, corporate auditor, or Internal Audit Department for
inspection.

(3) Regulation on the management of risk of loss and other systems
a. For the risks related to compliance, safety and disaster prevention, and environmental preservation, which are recognized as
particularly important in the Group’s business activities, The “Compliance Group” shall serve as the controlling department inmanaging such risks across the Group.

b. For individual risks related to information security, quality control, intellectual property, and contracts, the Company shallestablish a department in charge of each of these risks, establish internal rules, prepare manuals, provide training, and manage
such risks within the Group through preliminary reviews and approval systems.

c. The Company shall periodically hold a “Risk Management Review Meeting” with the “Compliance Group” as Secretariat, tograsp the state of risk management and promote the strengthening of risk management within the Group.

d. In the event of the occurrence of a risk that is likely to have a significant impact on its business activities, the Company shallimmediately establish a Crisis Management Committee within the Company in accordance with the “Crisis Management
Regulations” to promptly and appropriately address the risk that has occurred.

(4) System to ensure the efficient execution of duties by directors
a. The Company shall specify the division of duties and decision-making authority in the Organizational Regulations and theRegulations on Administrative Authority to ensure proper and efficient execution of duties, and clarify the authority andresponsibilities of each director, executive officer, and administration officer. A system according to the above shall beestablished at its subsidiaries as well.

b. The Company shall expedite decision-making and clarify responsibilities for business execution in a wide range of businesses
and business areas by delegating authority to executive officers and administration officers appointed by the Board of
Directors. In order to build a flexible management structure that can quickly respond to changes in the business environment,
the terms of office of directors, executive officers, and administration officers shall be one year, respectively.

c. For businesses of a certain size or above, the Business Unit system shall be introduced, whereby the head of each unit shall be27delegated the authority to execute the business and shall also be responsible for the consolidated business results, including
those of related subsidiaries.

d. The Board of Directors shall formulate a medium-term management plan and set major management goals based on the plan.
Along with that, the Board shall set business strategies and profit plans for each fiscal year by business unit, businessdivision, and subsidiary, and manage the results on a monthly basis to ensure the efficient execution of duties by directors.

(5) System to ensure the appropriateness of operations executed by the corporate group consisting of the Company and its
subsidiaries
a. Corporate auditors and the “Audit Group,” which is an internal audit department, shall periodically conduct audits of subsidiaries
in cooperation with corporate auditors of subsidiaries to ensure the appropriateness of business execution in the Group.

b. The Company shall have its subsidiaries ensure the appropriateness of business execution and the effectiveness of supervisory
function by, in principle, dispatching its director(s) and corporate auditor(s).

c. In the Affiliated Companies Regulations, the Company shall clearly specify the departments in charge of each subsidiary as
well as the matters that each subsidiary should report to and request prior approval from the Company, and establish areporting system from subsidiaries to the Company. Certain important matters relating to subsidiaries shall also be deliberated
at the Company’s Board of Directors meetings.

d. Pursuant to the Financial Instruments and Exchange Act, in order to ensure the reliability and appropriateness of the Group’s
financial reporting, the Company shall formulate a basic plan to establish an internal control system for financial reporting,and based on this plan, establish and appropriately operate an internal control system that facilitates effective and appropriate
evaluation.

(6) Matters related to employees when corporate auditors request the assignment of such employees for the assistance in theperformance of their duties, matters related to the independence of such employees from directors, and matters related toensuring the effectiveness of instructions given to such employees
The Company shall assign employees to assist the duties of corporate auditors. Such employees shall follow the instructions andorders of the corporate auditors without following the chain of command in the execution of business, and the appointment,
transfer, appraisal, etc. of such employees shall be determined with the prior consent of the Audit & Supervisory Board.

(7) System for reporting to corporate auditors by directors and employees of the Company and its subsidiaries, and other systems
for reporting to corporate auditors
a. The Company shall put in place a system whereby corporate auditors can attend the Board of Directors meetings and otherimportant meetings in order to gain a detailed understanding of important decision-making processes and the state of businessexecution, inspect approval documents and other documents related to business execution at any time, and request reports
from directors and employees on the state of execution of their duties as needed.

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b. Directors and employees shall promptly report to corporate auditors or the Audit & Supervisory Board, in addition to legallyrequired matters, on the facts that may have a significant impact on the management of the Group, the implementation status
of internal audits, and the state of execution of duties reporting of which was requested in the course of audit.

c. Directors and employees of the Group who report to the Company’s corporate auditors shall not receive detrimental treatment
by reason of such reporting.

(8) Matters concerning procedures for prepayment or indemnification of expenses incurred in the execution of duties bycorporate auditors, and policies concerning the treatment of other expenses or debts incurred in the execution of duties bythem
When a corporate auditor requests prepayment or indemnification of expenses incurred in the performance of his/her duties,
the Company shall promptly process the request, except in cases where such expenses or debts are not deemed necessary forthe corporate auditor’s execution of duties.

(9) Other system to ensure the effective execution of audits by corporate auditors
To ensure the effectiveness of audits, the Company shall establish a system for corporate auditors to regularly exchange
opinions with representative directors, Accounting Auditor, Internal Audit Department, and corporate auditors of subsidiaries,and exchange audit opinions and information.

2. Basic Views on Measures for Eliminating Anti-Social Forces and Status of Development
In the “Air Water Group Code of Ethical Conduct,” the Company clearly declares its policy to take a resolute attitude against
antisocial forces that pose a threat to the order and safety of civil society and to have no relations with such forces.
Additionally, as the controlling department in charge of measures to cut off relationship with antisocial forces, the department incharge of general affairs is building close cooperative relationships with outside professional organizations such as attorneys andpolice, collects information on antisocial forces, and, as necessary, call attention to relevant departments within the Group, andprovides education on how to deal with such forces.

V. Other
1. Adoption of Anti-Takeover Measures
Adoption of Anti-Takeover Measures

Not Adopted

Supplementary Explanation for Applicable Items⎯

2. Other Matters Concerning the Corporate Governance System(1) Please refer to [Reference Material 1] for a schematic diagram of our corporate governance system, including an overview of29

the internal control system.
(2) Overview of timely disclosure system

With respect to the management and disclosure of inside information, and the management of stock transactions by officers andemployees of the Company and its subsidiaries, etc., the Company has established the “Regulations for Management of Inside
Information and Insider Trading” as matters to be strictly observed.
The Regulations stipulate the reporting obligations and management responsibilities of the officers and employees of theCompany and its subsidiaries regarding inside information (undisclosed decisions, occurrence of material facts, and financial
results of the Company and its subsidiaries), as well as how we disclose our corporate information in accordance with the“Securities Listing Regulations” of the Tokyo Stock Exchange. Designation of “Information Management Manager” is also
stipulated as responsible person who oversees the internal management of inside information and the timely disclosure ofcorporate information. The Board of Directors appoints the Head of Legal & Governance Office as “Information Management
Manager.”
In principle, corporate information is to be disclosed as early as possible by the “Information Management Manager” after the
Board of Directors resolves the details and timing of such disclosure. However, in urgent cases where there is no time to pass aboard resolution, a representative director shall handle the matter on an ad hoc basis. (Please refer to [Reference Material 2] for aschematic diagram of this system.
Such information is disclosed by the Head of the Corporate Communications Office electromagnetically to the stock exchange
and through distribution of materials to the media, and is posted on the Company’s website promptly after disclosure.

【Reference Material 1: Schematic Diagram】

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【Reference Material 2: Timely Disclosure System Schematic Diagram】

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END

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