Corporate Governance

The Company implements all principles of the Corporate Governance Code. 

Principle 1.4 Cross-Shareholdings

(1) Policy on cross-shareholdings
Regarding cross-shareholdings, the Company's policy is to hold shares that it believes will contribute to enhancing corporate value for the Group over the medium to long term. Based on its policy of selectively holding the minimum cross-shareholdings necessary, the Company considers the rationale for holding a specific stock, including a comprehensive assessment of factors such as its business strategy and relationships.

Principle 1.7 Related Party Transactions

Transactions with related parties, such as the Company's directors or major shareholders, require discussion and a resolution from the Board of Directors. Directors with a conflict of interest are prohibited from exercising their voting rights on the matter. Moreover, all directors, corporate auditors and executive officers are required to provide written confirmation of the presence or absence of transactions with related parties once a year.

Supplementary Principle 2.4.1 Ensuring Diversity in the Promotion of Key Personnel

The Group has identified “maximizing the value of human capital” at the beginning of our materiality. Human capital is the most important form of management capital in corporate activities and serves as the foundation for all other forms. “Respect for the Individual” is established as the primary pillar of the Management Principles. The Company’s philosophy is to be a corporation that respects the rights of every employee, allows individuals to pursue a meaningful and cultural life and a worthwhile life, trusts in the aspirations of each individual, supports independent activities, prepares an environment where abilities can be demonstrated to the fullest through work, and ensures employees are rewarded for their abilities and performance. Based on this, the Company maintains various policies and systems regarding human capital.

<Approach to ensuring diversity, measurable goals, and status of progress>
The Group aims to build a work environment where all employees can demonstrate their abilities and play active roles, regardless of gender, nationality, age, or disability. It has set targets for the number of female managers and female directors and is working to ensure a diverse workforce. In addition, it also actively promotes mid-career hires to management positions. As of March 31, 2026, on a non-consolidated basis, 57.8% of management positions were filled by mid-career hires.

(1)Promotion of women to management positions
Regarding the hiring of women, the Company promotes the hiring of female new graduates, and in mid-career hiring, is actively hiring women and promoting them to management positions. The target for the number of female managers is five on a non-consolidated basis by the fiscal year ending March 31, 2028, and as of March 31, 2026, there were four. Regarding the promotion of women to management positions, the proportion of potential candidates among all employees is currently low at this time; therefore, we will broaden our pool by hiring and enhancing support for career development.

(2)Promotion of foreign nationals to management positions
To secure human resources who share the Group’s Management Principles and have the abilities required to realize its business strategy, the Group hires both new graduates and mid-career candidates, making no distinction between Japanese and foreign nationals, to build a diverse organization. In addition, the Company traditionally promotes employees to management positions based on merit, regardless of nationality or other factors. However, as of March 31, 2026, the ratio of foreign employees was 1.2% (eight employees) of the Company on a non-consolidated basis, most of whom were hired as new graduates. Therefore, the Company will prioritize hiring foreign employees first and will consider target figures for management positions in the future.

(3)Promotion of mid-career hires to management positions
To secure human resources who share the Group’s Management Principles and possess the abilities required to realize its business strategy, in addition to regular hiring targeting new graduates, the Group aims to build a diverse organization by actively hiring mid-career candidates with varied experience, skills, and qualifications, who are expected to provide immediate results. Note that the Group has conventionally promoted new graduates and mid-career hires without distinction to management positions, based on merit. Because the ratio of mid-career hires and the number of mid-career hires in management positions are sufficient to meet the Company’s standards, we have set no specific targets. As of March 31, 2026, on a non-consolidated basis, the status of the promotion of mid-career hires to management and higher positions at the Company is as follows:

・Percentage of mid-career hires in executive officer positions (excluding those concurrently serving as directors): 80.0%

<Summary and status of human resource development and internal environment improvement policies to ensure diversity>
(1)Human resource development policy
Developing human resources capable of realizing the Group’s Management Principles is a basic policy of the Group. The Group conducts initiatives for strategic development, which are divided into the following three phases in line with its human resource development policy.

・Phase I: Education and training

- Thorough adherence to the basics of the “ideal human resources” sought by the Company

・Phase II: Practical application <recognized internally for excellence>

-Through practical work aimed mainly at improving their competencies and establishing their expertise, the Group will support individual initiatives and encourage growth through individual effort. Additionally, we will strategically develop future executive candidates.

・Phase III: Demonstration of expertise <recognized for excellence outside of the Company>

-While leveraging the abilities and experience they have cultivated to date, such as in management, specialized skills and techniques, undertake initiatives to ensure that employees are multi-skilled. Furthermore, employees will contribute to division operations and the development of younger employees as personnel responsible for developing others.

 

(2)Internal environment improvement policy
The Group is working to establish work environments in which its diverse workforce can demonstrate their abilities, developing into an organization in which each individual can play an active role. Its primary initiatives are as follows:

Human resource system
The Group develops its human resource system under the belief that improving its employees' competencies and motivation will enable its management vision and goals to be achieved. To encourage employees to independently manage their career development and enhance internal human resource mobility, it has established job rotations, self-nomination, and internal job posting systems. Moreover, it is developing various systems to support a variety of work styles that can be used regardless of employment status, such as its childcare and nursing care leave systems. The Group is especially focused on enhancing its support for balancing work and childcare, and is promoting the development of an accommodating work environment through systems for vacation, leaves of absence, and returning to work related to maternity and childcare, as well as shortened working hours, remote working, etc. As a part of promoting the active participation of women in the workplace and reforming work styles, the Group is actively undertaking initiatives to promote the use of its childcare leave system by male employees. In the fiscal year ended March 31, 2026, the percentage of eligible male employees using the childcare leave system was 88.2% on a non-consolidated basis.  

 

Skill development system
Regarding skill development, the Company formulates systematic, medium- to long-term human resource development plans and has a system that enables each employee to effectively and continuously improve and develop the skills required of them. Skill development training includes the following: mandatory level-based training for employees in all positions which enables them to demonstrate the capabilities required for their position; basic training necessary for job performance and career development; and area-of-expertise training aimed at increasing specialization in work activities and the acquisition of specialized skills necessary for career development. Also, given the increasingly sophisticated economic environment and technological standards, and advances in globalization, the Company provides special training programs supporting employees in acquiring MBAs, MOTs and other degrees from universities or other institutions of higher learning in Japan and overseas, as well as training at overseas affiliates and language study through AEI programs at overseas universities to further enhance skills through self-development. The Company also actively provides support for the engineers and operators who contribute to its medium- to long-term growth, in seeking internal accreditation or external certifications.

Implementation of an employee engagement survey

Improving employee engagement is linked to increased innovation and improved productivity, quality, and customer satisfaction. Based on the belief that it contributes to the medium- to long-term enhancement of corporate value, we conduct an employee engagement survey once annually and undertake initiatives to improve employee engagement based on the survey results.

 

Health management system
The Company views the health of its employees as important management capital and promotes initiatives to enhance their health and safety and health management. Specific initiatives are as follows:

・Understanding employee health conditions and preventing physical and mental health issues through periodic physical exams, stress checks, etc.

・Establishment of a specialized division for promoting health, the Health Promotion Center, and in-depth health consultations and guidance from in-house nurses.

・Establishment of contact points for reporting and consultation on in-house and external harassment, as well as other issues.

・Provision of a remote working environment, among other measures.

 

Human capital initiative details are also published in the Integrated Report and Annual Securities Report and on the Company website
・Integrated Report: https://www.hds.co.jp/english/csr/hdsreport/
・Annual Securities Report: https://www.hds.co.jp/english/ir/data/Securities_Report/
・Sustainability section of the Company website: https://www.hds.co.jp/english/csr/

 

Principle 2.6 Roles of Corporate Pension Funds as Asset Owners

The Company has both defined-benefit and defined-contribution pension plans. With respect to asset management (including selection of investees, exercise of voting rights, etc.) for the covenant-type defined-benefit pension plan, the Company formulates the basic investment policy, selects asset management institutions that are expected to appropriately fulfill their fiduciary responsibilities, including stewardship activities, and entrusts the management of the assets to these institutions. In addition, the department in charge of the asset management of the Company requests regular reports from the relevant asset management institutions and verifies their investment performance and systems.

 

Principle 3.1 Full Disclosure

(1) Management principles, business strategies, and mid-term plans
The Company defines management principles, strategies, and mid-term business plans and discloses these on the company website. 
Management principles (https://www.hds.co.jp/english/company/idea/)
Business strategies and mid-term business plan (https://www.hds.co.jp/english/ir/management_policy/strategy/) 

(2) Basic views on corporate governance
These are described in “I. Basic views on corporate governance, capital structure, corporate profile, and other basic information, 1. Basic views” of this report.

(3) policies and procedures for determining remuneration of directors
These are described in this report in “II. Management organization and other corporate governance systems regarding decision-making, execution, and management oversight, 1. Matters concerning the organizational structure and operation, Director remuneration, Disclosure of policy on determining remuneration amount and the calculation methods thereof.”

(4) Policies and procedures for nominating directors and Corporate Auditors

When appointing or reappointing directors, the Board of Directors consults with and receives reports from its advisory body, the Nomination and Remuneration Advisory Committee. After considering the content of such reports, the Board of Directors approves a proposal for the General Meeting of Shareholders, and a final decision is reached by resolution at the General Meeting of Shareholders. Furthermore, the status of business execution and achievements during the past fiscal year will be considered for candidates to be reappointed as executive directors, such as the CEO.

The appointment of corporate auditor candidates is recommended by the Board of Directors and submitted to the General Meeting of Shareholders after securing the agreement of the Board of Corporate Auditors.

In appointing outside directors and outside corporate auditors, the Company comprehensively considers the personal, capital, and business relationships between the Group and prospective candidates and companies to which they belong, and only those individuals deemed able to fulfill the required functions and roles from an independent standpoint are nominated as candidates.

 

(5)Explanation of nomination and appointment of candidates for directors and Board of Corporate Auditors
When candidates for director and corporate auditor positions are submitted for discussion at the General Meeting of Shareholders, the Company Group provides a summary of each candidate’s career history and assessment materials that include achievements and experience. The Company also discloses the reasons for appointment and the expertise required by the Company in the form of a skills matrix included in the reference documents and at the end of this report.

(6) Policies and procedures for the dismissal of senior management
In the event that a member of the Company's senior management commits an act that violates or may violate laws and regulations or the Articles of Incorporation, or if any other event occurs that may impinge on the ability of a member of the Company's senior management to appropriately perform their duties, the matter will be decided by the Board of Directors after the reasons for the dismissal are discussed and recognized in a timely manner through consultation with and reporting from the Nomination and Remuneration Advisory Committee, including those instances where the dismissal is proposed by an outside director.

Supplementary Principle 3.1.3 Sustainability Initiatives

<Sustainability initiatives>
The Group positions sustainability initiatives as important for the medium- to long-term enhancement of corporate value and is gradually advancing the development and sophistication of its promotion system.

Response to climate change
The Group recognizes that addressing climate change is an important management issue, has set the long-term goal of achieving “Net Zero by 2050” and the medium-term goal of “Reducing GHG emissions in FY2030 by 30% versus the FY2022 level,” and is working to achieve it under its Sustainability Committee. Specifically, upon identifying climate change-related risks and opportunities expected to impact the Group’s businesses, the Group conducts scenario analyses recommended by the TCFD from the perspective of both a 1.5℃ scenario and a 4.0℃ scenario and analyzes the business impact and likelihood of each risk and opportunity over short-, medium-, and long-term time horizons. Based on these analyses, the Sustainability Committee plays a central role in promoting initiatives to create opportunities and minimize risks. Details are provided in the Integrated Report and Annual Securities Report.
・Integrated Report: https://www.hds.co.jp/english/csr/hdsreport/
・Annual Securities Report: https://www.hds.co.jp/english/ir/data/Securities_Report/
・Sustainability section of the Company website: https://www.hds.co.jp/english/csr/

 

<Investments in human capital and intellectual property>
We have identified investment in human capital and intellectual property in our materiality as “maximizing the value of human capital” and
“creating and using new technologies and skills adapted to changes in the environment.”
Information on human capital is also disclosed in the sustainability section of the Company website (https://www.hds.co.jp/english/csr/) as employee, customer, and social initiatives, and in this report under “I. Basic views on corporate governance, capital structure, corporate profile, and other basic information, 1. Basic views, Disclosure based on the principles of the corporate governance code, [Supplementary Principle 2.4.1: Ensuring diversity in the promotion of key personnel]” and in our Annual Securities Report.
Regarding investments in intellectual property, the Company is proactively working on the rights and protection of intellectual property created
through research, development, and manufacturing, the details of which are disclosed on the Company website.(https://www.hds.co.jp/english/deveakajima lopment/intellectual_property/)

Supplementary Principle 4.1.1 Scope of Delegation to Management

The Company stipulates matters to be decided by the Board of Directors in the Board of Directors Regulations and operates the Board of Directors in accordance with laws and regulations, the Articles of Incorporation, and the Board of Directors Regulations, while delegating specific business execution to executive directors. In addition, the Company has adopted an executive officer system. Executive officers, under the direction of the president and representative director, execute business operations in accordance with the decision-making authority stipulated in the Rules on Administrative Authority to enable prompt decision-making.

Principle 4.9 Independence standards and Qualifications for Independent Outside Directors

In appointing independent outside directors, an overall assessment is made following determination of the applicability of each item of the independence standards set by the Tokyo Stock Exchange. The details are disclosed in the Independent Officers Notifications submitted to the Tokyo Stock Exchange and in this report in “II. Management organization and other corporate governance systems regarding decision making, execution, and management oversight, 1. Matters concerning organizational structure and operation, Directors.”
In selecting independent outside director candidates, we consider various perspectives, such as each candidate’s background, knowledge, personality, gender, international experience, ability of required expertise, and other factors, and select people who we expect will help bring new perspectives to the Board of Directors.

Supplementary Principle 4.10.1: Use of voluntary committees when independent outside directors do not constitute a majority of the Board of Directors

At the Board of Directors meeting held on March 25, 2024, the Company established a voluntary Nomination and Remuneration Advisory Committee to serve as an advisory body to the Board of Directors. Rules stipulate that a majority of the committee’s members shall be independent outside directors and that the chair shall be selected from among the independent outside directors, so we believe the committee’s fairness, transparency, and objectivity are ensured.
Please refer to “II. Management organization and other corporate governance systems regarding decision-making, execution, and management oversight, 1. Matters concerning organizational structure and operation, Voluntary establishment of committee(s) equivalent to Nomination Committee or Remuneration Committee, Supplementary explanation” for detail pertaining to the committee.

Supplementary Principle 4.11.1Views on the Balance, Diversity, and Scale of the Board of Directors as a Whole and Disclosure of Skills, Etc.

The Company’s Articles of Incorporation stipulate that the number of directors shall not exceed 15. Given that the Company is an internationally expanding technology and technical group, basic policy regarding the appointment of directors is to have the Board of Directors comprised of executive directors with specialist skills and knowledge relating to overall management, manufacturing, development, sales, finance, accounting, etc., and outside directors with abundant management experience in other companies and industries as well as in international fields. We began disclosing a skills matrix starting with the Notice of the Ordinary General Meeting of Shareholders in June 2022.

Supplementary Principle 4.11.2 Status of Concurrent Positions Held by Directors and Corporate Auditors

The status of concurrent positions held by directors and corporate auditors is disclosed in the business report accompanying the Notice of the Ordinary General Meeting of Shareholders and in the Annual Securities Report. The number of concurrent positions held at other companies by directors and corporate auditors is limited to the extent that they remain capable of fulfilling their roles and responsibilities as officers of the Company.

Supplementary Principle 4.11.3 Analysis and evaluation of directors' effectiveness

１. Evaluation method

 

２. Issues and measures related to directors' effectiveness identified in FY2023

(1) In response to the opinion that there is a need to deepen discussions on medium- to long-term business strategies with a view to the future and the human resource development that supports them, the following measures were implemented:

①Set discussion themes and held free discussions: 2 times

②Held training sessions on related themes: 2 times

③Set up opportunities to discuss the progress of the medium-term management plan: 1 time

 

(2) The following initiatives were promoted to further enhance discussions at the Board of Directors:

①Thorough advance distribution of Board of Directors materials

②Enhancement of prior briefing sessions: Reflected questions from prior briefing sessions in the Board of Directors materials on the day of the meeting, as necessary

 

３. FY2025 evaluation process 

The process for the effectiveness evaluation of the Board of Directors for FY2025 is as follows:

(1) Conducted a questionnaire survey on December 19, 2025, targeting all directors and corporate auditors regarding matters considered important for the Board of Directors to effectively fulfill its roles and responsibilities (composition of the Board of Directors, operation of the Board of Directors, agenda of the Board of Directors, systems supporting the Board of Directors, and evaluation of improvement measures based on the FY2024 effectiveness evaluation). 

(2) Based on the aggregated results of the questionnaire, reporting and deliberation were conducted at the Board of Directors meeting held on January 21, 2026.

 

４. Summary of FY2025 evaluation results 

As a result of this evaluation, the effectiveness of the Company’s Board of Directors was confirmed as follows:

(1) Based on the responses to the effectiveness evaluation questionnaire, evaluations of “appropriate” or “generally appropriate” accounted for the majority at 90% regarding the composition of personnel, operational status, content of agenda deliberations, and support systems of the Board of Directors, confirming that effectiveness is generally ensured.

(2) Through the evaluation in FY2025, recognition was shared that sufficient time for free discussion is not secured within the timeframe of the Board of Directors, and the necessity to further enrich the exchange of opinions between internal directors and outside directors was recognized.

 

５. Initiatives for FY2026

Based on the results of this evaluation, the Company will proceed with the following initiatives in FY2026:

(1) Secure discussion time by narrowing down the key points of monthly reports at the Board of Directors meetings

(2) Continue to hold training sessions on related themes 

 

Supplementary Principle 4.14.2 Training Policy for Directors and Corporate Auditors

Principle 5.1 Policy for Constructive Dialogue with Shareholders

The Company positions shareholders and investors as important stakeholders and believes it is its responsibility, as a listed company, to develop systems and undertake initiatives that promote constructive dialogue. For this reason, dialogue with shareholders and investors is primarily conducted by the representative director and senior managing executive officer in charge of corporate accounting, finance, and tax through direct explanations. In addition, the Company appoints an executive officer responsible for IR, and the IR department conducts active IR activities within a reasonable scope in close coordination with the representative director and senior managing executive officer in charge of corporate accounting, finance, and tax. Specific initiatives include holding financial results briefings for institutional investors (interim and full-year), company briefing sessions for individual investors, plant tours for institutional investors, small-group meetings and one-on-one meetings with institutional investors on a quarterly basis, issuing the Integrated Report, and enhancing the website. Furthermore, starting from the General Meeting of Shareholders in June 2025, the Company has been striving to communicate with shareholders and investors by accepting advance questions and conducting questionnaires in conjunction with the electronic exercise of voting rights. For details, please refer to “Status of IR-related activities” in this report.

Status of Dialogues with Shareholders

The Company positions shareholders and investors as important stakeholders and has a policy of proactively responding to inquiries and meeting requests from shareholders and institutional investors, centered on the representative director, senior managing executive officer in charge of corporate accounting, finance, and tax, the executive officer and general manager of the Corporate Planning Division, and the executive officer and head of the Corporate Planning and Investor Relations Office.

 

With respect to the cost of capital, the Company calculates the cost of its shareholders’ equity and WACC using financial theory, with support from external experts, and shares the results and trends of these figures at meetings of the Board of Directors. The Company recognizes that its WACC, calculated using CAPM (Capital Asset Pricing Model), is approximately 9% to 10%. Accordingly, the Company uses the DCF method when making capital investment decisions, etc. For these calculations, the Company sets a discount rate of 10% as the hurdle rate, in line with the cost of capital, and verifies the economic rationale.  ・Integrated Report: https://www.hds.co.jp/english/csr/hdsreport/
 ・Financial results briefing materials: https://www.hds.co.jp/english/ir/data/briefings/

In addition to formulating basic policies and strategies for the Group, the Board of Directors makes decisions on important matters, including matters stipulated by law and regulations and the Articles of Incorporation, and supervises business execution.

(https://contents.xj-storage.jp/xcontents/AS06879/80a31287/cac7/4e79/ba4d/af994f949544/140120260730502657.pdf) .

 

 

Advisory Members to the Board of Directors, including experts from Japan and overseas, are appointed to advise the Board of Directors on management issues on a regular basis.

 

 

 

At the Board of Directors meeting held on March 25, 2024, the Company established a voluntary Nomination and Remuneration Advisory Committee. The committee stipulates in its regulations that a majority of the committee’s members shall be independent outside directors and that the chair shall be selected from among the independent outside directors. Currently, the committee has three members, including two independent outside directors.

 

To strengthen the Group’s overall sustainability promotion framework, the Company established the Sustainability Committee on April 1, 2023, as an organization to promote, oversee, and manage the Group’s overall sustainability initiatives. The committee is chaired by the president and representative director, and its members are executive directors.

(https://contents.xj-storage.jp/xcontents/AS06879/80a31287/cac7/4e79/ba4d/af994f949544/140120260730502657.pdf) .

 

 

*The Company has also appointed Advisory Members to the Board of Directors that consist of experts from Japan and overseas and act as an advisory body to the Board of Directors. The Company receives advice on management-related issues from the members on a regular basis.

Name	Position	Attendance at Board of Directors meetings	Year in office	Expected insight, experience, capability and expertise, etc.
				Corporate Management/ Management Strategy	Overseas Business	Sales/ Marketing	Manufacturing /Production	Technology/ R&D	Financial Strategy/ Capital Policy/ Accounting	Information and Communication Technology (ICT)	Sustainability
Akira Nagai	Chairperson of board of directors	17/17	13 years	●	●	●			●	●
Akira Maruyama	President and Representative Director	17/17	13 years	●		●	●	●		●
Kazutoshi Kamijoh	Representative Director	17/17	６ years	●		●			●
Naomi Shirasawa	Director	17/17	２ years	●	●	●	●	●
Shizuka Yata	Director	ー/ー	ー		●			●		●
Haruhiko Yoshida	Outside Director (Independent)	17/17	23 years	●	●	●
Yoshio Fukuda	Outside Director (Independent)	17/17	６ years	●	●	●	●		●
Kazuhiko Hayashi	Outside Director (Independent)	17/17	４ years	●	●			●
Kaeko Kitamoto	Outside Director (Independent)	17/17	3 years	●					●		●
Masao Yoshikawa	Outside Director (Independent)	ー/ー	ー	●	●	●			●

 

Reasons for selecting skill areas of the Skills Matrix 

Skill areas	Reason for selecting
Corporate management / Management strategy	A director needs management experience and track record at various companies including a manufacturing company as well as abundant knowledge to deliver technological innovation for a better society under the Group’s mission of “contributing to technological innovation in society through motion control technology,” in addition to achieving a sustainable society and enhancing corporate value.
Overseas business	A director needs abundant knowledge and experience in overseas business management and local culture, etc. to promote the growth strategy of the Group which operates business overseas.
Sales / Marketing	A director needs proven knowledge and abundant experience in sales and marketing to identify essential needs of customers, create attractive and satisfactory products, and provide customer- oriented services.
Manufacturing / Production	A director needs proven knowledge and abundant experience in manufacturing and production which is essential to maintain and develop a production system to achieve added-value manufacturing in total motion control, the domain of the Company, and high customer satisfaction.
Technology / R&D	A director needs experience in R&D for speed reducers and mechatronics products, in addition to expertise and experience in the industry, to ensure high product quality as a leading company of precision speed reducers, and develop high added-value products for customers.
Financial strategy / Capital policy / Accounting	A director needs proven knowledge and abundant experience in finance and accounting to build a solid financial base, promote growth investment and financial strategy to sustainably enhance corporate value and return profits to shareholders.
Information and Communication Technology (ICT)	A director needs proven knowledge and experience in information and communication technology to develop information infrastructure including cyber security measures and to promote ICT across the Company utilizing advanced information technologies.
Sustainability	A director needs proven knowledge and experience in sustainability promotion including the introduction of renewable energy sources to reduce greenhouse gas emissions and human capital such as the promotion of diversity, equity, and inclusion to promote the reduction of global environmental impacts, the development of a rewarding work environment, etc. based on the Basic Policy of Sustainability and material issues (materiality), which were established to realize a sustainable society and enhance corporate value.

Basic Views on the Internal Control Systems

The Company has established the following fundamental policies on establishment of internal control systems, which are necessary to ensure that Directors' execution of duties is in compliance with laws, regulations and the Articles of Incorporation and to ensure the appropriateness of other operations. In accordance with the fundamental policies, the Company will continue to ensure the appropriateness of operations and review and improve the internal control system with the aim of building a more effective system.

Status of Development of Internal Control System

1. System for the preservation and management of information related to the execution of duties by Directors
The handling of information and documents relating to the execution of duties by Directors shall be appropriately stored and managed in accordance with the Company’s internal rules on document management.

2. Regulations and other systems for managing risk of loss
(1) The Company shall stipulate risk management rules, establish a Group-wide risk management structure in accordance with the rules and implement risk management.
(2) In the event of a risk should arise, the Company shall establish a system to take appropriate measures in accordance with the " Code of Conduct," "Crisis and Risk Management Regulations," and "Crisis Management - Code of Conduct in the Event of a Crisis" established by the Company.
(3) Responsibility and authority relating to risk management are segregated as follows:
・The President and Representative Director shall have authority and responsibility for establishing risk management systems throughout the Group.
・The Executive Officer responsible for general affairs shall promote maintenance and improvement of risk management systems throughout the Group and manage the systems in accordance with the instructions and supervision of the President and Representative Director.
・Executive officers shall recognize the importance of identification, assessment, monitoring and management of risks with respect to the fields for which they are responsible and establish systems for clarification and management of risks.

3. System ensuring efficient execution of duties by Directors
(1) The Company shall employ the Executive Officer system and separate functions of the Board of Directors, including strategy formulation, decision-making, and supervision, from the function of Executive Officers, namely execution of operations. The Company shall define the responsibility and authority concerning execution of duties in the Authority Rules to clarify responsibility, improve efficiency of decision-making, and accelerate decision-making.
(2) The Company shall continuously monitor the situations of business operations and risks and ensure efficiency of duty execution by Directors, Executive Officers, and the Directors of subsidiaries based on the following management control systems: 
・Board of Directors Meeting (decision-making of important management policies, monitoring of the progress of the mid-term business plan and the annual business plan)
・Executive Officer Meeting (reporting and deliberation of the status of Executive Officers' business execution, deliberation and decision-making on execution of important management matters)
・President's Audit (direct audit by the President on business execution policies of persons responsible for each division, targets, and status of business execution)
・Business process innovation meeting (deliberation on monthly business results, initiatives for business process innovation, etc.)
・Affiliated company meeting (reporting and deliberation of the status of management at affiliated companies)
・Internal audit (audit of appropriateness and efficiency of activities related to operations, accounting, quality, and the environment)

4. System ensuring execution of duties by Directors and employees in compliance with laws, regulations, and the Articles of Incorporation
(1) The Company shall ensure that everyone working at the Company and its subsidiaries complies with the Charter of Corporate Behavior and the Code of Conduct, and foster a high level of awareness of compliance among individual employees. 
(2) In the event of any unfavorable compliance-related eventuality at the Company and its subsidiaries, the Company shall establish a system by which the President and Representative Director, the Chairperson and Representative Director, the Board of Directors, and the Board of Corporate Auditors receive reports on the details of the event and countermeasures via the Executive Officer responsible for general affairs.
(3) The Company and its subsidiaries shall establish a system for ensuring reliability and appropriateness of financial reporting and evaluate the status of development and operation of such system regularly.
(4) As a system for ensuring (1), (2), and (3) above, the Company shall establish a system to ensure business execution is being conducted appropriately by having Internal Auditors primarily led by the Internal Audit Office, to conduct internal audits of the Company and its subsidiaries.
(5) The Company and its subsidiaries shall adhere to the basic policy to comply with laws and regulations and have no relationship whatsoever with anti-social forces or organizations.

5. System ensuring the appropriateness of operations of the corporate group consisting of the Company and its subsidiaries
(1) The Company shall foster a high level of awareness of compliance by thoroughly communicating the Code of Conduct to the employees of its subsidiaries as well.
(2) The Company shall establish an appropriate system for managing its subsidiaries in accordance with the Rules for Management of Affiliated Companies. 
(3) The Company shall continuously monitor the status of execution of operations at subsidiaries and risks by periodically holding Affiliated Companies Meeting.
(4) Internal Auditors primarily led by the Internal Audit Office shall periodically conduct operational audit of Group companies.
(5) The Company shall promote personnel exchange between the Company and its subsidiaries in order to achieve close collaboration of the Group.

6. Matters concerning employees who provide assistance to Corporate Auditors upon request
The Company shall establish an organization to assist with the duties of Corporate Auditors and assign appropriate personnel to that organization.

7. Matters concerning the independence of employees mentioned in 6. above from Directors
Transfer of the employees who provide assistance to Corporate Auditors and their performance evaluation shall require the consent of the Board of Corporate Auditors and its members.
8. System for Directors and employees of the Company and its subsidiaries to report to Corporate Auditors, and other systems regarding reports to corporate auditor
(1) Corporate Auditors shall attend important meetings to gain important information on the execution of duties by Directors and employees.
(2) Directors and employees of the Company and its subsidiaries shall swiftly notify the Board of Corporate Auditors and its members of matters that may have a material impact on the Group, in addition to matters designated by law.
(3) Any matters discovered through internal audits of the Company and its subsidiaries shall be reported to the Board of Corporate Auditors and its members by the General Manager of the Internal Audit Office.
(4) Directors and employees of the Company and its subsidiaries are required to provide the necessary reports and information in response to requests from the Board of Corporate Auditors and its members.
(5) Any whistleblowing reports from the Company and its subsidiaries shall be handled according to the whistleblowing system and reported to the Board of Directors and its members and the Board of Corporate Auditors and its members periodically or as necessary. Furthermore, the identity and personal information of any whistleblowers shall be protected to ensure they are not treated disadvantageously. 
9. Other Systems Ensuring the Effectiveness of Audits Conducted by Corporate Auditors
(1) The Board of Corporate Auditors and its members shall periodically meet with the Company's Accounting Auditors to exchange opinions.
(2) If deemed necessary for auditing, the Board of Corporate Auditors and its members may appoint lawyers, certified public accountants, or other external experts, in addition to internal staff, at the expense of the Company. 

 

The Company has prescribed the following basic policy concerning the elimination of anti-social forces in the Charter of Corporate Behavior:
・The Company shall not compromise with anti-social forces and shall maintain a resolute attitude.

Regarding the above-mentioned Charter of Corporate Behavior, we regularly conduct group awareness-building training sessions to ensure all employees are thoroughly familiar with the charter’s contents and distribute the content on a pocket-sized card to all employees. 
In addition, regarding responses to anti-social forces, we have created an internal control manual that serves as an internal regulation, and strive to implement its specific operations. 
We also receive information on anti-social forces and advice on appropriate ways to respond, through cooperation with the police and the Special Violence Prevention Coalition.

The Board of Corporate Auditors comprises four corporate auditors, two of whom are full-time and two part-time (including two outside corporate auditors). After the Ordinary General Meeting of Shareholders, the Board of Corporate Auditors determines audit policies, plans, and work assignments, and each Board of Corporate Auditors member audits the execution of duties by directors, executive officers, and others in accordance with the “Board of Corporate Auditors Regulations,” “Board of Corporate Auditors Auditing Standards” and “Implementation Standards for Internal Control Systems.” Specifically, the Board of Corporate Auditors audits the execution of duties by directors through attendance at important meetings, including Board of Director meetings, executive officer meetings, Business Process Innovation meetings, Development Promotion meetings, affiliated company meetings, and the president's audit. Furthermore, the Board of Corporate Auditors meets with representative directors, shares information with outside directors, exchanges opinions with directors, executive officers, division heads, office managers, divisional sales managers, and presidents of domestic and overseas subsidiaries, and
inspects important documents including approval requests and credit application forms. The Board of Corporate Auditors also plans and holds Group corporate auditor liaison meetings with auditors from affiliated companies to share information among Group companies and take the lead in improving knowledge related to auditing duties.

The Internal Audit Office is responsible for internal audits, with one manager and three auditors conducting internal audits of the
Company and its subsidiaries throughout the year based on a pre-planned audit schedule.
In addition, the Corporate Planning and Investor Relations Office of the Corporate Planning Division serves as secretariat and implements a “president’s audit” twice a year in which the Company president directly audits the status of business execution by those in charge of each division and monitors progress on the Company’s business plan and the status of risk management, etc.

In terms of accounting audits, PricewaterhouseCoopers Japan LLC conducts strict accounting audits based on an audit contract and the Company exchanges opinions on the audit results and receives recommendations for improvements.
The certified public accountants performing the accounting audit of the Company in fiscal 2023 were Mr. Tatsuya Chiba and Mr. Yoshitaka Sakurai, both of whom are designated limited liability partners at the Tokyo office of PricewaterhouseCoopers Japan LLC. They were assisted by two certified public accountants, one associate member of the Japanese Institute of Certified Public Accountants, and eight other staff members.

The Corporate Auditors exchange opinions with the accounting auditor regarding audit plans, receive reports on audit results, discuss and evaluate the content of audits, and ensure cooperation. Furthermore, regarding key audit matters (KAM), the corporate auditors hold discussions with PricewaterhouseCoopers Japan LLC, receive reports on the status of their audits, and request explanations as necessary.

 

With regard to corporate governance, the functions and roles of the Company's Outside Directors are supervision and creation of proposals concerning the Company's overall management from independent perspectives based on their experience and insight, so as to strengthen the Company's management systems and corporate governance structure.
The Company's Outside Directors are as follows:

Name	Independent Officer	Reason for Election
Haruhiko Yoshida		Mr. Haruhiko Yoshida has served in prominent positions at Mitsui & Co., Ltd., and possesses abundant experience and superior insight regarding corporate management, in addition to extensive international experience. Based on the above, the Company has judged that he has been helping further strengthen the Company’s management system by making recommendations and supervising the overall management of the Company utilizing his ability and experience. （Designation as an Independent Director） Mr. Yoshida is designated and filed as an independent officer because he does not fall under any of the criteria for independence set forth by the Tokyo Stock Exchange and has a high degree of independence, and the Company has determined that there is no risk of a conflict of interest between him and ordinary shareholders.
Yoshio Fukuda		Mr. Yoshio Fukuda has served in prominent positions at Teijin Limited and Teijin Group and possesses abundant experience and superior insight regarding corporate management, in addition to extensive international experience. In addition, he has a high level of knowledge of strategic planning, establishment of joint ventures, M&A, etc. Based on the above, the Company has judged that he has been helping further strengthen the Company’s management system by making appropriate recommendations and supervising the overall management of our internationally expanding Group from an independent standpoint. There are no material transactions between the Company and Teijin Limited or the Teijin Group, where he served as an executive officer until 2016, or Toyo Construction Co., Ltd., where he served as an outside director until June 27, 2023. （Designation as an Independent Director） Mr. Fukuda is designated and filed as an independent officer because he does not fall under any of the criteria for independence set forth by the Tokyo Stock Exchange and has a high degree of independence, and the Company has determined that there is no risk of a conflict of interest between him and ordinary shareholders.
Kazuhiko Hayashi		Mr. Kazuhiko Hayashi has leadership experience as the person in charge of development and design at the Toyota Group and possesses abundant experience and a high degree of insight into corporate management gained during his tenure in prominent positions at the Sumitomo Electric Industries Group. The Company assesses that he has been helping further strengthen the Company’s management system by making recommendations and supervising the overall management of the Company from a research and development standpoint, given the nature of the Company’s business as a development-type manufacturer. There are no material transactions between the Company and Sumitomo Electric Industries, Ltd., Sumitomo Wiring Systems, Ltd., or AutoNetworks Technologies, Ltd., where he was an executive officer until 2017. （Designation as an Independent Director） Mr. Fukuda is designated and filed as an independent officer because he does not fall under any of the criteria for independence set forth by the Tokyo Stock Exchange and has a high degree of independence, and the Company has determined that there is no risk of a conflict of interest between him and ordinary shareholders.
Kaeko Kitamoto		As a certified public accountant at Ernst & Young ShinNihon LLC, Ms. Kaeko Kitamoto has been involved in the accounting audits of various listed companies and has served as a partner and managing director of that firm, giving her a wealth of experience and deep insight into financial accounting. She is currently also a member of the Electricity and Gas Market Surveillance Commission of the Ministry of Economy, Trade and Industry, and has expertise in CO2 reduction and the introduction of renewable energy. Based on the above, the Company concluded that she has been helping further strengthen the Company’s management system by making recommendations and supervising the overall management of the Company and sustainability initiatives, including climate change and diversity, equity, and inclusion. There are no material transactions between the Company and Ernst & Young ShinNihon, where she served as an auditor. Although she currently serves as a member of the Electricity and Gas Market Surveillance Commission of the Ministry of Economy, Trade and Industry, and as an outside corporate auditor at Daikin Industries, Ltd., there are no material transactions between the Company and the Electricity and Gas Market Surveillance Commission or Daikin Industries. （Designation as an Independent Director） Mr. Hayashi is designated and filed as an independent officer because he does not fall under any of the criteria for independence set forth by the Tokyo Stock Exchange and has a high degree of independence, and the Company has determined that there is no risk of a conflict of interest between him and ordinary shareholders.
Masao Yoshikawa	〇	Mr. Masao Yoshikawa  has held key positions at Mizuho Financial Group, Inc. and Taisei Corporation, and possesses extensive management experience, deep insight into corporate governance, and broad international experience. In addition, as Chief Investment Officer at a trust bank, he conducted research and analysis on numerous listed companies from the perspective of an institutional investor, achieving an outstanding track record while developing extensive expertise in corporate value enhancement. We have determined that he will provide valuable advice and appropriate oversight regarding the overall management of the Company by leveraging his knowledge and experience. Mizuho Trust & Banking Co., Ltd., where he previously served as Representative Director, Deputy President and Deputy President Executive Officer, acts as the Company's shareholder registry administrator and has business transactions with the Company. However, there are no significant personal or capital relationships between the Company and Mizuho Trust & Banking Co., Ltd. In addition, there are no significant personal, capital, or business relationships between the Company and Taisei Corporation, where he previously served as Managing Executive Officer and Senior Managing Executive Officer. （Designation as an Independent Director） Mr. Masao Yoshikawa is designated and filed as an independent officer because she does not fall under any of the criteria for independence set forth by the Tokyo Stock Exchange and has a high degree of independence, and the Company has determined that there is no risk of a conflict of interest between her and ordinary shareholders.

With regard to corporate governance, the functions and roles of the Company's Outside Auditors are to strengthen the Company's audit systems from independent perspectives based on their experience and insight.
The Company's Outside Auditors are as follows:

Name	Independent Officer	Reason for Election
Yoshitsugu Yokogoshi		Mr. Yoshitsugu Yokogoshi possesses abundant management experience and broad insight gained at a major banking group. In addition, he possesses a wealth of experience in auditing operations and substantial knowledge of finance and accounting since he has served as a full-time corporate auditor at a major oil company. Since his appointment as a full-time corporate auditor of the Company in June 2020, he has provided recommendations from a neutral and objective perspective as a member of the Board of Directors and Board of Corporate Auditors, contributing to the improvement of auditing functions. Based on the above, the Company has judged that he can further strengthen the corporate governance structure of the Group from an independent standpoint, and therefore appointed him as an outside corporate auditor. （Designation as an Independent Director） Mr. Yokogoshi was previously an executive officer of the Company’s main bank, but approximately 17 years have elapsed since his retirement. The Company did not invite him at the request of a financial institution, but rather at its own discretion, to utilize his extensive management experience and broad insight into auditing the Company, as well as his considerable knowledge of audit-related finance and accounting gained through his experience as a full-time auditor of a major oil company. Further, the Company has transactions with multiple financial institutions and is not influenced by any one financial institution in its management decision-making. Moreover, the Company does not have any significant transactions with Cosmo Oil Co., Ltd., where Mr. Yokogoshi served as a full-time corporate auditor or other Cosmo Energy Group companies. Based on consideration of all these factors, the Company has concluded that there is no conflict of interest with ordinary shareholders and has registered him as an independent officer.
Eisaku Imazato		Mr. Eisaku Imazato possesses abundant management experience and broad insight gained at major securities companies. Since his appointment as a corporate auditor of the Company in June 2020, he has provided recommendations from a neutral and objective perspective as a member of the Board of Directors and Board of Corporate Auditors, contributing to the improvement of auditing functions. Based on the above, the Company has judged that he can further strengthen the corporate governance structure of the Group from an independent standpoint, and therefore appointed him as an outside corporate auditor. （Designation as an Independent Director） Although Mr. Imazato is a former executive officer at Mitsubishi UFJ Financial Group, Inc., the parent of the Company’s main bank MUFG Bank, Ltd., 12 years have elapses since his retirement. He was also an executive officer of a securities company with which the Company has a business relationship, but has already been retired for 12 years. The Company did not invite him at the request of a financial institution, but rather at its own discretion, to utilize his extensive management experience and broad insight in auditing the Company. Furthermore, the Company has transactions with several financial institutions and securities companies and is not influenced by any one financial institution or securities company in its management decision-making. Moreover, the Company does not have any significant transactions with Marusan Securities Co., Ltd., where Mr. Imazato currently serves as an outside director. As such, the Company believes that Mr. Imazato’s appointment poses no risk of a conflict of interest with ordinary shareholders, and has registered him as an independent officer.

In order to create an environment where the Company can invite capable personnel to serve as Directors, and to enable them to sufficiently perform the duties expected of them, the Company stipulates in its Articles of Incorporation that it may enter into an agreement with Directors (excluding persons who are Executive Directors, etc.) to limit their liability to the Company to a certain range.

An overview of the content of the liability limitation agreements that the Company has entered into with incumbent Outside Directors is as follows.
・If Directors (excluding persons who are Executive Directors, etc.) causes damages to the Company owing to the neglect of his or her duties, his or her liability shall be limited to the minimum amount for liability set forth in Article 425, Paragraph 1 of the Companies Act, provided that he or she has performed his or her duties in good faith and without gross negligence.

1. Basic Policy

2. Policy on Determining the Amount of Base Remuneration for Each Individual

The base remuneration for Directors shall be paid in the form of a fixed monthly remuneration, and it shall be set within the range of remuneration that was resolved at the Fiscal 2022 General Meeting of Shareholders held on June 21, 2023 (320 million yen including 100 million yen for Outside Directors). The base remuneration shall be determined after comprehensively considering the Company’s business performance and the level of employee salary, including for Executive Officers, etc., depending on whether they have representative rights or not, their position, and responsibilities.

3. Policy on Determining the Details and Calculation Method for Performance-Linked Remuneration

In an attempt to raise awareness for improving business performance in each business year, performance-linked remuneration for Directors shall be decided at the General Meeting of Shareholders following a resolution by the Board of Directors after comprehensively considering business results for each business year (approximately 4% of non-consolidated profit) and the degree of achievement of the annual business plan. The payment is made one a year.

4. Policy on Determining the Ratio of Base Remuneration and Performance-Linked Remuneration to the Amount of Remuneration for Individual Directors

 The Company’s Director remuneration consists of base remuneration (cash remuneration and restricted share-based remuneration) a variable remuneration (performance-linked bonuses). Since non-consolidated profit, which becomes the source of bonuses, fluctuates along with the business performance, we do not determine the ratio of the different types of remuneration in advance but instead determine the ratio subsequently depending on the determined amount of bonus for each fiscal year calculated by the method described in paragraph 3. 

5. Policy on Determining the Amount of Restricted Share-Based Remuneration

The total amount of monetary remuneration claims to be paid as restricted shared-related remuneration, etc. to directors (excluding Outside Directors) shall be within the range of 100 million yen resolved at the Fiscal 2021 General Meeting of Shareholders held on June 22, 2022, and the amount of remuneration for each director shall be determined by the Board of Directors.

6. Matters Concerning Decisions Relating to the Details of Remuneration, etc. for Individual Directors

The determination of the amount of remuneration to be paid to each Executive Director shall be entrusted to the President and Representative Director, taking into consideration whether a director has representative rights or not, their position, responsibilities, level of contribution, etc. However, when making those decisions, the President and Representative Director shall consult other Representative Directors and two Outside Directors appointed by the Board of Directors based on the draft of individual Director remuneration amount prepared in advance and make the final decision after considering their reports.
The determination of the amount of remuneration to be paid to each Outside Director shall be entrusted to the President and Representative Director. The determination shall be made after considering and evaluating each Outside Director’s responsibilities, attendance at Board of Directors meetings, and the comments and recommendations made at various meetings, and after consultation with each Outside Director.

The amounts of remuneration and other payments to directors and officers for the fiscal year ended March 2025 are as follows.

1. Total amount of remuneration by category of position and by type, and number of recipients of the reporting company

Officer distinction	Total amount of remuneration (Thousands of yen)	Total amount of remuneration by type (Thousands of yen)			Number of recipients (Persons)
		Base remuneration	Performance-linked remuneration	Non-monetary remuneration, etc.
Directors  (including outside directors)	285,018 （72,000）	210,146 （72,000）	— （—）	74,872 （—）	10 （５）
Corporate auditors (including outside corporate auditors)	81,600 （40,800）	81,600 （40,800）	— （—）	— (—）	４ （２）

*1. Remuneration paid to directors does not include the salary for employee duties of directors who concurrently serve as employees.

*2. Performance-linked remuneration for directors was determined to be zero, after comprehensibly considering business performance of the fiscal year under review.
*3. The above-mentioned amount in non-monetary remuneration, etc. is the amount of restricted stock payment recorded as expenses in the fiscal year under review. 

2. Total amount of remuneration paid by the Group to each director and corporate auditor of the reporting
company

The information is not presented because there is no officer whose total remuneration amount totals to ¥100 million or more. 

Name	Position	Responsibilities	Work style/ conditions (full-time/ part-time/ compensated, etc.)	Date of retirement as president	Length of term
Mitsumasa Ito	Honorary Advisor	Advice upon request of management	Full-time Compensation provided	June 21, 2024	1 year