積水ハウス（1928） – Corporate Governance Report

Corporate Governance Report Last Updated: January 26, 2022 Sekisui House, Ltd. Representative Director President & CEO: Yoshihiro Nakai Contact: Investor Relations Department (Representative No.) +81-6-6440-3111 Securities Code: 1928 https://www.sekisuihouse.co.jp/english/ The corporate governance of Sekisui House, Ltd. (the “Company”) is described below. I. Basic Concept of Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information 1. Basic Concept In accordance with the Corporate Philosophy espousing the underpinning philosophy of “Love of Humanity” that embraces “Truth and Trust,” “Superior Quality and Leading Technology” and “Comfortable Housing and Ecologically Sound Communities,” the Sekisui House Group (the “Group”) considers corporate governance as one of the major management subjects. The Group has improved the effectiveness of its corporate governance to increase the corporate value while sustainably earning the trust of shareholders, investors and other all stakeholders, and has put in place a system that enables speedy management marked with integrity. [Principle 3.1(ii)] Its details are stipulated in the Sekisui House, Ltd. Basic Policy on Corporate Governance, which is posted on the Company’s website. URL: https://www.sekisuihouse.co.jp/english/info/gov.html [Reasons for Non-compliance with the Principles of the Corporate Governance Code] The Company is implementing all of the principles in the Corporate Governance Code amended in June 2021, including the sections related to the Prime Market. [Disclosure Based on the Principles of the Corporate Governance Code] [Principle 1-4] Cross-shareholdings (1) The Company shall not enter cross-shareholdings with business partners unless it judges that it will be helpful to medium- and long-term increases in the corporate value through the stable maintenance and strengthening of relationships with them. In addition, the Company shall comprehensively verify the economic rationality of transactions with parties that own cross-shareholdings to determine if it will continue these transactions. [Supplementary Principle 1.4.2] – 1 – (2) The Company shall analyze the appropriateness of cross-shareholdings at the meeting of the Board of Directors based on the minimum holdings required from a perspective of increasing capital and asset efficiency each year. At the meeting of the Board of Directors, members shall comprehensively analyze the medium- and long-term economic rationality of each individual stock based on holding objectives and risk and return. As a result, the Company shall sell any stock which is no longer meaningful to continue holding after considering the market environment etc. Even for stocks considered appropriate to hold, the Company may sell all or some shares after considering its capital policies and the market environment, etc. (3) An overview of the analysis at the meeting of the Board of Directors regarding cross-shareholding shall be disclosed as appropriate in the reports related to corporate governance, etc. (4) When companies holding the Company stock as cross-shareholdings express an intention to sell such shares, the Company shall not prevent the sale in any way by, for example, insinuating a reduction in their business relationship. [Supplementary Principle 1.4.1] At the meeting of the Board of Directors held in September 2021, the members analyzed all listed stocks it holds as cross-shareholding (for 24 different companies excluding Sekisui House Reit, Inc. and equity-method affiliates) in terms of the status of shareholding, risk and return (deviation rate of stock price, dividend yield, ROE, credit ratings and others) and importance of transactions and overall significance of owning them. Furthermore, from the perspective of increasing capital efficiency, the Company has adopted a policy to reduce cross-shareholdings in phases and set specific targets, namely to reduce the ratio (*) of cross-shareholdings to consolidated net assets to 5% or less during the period of the Fifth Medium-Term Management Plan (to January 31, 2023). The Company intends to further reduce cross-shareholdings during the period of the Sixth Medium-Term Management Plan and beyond, considering the market environment and other factors. (*) Refers to the ratio of the “balance sheet amount of stocks for investment held for purposes other than pure investment,” stated in the annual securities report to consolidated net assets. (Stocks sold during the fiscal year ended January 31, 2021) Of the 32 companies analyzed, the Company has sold all shares of the 8 companies and a portion of shares of 1 company. [Principle 1-7] Transactions among related parties When transactions between the Company and Directors are carried out, excluding special cases, such as sales at regular prices, when there are only limited risks of conflict of interest, approval at the meeting of the Board of Directors shall be obtained and ex post facto reports on important facts shall be provided. The Company shall strive to understand the status of transactions by carrying out surveys every business year in writing with each director on whether or not there are any transactions with the director and his/her close relatives. [Supplementary Principle 2.4.1] Ensuring diversity in the core human resources in companies The Group sets “promotion of diversity and inclusion” as one of its human resources strategies to sustain the world’s happiest company and aims to realize the sustained growth of both the Company and its employees through “innovation and communication,” which are enabled when everyone respects and leverages each other’s diversity and maximizes one’s abilities. – 2 – (1) Women The Group considers the “active participation by women” as a crucial management strategy in contributing to the resolution of social issues and creating new value through housing. The “Sekisui House’s Action Plan for Promotion of Active Participation by Women” sets the target of promoting at least 310 female managers throughout the Group by fiscal 2025 (March 31, 2026). Number and percentage of female managers (*Group basis): As of July 2021, there were 271 (4.21%) female managers. This number has progressively increased from the 141 (2.79%) in fiscal 2016, and the Group has achieved ahead of schedule the target of having 260 female managers by the end of the Fifth Medium-Term Management Plan (to January 31, 2023). *Sekisui House, Sekisui House Real Estate Group, Sekiwa Construction Group, Sekisui House Remodeling, Ltd., and Sekisui House noie Limited (2) Mid-career recruits Each year the Company hires over approximately 100 mid-career recruits. Number and percentage of mid-career recruits (*non-consolidated basis): In fiscal 2020, 110 mid-career recruits were hired. Mid-career recruits accounted for 19.3% of all recruits for the year. Currently, mid-career recruits make up approximately 10% of the Company’s managerial positions and approximately 14% of officer positions (Operations Officers, Employed Executive Officers, and Entrusted Executive Officers). Going forward, the Company will promote a system whereby mid-career recruits are not disadvantaged in their promotion to managerial positions. The Company, under the policy of reinforcing diversity, will continue to supplement its management personnel, IT/DX personnel, talent to reinforce governance, etc., and raise the percentage of mid-career recruits to the total number of new hires each year. (3) Foreign nationals The Company’s domestic business conducts ongoing recruitment of human resources regardless of nationality. While the Company on a non-consolidated basis has yet to promote a foreign national to a managerial position, the Company plans to proactively promote such human resources upon considering their capabilities and aptitude, in line with business needs. Furthermore, from the standpoint of reinforcing and replenishing its workforce, overseas subsidiaries regularly hire personnel from within the local talent pool and will continue to promote outstanding local talent to important positions going forward. At the major overseas subsidiaries (*), there are 355 locally-hired personnel in managerial positions or higher, who account for 87.7% of all managerial positions employees, including personnel seconded from the Company (as of October 31, 2021). *US: SEKISUI HOUSE US HOLDINGS, NORTH AMERICA SEKISUI HOUSE, SH RESIDENTIAL HOLDINGS, WOODSIDE HOMES COMPANY; Australia: SEKISUI HOUSE AUSTRALIA HOLDINGS; China: Sekisui House (China) Co., Ltd., Sekisui House (Shenyang) Co., Ltd., Sekisui House・Changcheng (Suzhou) Real Estate Development Co., Ltd., Sekisui House (Wuxi) Co., Ltd., Sekisui House No.1 (Shenyang) Co., Ltd., and Sekisui House No.2 (Taicang) Co., Ltd.; Singapore: SEKISUI HOUSE SINGAPORE; UK: SEKISUI HOUSE UK. In order for employees and companies to both grow sustainably, in 2006, the Company declared “Human Resource Sustainability” as its basic resource policy, upholding 3 major pillars of the policy, “encouraging female employees to pursue career development,” “effectively utilizing diverse human resources,” and “promoting a variety of working styles and work-life balance.” – 3 – In 2016, the Group established “Sekisui House’s Action Plan for Promotion of Active Participation by Women” based on the Act on Promotion of Women’s Participation and Advancement in the Workplace and is strengthening related activities. The Group achieved the targets ahead of schedule in 2019 and set new targets in 2021. In recognition of the Company’s efforts in encouraging female employees to pursue career development, the Company has been selected as a Nadeshiko Brand for a total of six times, including in fiscal 2020, jointly by the Ministry of Economy, Trade and Industry and Tokyo Stock Exchange. In April 2020, the Company established the “Sekisui House Group Human Rights Policy.” The Company promotes the creation of a working environment with free and open communication, where each employee recognizes and makes the most of each other’s diversity, values, and working styles, and aims to build an organizational culture that fosters innovation. In order to achieve the above, the Group has established, implementing specific policies and promoting system. Details of the following initiatives of the Company are described in “Other” of 3. Measures to Ensure Due Respect for Stakeholders, under III. Implementation of Measures for Shareholders and Other Stakeholders. Encouraging female employees to pursue career development Effectively utilizing diverse human resources Promoting a variety of working styles and work-life balance In addition, the Company also discloses details of initiatives to promote diversity in the Sustainability Report, the Diversity & Inclusion, etc. https://www.sekisuihouse.co.jp/english/company/sustainable/ https://www.sekisuihouse.co.jp/english/diversity_inclusion/ [Principle 2-6] Fulfillment of the functions as the asset owner of corporate pensions Through the Sekisui House Corporate Pension Fund and the Sekisui House Affiliate Corporate Pension Fund (the “Both Funds”), the Company operates the corporate pension reserves based on the following basic stance. (1) The Company shall systematically hire and position personnel who have the attributes required to manage corporate pensions, such as expertise and experience in accounting, finance, and human resources, in order to boost the operational expertise and its abilities as an asset owner, such as monitoring the operational institution for the Both Funds. (2) The Company establishes a Pension Committee to confirm the health of the overall management through deliberations regarding the system and asset management policies, etc. Furthermore, the Company shall disclose information as appropriate to beneficiaries on the intranet, including minutes from the meeting of representatives and overviews of meetings of the Pension Committee. (3) The operation of Both Funds shall be delegated to multiple operation institutions both inside and outside of Japan based on the basic stance of pension asset operation. By delegating specific investment choices and the voting rights to each operational institution, the Company can prevent any conflict of interest between companies and the beneficiaries of the corporate pension. The Company shall also hire persons possessing knowledge of corporate pensions as consultants from outside institutions. These persons shall provide advice regarding portfolio creation and the selection of operational institutions and funds and advice at the Pension Committee meetings. The Company aims to appropriately manage conflicts of interest and strengthen expertise through this process. (4) By allowing related personnel to attend seminars related to corporate pensions held by each operational institution and the Pension Fund Association, the Company aims to improve quality and develop personnel who can be involved in the management of pension funds. – 4 – (5) Both Funds have expressed their acceptance of Japan’s Stewardship Code as an asset owner that independently allocates its assets, and request operational institutions entrusted with the management of their assets to perform stewardship activities. [Principle 3-1] Full disclosure (1) The Company recognizes that disclosure is the responsibility of the Directors, including the Independent Outside Directors, and the management executives, and shall proactively and impartially disclose not only its financial information, such as financial condition and business results, but also non-financial information, including the management policy and activities related to CSR and ESG (Environment, Social and Governance) to shareholders, investors and all other stakeholders. The Company shall also determine a Medium-Term Management Plan to cover 3 years. This plan shall set targets for sales, operating income, net income, and a Return On Equity (ROE), etc. clarify earnings plans and business strategies for each segment, and disclose progress for each fiscal year in the earnings materials. In addition, the Company shall work proactively on dialogues with stakeholders through direct communications to ensure they are accurately understood and building proper relationships of trust and study comments received from them as reference for managerial decision making. https://www.sekisuihouse.co.jp/english/financial/plan/index.html https://www.sekisuihouse.co.jp/english/financial/library/yearly/index.html (2) The basic concept and policies of Corporate Governance of the Company shall be stipulated in “the Sekisui House, Ltd. Basic Policy on Corporate Governance,” which shall be posted on the Company’s website. (3) The Company shall disclose its policies for determining remuneration for Directors etc. in the annual securities report and “the Sekisui House, Ltd. Basic Policy on Corporate Governance.” To ensure the fairness and transparency, remuneration for Directors shall be resolved in line at the meetings of the Board of Directors based on the recommendations of the Personnel Affairs and Remuneration Committee, which shall be chaired by an Independent Outside Director and a majority of whose members are Independent Outside Directors. (4) The Company shall disclose its policies for electing the candidates for Directors and Audit & Supervisory Board Members, etc. in “the Sekisui House, Ltd. Basic Policy on Corporate Governance.” To ensure that the election and dismissal of Representative Directors and Executive Officers are carried out in a fair and objective manner, the Board of Directors shall make decisions on them based on the recommendations of the Personnel Affairs and Remuneration Committee that is chaired by an Independent Outside Director and includes a majority of Independent Outside Directors as its members after deliberations are held by the Committee. (5) Reasons for election of candidates for Directors and Audit & Supervisory Board Members shall be explained in the Notice of the General Meeting of Shareholders. https://www.sekisuihouse.co.jp/english/financial/holders/meeting/index.html [Supplementary Principle 3.1.3] Initiatives on sustainability (1) Basic policy on sustainability and initiatives The Group has defined “Make home the happiest place in the world” as its global vision, based on its long-term vision targeting 2050, “NEXT SEKISUI HOUSE 30- year Vision.” As a global company that offers – 5 – integrated proposals of technologies, lifestyle design, and services based on the residential domain, the Group promotes initiatives that maximize the “happiness” of customers, employees, and society. To achieve this vision, the Board of Directors, aiming to become a leading company in ESG (Environment, Social and Governance) management, promotes ESG initiatives by designating them as material items that underpin the Group’s management base and incorporating them into the Medium-Term Management Plan. Upon resolution by the Board of Directors, the Group has identified the following material issues in promoting ESG management: “Environment” (Contributing to a decarbonized society, etc.), “Home” (Maintaining and improving customer satisfaction, etc.), “Community” (Regional revitalization, etc.), “People” (Developing human resources, etc.), and “Organization” (Strengthening corporate governance, etc.), and has upheld initiatives to address these material issues. The Group also analyzes medium- and long-term issues that affect the Company’s value creation with relation to sustainability, identify risk factors, position them as opportunities for future business development, and applies them to medium- and long-term planning of business strategies. The Board of Directors established the ESG Promotion Committee, consisting of 2 or more outside committee members with expert knowledge and other members, to enhance the effectiveness of ESG efforts through means such as exchanging opinions on the progress of ESG management initiatives and issues. The details of discussions at the ESG Promotion Committee meetings are reported to and deliberated at the Board of Directors’ meetings. Moreover, the ESG Management Promotion Headquarters, which was established in June 2020, acts as the responsible division in further promoting ESG management, based on discussions at the ESG Promotion Committee meetings and through the coordination within the Company and with Group companies both in Japan and overseas. Furthermore, to promote ESG management with the participation of all employees, the Company conducts “ESG Dialogue,” which allows dialogues by job rank, on the theme of “making employees, customers, and communities happy through our business.” The Company discloses its initiatives on sustainability and the status of investments in human capital and intellectual property in the Corporate Governance Report, as well as the Integrated Report and the Sustainability Report issued every year. Regarding climate change risks and revenue-generating opportunities, the Company incorporates the TCFD Report in the Integrated Reports and discloses the results of analysis of risks and revenue-generating opportunities under multiple scenarios (1.5°C and 4.0°C). (2) Investment in human capital As a partner in creating happiness, the Group implements human resources strategies based on “Diversity and inclusion,” “Workstyle innovations,” “Support for self-directed career development,” and “happiness health management” to provide new value to customers and society. The Company has positioned 2021 as the year one for reforming its personnel system and have introduced a highly transparent evaluation system and career interviews based on full communication between supervisors and members to support the “career autonomy” of employees. Furthermore, the Company is working to systematically produce next-generation of business leaders through such programs as the Keiei-juku management training program inaugurated in 2018 to develop and select organization leaders (branch managers, head office senior managers, factory managers, etc.) and the “SHINE! Challenge Program” launched in October 2019. Additionally, the Company provides various training programs for branch managers and team leaders to strengthen management capability, human resources development, organizational revitalization, etc. of individual branches and teams and conducts the “Self-esteem improvement seminar” (for employees in their third year at the Company), the “Autonomous career development course” (for employees in the fifth to the seventh year at the Company), and the “Mid-career training” (for employees reaching their 45th birthday) to – 6 – support career building. The Company has also formulated a health management policy based on the belief that improving physical and mental health, which are integral to an employee’s happiness, is indispensable to the realization of the global vision, and is therefore engaged in promoting “happiness” health management. Specific measures include a well-being survey targeting all employees and innovative health programs on the Company’s original app, Sekisui House FIT, to promote physical exercises and prevention of lifestyle-related diseases. In recognition of these initiatives, the Company was certified as a Certified Health and Productivity Management Organization (White 500) designed by the Ministry of Economy, Trade and Industry and certified by the Japan Health Council for two consecutive years in 2020 and 2021. (3) Investment in intellectual property The Group, recognizing the importance of R&D, invests ample R&D expenses primarily in the Comprehensive Housing R&D Institute, the Human Life R&D Institute, and other R&D bases, as well as make proactive capital investments. The Group, in recent years, has also proactively invested in fields that will contribute to the promotion of future businesses, mainly in new business fields such as the Platform House business, through industry-academia collaboration and partnerships with companies in different industries. The Group also makes proactive investments in areas that are not necessarily related to technology developments such as the Sumufumulab, which hosts customer-participation events, and the Nattoku Kobo Studio, which provides opportunities for hands-on experience related to the living environment, and collectively positions the outcome of these investments as management resources (intellectual capital). Among such intellectual capital, technologies and designs are protected by patents and design registrations, while the Group’s expertise and data accumulated over the years, in addition to the opinions of our customers, are protected as trade secrets. Moreover, when the outcome of these investments reach the commercialization stage, the Company carefully considers the names of the products and protects them with trademarks to make them represent the symbols for providing customers with satisfaction and security through the value chain. The Company, attaching greater importance than ever to these activities, established the Intellectual Property Office in August 2021 as a dedicated organization to oversee intellectual property, and in addition to developing in-house human resources, has been proactively hiring specialists in intellectual property, including talent who had overseen intellectual property at other companies. Through measures that encompass both investments and the protection of their outcome, the Company has built up its core competencies of “technical capabilities,” “construction capabilities,” and “customer base.” The Company has also demonstrated its competitive edge throughout its unique value chain that encompasses every process of home building in order to provide value to its customers, and build a foundation for sustainable corporate growth. (Results of as January 31, 2021) ・Research and development expenses: 9.6 billion yen ・Number of design rights held: 308 ・Number of patents held: 641 [Supplementary Principle 4-1(1)] Roles and responsibilities of the Board – 7 – Based on the understanding that its main role is establishing management policies, strategies and plans, the Board of Directors shall continually examine matters for deliberation and shall delegate decision-making on the execution of specific operations to Directors and Executive Officers where possible. The scope of delegation shall be clearly set forth in the Board of Director Proposal Standard and the approval regulation, and its overview shall be as follows. – Acquisition of land for sale in lots of less than 10 billion yen or less – Acquisition or development of real estate for leasing of less than 10 billion yen or less – Borrowing of less than 10 billion yen or less – Capital investments etc. of less than 5 billion yen or less [Principle 4-9] Standards for Independence of and qualification for Independent Outside Directors Candidates for Outside Directors shall meet not only the requirements for Outside Directors that are set forth in the Companies Act, but also meet the independence standards that have been set out by the Company. The Company shall disclose the standards for their independence in “the Sekisui House, Ltd. Basic Policy on Corporate Governance.” [Supplementary Principle 4.10.1] Independence of the composition, authority and roles of the Personnel Affairs and Remuneration Committee (i) Significance and objectives a) The objective of the Personnel Affairs and Remuneration Committee is to ensure fairness and transparency in human resources matters, such as in the election and dismissal of Directors and Entrusted Executive Officers, as to whether the election is appropriately carried out in accordance with election policy and procedures. b) The objective of the Personnel Affairs and Remuneration Committee is to ensure the fairness and transparency in remuneration of Directors and Entrusted Executive Officers and other matters (meaning compensation for the execution of duties, regardless of form, such as remuneration and bonuses, and including property benefits other than cash, such as the granting of shares or share warrants), as to whether the remuneration appropriately reflects the evaluation of results and other factors, whether the remuneration is effective as incentives, and other matters. (ii) Committee Members The Personnel Affairs and Remuneration Committee shall comprise the Directors. Moreover, a majority of the committee members shall be Independent Outside Directors. The Chairperson of this Committee shall be elected from among the Independent Outside Directors by the resolution of the Board of Directors. The Personnel Affairs and Remuneration Committee provides recommendations on the appointment, dismissal and other personnel matters relating to the Directors and Entrusted Executive Officers and their remuneration systems, etc., as a consultative body to the Board of Directors, and the Board of Directors makes resolutions on those matters based on such recommendations. (iii) Details of duties a) The Personnel Affairs and Remuneration Committee shall hold deliberations about the items below related to human resources matters, such as the election and dismissal of Directors and Entrusted Executive Officers, and shall provide its opinions to the Board of Directors. i. Policies related to the election and dismissal of Directors and Entrusted Executive Officers and changes in the policies ii. Election of Directors iii. Election and dismissal of Representative Directors – 8 – iv. Election and dismissal of the Entrusted Executive Officers v. Establishment, revision, and abolition of the Company’s important rules related to human resources matters of Directors and Entrusted Executive Officers, etc. vi. Succession plan for the Representative Directors, etc. vii. In addition to the items i through vi, matters that are specially assigned by the Board of Directors in relation to personnel matters of Directors and Entrusted Executive Officers and other important matters b) The Personnel Affairs and Remuneration Committee shall determine the amount of individual remuneration of the Directors and Entrusted Executive Officers based on the delegation from the Board of Directors and the Committee also hold deliberations about the items below related to remuneration of Directors and Entrusted Executive Officers and other matters, and shall provide its opinions to the Board of Directors. i. Remuneration systems of Directors and Entrusted Executive Officers, policies for the provision of the remuneration, etc. and changes in policy ii. Proposals for the framework of remuneration for Directors iii. Establishment, revision, and abolition of the Company’s important rules related to the remuneration of Directors and Entrusted Executive Officers, etc. iv. The key performance indicator (KPI) targets and evaluation of achievements for v. performance-related remuneration In addition to the items i through ⅳ, matters that are specially assigned by the Board of Directors in relation to remunerations of Directors and Entrusted Executive Officers and other important matters [Supplementary Principle 4.11.1] Prerequisites for securing effectiveness of the Board of Directors and the Audit & Supervisory Board The composition of the Board of Directors shall be as follows. (1) The Board of Directors shall have the number of members that is considered appropriate to substantial deliberations. (2) Independent Outside Directors shall be appointed so that the ratio of Independent Outside Directors in the Board of Directors shall be one-third or more. (3) The Board of Directors shall be joined by well-balanced members selected through the development of a skill matrix based on the business strategies and management plans, such as experts specializing in finance, accounting, laws, compliance and other relevant areas, with consideration for knowledge, experience, and ability, the number of years in office, and gender, ensuring both the compatibility with diversity and proper headcount. The skill matrix developed by the Company is as indicated in the attachment to this report. Also, the Company shall select prospective Directors from among those of high integrity (as a sincere and high-minded morality, and earnestness) and having high management ability, having nature suited to practicing the Group’s Corporate Philosophy, interested in the Group’s business and with a deep insight, etc. , and having high awareness for contributing to creating corporate value and improving company performance. Policies on selecting the candidates for Directors and proposals on specific prospective Directors shall be discussed at the Personnel Affairs and Remuneration Committee which shall be chaired by an Independent Outside Director and a majority of whose members shall be Independent Outside Directors, and determined by the Board of Directors based on the opinions of the Committee. – 9 – The selection of prospective internal Directors shall be performed with consideration for the specified qualification requirements (i.e., embodying the Corporate Philosophy and having a panoramic vision) and competence requirements (i.e., having a vision to resolve external problems, innovativeness for creating new markets, being able to cooperate with various stakeholders, and the capability to develop organizations that enhance the Group’s comprehensive power), and shall be discussed at the Personnel Affairs and Remuneration Committee based on requirements for human resources and an evaluation of performance. [Supplementary Principle 4.11.2] Prerequisites for securing effectiveness of the Board of Directors and the Audit & Supervisory Board The Board of Directors and the Audit &Supervisory Board verify the status regarding concurrent positions of each Director and Audit & Supervisory Board Member is within the reasonable range, and explain the status regarding the important concurrent positions of the Directors in the Notice of the General Meeting of Shareholders. https://www.sekisuihouse.co.jp/english/financial/holders/meeting/index.html [Supplementary Principle 4.11.3] Analysis and Evaluation of the Effectiveness of the Board of Directors Each year, the Board of Directors analyzes and evaluates its effectiveness including the status of establishing support structure for Directors and Audit & Supervisory Board Members as a whole and discloses a summary of results. In addition, to utilize objective third-party’ perspective, the Board of Directors shall ensure that periodical third-party’s evaluation shall be conducted by outside experts.

(1) Evaluation method In this fiscal year, as in the previous year, an independent third-party evaluation company prepared questionnaire items, and distributed questionnaires to and collected them from all Directors and Audit & Supervisory Board Members. Based on the results of the questionnaires, the Company conducted interviews with twelve Directors and six Audit &Supervisory Board Members. The results were evaluated, reviewed and complied into a report by that company as a third–party organization. At the meeting of the Board of Directors held in March 2021, the content of the report was explained by the evaluation company and discussed by the members.

“Structure and system of the Board of Directors”, “Operations and practices of the Board of Directors”, “Deliberations of the Board of Directors”, “Supervisory functions of the Board of Directors”, “Progress on challenges in the previous fiscal year” (2) Outline of the results regarding the evaluation It is evaluated that the Board of Directors has following strengths and is highly effective in general. ・Structure and system of the Board of Directors By raising the ratio of Outside Directors to one-third etc., the Board of Directors is structured in a well-balanced manner, with independence and diversity ensured, led by four Representative Directors. ・Culture that emphasizes communication, including active discussions A culture that emphasizes communication has also penetrated the Board of Directors, and transparent and active discussions are taking place, regardless of whether Internal or Outside Directors are involved. ・Impetus for governance reforms led by four Representative Directors – 10 – A series of governance reforms have been promoted under the strong leadership of four Representative Directors, therefore the Board of Directors has strong impetus for governance reforms. (3) Challenges to be addressed in the future In order to further enhance its effectiveness, the Board of Directors continues to strive to strengthen its corporate governance including following challenges. ・ Expansion of discussions on medium-to long-term management etc. at the meeting of the Board of Directors ・Approach to further encourage Outside Directors to fulfill their functions ・Strengthening group governance [Supplementary Principle 4.14.2] Trainings for Directors and Audit & Supervisory Board Members The Company stipulates it as its policy that the Company will provide the Directors and Audit & Supervisory Board Members with opportunities of acquiring the knowledge necessary or helpful to the execution of their respective roles and duties as appropriate on a continuous basis, and bear the expenses for their participating in training and others. The Company discloses such policies in “the Sekisui House, Ltd. Basic Policy on Corporate Governance.” [Principle 5-1] Policy on constructive dialogue with shareholders Based on an awareness that it is significant to talk with shareholders and investors, to take their opinions seriously and to incorporate them properly into management for attaining continued growth and a medium- and long-term increase in corporate value, the Company shall ensure that its Representative Directors take control and set up an organization in charge of investor relations. Management executives including Representative Directors and the organization in charge of investor relations shall engage in strategic operational collaboration with the Corporate Management Planning Department, each organization attached to the Division of Finance & ESG, and each Division of the headquarters of the Company in collection of inside information, drawing up of messages for outsiders and others to step up constructive dialogues with shareholders and investors. Dialogues shall be held with the Independent Outside Directors and the shareholders and investors when deemed necessary. In dialogues with shareholders and investors, based on the basic policy of information disclosure established by the Board of Directors and others, the Company shall not conduct selective disclosure of vital information that may influence investment decisions, but rather strive to disclose information through means that stakeholders can access equally. Regarding important facts not yet released to the public, the Company shall aim for equality among all shareholders, comply with internal provisions to prevent insider trading, and thoroughly manage information. 2. Capital Structure Foreign Shareholding Ratio 20% or more and less than 30% – 11 – [Status of Major Shareholders] The Master Trust Bank of Japan, Ltd. (Trust Account) Custody Bank of Japan, Ltd. (Trust Account) Sekisui Chemical Co., Ltd. SMBC Nikko Securities Inc. Sekisui House Ikushikai Custody Bank of Japan, Ltd. (Trust Account 7) The Dai-ichi Life Insurance Company, Limited State street bank west client – treaty 505234 MUFG Bank, Ltd. Custody Bank of Japan, Ltd. (Trust Account 5) Name Number of Shares Owned (Shares) Shareholding Ratio (%) 77,811,600 11.36 37,021,800 30,608,027 22,257,600 18,425,822 14,924,300 12,158,730 11,767,399 10,899,615 10,601,000 5.41 4.47 3.25 2.69 2.18 1.78 1.72 1.59 1.55 Controlling Shareholder (except for Parent) – Parent (Listed Stock Market) None Supplementary Explanation The status above is the status of major shareholders as of July 31, 2021. Listed Stock Market and Market Section Tokyo Stock Exchange (First Section), Nagoya Stock Exchange (First Section) 3. Corporate Attributes 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 ¥1 trillion or more January Construction 1,000 or more – 12 – Number of Consolidated Subsidiaries at End of the Previous Fiscal Year 100 or more and less than 300 4. Policy for Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder 5. Special Circumstances which may have Material Impact on Corporate Governance – – – 13 – II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Supervision in Management 1. Organizational Composition and Operation Organization Form Company with Audit & Supervisory Board Members [Directors] Maximum Number of Directors Stipulated in Articles of Incorporation 12 Term of Office Stipulated in Articles of Incorporation one year Chairperson of the Board Outside Director Number of Directors Appointment of Outside Directors Appointed Number of Outside Directors Number of Independent Officers Designated from among Outside Directors 10 4 4 Outside Directors’ Relationship with the Company (1) Name Attribute Relationship with the Company* a b c d e f g h i j k Yukiko Yoshimaru From another company Toshifumi Kitazawa From another company Yoshimi Nakajima From another company Keiko Takegawa Academic * 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 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 corporation) – 14 – 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 director himself/herself only) only) j. Executive of a corporation that receives a donation from the Company (the director himself/herself only) k. Other Outside Directors’ Relationship with the Company (2) Name Designation as Independent Officer Yukiko Yoshimaru Toshifumi Kitazawa Supplementary Explanation of Director’s adequacy Reasons for Appointment She worked as Chief Manager of Diversity Development Office of NISSAN MOTOR CO., LTD. from October 2004, before joining Nifco Inc. in April 2008, serving as Executive Officer of the company from June 2011 to June 2018. She has also served as Outside Director of Mitsui Chemicals, Inc. since June 2019. (Independent Officer) To strengthen the supervisory function of the Company with her wealth of knowledge and experience in human resource management and diversity, as well as management experience as a director of domestic and overseas companies. The Company has elected her as an Independent Officer because she is deemed to meet the Criteria for Independence of Outside Officers set out by the Company and there is no risk of conflict of interest with general shareholders. He served as President & Director of Tokio Marine &Nichido Anshin Life Insurance Co., Ltd, President &Chief Executive Officer of Tokio Marine & Nichido Fire Insurance Co., Ltd, and Director of Tokio Marine Holdings, Inc. He has also served as Outside Audit & Supervisory Board Member of the Company from April 2009 to April 201Vice Chairman & Director of Tokio Marine &Nichido Fire Insurance Co.,Ltd since April 2019. (Independent Officer) To strengthen the supervisory function of the Company with his extensive knowledge and experience in areas including global business, M&A, risk management and compliance, as well as abundant achievements and experience as a manager, gained from his career as key positions at a major insurance company. The Company has elected him as an Independent Officer because he is deemed to meet the Criteria for Independence of Outside Officers set out by the Company and there is no risk of a conflict of interest with general shareholders. – 15 – Name Designation as Independent Officer Yoshimi Nakajima Supplementary Explanation of Director’s adequacy Reasons for Appointment To strengthen the supervisory function of the Company with her wealth of achievements and experience as a manager, in particular her extensive experience in financial strategy, M&A, and other areas from serving as the head of Asian and Japanese subsidiaries of global financial institutions, gained from her career as key positions in domestic and overseas companies, as well as her experience on the front lines of corporate management in an environment where diversity in senior management is considered to be natural. The Company has elected her as an Independent Officer because she is deemed to meet the Criteria for Independence of Outside Officers set out by the Company and there is no risk of conflict of interest with general shareholders. To strengthen the supervisory function of the Company with her extensive knowledge and experience in the fields of diversity and compliance, gained from her career as key positions in the Cabinet Office where she has worked hard to realize policies related to gender equality. The Company has elected her as an Independent Officer because she is deemed to meet the Criteria for Independence of Outside Officers set out by the Company and there is no risk of conflict of interest with general shareholders. She served as President & Representative Director of American Express Japan Co., Ltd. from April 2014 to December 2016. She has also served as Outside Director of Yamaha Corporation and AEON Financial Service Co., Ltd since June 2017, and as Outside Director of Japan Freight Railway Company since June 2018, and as Outside Director of ULVAC, Inc. since September 2018. (Independent Officer) She served as Director of the Gender Equality Bureau from July 2014 to December 2018, at the Cabinet Office, before joining Showa Women’s University, serving as Dean of Faculty of Global Business of the university from April 2020. She has also served as Outside Director of NIPPON TELEGRAPH AND TELEPHONE CORPORATION and Outside Auditor of MITSUI MINING & SMELTING CO., LTD., since June 2019. (Independent Officer) Keiko Takegawa [Voluntary Committees] Voluntary Establishment of Committee(s) Equivalent to Nominating Committee or Remuneration Committee Established – 16 – Committee’s Name, Composition, and Chairperson’s Attributes Committee’s Name Total Committee Members Full-time Members Inside Directors Outside Directors Outside Experts Other Chairperson Supplementary Explanation Committee Equivalent to Nominating Committee The Personnel Affairs and Remuneration Committee Committee Equivalent to Remuneration Committee The Personnel Affairs and Remuneration Committee 5 2 2 3 0 0 5 2 2 3 0 0 Outside director Outside director In conformity with the Basic Policy on Corporate Governance of the Company, a Director shall not act as both of the chairperson and the convener of the meetings of the Board of Directors, and an Independent Outside Director shall act as the chairperson of the meetings of the Board of Directors in principle. It is also the Company’s basic policy a majority of the Personnel Affairs and Remuneration Committee shall be Independent Outside Directors. The chairperson of the Committee shall be appointed by a resolution of the Board of Directors from among Outside Directors. Currently, Mr. Toshifumi Kitazawa, Outside Director, acts as the chairperson of the meetings of the Board of Directors, and Mr. Yoshihiro Nakai, Representative Director President, acts as the convener of the meetings. The Personnel Affairs and Remuneration Committee consists of 2 Representative Directors, Mr. Yoshihiro Nakai and Mr. Satoshi Tanaka, and 3 Outside Directors, Ms. Yukiko Yoshimaru, Mr. Toshifumi Kitazawa and Ms. Keiko Takegawa. And Ms. Yukiko Yoshimaru acts as the chairperson of the Committee. [Audit & Supervisory Board Members] Establishment of Audit & Supervisory Board Established Maximum Number of Audit & Supervisory Board Members Stipulated in Articles of Incorporation 7 Number of Audit & Supervisory Board Members 6 – 17 – Cooperation among Audit & Supervisory Board Members, Financial Auditor and Internal Audit Department [Cooperation among Audit & Supervisory Board Members and Accounting Auditor] – Audit & Supervisory Board Members hold regular meetings with the Accounting Auditor, check audit policies and the status of accounting audits and others, and exchange information, thereby ensuring cooperation. [Cooperation between Audit & Supervisory Board Members and internal audit division] – Audit & Supervisory Board Members cooperate closely with the internal audit division, and each Standing Audit & Supervisory Board Member conducts inspections on the Company’s operations and assets, if necessary, in cooperation with the internal audit division. – Audit & Supervisory Board Members receive audit reports from the internal audit division each time they conduct an audit. General Manager of Auditing Department regularly attends the meeting of the Audit & Supervisory Board to receive reports on relevant status. Appointment of Outside Audit & Supervisory Board Members Appointed Number of Outside Audit & Supervisory Board Members Number of Independent Officers Designated from among Outside Audit & Supervisory Board Members 4 4 – 18 – Outside Audit & Supervisory Board Member’s Relationship with the Company (1) Name Attribute Takashi Kobayashi Attorney at law Hisako Makimura Academic Ryuichi Tsuruta From another company Yoritomo Wada Certified public accountant Relationship with the Company* a b c d e f g h i j k l m △ * Categories for “Relationship with the Company” “” when the Audit & Supervisory Board Member presently falls or has recently fallen under the category; “” when the Audit & Supervisory Board Member fell under the category in the past; “” when a close relative of the Audit & Supervisory Board Member presently falls or has recently fallen under the category; and “” when a close relative of the Audit & Supervisory Board Member 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 accounting advisor of the Company or its subsidiary c. Non-executive director or executive of the parent of the Company d. Audit & Supervisory Board Member of the parent of the Company e. Executive of a fellow subsidiary of the Company f. Party whose major client or supplier is the Company or an executive thereof g. Major client or supplier of the Company or an executive thereof h. Consultant, accounting professional or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as an Audit & Supervisory Board Member i. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a corporation) j. Executive of a client or supplier of the Company (which does not correspond to any of f., g., or h.) (the Audit & Supervisory Board Member himself/herself only) k. Executive of a corporation to which outside officers are mutually appointed (the Audit & Supervisory Board Member himself/herself only) l. Executive of a corporation that receives a donation from the Company (the Audit & Supervisory Board Member himself/herself only) m. Other – 19 – Outside Audit & Supervisory Board Member’s Relationship with the Company (2) Name Designation as Independent Officer Supplementary Explanation of Director’s adequacy Reasons for Appointment Takashi Kobayashi Hisako Makimura To utilize his professional knowledge and abundant experience in the field of judiciary services as a retired public prosecutor and an attorney for strengthening the audit system. The Company has elected him as an Independent Officer because he is deemed to meet the Criteria for Independence of Outside Officers set out by the Company and there is no risk of a conflict of interest with general shareholders. She has served as professors of several universities, and to utilize her wide range of knowledge about environmental study, sociology and others, and experience as an outside Audit & Supervisory Board Member of another company for strengthening the audit system. The Company has elected her as an Independent Officer because she is deemed to meet the Criteria for Independence of Outside Officers set out by the Company and there is no risk of a conflict of interest with general shareholders. He served as Director of the Public Security Department of the Supreme Public Prosecutors Office as a prosecutor and other positions, before serving as Chief Prosecutor of the Osaka District Public Prosecutors Office from January 2010. After that, he has been registered as an attorney in February 2011 and is acting as an attorney. Also, He has served as outside director of Sanyo Special Steel Co., Ltd from June 2017. (Independent Officer) She served as professor at Narabunka Women’s Junior College in April 1993, before serving as professor of several universities. She has served as Visiting Scholar of the Institute of Religion and Culture of Kyoto Women’s University from April 2013. She served Visiting Professor of Kansai University from April 2017 and has served as Visiting Scholar of Kansai University since October 2019. She also served as Outside Board Member of the Kansai Electric Power Co., Inc. from June 2011 and as Outside Director of the Kansai Electric Power Co., Inc. from June 2019 to June 2020. (Independent Officer) – 20 – Supplementary Explanation of Director’s adequacy Reasons for Appointment At Panasonic Corporation, he served as Manager of the IR Office of the Corporate Finance & IR Group from October 2000, before serving as General Manager of the Corporate International Affairs Group and Chief Manager of the Office of Audit & Supervisory Board Member. He also served as Outside Audit & Supervisory Board Member of ZUIKO CORPORATION from May 2015 to May 2019. (Independent Officer) He, as a certified public accountant, served as Partner of Tohmatsu & Co. (currently Deloitte Touche Tohmatsu LLC) from June1996 to June 2019. He has served as Statutory Corporate Auditor of NIPPON SHOKUBAI CO., LTD. since June 2019. (Independent Officer) To utilize his wide range of experience about finance, accounting, disclosure, audit and others and his experience as an outside Audit & Supervisory Board Member of another company for strengthening the audit system. The Company has elected him as an Independent Officer because he is deemed to meet the Criteria for Independence of Outside Officers set out by the Company and there is no risk of a conflict of interest with general shareholders. To utilize his professional knowledge of finance and accounting as a certified public accountant and his knowledge and experience accumulated through engagement in outside audit & supervisory board member of other companies for strengthening the audit system. The Company has elected him as an Independent Officer because he is deemed to meet the Criteria for Independence of Outside Officers set out by the Company and there is no risk of conflict of interest with general shareholders. Name Designation as Independent Officer Ryuichi Tsuruta Yoritomo Wada – [Independent Officers] Number of Independent Officers 8 Matters relating to Independent Officers – 21 – [Incentives] Supplementary Explanation Implementation of Measures to Provide Incentives to Directors Introduced Performance-linked Remuneration system Remuneration for Directors excluding Outside Directors shall consist of Basic remuneration, Performance-related bonuses and stock remuneration (performance-related stock remuneration and Restricted Stock remuneration). And the remuneration composition shall be adequately determined according to the roles and responsibilities of each position, and the Company shall make it work as a healthy incentive not only to achieve performance targets for a single fiscal year but also to enhance the corporate value in a long-term and sustainable way. Recipients of Share Options – Supplementary Explanation – [Director Remuneration] Supplementary Explanation Disclosure of Individual Directors’ Remuneration Selected directors The Company discloses the total amount of remuneration for the Directors and Audit & Supervisory Board Members by type in the Annual Securities Report. In addition, the total amount of remuneration is individually disclosed for those who have a total amount of consolidated remuneration of 100 million yen or more and those who are directors (excluding outside directors) of the Company as of the consolidated settlement date. The following 4 directors have total consolidated remuneration of 100 million yen or more, for the fiscal year ended January 2021, Name Toshinori Abe Shiro Inagaki Yoshihiro Nakai Takashi Uchida Position (as of January 31, 2021) Chairman & Representative Director Vice Chairman & Representative Director President & Representative Director Executive Vice President & Representative Director the total amount of remuneration 189 million yen 158 million yen 171 million yen 125 million yen – 22 – Policy for Determining Remuneration Amounts or Calculation Methods Thereof Established Disclosure of Policy for Determining Remuneration Amounts or Calculation Methods Thereof a) Remuneration systems, payment policies, etc. for Directors shall be resolved in line with the following basic policies below at the meetings of the Board of Directors based on the recommendations of the Personnel Affairs and Remuneration Committee after deliberations are held by the Committee, which shall be chaired by an Independent Outside Director and a majority of whose members shall be Independent Outside Directors. 〈Basic policies of remuneration〉 i. In accordance with the Corporate Philosophy espousing the underpinning philosophy of “Love of Humanity”, the Company shall ensure the objectivity and transparency of and adequately fulfill its accountability for a remuneration system through high standards of remuneration governance, in order to be fair to all the stakeholders including shareholders, investors, customers and employees. ii. Aiming to be a leading company in ESG management, the Company shall establish a remuneration system that works as a healthy incentive for a long-term and sustainable enhancement of the corporate value by focusing on social significance and clarifying its commitments to steadily executing innovative growth strategies. iii. The Company shall deliver a long-term improvement in the Group-wide organizational vitality by placing an emphasis on alignment a remuneration system with development and evaluation of senior management and motivating the next generation of managerial human resources to grow. b) The Personnel Affairs and Remuneration Committee shall determine the total amount and individual amount of remuneration for each Director based on the delegation from the Board of Directors. In addition, the Board of Directors shall determine the key performance indicator (KPI) targets and evaluation of achievements for performance-related remuneration. etc. based on the recommendations of the Personnel Affairs and Remuneration Committee after deliberations are held by the Committee. c) Remuneration for Directors excluding Outside Directors (the “Eligible Directors”) shall consist of Basic remuneration, Performance-related bonuses and stock remuneration (performance-related stock remuneration and Restricted Stock remuneration). And the remuneration composition shall be adequately determined according to the roles and responsibilities of each position, and the Company shall make it work as a healthy incentive not only to achieve performance targets for a single fiscal year but also to enhance the corporate value in a long-term and sustainable way. i. Basic remuneration (fixed remuneration) Basic remuneration as fixed remuneration shall be determined within the scope of resolutions of the General Meetings of Shareholders by taking into account the Company’s management situation, in addition to the importance of roles and the scope of responsibilities of each position. ii. Performance-related bonuses (short-term) The amount to be paid shall be calculated by multiplying a bonus coefficient according to the position of each Eligible Director by consolidated Ordinary income for each fiscal year. The total amount to be paid shall be capped at 0.18% of consolidated ordinary income for each fiscal year. The bonuses shall not be paid if Net income attributable to owners of parent for each fiscal year is less than ¥100 billion. iii. Performance-related stock remuneration (medium-term) The Reference Number of Share Units according to the position of each Eligible Director is multiplied by the percentage amount of payment (0 to 150%) according to the achievement of ROE and ESG – 23 – management indicators during the Evaluation Period of three consecutive fiscal years, and one-half of them will be delivered in the Company’s common stock and the remaining half will be delivered in Cash for the Tax Payment. ROE and ESG management indicators are evaluated with a weighting of 80% for ROE and 20% for ESG management indicators. ESG management indicators shall be strictly reviewed by the Personnel Affairs and Remuneration Committee to increase the objectivity and transparency of the processes for setting goals and performing evaluations. iv. Restricted stock remuneration (long-term) The Company shall grant shares of the Company’s common stocks (restricted) equivalent to the predetermined basic amount to each Eligible Director according t