三和ホールディングス（5929） – Corporate Governance Report（December 17, 2021 ）

[Translation] Corporate Governance Report Last Updated: December 17, 2021 Sanwa Holdings Corporation Representative Director, President, Yasushi Takayama Contact: General Manager of General Affairs Department, Hiroyuki Yoshitake Securities Code: 5929 https://www.sanwa-hldgs.co.jp/english/ The corporate governance of Sanwa Holdings Corporation (the “Company”) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information 1. Basic ViewsAs a global access systems company that is developing business in regions in the U.S., Europe and Asia as well as in Japan, the Company aims to continue growing and improving corporate value, and also to contribute to the sustainable development of society through good faith and fair business activities on the basis of the Company’s “Mission,” “Our Values,” “Principles of Business” and “Compliance Code of Conduct.” To forms its foundation, the Company makes efforts to build highly transparent Group management while positioning corporate governance as an important management issue. The Sanwa Group is committed to offering products and services that provide safety, security and convenience to further contribute to the prosperity of society. To deliver products and services to satisfy all customers. To become a true global player and be highly valued in each market in the world. To bring together the creativity of each individual in a team environment for the enhancement of corporate value. We implement business activities with appreciation and sincerity to increase our customers’ trust. We produce products with good quality and reasonable cost meeting domestic and overseas needs and establish the leading brand. division. We forecast our customers’ future needs and always try to improve the technical level and productivity in every We comply with the rules and make our workplace friendly, open, challenging, and rewarding. We are driven by inspiration, strive to achieve our high level goals, recognize our roles and responsibilities, and contribute to the creation of corporate value. The Sanwa Group must conduct company activities with top priority placed on the safety of the products and services that we provide. The Sanwa Group will not seek profit through actions that violate the Compliance Code of Conduct. All management personnel and supervisors of the Sanwa Group will take the lead in observing the Compliance Code of Conduct, and will act in such a way as to be a good example for the staff under them. – 1 – [Translation] [Reasons for Non-compliance with the Principles of Japan’s Corporate Governance Code] [Updated] This section is based on Japan’s Corporate Governance Code after the revisions in June 2021. Principle 4.11 Preconditions for Board of Directors and Audit & Supervisory Board Effectiveness In its Articles of Incorporation, the Company stipulates that the appropriate number of directors shall be no more than 17, in order to make decisions promptly and resolutely to address changes in the business environment on a global basis, and to ensure the diversity of opinions. In accordance with its standards, directors are appointed based on their ability, insight, and experience, as well as other qualities that are necessary to monitor and oversee corporate management from a global perspective, and to make important business decisions. The incumbent nine directors are composed of corporate managers, persons with experience in international business, persons with expert knowledge in finance and accounting, and legal experts, thereby ensuring the diversity of the Board of Directors. We will continue to examine ensuring the diversity of the Board of Directors, including the election of non-Japanese directors as a global company and without being limited by gender, work experience or age, and recommend persons who are considered to be well-qualified as candidates for directors. [Disclosure Based on the Principles of Japan’s Corporate Governance Code] [Updated] Principle 1.3 Basic Strategy for Capital Policy In our capital policy, we place importance on improving capital efficiency after having secured financial stability. Our basic approach is to maintain a balance between these two elements while increasing corporate value in the medium to long term by making optimal investments and providing returns to shareholders. In Sanwa Global Vision 2020, we seek to become a “Major Global Player” in the access systems industry, and are placing top priority on strategic growth investments. 1. Composition of capital and liabilities (1) Our policy is to maintain the shareholders’ equity ratio at 40% or higher. (2) We will strive to maintain a debt structure that does not harm the Company’s financial soundness. 2. Investments (1) Capital investments 3. Shareholder returns company). In principle, we make capital investments necessary for maintaining and continuing existing businesses within the range of depreciation. (2) M&A, business tie-ups and other investments We preferentially consider investments in core businesses and in related fields that can be expected to grow into core businesses in the future. (1) Our target payout ratio is 35% of consolidated profit (Profit attributable to owners of the parent (2) We give preference to the type of investments listed above, but will consider repurchasing the Company’s own shares if there are no substantial cash outflows related to such investments. Principle 1.4 Shares Held as Cross-Shareholdings In certain cases, we purchase and hold the shares of business partners to build good relationships with them and to increase the Company’s corporate value from a medium- to long-term perspective through maintenance of smooth business transactions. – 2 – [Translation] For cross-shareholdings of listed companies, the Board of Directors considers the relevance of aspects such as the holding benefits (dividends received and business transaction benefits) and capital cost against the acquisition price (WACC is set at 6%) for each share. For stocks that are no longer needed, the Board of Directors will quickly discuss selling them. The Company exercises its voting rights related to cross-shareholdings in accordance with the following standard: The Company shall exercise its voting rights based on a comprehensive judgment regarding whether the proposal will contribute to the sustainable growth of the issuer of shares, and whether it will contribute to the maintenance and enhancement of the corporate value of the Company, among other matters. Principle 1.7 Related Party Transactions If the Company conducts significant transactions with officers of the Company, it shall obtain the approval of the Board of Directors in advance and report on the results. When the Company conducts large transactions, it must obtain the approval of the Board of Directors based on internal decision-making regulations. Transactions with major shareholders or other related parties are examined for their appropriateness as part of the approval procedures. Supplementary Principle 2.4.1 Ensuring Diversity in the Promotion of Core Human Resources, etc. The Company hires and promotes human resources, placing importance on individual characteristics and abilities regardless of gender, nationality and employment type. We believe that creating a free and open workplace environment that respects diverse values is essential in order to realize sustainable growth and increase corporate value. The Company is working to secure diversity according to the above policy, but the current percentage of female and non-Japanese employees is low and the number of female and non-Japanese employees who have been promoted to management is not high. However, the number of female mid-level employees who will be management candidates is increasing and we aim to increase the number of female managers threefold by the end of fiscal 2025. Furthermore, because there are many younger employees among non-Japanese employees, we will continue to develop those human resources and consider promoting suitable candidates to management*. * For Sanwa Shutter Corporation, a core operating company of the Company, approximately half of the employees are mid-career hires, 10% of the employees are female, and approximately 1% of the employees are non-Japanese (as of October 2021). In addition, employees are promoted to management according to their abilities, aptitude and other qualifications, approximately half of the managers are mid-career hires, and there are no differences regarding gender, nationality and employment type (periodic-recruitment hires and mid-career hires). To achieve the above, in accordance with the action plan based on the Act on the Promotion of Female Participation and Career Advancement in the Workplace, the Company is developing an environment and system that allow employees to manage both work and family life and creating a workplace in which female employees can comfortably work. The Company established a specialized organization for the development of human resources and structured various types of training according to position and purpose to establish a system for the development of diverse human resources. Principle 2.6 Functioning as Asset Owner of Corporate Pension Funds With regard to the pension management system, we established the Sanwa Shutter Corporate Pension Fund. In addition to a full-time managing director, management is undertaken by directors and representatives selected from each Group company. – 3 – [Translation] The management of the reserve fund is based on management guidelines established by the corporate pension fund, and important matters, such as decisions on asset allocation policy and recipients entrusted with assets, are resolved by a board of representatives using external consultants as needed. The fund is managed and controlled in an appropriate manner to prevent conflicts of interest between pension beneficiaries and the Company. We carry out stewardship activities that can be implemented as a corporate pension fund. These include assigning employees familiar with the practical side of the business to the full-time managing director, the Board of Trustees requiring that each investment institution entrusted with assets fulfills its stewardship responsibilities, and receiving of reports on the results. Principle 3.1 Enhancement of Information Disclosure 1. We formulated the Sanwa Group’s “Mission, Values and Principles of Business” in 2002 to respond to changes in the operating environment while continuing the policies that have defined the Company since its establishment. The specifics are disclosed on the Company’s website. (https://www.sanwa-hldgs.co.jp/english/corporate/philosophy.html) The Sanwa Group’s management policy and the Mid-Term Management Plan are also disclosed on the Company’s website. * Management Policy, Long-term Vision and Medium-term Management Plan (https://www.sanwa-hldgs.co.jp/english/ir/management/) 2. Our basic approach to corporate governance is available on the Company’s website and annual securities reports (in Japanese only). (https://www.sanwa-hldgs.co.jp/english/csr/effort/governance) 3. Our policy for determining compensation amounts for Directors is provided in the Director Compensation section of this report, in the convocation notice of the General Meeting of Shareholders, and in annual securities reports (in Japanese only). Furthermore, the Company’s Audit and Supervisory Committee has authority to verify the compensation proposal, etc. and form an opinion in order to ensure objectivity and transparency. 4. The Board of Directors of the Company selects executives who will set and promote business directions and strategies with competitiveness on a global scale in mind. Candidates for directors are selected based on individual abilities, insight, and experience as well as in consideration of the balance of the overall Board of Directors and the Audit and Supervisory Committee and diversity. (At least one person who is an expert in finance and accounting is appointed as a director serving as an Audit and Supervisory Committee member.) A decision will be made on the candidates following verification by the Audit and Supervisory Committee and an ensuing discussion by the Board of Directors. Furthermore, candidates for directors are selected based on advice from the Nomination and Compensation Committee after consultation by the Board of Directors. The reasons for the selection of individual candidates for directors are provided in the convocation notice of the General Meeting of Shareholders. The selection of executives (excluding directors) and the dismissal of executives use the same procedure, with a proposal made after deliberation by the Board of Directors. 5. The backgrounds of individual executives (those above directors) and the reasons for selecting them as candidates are disclosed in the convocation notice of the General Meeting of Shareholders for the period when each individual director was elected. Furthermore, directors who have resigned or been dismissed are listed in the business report (in Japanese only) for the following fiscal year as before. (The convocation notice of the General Meeting of Shareholders is available on the Company’s website. https://www.sanwa-hldgs.co.jp/english/ir/stock_info/meeting.html) – 4 – [Translation] Supplementary Principle 3.1.3 Initiatives, etc. on Sustainability i The Company’s sustainability initiatives are described in “Implementation of Environmental Activities, CSR Activities, etc.” of “3. Measures to Ensure Due Respect for Stakeholders” in this report. ii The Company classifies key ESG issues (materiality) under the categories of “Manufacturing,” “Environment,” “People” and “Management Foundation,” and the six types of capital (natural capital, social and relationship capital, human capital, technology/manufactured capital, intellectual capital and financial capital) corresponding to each category are described in the Integrated Report. iii Information regarding disclosures based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), etc. related to risks and opportunities arising from climate change is available on the Company’s website. (https://www.sanwa-hldgs.co.jp/english/csr/effort/environment/contributive/climate_risk.html) Supplementary Principle 4.1.1 Roles and Responsibilities of the Board of Directors (1) The Board of Directors, which makes important management decisions and supervises directors’ execution of business, also makes decisions on important business execution matters that are deemed within the purview of the Board of Directors by law or the Company’s Articles of Incorporation. The substance of those decisions is made clear according to the “Board of Directors Regulations” in the Company’s internal regulations. Principle 4.8 Effective Use of Independent Outside Directors Three of the Company’s nine directors, or one-third, are outside directors. We judge that all three outside directors to fulfill the Company’s independence criteria and we have submitted notification to Tokyo Stock Exchange, Inc. that they have been designated as independent officers. Based on their respective abundant experience and specialist knowledge, the outside directors provide advice on management and audit and supervise business execution by the directors from a neutral standpoint, independent from business execution, adequately enhancing the supervision function of the Board of Directors. Principle 4.9 Independence Standards and Qualification for Independent Outside Directors Regarding independence of outside directors, please refer to “Independence Criteria for Outside Officers” on our website. (https://www.sanwa-hldgs.co.jp/english/csr/effort/governance/pdf/Independence_Criteria_for_Outside_Officers.pdf) Supplementary Principle 4.10.1 Mandates, Roles, etc. of the Nomination Committee and Compensation Committee The Company established a Nomination and Compensation Committee in January 2021 as an advisory body (voluntary) to the Board of Directors to enhance the fairness, transparency, and objectivity of procedures related to the nomination and compensation of directors (excluding directors serving as Audit and Supervisory Committee members) and executive officers. The Committee, a majority of whose members are outside directors, deliberates in response to consultations from the Board of Directors on matters such as nomination proposals for candidates for directors, etc., as well as calculation methods, etc. for compensation for directors, etc. and for individual compensation, and advises on the results of its deliberations to the Board of Directors. Supplementary Principle 4.11.1 Preconditions for Board of Directors and Audit & Supervisory Board Effectiveness (1) The Company’s Articles of Incorporation specifies that the appropriate number of directors shall be no more than 17 in order to facilitate quick and decisive decision-making to adjust to changes in the global operating environment and to ensure diversity of views. The standard we use in appointing directors is whether they possess the necessary abilities, knowledge, experience and other attributes to monitor and supervise the Company’s management from a global perspective and to make important decisions concerning business operations. The knowledge, experience and abilities of each – 5 – [Translation] director are indicated in the “Skill Matrix” in this report. In addition, importance is placed on management experience at other companies when selecting candidates for independent outside directors. Supplementary Principle 4.11.2 Preconditions for Board of Directors and Audit & Supervisory Board Effectiveness (2) If a director is serving concurrently as a director or auditor at other companies, we confirm that the number of concurrent positions is reasonable so that the director can devote sufficient time and effort to fulfilling his or her role and responsibilities as a director of the Company. Important positions directors hold at other organizations are disclosed each year in annual securities reports (in Japanese only) and in the convocation notice of the General Meeting of Shareholders. Supplementary Principle 4.11.3 Preconditions for Board of Directors and Audit & Supervisory Board Effectiveness (3) In fiscal 2020, meetings of the Board of Directors were held a total of nine times (seven regular meetings, two extraordinary meetings) to make decisions swiftly on important matters related to management and business execution, and the results have been reported. The Company distributes materials in advance to the Board of Directors to allow for adequate deliberation time and to support productive discussions. After the end of the meeting of the Board of Directors at the end of the previous fiscal year, a questionnaire on the effectiveness of the Board of Directors was implemented and responses were received from all directors. Thereafter, at the first meeting of the Board of Directors in the current fiscal year, all directors including outside directors performed an analysis and evaluation of the effectiveness of the Board of Directors based on the results of those responses. Materials are distributed to the Company’s Board of Directors in advance, allowing for adequate deliberation time, and each director engages in productive discussion. Therefore, the evaluation showed that the Board of Directors is functioning effectively. The Company will continue to make improvements and work to enhance the effectiveness of the Board of Directors. Supplementary Principle 4.14.2 Director and Audit & Supervisory Board Member Training For inside directors, we provide and research seminars suited to individual directors and opportunities for networking events, and subsidize the associated costs, so that the directors can acquire the necessary knowledge on management issues facing the Company, finance, compliance and other matters as appropriate. For outside directors, explanations of the Group’s business and operations are provided by each department to deepen their understanding of the Sanwa Group. We also set up opportunities to observe our major business sites and factories. Principle 5.1 Policy for Constructive Dialogue with Shareholders 1. Basic Approach We formulated disclosure policies in 2006 consisting of a “Basic Policy,” “Information Disclosure Standards,” “Disclosure Methods,” “Quiet Periods” and other related policies. These policies are posted on the Company’s website. (https://www.sanwa-hldgs.co.jp/english/ir/management/disclosure.html) We recognize that the understanding and support of shareholders and investors is essential for realizing sustainable growth and medium- to long-term increases in corporate value. Therefore, we impartially provide accurate information and engage in constructive dialogue in an effort to build long-term relationships of trust. – 6 – [Translation] 2. IR Framework Officer responsible for the Corporate Planning Unit has overall responsibility for dialogue with shareholders and investors, assisted by the general manager of the Corporate Communication Department. The Corporate Communication Department requests information from other relevant units on various topics, and those units cooperate with the Corporate Communication Department, to enhance dialogue. 3. Methods of Communication A financial results briefing by representative director is held twice a year for media organizations, analysts and institutional investors. In addition, small meetings and individual meetings are conducted by responsible departments as appropriate. For individual investors, we provide a specific section (in Japanese only) on the Company’s website. We also post easy-to-understand information such as business results, descriptions of business operations, and management policies, as well English versions of the same materials for overseas investors. In addition, we issue an Integrated Report and provide video financial results briefings. 4. Feedback to Internal Operations Director responsible for the Corporate Planning Unit periodically provides feedback on the substance of dialogue with shareholders and investors to the Board of Directors and others. 5. Disclosure Policies and Information Control When engaging in dialogue with shareholders and investors, we control insider information appropriately in accordance with internal regulations (insider trading prevention regulations) and disclosure policies. Principle 5.2 Establishing and Announcing Management Strategies and Business Plans The Company periodically examines its capital cost (current WACC is set at 6%), and recognizes Sanwa Value Added (SVA, the Company’s unique EVA) based on the capital cost as an important pillar of management. In proposing earnings plans and capital policies, our basic policy is to have SVA trending positively (corporate value expansion), and also setting corresponding targets for ROE, shareholders’ equity ratio, and so forth. By revising the business portfolio and examining each kind of investment (such as M&A investment, capital investment, R&D investment, human resource investment, etc.), by giving overall consideration to the environment, etc., and using quantitative indicators such as operating income, SVA, and ROE, we strive to contribute to increasing corporate value. On the other hand, as part of the distribution of capital (shareholder returns), we have adopted a basic policy of targeting a guideline dividend payout ratio of 35% of profit attributable to owners of the parent company. 2. Capital Structure Foreign Shareholding Ratio 30% or more [Status of Principal Shareholders] [Updated] Name Number of Shares Owned (Shares) Shareholding Ratio (%) The Master Trust Bank of Japan, Ltd. (Trust Account) Custody Bank of Japan, Ltd. (Trust Account) Sumitomo Mitsui Banking Corporation The Dai-ichi Life Insurance Company, Limited BNYM AS AGT/CLTS 10 PERCENT Aioi Nissay Dowa Insurance Co., Ltd. 27,946,200 15,309,600 11,037,718 8,100,000 5,712,239 5,140,364 – 7 – 12.64 6.92 4.99 3.66 2.58 2.32 [Translation] Mitsubishi UFJ Trust and Banking Corporation Nippon Steel Corporation Sumitomo Realty & Development Co., Ltd. JP MORGAN CHASE BANK 385632 4,637,000 3,968,000 3,810,900 3,738,800 2.09 1.79 1.72 1.69 – – Controlling Shareholder (except for Parent company) Parent company – N/A Supplementary Explanation [Updated] Information regarding “Status of Principal Shareholders” 1. The Company holds 10,063,425 shares of treasury stock, and is excluded from the principal shareholders list above. 2. The shareholding ratio is calculated excluding treasury stock. 3. Corporate Attributes Listed Stock Market and Market Section Fiscal Year-End Type of Business Number of Employees (Consolidated) at End of the Previous Fiscal Year Net Sales (Consolidated) for the Previous Fiscal Year Tokyo Stock Exchange First Section March Metal Products 1,000 or more Number of Consolidated Subsidiaries at End of the Previous Fiscal Year From 10 to less than 50 From ¥100 billion to less than ¥1 trillion 4. Policy for Measures to Protect Minority Shareholders in Conducting Transactions, etc. with Controlling Shareholder 5. Special Circumstances Which May Have Material Impact on Corporate Governance II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Supervision in Management 1. Matters Related to Organizational Composition and Operation Organization Form Company with audit and supervisory committee [Directors] Maximum Number of Directors Stipulated in Articles of Incorporation 17 – 8 – [Translation] Term of Office Stipulated in Articles of Incorporation Chairperson of the Board Number of Directors 1 year President Appointment of Outside Directors Appointed Number of Outside Directors Number of Independent Officers Designated from among Outside Directors Outside Directors’ Relationship with the Company (1) Name Attribute Masanaka Yokota Tsunekatsu Yonezawa From another company From another company Akira Gokita Attorney at law Relationship with the Company* a b c d e f g h i j k * Categories for “Relationship with the Company” “” when the director presently falls or has recently fallen under the category; “” when the director fell under the category in the past; “” when a close relative of the director presently falls or has recently fallen under the category; and “” when a close relative of the director fell under the category in the past a. Executive (a person who executes business; hereinafter, the same) of the Company or its subsidiary b. Non-executive director or executive of the parent company of the Company c. Executive of a fellow subsidiary of the Company d. Party whose major client or supplier is the Company or an executive thereof e. Major client or supplier of the Company or an executive thereof f. Consultant, accounting professional or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director g. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a h. Executive of a client or supplier of the Company (which does not correspond to any of d., e., or f.) (the i. Executive of a corporation to which outside officers are mutually appointed (the director himself/herself corporation) only) director himself/herself only) j. Executive of a corporation that receives a donation from the Company (the director himself/herself only) k. Other 9 3 3 – 9 – [Translation] Name Masanaka Yokota Outside Directors’ Relationship with the Company (2) Membership of Audit and Supervisory Committee Designation as Independent Officer Supplementary Explanation of the Relationship Reasons for Appointment Tsunekatsu Yonezawa As an outside director, Mr. Masanaka Yokota has provided appropriate advice and suggestions based on his abundant consulting experience and knowledge of fields ranging from management strategy and technical strategy to manufacturing and production, and personnel development, both in Japan and overseas. Thus, the Company determines that he is qualified as a director. Mr. Tsunekatsu Yonezawa has engaged in corporate management for many years as a company executive and possesses global experience in management and economics in addition to a high level of knowledge. He has provided appropriate advice and suggestions to management regarding overall management from his independent position. Thus, the Company determines that he is qualified as an outside director serving as an Audit and Supervisory Committee member. Mr. Masanaka Yokota has been working for JMA Consultants Inc. The Sanwa Group has no business relationship with the company, but it receives education and training services (dispatch of lecturers, etc.) from Japan Management Association Group companies. However, concerning transactions between the Sanwa Group and the corporate group of Japan Management Association, the average transaction amount for the past three fiscal years was less than 1% of the annual consolidated net sales of each of the groups, and the Company has determined that he has no conflict of interest with ordinary shareholders. Mr. Tsunekatsu Yonezawa is a former employee of Marubeni-Itochu Steel Inc. (MISI), which has a business relationship with the Group. The Group and the MISI Group have transactions involving the Sanwa Group’s purchase of raw materials and the sale of Sanwa Group products. However, the amount of transactions between the Sanwa Group and the MISI Group accounted for less than 1% of the Sanwa Group’s and the MISI Group’s annual consolidated net sales in each of the past three fiscal years. Therefore, the Company determined that he satisfies the independence criteria for the Company’s outside officers and has no conflict of interest with ordinary shareholders. – 10 – [Translation] Membership of Audit and Supervisory Committee Designation as Independent Officer Name Akira Gokita Supplementary Explanation of the Relationship Reasons for Appointment Mr. Akira Gokita has many years of experience as a prosecutor and a lawyer and has applied his extensive experience and knowledge as a legal professional to the Company’s management. Thus, the Company determines that he is qualified as an outside director serving as an Audit and Supervisory Committee member. The Company had a legal consultation agreement with Mr. Gokita until December 2015, but the contract has since been terminated. For the duration of the agreement, the monthly legal fees paid to Mr. Gokita were ¥100,000 (there was no payment for compensation outside of the advisory agreement). Therefore, the Company determined that he meets the independence criteria for the Company’s outside officers and has no conflict of interest with ordinary shareholders. [Audit and Supervisory Committee] Committee’s Composition and Chairperson’s Attributes Total Committee Members Full-time Members Inside Directors Chairperson Outside Directors 3 2 1 2 Inside Director Audit and Supervisory Committee Appointment of Directors and/or Employees to Support Duties of the Audit and Supervisory Committee Appointed Matters Related to the Independence of Such Directors and/or Employees from Executive Directors The Audit Department, which is an internal audit unit, is responsible for supporting the duties of the Audit and Supervisory Committee and directors serving as Audit and Supervisory Committee members. The evaluation of the Audit Department and personnel changes of Audit Department members must be approved by the Audit and Supervisory Committee, thereby ensuring independence from the business execution divisions. Cooperation among Audit and Supervisory Committee, Accounting Auditor and Internal Audit Department Directors serving as Audit and Supervisory Committee members, the Audit Department which is an internal audit unit, and accounting auditor hold a meeting as needed to report audit results by the Audit Department, in addition to regular meetings held twice a year, to exchange audit opinions, information on their respective audit policies, and problems identified during the fiscal year. The Audit Department supports the duties of the Audit and Supervisory Committee. The Department hold a meeting as needed for sharing information related to audits, in addition to regular monthly reporting meetings. In addition, designated Audit and Supervisory Committee members of Audit and Supervisory Committee and the Audit Department have a cooperative relationship in which they can mutually request investigations of specific – 11 – [Translation] matters. They strengthen collaboration in ways such as performing detailed audits of target departments and reporting on the results each other. [Voluntary Committees] Voluntary Establishment of Committee(s) Equivalent to Nomination Committee or Compensation Committee Established Voluntary Committee’s Name, Composition, and Chairperson’s Attributes Voluntary Committee Equivalent to Nomination Committee Voluntary Committee Equivalent to Compensation Committee Nomination and Compensation Committee Nomination and Compensation Committee Committee’s Name Total Committee Members Full-time Members Inside Directors Outside Directors Outside Experts Other Chairperson 5 0 2 3 0 0 Inside Director Inside Director Supplementary Explanation Outline of Nomination and Compensation Committee The Company has established a Nomination and Compensation Committee as an advisory body under the Board of Directors to enhance the fairness, transparency, and objectivity of procedures related to the nomination and compensation, etc. of directors (excluding directors serving as Audit and Supervisory Committee members) and executive officers. In response to consultations from the Board of Directors, the Committee advises on matters such as nomination proposals for candidates for directors, etc., as well as calculation methods for compensation for directors, etc., and individual compensation to the Board of Directors. In fiscal 2020, the Nomination and Compensation Committee was established on January 29, 2021 and held one meeting. The attendance ratio of committee members at that meeting was 100%. The main matters for deliberation were “nomination and stock compensation of directors and executive officers.” [Independent Officers] Number of Independent Officers 3 Matters relating to Independent Officers The Company has designated all outside directors who fulfil the independent officer qualifications as independent officers. 5 0 2 3 0 0 – 12 – [Translation] Mr. Masanaka Yokota has attended all eight meetings of the Board of Directors since taking his post on June 24, 2020 and has made comments based on his experience and knowledge as a management consultant. Mr. Tsunekatsu Yonezawa has attended all nine meetings of the Board of Directors and all nine meetings of the Audit and Supervisory Committee in fiscal 2020 and has made comments based on his experience and knowledge as a deeply experienced manager at global companies. Mr. Akira Gokita has attended all nine meetings of the Board of Directors and all nine meetings of the Audit and Supervisory Committee in fiscal 2020 and has made comments based on his expertise as a lawyer. Implementation of Measures to Provide Incentives to Directors Introduction of performance-linked compensation and others [Incentives] Supplementary Explanation In fiscal 2008, we began granting stock options to directors (excluding outside directors and directors serving as Audit and Supervisory Committee members). In place of these stock options, to provide directors (excluding outside directors and directors serving as Audit and Supervisory Committee members) with an incentive for the sustainable improvement of the Company’s corporate value, and to promote further value sharing between directors and shareholders, we pay restricted stock compensation of ¥80 million or less and 120,000 shares or less per annum from fiscal 2021 (as approved at the 86th Ordinary General Meeting of Shareholders held on June 22, 2021). Recipients of Share Options Inside Directors Supplementary Explanation [Stock acquisition rights delivered in fiscal 2020] Persons subject to allotment Four directors of the Company (excluding outside directors, part-time directors, directors serving as Audit and Supervisory Committee members) Common stock of the Company, 40,600 shares Class and number of shares to be acquired upon exercise of the stock acquisition rights Exercise period From July 11, 2020 to July 10, 2050 Amount to be paid in for stock acquisition rights ¥631 per share [Director Compensation] Disclosure of Individual Directors’ Compensation Supplementary Explanation <2020 Results> Selected Directors 1. Total amount of compensation, etc. by officer category, total amount of compensation, etc. by compensation category, and number of eligible officers Directors (excluding directors serving as Audit and Supervisory Committee members and outside directors): 5; total amount of compensation: ¥317 million (Base compensation of ¥187 million, performance-linked compensation of ¥102 million and stock options of ¥27 million) Directors serving as Audit and Supervisory Committee members (excluding outside directors): 1; total amount of compensation: ¥33 million (Base compensation of ¥33 million) Outside directors: 4; total amount of compensation: ¥51 million (Base compensation of ¥51 million) – 13 – [Translation] Members 1. Basic concept 2. Total amount of consolidated compensation, etc. per officer Individuals receiving a total of ¥100 million or more in compensation, etc. are disclosed individually in the annual securities reports. Policy for Determining Compensation Amounts or Calculation Methods Thereof Established Disclosure of Policy for Determining Compensation Amounts or Calculation Methods Thereof Policies for Determining Compensation Amounts of Directors and Audit and Supervisory Committee Compensation, etc. of directors and Audit and Supervisory Committee members is intended to contribute to continual improvement of the Company’s business performance and corporate value. The Company designs its compensation system so that the level and structure of compensation are in accordance with the roles and responsibilities required of the Company’s directors and Audit and Supervisory Committee members, and enable the recruitment and retention of well-qualified people. The compensation of directors consists of base compensation, performance-linked compensation, and restricted stock compensation. However, directors serving as Audit and Supervisory Committee members and outside directors are only paid base compensation. Furthermore, in principle, compensation is not paid to part-time directors (who are paid compensation from consolidated subsidiaries). The total amount of base compensation and performance-linked compensation and the total amount of restricted stock compensation shall be within the total amount determined at General Meetings of Shareholders. 2. Base compensation The base compensation for each director (excluding directors serving as Audit and Supervisory Committee members) is set for each position based on consolidated performance with reference to the compensation levels of other companies presented by a specialized outside organization and paid monthly. 3. Performance-linked compensation For performance-linked compensation, as monetary compensation for business execution during the term (1 year) of directors, a standard amount is set for each executive position based on the Company’s consolidated performance with reference to the compensation levels of other companies presented by a specialized outside organization. The standard amount of this type of compensation is determined by taking into account standard amount indicators and the levels of contribution of each director, evaluated quantitatively and qualitatively, and the compensation is paid during the fiscal year following the fiscal year under review. As far as serving as a reward that functions as a sound incentive for sustainable growth that reflects the Company’s business performance is concerned, consolidated operating income has been selected as the primary indicator of performance-linked compensation. 4. Non-monetary compensation (Restricted stock compensation) The restricted stock compensation plan is stock compensation plan aimed at providing incentives to directors for sustainable improvement of the corporate value of the Company as well as promoting further value sharing between directors and shareholders. Directors, excluding outside directors and directors serving as Audit and Supervisory Committee members, are eligible, and the specific allocation paid to each eligible director is decided based on a resolution by the Company’s Board of Directors. Each eligible director shall pay all claims for monetary compensation to be paid for granting restricted stock in the form of properties contributed in kind each fiscal year and shall receive allotment of common stock of the Company. Furthermore, restricted stock compensation shall be granted as compensation for duties performed during the term (1 year) of directors within one month after the conclusion of the Ordinary General Meeting of Shareholders in which the directors were elected. The allotment will be made through the disposition of treasury stock. – 14 – [Translation] The transfer restriction period shall be the period from the date of delivery of restricted stock to the time that directors lose their positions as director of the Company or any other positions determined by the Board of Directors of the Company. 5. Proportion of amounts of compensation paid to individual directors for base compensation, performance-linked compensation and non-monetary compensation The proportion of different types of compensation paid to directors is based on compensation level benchmarks of companies with similar business scales and belonging to the same industry and business category as the Company and through consultation with the voluntary Nomination and Compensation Committee. The Representative Director, President, delegated by the Board of Directors, receives the details of the advice by the Nomination and Compensation Committee and decides the details of the compensation, etc. for individual directors referencing the proportions of compensation for each type of compensation shown in the advice. 6. Items related to decisions on the details of compensation, etc. for individual directors Based on a resolution by the Board of Directors, the Representative Director, President is delegated authority to decide the specific details of the amounts of individual compensation. The scope of that authority covers the amount of base compensation for each director and the evaluation and allocation of performance-linked compensation based on the business performance of the business for which the individual director is responsible. However, so that the Representative Director, President appropriately uses this authority, the Board of Directors will consult with the Nomination and Compensation Committee on items related to the calculation method, etc. of individual compensation and receive advice from the committee. The delegated Representative Director, President will then consider the details of this advice and decide. 7. Other important items related to decisions on the details of individual compensation, etc. N/A [Supporting System for Outside Directors] A department has been provided for assisting the duties of the Audit and Supervisory Committee. The department supports the duties of the directors serving as Audit and Supervisory Committee members, including outside directors, and the Audit and Supervisory Committee. 2. Matters on Functions of Business Execution, Audit and Supervision, Nomination and Compensation Decisions (Overview of Current Corporate Governance System) (1) Overview of the Current System Related to Governance Mechanisms such as the Board of Directors, Including Business Execution and Methods of Audit and Supervision The Company transitioned from a company with an Audit & Supervisory Board structure to a company with an Audit and Supervisory Committee structure by resolution of the 81st Ordinary General Meeting of Shareholders, held on June 28, 2016, and has a Board of Directors and an Audit and Supervisory Committee. Based on the resolution of the 82nd Ordinary General Meeting of Shareholders, held on June 28, 2017, the Board of Directors comprises nine directors (including three directors serving as Audit and Supervisory Committee members), with three directors, or one-third, being designated as independent outside directors. The Board of Directors and Audit and Supervisory Committee meet at least once every three months, in principle. In order to strive to ensure legal and appropriate corporate management, the Board of Directors makes important management decisions as needed and supervises business execution by directors, and in the Audit and Supervisory Committee, the directors serving as Audit and Supervisory Committee members monitor, report and express opinions on the status of business execution by directors serving as not Audit and Supervisory Committee members and executive officers, etc. Furthermore, the Company has introduced the executive officer system to increase management efficiency and strengthen the directors’ function of supervising executive officers’ business execution by separating management decision-making in the Board of Directors and business execution by executive officers. For information regarding the status of cooperation between the directors serving as Audit and Supervisory Committee members, the Audit Department, which is an internal audit unit, and the accounting auditor, please – 15 – [Translation] refer to the items under [Audit and Supervisory Committee] in “Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Supervision in Management” in this report. (2) Specific Measures for Enhancing Business Execution and Supervisory Function In accordance with the transition to a company with an Audit and Supervisory Committee structure, from the perspective of speeding up management decisions, a director (executive officer, president) was entrusted to make “important decisions concerning business execution,” excluding matters prescribed by law. Consequently, set up as an advisory body to the delegated director (executive officer, president), a Management Conference deliberates and advises on important management issues, and assists the executive officer, president in making decisions and strengthening the flexibility of business execution. Discussing (1) matters concerning important business execution decisions delegated by the Board of Directors to the executive officer, president, (2) matters deemed necessary by the executive officer, president from among the Board of Directors’ meeting agenda items, and (3) other important, management-related matters deemed necessary by the executive officer, president, the Management Conference works in conjunction with the Board of Directors in the making of quick and efficient management decisions. Regarding detailed supervision and audits of business execution, there is Group and Regional PDCA Councils that consist of directors not serving as Audit and Supervisory Committee members, directors serving as full-time Audit and Supervisory Committee members and senior management such as executive officers. At the councils, which convene on a quarterly basis, directors oversee the progress of management plans and provide guidance on management issues, while the directors serving as Audit and Supervisory Committee members audit the status of business execution by executive officers. The Group works to conduct unified sustainability activities by holding, in principle, quarterly meetings of the Sustainability Committee, whose secretariat is the Company’s Corporate Communication Department. The Committee deliberates and works to promote Group-wide sustainability policies, etc. by focusing on the Group’s quality, risk management, compliance, social contribution, etc., as well as the increasingly important issue of global environment conservation, and sustainability issues (medium- to long-term sustainability on a global scale) including respect for human rights, work-style reforms and gender equality. The Committee deliberates on the status of progress on measures under the Group-wide CSR policy and quality assurance systems, etc. Furthermore, each Group company has a CSR Promotion Committee in place that plans and promotes activities that are integrated with the workplace and works to promote CSR activities. The accounting audit is performed by Kyoritsu Audit Corporation that is an accounting audit firm. In fiscal 2020, the audit was carried out by two certified public accountants: Kiyoshi Asada (five consecutive years of audits) and Hiroshi Suzuki (two consecutive years of audits), with assistance from a further 13 certified public accountants and one other person. To establish, maintain, and operate corporate governance systems that will keep the Company sound and uphold the trust of society, designated Audit and Supervisory Committee members are dispatched directly to subsidiaries and so forth to conduct surveys and the Company also requests reports. Furthermore, the accounting audits of major consolidated subsidiaries are also conducted by the Company’s accounting auditor, Kyoritsu Audit Corporation. 3. Reasons for Adoption of Current Corporate Governance System The Company transitioned to a company with Audit and Supervisory Committee in 2016, in order to strengthen the supervisory functions for the Board of Directors and further reinforce corporate governance as well as speed up the decision process for management by entrusting the Board of Directors’ decision-making authority of the execution of business to directors. Looking ahead, we will strive to improve our structure for ensuring the soundness of operations and to enhance our corporate governance. – 16 – [Translation] III. Implementation of Measures for Shareholders and Other Stakeholders 1. Measures to Energize General Meeting of Shareholders and Smooth Exercise of Voting Rights Supplementary Explanations Early Notification of General Meeting of Shareholders Scheduling Ordinary General Meeting of Shareholders Avoiding the Peak Day Allowing Electronic or Magnetic Exercise of Voting Rights Participation in Electronic Voting Platform and Other Efforts to Enhance the Voting Environment for Institutional Investors Providing Convocation Notice in English (Translated Partially) Other The Company sends out the convocation notice at least three weeks (21 days) prior to the date of the General Meeting of Shareholders. (We strive to send out the notice earlier than the statutory deadline (two weeks prior to the General Meeting of Shareholders)) The Company sets its General Meeting of Shareholders to avoid the peak day. Since 2012, the Company has adopted the exercise of voting rights via the Internet using a computer or a mobile phone. Since 2012, the Company has been participating in Electronic Voting Platform operated by ICJ, Inc. The Company posts the translation of convocation notice on its website. (https://www.sanwa-hldgs.co.jp/english/ir/stock_info/meeting.html) The convocation notice (reference materials and business report (in Japanese only)) is provided on the Company’s website and so forth prior to being mailed out to ensure early disclosure to shareholders. – 17 – [Translation] 2. IR Activities Supplementary Explanations Explanation by Representative Preparation and Publication of Disclosure Policy Holding Regular Investor Briefings for Individual Investors Holding Regular Investor Briefings for Analysts and Institutional Investors Holding Regular Investor Briefings for Overseas Investors Posting IR Materials on Website Establishment of Department and/or Manager in Charge of IR The Company formulated its disclosure policy in April 2006, and has posted the policy on its website. * Please visit: the Company’s website > Investor Relations > Management Policy and Strategy > Disclosure Policy (https://www.sanwa-hldgs.co.jp/english/ir/management/disclosure.html) Briefings for individual investors are held in the form of investment seminars run by securities companies. In fiscal 2020, we held two online briefings, which were viewed by more than 1,100 investors. In fiscal 2021, we plan to hold four briefings. A financial results briefing is held through online livestreaming by the representative director after the announcements of fiscal year-end and second-quarter financial results. Furthermore, after the announcement of quarterly results, the representative director, officer responsible for the Corporate Planning Unit, and the Corporate Communication Department hold individual meetings. In fiscal 2020, we also held briefings for institutional investors on the Company’s ESG initiatives. These briefings were held in principle online. The representative director, the officer responsible for the Corporate Planning Unit and the general manager of the Corporate Communication Department attend conferences held by securities companies in the United State, Europe, and Asia and conduct individual online meetings. The Company’s website contains various materials such as annual securities reports (in Japanese only), news releases, financial results briefings, and integrated reports. (https://www.sanwa-hldgs.co.jp/english/) The Company has established a Corporate Communication Department. No Yes Yes 3. Measures to Ensure Due Respect for Stakeholders Supplementary Explanations Provisions to Ensure Due Respect for Stakeholders in Internal Rules, etc. The Group’s mission is stated as follows: “The Sanwa Group is committed to offering products and services that provide safety, security and convenience to further contribute to the prosperity of society.” In addition, this is also expressed in the “Compliance Code of Conduct” that is posted on the Company’s website. https://www.sanwa-hldgs.co.jp/english/csr/effort/governance/compliance.html – 18 – [Translation] Implementation of Environmental Activities, CSR Activities, etc. 1. Sustainability Committee The Company has established a Sustainability Committee, chaired by the Representative Director, President. The Committee deliberates and works to promote Group-wide sustainability policies, etc. by focusing on the Group-wide initiatives on social contribution, etc., as well as the increasingly important issue of global environment conservation, and sustainability issues (medium- to long-term sustainability on a global scale) including respect for human rights, work-style reforms and gender equality. 2. Identification of ESG Materiality In light of the social issues that affect the Sanwa Group, requests from stakeholders and other considerations, the Company identifies and promotes the key issues that need to be addressed regarding ESG activities. 3. CSR Activities In 2005, the Sanwa Group established its CSR Vision: “We will contribute to the prosperity of society and raise our corporate value by offering products that provide safety, security and convenience.” Through our CSR Vision, we have identified themes and priority issues from the perspective of stakeholder satisfaction and work continuously to enhance corporate value at each Sanwa Group company and business division (details can be found on the “Sustainability” section of our website). 4. Environmental Activities The Sanwa Group has formulated the following “Sanwa Group Environmental Policy” and is implementing various policies based on this approach. The Sanwa Group aims for harmony between the global environment and the everyday life of people. We will contribute to the realization of a sustainable society by addressing pertinently to environmental issues beginning with climate change, and by conducting business and offering products and services with consideration for the environment, all while taking a global point of view. (1) We will adhere to environmental laws and regulations and other requirements and maintain communication with stakeholders in the countries and regions where we do business. (2) We will appropriately assess impacts on the environment, set objectives and goals, and continuously work for the preservation and improvement of the environment. (3) We will contribute to prevention of global warming and realization of a circular economy through energy and resource conservation, waste reduction and recycling, as well as effective use of water resources. (4) We will strive to prevent pollution through reduction of our environmental impact in all business processes, including development, sales, design, procurement, production, logistics, installation and maintenance services. (5) We will promote development of products that help to mitigate and adapt to climate change and solve environmental problems, and will strive to raise the level of our technologies. (6) We will inform everyone who works for the Sanwa Group about the environmental policy, and will conduct educational and information – 19 – [Translation] dissemination activities to increase awareness of environmental preservation. (7) We will cooperate and collaborate with business partners and suppliers to reduce the environmental impact of the supply chain as a whole. ISO 14001 Certification In order to promote the above policies, the Sanwa Group will implement, maintain and continuously improve our environmental management system. 5. In May 2007, Sanwa Shutter Corporation, a core operating company in the Sanwa Group, acquired ISO 14001 certification for its operating divisions including development, materials, procurement, manufacturing, and distribution, and for its headquarters-related divisions. Venix Co., Ltd., also acquired ISO 14001 certification in May 2000. Going forward, we will consider expanding the scope of ISO 14001 certification to the entire Group (some Group companies in Europe and Asia have also acquired certification). Integrated Report 6. In 2016, the Company began issuing an annual “Integrated Report” combining financial information and non-financial information which lists the Company’s process to enhance value. The report is posted in the “Sustainability Library” section of the “Sustainability” page of the Company’s website. IV. Matters Related to Internal Control System 1. Basic Views on Internal Control System and Progress of System Development (1) System for ensuring the execution of duties by directors and employees of the Company and its subsidiaries (the “Sanwa Group”) complies with laws and regulations and the Articles of Incorporation (a) The Sanwa Group shall set our mission as “The Sanwa Group is committed to offering products and services that provide safety, security and convenience to further contribute to the prosperity of society” and establish our values and principles of business to realize our mission. The Compliance Code of Conduct shall be formulated to ensure these concepts are reflected in actual behavior. (b) The Compliance Code of Conduct booklet shall be distributed to all officers and employees of the Sanwa Group to ensure that they are fully aware of and comply with the code. A document promising observance to the Compliance Code of Conduct during operations shall be obtained from each person to promote sincere corporate activities that comply with laws, internal rules and regulations and social demands. (c) In order to ensure that the execution of duties of the Sanwa Group’s officers and employees conforms to laws and regulations and the Articles of Incorporation, the Company has established a Sustainability Committee, chaired by the Representative Director, President, and its subordinate organization the Quality, Environment and CSR Promotion Council, which sets policy for Group companies in Japan and manages progress. CSR Promotion Committees have also been established in each Group company. Using this framework, the Company oversees the establishment and promotion of compliance activities, strives to enhance compliance awareness and provide related education and training, and regularly reports on conditions to the Board of Directors. (d) The Company’s representative director strives to enhance awareness of compliance through such means as disseminating a message to all Group employees explaining the importance of compliance at the start of each fiscal year. The Sanwa Group holds Compliance Month in November every year to check and confirm that departmental and individual behavior is in line with laws, internal rules and regulations and social ethics, while study sessions are also held during the month as part of efforts to increase awareness of compliance and ensure action based on the Compliance Code of Conduct. – 20 – [Translation] (e) A Corporate Ethics Hotl