Sustainability

Prevention of mental health problems and support
for returning to work
We annually carry out stress checks on our employees to preventand detect mental health problems at an early stage. In addition,
we provide line care training for managers so that they recognize
the importance of communication and promptly coordinate withoccupational health staff at each office.

Health management of employees at overseas posts
In addition to properly conducting health checkups before overseas postings, we aim to regularly check the health conditions of
employees and follow up on the results of health checkups after
their postings.

Initiatives for employment of the disabled
Aiming to be a company where both the disabled and nondisabledwork together lively, the Company makes improvements to theworkplace environment and carries out workplace training. We
also offer work experience in collaboration with local support organizations and special-needs schools. The percentage of employees with disabilities at the Company is 2.84% (as of June 2022).

GovernanceContributions to Locai Communities

Governance

To Convey the Mission and Appeal of Toyo Denki

In an effort to continuously enhance its corporate value, the Company is striving to ensure transparency of management and compliance, along with the maintenance and operation of an adequate governance framework while reinforcing its risk management framework.

Receiving interns
We are committed to activities that raise awareness and appreciation of our manufacturing expertise by accepting interns from local technical high schools and providing them with hands-on
experience at manufacturing sites. This internship system serves
as an effective means of recruiting outstanding technical staff on
a consistent basis as some students from these schools apply for
positions at the Company.

Participation in university endowment courses andhands-on courses
We participated in endowment courses sponsored by the Yokohama Green Purchasing Network so that participants can deepen
their knowledge on history of railway and the environment throughour business activities.
We conduct lectures leveraging the know-how fostered throughoperations and our business activities in on-site training courses
held by educational institutions including universities.

Training and skill development of employees

Cooperation with Yokohama Kyodo no Mori FundWe aim to grow the capabilities of our employees and be a company where each and every one works as a professional.

The Company cooperates in small woodlands conservation activities led mainly by the city of Yokohama by donating part of theproceeds from vending machines installed at the Engineering
Center of the Yokohama Plant to the fund.

Education and training system
The Company’s education and training system is divided into level-specific training, individual training according to job types androles, a support program aimed at helping employees to obtainacademic degrees and official qualifications, and division education conducted by each division. Furthermore, new employees intechnical positions receive lectures and practical training at theTechnical Training Center for one year. They are assigned to each
workplace after receiving basic and specialized training for technical staff.

Factory tours
We normally conduct “factory tours” to provide opportunities formembers of local communities to actually see our manufacturing
facilities and products in order to develop deeper understanding
about the business operations of the Company. During these
tours, we inform the participants of our products as well as ouractions for environmental protection and factory facilities, in an effort to build up relationships built on trust with local communities.

of) Statutory Auditors work effectively and believes that the current system is sufficiently running.
Specifically, each of the following bodies and meeting bodies isin place to function effectively.

Corporate GovernanceOur basic policy on corporate governance
The Group’s business activities are based on the business principles that “prioritize ethics and contribute to the prosperity of customers and society as a whole.” We therefore strive to attainsound corporate management through strengthening and reinforcing corporate governance, fully appreciating the significanceof compliance based on corporate ethics. At the same time, we
review as appropriate our management monitoring system to ensure its conformity to the changes in the business environment
including social environment and relevant legislation.

We have corporate bodies established in accordance with laws
and regulations as well as the Articles of Incorporation, including
the General Meeting of Shareholders, Directors and the Board of
Directors, Statutory Auditors and the Board of Statutory Auditors,
and Accounting Auditors. To strengthen corporate governance, thesupervision and execution functions of the Board of Directors are
separated, through the adoption of a structure where the Board of
Directors is mainly in charge of governance, and Operating Officers are primarily in charge of business execution.
The Company strives to ensure that both the supervision function of the Board of Directors and the audit function of (the Board

As part of our “initiative in valuing people and communities,” employees at the Yokohama Plant and the Shiga Ryuo Plant regularly
conduct cleanup activities around theplants.
The Shiga Ryuo Plant also expressed its endorsement of the Shiga
Prefecture’s Mother Lake Goals(MLGs) and participates in river cleanup operations near Lake Biwa in cooperation with local communities.

Corporate governance framework
General meeting of shareholders

Accounting Auditors

Reporting
ReportingAppointments/dismissals
Legal audit

Board of Directors
Directors

Business audit

Instruction/reporting

Internal Control Committee(Secretariat)
Human Resources andGeneral Affairs Division(Contact for whistle-blowers)(Contact for legal consulting)

Reporting on
business execution

Appointments/dismissals

Reporting/decisions

Internal audit

Appointments/dismissals

Statutory Auditors
Reporting

Audit Division

ReportingBoard of Statutory Auditors

Accounting audit

Legal counsel(Contact for whistle-blowers)

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The Company has meeting bodies including the Management
Strategy Meeting and Operating Officer Report Meeting. Throughthese bodies, specific matters related to their execution of duties
and critical management matters including those subject to thedeliberation of the Board of Directors are reported to the President
by Operating Officers and the general managers of business execution departments, deliberated and discussed preliminarily. In
addition, Outside Directors and Statutory Auditors attend thesemeeting bodies, as necessary. As for the matters discussed atmeetings, matters subject to the deliberation of the Board of Directors are decided by the Board of Directors and other matters
are decided by employees with business execution authority
through means such as circulars based on the Management Authority Rules.

Appointments/
reporting/recommendations
Whistle-blowings
Oversight
Whistle-blowings

President
Management Strategy Meeting
Operating Officer Report Meeting
National and Global Group Company Meetings
Instruction/reporting

Appointments/dismissals

Employees with exceptional manufacturing skills or expertise arerecognized as “Technical My Star” and assigned to instruct andtrain younger employees. Three employees of the Company haveaccepted Contemporary Master Craftsman awards from the Minister of Health, Labour and Welfare, and two have been awarded
to the Medal with Yellow Ribbon by the Japanese government.
Moreover, a large number of employees have become certified as
special-grade skilled workers.

Cleaning activities around the plants

At its regular monthly meetings as well as extraordinary meetings
held when appropriate, the Board of Directors, which is composedof seven Directors including three Outside Directors, discusses
and decides on important management matters such as reports
on Operating Officers’ business execution and matters to be decided solely at the discretion of the Board of Directors, while supervising the execution of duties by Operating Officers.
Management Strategy Meeting and Operating Officer
Report Meeting, etc.

Overview of corporate governance structure andreasons for its adoption

Appointments/dismissals

Skill transfer

Directors and the Board of Directors

Operating Officers
Instruction/reporting

Each business department
Instruction/reporting

Instruction/
reporting

Each Group company

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GovernanceStatutory Auditors and the Board of Statutory Auditors
The Board of Statutory Auditors is made up of four members including three External Statutory Auditors. Statutory Auditors oversee management by attending the Board of Directors’ meetings,
etc. and expressing appropriate opinions in the process of deliberating business execution reports from Operating Officers andmatters to be decided solely at the discretion of the Board of Directors. In addition, Statutory Auditors audit the business activities
and assets of the Company and Group companies in accordancewith audit policies and division of duties set by the Board of Statutory Auditors.
Voluntary committees
a. Nomination and Compensation Advisory Committee
Under the Board of Directors, the Company has in place theNomination and Compensation Advisory Committee, whose
members include Outside Directors. Its purpose is to list candidates for Directors and Statutory Auditors and nominate Operating Officers, and to ensure transparency and objectivity
regarding decisions on compensation for Directors and Operating Officers.
b. Internal Control Committee
The Internal Control Committee is in place under the Board of
Directors to develop a system stipulated in the basic policy ofinternal control systems, check the operation status, and conduct constant reviews. The Committee meets quarterly, andthe contents of deliberation are reported to the Board of Directors each time.
c. Sustainability Committee
The Company has a Sustainability Committee in place underthe Board of Directors for the identification of key issues basedon the Sustainability Policy, goal setting and progress management. In principle, the Committee meets quarterly, and thecontents of its deliberations are reported to the Board of Directors each time.

Internal audit and Statutory Auditor’s audit
Internal audit
Internal audits of the Company are carried out by the Audit Division based on internal audit plans decided by the Board of Directors. The Audit Division has staff with qualifications such as theCertified Information Systems Auditor (CISA). It reports its actionplans and internal audit results to the Board of Directors and theBoard of Statutory Auditors.
Statutory Auditors’ audit
Statutory Auditors work with the Audit Division and Accounting
Auditors and exchange information on audit plans and contents ofaccounting audits to perform appropriate auditing tasks. Statutory

Auditors receive the results of quarterly reviews from Accounting
Auditors both verbally and in writing, and confirm their actionplans to be taken at a fiscal year-end audit. Statutory Auditors
also receive the results of fiscal year-end audits from Accounting
Auditors in statutory documents along with verbal reviews. Furthermore, Statutory Auditors are in principle required to be present at inventory taking or on-site inspection at subsidiaries by
Accounting Auditors.

Outside Directors and External Statutory Auditors
The Company’s Outside Executives currently include three Outside
Directors and three External Statutory Auditors as shown below.
Each Outside Executive has excellent insight in each expertiseand satisfies the independence guidelines for Outside Executives
defined by the Company.

Executive Remuneration
Directors
Remuneration for the Company’s Directors is determined within
the maximum remuneration amount resolved at the Annual General Meeting of Shareholders held in August 2006, with reference
to the policy for determining remuneration for Directors resolvedby the Board of Directors. To ensure the independence of Outside
Directors, the Company provides no bonuses to them. Decisions
on remuneration for Directors are made at the Nomination andCompensation Advisory Committee set up under the Board of

Directors, with the participation of Outside Directors, in order toenhance objectivity and transparency of the decision process for
executive remuneration.
Statutory Auditors
Remuneration for the Company’s Statutory Auditors is determinedthrough discussion among Statutory Auditors within the maximum
total remuneration, which was fixed at the Ordinary General Meeting of Shareholders held in August 2006. It takes form of fixed remuneration for each standing and part-time position. There are nobonuses for Statutory Auditors.

Executive Profiles (as of August 25, 2022)
Directors

Mr. Hirokazu Chinone, Director (Outside Executive)
Mr. Hirokazu Chinone is qualified as a lawyer and provides usefuladvice regarding management in general, drawing on his specialized knowledge regarding corporate law and his wealth of experience developed throughout his career.
Mr. Koji Mizumoto, Director (Outside Executive)
Mr. Koji Mizumoto provides useful advice on management ingeneral, drawing on his wealth of corporate management experience at a predecessor firm to NIPPON STEEL CORPORATION andhis knowledge of financial accounting as CFO.

President,
Representative Director

Akira Watanabe

Chairman, Director

Director

Director

Director (Outside)

Director (Outside)

Kenzo Terashima Yoshifumi Otsubo Kenji Tanimoto Hirokazu Chinone Koji Mizumoto

Taizo Makari

Statutory Auditors

Operating Officers

Mr. Taizo Makari, Director (Outside Executive)
Mr. Taizo Makari provides useful advice on the Company’s management in general, drawing on his extensive insight and global
perspectives developed throughout his career at Teijin Group.
Mr. Hitoshi Kobayashi, Statutory Auditor
Mr. Hitoshi Kobayashi was newly appointed as Statutory Auditor atthe 161st Annual General Meeting of Shareholders on August 25,
2022. He provides useful advice, drawing on his wealth of experience and knowledge as a statutory auditor for auditing activities.
Mr. Yoshinori Kawamura, Statutory Auditor (Outside Executive)
Mr. Yoshinori Kawamura serves as Professor of Faculty of Commerce, Waseda University, and is engaged in auditing activities,
drawing on his expertise regarding corporate finance and accounting developed thus far. He also has experiences as Secretary and Special Member of the Business Accounting Council of
the Financial Services Agency, and an examiner of the Certified
Public Accountant Examination, etc.
Mr. Koichi Abe, Statutory Auditor
Mr. Koichi Abe was newly appointed as Statutory Auditor at the
161st Annual General Meeting of Shareholders on August 25,
2022. He provides useful advice, drawing on his wealth of experience at financial institutions and extensive knowledge regarding
corporate management for auditing activities.

Director (Outside)

Senior Executive Officers

Executive Officers

Operating Officers

Yoshifumi Otsubo

Shuji Horie

Takuya Hatakeyama

Kenji Tanimoto

Naoki Okuyama

Toshiharu Takaki

Toshihito Nakanishi

Chiaki Nakano
Hiroyuki Imaizumi

Standing Statutory
Auditor (Outside)Standing Statutory
Auditors

Statutory Auditor(Outside)

Statutory Auditor(Outside)

Hitoshi Kobayashi

Kenji Ueda

Yoshinori Kawamura

Koichi Abe

Jun Nukina
Takatoshi Otsuka
Toshinori Yamai

Director Skill Matrix

Areas of expertise and experience
Name

OutsideDirectors

Corporate
management

Sales/
MarketingResearch andManufacturing/
Accounting/Global businessdevelopment/
Quality control
FinanceTechnology

Legal affairs

Akira Watanabe
Kenzo Terashima
Yoshifumi Otsubo
Kenji Tanimoto
Hirokazu Chinone
Koji Mizumoto
Taizo Makari

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Toyo Denki Seizo Report 202230

Governance

Messages from Outside Executives

Internal Control and ComplianceInternal Control

Koji Mizumoto, Director (Outside)
The Company has embarked on structural reforms to set andachieve the numerical targets of the medium-term management
plan for the fiscal year ending May 2026. Based on my experience, I would propose that it is important to integrate the systems
for managing the goals of individual employees with the medium-term management plan, so that, with all employees taking
part, the achievement of those individual goals will be linked tothe achievement of Medium-Term Management Plan goals.
Specifically, I propose setting “ratio of profits to sales x capitalturnover ratio (productivity),” which is the formula for ROA, as thetarget for the individual business units, including the administration division, setting the increase in the profit margin as the period
target for the individual salespeople in each business unit andraising productivity as the target for individuals working in engineering and production. The medium-term management plan’stargets would be broken down at each level into specific numerical and qualitative targets, and superiors and subordinates would
mutually commit to these targets in interviews. Beginning, interim,and period-end evaluations would also be agreed in interviews.
The accumulation of individual employees’ outcomes would become the outcomes for the individual business units, and thesewould be integrated to provide the entire company’s achievementof the medium-term management plan’s numerical targets. The

evaluation of those results would be reflected in the allocation ofsource funds for bonuses. There are many possible methods ofthat allocation.
Of even greater importance than setting these targets is thatinterviews take place at each level. Such dialogue will serve as
both manager education and human resources development,
forming part of the Company’s HRD and leader development(manager education). The medium-term management plan will beseen as a company-wide undertaking, its targets will be managed
by the entire company in the medium to long term, and systems
will be operated openly and transparently.
Medium-term management plans tend to be seen as top-down
matters for executive management and as not being the concernof general employees. To make them something in which everyone participates will require the creation and careful implementation of mechanisms. It is important that all employees have asense that their own work and outcomes are directly linked to themedium-term management plan and that its outcomes are directly distributed to the individuals. It is also vital that it becomes partof the cycle of education and development in each position. The
implementation of these systems will not happen overnight, but it
is important to engage in it from a long-term perspective.

Hitoshi Kobayashi, Standing Statutory Auditor (Outside)
Management controlled by the executive entails a wide range ofrisks. Accidents and scandals aside, in addition to the risk-taking
that accompanies challenges for growth, if we consider the risk oflosing opportunities by not taking risks, and the risk of not recognizing risk, risk management is management itself. It is the samefor governance that controls the executive, and the Statutory Auditors play a role as a beacon that shines a light on the future
where risks lie in wait.
In my view, the mission of the Statutory Auditors is, firstly, toraise the quality of management decisions. In decision-making, it
is essential to go through the process of adequate information
gathering and reasonable judgment based on that information.
The value criteria for reasonableness also requires a medium- tolong-term perspective for sustainable growth with the global environment and social mission in mind.
One other important mission of the Statutory Auditors is to instill sincerity and good faith into the attitudes of the executive

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management team and into the organization’s culture, including
the Statutory Auditors themselves. Even at times when the organization and work mechanisms, which are meant to compensate
for human weakness, have unfortunately not functioned properly,or they have strayed off track even in light of laws and regulations, rules, and social norms, as long as there is sincerity andgood faith deep in our hearts, we should be able to avoid falling
into grave errors. There have been many occasions in which I
have gained a real sense of the seriousness of Toyo Denki.
Many issues lie ahead for the Company as it seeks to capitalizeon the strengths of its 100-year-plus corporate history, its attitudeof thoroughly engaging with its customers, and its challenge toimprove its technologies and connect those strengths to results.
As Statutory Auditor, not only will I strive to forge that inner workings of management, I will also place importance on dialogue with
the Company’s diverse stakeholders.

The Company views the development and operation of an internal
control system to be an important management issue, and it hasdeveloped an efficient, legal and appropriate business execution
system pursuant to Article 362 of the Companies Act and Article
100 of the Ordinance for Enforcement of the Companies Act. The
Internal Control Committee established under the Board of Directors reviews the operational status of the internal control system
and will revise it as necessary.

Principles of compliance
The Company has set “1. adherence to rules,” “2. observance ofconfidentiality,” “3. distinction between private and public matters,” “4. strictness with money,” “5. prohibition of side jobs,” and“6. prohibition of discriminatory and sexually suggestive statements or behavior” as principles of compliance.

Compliance promotion framework
To focus on business principles and fulfill its social responsibility,
the Company has provided all officers and employees with a copyof the Compliance Manual (Toyo Denki Seizo Ethical Standards)
that stipulates its code of conduct. The move is part of an effort tohave the code and the basic rules of work fully known.
The Company has also introduced a whistle-blowing systemthat allows employees to provide information directly to the management. The system is aimed at ensuring that any illegal orinappropriate conduct within the Company is detected at theearliest possible stage and that adequate measures are taken
promptly and as needed so that such conduct is rectified.

Compliance education
We conduct compliance training every year for all employees of
the Group in order to enhance knowledge of compliance and foster awareness to respect corporate ethics.

the countries and regions where we engage in business activities
as well as to avoid involvement in transactions that could hinder
the maintenance of international peace and safety.
The Export Control Department handles cargo and technology
parameters used in determining whether or not export permits are
required, as well as investigation of transactions. In addition, theDepartment carries out employee education and guidance andsupport for Group companies.

Whistle-blowing system
The Group has established a whistle-blowing system that aims toensure that any illegal, inappropriate, or unethical conduct by anindividual or an organization is detected at the earliest possible
stage and that risks are minimized, and to promote ethical and legal compliance. The Group has also established the necessary
structures in response to the revision of the Whistleblower Protection Act in June 2022.

Risk Management
Basic policy
The Company is engaged in developing rules and a framework forrisk management according to the Basic Rules for Risk Management established in August 2006.

Promotion framework
The Company has established the Internal Control Committee under the Board of Directors, chaired by the President. It analyzes
and assesses all the risks that exist in the Group and develops aneffective risk management framework capable of dealing precisely with the risks of the types and degrees that the Group is exposed to. The committee specifically reviews risk verifications andcountermeasures, and periodically reports details of its deliberations to the Board of Directors.

Risk Factors
Proper export controls
The Export Control Department at Human Resources and General
Affairs Division is responsible for export management as the export
management control department. We have created a system forthe proper management of exports in order to ensure compliancewith the laws and regulations concerning export management in

From the perspective of proactive information disclosure, theGroup intends to disclose a wide range of recognizable risks. Majorrisks that may affect its earnings and financial position are set out
below. The Group aims for thorough understanding of these risks
in order to establish a necessary risk management framework

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Governancedesigned to prevent the risks from materializing or minimize theimpact of risks if they do materialize.
Forward-looking statements below are based on the judgmentof the Group as of the end of the fiscal year ended May 2020.
(1) Changes in domestic and international economic trends
The Group’s sales heavily rely on the Transportation Systems
and Industrial Systems segments. Its customers conduct business operations at home and overseas. As such, business climates and individual spending conditions in different countries
may affect the Group’s business performance.
(2) Large-scale disasters and outbreak of infectious diseases
The great majority of the Group’s production bases for theTransportation Systems segment are located in the Kanto area
and those for the Industrial Systems segment are in the Kansai area. Production capacity may be severely affected bylarge-scale disasters and the outbreak of infectious diseases
in either of these areas. Furthermore, large-scale disasters
and the outbreak of infectious diseases may hinder the entire
supply chain and impact order trends, thus affecting the Company’s production and earnings.
Since January 2020, COVID-19 has been spreading in Japanand overseas. The Group is taking actions to help prevent the
spread of infections, while prioritizing the safety and health of
employees through measures such as staggered commuting
and working from home and minimizing hindrance to production. Although the impact on our business operations has been
limited as a whole, orders and sales have been somewhat affected due to restrictions on movement and overseas travel.
The Company’s earnings forecast announced already takesthese effects into account. However, if infections spread morethan expected in the future, the Company’s business may befurther affected.
(3) Intensifying competition
The Japanese market for the Transportation Systems segment
has matured and thus faces intensifying competition. The Industrial Systems segment is also under pressure from intensifying competition for product development. The Group’sbusiness performance may be affected by such intensifying
competition.
(4) Effects caused by characteristics of the Company products
Although the Group has made every effort to ensure the quality, safety, and reliability of its products, product defects may
occur due to the parts used or other factors that cannot be
detected during the inspection stage. If large-scale damages
are incurred due to product defects and other causes and33

cannot be covered by insurance, it may affect the Group’sbusiness performance.
(5) Delays in product development
With a view to providing attractive products to customers, theGroup applies itself to gathering information about customer
needs and leverages it in the development of new products to
support its future growth. However, delays in the developmentof new products to respond to rapid technological or environmental changes may affect the Group’s performance.
(6) Risks related to new business
As an initiative to expand its business domains, the Groupaims to develop technologies and products that contribute toa decarbonized and sustainable society, generate new business fields, and create technological innovation using ICT thatis unique to the Company. However, the withdrawal from new
business for reasons such as a shrinking target market anddelays in technological development may affect the Group’sbusiness performance.
(7) Delays and other problems in the supply of materials
Owing to the fact that the Group’s business has various distinctive characteristics, some of the materials it procures are
not easily available due to factors such as a limited number ofsuppliers. Delays in supply or discontinuation in production ofsuch materials may affect the Group’s production. Moreover,the Group’s business performance may be affected by thefluctuation in prices of raw materials, notably steel products
and copper.
(8) Changes in overseas situations
The Group proactively pursues the expansion of overseas operations including the Chinese market. Its business performance may be affected by major changes in situations
overseas.
(9) Litigations and other legal proceedings
If the Group becomes the subject of any litigation or other legal proceeding, its business operations and performance may
be affected. Although the Group particularly attends to theprotection of intellectual property rights, amid drastically advancing technical innovations and accelerating globalization ofbusiness, the Group is inevitably exposed to potential disputes
with third parties over intellectual property rights.
(10) Relationships with business alliance partners
With the aim of business expansion and enhancing competitiveness, the Group proactively pursues various alliances withthird parties. However, if these alliances do not deliver expected
results due to a failure in forging favorable relationships withpartners, the Group may face an impact on its performance.

(11) Exchange rate fluctuations
As the Group is aggressively expanding into overseas markets,an increase in foreign currency denominated transactions willheighten the impact of exchange rate fluctuations on theGroup’s performance.
(12) Fluctuations in the value of holding assets
Fluctuations in the fair value of assets held by the Group may
affect its performance.
(13) Changes in financial conditions
The Group’s financing programs may be affected by unexpected changes in financial conditions.
(14) Breach of confidential information
The Group retains customer information related to its business executions. Also, it possesses various types of confidential information concerning the Group’s proprietary
technologies and operations. If these information assets
leak outside the Group for unforeseeable reasons, it may
impact its business operations and performance.
(15) Domestic and foreign laws and regulations
The Group proactively pursues expansion in overseas operations, particularly the Chinese market, and as such, its operations are subject to not only Japanese laws but also the laws
and regulations of each country. Although the Group has established and operates a robust compliance system, its business operations and performance are still at risk from theeffects of unforeseeable events.

Information Security
Basic policy
The Company holds a vast amount of information assets including
information presented by customers related to its businessexecution and confidential information concerning the Group’s
proprietary technologies and its trade. Each Group company istaking various measures in this respect based on an awarenessof shared security under the Group’s Information Security Guidelines, which have been established to adequately manage anduse these information assets.

Information security training
The Company is conducting educational activities to develop
information security awareness among all employees including
various training sessions, some involving the use of educationalDVDs.

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