Kyudenko Corporate Governance Guidelines

1．Organizational Form and Enhancement of Governance Structure

• The Company adopts the organizational form of a company with an Audit & Supervisory Board under the Companies Act and establishes a system where the Audit & Supervisory Board, a body independent from the execution of operations, monitors and oversees the Board of Directors and Directors.
• The Company separates the "decision-making and oversight function" and the "execution of operations function" of the Board of Directors, and the Company introduced an Executive Officer system that aims to practice efficient and speedy management.
• The Management Meeting shall be established as a sub-organization of the Board of Directors to discuss the process and details of management judgments concerning matters which require prior discussion and matters on important business execution to be deliberated at the meetings of the Board of Directors.
• The Company shall establish a Remuneration Advisory Committee and Nomination Advisory Committee, consisting of Directors including Independent Outside Directors, as an advisory body of the Board of Directors to secure transparency in decision-making and independence and objectivity of functions of the Board of Directors.
• A Compliance Committee and Internal Control Committee shall be established to supplement the functions of the Board of Directors.

2. Roles and Responsibilities of the Board of Directors

• The Board of Directors shall assume liabilities for sustainable growth of the Company and medium- to long-term increase of corporate value based on fiduciary responsibility and accountability to shareholders.
• The Board of Directors shall formulate a Mid-term Management Plan and Basic Management Policy for the fiscal year and make decisions on important business executions based on these directions.
• The Board of Directors shall formulate a basic policy for sustainability related issues and work on these issues as management issues.
• The Board of Directors shall fulfill its oversight function for overall management and secure the fairness and transparency of management.
• The Board of Directors shall fulfill its oversight function regarding the allocation of management resources and business portfolio.
• The Board of Directors shall ensure the holding of periodical meetings with an external accounting auditor and the Representative Director and President. In addition, the Directors including the Representative Director shall ensure meetings are held with the external accounting auditor upon request.
• In the event that the external accounting auditor has suspicions of illegal acts, flaws, problems, etc., the Board of Directors shall establish a system where the Internal Control Department in the Business Management Division responds.

3. Composition of the Board of Directors

• The Board of Directors shall be composed of Directors.
• The Directors shall be fairly selected in consideration of balance and diversity in the aspects of gender, internationality, careers, and age, etc. of the Board of Directors.
• Among the members of the Board of Directors, for Internal Directors, talented human resources with experience, knowledge, and achievements in technical/sales/administration divisions shall hold both positions of Directors and Executive Officers who execute operations.
• At least two members of the Board of Directors shall be Independent Outside Directors.
• Audit & Supervisory Board Members must attend the Board of Directors meetings and state their opinions when deemed necessary.
• The Board of Directors shall be chaired by the Director and Chairman.

4. Roles and Responsibilities of the Audit & Supervisory Board

• The Audit & Supervisory Board shall secure soundness of the Company for sustainable growth of the Company and medium- to long-term increase of corporate value based on fiduciary responsibility and accountability to shareholders.
• In the Audit & Supervisory Board, Outside Audit & Supervisory Board Members and full-time Audit & Supervisory Board Members shall combine their roles and responsibilities to secure the effectiveness of the Audit & Supervisory Board.
• The Audit & Supervisory Board shall hold liaison meetings, which are composed of Independent Outside Directors and Audit & Supervisory Board Members, for the purpose of coordination with Independent Outside Directors.
• The Audit & Supervisory Board shall coordinate with the external accounting auditor through the reporting of accounting audits and quarterly reviews, etc.
• The Audit & Supervisory Board shall coordinate with the internal audit division mainly by holding regular meetings periodically.
• The Audit & Supervisory Board shall formulate evaluation standards for the external accounting auditor and confirm independence and expertise of the external accounting auditor through opinion exchange and audit implementation status, etc.

5. Composition of the Audit & Supervisory Board

• The Audit & Supervisory Board shall be composed of Audit & Supervisory Board Members.
• One of the Audit & Supervisory Board Members must possess sufficient knowledge of finance and accounting.

6. Management Meeting

• A Management Meeting is an organization to discuss management policy, planning, and implementation of other important business.
• The matters to be discussed by the Management Meeting shall be as follows.
  
  (1) Among the matters to be discussed in the Board of Directors, any matters that require prior discussion
  (2) Matters regarding basic management policy, long-term plans, and fiscal year plans
  (3) Important matters regarding organizational changes, salaries, working conditions, and personnel affairs
  (4) Matters regarding establishment, change, and discontinuation of related companies
  (5) Other important management related matters
• Matters to be reported by the Management Meeting shall be as follows:
  
  (1) Important reporting regarding management overall
  (2) Progress and results of particularly important operations
  (3) Other important management related information
• The Management Meeting shall be comprised of the Chairman, President, Vice Presidents, Independent Outside Directors, and Executive Officers designated by the Chairperson of the Management Meeting and other personnel whose participation is deemed necessary by the Chairperson of the Management Meeting.

7. Remuneration Advisory Committee

• The purpose of the Remuneration Advisory Committee is to contribute to ensuring transparency in decision-making of the Company, and independence and objectivity of the functions of the Board of Directors.
• The Remuneration Advisory Committee shall decide proposals to be submitted to shareholders' meetings concerning revision of total annual remuneration for Directors and total annual remuneration for Audit & Supervisory Board Members and submit the contents of its decisions to the Board of Directors.
• The Remuneration Advisory Committee shall also decide on (1) revisions to individual annual basic remuneration for Directors, (2) assessment and revision of the incentive portion of remuneration for Directors, (3) revision of individual annual basic remuneration for Executive Officers by position, (4) assessment and revision of target management regarding the incentive portion of remuneration for Executive Officers, and the Committee shall submit the contents of its decisions to the Board of Directors.
• The Remuneration Advisory Committee shall be comprised of three or more Directors including one or more Independent Outside Directors.

8. Nomination Advisory Committee

• The purpose of the Nomination Advisory Committee is to contribute to ensuring transparency in decision-making of the Company, and independence and objectivity of the functions of the Board of Directors.
• The Nomination Advisory Committee shall decide on (1) nomination of candidates for Directors and Audit & Supervisory Board Members and dismissal of Directors, (2) election of the Director to whom representative authority is granted, and (3) election and dismissal of Executive Officers and submit decisions to the Board of Directors.
• The Nomination Advisory Committee shall be comprised of three or more Directors including one or more Independent Outside Directors.

9. Compliance Committee

• The Compliance Committee shall decide on the planning and implementation of various plans regarding compliance activities according to various relevant laws, regulations, and rules, and the Committee shall make information concerning compliance matters thoroughly known in the Company, subsidiaries, and related companies mainly through compliance education. In addition, the Committee shall promote the management system of legal compliance.
• The roles of the Compliance Committee are as follows:
  
  (1) Fostering a corporate culture where compliance is valued
  (2) Acting as a compliance desk to receive consultation regarding compliance related matters
  (3) Formulation of Compliance Manuals and education provision
  (4) Formulation of response/improvement measures when an incident occurs and recommending improvement to corresponding divisions
  (5) Promotion of information disclosur
• The Compliance Committee shall be chaired by the Representative Director and President.
• The Compliance Committee shall report its activity contents to the Board of Directors periodically.

10. Internal Control Committee

• The Internal Control Committee shall contribute to stable and sustainable growth of the Company's business and operate the business smoothly by ensuring that the internal control system functions effectively and efficiently as internal control stipulated in the Companies Act and the Financial Instruments and Exchange Act.
• The Internal Control Committee shall discuss/examine the following matters and submit and report the results to the Management Meeting or the Board of Directors based on necessity.
  
  (1) Matters regarding the "Basic Policy on Internal Control System Establishment"
  (2) Matters regarding evaluation of effectiveness of the internal control system related to financial reporting
  (3) Matters regarding internal control reports related to financial reporting
  (4) Internal audit related matters
  (5) Other matters related to internal control
• The Internal Control Committee shall be chaired by the Representative Director and President.
• The Internal Control Committee shall report its activity contents to the Board of Directors periodically.

1. Directors

• The number of Directors shall be 15 or less.
• Directors shall recognize their fiduciary responsibility to shareholders and execute their duties as Directors for the Company and common interest of shareholders.
• Directors shall gather sufficient information to execute their duties and discuss and exchange opinions at their own will at Board of Directors meetings.
• Directors shall spend the necessary time and effort to execute their roles and duties appropriately.
• Directors shall work on acquisition and refining of the necessary knowledge. In addition, newly appointed Directors must take courses provided outside of the Company to master necessary knowledge for management executives.
• In order for Directors to properly execute their roles and operations, the holding of concurrent positions as officers of other listed companies shall be limited to the minimum extent, and their concurrent positions shall be described in the notices of the general meeting of shareholders.

2. Independent Outside Directors

• The Independent Outside Directors, as directors who do not engage in the execution of operations, shall give advice on management policies and management improvement, oversee management and conflict of interest, and reflect opinions of stakeholders to the Board of Directors.
• In order for Independent Outside Directors to execute their duties, Internal Directors, Executive Officers, President's Office, and relevant divisions of the Company shall provide information, reference materials, and explanations.
• In addition to legal requirements, the Company shall establish and disclose its own "Independence Standards for Outside Directors/ Audit & Supervisory Board Members", and the Independent Outside Directors shall be selected based on the Independence Standards.
• In order for Independent Outside Directors to properly execute their roles and operations, the holding of concurrent positions as officers of other listed companies shall be limited to the minimum extent, and their concurrent positions shall be described in the Corporate Governance Report and notices of the general meeting of shareholders.

3. Audit & Supervisory Board Members

• Audit & Supervisory Board Members shall be six or less.
• Audit & Supervisory Board Members shall recognize their fiduciary responsibility to shareholders and execute their duties as Audit & Supervisory Board Members for the Company and common interest of shareholders.
• Audit & Supervisory Board Members shall gather sufficient information to execute their duties and monitor management overall and make effective statements as Audit & Supervisory Board Members in important meetings including meetings of the Audit & Supervisory Board and the Board of Directors.
• Audit & Supervisory Board Members shall spend the necessary time and effort to execute their roles and duties appropriately.
• Audit & Supervisory Board Members shall participate in training sessions/seminars hosted by external organizations to acquire the necessary knowledge for Audit & Supervisory Board Members and improve their competence as Audit & Supervisory Board Members.
• In order for Audit & Supervisory Board Members to properly execute their roles and operations, the holding of concurrent positions as officers of other listed companies shall be limited to the minimum extent, and their concurrent positions shall be described in notices of the general meeting of shareholders.

4. Outside Audit & Supervisory Board Members

• Outside Audit & Supervisory Board Members shall be at least half of the Audit & Supervisory Board Members.
• In order for Outside Audit & Supervisory Board Members to execute their duties, Full-time Audit & Supervisory Board Members and the Auditors' Office shall provide information, reference materials, and explanations.
• Although independence is not required for Outside Audit & Supervisory Board Members, the independence is evaluated if necessary based on the "Independence Standards for Outside Directors/Audit & Supervisory Board Members".
• In order for Outside Audit & Supervisory Board Members to properly execute their roles and operations, the holding of concurrent positions as officers of other listed companies shall be limited to the minimum extent, and their concurrent positions shall be described in the Corporate Governance Report and notices of the general meeting of shareholders.

5. Support System

• To activate the deliberation of the Board of Directors meetings, the President's Office shall carry out the following operations for the Board of Directors meetings.
  
  (1) Distribution of reference materials for the Board of Directors meetings in consideration of examination time before the meetings.
  (2) Notifying the Directors/ Audit & Supervisory Board Members of the meeting schedule beforehand to secure sufficient deliberation time.
  (3) Office administrators for Outside Directors shall be stationed in the President's Office to communicate and facilitate with internal divisions.
• Expenses of external professionals deemed necessary for execution of the duties of Directors and Audit & Supervisory Board Members shall be expenses of the Company.
• The Auditors' Office shall be established to assist duties of the Audit & Supervisory Board, and dedicated employees who do not hold concurrent positions related to the execution of operations shall be assigned to the Auditors' Office.

6. Policy on Remuneration Decisions for Directors and Executive Officers

• With regard to remuneration for Directors, only the basic amount of annual remuneration of Directors determined by their positions shall be paid and bonus and retirement payments shall not be paid.
• As incentives for Directors, "performance-based remuneration for Directors" shall be introduced. Under this system, for part of the basic amount of annual remuneration of Directors, a variable amount depending on the achievement level of "consolidated operating profit" shall be added to or deducted from the monthly remuneration of the following year. However, this shall not be applicable for Outside Directors.
• With regard to remuneration for Executive Officers, only the basic amount of annual remuneration of Executive Officers determined by their positions shall be paid and bonuses and retirement payments shall not be paid.
• As incentives for Executive Officers, for part of the basic amount of annual remuneration of Executive Officers, a variable amount depending on the individual achievement level of a "target management evaluation" shall be added to or deducted from the monthly remuneration of the following year.
• The Company shall establish a Remuneration Advisory Committee, and the Committee shall make decisions on the "revision of individual annual basic remuneration for Directors", "assessment and revision of the incentive portion of remuneration for Directors", "revision of individual annual basic remuneration for Executive Officers by position", and "assessment and revision of target management regarding the incentive portion of remuneration for Executive Officers", and the Committee shall submit the decisions to the Board of Directors.

7. Medium- and Long-term Incentives for Directors, Audit & Supervisory Board Members, and Executive Officers

• Directors, Audit & Supervisory Board Members, and Executive Officers shall join the Kyudenko Officers Shareholding Association and purchase shares of the Company at more than a certain rate of the amount of base remuneration for the purpose of promoting value sharing with shareholders as part of incentives to reflect the Company's medium- to long-term performance and potential risk.

8. Policies for Nomination of Candidates for Directors and Audit & Supervisory Board Members and Dismissal of Directors, Election of the Director to whom Representative Authority is Granted, and Election and Dismissal of Executive Officers

• The Company shall establish a Nomination Advisory Committee. According to standards for election and dismissal proposals, the Committee shall make decisions on matters regarding the nomination of candidates for Directors and Audit & Supervisory Board Members and dismissal of Directors, election of the Director to whom representative authority is granted, and election and dismissal of Executive Officers and submit the contents of its decisions to the Board of Directors.

9. Development of Executive Candidates and Successor Plan

• The Company shall develop executive candidates by establishing a next generation leader development system for selected personnel for the purpose of developing future executives and enhancement of the executive candidate layer.
• The Nomination Advisory Committee shall formulate a plan for the nomination of Director candidates, a plan for election of the Director to whom representative authority is granted, and a plan for the election of Executive Officers based on the human resources who were developed in the next generation leader development system for selected personnel.
• According to the Human Resource Development Charter and basic policy on promotion of diversity, the diversity of executive candidates shall be secured.

10. Training Policy

• Newly appointed Directors and newly appointed Executive Officers must take courses provided outside of the Company to obtain necessary knowledge for management executives such as corporate governance and compliance in addition to relevant laws and regulations not long after their appointment. In addition, the Company shall hold the training sessions for timely management issues based on necessity.
• Audit & Supervisory Board Members shall participate in training sessions and seminars hosted by outside organizations such as the Japan Audit & Supervisory Board Members Association based on necessity to acquire the necessary knowledge for Audit & Supervisory Board Members and to increase competence as Audit & Supervisory Board Members regardless of whether or not the Audit & Supervisory Board Members are newly appointed.
• The Company shall provide education on revisions of relevant laws surrounding companies, necessary information on management decisions, internal control, and compliance by outside instructors to Directors, Audit & Supervisory Board Members, and Executive Officers.

1．Policy for Dialogue with Stakeholders

• As the division in charge of IR, the Finance Division shall communicate with stakeholders starting with shareholders in cooperation with the Business Management Division, Corporate Strategic Planning Division, and General Affairs Division.
• The company shall promote IR activities on the Company website to ensure the transparency of corporate activities.
• The Company shall disclose Financial Statements, Securities Reports, disclosure documents for stock exchanges, and important facts to shareholders and investors in a timely and appropriate manner.
• The Representative Director and President and Officer responsible for finance shall hold financial results briefings for analysts and institutional investors twice a year, and the Company shall disclose materials for the briefings on the Company's website.
• The Company shall also appropriately hold individual briefings and respond to interviews for analysts, institutional investors and individual investors.
• The outcome of such financial results briefings and individual briefings shall be reported at the Management Meeting, and the information shall be shared with Directors and Audit & Supervisory Board Members.
• During communication with stakeholders, the stipulated disclosure policy shall be thoroughly implemented and appropriate responses shall be taken.
• With respect to insider information management, the Company shall establish Regulations on Insider Trading and ensure thorough information management.
• Several weeks until the financial statement announcement shall be set as a quiet period, and the Company shall limit communication with shareholders and investors.
• With respect to actual communication (meetings) with shareholders, the Finance Division, which is the division in charge of IR, shall act as a contact point and handle communication in cooperation with the Business Management Division, General Affairs Division, and other related divisions.
• According to requests from shareholders, the shareholder's main interests of the meetings, the number of stocks that the corresponding shareholders possess, and other factors, management executives and Directors including Outside Directors or Audit & Supervisory Board Members shall attend the meetings in a reasonable range.
• With respect to the formulation and release of management strategies and management plans, numerical targets, strategic policies, and specific initiatives shall be presented in the Group's Mid-term Management Plan.