ESG/CSR Report

Environment

Initiatives to Protect the Environment
With a view to realizing an environment-friendly society, the Company will further strive to promote the reduction ofenvironmental burden, while providing more efficient products that contribute to energy conservation.

Environmental
Philosophy
Action Guidelines

The Toyo Denki Group sets initiatives to protect the global environment as its priority task
and contributes to the development of a sustainable society.
We will continue to provide products and services that are considerate of the burden on the global
environment by drawing on our “future-oriented technologies friendly to the Earth and mankind.”1.

We will comply with all environmental requirements including those under the relevant laws and regulations.

2.

We will strive to minimize environmental burden through a reduction of energy consumption and other measuresat all stages of product lifecycle, namely planning, development, design, production, sales, use and disposal.

3.

We will establish and execute a system to continuously promote activities to protect the global environment.

4.

We will raise environmental awareness among individuals through enlightenment activities within the Group

Aiming for Realization of a Sustainable Society
A sustainable society as envisaged by the Company is the combination of a “low-carbon society,” a “recycling-based society” anda “nature-symbiotic society.”
The environment technologies of the Company have produced
numerous products that contribute to energy conservation, including
high efficiency motors and inverters that capitalize on the amalgamation of our outstanding motor drive technology and other state-of-theart technologies. In the meantime, the Company has been striving toconserve resources through not only the efficient use of energy but
also the reduction of the size and weight of its products.
In addition, the Company is working on the development of
products with lower levels of noise involved in their use to makethem friendlier to the surrounding environment.
The Company will make further contribution to make society
more sustainable, fully utilizing on its environmental technologies
on a global scale, while carrying out various environmental
actions at each of its bases.

Low-carbon society
Implementation of measuresagainst global warming

Energy conservation throughthe Company’s technologies
and products
Energy conservation in
production activities
Use of sustainable energy

Recycling-based society
Promotion of 3Rs(reduce, reuse, recycle)

Improvement of logistics
efficiency
Proper treatment of wastes
Reduction of amount of final
disposal of wastes

Nature-symbiotic society

Proper management ofchemical substances

Conservation of biodiversity

Cleanup around offices

Our Website

Environmental Management System
In order to tackle environmental issues on an independent andcontinuous basis, the Company has developed and operates anenvironmental management system and thereby obtained ISO
14001 certification. This certification has been acquired for all
offices and the production bases Yokohama Plant and Shiga
Ryuo Plant.
Years of ISO 14001 certification

Yokohama Plant
2004

Shiga Ryuo Plant*
2001

Extended to all offices
2010

Information on the
Company’s environmental initiatives canbe found at our website.

https://www.toyodenki.co.jp/
esg_csr/*The Shiga Ryuo Plant was the Shiga Factory (Moriyama) when it obtained the certification.

Toyo Denki Seizo Report 201914

ESG/CSR Report

Environment

ESG/CSR ReportSocialInitiatives to Prevent Global Warming

Initiatives for Control over Chemical Substances

With Our Customers

Initiatives to reduce greenhouse gas (CO2) emissions

Volatile organic compounds (VOCs) emitted as a result of our businessactivities are adequately controlled and the amount of emission ismonitored under the Pollutant Release and Transfer Register (PRTR).
We will further engage in the reduction of waste through suchmeasures including using non-VOC materials and implementing
recovery and reuse of solvents. PCB waste is also subject to adequate control, storage and disposal in accordance with Japan’s
Act on Special Measures concerning Promotion of Proper Treatment of PCB Wastes.

The Company makes it one of our business principles to “build trust by focusing on quality first.” As such, we strive
to enhance customer satisfaction through our commitment to thorough-going quality control as we believe delivering safe and secure products and services to customers is the Company’s most important mission.

The Company is promoting energy conservation at each of its
production bases and offices to reduce its CO2 emissions. At the
production bases in particular, we are promoting power-savingand streamlining at production facilities. In addition, the Yokohama
Plant uses solar power generation for peak shaving of power demands.

Targeted reduction of CO2 emissions and progress status
Aiming to reduce CO2 emissions per unit of production output by
1% year on year, the Company’s main production base, the Yokohama Plant, increased emissions by 8% in fiscal 2018.

Yokohama Plant

Shiga Ryuo Plant (formerly Shiga Factory)

1,000
800
600

Total amount of air emissions(kg)

8,000 8,300
6,000

7,700

6,120

5,290

5,260

7,000
6,800
6,150 6,600 6,490
5,800

0
2013

684.3
680.3
176.5
664.8
32.5 648.831.0 647.231.6
36.3
36.0

200

7,900

2,000

839.2

400

Total amount of shift

10,0004,000

Total energy input (electricity)(Unit: 10,000 kWh)

Notification volume for Pollutant Release and Transfer Register (PRTR) substances

628.5

651.8

617.8

615.6

644.3

662.7

2013

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

(year*)

Initiatives for Reducing Disposed Waste
as Well as Recycling

Quality Control – Providing Safe and High-Quality Products
Basic policy on quality control

Proper export controls

The Company’s electrical equipment for rail vehicles is installed inmany rail vehicles. These extremely important products play a
direct role in ensuring the safety of human life and property during rail transportation. In the Industrial Systems and Information
Equipment Systems segments as well, the Company’s products
and services are used in customers’ production facilities,
development sites and in the field of social infrastructure, andthey form the foundation supporting the sustainable developmentof a society that is safe and comfortable to live in.
In order to ensure the high quality of our products and services, the Company has established a “Basic Policy on Quality Control” which is deployed at all production bases as we strive tomaintain and improve our human resources education, compliance with rules, and our facilities.

The Export Control Department at General Affairs Division is responsible for export management as the export management
control department. We have created a system for the proper
management of exports in order to ensure compliance with thelaws and regulations concerning export management in the
countries and regions where we engage in business activities aswell 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,
the Department carries out employee education and guidanceand support for Group companies.
Acquisition of International Standards

0(year*)

Total energy input (gas)(Unit: 1,000 m3)

Yokohama Plant

Shiga Ryuo Plant (formerly Shiga Factory)

500
400
300

284.0

284.7

286.0

294.1

350.0

443.0
74.0

Main actions

Promotion framework

The Company has been thoroughly implementing waste processing rules, sorting metal waste and recycling paper resources. As aresult, its landfill waste rate was 1.8% in fiscal 2018.

With regard to quality control, each fiscal year the Company develops policies and the promotion framework aimed at further maintaining and improving quality in each business unit, along withspecific policies pertaining to the reduction of flaws and other issues. The Company’s Corporate Quality Control Division works together with the quality control department or the quality assurance
department in each business unit to put together a report on thestatus of quality control and results in each unit. The report is delivered to top management at the monthly Operating Officer Liaison
Meeting where measures are debated and decided. Furthermore, inthe event that a flaw is discovered after a product has been
shipped, the necessary steps are swiftly taken, mainly by the quality
assurance department in each business unit, while at the sametime the causes that led to the flaw and its mechanism are investigated, and this information is put into a database so that the information can be shared in-house in an effort to prevent recurrence.

Output of general and valuable waste

200

General waste output
Valuable waste output

(t)

369.0

600

Yokohama Plant
Yokohama Plant

Shiga Ryuo Plant
Shiga Ryuo Plant

100
450

0
2013

2014

2015

2016

2017

2018

(year*)

Total CO2 emissions(t)

Yokohama Plant

5,000

4,000
3,000
2,000

Shiga Ryuo Plant (formerly Shiga Factory)

361.3
300
290.9

434.3

274.1

424.5

441.9

246.2

450.7
48.8
401.9

150

4,905

4,265
4,122
4,097
3,895
170 3,924
183
186
165
161

408.5

134.8
19.8
115.0

107.6

109.6

0

933

2013

2014

2015

2016

2017

2018

Yokohama Plant

Shiga Ryuo Plant(year*)

Volume of landfill waste
3,936

4,095

1,000

3,759

3,734

3,914

3,972

(t)

12

0
2013

2014

2015

2016

2017

2018

(year*)

6

Quality Management System

10.4

9.0

9

4.1
5.9

5.0

3

The Company has created and operates a quality management
system at its production bases, the Yokohama Plant and theShiga Ryuo Plant, and has obtained ISO 9001 certification.

5.0
6.3

2.3

High level of safety is essential for rail vehicles. UNIFE, the Association of European Rail Industry, established the International
Railway Industry Standard (IRIS) in
2007 to ensure the quality of rail vehicles.
In 2013, we became the first company in Japan to obtain an IRIS certifiIRIS logo
cation for auxiliary power supply (SIV).
In 2014, we were also accredited to the China Railway Certification Center’s (CRCC) certification for driving gear units.
CRCC, a state-owned enterprise set up in April 2003 after obtaining approval of the Certification and Accreditation Administration of the People’s Republic of China, is an organization thatmainly manages the quality of railway products. It is necessary
to obtain this certification to sell high-speed rail products in
China.
We will continue to acquire international standards and further
expand our business globally.
CRCC logo

Year ISO 9001 certification obtained

0
2013

15

Responding to the Global Market

2014

2015

2016

*The fiscal year is from April to March of the following year * The fiscal 2018 figures for the Shiga Ryuo Plant includes those of TD Drive Co., Ltd.
*Prior to fiscal 2017, total energy input (gas) data is available only for the Yokohama Plant due to zero input of the Shiga Plant.
*Prior to fiscal 2017, data on output of general and valuable waste and volume of landfill waste is presented only for the Yokohama Plant.

2017

2018

(year*)

Yokohama Plant
1997

Shiga Ryuo Plant*
2000

Extended to all offices
2005*The Shiga Ryuo Plant was the Shiga Factory (Moriyama) when it obtained the certification.
Toyo Denki Seizo Report 201916

ESG/CSR ReportSocialWith Our Shareholders and Investors

Contributions to Local Communities

We strive to ensure transparency of management through the timely and proper disclosure of information and various modes of communication in order to receive an appropriate evaluation of the Company from our shareholders
and investors.

We are committed to various social contribution activities, to contribute to society through our business while facilitating our own co-existence with communities and to foster young people who will represent the next generation.

Towards Enhancement of Corporate ValueT o Convey the Mission and Appeal of Electrical Industry as Well as of Toyo Denki

Basic philosophy
Through timely and appropriate disclosure of information to ourshareholders and investors, the Company accurately conveys ourmanagement policy and business conditions while making use of
IR tools such as our website to promote a full range of IR activities
that contribute to the improvement of our corporate value.
Development of IR activities
IR activities for institutional investors and securities analysts
The Toyo Denki management team holds a financial results briefing each quarterly period to provide opportunities for institutional
investors and securities analysts to understand the summary of
our financial results. The management team gives a report including the state of progress of the medium-term management plan
and an overview and forecast for each segment as well as neworders received and other topics.
In addition, we strive to deepen understanding of the Company
through individual visits to institutional investors or holding factory
tours to provide opportunities for them to actually see our manufacturing sites, as well as participating in small meetings organized by securities companies, and taking other measures.
IR activities for individual shareholders and individual investors
The Company website includes a “For Individual Investors” page
which offers a clear introduction to our business activities and our
results, as well as making available a variety of IR materials.

Dividends
In accordance with its profit return policy of maintaining stabledividends, the Company paid a year-end dividend of 30 yen per
share for the current fiscal year. We continue to aim at paying adividend with the 30% dividend payout ratio as a basis, which isa management index included in the medium-term management plan.
Dividend per share
Common dividend

(Yen)

40

(30)

(30)

30

30

30

30

20
10

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.

We are conducting “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 our actions
for environmental protection and factory facilities, in an effort tobuild up relationships built on trust with local communities.

50
20

50

30

Commemorative dividend

Receiving interns

Factory tours

6

6

FY 2014

2015

0
2016

2017

2018

2019

(Forecast)*Effective as of December 1, 2016, the Company implemented a stock consolidation of its commonshares at the ratio of five shares to one share. For the status of dividends before fiscal 2016, theactual dividend amounts before the said stock consolidation are stated. The figures in parentheses
are the amounts calculated based on the standard after the stock consolidation.

Participation in university endowment courses and hands-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.

A factory tour

Received the General Manager Prize for the “5th activity
commendation that is kind to Kanazawa Ward environment”

Record of 158th Ordinary General Meeting of Shareholders

Date held: Wednesday, August 28, 2019

The Company issues Business Reports for shareholders once every six months. They are also available on the website.

URL “For Individual Investors”
https://www.toyodenki.co.jp/ir/individual.php

Endowment course at a university

In Kanazawa Ward, Yokohama, with the aim of protecting the environment of Kanazawa and passing it on to the next generation, anaward is given for environmentally-friendly activities conducted in
the ward that are pioneering, exemplary, and has achieved visible
results.
The Company participates in the “Joint Cleanup Activity,” which
is held once a year jointly by companies, fire departments, the police, and universities, to collect litter on the streets and illegally disposed waste. The activity received the 2018 General Manager Prize.

Cooperation with Yokohama Kyodo no Mori FundInterim Business Report for Fiscal 2018

Plant tour for shareholders

17

Business Report for Fiscal 2018

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.

Participants of Joint Cleanup Activity

Toyo Denki Seizo Report 201918

ESG/CSR ReportSocialWith Our SuppliersWith Our Employees

The Company responds to the needs of our customers
through the strong network we have built with suppliersin line with our unique characteristics as a businessbased on an individual build-to-order/multi-productsmall lot manufacturing model.

The Company seeks to cultivate a dynamic corporate
culture and to create a pleasant and safe workplace
where each and every employee can unleash his or her
diverse capabilities.

Towards Just and Fair Procurement

Towards the Development of Human
Resources with Competitive Strengths

Communication with suppliers
The Company’s products possess various distinctive characteristics such as being individually built-to-order, manufactured in
multi-product small lots, and demanding high reliability. Therefore,
the Company can be affected by the performance of our suppliers
as a result of issues such as delays in supply due to fluctuationsin production quantity or delays in processing due to the quality of
products received.
In order to reduce these risks as much as possible, the Company carries out instruction and support related to quality, technology, and skills for our suppliers, as well as guidance for
improvement of manufacturing sites, in order to ensure stableprocurement of even better quality products. In addition, we
actively promote information sharing through the “Toyo Denki
Cooperation Association” to which our leading suppliers belong.

Formulation of “Procurement Action Guidelines”(formulated in February 2016)
Procurement Action Guidelines
These guidelines indicate the codes of conduct that the Toyo
Denki Group’s executives and employees should observe in the
procurement of purchased parts and outsourced parts as required for the manufacturing of products ordered by customers(“procurement transactions”).
1. Procurement transactions shall be carried out in observanceof the laws of the relevant countries.
2. Information concerning suppliers in procurement transactions
shall only be obtained within the scope necessary for conducting procurement activities in accordance with contracts. Furthermore, efforts shall be made to carefully manage andobserve the confidentiality of information gained through procurement transactions.
3. Personal interests with suppliers shall be prohibited in procurement transactions, including the lending and borrowing of money.
4. Receiving of support beyond the socially accepted practices or
receiving of money or inappropriate gifts or any other forms of
personal rewards from suppliers shall be prohibited in personaltransactions. In addition, forceful requests for any of the abovefrom suppliers shall be prohibited in procurement transactions.
* Inquiries from outside are accepted via the following phone number
and e-mail address:

Legal Compliance Department, General Affairs Division +81-3-5202-8121
email address for inquiries to Toyo Denki Seizo K.K.: contact@toyodenki.co.jp

19

Human resources development policy
The Company has set the following policy on human resources
development and carries out education and training under the education and training system diagram as shown below.
(1)	To develop human resources who understand and practice our business principles and code of conduct and who
are of value both as company employees and as members of society.
(2)	To develop human resources who are professionals, eachpossessing a high degree of specialized expertise, by enhancing the knowledge, techniques, and skills they needto carry out their duties.
(3)	To provide a variety of educational opportunities in orderto promote personal development, with emphasis on aself-directed approach to study and growth.

Education and training system
The Company’s education and training system is divided into level-specific trainings conducted at each occasion, individual trainings according to job types and roles, a support program aimed at
helping employees to obtain academic degrees and official qualifications, and division education conducted independently by eachdivision.
Training contents are reviewed based on actions expected of
employees.
New employees who join the Company as technical staff receive lectures and practical training at the Technical Training Center in the Yokohama Plant for one year. The Technical Training
Center dates back to 1937 and has an over 80-year history. Employees with exceptional manufacturing skills or expertise arerecognized as “Technical My Star” internally and assigned to instruct and train younger employees. With these initiatives, three
employees have accepted Contemporary Master Craftsman
awards from the Minister of Health, Labour and Welfare and one
has been awarded to theMedal with Yellow Ribbon by
the Japanese government.
We continue to endeavor
to pass on superior technologies and skills to maintainthe high quality of our prod- Employee recognized as “Technical My Star” gets a
ucts.
special mark on his cap

Creating a Pleasant Workplace

Initiatives for employment of the disabled

Response to the Act on Promotion of Women’s Participation
and Advancement in the Workplace
In accordance with The Act on Promotion of Women’s Participation and Advancement in the Workplace (Women’s Advancement
Promotion Act) that was enacted on April 1, 2016, the Company
is formulating an action plan to create an environment where
women can continue working with a sense of security as they advance their careers.
Acquisition of the “Kurumin” certification logo (June 2014)
In recognition of our efforts as a “company that
supports child-rearing,” which includes a substantial childcare system, educational activities concerning a work-life balance, the creation of an environment inwhich it is easy to obtain childcare leave, and the acquisition record of childcare leave by male employees, we received the “Kurumin”
certification logo from the Tokyo Labor Bureau in June 2014.
Initiatives for diverse work-styles
The Company has implemented a flexible work-style including a
flextime system for sales staff and those involved in development.
Furthermore, in order to encourage retention and utilization of
employees with knowledge and skills, we have put in place the“System for Rehiring Employees” for employees who have resigned due to life events that occur in the course of their career(childbirth, childcare, family care, spouse’s transfer, etc.), so thatthey can be rehired when they reach the stage when it is possible
to return to work.
As for employees who wish to be rehired after they reach themandatory retirement age (60), in principle, we continue to employ them until the age of 65.

The Company makes improvements to the workplace environment and carries out workplace training with the aim of creating aworkplace where the disabled and those in normal health canwork together energetically. We also hold on-site job experience
sessions in collaboration with local governing agencies and special-needs schools regarding employment of the disabled.
Implementation of employee satisfaction survey
The Company conducts an “employee satisfaction survey” once
per year, and relevant departments work to resolve various issues
extracted from the survey results. In addition, to create a “dynamic
corporate culture,” discussion meetings and such between executives and employees are regularly held.
Mental health measures
As measures to address mental health, the Company conducts“Line care training” for administrative professionals and “Self caretraining” for employees. In addition, we have partnered with an
external medical institution to set up a telephone and e-mail consultation service to provide support for prevention, treatment, andreturn to work.
Safety and hygiene initiatives
Under the “Company-Wide Safety and Hygiene Management Policy,” formulated every fiscal year, the Company holds the Safety
and Hygiene Committee monthly at each office, where annual
plans are drawn up and ongoing discussions are held in order tobuild a safe working environment, to reduce workplace injuries tozero and to find solutions to issues, including mental health. In
addition, the Company holds the “Company-Wide Safety and Hygiene Committee” every quarter to promote sharing of information
between offices as well as between Group companies.

Data concerning personnel and labor (at Toyo Denki Seizo K.K.)
Item
Number of employees

Unit
Total
Men
Women

Ratio of female employees
Number of administrative professionals

%
Total
Men
Women

Ratio of female administrative professionals
Average age

Average years of employment
Average annual salary
Turnover rate (within 3 years of joining the Company)
Number of employees taking childcare leave
Number of employees taking family care leave
Number of temporary staff (including part-timers)
Notes

Persons

Persons%

OverallMen
Women
Overall
Men
Women

Age

Years
Yen
%
Persons
Persons
Persons

Fiscal 2014
804
740
64
8.0
151
149
2
1.3
40.5
40.7
38.7
15.8
15.9
14.5
5,888,577
0.0
5
0
153

Fiscal 2015
824
761
63
7.6
155
151
4
2.6
40.4
40.4
39.5
15.4
15.5
14.1
6,024,175
3.4
7
0
160

Fiscal 2016
832
768
64
7.7
150
146
4
2.7
40.4
40.4
40.1
15.2
15.2
14.8
5,990,250
2.0
9
0
152

Fiscal 2017
843
771
72
8.5
140
136
4
2.9
40.2
40.3
39.5
14.9
15.1
12.7
6,049,512
2.7
4
0
130

Fiscal 2018
831
762
69
8.3
143
139
4
2.8
40.8
40.8
40.9
15.4
15.5
14.1
5,756,046
6.5
6
0
119

*Number of regular employees including Operating Officers, and number of special employees, temporary employees, contract employees and staff
on loan from other companies, etc.

Toyo Denki Seizo Report 201920

ESG/CSR Report

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

Corporate GovernanceOur philosophy of 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.
Corporate governance

21Internal 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 action

Outside Directors and External Statutory Auditors
The Company’s Outside Executives currently include two 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.
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. Takashi Yamagishi, Director (Outside Executive, memberof the Nomination and Compensation Advisory Committee)
Mr. Takashi Yamagishi provides useful advice regarding management in general, drawing on his wealth of corporate management
experience at Teijin Limited and his superior expertise.
Mr. Toshiaki Akechi, Statutory Auditor
Mr. Toshiaki Akechi is engaged in auditing activities, drawing on
his wealth of corporate management experience at JR East FoodBusiness Co., Ltd. and other places.
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. Yasushi Miki, Statutory Auditor
Mr. Yasushi Miki is engaged in auditing activities, drawing on his
wealth of experience developed at a predecessor bank of MUFG
Bank, Ltd. and other places and his global perspective.
Executive Remuneration
Directors
Remuneration for the Company’s Directors consists of basic remuneration and bonuses, and the total remuneration amount isdetermined within the maximum remuneration, which was decided at the Ordinary General Meeting of Shareholders held in
August 2006. To ensure the independence of Outside Directors,
the Company provides no bonuses to them. Decisions on remuneration for Directors are made at the Nomination and Compensation Advisory Committee set up under the Board of Directors,
with the participation of Outside Directors, in order to enhance
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.
<As of the end of May 2019>
Category of executives

Number of
executives
applicable

Total amount of
remuneration(Unit: Million yen)

6

164

1

14

7

41

Directors(excluding Outside Directors)
Statutory Auditors(excluding External Statutory Auditors)
Outside Executives (Outside Directors
and External Statutory Auditors)(Note) The number of executives applicable mentioned above includes one Director and two Statutory
Auditors who retired from office at the end of the 157th Ordinary General Meeting of Shareholders held on August 28, 2018.

Corporate governance framework
General meeting of shareholders
Appointments/dismissals

Accounting Auditors

Reporting

ReportingAppointments/dismissals

Legal audit

ReportingDirectors

Statutory Auditors
Business audit

Reporting

Reporting/decisions
Instruction/reporting

Internal Control Committee
Internal audit(Secretariat)
General Affairs Division(Contact for whistle-blowers)(Contact for legal consulting)
Legal counsel(Contact for whistle-blowers)

Reporting on
business execution

Appointments/dismissals

Accounting audit

Audit Division

Appointments/dismissals

Board of Directors

Board of Statutory Auditors

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

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 Boardof) 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.
Directors and the Board of Directors
At its regular monthly meetings as well as extraordinary meetings held when appropriate, the Board of Directors, which iscomposed of six Directors including two Outside Directors, discusses and decides on important management matters suchas 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.
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. As for the matters discussed at meetings, matterssubject 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 suchas circulars based on the Management Authority Rules.
Statutory 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 and matters to be decided solely at the discretion of
the Board of Directors. In addition, Statutory Auditors audit thebusiness activities and assets of the Company and Group companies in accordance with 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 andobjectivity regarding decisions on compensation for Directors and Operating Officers.
b. Internal Control Committee
The Internal Control Committee is in place under the Boardof Directors to develop a system stipulated in the basic policy of internal control systems, check the operation status,and conduct constant reviews. The Committee meets quarterly, and the contents of deliberation are reported to theBoard of Directors each time.

plans 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.

Operating Officers
Instruction/reporting

Each business department
Instruction/reporting

Instruction/
reporting

Each Group company

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Governance

Executive Profiles (as of August 28, 2019)

Messages from Outside Directors

Hirokazu Chinone

President,
Representative Director

Kenzo Terashima

Director

Director

Director

Akihiko Ishii

Akira Watanabe

Yoshifumi Otsubo

Role of Outside Director

Points of discussion and advice at the Board of Directors

The Companies Act stipulates that the authority of a board of directors is to make decisions on important business execution
matters and oversee the execution of duties, and this also applies to directors who make up the board of directors.
Furthermore, the main role of outside directors is to oversee
the execution of duties in particular. The reason for this is that itis thought to be beneficial to have independent outside directors
who have no ties of obligation to internal directors and few
stakes, in order to prevent illegal and unfair decisions with compliance issues.
I am a lawyer by profession. I don’t have any experience inrunning a company, making it difficult to give useful and appropriate advice to improve the Company’s business performance,
but I believe monitoring business execution is my area of expertise to prevent the Company’s scandals and various risks.

Since my appointment as Director, fortunately no agenda itemor proposal that would become a compliance issue has beenpresented to the Board of Directors.
However, it is generally understood that even when a compliance issue emerges, that information rarely reaches the Boardof Directors, and in many cases, it is too late when the problem
is discovered. In order to avoid this, it is necessary to havemechanisms in place that allow negative information to beraised to executives. Such mechanisms include an internal audit
department that is independent of business divisions and whistleblowing systems. I believe that it is important to ensure thatsuch bodies function successfully and dot not end up just being
a formality.

Takashi Yamagishi

Director (Outside)

Director (Outside)

Hirokazu Chinone

Takashi YamagishiStanding Statutory
AuditorStanding Statutory
Auditor

Statutory Auditor

Statutory Auditor

Toshiaki Akechi

Kenji Ueda

Yoshinori Kawamura

Yasushi Miki

Senior Executive Officers
Executive Officers
Operating Officers

23

Hiroshi Shimotakahara
Shuji Horie
Yukimasa Tanabe
Takuya Hatakeyama

Akihiko Ishii
Yoshifumi Otsubo
Naoki Okuyama
Toshiharu Takagi

Akira Watanabe
Kenji Tanimoto
Toshihito Nakanishi
Chiaki Nakano

Kenji Fujiwara
Shini Furutsuki

Role of Outside Director

Points of discussion and advice at the Board of Directors

The functions of outside directors at a board of directors are
said to be “supervision” and “advice.” The former is to properly
get across the opinions of stakeholders to the board of directors, and the latter is to maximize corporate value through strategy formulation and decision-making. While the presence ofoutside directors creates a tension at the board of directors anddeepens discussions, strictly requiring independence of outside
directors makes it difficult for them to contribute to strategy formulation. The Company has several Outside Directors. I view myrole is participating in discussion for important decision-making
from an early stage with an outsider’s perspective, enhancing
the transparency of decision-making at the Board of Directors
by providing my expertise on occasion, and contributing to improving sustainable corporate value and the supervisory function.

My position at the Board of Directors is to provide support forachieving the Company’s long-term vision of “providing highquality products that combine motor drive technologies and advanced breakthrough technologies worldwide and contributing
to the realization of environmentally friendly social infrastructure.” It is not just approving what has been decided at management meetings, but also asking essential questions from an
outsider’s perspective and making correct management decisions through active discussion. Issues for which final decisions
have been postponed will be discussed again at strategic meetings in which I participate as Outside Director. The Nomination
and Compensation Advisory Committee and talks at researchpresentations provide good opportunities to learn about management and human capital. I believe that it is important for theCompany to be always monitored by outsiders for maintaining
high-level of management discipline.

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GovernanceInternal Control and Compliance

Risk Management

Internal Control

Basic policy

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.

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

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.

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 and countermeasures, and periodically reports details of its deliberations to
the Board of Directors.
Furthermore, the committee is committed to enhancing theGroup-wide risk management framework in accordance with the
Basic Rules for Risk Management.

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
The Company is organizing scheduled and systematic training
sessions based on a compliance training master plan to enhanceknowledge on compliance while promoting a conscious respect
for corporate ethics.

25

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 educational
DVDs.

Risk Factors
From the perspective of proactive information disclosure, theGroup intends to disclose a wide range of recognizable risks. Major risks that may affect its earnings and financial position are set
out below. The Group aims for thorough understanding of theserisks in order to establish a necessary risk management framework designed to prevent the risks from materializing or minimize
the impact of risks if they do materialize.
(1) Business activities, business structure, economic trends, andother factors
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, businessclimates and individual spending conditions in different
countries may affect the Group’s business performance.
(2) Production bases
The great majority of the Group’s production bases are locatedin the Kanto area. Production capacity may be severely affected by large-scale disasters in the area.
(3) Intensifying competition
The Japanese market for the Transportation Systems segment
has matured and thus faces intensifying competition. The Industrial Systems segment is under pressure from intensifying
competition for product development. The Group’s businessperformance may be affected by such intensifying competition.
(4) Product quality
Defects in products may link to materialization of a risk that
requires large-scale compensation for damages. The possibility exists that insurance may not be able to cover associatedcosts, which may affect the Group’s business performance.
(5) 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) Material procurement
Owing to the fact that the Group’s business has various distinctive characteristics, some of the materials it procures are noteasily available due to factors such as a limited number of suppliers. Delays in supply or discontinuation in production of suchmaterials may affect the Group’s performance. In addition, disruptions to the entire supply chain caused by a large-scaledisaster or other incidents could impact the Group’s operations.
Moreover, its business may be affected by the fluctuation in
prices of raw materials, notably steel products and copper.

(7) Overseas expansion
The Group proactively pursues the expansion of overseas
operations including the Chinese market. Its performance may
be affected by major changes in situations overseas.
(8) Intellectual property rights
The Group attends to the protection of intellectual property
rights. However, amid drastically advancing technical innovations and accelerating globalization of business, the Group isinevitably exposed to potential disputes with third parties overintellectual property rights. If a dispute occurs, the Group’sbusiness may be affected.
(9) Business alliances
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
with partners, the Group may face an impact on its performance.
(10) Exchange rate fluctuations
On the back of aggressive expansion into overseas markets,
the Group will inevitably face heavier impact of foreign currency exchange rate fluctuations on its earnings as itincreases foreign currency denominated transactions.
(11) Holding assets
Fluctuations in the fair value of assets held by the Group may
affect its performance.
(12) Financing
The Group’s financing programs may be affected by unexpected changes in financial conditions.
(13) Information security
The Group retains customer information related to its businessexecutions. Also, it possesses various types of confidential information concerning the Group’s proprietary technologies andoperations. If these information assets leak outside the Groupfor unforeseeable reasons, it may impact its performance.
(14) Compliance
The Group proactively pursues expansion in overseas operations, particularly the Chinese market; therefore its operations are subject to the laws and regulations of each country.
Although the Group has established and conducts a robust
compliance system, its operations are still at risk from the effects of unforeseeable events.
(15) Litigation
If the Group becomes the subject of any legal action or otherlegal procedures, its business may be affected.

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