Corporate Governance Report
CORPORATE GOVERNANCE
Disclaimer: This document is an English translation of the original document
in Japanese and has been prepared solely for reference purposes. In theevent of any discrepancy between this English translation and the original in
Japanese, the original shall prevail in all respects.

Harmonic Drive Systems Inc.

Last update: April 10, 2024

Harmonic Drive Systems Inc.

Akira Nagai, President and Representative Director
Contact: Corporate Planning and Investor Relations,
Corporate Planning Division
TEL: + 8 1 -3-5471-7810
Securities Code：6324
https://www.hds.co.jp/english/#1

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

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

Reasons for non-compliance with the principles of the corporate governance code
[Supplementary Principle 4.1.3: CEO Succession Planning]
The Board of Directors of the Company recognizes that succession planning for the CEO position is an important matter, and the Representative
Director assumes the main responsibility for the planning and training of successors.
In addition to supervising the execution of business at the Board of Directors meetings, outside directors attend other important meetings tounderstand and oversee the competencies of the succession candidates and provide necessary advice as appropriate to the Representative
Director regarding the development of the candidates.
[Supplementary Principle 4.3.3: Procedures for Dismissal of the CEO]
Currently, the Company does not have evaluation criteria or procedures for the dismissal of the CEO. Should a member of the Company's
senior management commits an act that violates or may violate laws and regulations or the Articles of Incorporation, or if any other event occursthat makes it difficult for a member of the Company's senior management to fulfill his or her duties properly, the matter will be submitted fordeliberation at the Board of Directors after the reasons for the dismissal are discussed and recognized in a timely manner, including for cases
where the dismissal is proposed by an outside director. In addition, the Company will continue to review the procedures from various angles toestablish more objective, timely, and transparent procedures.
[Supplementary Principle 4.10.1: Establishment of Committees in Cases Where Independent Outside Directors Do Not Constitute a Majority of theBoard of Directors]
In view of the number of directors at the Company, their composition, the status of communication, etc., the Company believes that it alreadyenjoys the appropriate involvement and advice from independent outside directors without voluntarily establishing new independent organizations
such as a Nomination Committee or a Remuneration Committee. When determining the amount of remuneration for directors, the Company
strives to ensure transparency by consulting with outside directors (Independent Directors) and incorporating processes for reporting on thesematters.
[Supplementary Principle 4.11.3: Analysis and Evaluation of the Effectiveness of the Board of Directors]
The Company conducts a questionnaire survey of all directors and Corporate Auditors regarding the effectiveness of the Board of Directors. Also,
after aggregating and analyzing the results, the Board of Directors shares the results of its self-evaluation on effectiveness and holds discussions
to ensure further improvement. We do not currently disclose the results of these evaluations, but we will consider doing so in the future.

Disclosure based on the principles of the corporate governance code
[Principle 1.4: Cross-shareholdings](1) Policy on cross-shareholdings
Regarding cross-shareholdings, it is the Company's policy to hold shares deemed to help raise the corporate value of the Group in the medium- tolong-term, in overall consideration of business strategy and relationships, based on the policy of carefully selecting the minimum crossshareholdings necessary. The policy on exercising voting rights related to strategically held shares is to decide whether to use such rights basedon the criteria of whether this will help raise the medium-to long-term corporate value of the Company and the entity whose shares are held.
(2) Cross-shareholding verification details
The Company also verifies the appropriateness of continuing to hold any particular shares once a year in a Board of Directors meeting based on
the above policy. The shares to be held, the number of the shares, the purpose and effect of shareholdings, etc. are disclosed in the Company’s
securities report.
(3) Criteria for exercising cross-shareholding voting rights

The policy on exercising voting rights related to strategically held shares is based on the decision of whether exercising such rights will enhance
the medium- to long-term corporate value of the Company and the entity whose shares are held.
[Principle 1.7: Related Party Transactions]
In case transactions are to be carried out with related parties, deliberation and decision by the Board of Directors are required, and directors having
a conflict of interest are prohibited from exercising voting rights on the matter. Moreover, all directors, Corporate Auditors, and Executive Officers are
periodically required to confirm in writing whether or not they have transactions with related parties.
[Supplementary Principle 2.4.1: Ensuring diversity in the promotion of key personnel]
The Company positions “Respect for the Individual" at the forefront of its management principles, and has established an environment,
including policies and systems related to human capital, that respects the rights of each employee with an aim to be a Company whereindividuals can pursue a meaningful and cultural life; a Company that believes in the ambition of each individual and supports their
independent activities; a Company that creates an environment where employees can maximize their capabilities through work; and acompany that rewards abilities and performance.

<Approach to ensuring diversity, measurable goals, and status of progress>
The Company aims to create a work environment in which all employees, regardless of gender, nationality, and age, whether new
graduates, mid-career hires, or people with disabilities, can demonstrate their abilities and play active roles. We set targets for the numberof female managers, female directors, and non-Japanese employees, and are working to ensure a diverse workforce.
(1) Promotion of women to management positions
With regard to hiring women, the Company promotes the hiring of new female graduates, and in mid-career hiring, we are proactively
hiring women and promoting them to management positions. The target for the number of female managers is five on a non-consolidated
basis, and as of March 31, 2023, there were two female managers. As for the promotion of women to management positions, thepercentage of potential candidates among all employees is small at this time, and we will continue to expand the candidate pool bystrengthening support for career development and recruitment. At the Ordinary General Meeting of Shareholders held on June 21, 2023,
a resolution was approved to appoint one female outside director, who assumed her position on July 1, 2023. Two female Executive
Officers were also appointed on July 14, 2023. Further, one female director has been appointed at a subsidiary of the Company.
(2) Promotion of foreign nationals to management positions
To retain human resources who share our management principles and possess abilities required by the Group, the Company makes no
distinction between Japanese and foreign national employees when recruiting new graduates and mid-career hires with an aim to create adiverse organization. The Company has long promoted foreign nationals to management positions based on their abilities without regard
for nationality or other factors. As of March 31, 2023, foreign nationals accounted for only 1.2% (six people) of our workforce on a nonconsolidated basis, most of whom are new graduates. We have not set targets for the ratio of foreign national employees in management
positions or the number of management positions. We will first give priority to retaining foreign national, then consider targets for thenumber of managers at a later stage.
(3) Promotion of mid-career hires to management positions
To retain human resources who share our management principles and have the abilities required by the Group, we proactively recruit midcareer hires with various experiences, skills, and qualifications who are expected to achieve immediate results, in addition to the regularhiring of new graduates with an aim to create a diverse organization. The Company has long promoted new graduates and mid-careerhires without distinction to management positions, and based on their abilities. Since the ratio of mid-career hires and the number ofmanagement positions is sufficient, no specific targets have been set.
As of March 31, 2023, mid-career hires in management positions or higher were as follows.
・Percentage of mid-career hires in management positions: 61.8%
・Percentage of mid-career hires in Executive Officer positions (excluding those concurrently serving as directors): 87.5%< Summary and status of human resource development and internal environment improvement policies in order to ensure diversity >(1) Human resource development policy
The basic policy is to develop human resources capable of realizing Company management principles, and the Company strategicallydevelops human resources based on human resource development policy, which is divided into the following three phases.
Phase I Education and training: Through adherence to the basics of the type of employee the Company seeks.
Phase II Practical application: Support individual efforts as employees improve their competencies and establish their expertise,primarily through practical work. Also, nurture future Executive candidates.
Phase III Demonstrate expertise: Leverage abilities and experience in management and specialized skills and techniques accumulated
up to now and contribute to division operations and younger employee development (nurturing role).
(2) Internal environment improvement policy
To create an organization in which each individual is motivated to play an active role, the Company strives to create a workplaceenvironment in which a diverse range of employees can play an active role. Main initiatives are as follows.
Human resource system
The Company’s human resource system is based on the idea that improving employee abilities and motivation to work will enable it to achieve its
management vision and goals.
A variety of other systems are also in place, including job rotation for the purpose of developing skills, a self-reporting system enabling employees toreport directly to the director in charge of human resources regarding their future career path and desired skills development, as well as a childcare
and nursing care leave systems that can be used regardless of employment status. Specifically, to strengthen support aimed at balancing work andchildcare, we strive to create a comfortable work environment through various systems offering employees engaged in childbirth and childcare paiddays off, leaves of absence, a system supporting the return to work, shorter working hours, and telework options. Further, the Company proactively
promotes the use of the childcare leave system for male employees. In the fiscal year ended March 31, 2023, utilization rate of male employee
childcare leave system was 56.3% on a non-consolidated basis.
Skill development system
Regarding skill development, the Company formulates systematic, medium- to long-term human resource development plans and haveestablished a system that enables employees to effectively and continuously improve and develop the skills required of them.
Skill development training includes the following: mandatory level-based training for employees in all positions that enable them todemonstrate the capabilities required for their position; basic training necessary for job performance and career development; area ofexpertise training aimed at increasing specialization in work activities and the acquisition of specialized skills necessary for careerdevelopment; and, in light of more sophisticated economic environments, technological standards, and the advance of globalization, theCompany provides special training programs supporting employee acquisition of MBA, MOT, and other degrees from universities and otherinstitutions of higher learning in Japan and overseas, as well as training at overseas affiliates and language study through AEI programs atoverseas universities to further enhance skills through self-development.
Health management promotion
The company regards employee health as an important management resource and promotes health and safety and health management initiatives.
Specific initiatives are as follows.
・Conduct periodic physical exams, stress checks and other efforts aimed at preventing employee physical and mental health issues
・Established division specializing in health promotion and provide detailed health consultation and guidance using in-house nurses
・Established contact points within and outside the Company for reporting and consultations pertaining to harassment and other issues
・Provision of telework environments, etc.
Human capital initiative details are also published on the company website and in the securities report.
・Sustainability section of the company website: https://www.hds.co.jp/english/csr/
・Securities report (Japanese only): https://contents.xjstorage.jp/xcontents/AS06879/7b73abe7/3414/4ca4/a640/f939f573ea4d/S100QZUN.pdf

[Principle 2.6: Roles of Corporate Pension Funds as Asset Owners]
The Company has both defined-benefit and defined-contribution pension plans. With respect to asset management (including selection of investee,
exercise of voting rights, etc.) for the covenant-type defined-benefit pension plan, the Company formulates the basic investment policy, selects asset
management institutions that are expected to appropriately fulfill their fiduciary responsibilities, including stewardship activities, and entrusts the
management of the assets to these institutions. In addition, the department in charge of the asset management of the Company requests regular
reports from the relevant asset management institutions and verifies their investment performance and systems.
With respect to the defined-contribution pension plan, the Company provides eligible officers and employees with educational opportunities related toasset management institutions and investment products as appropriate.
[Principle 3.1: Full disclosure](1) Management principles, business strategies, and business plans
The Company defines management principles, strategies, and mid-term businessplans and discloses these on the company website.
Management principles (https://www.hds.co.jp/english/company/idea/)
Business strategies and mid-term business plan (https://www.hds.co.jp/english/ir/management_policy/strategy/)(2) Basic views on corporate governance
These are described in “Basic views on corporate governance, capital structure, corporate profile and other basic information 1. Basic
views” of this report.
(3) Policies and procedures for determining remuneration of directors
These are described in “Disclosure of policy on determining remuneration amounts and the calculation methods thereof” under “Director
remuneration” in “Management organization and other corporate governance systems regarding decision-making, execution andmanagement oversight 1. Matters concerning the organizational structure and operation” of this report.
(4) Policies and procedures for nominating directors and Corporate Auditors
When newly appointing or reappointing directors, the Representative Director nominates candidates based on an overall assessment of
their knowledge, experience, skills, and expertise, following discussions with outside directors. Thereafter, the Board of Directors resolves
the proposal referred to the General Meeting of Shareholders.
In appointing Corporate Auditors, recommendations are made by the Board of Directors, then their appointment is discussed and agreed toby the Board of Corporate Auditors, and the appointment is referred to the General Meeting of Shareholders for approval.
In appointing outside directors and outside Corporate Auditors, an overall assessment is made of the personal, equity, and business
relationships of the Company with the candidates themselves and with their affiliated company or organization, and candidates arenominated when it is considered that they can fulfill their required functions and roles from an independent standpoint.
(5) Explanation of nomination and appointment of candidates for director and Board of Corporate Auditors
When candidates for directors and Board of Corporate Auditors are submitted for discussion at the General Meeting of Shareholders, theCompany provides a summary of their career history and decision-making materials that include achievements and experience. The
Company also discloses the reasons for appointment and the expertise required by the Company in the form of a skills matrix included in
the reference documents.
(6) Policies and procedures for the dismissal of senior management
In the event that a member of the Company's senior management commits an act that violates or may violate laws and regulations or the
Articles of Incorporation, or if any other event occurs that makes it difficult for a member of the Company's senior management to perform
his/her duties properly, the matter will be decided at the Board of Directors after the reasons for the dismissal are discussed andrecognized in a timely manner, including for cases where the dismissal is proposed by an outside director.
[Supplementary Principle 3.1.3: Sustainability Initiatives]<Sustainability initiatives>
Recognizing the importance of the sustainability initiatives, the Company established the Sustainability Committee on April 1, 2023, as anorganization to promote, oversee, and manage overall sustainability in order to strengthen and promote the Group's overall sustainability ina strategic manner. The Sustainability Committee consists of Executive Directors and is chaired by the President and Representative
Director. The Committee is scheduled to meet quarterly, approximately four times a year.
In addition, in March 2022, the Company formulated a basic sustainability policy based on our management philosophy, and identified
materiality and began promoting initiatives in current medium-term and annual management plans from May.
Sustainability initiative details are also published on the company website and in the securities report.
・Sustainability website: https://www.hds.co.jp/english/csr/
・Securities Report (Japanese only): https://contents.xjstorage.jp/xcontents/AS06879/7b73abe7/3414/4ca4/a640/f939f573ea4d/S100QZUN.pdf<Investments in human capital and intellectual property>
Details regarding investment in human capital and intellectual property are disclosed on the Company’s website(https://www.hds.co.jp/Portals/0/files/english/ir/management_policy/strategy/pdf/Presentation%20material.pdf)(Japaneseonly)
as“promotion of sustainable management,” “human resource development,” and “research and development investment” in the formulation of
the current mid-term business plan.
Information on human capital is also disclosed in the Sustainability section of the Company’s website (https://www.hds.co.jp/english/csr/) as
employee, customer, and social initiatives, and in this report under Supplementary Principle 2.4.1: Ensuring Diversity in the Promotion of Key
Personnel” in “Disclosure based on the principles of the corporate governance code“ in 1. Basic views, and in the Company’s securities report.
Regarding investments in intellectual property, the Company is proactively working on the rights and protection of intellectual property createdthrough research and development and manufacturing, the details of which are disclosed on the Company’s website(https://www.hds.co.jp/english/development/intellectual_property/).
[Supplementary Principle 4-1-1: Scope of delegation to management>
The Company stipulates the matters to be decided by the Board of Directors in the Board of Directors Regulations and operates theBoard of Directors in accordance with laws and regulations, the Articles of Incorporation, and the Board of Directors Regulations, while
delegating specific business execution to the Executive Directors. In addition, the Company has adopted an Executive Officer system,
under the direction of the President and Representative Director, who execute business operations in accordance with the decisionmaking authority stipulated in the Rules on Administrative Authority to enable prompt decision-making.
[Principle 4-9 Independence standards and qualifications for independent outside directors]
In appointing independent outside directors, an overall assessment is made following the determination of the applicability of each item of
the independence standards set by the Tokyo Stock Exchange. The details are disclosed in the Independent Directors Notifications
submitted to the TSE and in this report in “Matters concerning organizational structure and operation; Directors” under “Management

organization and other corporate governance systems regarding decision-making, execution, and management oversight”.
In appointing candidates for independent outside directors, we also consider various perspectives, such as each candidate’s background,knowledge, personality, gender, and international experience and other factors, and select people who we expect will help bring new
perspectives to the Board of Directors.
[Supplementary Principle 4.11.1: Views on the balance, diversity, and scale of the Board of Directors as a whole and disclosure of skills, etc.]
The Company’s Articles of Incorporation stipulate that the number of directors shall not exceed 15. Given that the Company is aninternationally expanding technology and technical group, basic policy regarding the appointment of directors is to have the Board of
Directors comprised of Executive Directors with specialist skills and knowledge relating to overall management, manufacturing,development, sales, finance and accounting, etc. and outside directors with abundant management experience in other companies andindustries as well as in international fields. Skills matrix is disclosed in the Notice of the Annual General Meeting of Shareholders in June
2022. The information is also posted on the Company's website (https://www.hds.co.jp/ir/management_policy/governance/). All of theCompany's five independent outside directors have management experience at other companies.
[Supplementary Principle 4.11.2: Status of concurrent positions held by Directors and Corporate Auditors]
The status of concurrent positions held by directors and Corporate Auditors is disclosed in the Convocation Notice of the General Meeting of
Shareholders, business report, securities report, etc. The Company allows a maximum of two concurrent positions, including one at the Company,
which we believe is within a reasonable range.
[Supplementary Principle 4.14.2: Training policy for Directors and Corporate Auditors]
To enable Directors and Corporate Auditors to obtain the knowledge and information necessary for fulfilling their roles, the Company provides
opportunities to take outside training courses related to such matters as overall management and the Companies Act, to attend important
conferences that will enhance their understanding of the business, to tour main facilities, and to visit subsidiaries, with the expenses in eachcase paid by the Company. We disclose the details on the company website(https://www.hds.co.jp/english/ir/management_policy/governance/).
[Principle 5.1: Policy for constructive dialogues with shareholders]
We consider our shareholders and investors to be important stakeholders and believe that it is our responsibility as a listed company toestablish and develop systems for promoting constructive dialogue. To that aim, we have appointed an Executive Officer in charge ofinvestor relations, and the IR division works in close cooperation with other relevant departments and actively carries out activities within areasonable scope. Specific activities include financial results briefings for institutional investors, company briefing sessions for individual
investors, plant tours for shareholders, holding of small-group or individual meetings with institutional investors, and enhancing the content
of the company website. Through these and other means, we seek to enhance communication with shareholders and investors. For moredetails, please refer to the “Status of IR-related activities” section of this report.
[Measures to achieve management style that is conscious of cost of capital and share price]
With regard to the cost of capital, the Company's cost of equity and WACC are calculated based on finance theory with the assistance ofoutside experts, and the actual results and trends of such figures are shared with the Board of Directors. In making capital investment andother decisions, the Company verifies the reasonableness of such decisions by performing economic feasibility calculations using hurdle
rates that take into account the cost of capital described above.
Further, the Company is working to achieve the policies and management targets set forth in its current mid-term business plan (fiscal
2021–fiscal 2023) with the mission of “to contribute to technological innovation in society through motion control technology,” targeting an
operating profit margin of 20% or higher for profitability, ROE of 10% or higher for efficiency, and a payout ratio of 30% or higher for shareholder
returns. The mid-term business plan is discussed and approved by the Board of Directors, and progress is reported at a Board of Directors
meeting held at the end of each fiscal year. The management team takes the initiative in reviewing, analyzing, and evaluating plans for theappropriate allocation of management resources.
The President and Representative Director and the CFO explain initiatives and progress at analyst briefings, with the materials and scripts
used in these briefings posted on the Company’s website.
・Mid-term business plan: https://www.hds.co.jp/english/ir/management_policy/strategy/
・Results briefing materials: https://www.hds.co.jp/english/ir/event/accounts/[Status of dialogues with shareholders]
The Company positions shareholders and investors as important stakeholders and maintains a policy of proactively responding to inquiries
and meeting requests from shareholders and institutional investors, which are led by the President and Representative Director, thegeneral manager of the corporate planning division, the Director and CFO, and the Executive Officer and General Manager of corporate
planning and investor relations. Dialogues with shareholders and investors in fiscal year 2022 were as follows.
・Institutional investors: One-on-one IR meetings: 231; small meetings: 14 (attended by 292 investors); and participation in IR conferences: Fourtimes (attended by 95 investors)
・Individual investors: Company briefings: Twice (attended by 440 individual investors)

２．Capital structure
Foreign Shareholding Ratio

30% or higher

Status of major shareholders
Name or
corporate
entityShares held

Ratio (%)

KODEN Holdings Co., Ltd.

33,490,700

35.22

SSBTC CLIENT OMNIBUS ACCOUNT

6,436,296

6.77

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

4,576,300

4.81

Toyota Motor Corporation

4,379,400

4.60

Norimitsu Ito

3,041,600

3.19

Custody Bank of Japan, Ltd. (Trust Account)

2,970,100

3.12

Control trust (A030) trustee SMBC Trust Bank Ltd.

2,176,800

2.28

The Nomura Trust and Banking Co., Ltd. (Trust Account)

2,000,000

2.10

JP MORGAN BANK LUXEMBOURG S.A. 381572

1,786,000

1.87

STATE STREET BANK WEST CLIENT-TREATY 505234

1,223,500

1.28

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

Parent company

None

Supplementary explanation*The “Status of Major Shareholders” section and the following supplementary explanation are as of March 31, 2023.
1) The above percentages are calculated by deducting 1,251,002 shares of treasury stock from the total number of shares
outstanding.
2) The following four companies jointly submitted a change report on 6,974,650 shares on December 22, 2022. However, since it was
not possible to confirm the actual number of shares held in the name of those companies as of March 31, 2023, they are notincluded in the “Status of Major Shareholders” above.
・Capital Research and Management Company
・Capital International K.K.
・Capital International Inc.
・Capital International Sarl
3) The following two companies submitted a change report on 7,487,900 shares on February 7, 2023. However, since it was notpossible to confirm the actual number of shares held in the name of that company as of March 31, 2023, they are not included in
the “Status of Major Shareholders” above.
・T. Rowe Price Japan, Inc.
・T. Rowe Price Associates, Inc.

３．Corporate attributes
Listed stock exchange and market
segment

Tokyo (Standard Market)

Fiscal year-end

March

Business sector

Machinery

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

1,000 or more

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

¥10 billion or more and less than ¥100 billion

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

10 or more and less than 50

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

５．Other special circumstances which may have material impact on corporate governance--

ⅡManagement organization and other corporate governance systems regarding decision-making, execution, andmanagement oversight
１．Matters concerning the organizational structure and operation
Corporate governance system

Company with audit and supervisory board

Directors
Number of directors under Articles ofIncorporation

15

Directors’ term of office under Articles ofIncorporation

1 yearChairperson of the Board of Directors

Chairperson (excluding those concurrently serving as President)

Number of Directors

10Election of Outside Directors

ElectedNumber of Outside Directors

5

Number of Outside Directors appointed
as Independent Directors

5

Relationship with the Company (1)NameHaruhiko Yoshida

Attributes

a

b

c

Relationship with company(*)
d e
f
g h i
j
k

From another company

Masanobu Nakamura

From another company

Yoshio Fukuda

From another company

Kazuhiko Hayashi

From another company

Kaeko Kitamoto

From another company△*Categories for “Relationship with the Company”*Use “○” when the Director presently falls or has recently fallen under the category; and “△” when the Director fell under the category in the past
*Use “●” 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 pasta. An Executive Officer of a listed company or its subsidiaryb. Executive or Non-Executive Officers of the parent company of a listed company
c. Executive Officer of the Company's sister companies
d. Persons whose main business partner is a listed company or a person who executes the businesse. A major business partner of a listed company or a person who executes the businessf. Consultants, accounting professionals, and legal professionals who receive large amounts of money or other assets from a listed company otherthan compensation for their services as Directors or Officers
g. A major shareholder of a listed company (if such major shareholder is a corporation, an Executive of such corporation)h. Executives of business partners of a listed company (not falling under any of d, e and f).
i. Executives (only for the individual) of the party with whom the external officers have a relationship of mutual appointment (only for the individual)
j. Executives of the party to which a listed company has made a donation (only for the individual)k. OtherRelationship with company (2)NameHaruhiko Yoshida

Masanobu Nakamura

Designationas
Independent
Director〇〇

Supplementary explanation of
the applicable relationship―――〇

Mr. Haruhiko Yoshida has served inprominent positions at Mitsui & Co., Ltd. andpossesses abundant experience and superior
insight in regard to corporate management, in
addition to extensive international experience.
Based on the above, the Company has
judged that he would help further strengthen
the Company’s management system bymaking recommendations and supervising theoverall management of the Company byutilizing his ability and experience.

(Designation as an Independent Director)
Mr. Yoshida is designated and filed as an
Independent Director because he does not fallunder any of the criteria for independence set
forth by the Tokyo Stock Exchange and has ahigh degree of independence, and theCompany determined that there is no risk of aconflict of interest between him and ordinary
shareholders.
Mr. Masanobu Nakamura has served inprominent positions in major banks andMr. Masanobu Nakamura served as securities companies, and possesses
Executive Officer of the Company’s abundant experience and superior insight inregard to corporate management, in addition to
main bank UFJ Bank Ltd. (currently extensive international experience. Based on
MUFG Bank, Ltd.) from June 1999 to the above, the Company has judged that heJanuary 2002. He then served aswould help further strengthen the Company’s
Managing Executive Officer at the
management system by making
bank from January to May 2002, and recommendations and supervising the overallmanagement of the Company by utilizing his
Representative Director andability and experience.
Executive Operating Officer fromMay 2004 to June 2005. However,approximately 18 years have passed
since his retirement. The Company’s
borrowings from MUFG Bank, Ltd.
totaled 9,933 million yen as of March
31, 2023, accounting for 8.22% of
total assets.

Yoshio Fukuda

Reasons for appointment―――(Designation as an Independent Director)
Mr. Nakamura was previously an Executive
Officer of the Company’s main bank, but
approximately 18 years have passed since hisretirement. The Company did not invite him at
the request of a financial institution, but rather
at its own discretion, in order to utilize his
extensive management experience and broad
insight into management of the Company.
Further, the Company has transactions with anumber of financial institutions and is not
influenced by any particular financial institution
in its management decision-making. Based ona consideration of all these factors, theCompany has concluded that there is noconflict of interest with ordinary shareholders
and has registered him as an Independent
Director.
Mr. Yoshio Fukuda has served in prominent
positions at Teijin Limited and Teijin Groupand possesses abundant experience andsuperior insight in regard to corporate
management, in addition to extensive
international experience. In addition, he hasa high level of knowledge of strategicplanning, establishment of joint ventures,
M&As, etc. Based on the above, theCompany has judged that he would help
further strengthen the Company’s
management system by making appropriate
recommendations and supervising theoverall management of our internationallyexpanding Group from an independent
standpoint. There are no material transactions
between the Company and Teijin Limited or
the Teijin Group, where he served as an
Executive Officer until 2016, and Toyo
Construction Co., Ltd., where he served as an
outside director until June 27, 2023.
(Designation as an Independent Director)
Mr. Fukuda is designated and filed as an

Kazuhiko Hayashi〇―――

Independent Director because he does not fallunder any of the criteria for independence set
forth by the Tokyo Stock Exchange and has ahigh degree of independence, and theCompany determined that there is no risk of aconflict of interest between him and ordinary
shareholders.
Mr. Kazuhiko Hayashi has experience indemonstrating leadership as the person in
charge of development and design at the
Toyota Group and possesses abundant
experience and high degree of insight into
corporate management gained during his
tenure in prominent positions at the
Sumitomo Electric Industries Group. Basedon the above, the Company has judged that
he would help further strengthen the
Company’s management system by making
recommendations and supervising theoverall management of the Company fromresearch and development standpoint,
given the nature of the Company’s businessas a development-type manufacturer. There
are no material transactions between the
Company and Sumitomo Electric Industries,
Ltd., Sumitomo Wiring Systems, Ltd., and
AutoNetworks Technologies. Ltd., where he
was an Executive Officer until 2017.
(Designation as an Independent Director)
Mr. Hayashi is designated and filed as an
Independent Director because he does not
fall under any of the criteria for independence
set forth by the Tokyo Stock Exchange andhas a high degree of independence, and theCompany determined that there is no risk of aconflict of interest between him and ordinary
shareholders.

Kaeko Kitamoto〇―――

As a certified public accountant at EY Ernst& Young ShinNihon LLC, Ms. Kaeko
Kitamoto has been involved in theaccounting audits of various listedcompanies and has served as a partnerand managing director of that firm, giving
her a wealth of experience and deep insight
into financial accounting. She is also amember of the Electricity and Gas Market
Surveillance Commission, Ministry of
Economy, Trade and Industry, and has
expertise in CO2 reduction and theintroduction of renewable energy. Based on
the above, the Company concluded that
she would help further strengthen the
Company’s management system by making
recommendations and supervising theoverall management of the Company andsustainability initiatives, including climatechange and diversity, equity, and inclusion.
There are no material transactions between
the Company and EY Ernst & Young
ShinNihon LLC, where she served as anauditor. There are also no materialtransactions between the Company and theElectricity and Gas Market SurveillanceCommission, Ministry of Economy, Tradeand Industry.
(Designation as an Independent Director)
Mrs. Kitamoto is designated and filed as an
Independent Director because she does not
fall under any of the criteria for independence
set forth by the Tokyo Stock Exchange andhas a high degree of independence, and theCompany determined that there is no risk of aconflict of interest between her and ordinary
shareholders.

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

Not in place

Corporate Auditors
Establishment of Board of Corporate
Auditors

In place

Number of Corporate Auditors stipulated
in the Articles of Incorporation

5

Number of Corporate Auditors

4

Cooperation among Corporate Auditors, Accounting Auditors and Internal Audit departments
The Corporate Auditors exchange opinions with the accounting auditor regarding the audit plan, receive reports on audit results, discuss andevaluate the content of the audit, and ensure mutual cooperation. Furthermore, with regard to key audit matters (KAM/Key Audit Matter), theCorporate Auditors hold discussions with PwC PricewaterhouseCoopers Aarata LLC, receive reports on the status of their audits, and request
explanations as necessary.
The Internal Control and Audit Office is responsible for internal audits. The General Manager of the Internal Control and Audit Office and three
Auditors conduct internal audits of the Company and its subsidiaries throughout the year based on a pre-determined audit schedule.
In addition the matters identified by internal audits are reported to the president as audit results and to the Board of Corporate Auditors througha dual reporting line system. In addition, the results are reported to the Board of Directors. In the audit process, the Internal Control Auditing
Office, the Board of Corporate Auditors, and the Accounting Auditors mutually share information and collaborate closely with each other, suchas by meeting with the general manager of the Internal Control Auditing Office and the corporate and Accounting Auditors.

Appointment of Outside Corporate
Auditors

Appointed

Number of Outside Corporate Auditors

3

Number of Outside Corporate Auditors
designated as Independent Directors

2Relationship with the Company (1)NameAttributesaYoshitsugu Yokogoshi

From another company

Shigeto Ohashi

From another company

Eisaku Imazato

From another companybc

Relationship with theCompany(*)
d e f g h i j k
△
△

l

m
〇

*Categories for “Relationship with the Company”*Use “○” when the Director presently falls or has recently fallen under the category; and “△” when the Director fell under the category in the past
*Use “●” 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 pasta. An Executive Officer of a listed company or its subsidiaryb. Non-Executive Officers or Accounting Advisors of a listed company or its subsidiaries
c. Executive or Non-Executive Officers of the parent company of a listed company
d. Corporate Auditor of the parent company of a listed company
e. Executive Officers of the listed company's sister companies
f. Persons whose main business partner is a listed company or a person who executes the businessg. A major business partner of a listed company or a person who executes the businessh. Consultants, accounting professionals, and legal professionals who receive large amounts of money or other assets from a listed company otherthan the Director’s remuneration.
i. A major shareholder of a listed company (if such major shareholder is a corporation, an Executive person of such corporation)
j. An Executive (only for the individual) of a business partner of a listed company (not falling under any of f, g and h)k. Executives of the party with whom the external officers have a relationship of mutual appointment (only for the individual)l. Executives of the party to which a listed company has made a donation (only for the individual)
m. OtherRelationship with the Company (2)Name

Yoshitsugu Yokogoshi

Shigeto Ohashi

Designationas
Independent
Director〇

Supplementary explanationof the applicable relationship

Mr. Yoshitsugu Yokogoshi served as
Executive Officer of the Company’s mainbank UFJ Bank Ltd. (currently MUFG
Bank, Ltd.) from May to December 2005.
He then served as Executive Officer for
the Bank of Tokyo-Mitsubishi UFJ, Ltd.
(currently MUFG Bank, Ltd.) from January
2006 to April 2007 before becoming
Managing Executive Officer at the bankfrom May 2007 to December 2008.
However, approximately 14 years havepassed since his retirement.
The Company’s borrowings from MUFG
Bank, Ltd. totaled 9,933 million yen as ofMarch 31, 2023, accounting for 8.22% of
total assets.

Reasons for appointment

Mr. Yoshitsugu Yokogoshi possesses
abundant management experience and broad
insight gained at a major banking group. In
addition, he possesses a wealth of experiencein auditing operations and substantial
knowledge of finance and accounting since hehas served as a full-time corporate auditor at amajor oil company. Based on the above, theCompany has judged that he can strengthen
corporate governance structure of the Group
from an independent standpoint, and therefore
appointed him as an Outside Corporate
Auditor.
(Designation as an Independent Director)
Mr. Yokogoshi was previously an Executive
Officer of the Company’s main bank, but
approximately 14 years have passed since hisretirement. The Company did not invite him at
the request of a financial institution, but rather at
its own discretion, in order to utilize his
extensive management experience and broad
insight into auditing the Company, as well as his
considerable knowledge of audit-related financeand accounting gained through his experience
as a full-time auditor of a major oil company.
Further, the Company has transactions with anumber of financial institutions, and is not
influenced by any particular financial institution
in its management decision-making. Moreover,
the Company does not have any significant
transactions with Cosmo Oil Co., Ltd., where
Mr. Yokogoshi served as a full-time corporate
auditor, or other Cosmo Energy Group
companies. Based on a consideration of allthese factors, the Company has concluded that
there is no conflict of interest with ordinary
shareholders and has registered him as an
Independent Director.

Until June 22, 2023, Mr. Ohashi served asa director of Tokyo Aircraft Instrument Co., Since Mr. Shigeto Ohashi possesses abundantLtd., which is a wholly-owned subsidiary of experience and superior insight gained at Tokyo
KODEN Holdings Co., Ltd., a major
Aircraft Instrument Co., Ltd., which is ashareholder in the Company. At present, he development-type manufacturing company
is the Senior General Manager (full-time) of similar to HDS, the Company determined that heTokyo Aircraft Instrument Co., Ltd. In fiscal can strengthen corporate governance structure2022, to increase its production capacity, of the Group from an independent standpoint,
the Company took on manufacturing
and therefore appointed him as an Outside
personnel from Tokyo Aircraft Instrument, Corporate Auditor.
recording 140 million yen in personnel
expenses. There are no other personnel
relationships between the two companies.
The Company has business transactions
with Tokyo Aircraft Instrument Co., Ltd. but
the transaction amount is small.

Eisaku Imazato〇

Since Mr. Eisaku Imazato possesses
abundant management experience andbroad insight gained at major securities
companies, the Company determined that
he can strengthen corporate governancestructure of the Group from an independent
From May 2010 to June 2014, Mr. Eisaku
standpoint, and therefore appointed him as
Imazato served as Executive Officer ofan Outside Corporate Auditor.
Mitsubishi UFJ Financial Group, Inc., theparent of the Company’s main bank(Designation as an Independent Director)
MUFG Bank, Ltd. However, nine years
Although Mr. Imazato is a former Executive
have passed since his retirement. The
Company’s borrowings from MUFG Bank, Officer at Mitsubishi UFJ Financial Group,Ltd. totaled 9,933 million yen as of March Inc., the parent of the Company’s main bank
MUFG Bank, Ltd., nine years have passed
31, 2023, accounting for 8.22% of total
since his retirement. He was also an
assets.
Executive Officer of a securities company
Mr. Imazato also served as Principalwith which the Company has a business
Executive Officer at Mitsubishi UFJ
Morgan Stanley Securities Co., Ltd. until relationship, but has already been retired fornine years. The Company did
June 2014, but nine years have passed
not invite him at the request of a financial
since his retirement. The amount ofbusiness transactions between theinstitution, but rather at its own discretion, in
Company and Mitsubishi UFJ Morgan
order to utilize his extensive management
Stanley Securities Co., Ltd. in Fiscal 2022 experience and broad insight in auditing thewas small.
Company. Further, the Company has
transactions with several financial institutions
and securities companies, and is not influenced
by any particular financial institutions or
securities companies in its management
decision-making. Moreover, the Company does
not have any significant transactions with
Marusan Securities Co., Ltd., where Mr.
Imazato currently serves as an Outside
Director. As such, the Company believes that
Mr. Imazato’s appointment poses no risk of aconflict of interest with ordinary shareholders,and has registered him as an Independent
Officer.

Matters concerning Independent Directors
Number of Independent Directors

7

Other matters concerning Independent Directors―――

Incentives
Implementation status of measuresrelated to incentives granted to
Directors

Other

Supplementary explanation for applicable items
With respect to Directors’ bonuses, a proposal is resolved by the Board of Directors following comprehensive consideration of thebusiness results for each fiscal year (approximately 4% of non-consolidated profit) and the degree of achievement of the annual
business plan, and then submitted to the General Meeting of Shareholders for approval.

Persons eligible for stock options

Supplementary explanation for applicable items―――

Director remuneration
Status of disclosure of individual
Directors’ remuneration

Individual disclosure is made for certain Directors only

Supplementary explanation for applicable items【Details of Director remuneration】
The details of Director remuneration for fiscal 2022 (April 1, 2022–March 31, 2023) are as follows:・Annual remuneration for Directors: 492,528,000 yen (including 77,000,000 yen for Outside Directors)
・Annual remuneration for Corporate Auditors: 76,801,000 yen (including 55,200,000 yen for Outside Corporate Auditors)
Notes: 1. The amount paid to Directors does not include employee salaries of Directors who concurrently serve as employees.
2. Additional details are disclosed in the securities report (Japanese only): https://contents.xjstorage.jp/xcontents/AS06879/7b73abe7/3414/4ca4/a640/f939f573ea4d/S100QZUN.pdf

Policy on determining remuneration
amount and the calculation methods
thereofIn place

Disclosure of policy on determining remuneration amount and the calculation methods thereof
1. Basic policy
Director remuneration consists of fixed cash remuneration as base remuneration, restricted share-based remuneration as stockcompensation, and bonuses linked to the Company’s fiscal year performance as variable remuneration. It takes into consideration the
responsibility of Directors for increasing the Group's corporate value over the medium- to long-term as well as for improving performancein each fiscal year. Outside Directors do not receive share-based remuneration but are paid base remuneration and bonuses in the formof cash.
2. Policy on determining the amount of base remuneration for each individual
The base remuneration for Directors shall be paid in the form of a fixed monthly remuneration, and it shall be set within the range of remunerationthat was resolved at the Fiscal 2022 General Meeting of Shareholders held on June 21, 2023 (320 million yen including 100 million yen for
Outside Directors). The base remuneration shall be determined after comprehensively considering the Company’s business performance and thelevel of employee salary, including for Executive Officers, etc., depending on whether they have representative rights or not, their position, andresponsibilities.
3. Policy on determining the details and calculation method for performance-linked remuneration

In an attempt to raise awareness for improving business performance in each business year, performance-linked remuneration for Directors
shall be decided at the General Meeting of Shareholders following a resolution by the Board of Directors after comprehensively consideringbusiness results for each business year (approximately 4% of non-consolidated profit) and the degree of achievement of the annual businessplan. The payment is made one a year.
4. Policy on determining the ratio of base remuneration and performance-linked remuneration to the amount of Remuneration for individual Directors
The Company’s Director remuneration consists of base remuneration (cash remuneration and restricted share-based remuneration) a variable
remuneration (performance-linked bonuses). Since non-consolidated profit, which becomes the source of bonuses, fluctuates along with thebusiness performance, we do not determine the ratio of the different types of remuneration in advance but instead determine the ratio
subsequently depending on the determined amount of bonus for each fiscal year calculated by the method described in paragraph 3.
5. Policy on determining the amount of restricted share-based remuneration
The total amount of monetary remuneration claims to be paid as restricted shared-related remuneration, etc. to directors (excluding
Outside Directors) shall be within the range of 100 million yen resolved at the Fiscal 2021 General Meeting of Shareholders held on June22, 2022, and the amount of remuneration for each director shall be determined by the Board of Directors.
6. Matters concerning decisions related to the details of remuneration, etc. for each Director
The determination of the amount of remuneration to be paid to each Executive Director shall be entrusted to the President andRepresentative Director, taking into consideration whether a director has representative rights or not, their position, responsibilities, level ofcontribution, etc. However, when making those decisions, the President and Representative Director shall consult other Representative
Directors and two Outside Directors appointed by the Board of Directors based on the draft of individual Director remuneration amount
prepared in advance and make the final decision after considering their reports.
The determination of the amount of remuneration to be paid to each Outside Director shall be entrusted to the President andRepresentative Director. The determination shall be made after considering and evaluating each Outside Director’s responsibilities,
attendance at Board of Directors meetings, and the comments and recommendations made at various meetings, and after consultation
with each Outside Director.

Support system for Outside Directors and/or Outside Corporate Auditors

Regarding the provision of support for Outside Directors, the Corporate Planning and IR Office in the Corporate Planning Division, which
manages the Secretariat for the Board of Directors, has established a framework for providing appropriate support when necessary.
The Internal Control and Audit Office and the Corporate Auditors’ Office have established a framework for providing appropriate support tooutside Corporate Auditors when necessary.

２．Matters concerning functions of business execution, auditing and supervision, nomination, and remuneration
decisions (overview of current corporate governance system)
The Company has adopted a Board of Corporate Auditors system, which is based on the institutional system under the Company with a
Board of Corporate Auditors as stipulated in the Companies Act. The Company believes that its corporate governance is functioning
adequately and that the current system is effective, since the Company has established the following systems.
1. Business execution and supervisory functions and their status
The Board of Directors consists of 10 members, five of whom are Outside Directors. Outside directors exert its supervisory function overthe management of the Company from a standpoint independent from Executive Directors, drawing on their own experience and insight
into corporate management.
In June 2003, the Company introduced an Executive Officer system in an attempt to strengthen the supervisory function overbusiness execution and to speed up management decision-making. This system has clearly separated the formulation of businessstrategy, decision-making, and supervisory functions that are the responsibility of the Board of Directors from the business executionfunctions that are carried out by the Company’s Executive Officers. In addition, important matters and issues relating to businessexecution are deliberated at the Executive Officer Meeting, which is held once a month.
The Company has also appointed Advisory Members to the Board of Directors that consist of experts from Japan and overseas and act as anadvisory body to the Board of Directors. The Company receives advice on management-related issues from the members on a regular basis.
2. Status of audits
The Board of Corporate Auditors comprises four Corporate Auditors, two of which are full-time and two of which are part-time (including
three Outside Corporate Auditors). After the Annual General Meeting of Shareholders, the Board of Corporate Auditors determines audit
policies, plans, and work assignments, and each Board of Corporate Auditors member audits the execution of duties by Directors,
Executive Officers, and others in accordance with the “Board of Corporate Auditors Regulations,” “Board of Corporate Auditors AuditingStandards” and “Implementation Standards for Internal Control Systems.” Specifically, the Board of Corporate Auditors audits theexecution of duties by Directors through attendance at important meetings, including Board of Director meetings, Executive Officer
meetings, Business Process Innovation meetings, Development Promotion meetings, Affiliated Company meetings, and the President's
Audit. Further, the Board of Corporate Auditors meets with Representative Directors, shares information with Outside Directors,
exchanges opinions with Directors, Executive Officers, division heads, office managers, divisional sales managers, and presidents ofdomestic and overseas subsidiaries, and inspects important documents including approval requests and credit application forms. The
Board of Corporate Auditors also plans and holds Group corporate auditor liaison meetings with Auditors from affiliated companies toshare information among Group companies and take the lead in improving knowledge related to auditing duties.
The Internal Control Auditing Office is in charge of internal audits, with one manager and three Auditors conducting internal audits of theCompany and its subsidiaries throughout the year based on a pre-planned audit schedule.
In addition, the Corporate Planning and IR Office in the Corporate Planning Division serves as a secretariat and implements a “President’s
Audit” twice a year in which the Company President directly audits the status of business execution by those in charge of each division andmonitors progress on the Company’s management plan and the status of risk management, etc.
The certified public accountant performing the accounting audit of the Company in fiscal 2022 was Mr. Tatsuya Chiba, DesignatedEngagement Partner at PricewaterhouseCoopers Aarata LLC, who was assisted by two certified public accountants, one associate
member of the Japanese Institute of Certified Public Accountants, and six other staff members.
3. Status of audits by the accounting auditor
In terms of accounting audits, PricewaterhouseCoopers Aarata LLC conducts strict accounting audits based on an audit contract andthe Company exchanges opinions on the audit results and receives recommendations for improvements.

３．Reasons for adoption of the current corporate governance system
As stated in section 2 above, we believe that the current corporate governance system is functioning effectively and that the number of
Outside Directors, Outside Corporate Auditors, and Independent Directors is already sufficient considering the size of the Company and thenumber of members of the Board of Directors and the Board of Corporate Auditors.

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

Early dispatch of Convocation Notice for
the General Meeting of Shareholders

Scheduling of the General Meetings ofShareholders during non-peak days

Electronic exercise of voting rights

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

The Convocation Notice is mailed to shareholders two weeks before the General
Meeting of Shareholders. However, to make the process more convenient forshareholders and ensure a sufficient period of time to consider the proposals, theConvocation Notice is posted on the Tokyo Stock Exchange, the ICJ Electronic
Voting Platform, and the Company website two weeks prior to the mailing date. The
Convocation Notice of the Ordinary General Meeting of Shareholders for Fiscal
2022 was posted on the Tokyo Stock Exchange, ICJ, and the Company website 30
days prior to the dispatch date.
The Company sets a date for the General Meeting of Shareholders that avoids peakdays. The Ordinary General Meeting of Shareholders for Fiscal 2021 was held on June22, 2022, and in Fiscal 2022, on June 21, 2023.
Beginning with the Fiscal 2016 Ordinary General Meeting of Shareholders, theCompany has introduced a system for exercising voting rights by electromagnetic
means. Specifically, we have introduced two ways to exercise voting rights: (1) bydirectly entering the URL and logging in to the "Voting Website" with an ID andpassword, and (2) by "Smart Exercise," whereby shareholders can easily exercise
their voting rights without an ID and password by reading the QR code on the Voting
Form after logging in to "Convocation via Internet" from their smartphones or tablets.
This way, users can exercise their voting rights not only from PCs but also fromsmartphones and tablets.
・In order to provide an appropriate voting environment for institutional investors bothin Japan and overseas, we started using the ICJ Electronic Voting Platform from theOrdinary General Meeting of Shareholders for Fiscal 2017.
・The Convocation Notice, both in Japanese and English (reference documents andsummary excerpts), is disclosed prior to dispatch and posted on the Tokyo Stock
Exchange, the Electronic Proxy Voting Platform (ICJ) and the Company's website
approximately three weeks prior to the General Meeting of Shareholder.

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

We have submitted and announced an English abridged version of the Reference
Documents starting with the Ordinary General Meeting of Shareholders for Fiscal
2017, an English version of Summary and Reference Documents starting with theOrdinary General Meeting of Shareholders for Fiscal 2022 to the Tokyo Stock
Exchange and to Electronic Voting Platform (ICJ), and displayed the documents on
the Company website (https://www.hds.co.jp/english/ir/event/stockholder/).

Other

・To vitalize the General Meeting of Shareholders, in explaining the contents of items
to be reported and resolved, we strive to make the contents visually easy tounderstand by projecting materials with graphs and charts using a projector.
・Once the General Meeting of Shareholders is over, we hold a corporate briefing to
supply business or product information, etc. and enable our shareholders to get toknow the Group better. The corporate briefings were unavoidably canceled in fiscal
2019 (June 24, 2020), fiscal 2020 (June 23, 2021), fiscal 2021 (June 22, 2022), andfiscal 2022 (June 21, 2023) to prevent the spread of COVID-19.
・We post convocation notices, resolution notices, voting results, and presentationmaterials on matters to be reported, etc. on the Company website.
Japanese: https://www.hds.co.jp/ir/event/stockholder/
English: https://www.hds.co.jp/english/ir/event/stockholder/２．Status of IR-related activities

Supplementary explanation

Formulation and publication of
disclosure policies

Regular investor briefings held forindividual investors

Regular investor briefings held foranalysts and institutional investors

Regular investor briefings held foroverseas investors

Online disclosure of IR information

Establishment of department and/or
placement of a manager in charge of IR

Explanation by aRepresentative
Director

The Company’s IR website lists our information disclosure policy andframework for timely disclosure in both Japanese and English.
Japanese: https://www.hds.co.jp/ir/management_policy/ir_policy/
English: https://www.hds.co.jp/english/ir/management_policy/ir_policy/
We hold corporate briefings for individual investors at least twice a year tooutline the Group and our business strategies and business performance,
etc. In fiscal 2022, two meetings were held, one on September 17, 2022,
and the other on March 12, 2023.

Not Held*The materials used for those individual investor briefings are displayedon the individual investor briefing page on the Company website:
https://www.hds.co.jp/ir/event/investor/ (Japanese only)
We conduct a business results briefing for analysts and institutional
investors when we announce our interim and full-year business results at
which the President and Representative Director and the CFO givepresentations and answers questions.
* The materials used for those investor briefings are displayed on the
Presentation of Business Results page on the Company website.
Japanese: https://www.hds.co.jp/ir/event/accounts/
English: https://www.hds.co.jp/english/ir/data/briefings/
・We hold small meetings for overseas investors arranged by securities
companies each time we announce quarterly business results. In fiscal
2022, we held a total of 14 small meetings.
・In order to explain our financial results and business strategies, we holdindividual interviews with overseas institutional investors on a quarterly
basis. 79 overseas investors attended individual meetings in fiscal 2022.
・We participate in conferences organized by securities companies atleast once a year. In fiscal 2022, we attended four such conferences.
We have set up an Investor Relations section on the Company website
and we seek to display all our IR information in a readily understandable
and timely way using charts and graphs. Timely disclosure includes
nearly simultaneous disclosure on the Tokyo Stock Exchange.
Japanese: https://www.hds.co.jp/ir/
English: https://www.hds.co.jp/english/ir/
・The Executive Officer in charge of corporate planning oversees all IR
operations as the head of IR, and conducts IR operations in cooperation
with the Executive Officers in charge of finance, accounting, andtaxation..
・The Corporate Planning & Investor Relations Office of the Corporate
Planning Division has been established as the department in charge ofinvestor relations, and specific investor relations activities are being
implemented.

Held

Held

３．Status of measures to ensure due respect for stakeholders
Supplementary explanation
The Company mission is to do our utmost to ensure all of our stakeholders are
satisfied based on our Management Principles.

Establishment of internal rules
stipulating respect for the position of
stakeholders■ Management Principles
1. Respect for the Individual
2. A Meaningful Company
3 Coexistence and Co-prosperity
4. Contribution to Society■ Environmental Preservation Activities
We have always been deeply aware of our corporate social responsibility towards theglobal environment and strive to maintain and improve our environmental
management system based on ISO 14001. To substantially reduce our environmental
impact, we set targets for reducing CO2 emissions and waste, and proactively engage
in efforts toward this end.

Implementation of environmental
preservation activities and CSR
activities, etc.

■ Implementing Sustainability Activities
We recognize that sustainability initiatives are an important management issue, andin accordance with our basic sustainability policy based on our Management
Principles comprising Respect for the Individual, A Meaningful Company,
Coexistence and Co-prosperity, and Contribution to Society, we strategically promotesustainability activities led by the Sustainability Committee, which is chaired by the
President and Representative Director, and attended by Executive Directors.
Details of these initiatives are displayed on the Sustainability page of the Company
website.
Japanese: https://www.hds.co.jp/csr/
English: https://www.hds.co.jp/english/csr/

Ⅳ Matters related to the internal control system
1. Basic views on the internal control system and progress of system development■ Basic Views on the Internal Control System
The Company has established the following fundamental policies on establishment of internal control systems, which are necessary toensure that Directors' execution of duties is in compliance with laws, regulations and the Articles of Incorporation and to ensure theappropriateness of other operations. In accordance with the fundamental policies, the Company will continue to ensure theappropriateness of operations and review and improve the internal control system with the aim of building a more effective system.
■ Status of development of internal control system
1. System for the preservation and management of information related to the execution of duties by Directors
The handling of information and documents relating to the execution of duties by Directors shall be appropriately stored and managed in accordancewith the Company’s internal rules on document management.
2. Regulations and other systems for managing risk of loss
(1) The Company shall stipulate risk management rules, establish a Group-wide risk management structure in accordance with the rules andimplement risk management.
(2) In the event of a risk should arise, the Company shall establish a system to take appropriate measures in accordance with the "Code of Conduct," "Crisis and Risk Management Regulations," and "Crisis Management - Code of Conduct in the Event of a Crisis"
established by the Company.
(3) Responsibility and authority relating to risk management are segregated as follows:
・The President and Representative Director shall have authority and responsibility for establishing risk management systems throughout the Group.
・The Executive Officer responsible for general affairs shall promote maintenance and improvement of risk management systems
throughout the Group and manage the systems in accordance with the instructions and supervision of the President and Representative
Director.
・Executive officers shall recognize the importance of identification, assessment, monitoring and management of risks with respect to the fields forwhich they are responsible and establish systems for clarification and management of risks.
3. System ensuring efficient execution of duties by Directors(1) The Company shall employ the Executive Officer system and separate functions of the Board of Directors, including strategy
formulation, decision-making, and supervision, from the function of Executive Officers, namely execution of operations. The Company shalldefine the responsibility and authority concerning execution of duties in the Authority Rules to clarify responsibility, improve efficiency ofdecision-making, and accelerate decision-making.
(2) The Company shall continuously monitor the situations of business operations and risks and ensure efficiency of duty execution by
Directors, Executive Officers, and the Directors of subsidiaries based on the following management control systems:
・Board of Directors Meeting (decision-making of important management policies, monitoring of the progress of the mid-term business plan andthe annual business plan)
・Executive Officer Meeting (reporting and deliberation of the status of Executive Officers' business execution, deliberation and decision-making on
execution of important management matters)
・President's Audit (direct audit by the President on business execution policies of persons responsible for each division, targets, and status ofbusiness execution)
・Business process innovation meeting (deliberation on monthly business results, initiatives for business process innovation, etc.)
・Affiliated company meeting (reporting and deliberation of the status of management at affiliated companies)

・Internal audit (audit of appropriateness and efficiency of activities related to operations, accounting, quality, and the environment)
4. System ensuring execution of duties by Directors and employees in compliance with laws, regulations, and the Articles of Incorporation(1) The Company shall ensure that everyone working at the Company and its subsidiaries complies with the Charter of Corporate Behavior
and the Code of Conduct, and foster a high level of awareness of compliance among individual employees.
(2) In the event of any unfavorable compliance-related eventuality at the Company and its subsidiaries, the Company shall establish a systemby which the President and Representative Director, the Chairperson and Representative Director, the Board of Directors, and the Board of
Corporate Auditors receive reports on the details of the event and countermeasures via the Executive Officer responsible for general affairs.
(3) The Company and its subsidiaries shall establish a system for ensuring reliability and appropriateness of financial reporting and evaluate
the status of development and operation of such system regularly.
(4) As a system for ensuring (1), (2), and (3) above, the Company shall establish a system to ensure business execution is being conducted
appropriately by having Internal Auditors primarily led by the Internal Control and Audit Office, to conduct internal audits of the Company andits subsidiaries.
(5) The Company and its subsidiaries shall adhere to the basic policy to comply with laws and regulations and have no relationshipwhatsoever with anti-social forces or organizations.
5. System ensuring the appropriateness of operations of the corporate group consisting of the Company and its subsidiaries(1) The Company shall foster a high level of awareness of compliance by thoroughly communicating the Code of Conduct to the employees of
its subsidiaries as well.
(2) The Company shall establish an appropriate system for managing its subsidiaries in accordance with the Rules for Management ofAffiliated Companies.
(3) The Company shall continuously monitor the status of execution of operations at subsidiaries and risks by periodically holding AffiliatedCompanies Meeting.
(4) Internal Auditors primarily led by the Internal Control and Audit Office shall periodically conduct operational audit of Group companies.
(5) The Company shall promote personnel exchange between the Company and its subsidiaries in order to achieve close collaboration of theGroup.
6. Matters concerning employees who provide assistance to Corporate Auditors upon request
The Company shall establish an organization to assist with the duties of Corporate Auditors and assign appropriate personnel to thatorganization.
7. Matters concerning the independence of employees mentioned in 6. above from Directors
Transfer of the employees who provide assistance to Corporate Auditors and their performance evaluation shall require the consent of the Board of
Corporate Auditors and its members.
8. System for Directors and employees of the Company and its subsidiaries to report to Corporate Auditors, and other systems regarding reports tocorporate auditor(1) Corporate Auditors shall attend important meetings to gain important information on the execution of duties by Directors and employees.
(2) Directors and employees of the Company and its subsidiaries shall swiftly notify the Board of Corporate Auditors and its members of mattersthat may have a material impact on the Group, in addition to matters designated by law.
(3) Any matters discovered through internal audits of the Company and its subsidiaries shall be reported to the Board of Corporate Auditors andits members by the General Manager of the Internal Control and Audit Office.
(4) Directors and employees of the Company and its subsidiaries are required to provide the necessary reports and information in response torequests from the Board of Corporate Auditors and its members.
(5) Any whistleblowing reports from the Company and its subsidiaries shall be handled according to the whistleblowing system and reported to theBoard of Directors and its members and the Board of Corporate Auditors and its members periodically or as necessary. Furthermore, the identityand personal information of any whistleblowers shall be protected to ensure they are not treated disadvantageously.
9. Other Systems Ensuring the Effectiveness of Audits Conducted by Corporate Auditors(1) The Board of Corporate Auditors and its members shall periodically meet with the Company's Accounting Auditors to exchange opinions.
(2) If deemed necessary for auditing, the Board of Corporate Auditors and its members may appoint lawyers, certified public accountants, or otherexternal experts, in addition to internal staff, at the expense of the Company.

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

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

None

Supplementary explanation for applicable items―――

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