Corporate governance

Based on the effectiveness evaluation for fiscal year 2025, Board of Directors determined that effectiveness was ensured. The challenges identified for further improvement in effectiveness were "further enrichment of strategic discussions" and "improvement of outside directors' understanding of our business." As a result of these discussions, the following specific initiatives will be implemented.

Our management monitoring system includes supervision by the Board of Directors, audits by Audit & Supervisory Board Member, and accounting audits, as well as internal audits by the Internal Audit Department based on the "Internal Audit Regulations" and internal control evaluations based on the "Internal Control Evaluation Regulations for Financial Reporting."
The Internal Audit Department, which reports directly to the President, regularly audits executive departments from an independent standpoint to check the effectiveness of the self-management that each executive department implements based on company regulations, as well as the progress of risk management and internal control. The results of the audits are reported to the President, Audit & Supervisory Board Member, Executive Officer in Charge, and the General Managers of the relevant executive departments. Executive departments that receive recommendations for improvement during audits prepare improvement implementation plans, submit them to the General Manager of the Internal Audit Department, and make improvements. The Internal Audit Department also conducts follow-up audits as necessary. Annual reviews of internal audits and plans for the next year are regularly reported to full-time directors and general managers of executive departments at the "Management Information Liaison Meeting," and to outside directors and Audit & Supervisory Board Member at the "Outside Officer Meeting."

The four Audit & Supervisory Board Member audit the status of business execution by directors and other executives by attending board meetings and reviewing business reports, financial statements, and consolidated financial statements submitted to the general meeting of shareholders. They also attend important meetings other than board meetings, such as the Management Committee, and conduct daily audits to enhance their effectiveness by meeting with officers, general managers, branch managers, managers of complexes, and presidents and auditors of subsidiaries, and Audit & Supervisory Board Member, as well as on-site inspections of major departments. In principle, meetings are held with the representative director once a quarter to discuss issues and exchange opinions.

● Audit & Supervisory Board Activities (FY2025)

In addition, we have a Group Audit & Supervisory Board Member Meeting for the 13 Audit & Supervisory Board Member who are dispatched to affiliated companies, and we collaborate with the General Affairs Department Management Consulting Group, which dispatches non-executive Audit & Supervisory Board Member to 62 affiliated companies both in Japan and overseas.

Nomination of candidates for the board of directors
To fulfill the roles and responsibilities of Board of Directors, we believe it is necessary to have a certain number of directors who are thoroughly familiar with our business and challenges. Furthermore, to ensure the independence and objectivity of Board of Directors, it is important to ensure diversity in the knowledge, experience, and abilities of our directors. Based on the above considerations, we utilize talent standards, skill matrix, and other tools to select directors while considering the overall balance.
The president submits a draft proposal, after thoroughly evaluating each candidate's abilities, knowledge, and performance, to the Nomination and Nomination and Compensation Advisory Committee Nomination and Compensation Advisory Committee, and Board of Directors makes a decision based on the committee's recommendations.
Furthermore, the committee will deliberate on the dismissal of directors as necessary and report its findings to Board of Directors.

Nomination of candidates Audit & Supervisory Board Member
Candidates will be selected based on their appropriate experience, skills, and necessary knowledge of finance, accounting, and law. In addition, candidates Audit & Supervisory Board Member will be selected based on their thorough understanding of our business and challenges, and their ability to accurately, fairly, and efficiently conduct audits and supervision of our company. Using talent standards, skill matrix, etc., the president submits each candidate to Nomination and Compensation Advisory Committee, and Board of Directors makes a decision based on Nomination and Compensation Advisory Committee 's recommendations and with the consent of Audit & Supervisory Board.

Developing a succession plan
Nomination and Compensation Advisory Committee deliberates on the selection and development of next-generation executive candidates based on long-term plans and submits its recommendations to Board of Directors. Currently, we are working on the selection and development of candidates, including the succession plan for the president.

Independence standards for outside directors
To ensure that Board of Directors exercises its supervisory function and Audit & Supervisory Board exercises its auditing and supervisory function, we select outside directors who meet the "Independence Criteria for Outside Directors," taking into consideration their diverse knowledge and backgrounds, and who possess the knowledge and experience to provide valuable advice to the management of our company. Our basic policy is that independent outside directors constitute at least one-third of the directors, and independent outside corporate Audit & Supervisory Board Member constitute at least half of Audit & Supervisory Board Member.

skill matrix
It is extremely important Board of Directors, comprised of directors and Audit & Supervisory Board Member with diverse knowledge and experience, to actively engage in discussions and improve the quality of their debates on overall management strategies, including human resource strategies.
Since creating and disclosing skill matrix in 2020, we have periodically reviewed it in light of the management challenges we face, and have also revised the areas in which we expect our executives to perform their duties. We also pay attention to diversity and appoint executives who possess knowledge and experience in these areas.
To address areas where Board of Directors lacks expertise (such as economic security and other fields requiring a high level of specialization), we supplement this by inviting external experts to Advisory Board and executive training programs.

●Skill Matrix: Director

●Skill Matrix: Audit & Supervisory Board Member

Training
We provide and arrange training opportunities and cover the costs for training suited to each Director and Audit & Supervisory Board Member including independent outside Directors and independent outside Audit & Supervisory Board Member, to enable them to acquire the necessary knowledge regarding the Company's business, finances, organization, etc. when they assume their position, to fully understand the roles and responsibilities expected of them, and to continually update them during their term of office.

Basic Policy on Executive Compensation
Our basic policy regarding the compensation of our directors (directors and senior executive officers) is to ensure that it leads to improvements in company performance and medium- to long-term corporate value in order to realize the Group's management vision, and to ensure that the remuneration system and decision-making process are transparent, reasonable, and fair so that we can fulfill our accountability to stakeholders, including customers, society, the environment, shareholders, business partners, and employees. Based on this basic policy, our executive compensation system is as follows:

compensation level
From the perspective of recruiting and securing outstanding human resources that contribute to the realization of our medium- to long-term management vision, and providing appropriate incentives, we review our policies as needed, taking into account changes in the business environment and external survey data.

compensation determination process
Based on the recommendations of Nomination and Compensation Advisory Committee, Board of Directors decides on the amount compensation for directors and the method of calculating it. In addition, the individual compensation for Audit & Supervisory Board Member is decided through discussions among Audit & Supervisory Board Member.
In addition, out of a total of nine meetings held by this committee in fiscal year 2025, deliberations related to compensation were conducted in eight of them.

compensation structure
compensation structure for our directors (excluding non-executive executive directors and outside directors) and senior executive officers and above is structured to appropriately evaluate management efforts toward improving corporate value in the medium to long term, with an emphasis on performance-linked in the short and medium to long term timeframes. It consists of (1) fixed compensation, (2) performance-linked bonuses, and (3) performance-linked stock compensation. compensation for non-executive executive directors and outside directors consists solely of fixed compensation, from the perspective of properly ensuring their supervisory function of judging the appropriateness of business execution from an objective standpoint.

●Compensation system and performance-linked remuneration system

Clawback system

If any Director, etc. commits an act of material misconduct, violation, etc., we may confiscate the beneficial rights to the shares to be delivered under the performance-linked stock compensation (malus) or demand the return of money equivalent to the shares, etc. delivered (clawback), from the Director, etc.

Total amount of compensation for each executive category

The total amount of directors' compensation, the total amount by type of compensation, and the number of directors covered are as follows:

Total amount of compensation, etc. for individuals whose total compensation etc. exceeds 100 million yen (FY2025)

Policy for holding strategically held listed shares
We hold strategic shareholdings necessary for maintaining and expanding mid- to long-term transactions, and annually review the appropriateness of these shareholdings and proceed with reducing them. Specifically, we carefully examine both quantitatively whether the benefits and risks associated with holding shares are commensurate with the cost of capital, and qualitatively, such as whether they improve business stability, and after deliberation by Board of Directors, we decide whether to sell the shares. In addition, for stocks that we have decided to sell, we proceed with the sale after gaining the understanding of our business partners through sufficient dialogue, taking into account the impact on the stock price.

Number of stocks (FY2025)

Standards for exercising voting rights regarding cross-shareholdings
Our policy for exercising voting rights regarding listed cross-shareholdings is based on whether it will sustainably increase the corporate value of both our company and the cross-shareholding. We will determine whether the cross-shareholding will sustainably increase its corporate value, taking into consideration the cross-shareholding's management strategy, performance, etc., and, if necessary, exercise our voting rights after receiving an explanation of the proposal. If there is a risk of a conflict of interest between the cross-shareholding's proposal and our company's interests, we will exercise our voting rights as necessary, taking into account the opinions of our independent outside directors and outside experts.