Formulated on February 28, 2007
Revised on April 1, 2024

Pension Fund Association: “Guidelines for the Exercise of
Shareholder Voting Rights”

To fulfill its fiduciary responsibility and stewardship responsibilities, in its direct investments
in domestic equities, Pension Fund Association (“PFA”) shall exercise its shareholder voting
rights with a view to achieving sustainable growth and medium- to long-term enhancement ofcorporate value of investee companies, thereby enhancing PFA’s medium- to long-term returnon investments.
In addition to the efficient use of shareholder capital for sustainable growth and medium- tolong-term enhancement of corporate value, PFA shall require investee companies to establish
appropriate corporate governance structures that respect shareholders’ interests, such as
ensuring separation of executive and supervisory functions in corporate management andindependence of outside directors, in view of the principle of equal treatment of shareholders
and the protection of minority shareholders.
PFA shall also require investee companies to take the following actions through constructive
dialogue (engagement) with PFA:
- Identify and disclose important issues (materiality) regarding business model sustainability,including ESG factors- Reduce strategic shareholdings that have issues in terms of capital efficiency andmanagement discipline- Implement initiatives to ensure the rights of minority shareholders of listed subsidiarycompanies in cases where both parent and subsidiary are listed companies- Present basic policies and objectives of business plans and capital policies based on a clear
understanding of own capital costs and clarify specific actions to take
- Analyze reasons and causes of a substantial number of votes cast against a proposal
presented by the company
In the exercise of specific shareholder voting rights, in principle, PFA shall respect themanagement decisions of the investee company if its business performance is consistently
strong, but shall vote against it if it is determined that there is an impairment to corporate value
or corporate governance problems, such as misconduct including violations of laws andregulations, or a long-term decline in corporate performance (if it falls under any of thefollowing performance criteria).
[Performance Criteria]- Net income losses for the past three consecutive fiscal years- Net cumulative income loss for the past five fiscal years- Average return on equity (ROE) for the past five years of below the bottom 25% of themarket (except in cases where ROE for any of the past three fiscal years exceeds the market’s
average ROE over three fiscal years)
In engagement with a company whose PBR has been less than 1 for a long period of time, PFA
shall hold dialogue on the enhancement of corporate value.
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PFA’s specific guidelines and approach for the exercise of voting rights by proposal type are as
follows:
1. Appropriation of surplus
In principle, PFA shall support the policies of the investee company, but believes that thedistribution of surplus (including dividends and share buyback) should be balanced with futurebusiness plans, financial stability, employee compensation and welfare, and directors’
remuneration.
PFA shall not be able to make a positive determination in cases where the company has retained
more funds than necessary in light of its future business investment plans.
In cases where the board of directors of the company is authorized to appropriate surplus, andPFA determines that there is a problem with the appropriation of surplus as determined by theboard of directors, PFA shall vote against the appointment of the director who serves as top
executive of the company.
2. Appointment of directors
In principle, PFA shall vote against any proposal for the appointment of a director candidate
who has served for three or more years if the investee company falls under any of theperformance criteria. Nevertheless, the performance criteria shall not apply to proposals for theappointment of directors who serve as audit and supervisory committee members in a company
with audit and supervisory committee.
If misconduct (violation of laws and regulations or antisocial behavior, etc.) occurs in thecompany during the tenure of a director candidate, and PFA determines, from a comprehensive
consideration of the state of net sales and profits, stock performance, social reputation of thecompany, and the subsequent response as a corporation, that the misconduct has had a material
impact on the management of the company, PFA shall vote against a proposal to re-appoint thedirector candidate in question.
If it is deemed that a director candidate has acted in a manner that otherwise impairs shareholder
value, PFA shall vote against a proposal to re-appoint the director candidate in question.
If the company does not appoint more than one outside director, and outside directors do notaccount for at least one-third of the total number of directors (at least half of the total number
if the company has a controlling shareholder(s)), PFA shall vote against the election of thedirector who serves as top executive of the company. PFA shall not be able to make a positive
determination on the re-election of an outside director candidate whose attendance of meetingsof the board of directors has been insufficient without a clear indication for the reasons thereof.
Outside directors should be appointed from among candidates who are not at risk of conflict ofinterest with minority shareholders and who have sufficient qualifications as directors. If it isdetermined that a director candidate clearly has a conflict of interest with minority shareholders,
PFA shall vote against the election of the director candidate in question.
The board of directors should be structured in a way that balances diversity with the proper size
and that has an overall balance of knowledge, experience and ability to effectively fulfill its
roles and responsibilities. The company should also disclose the skills matrix of directors aswell as its policies and procedures for the appointment of directors.

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3. Appointment of corporate auditors
After the comprehensive consideration of the state of the company’s net sales and profits, stock
performance, social reputation, and subsequent response as a corporation due to misconductthat has occurred in the company during the tenure of a corporate auditor candidate, if PFA
determines that the misconduct has had a material impact on the management of the company,
PFA shall vote against a proposal to re-appoint the corporate auditor candidate of the company.
Outside corporate auditors should be in an independent, objective position. If PFA determinesthat an outside corporate auditor candidate lacks independence, PFA shall vote against theappointment of the candidate. The independence of outside corporate auditors shall bedetermined pursuant to the independence criteria set forth by the stock exchange.
PFA shall not be able to make a positive determination on the re-election of an outside corporate
auditor candidate whose attendance of meetings of the board of corporate auditors has been
insufficient without a clear indication for the reasons thereof.
4. Amendment of the articles of incorporation(1) Increase in the number of authorized shares
PFA shall not be able to make a positive determination if there are concerns that an increasein the number of authorized shares would substantially dilute existing shareholders’ equity
value or if there is no convincing explanation for the need thereof.
(2) Change in the number of directors
In principle, PFA shall vote for the reduction of the number of directors, and, in principle, it
shall vote for the appropriate increase in the number of directors and the addition of outside
directors in line with the expansion of the company. However, it shall make a negative
determination toward an increase in the number of internal directors without reasonable
explanation.
(3) Term of office of directors
PFA shall be able to make a positive determination on the shortening of the term of office ofdirectors, but not on their extension.
(4) Decision-making body for dividends of surplus, etc.
PFA shall give consideration on a case-by-case basis to the appointment of the board ofdirectors as the decision-making body for dividends of surplus, etc.
(5) Measures to ease the quorum for special resolutions (resolutions to amend the articles ofincorporation, etc.)
PFA shall not be able to make a positive determination without receiving specific explanationof reasons for such amendment.
5. Director remuneration
It is preferable that remuneration for directors (excluding directors who are audit andsupervisory committee members) responsible for the company’s sustainable growth andmedium- to long-term enhancement of corporate value include performance-linked
remuneration and stock-based remuneration, to maximize medium- to long-term shareholder
returns.
In cases where the company falls under any of the performance criteria and it is evident thatshareholder value is impaired, it is appropriate that remuneration for directors be reduced.
In cases where the company falls under any of the performance criteria and remuneration for
directors is to be increased, PFA shall vote against such increase.
36. Payment of retirement benefits
PFA shall vote against the payment of retirement benefits to outside directors and outside
corporate auditors.
In cases where the company falls under any of the performance criteria, PFA shall vote against
the payment of retirement benefits.
If an officer has been involved in misconduct during his/her term of office and has vacatedhis/her office, PFA shall vote against the payment of retirement benefits to such director.
7. Stock-based remuneration plan
In principle, PFA shall vote for the utilization of a stock-based remuneration plan as long as it
is appropriate as an incentive to enhance sustainable shareholder value without encouraging
excessive risk-taking by management.
Nevertheless, PFA shall vote against a stock-based remuneration plan if there are concerns thatsuch plan may cause significant dilution of share value (5% or more) and impact on shareholdervalue.
PFA shall vote against a stock-based remuneration plan in cases where the relationship between
the scope of and thereby selected eligible persons and improvement of business performance isnot convincing enough (corporate auditors, trading partners, etc.), or where the transfer
restriction period of shares granted under the plan is extremely short.
8. Appointment of accounting auditor
PFA shall not be able to make a positive determination on the appointment of an accounting
auditor unless it is given a convincing explanation regarding the independence andqualifications of the accounting auditor candidate.
In cases where an accounting auditor is replaced due to disagreement over audit policy, PFA
shall give careful consideration to whether or not the objectivity of the audit can be secured.
9. Share buy-back (setting of buyback framework)
In principle, PFA shall vote for the share buyback.
10. Introduction and continuation of takeover defense measures
In principle, PFA shall vote against the introduction and continuation of takeover defense
measures as they have the potential to hamper acquisitions that would increase shareholder
value and efficient management and to be used by managers to protect themselves personally,and there is the risk of medium- to long-term impairment to shareholder value.
If takeover defense measures have been introduced without a resolution at a general meeting ofshareholders, PFA shall seek for the abolition of such measures through engagement.

411. Capital policy, etc.
PFA believes that, for capital policies such as acquisition, merger, transfer and acquisition ofbusiness, company split, and third-party allotment of shares, sufficient explanation should begiven regarding the impact of such policies on shareholder value, and it shall vote against suchpolicies that are against shareholders’ interests or that impair shareholder value.
12. Other proposals by the company
PFA shall make separate determinations on each proposal based on the basic criterion ofwhether or not such proposal shall contribute to the medium- to long-term growth ofshareholder value.
13. Proposals by shareholders
PFA shall vote against any proposal made by a shareholder if it is determined that such proposal
would be contrary to the interests of general shareholders or would benefit only the person orpersons who made such proposal. In addition, PFA shall not be able to make a positive
determination on a proposal by a shareholder if it is deemed that such proposal is being used
exclusively as a measure to solve specific social or political issues.

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