Corporate Governance Report
CORPORATE GOVERNANCEESPEC CORP.

Last Update:June 24, 2024

ESPEC CORP.
President: Satoshi Arata
Contact: General Affairs &Personnel Department

Securities code: 6859
https://www.espec.co.jp/english/
The corporate governance of ESPEC CORP. (the “Company”) is described below.

I.

Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other
Basic Information

1.

Basic Views
The Company firmly believes that a corporation is a public institution, or a social apparatus with roles and functions for fulfilling
people’s wishes and living up to the expectations of society. Based on this philosophy, the Company aims to become a highly
efficient corporate medium for exchanging value. Accordingly, the Company shall provide all stakeholders with higher value
through the mutually beneficial relationships it builds with shareholders, customers, business partners, employees and all otherstakeholders it interacts with in the course of conducting its corporate business activities.
By continually enhancing corporate governance with this philosophy as an impetus, the Company shall realize sustainable growthand enhance corporate value over the medium to long term, while fulfilling its social responsibility to stakeholders.
The Company’s basic views, policy for engagement in each principle, and status of implementation of the Corporate Governance
Code have been formulated in a separate Basic Policy on Corporate Governance, publically disclosed on the Company’s website.
https://www.espec.co.jp/english/ir/management/pdf/governance_policy.pdf

Reasons for Non-compliance with the Principles of the Corporate Governance Code
The Company has implemented each principle of the Corporate Governance Code after its revision in June 2021 (including
principles for the Prime Market) in accordance with the above basic policy.

Disclosure Based on the Principles of the Corporate Governance Code (Updated)
Please refer to the following articles of the Basic Policy on Corporate Governance for details on matters that ought to be disclosed
under the Corporate Governance Code.
[Principle 1.4 Cross-Shareholdings]
Article 5. Cross-Shareholdings
・To improve corporate value over the medium to long term, the Company will only hold shares of business partners judged tomaintain and strengthen stable relationships.
・At a meeting of the Board of Directors held on February 13, 2024, the Company verified the need for individualcross-shareholdings in its possession. As a result of the verification, the Company reduced its holdings of shares in one issue.
Moreover, it disclosed in its Annual Securities Report the issues of stocks it decided to continue to possess and the objectives indoing so.
・The Company shall exercise the voting rights on its cross-shareholdings appropriately in view of the aim behind the holdings
and from the standpoint of improving its corporate value and that of its investees over the medium to long term.
In the event a concern emerges in regard to corporate governance, an opposing vote regarding the appointment of officers will becast until that concern has been resolved.
[Principle 1.7 Related Party Transactions]
Article 6. Related Party Transactions[Supplementary Principle 2.4.1 Ensuring Diversity in the Promotion of Core Human Resources, etc.]
Article 9. Promotion of Diversity1(1) Policies on Ensuring Diversity in the Promotion of Core Human Resources, etc.
The Company embraces diversity regardless of gender, age, nationality, or any other characteristic, and appropriately manages
frameworks for human resources recruitment, promotion, training, evaluation and so forth, so that the Company’s broad spectrumof human resources can demonstrate their individuality and abilities. For information on initiatives to promote the active
participation of diverse human resources, please see “Promoting Participation by Diverse Human Resources” on the Company
website and “Approach and Initiatives for Sustainability” in the Annual Securities Report and the Sustainability Report.
https://www.espec.co.jp/english/sustainability/social/employee.html
https://www.espec.co.jp/ir/library/security.html
https://www.espec.co.jp/sustainability/report.html(2) Voluntary and Measurable Goals for Ensuring Diversity and Current Status Thereof
1. Promotion of women to managers
The Company is actively engaged in building an organization where motivated and capable women can enjoy a good working
environment and actively participate in the workforce. Since fiscal 2013, the Company has been offering female leader
development programs, along with striving to nurture female employees into managers and to expand the scope of theiroccupations and job duties. As of April 1, 2024, the Company has 2 female officers and the ratio of female managers stood at
9.5%. By fiscal 2025, the Company aims to achieve a ratio of female managers of 10% or more.
2. Promotion of foreign nationals to managers
The Company strives to secure talented human resources, regardless of nationality. For example, in the hiring process, theCompany has set a certain target for the recruitment of non-Japanese nationals and actively hires such individuals. Currently, theCompany does not yet have a foreign national manager. It will push ahead with human resources development to secure suchmanagers.
3. Promotion of midcareer hires to managers
Midcareer hires account for 30% of the number of the Company’s managers, almost the same percentage as the ratio of midcareerhires to all employees. Going forward, the Company will continue to promote midcareer hires to managers, with a view toensuring even more diversity.
(3) Policies on Human Resource Development and Internal Environment Development to Ensure Diversity
1. Provide motivated and capable human resources with a diverse range of support for growth and opportunities to succeed
Personal growth is highly dependent on individual will and motivation. Indeed, such growth can be described as a personal
priority. The Company provides capable employees who are eager to grow with a diverse range of support for growth andopportunities to realize their ambitions.
2. Developing an environment in support of diverse workstyles
The Company believes that it is important for it to develop an environment where employees can fully demonstrate theirabilities with peace of mind. The workstyles that people desire are constantly changing with the times. To an appropriate extent,
the Company will strive to develop an advanced workplace environment in support of diverse workstyles that meet the demandsof the times.
[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners]
To ensure appropriate operation of its defined benefit pension plan, the Company has established operational goals and a policy
asset composition from a medium- to long-term standpoint, and entrusts its corporate pension to an investment management
institution that accepts Japan’s Stewardship Code. From an operational viewpoint, the Company assigns human resources withappropriate skills as heads of the finance and personnel departments and monitors the operational status of the operational
institution. Moreover, to ensure transparency in regard to conflicts of interest, the Company notifies employees of the results offund operations.
[Principle 3.1 Full Disclosure]
Article 1. Basic Stance on Corporate Governance
Article 7. The Company’s Corporate Philosophy, Management Policy, and Relationship with Stakeholders
Article 17. Method and Procedures for Nominating a Candidate for Director
Article 20. Compensation of Directors
・The Company shall disclose its reasons behind the nomination of candidates for director in the reference materials to its Notice
for Convening a Shareholders Meeting.
https://www.espec.co.jp/english/ir/event/shareholder.html
・The policy and procedures by which the Board of Directors determines the compensation of the management executives anddirectors is disclosed in this report under “Disclosure of Policy and Calculation Method for Determining Compensation
Amounts”, in the business report included in the convocation notice for the general meeting of shareholders, and the Annual
Securities Report.

2

[Supplementary Principle 3.1.3 Initiatives on Sustainability]
Article 8. Policy on Sustainability(1) Initiatives on Sustainability
THE ESPEC MIND, which is the Company’s corporate philosophy, contains two important beliefs. The first belief is that a
corporation is a public institution. The second belief is that the Company should aim to enhance its value exchangeability withall its stakeholders. Guided by this corporate philosophy, the Company has formulated ESPEC Vision 2025, where it clearly
defines what kind of company and team it wants to be in the future, and what kinds of businesses it will pursue to create
value. By implementing THE ESPEC MIND and ESPEC Vision, the Company seeks to achieve sustainable growth andcontribute to society. For information on policies and initiatives related to the Company’s sustainability, please see “Approachto Sustainability” on the Company website and “Approach and Initiatives for Sustainability” in the Annual Securities Report,
and the Sustainability Report.
https://www.espec.co.jp/english/sustainability/thinking.html
https://www.espec.co.jp/ir/library/security.html
https://www.espec.co.jp/sustainability/report.html(2) Investments in Human Capital
The Company aims to maximize employees’ abilities and energy through efforts to develop and nurture high-quality humanresources who are strongly ambitious. For information on initiatives related to investments in human capital, please see“Promoting Participation by Diverse Human Resources” on the Company website and “Approach and Initiatives for
Sustainability” in the Annual Securities Report, and the Sustainability Report.
https://www.espec.co.jp/english/sustainability/social/employee.html
https://www.espec.co.jp/ir/library/security.html
https://www.espec.co.jp/sustainability/report.html(3) Investments in Intellectual Properties
Regarding patents and technology-based designs, the Company strategically submits applications and acquires and exercises
rights, along with continuously making a certain level of investment in the development of new technologies and products. In
addition, the Company has developed a security framework to protect intellectual properties. Moreover, the Company
regularly holds Company-wide technology networking meetings to bring out the creativity and ingenuity of employees.
Concurrently, the Company works to raise employee motivation and enhance technical capabilities by, for example,
presenting awards through the ESPEC Idea Challenge program, and by providing incentives based on invention and design
handling regulations. For details on specific research and development initiatives, please see “Research and Development
Activities” in the Annual Securities Report.
https://www.espec.co.jp/ir/library/security.html(4) Effect of climate change-related risks and earnings opportunities on business activities and finance, etc.
In December 2021, the Company announced its support for the recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD). For information on disclosure based on the TCFD recommendations, please see “Addressing
TCFD (Disclosure of Information Based on TCFD)” on the Company’s website and “Management Policies, Business
Environment and Our Tasks Ahead, etc.” in the Annual Securities Report.
https://www.espec.co.jp/sustainability/env/climate/tcfd.html
https://www.espec.co.jp/ir/library/security.html[Supplementary Principle 4.1.1 Scope of Delegation to Management]
Article 12. Roles of the Board of Directors[Principle 4.9 Criteria for the Independence of Independent Outside Directors]
Article 17. Method and Procedures for Nominating a Candidate for Director[Supplementary Principle 4.10.1 Views, authority, and roles, etc. related to the independence of the composition of theNomination Committee and Remuneration Committee]
Article 19. Nomination and Compensation Committee
The Company has established the “Nomination and Compensation Committee,” a voluntary body that deliberates on director
appointments and compensation. From a standpoint of ensuring management transparency and objectivity, majority of themembers of the Nomination and Compensation Committee are outside directors, and the chairperson and members are decided by
the Board of Directors.
For details, please refer to “Article 19. Nomination and Compensation Committee” in the Basic Policy on Corporate Governanceand this report under the “II. 1. Organizational Composition and Operation” section’s “Supplementary Explanation” column of“Status of Voluntarily Established Committee(s), Attributes of Members Constituting the Committee and the Committee Chair

3

(Chairperson).”[Supplementary Principle 4.11.1 Size, Diversity and Overall Balance of the Board of Directors]
Article 14. Composition of the Board of Directors and the Audit & Supervisory Committee
Article 17. Method and Procedures for Nominating a Candidate for Director[Supplementary Principle 4.11.2 Directors and Audit & Supervisory Board Members Concurrently Holding Positions at Other
Listed Companies]
Article 18. Tenure of Outside Directors and Their Concurrent Positions at Other Companies
The Company discloses the status of its directors holding important concurrent positions in other companies in the referencematerials, business report and other content attached to its Notice for Convening a Shareholders Meeting.
[Supplementary Principle 4.11.3 Evaluating the Effectiveness of the Board of Directors]
Article 15. Evaluating the Effectiveness of the Board of Directors
To evaluate the effectiveness of the Board of Directors during fiscal 2023, the Board of Directors met in April 2024 to analyze
and evaluate their effectiveness as a whole. As an evaluation method, the outside directors as the responsible officers, had allboard members fill out a questionnaire-style self-evaluation of the organization, functions,] and conduct of the Board of Directors,
as well as the support it had received. Based on the results, follow-up interviews were conducted. As a result, it was judged thatthe effectiveness of the Board of Directors as a whole has been secured based on the confirmation that the Board had put in place
an organization for fulfilling its function of supervising management, and that conditions within the Board contributed to
discussions and exchanges of opinions in a free, uninhibited and constructive manner. Meanwhile, the Board of Directors
confirmed the need to take steps to “further strengthen management and control of affiliated companies,” as issues that must be
addressed going forward. Looking ahead, we will continue to have discussions from various perspectives and endeavor to further
improve the Board’s effectiveness.
Results of the evaluation of the effectiveness of the Board of Directors have been posted on the Company’s website.
https://www.espec.co.jp/english/csr/management/[Supplementary Principle 4.14.2 Training for Directors and Audit & Supervisory Board Members]
Article 22. Training for Directors[Principle 5.1 Policy for Constructive Dialogue with Shareholders]
Article 23. Dialogue with Shareholders
The Company has formulated and disclosed a separate investor relations IR policy outlining its basic stance for realizing a
constructive dialogue with shareholders.
https://www.espec.co.jp/english/ir/policy.html[Actions to Achieve Management Conscious of Cost of Capital and Share Price]
ESPEC (“the Company”) has set a target of 10% or more ROE under the medium-term management plan Progressive Plan 2025.
The Company is conducting growth investment for sustainable growth to achieve the ROE target. The Company is also striving toenhance corporate value by controlling the increase of total assets and raising the efficiency of invested capital to generate cash to
be used for growth investment and shareholder returns.
Main Initiatives
・Implement a growth strategy targeting the EV and IoT fields, strengthen profitability
・Proactively invest in growth (business, facilities, research, human resources) and clarify investment effects
・Generate cash by reducing inventories and finance growth investment and shareholder returns
・Enhance dialogue with shareholders and investors to raise stock market assessments and strengthen management
Please refer to the ESPEC website link below for details of these initiatives.
https://www.espec.co.jp/english/news/2024/0528_04.pdf

2. Capital Structure
Foreign Shareholding Ratio

From 10% to less than 20%

4

Status of Major Shareholders (Updated)
Name or Company Name

Number of Shares Owned

Percentage (%)

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

3,072,800

13.92

ESPEC Business Partners’ Stockholding Association

2,229,260

10.09

Custody Bank of Japan, Ltd. (Trust account)

1,492,600

6.76

ESPEC Employee Stockholding Association

801,060

3.62

Nippon Life Insurance Company

553,600

2.50

MSIP CLIENT SECURITIES

528,350

2.39

TACHIBANA ELETECH CO., LTD.

419,083

1.89

Yoshiki Sasaki

380,000

1.72

The Dai-ichi Life Insurance Company, Limited

276,000

1.25

CEPLUX-ABRDN SICAV I

272,000

1.23

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

None

Supplementary Explanation (Updated)
The Company owns 1,708,685 shares of treasury stock in addition to the shares mentioned above.

3. Corporate Attributes
Listed Stock Exchange and Market Segment

Prime Market

Fiscal Year-End

MarchBusiness Sector

Electrical Appliances

Number of Employees (Consolidated) as of the End
More than 1,000of the Previous Fiscal YearNet Sales (Consolidated) as of the End of the
From ¥10 billion to less than ¥100 billion
Previous Fiscal Year
Number of Consolidated Subsidiaries as of the End
From 10 to less than 50of 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―5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 Supervisory Committee

Directors
Number of Directors Stipulated in Articles of
12
Incorporation
Directors' Term of Office Stipulated in Articles of
1 year
Incorporation
Chairperson of the Board

Chairperson

Number of Directors

10Election of Outside Directors

ElectedNumber of Outside Directors

4

Number of Independent Directors

4Outside Directors’ Relationship with the Company (1)Relationship with the Company*
Name

AttributesaAkihiko Yanagitani

From another company

Kazuo Hirata

From another company

Takahiro Tanaka

From another company

Yasuko Yoshida

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 aclose 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. Other6Outside Directors’ Relationship with the Company (2)NameMembership ofSupervisory
Committee

Akihiko Yanagitani

Kazuo Hirata

Takahiro Tanaka

Yasuko Yoshida○○

Designation asIndependent
Director

Supplementary Explanation of the
Applicable Relationship○

Outside Director Akihiko Yanagitani
hasbeendesignatedasanindependent director of the Company,
having satisfied the Tokyo Stock
Exchange’s criteria for independence
of independent directors.

○

Outside Director Kazuo Hirata has
been designated as an independent
director of the Company, having
satisfied the Tokyo Stock Exchange’s
criteriaforindependenceofindependent directors.

○

Outside Director Takahiro Tanaka has
been designated as an independent
director of the Company, having
satisfied the Tokyo Stock Exchange’s
criteriaforindependenceofindependent directors.

○

Outside Director Yasuko Yoshida has
been designated as an independent
director of the Company, having
satisfied the Tokyo Stock Exchange’s
criteriaforindependenceofindependent directors.

7

Reasons for Appointment

Outside Director Akihiko Yanagitani has
acquired plenty of knowledge andexperience from a career that includes
the management of Sanyo Special SteelCo., Ltd. and as a specially appointed
professor at the University of Hyogo anda guest professor at Osaka University
studying collaboration between industry
and academia in research and otherareas. At the same time, he is deemed as
posing no conflict of interest with thegeneral shareholders while possessing ahigh degree of independence from theexecutive management of the Company.
We therefore adjudges that he issufficiently capable of carrying out hisrole as outside director.
Outside Director Kazuo Hirata has
acquired plenty of knowledge andexperience from a career that includes
the management of Nippon Telegraphand Telephone Public Corporation(currently Nippon Telegraph andTelephone Corporation) and New Japan
Radio Co., Ltd. (currently Nisshinbo
Micro Devices Inc.). Additionally, he isdeemed as posing no conflict of interest
with the general shareholders while
possessingahighdegreeofindependence from the executive
management of the Company.
We therefore adjudge that he issufficiently capable of carrying out hisrole as independent director.
Outside Director Takahiro Tanaka has
ample experience and knowledge as alawyer. At the same time, he is deemed
as posing no conflict of interest with thegeneral shareholders while possessing ahigh degree of independence from theCompany.
We therefore adjudge that he issufficiently capable of carrying out hisrole as independent director.
Outside Director Yasuko Yoshida has
ample experience and knowledge as aCPA. At the same time, she is deemed as
posing no conflict of interest with thegeneral shareholders while possessing ahigh degree of independence from theCompany.
We therefore adjudge that she issufficiently capable of carrying out herrole as independent director.

Supervisory Committee
Composition of Supervisory Committee and Attributes of the Chairperson
All Committee
Members
Supervisory
Committee

Full-time Members
3

Inside Directors

1

Outside Directors
1

Committee Chair

2

Inside Director

Appointment of Directors and/or Staff to Support the
Appointed
Supervisory Committee

Matters Concerning Independence of Said Directors and/or Employees from Executive Officers
Two employees will be allocated to assist Audit & Supervisory Committee members in their operation and auditing duties.
The Audit & Supervisory Committee’s Staff are subject to orders from the Audit & Supervisory Committee and Audit &Supervisory Committee members.
Furthermore, to ensure the independence of the Audit & Supervisory Committee’s Staff, advance approval will be obtained fromthe Audit & Supervisory Committee regarding their transfers and personnel evaluations.

Status of Coordination between Supervisory Committee, Accounting Auditor, and Internal Audit Department
The Audit & Supervisory Committee receives audit reports from the internal audit division, along with giving audit instructions asnecessary.
Audit & Supervisory Committee members will have opportunities to communicate regularly with the accounting auditor
regarding audits and continuously exchange opinions on matters such as the status of audits. Through these efforts, the Audit &Supervisory members will endeavor to improve the effectiveness of audits.

Voluntary Established Committee(s)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

Nomination andCompensation
Committee

5

0

2

3

0

0

Outside Director

Nomination andCompensation
Committee

5

0

2

3

0

0

Outside Director

8

Other

Chairperson

Supplementary Explanation (Updated)
The Company has established the “Nomination and Compensation Committee,” a voluntary body that deliberates on director
appointments and compensation.
From a standpoint of ensuring management transparency and objectivity, majority of the members of the Nomination andCompensation Committee are outside directors, and the chairperson and members are decided by the Board of Directors.
The committee currently consists of five members: Representative Director and Chairperson Masaaki Ishida, Representative
Director and President Satoshi Arata, Outside Directors Akihiko Yanagitani and Kazuo Hirata, and Audit & Supervisory
Committee Member and Outside Director Takahiro Tanaka, with Outside Director Akihiko Yanagitani serving as the chairperson.
The Nomination and Compensation Committee met two times in fiscal 2023, and all committee members were in attendance.

Matters Concerning Independent Directors
Number of Independent Directors

4

Other Matters Concerning Independent Directors
All outside directors fulfilling the criteria of an independent director has been designated by the Company as an independent
director. The following is the Company’s criteria for independence.
Criteria for the Independence of Outside Directors
The Company shall judge outside directors or candidate outside directors to be independent unless any of the following items
apply.
(1) The party is a business executor of the ESPEC Group*1, or was a business executor of the ESPEC Group during the past 10
years.
(2) The party is an entity for which the ESPEC Group is a major business partner*2, or a business executor of said entity.
(3) The party is a major business partner of the ESPEC Group*3, or a business executor of said major business partner.
(4) The party receives 5 million yen or more per year or other financial compensation, excluding remuneration as a director, fromthe ESPEC Group as a consultant, accountant, or lawyer (or an employee of a corporation, cooperative and other organization
receiving such compensation).
(5) The party is a person or corporate business executor receiving contributions or subsidies in the amount of 5 million yen or
more per year from the ESPEC Group during the most recent fiscal year.
(6) The party is a person who falls under 2 through 5 above during the past 3 years.
(7) The party is the next of kin*5 of a person who falls under 2 through 6 above (limited to important persons*4)*1. “A business executor” refers to an executive director, executive officer or equivalent party or employee.
*2. “A major business partner” refers to a business partner providing products or services to the ESPEC Group whose transaction
amounts exceeded 2% of yearly consolidated net sales in the most recent business year.
*3. “The party is a major business partner of the ESPEC Group” refers to a business partner refers to a business partner which the
ESPEC Group provides products or services to whose transaction amounts exceeded 2% of yearly consolidated net sales in
the most recent business year.
*4. “Important persons” refers to officers or employees in upper management with a rank of department head or higher.
*5. “Next of kin” refers to a spouse or relative to the second degree.

Incentives
Implementation Status of Measures related to
Performance-linked Compensation
Incentives Granted to Directors

Supplementary Explanation for Applicable Items
In connection with the transition to a Company with Audit & Supervisory Committee at the 69th Ordinary General Meeting of
Shareholders held on June 23, 2022, the Company abolished compensation limits for directors and Audit & Supervisory Board
members resolved at the 55th Ordinary General Meeting of Shareholders held on June 24, 2008. Based on this, the Company
newly set the amount of monetary compensation for directors (excluding directors who are Audit & Supervisory Committee

9members) at up to 300 million yen annually, which is the same amount as before, and the amount of monetary compensation for
directors who are Audit & Supervisory Committee members at up to 80 million yen annually, which is also the same amount as
before.
In connection with the transition to a Company with Audit & Supervisory Committee, the Ordinary General Meeting of
Shareholders held on June 23, 2022 resolved once again to determine the compensation amount and details pertaining to theBoard Benefit Trust (BBT) (hereinafter, the “System”), which is a performance-linked share-based remuneration system fordirectors (excluding outside directors and directors who are Audit & Supervisory Committee members; hereinafter “Directors”),
separately from the above compensation limits related to monetary compensation.
The substantive details of the System are identical to the details resolved at the 65th Ordinary General Meeting of Shareholders
held on June 22, 2018.
The System is a performance-linked, share-based remuneration system under which the Company shares are acquired through atrust using funds contributed by the Company (hereinafter, the trust established under the System shall be referred to as “theTrust”), and the Company’s directors and executive officers who do not concurrently serve as directors (hereinafter, collectively
referred to as “Directors, etc.”) are provided with the Company shares and the money equivalent to the market value of theCompany shares (hereinafter referred to as the “Company shares, etc.”) through the Trust in accordance with the Regulations for
Delivery of Shares to Officers stipulated by the Company.
In principle, Directors, etc. will receive the Company shares, etc. at the time of their retirement. The System will operate for four
fiscal years, from the fiscal year ended March 31, 2019 to the fiscal year ended March 31, 2022 (hereinafter, the “initial
applicable period”) with subsequent four fiscal year periods referred to as “applicable periods”). The limit of share-based
remuneration is set in principle at 412 million yen (including up to 300 million yen for directors) for each applicable period.

―

Persons Eligible for Stock Options

Supplementary Explanation for Applicable Items―

Director Remuneration
Status of Disclosure of Individual Directors’
No individual disclosure
Remuneration

Supplementary Explanation for Applicable Items (Updated)
Compensation for directors (and other officers) for the fiscal year ended March 31, 2024 is as follows.
Officercategory
Directors(excluding
Audit &
Supervisory
Committee
members)(Of which,outsidedirectors)
Directors(Audit &Supervisory
Committee
members)(Of which,outsidedirectors)
Total(Of which,outsideofficers)

Numberofrecipients

Monetary
compensation(fixed)Monetary
compensation(performance-linked)

Monetary
compensation(subtotal)

Share-based
remuneration(fixed)Share-based
remuneration(performance-linked)

Share-based
remuneration(subtotal)

Total
compensation,
etc.

7

141

32

173

15

45

60

234

(2)

(13)

(-)

(13)

(-)

(-)

(-)

(13)

3

33

-

33

-

-

-

33

(2)

(13)

(-)

(13)

(-)

(-)

(-)

(13)

10

174

32

206

15

45

60

267

(4)

(27)

(-)

(27)

(-)

(-)

(-)

(27)

10

Note:
1. Amounts listed in millions of yen have been rounded down to the nearest million yen.
2. The above listed amount of share-based remuneration is the provision for share awards for directors (and other officers) recorded in thefiscal year under review.

Policy on Determining Remuneration Amounts andEstablished
the Calculation Methods Thereof (Updated)

Disclosure of Policy on Determining Remuneration Amounts and the Calculation Methods Thereof(1) Policy for determining individual compensation for directors･ As a basic policy, the Company ensures that its decisions regarding the compensation of directors are fair and rational.
At the same time, the compensation structure provides directors with suitable incentives for raising their motivation toachieve sustainable growth and improve corporate value over the medium to long term for the Company.
･ Compensation of directors (excluding outside directors and directors who are Audit & Supervisory Committee members)
shall consist of a fixed amount of basic compensation set based on considerations such as rank and tenure, and aperformance-linked compensation set based on the Company’s business performance in each fiscal year.
･ Outside directors receive only a fixed amount of monetary compensation because of their non-executive status and from thestandpoint of ensuring independence.
･ The Board of Directors decides the amount of compensation for each director (excluding any director who is an Audit &Supervisory Committee member) following a review by the Nomination and Compensation Committee.
･ Directors who are Audit & Supervisory Committee members receive only a fixed amount of monetary compensation
because of their non-executive status and from the standpoint of ensuring independence. The Audit & Supervisory
Committee decides the amount of compensation for each director who is an Audit & Supervisory Committee member
following a review by the Nomination and Compensation Committee.
(2) Policy regarding type and ratios of compensation, etc. for directors･ The types of compensation for directors (excluding outside directors and directors who are Audit & Supervisory Committee
members) and the ratios in principle are as follows: monetary compensation (fixed) 60%; monetary compensation(performance linked) 20%; share-based remuneration (fixed) 8%; and share-based compensation (performance-linked)
12%.
･ Outside directors and directors who are Audit & Supervisory Committee members receive only a fixed amount of monetarycompensation because of their non-executive status and from the standpoint of ensuring independence.
(3) Matters related to financial compensation, etc.
1. Fixed compensation
The fixed compensation component of monetary compensation is determined in accordance with the “Payment Standard for
Director Compensation,” which is deliberated by the Nomination and Compensation Committee. The payment is made bypaying 1/12 of the fixed compensation component as basic monthly salary on a fixed day each month.
2. Performance-linked compensation
The performance-linked component of monetary compensation is determined by the consolidated operating profit margin
for each fiscal year, which served as an indicator of the Company's earning capability consistent with its medium-term
management plan. The calculation is made by multiplying the basic monthly salary by a payment multiple deliberated by
the Nomination and Compensation Committee. The payment is made by paying 1/12 of the performance-linked component
on a fixed day each month starting from July of the following fiscal year.
(4) Matters related to share-based remuneration (non-monetary compensation, etc.)
For share-based remuneration (non-monetary compensation, etc.), the Company has introduced the Board Benefit Trust(BBT), a performance-linked share-based remuneration system, in accordance with the resolution of the 65th Ordinary
General Meeting of Shareholders, held on June 22, 2018.
The system is intended to realize a healthy incentive for sustainable growth, as required under the corporate governance code.
1. Fixed compensation
The fixed compensation component of share-based remuneration is calculated based on position points determined inaccordance with position. The points allotted to each director are exchangeable at the rate of one of Company's commonshares per point when payment of the Company's shares, etc. is made.

11

2. Performance-linked compensation
The performance-linked compensation component of share-based remuneration is calculated by multiplying the basic
points determined based on position by a performance-linked coefficient. The performance-linked coefficient is calculated
based on a simple average of the achievement rates on consolidated net sales and operating profit targets for each businessyear (figures announced in the consolidated performance forecast in the Company's consolidated financial results), as
indicators of the Company's earning capability consistent with its medium-term management plan.
The time for receiving the share-based remuneration described above in 1. and 2. is upon the retirement of the director, inprinciple. The total number of allotted points up to that time are converted into a number of shares, which is paid to thedirector. To secure funds for payment of taxes, 25% of the paid shares are converted into cash at market value at the time ofretirement, and paid to the director.
(5) Matters related to the resolution of the general meeting of shareholders regarding compensation, etc. of directors and Audit &Supervisory Committee members
The amounts of monetary compensation for directors of the Company (excluding directors who are Audit & Supervisory
Committee members; hereinafter the “Directors”) were resolved at the 69th Ordinary General Meeting of Shareholders, heldon June 23, 2022, to be up to 300 million yen per year (of which, up to 25 million yen per year is to be allocated for outside
directors), and the amount of compensation for directors who are Audit & Supervisory Committee members was resolved to
be up to 80 million yen per year. At the conclusion of that Ordinary General Meeting of Shareholders, the number of Directors
was seven (including two outside directors) and the number of directors who are Audit & Supervisory Committee members
was three (including two outside directors). Furthermore, in addition to the maximum amount of compensation for Directors
mentioned above, the 69th Ordinary General Meeting of Shareholders, held on June 23, 2022, resolved the amount andcontent related to a performance-linked share-based remuneration system for Directors (excluding outside directors anddirectors who are Audit & Supervisory Committee members), and based on the Regulations for Delivery of Shares to Officers
under the system, the Company has contributed 300 million yen (for a period of four fiscal years). At the conclusion of the69th Ordinary General Meeting of Shareholders, the number of Directors (excluding outside directors and directors who are
Audit & Supervisory Committee members) was five.
(6) Matters related to delegations concerning determination of individual compensation, etc. of directors
In the fiscal year under review, the Board of Directors meeting held on May 13, 2022 resolved to delegate the determinationof the fixed compensation component of individual monetary compensation of each director to the representative director andchairperson, Masaaki Ishida, in accordance with the determination policy deliberated by the Nomination and Compensation
Committee. The reason for delegating this authority is that the representative director and chairperson, who also serves as thechairperson of the Board of Directors, is deemed to be the most suitable person for evaluating the businesses overseen by eachdirector while taking an overall view of the Company’s performance.
The compensation of the Company's officers is disclosed in the business report of the convocation notice for the Ordinary General
Meeting of Shareholders and the Annual Securities Report.
Convocation notice of the 71th Ordinary General Meeting of Shareholders
https://www.espec.co.jp/english/news/2024/0523.pdf
The 71th Ordinary Annual Securities Reporthttps://www.espec.co.jp/ir/library/pdf/security2023.pdf

Support System for Outside Directors･ Outside directors (excluding those who are Audit & Supervisory Committee members) will attend meetings of the Audit &Supervisory Committee as observers for the purpose of sharing information and exchanging opinions.
･ The Company strives to efficiently implement meetings of the Board of Directors and the Audit & Supervisory Committee by
having the director in charge of Administration explain in advance the important proposals on the agendas of these meetings to
outside directors (excluding those who are Audit & Supervisory Committee members). Moreover, the director in charge of
Administration and a director who is a standing Audit & Supervisory Committee member explain the same in advance tooutside directors who are Audit & Supervisory Committee members.

12

2.

Matters Concerning Functions of Business Execution, Auditing and Supervision, Nomination, andRemuneration Decisions (Overview of Current Corporate Governance System) (Updated)･ For details on the current corporate governance system, please see Reference Materials: Schematic Diagram.
･ As of the filing date of this report, the Company’s Board of Directors consists of ten members, four of whom are outside
directors. The Board of Directors deliberates and decides matters provisioned by laws and regulations and the Company’s
Articles of Incorporation as well as business strategies, management plans, and other important management issues while
supervising the execution of business duties by directors. The tenure of a director is set at one year to clarify responsibility for
management.
･ As of the filing date of this report, the Company’s Audit & Supervisory Committee consists of three members, two of whom
are outside directors, and meets once monthly in principle. An audit policy and audit plan were stipulated at the beginning of
the fiscal year and corporate auditors abide by these while implementing audits of directors’ execution of duties, the internal
control system and financial statements.
･ In addition to the Board of Directors, the Company has established an Executive Officers’ Meeting, comprised of the executive
officers responsible for executing each of the Company’s business duties, to speed management decision-making and businessexecution. The Executive Officers’ Meeting passes resolutions on matters delegated from the Board of Directors, and discusses
and examines ways to implement matters approved by the Board of Directors.
The standing Audit & Supervisory Committee member endeavor to strengthen auditing functions by attending important
meetings such as the Executive Officers’ Meeting.
･ In March 2022, the Company changed the name of the Nomination and Compensation Advisory Committee, a voluntary bodythat deliberates on director appointments and compensation, to the Nomination and Compensation Committee, and changed themembers of the committee. From a standpoint of ensuring management transparency and objectivity, majority of the membersof the Nomination and Compensation Committee are outside directors, and the chairperson and members are decided by the
Board of Directors.
･ Deloitte Touche Tohmatsu LLC is the Company’s accounting auditor from December 1980. The engagement partners are
Shinichi Ishihara and Yasunori Yamagishi. Eight certified public accountants and twenty other individual assisted with theauditing duties in fiscal 2023.
･ In November 2020, the Company established an Internal Control System Committee chaired by a director. The Internal Control
System Committee discusses the evaluation of the effectiveness of internal control as well as basic policies concerning internal
control and important matters concerning corporate governance, along with putting forward and reporting matters to the Boardof Directors as necessary.

3. Reasons for Adoption of Current Corporate Governance System
The Company has long been working to strengthen its corporate governance, aiming to achieve sustainable growth and improveits corporate value over the medium to long term. Seeking to enhance deliberations in the Board of Directors meetings and further
strengthen the Board of Directors’ supervisory functions, the Company has transitioned to a Company with Audit & Supervisory
Committee by resolution of the 69th Ordinary General Meeting of Shareholders held on June 23, 2022. Under this structure,
directors who are Audit & Supervisory Committee members hold voting rights in the Board of Directors.

III. Implementation of Measures for Shareholders and Other Stakeholders
1. Measures to Vitalize the General Shareholder Meetings and Facilitate Exercise of Voting Rights(Updated)
Supplementary Explanation

Early Posting of Notice of the General
Shareholders Meeting

Scheduling

of

the

GeneralMeeting During Non-Peak Days

Shareholders

To assure convenience for shareholders, the Company strives to send
convocation notices to shareholders as early as possible before the statutory
deadline. The notice for convening the 71th General Shareholders Meeting
held on June 21, 2024 was mailed to shareholders on May 30, seven days
before the statutory deadline. The convocation notice was disclosed early at theTokyo Stock Exchange and on the Company’s website before it was mailed on
May 23, 2024.
Since the 50th General Shareholders Meeting on June 25, 2003, the Company
has scheduled its Shareholders Meeting on days other than Japan’s peak days
for holding Shareholders Meeting. The Company scheduled the 71th General
Shareholders Meeting on June 21, 2024, four business days before Japan’s firstpeak day for Shareholders Meeting.

13

Electronic Exercise of Voting Rights

The Company adopted the exercise of voting rights by electric means startingwith the 63rd Ordinary General Meeting of Shareholders on June 24, 2016.

Participation in a Platform for the Electronic
Exercise of Voting Rights and Other Initiatives
to Enhance Environment for Institutional

The Company adopted ICJ Inc’s electronic proxy voting platform starting withthe 68th Ordinary General Meeting of Shareholders on June 23, 2021.

Investors to Exercise Voting Rights
Provision of Notice (or Summary of Notice) of
the General Shareholders Meeting in English
Other

2.

The Company translated a summary of the convocation notice to the 63rd
Ordinary General Meeting of Shareholders on June 24, 2016 in English fordisclosure at the Tokyo Stock Exchange and on its website.
Since the 52nd General Shareholders Meeting, the Company has made its
convocation notices available on its corporate website to assure convenience
for individual investors and other shareholders.

Status of IR-related Activities (Updated)
Supplementary Explanation

Formulation and Publication of Disclosure
Policies

Regular Investor Briefings held for Individual
Investors

Regular Investor Briefings held for Analysts
and Institutional Investors

Online Disclosure of IR Information

Establishment of Department and/or Placementof a Manager in Charge of IR

Explanation by arepresentative
director or arepresentative
executive officer

The Company publishes its IR policy on the IR site
within its corporate website.
The Company conducts briefings for individual investors
approximately once a year. As main speaker, ESPEC’s
president briefly describes the Company, presents its
recent business performance, and discusses shareholder
initiatives. Every briefing is attended by large numbers ofindividual investors.
The Company conducts briefings for analysts andinstitutional investors after announcing earnings for the
first six months of the fiscal year and for the full fiscal
year. As main speaker, ESPEC’s president briefly
describes the Company, presents its recent businessperformance, and discusses the future outlook, along with
providing an update on progress with the medium-term
management plan.
The Company publishes information beneficial toinvestors on the IR site within its corporate website,
including preliminary results, preliminary resultspresentation materials, and documents concerning theShareholders Meeting. Moreover, the Company’s
initiatives have earned strong reviews. Notably, ESPEC's
IR website was selected as AAA Website in the All
Japanese Listed Companies' Website Ranking 2023
carried out by Nikko Investor Relations Co., Ltd. and a
Bronze Status in the Gomez IR Site Ranking 2023
sponsored by BroadBand Security, Inc..
Sustainability Management Department under the
Sustainability Management Headquarters is responsible
for IR activities.

14

Held

Held

3.

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

Implementation of Environmental Conservation
Activities and CSR Activities, etc.

Formulation of Policies, etc. on Provision ofInformation to Stakeholders

In December 1999, the Company formulated THE ESPEC MIND to guide all
manner of decision-making and activities. This document systematicallycodifies the Company’s values as a business enterprise based on two key
themes: having a high relevance to society and universal appeal. Based on the
belief that “A corporation is a public institution of society,” THE ESPECMIND aims to further enhance the Company’s value exchangeability with all
stakeholders. Guided by this basic philosophy, the Company is pushing ahead
with business activities that respect the position of various stakeholders.
Moreover, the Company has established an ESPEC Code of Conduct andBehavior Guidelines, which specifically states the Company’s corporate
conduct principles and behavior standards applicable to all corporate officers
and employees based on the philosophies contained in THE ESPEC MIND. By
complying with and proactively practicing these aforementioned philosophies,
code, guidelines, principles, and standards, the Company is working to enhance
its CSR activities. The Company positions environmental activities as one ofits highest corporate management priorities. The Company has formulated aCompany-wide Environmental Policy and Environmental Declaration, and ismaking proactive efforts to protect, conserve and improve the global
environment. The Company announces these activities via its Sustainability
reports and its website, in order to clearly convey its activities to all
stakeholders.
ESPEC aims to deepen understanding of ESPEC among all of its stakeholders
and build closer relationships of trust, thereby ensuring that its corporate value
is fairly assessed. In its IR Policy and information disclosure rules, ESPEC
recognizes that it is an important responsibility of management to disclose
information properly and promptly. Accordingly the Company has made acommitment to provide accurate corporate data consistently, in good faith,fairly and in a timely manner, irrespective of whether business performance isfavorable or not.

IV. Matters Concerning the Internal Control System
1. Basic Views on Internal Control System and Status of Development (Updated)(1) Basic views
The Company’s basic philosophy on internal control seeks to retain the trust and confidence of stakeholders and society as awhole by developing the necessary systems and frameworks to ensure decision-making and business execution are undertaken
appropriately in compliance with laws and regulations as well as the Company’s Articles of Incorporation and internal rules. In
addition, the Company develops and maintains internal systems that allow for checks and self-correcting mechanisms to function
effectively with respect to the operation of the aforementioned systems and frameworks.
Moreover, the Company seeks to develop appropriate internal control systems according to the size and circumstances of each of
its Group companies.
(2) Progress with establishment
1. In regard to the compliance system, the Company formulated THE ESPEC MIND as its corporate philosophy in December
1999 and is promoting activities for complying with laws and regulations as well as the Articles of Incorporation and internal
rules of ESPEC and its Group companies. In April 2006, ESPEC established an Internal Control Committee with an eye todeveloping an internal control system for ESPEC and each Group company, as well as internal rules, an internal desk (Audit& Supervisory Committee members and the internal audit division) and external desk (corporate attorney) for internal
whistleblowing, in conjunction with the enactment of Japan’s Whistleblower Protection Act. Initiatives for strengthening thecompliance system further include the formulation of an ESPEC Code of Conduct and Behavior Guidelines in May 2006.
Furthermore, a desk for receiving whistleblowing reports from external stakeholders was established in December 2006. To
further strengthen Group governance, the Company newly established an Internal Control System Committee in November
2020, dissolving the existing Internal Control Committee. In March 2024, the Internal Control System Committee deliberated
on revising the basic policy on establishing an internal control system, which the Company’s Board of Directors resolved topartially revise during a meeting held in April 2024.

15

2. As a part of its risk management system initiatives, the Company established a Risk Management Committee to strengthenrisk management in August 2006, after having formulated its internal rules for crisis management in February 2002. To
manage information, the Company formulated its administrative rules for information security in April 2005 with the goal of
ensuring information security and making effective use of information, and worked to promote appropriate management
including for the acquisition, recording, safekeeping, use, and disposal of various information. In December 2019, theCompany acquired the international certification standard ISO 27001 in Information Security Management Systems.
3. As for the system for disclosing corporate information, the Company formulated its rules for information disclosure in
March 2005 and established an Information Disclosure Committee from the fiscal year ending March 31, 2006 with an eye
to enhancing timely and appropriate disclosure. Since then, this committee has met as needed to appropriately manage theuse of information, including for discretionary disclosure.

2. Basic Views on Measures for Eliminating Anti-Social Forces and Status of Development(1) Basic views
As a basic policy on the exclusion of anti-social forces, the Company will resolutely stand up against and refuse any
involvement with and all illegitimate requests from anti-social forces and groups that pose a threat to social order and safety
and obstruct sound economic activities.
(2) Progress with exclusion
1. Establishment of a supervisory department and officer responsible for refusing illegitimate requests
The Company has designated the Administration Headquarters and the director in charge thereof as the supervisorydepartment and the officer responsible for refusing illegitimate requests, respectively. Furthermore, the Company has
deputized several management personnel within the Administration Headquarters as officers in charge of refusing
illegitimate requests from anti-social forces and groups. This system is in place to ensure consistent responses under aunified policy in case the supervisory officer is not on hand.
2. Coordination with external specialists
As a member of the Osaka Prefecture Corporate Defense Council, which aims to defend corporations in coordination withthe police, ESPEC is working in unison with other members of the council for the abatement of brute force directed againstcompanies.
3. Collection and management of information
ESPEC is also striving to collect and exchange relevant information with the Osaka Prefecture Corporate Defense Council
and its other member companies. The Company has built a database for managing the information on anti-social forces it
obtains from the council and other sources or collects by its own means.
4. Formulation of a response manual
Furthermore, in accordance with the basic policy on the exclusion of anti-social forces, ESPEC has formulated a Response
Manual for Countering Anti-Social Forces that it has disseminated throughout the Company. The manual sets forth specificresponse measures against anti-social forces.
5. Implementation of training activities
Moreover, ESPEC provides training as called for to personnel at domestic business operations and Group companies placedin charge of severing ties with anti-social forces, utilizing printed and video teaching materials produced by the Osaka
Prefecture Center for Promoting the Banishment of Brute Force.

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

Not Adopted

Supplementary Explanation for Applicable Items
ESPEC received the approval of its shareholders at the 55th Ordinary General Meeting of Shareholders held on June 24, 2008 forthe introduction of countermeasures against the large-scale purchase of its shares ("anti-takeover measures"). Subsequently, the61st Ordinary General Meeting of Shareholders held on June 25, 2014 resolved to extend the anti-takeover measures (“theextension”). The period of validity of the extension was up to the time of the conclusion of the 64th Ordinary General Meeting of
Shareholders to be held in June 2017. At a meeting held on May 12, 2017, the Board of Directors resolved not to seek anotherextension after the expiration date, but to abolish it.
Even after the abolition of the extension, ESPEC will continue to advance and implement its initiative for maintaining andenhancing both corporate value and shareholder returns. In addition, regarding people who intend to make a large-scale purchase16

of the Company's shares, shareholders are requested to provide necessary and sufficient information to enable the Company toproperly determine the acceptability of such people. In parallel, the Company is enacting appropriate measures based on Japan's
Financial Instruments and Exchange Act, the Companies Act of Japan, and other relevant laws, including the disclosure of theopinions of the Board of Directors and the securing of sufficient time for shareholders to fully review the situation.

2. Other Matters Concerning the Corporate Governance System
No items to report.

END

17

【Reference Materials: Schematic Diagram】
The following is a schematic diagram of the Company’s internal control system including the corporate governance structure.

Shareholders Meeting

appoint/dismiss

appoint/dismiss

appoint/dismiss
accounting audit

Board of Directors

audit/supervise

Directors (excluding directors who are
Audit & Supervisory Committee

adviseAudit & Supervisory
Committee

cooperate

Accounting
AuditorDirectors who are Audit & Supervisory Committee

auditreportinstructreportreportNomination andCompensation Committee

Internal Audit
Division
select/supervise

propose

instructcooperateaccounting
auditreportInformation Disclosure
Committee

PresidentInternal Control System
Committee
Risk Management
Committee

instructinternal audit

Executive Officer

Information Security
Committee
The Company-WideEnvironmental
Management Committee
Business execution divisions of the Company and its subsidiaries

The following is a schematic diagram of the Company’s timely disclosure structure.
Stock Exchange
Timely disclosure

Instruct
Board of Directors

Information Officer
ReportReportBusiness execution divisions of the Company and its subsidiaries

Information Disclosure Committee