九州電力（9508） – [Delayed]Corporate Governance Report

This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. TRANSLATION Corporate Governance Report Last Update: January 4, 2022 Kyushu Electric Power Co., Inc. Representative: Kazuhiro Ikebe, President & Chief Executive Officer Contact: Corporate Legal Affairs Group, District Symbiosis Division. Tel: +81-92-761-3031 Securities Code: 9508 https://www.kyuden.co.jp/ The corporate governance of Kyushu Electric Power Co., Inc. (the “Company”) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views The Company aims to generate sustainable value for all stakeholders in keeping with the Kyuden Group’s Mission by engaging in operations that are socially meaningful from a long-term perspective. The Company strives to develop and strengthen the corporate governance system, as its top management priority, to ensure that the Company conducts its business activities appropriately. [Reasons for Non-compliance with the Principles of the Corporate Governance Code] The Company complies with every principle (including details for the Prime Market) based on Japan’s Corporate Governance Code revised in June 2021. [Disclosure Based on the Principles of the Corporate Governance Code] [Principle 1.4 Cross-Shareholdings] ｏ Policy regarding cross-shareholdings With respect to individual cross-shareholdings, the Company has its Board of Directors confirm the significance of owning such holdings on an annual basis. This involves comprehensively taking into account the notion of how such holdings are relevant particularly in terms of ensuring stable procurement of funds, materials and equipment, contributing to regional development and other elements of business strategy, and achieving symbiosis with communities. It also involves assessing profitability, future prospects and other such considerations upon having taken into account cost of capital and other factors. The Company consequently maintains holdings of shares deemed as contributing to the Company’s stable and ongoing business operations and shares held on the basis of underlying economic rationale, while striving to reduce holdings of shares whose grounds for ownership are deemed insignificant. ｏ Standards on exercise of voting rights of shares held as cross-shareholdings When exercising voting rights, the Company decides whether to vote for or against individual proposals based on comprehensive factors from the perspective of increasing medium- to long-term value of the Company and enterprises whose shares the Company owns. When it comes to proposals that threaten to erode shareholder value in particular, the Company appropriately exercises its voting rights upon having gathered sufficient information from the enterprise whose shares the Company owns and upon having shared details on managerial risks and other such matters. – 1 – (Reference) As of the end of fiscal 2020, the Company maintains 134 equity holdings of unlisted shares valued at ¥64,682 million, among its holdings of investment shares held for purposes other than that of pure investment as stipulated by Cabinet Office Order on Disclosure of Corporate Affairs and other such matters. (With respect to shares other than unlisted shares, 28 equity holdings overall valued at ¥36,100 million have been contributed to retirement benefit trust, and accordingly constitute deemed shareholdings. On April 1, 2020, the Company concluded an agreement to modify the retirement benefit trust granting Kyushu Electric Power Transmission and Distribution Co., Inc. joint authority. Accordingly, the Company comprehensively administers and manages the retirement benefit trust, including holdings of Kyushu Electric Power Transmission and Distribution Co., Inc.) The unlisted shareholdings include ¥52,957 million in shares of Japan Nuclear Fuel Limited, held for the purpose of contributing to the Company’s stable and ongoing business operations. Japan Nuclear Fuel Limited plays an important role in Japan’s nuclear fuel cycle particularly given that its reprocessing of spent fuel discharged by nuclear power stations is a necessary aspect of ensuring stable operations and energy consistency with respect to nuclear power stations. As such, the Company invests in Japan Nuclear Fuel Limited for the purpose of helping to ensure stability of its business operations. [Principle 1.7 Related Party Transactions] When a Director of the Company who concurrently serves in a position such as Representative Director of a subsidiary of the Company or other such entity (excluding a wholly owned subsidiary) acts as a counterparty to a transaction with the Company, details of potentially competing transactions and transactions entailing conflict of interest involving Directors are subject to prior approval of the Board of Directors, and results of such transactions are to be reported to the Board of Directors. In addition, the aforementioned procedures are applied to transactions with major shareholders, etc. who maintain substantial holdings amounting to at least one-tenth of the Company’s total voting rights. [Supplementary Principle 2.4.1 Ensuring Diversity of Human Resources] ｏ Policies for human resource development and internal environment development to ensure diversity, as well as the status of their implementation The Company aims to create an environment and workplace culture in which diverse human resources can maximize their individuality and abilities and work while experiencing growth and job satisfaction. In order to achieve this, the Company has set forth the development of “professional human resources who promote diversity and have an open mindset” in our training policy, and the Company is developing comprehensive initiatives to secure diverse human resources and support their active participation. Specifically, the Company has established a variety of programs including various training programs to support the career development of women; “open recruitment” to recruit human resources with experience at other companies; “KYUDEN i-PROJECT,” a project that aims to create new services and foster entrepreneurial human resources through innovation; and a program for second work and internal side jobs for the purpose of acquiring knowledge through external work experience and creating value through collaboration of diverse human resources, thereby promoting active participation of human resources with diverse experience. ｏ Ensuring diversity in the promotion to core human resources When promoting employees to managerial positions, the Company works to ensure diversity of core human resources by appointing diverse human resources from among those who have managerial capabilities, regardless of gender, nationality, hiring classification, etc. [Women] The Company has established an action plan with respect to the Act on the Promotion of Female Participation and Career Advancement in the Workplace, under which it aims to increase the number of newly promoted female managers and the number of appointments to organizational head posts in the five years from fiscal 2019 to fiscal 2023 to at least three times the numbers in the five years prior to the introduction of the action plan (fiscal 2009 to fiscal 2013) (54 new promotions and 21 appointments to organizational head posts). For reference, from fiscal 2019 to fiscal 2020, there have been 18 new promotions and 15 appointments to organizational head posts. – 2 – [Foreign nationals] As an initiative related to the recruitment of foreign nationals, the Company is actively recruiting international exchange students (eight people from three countries hired since fiscal 2016). However, the Company has yet to appoint any of them to managerial positions because it has only been a few years since hiring them as new graduates. Although the Company has not set quantitative targets for the promotion of foreign nationals to managerial positions, they will be promoted according to their capabilities based on the professional grade qualification system, in the same manner as all other employees regardless of nationality. [Mid-career hires] Mid-career hires account for about 10% of hires every year, and since the introduction of the mid-career hiring system in 2008, the Company has hired 191 people and 43 have been promoted to managerial positions. Although the Company has not set quantitative targets for the promotion of mid-career hires to managerial positions, they are promoted according to their capabilities based on the professional grade qualification system, regardless of being new graduate hires or mid-career hires. [Principle 2.6 Roles of Corporate Pension Funds as Asset Owners] Accounting Department that handles functions of finance takes charge of managing corporate pension funds, and regularly reports matters such as operational status in that regard to the Board of Directors. In terms of personnel affairs, the Company systematically assigns professionals equipped with practical financial knowledge, including those with experience in pension management or financial affairs. In terms of management, the Company rigorously strives to manage corporate pension funds in a manner that is mindful of its fiduciary responsibilities and conflicts of interest as stipulated under basic policy for managing pension assets pursuant to laws and regulations relevant to Defined-Benefit Corporate Pension Act, etc. The Company strives to fulfill its functions serving as asset owner by checking on developments with respect to asset managers of corporate pension funds exercising voting rights and regularly monitoring such asset managers. [Principle 3.1 Full Disclosure] i) Company objectives (e.g., corporate philosophy), management strategies, and management plans In April 2007, the Company drew up Kyushu Electric Power’s Mission “Enlighten Our Future,” which serves as its brand message. In January 2018, the name was changed to Kyuden Group’s Mission in order to embrace the Company’s desire to serve its stakeholders with the entire Kyuden Group more integrated. Further details are disclosed on the Company’s website. (Kyuden Group’s Mission) https://www.kyuden.co.jp/english_company_mission_index.html In addition, “Kyuden Group Management Vision 2030,” which was formulated in June 2019, and “Kyuden Group Carbon Neutral Vision 2050,” which was released in April 2021, are also disclosed on the Company’s website. (Kyuden Group Management Vision 2030) https://www.kyuden.co.jp/english_company_news_2019_h190607b-1.html (Kyuden Group Carbon Neutral Vision 2050) https://www.kyuden.co.jp/english_company_news_2021_h210428c-1.html ii) Basic views and policies on corporate governance based on each of the principles of the Corporate Governance Code For the Company’s basic views on corporate governance, please refer to “1. Basic Views, I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information” of this report. iii) Policies and procedures implemented by the Board of Directors in determining the remuneration of senior management and Directors – 3 – For the policies and procedures implemented by the Company’s Board of Directors in determining the remuneration of senior management and Directors, please refer to “[Director Remuneration], 1. Organizational Composition and Operation, II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management” of this report. iv) Policies and procedures implemented by the Board of Directors in the election/dismissal of senior management and the nomination of candidates for Director [Policies and procedures for selecting candidates for Director, etc.] ｏ Policies Candidates for Inside Director, etc. are selected by comprehensively taking into account their personal character, insight, ethics, career background (extensive practical experience, knowledge, etc.), and capabilities (management capabilities that will contribute to achieving the sustainable growth of the Group and maximizing its corporate value over the medium to long term). Candidates for Outside Director are selected from those who meet the decision criteria for the independence and have abundant experience and insight in corporate management and fields of specialization. ｏ Procedures The Board of Directors decides on candidates for Director (including appointment of Senior Directors and Representative Directors) as well as Senior Executive Officers, subsequent to deliberations having been undertaken by the Personnel Advisory Committee chaired by an Outside Director and the majority of whose members are Outside Directors, assigned thereto for the purpose of heightening transparency and objectivity. The Audit and Supervisory Committee is to furnish prior consent with respect to candidates for Directors who are Audit and Supervisory Committee Members. In addition, the Audit and Supervisory Committee Member takes part in meetings of the Personnel Advisory Committee as observer and confirm that deliberations of the Committee are carried out to ensure that the function of supervising the execution of duties of Directors is effectively executed. [Policies and procedures for discharge and dismissal of Directors, etc.] The Board of Directors decides matters with respect to discharge of Senior Directors and Representative Directors and matters with respect to dismissal of Senior Executive Officers, subsequent to deliberations having been undertaken by the Personnel Advisory Committee should circumstances arise that call eligibility into question. v) Explanation with respect to the individual elections/dismissals of senior management and the nomination of candidates for Director by the Board of Directors based on iv) above The reasons for the nomination of each candidate for Director shall be disclosed individually in the Reference Documents for the General Meeting of Shareholders. (Notice of Convocation of the 97th Ordinary General Meeting of Shareholders) * In Japanese only http://www.kyuden.co.jp/var/rev0/0291/7550/h2qigi6l.pdf If the Board of Directors makes decisions with respect to discharge of Senior Directors and Representative Directors or dismissal of the President & Chief Executive Officer or other Executive Officers concurrently serving as Director, the reasons for each discharge and dismissal are to be publicly disclosed. [Supplementary Principle 3.1.3 Initiatives on Sustainability] ｏ Promoting sustainability In the “Kyuden Group Management Vision 2030,” which was formulated and announced in June 2019, the Company has established three strategies for achieving its vision. Strategies I, II, and III correspond with the environment (E), society (S), and governance (G), respectively, and the Company promotes sustainability initiatives including ESG. (Kyuden Group Management Vision 2030) https://www.kyuden.co.jp/var/rev0/0206/9138/q947arem.pdf Seeing the trend toward carbon neutrality as an opportunity for corporate growth, the Company formulated and announced the “Kyuden Group Carbon Neutral Vision 2050” in April 2021, which shows the direction of its initiatives to achieve carbon neutrality. – 4 – Further, in order to greatly contribute to the realization of a carbon neutral society, the Kyuden Group has clarified its goals for 2050 and revised management targets (environmental goals) for 2030 upward, and formulated and published an action plan that includes concrete steps for achieving these goals. (Kyuden Group Carbon Neutral Vision 2050) https://www.kyuden.co.jp/var/rev0/0288/8338/mtxb3aeq.pdf (Kyuden Group Action Plan for Achieving Carbon Neutrality) * In Japanese only http://www.kyuden.co.jp/var/rev0/0316/1198/g87ty23s.pdf Also, in July, the Company established the Sustainability Promotion Committee (Chairperson: President, Vice-chairperson: Director in charge of ESG, Committee members: Outside Directors, relevant officers, etc.) under the supervision of the Board of Directors to promote ESG initiatives, including carbon neutral, and it is formulating strategies and policies related to sustainability and monitoring the status of internal initiatives. In order to realize the above vision, the Company has summarized its important issues and disclosed in the Integrated Report its Value Creation Process, which shows the connections between its medium- to long-term strategies, input such as human and intellectual capital, and output through its business activities. (Kyuden Group Integrated Report 2021) https://www.kyuden.co.jp/library/pdf/en/ir/integratedreport/2021/en_integratedreport_2021.pdf ｏ Investing in human capital and intellectual property Based on management strategies and management issues toward the realization of “Kyuden Group Management Vision 2030,” the Company formulated a management plan that shows the future allocation of management resources, including investments in human capital and intellectual property, and its business portfolio, which is disclosed in “Financial Targets to Achieve Kyuden Group Management Vision 2030 and Overview of FY2021 Medium-Term Management Plan.” (Financial Targets to Achieve Kyuden Group Management Vision 2030 and Overview of FY2021 Medium-Term Management Plan) https://www.kyuden.co.jp/var/rev0/0288/8341/gm7yiv6z.pdf The Company makes investments in human capital for the active participation of diverse human resources, workstyle reforms, and the creation of a workplace environment that prioritizes safety and health, in order to strengthen its management base. To encourage active participation of diverse human resources, the Company is working to secure and develop human resources who can promote transformation of the energy service business and create new businesses through open recruitment for hiring human resources with experience at other companies and rank-based training such as the Management Leader School program for training executives. In addition, the Company is promoting diversity and creating a workplace culture that respects and accepts diverse opinions and values, leveraging them to produce results. To advance workstyle reforms, the Company is carrying out operation reforms for improving efficiency and productivity through digital transformation and other means, and working on initiatives to enable flexible workstyles, such as improving work systems and implemented environments (satellite offices, etc.). In order to create a workplace environment that prioritizes safety and health, the Company is conducting safety training that incorporates virtual reality (VR) for fostering safety awareness, and practicing health and productivity management that leads to the maintenance and promotion of employee health. With regard to investments in intellectual property, the Company is promoting technological development to realize the “Kyuden Group Management Vision 2030,” and the Company holds 178 patents in Japan and 70 patents overseas. As a technology development policy, the Company is promoting both the strengthening of the business foundation in existing business domains and the expansion of profits in growing business domains, and the Company is also actively taking on the challenge of developing advanced technologies that support sustainable growth. In addition, specific technology development initiatives that contribute to the promotion of low carbon, decarbonization and electrification, such as the development of new biomass mixed fuel, distributed energy integrated management systems, and large-capacity chargers/dischargers for electric buses, are disclosed in the Research Institute Annual Report published annually. (Research Institute Annual Report 2020) * In Japanese only http://www.kyuden.co.jp/var/rev0/0288/9438/wdo1n3z2.pdf ｏ Addressing climate change – 5 – The impact of climate change-related risks and profit opportunities on the Company’s business activities and profits are calculated after collecting and analyzing necessary data, and the results are disclosed in the Integrated Report based on the framework of the TCFD. (Kyuden Group Integrated Report 2021) https://www.kyuden.co.jp/library/pdf/en/ir/integratedreport/2021/en_integratedreport_2021.pdf [Supplementary Principle 4.1.1 Clarification of the Scope of Matters Delegated to Management] The Company’s Board of Directors makes decisions on corporate business execution as well as matters stipulated under laws, regulations and the Articles of Incorporation, and supervises Directors in their execution of duties. The President & Chief Executive Officer provides oversight of other Executive Officers with respect to the Company’s business execution in accordance with resolutions of the Board of Directors. Meanwhile, Executive Officers other than the President & Chief Executive Officer share and execute business affairs of the Company and Group companies, etc. within a range delegated per resolution of the Board of Directors, under the supervision of the President & Chief Executive Officer. Specific business affairs delegated and assigned to Executive Officers are determined by the Board of Directors and details thereof are accordingly disclosed in the Securities Report and in press releases posted to the Company’s website. (Delegation of business affairs to Directors) * In Japanese only https://www.kyuden.co.jp/press_h210625-1.html [Principle 4.9 Independence Standards and Qualification for Independent Directors] The Company elects its outside officers having established its own decision criteria for the independence of outside officers based on requirements for Outside Director pursuant to the Companies Act and also based on independence standards set by the securities exchange on which the Company is listed. The decision criteria for the independence of outside officers of the Company is disclosed on the Company’s website. (Kyushu Electric Power’s decision criteria for the independence of outside officers) * In Japanese only https://www.kyuden.co.jp/ir_management_governance.html [Supplementary Principle 4.10.1 Mandates and Roles of the Members of the Personnel Advisory Committee and the Remuneration Advisory Committee, and the Policy Regarding the Independence of the Composition] The Company has established the Personnel Advisory Committee and the Remuneration Advisory Committee, chaired by Outside Directors and the majority of whose members are Outside Directors, with the aim of enhancing transparency and objectivity in selecting and dismissing candidates for Director, etc. and determining remuneration. Outside Directors are appropriately involved and give advice in their respective Committees from an independent and objective standpoint. The Personnel Advisory Committee deliberates on matters related to the selection and dismissal of candidates for Director, etc., based on the diversity of the Board of Directors as a whole and ability to respond to the entire business field. The Audit and Supervisory Committee is to furnish prior consent with respect to candidates for Directors who are Audit and Supervisory Committee Members. The Remuneration Advisory Committee deliberates on matters related to policy for determining executive remuneration and the determination of individual remuneration. In addition, Audit and Supervisory Committee Members take part in meetings of the two Committees as observers to confirm that deliberations of the Committees are carried out appropriately. [Supplementary Principle 4.11.1 Views on the Appropriate Balance among Knowledge, Experience, Etc. of the Board of Directors as a Whole, as Well as on Diversity and Appropriate Board Size] – 6 – The Articles of Incorporation stipulate that the Company’s Board of Directors is to consist of up to 19 Directors (of which up to five are to be Directors who are Audit and Supervisory Committee Members), from the perspective of achieving active deliberations and strengthening the supervisory function. Directors appointed from within the company are selected by comprehensively taking into account their personal character, insight, ethics, career background (extensive practical experience, knowledge, etc.), and capabilities (management capabilities that will contribute to achieving the sustainable growth of the Group and maximizing its corporate value over the medium to long term). For Outside Director, candidates who meet the decision criteria for the independence and have abundant experience and insight in corporate management and fields of specialization are selected. In addition, the Board of Directors on the whole is configured in a manner that takes overall fields of business into account while striking a balance between diversity and appropriate size with, for instance, three women among its Directors. With respect to Audit and Supervisory Committee Members, two Audit and Supervisory Committee Members (two certified public accountants) who have knowledge regarding finance and accounting and two Audit and Supervisory Committee Members (of which one is an attorney) who have knowledge regarding legal affairs have been elected. A skill matrix showing the diversity of Directors is included in the Notice of Convocation of the 97th Ordinary General Meeting of Shareholders. (Notice of Convocation of the 97th Ordinary General Meeting of Shareholders) * In Japanese only http://www.kyuden.co.jp/var/rev0/0291/7550/h2qigi6l.pdf [Supplementary Principle 4.11.2 Concurrent Positions of Directors and Audit and Supervisory Committee Members] The concurrent positions held by the Company’s Directors as officers at other listed companies (as of the filing date of this report) are as follows. The Company has confirmed that its concurrent postings are within bounds sufficient to ensure no disruption of the Company’s management and business execution. (Applicable Officers) Michiaki Uriu Outside Director, Audit and Supervisory Committee Member of The Nishi-Nippon City Bank, Ltd. External Director, Audit and Supervisory Committee Member of Nishi-Nippon Railroad Co., Ltd. Outside Director of Kyushu Railway Company Outside Director of RKB Mainichi Holdings Corporation Ichirou Fujii Makoto Toyoma External Director of Nippon Tungsten Co., Ltd. Sakie Tachibana Fukushima Outside Director of USHIO INC. Outside Director of Konica Minolta Inc. Junji Tsuda Outside Director of TOTO LTD. Kazutaka Koga Outside Auditor of AEON KYUSHU CO., LTD. Representative Director, Chairman of the Board of YASKAWA Electric Corporation [Supplementary Principle 4.11.3 Analysis and Evaluation of the Effectiveness of the Board of Directors as a Whole] The Company conducted questionnaires and interviews with Directors mainly regarding the following issues, and the results were reported for discussion to the Board of Directors. (1) Function and composition of the Board of Directors Appropriateness of the decision-making process – 7 – Formulation and external disclosure of management strategies and policies Appropriateness of supervision of business execution Appropriateness of composition (diversity, scale) (2) Operation of the Board of Directors Appropriateness of determination of matters for resolution and reporting Clarity of materials and explanations Appropriateness of frequency and time allocation for deliberation In addition, based on last year’s effectiveness analysis and evaluation findings, all the Outside Directors exchanged views, with discussions on matters warranting future improvement with sights set on perfecting the Board of Directors. As a result, the evaluation affirmed the effectiveness of the Board of Directors having determined that decision-making is carried out subsequent to appropriate processes and deliberations consisting of free and open exchange of views, underpinned by an appropriate number of members and sufficient diversity and also having determined that the Board of Directors strives to achieve appropriate operations through efforts that include distributing materials prior to meetings and providing sufficient explanations. On the other hand, the opinion was reached that it would be desirable for more effort to be put into further improving the supervisory function and enhancing discussions on managerial strategies and policies in light of changes in the business environment, with the aim of further increasing corporate value. Going forward, the Board of Directors will strive to make improvements based on such opinions, and will keep up efforts to improve effectiveness of the Board of Directors. [Supplementary Principle 4.14.2 Training Policy for Directors and Audit and Supervisory Committee Members] The Company holds legal affairs seminars for newly appointed officers upon appointment of new Directors. Subsequent to new Directors having taken office, the Company provides them with ongoing training in dealing with the media as well as opportunities to take part in various seminars and other such forums outside of the Company, which serve as opportunities for them to fully understand roles and responsibilities required of Directors. In addition to the aforementioned, the Company provides Outside Directors with explanations on the Company overall, business circumstances and other such matters as appropriate, and also conducts tours of important facilities. [Principle 5.1 Policy for Constructive Dialogue with Shareholders] In promoting constructive dialogue with its shareholders, the Company has prepared the “Approach to Information Disclosure” containing Company-wide guidelines established to promote information disclosure by each and every employee, and has also prepared IR basic policy encompassing Company-wide guidelines established to encourage IR activities that emphasize highly transparent information disclosure and interactive communications. The IR basic policy is disclosed on the Company’s website. (IR basic policy) https://www.kyuden.co.jp/ir_policy.html For details of the policy on engaging in constructive dialogue with shareholders and IR activities, please refer to “2. IR Activities, III. Implementation of Measures for Shareholders and Other Stakeholders” of this report. – 8 – 2. Capital Structure Foreign Shareholding Ratio From 10% to less than 20% [Status of Major Shareholders] Name / Company Name Number of Shares Owned Percentage (%) 12.95 4.83 4.67 2.49 2.46 2.04 1.83 1.61 1.31 1.27 The Master Trust Bank of Japan, Ltd.(trust unit) Meiji Yasuda Life Insurance Custody Bank of Japan, Ltd. (trust unit) Nippon Life Insurance Company Kyushu Electric Power Co., Inc. Employees’ Shareholding Association Mizuho Bank, Ltd. The Bank of Fukuoka, Ltd. Kochi Shinkin Bank Custody Bank of Japan, Ltd. (trust unit9) JP MORGAN CHASE BANK 385781 61,372,500 22,882,400 22,143,915 11,810,748 11,648,053 9,669,678 8,669,723 7,632,100 6,202,400 6,036,760 Controlling Shareholder (except for Parent Company) Parent Company – None Supplementary Explanation － 3. Corporate Attributes Listed Stock Market and Market Section Tokyo Stock Exchange First Section Fukuoka Stock Exchange March Fiscal Year-End Type of Business Number of Employees (consolidated) as of the End of the Previous Fiscal Year Sales (consolidated) as of the End of the Previous Fiscal Year Electric Power & Gas More than 1000 More than ¥1 trillion Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year From 10 to less than 50 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder － – 9 – 5. Other 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 Oversight in Management 1. Organizational Composition and Operation Organization Form Company with Audit and Supervisory Committee [Directors] Maximum Number of Directors Stipulated in Articles of Incorporation Term of Office Stipulated in Articles of Incorporation Chairperson of the Board Number of Directors Number of Outside Directors Number of Independent Officers 19 1 year 15 5 5 Company Chairperson Outside Directors’ Relationship with the Company (1) Name Attribute Sakie Tachibana Fukushima From another company Junji Tsuda From another company Kazutaka Koga Attorney Kazuko Fujita Hiroko Tani CPA CPA Relationship with the Company* a b c d e f g h i j k 〇 △ * * * 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; “▲” when a close relative of the director fell under the category in the past a. Executive of the Company or its subsidiaries b. Non-executive director or executive of a parent company of the Company c. Executive of a fellow subsidiary company of the Company d. A party whose major client or supplier is the Company or an executive thereof – 10 – e. Major client or supplier of the listed company or an executive thereof f. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director/kansayaku 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 company of the Company (which does not correspond to any of d, e, or f) legal entity) (the director himself/herself only) i. Executive of a company, between which and the Company outside directors/kansayaku are mutually appointed (the director himself/herself only) j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only) k. Others Outside Directors’ Relationship with the Company (2) Name Sakie Tachibana Fukushima Membership of Audit and Supervisory Committee Designation as Independent Officer 〇 Junji Tsuda 〇 Kazutaka Koga 〇 〇 – 11 – Supplementary Explanation of the Relationship President and Representative Director of G&S Global Advisors Inc. Outside Director of USHIO INC. Outside Director of Konica Minolta Inc. Representative Director, Chairman of the Board of YASKAWA Electric Corporation Chairman, Board of Directors of the University of Kitakyushu Outside Director of TOTO LTD. Attorney (Koga Hanashima Kuwano Law Office) Outside Auditor of AEON KYUSHU CO., LTD. (part time) Reasons of Appointment She has abundant experience gained through many years as a senior corporate manager in Japan and the United States, along with broad knowledge of global human resource management and corporate governance, and has a suitable personal character and insight for an Outside Director of the Company. He has abundant experience gained through many years as a senior corporate manager in Japan and the United States, along with broad knowledge of marketing and manufacturing, and has a suitable personal character and insight for an Outside Director of the Company. As he has abundant experience and insight gained through many years as an attorney, he is judged to have a suitable personal character for an Outside Director of the Company as well as abundant insight and experience, to be optimally qualified to provide useful opinions for the Company’s Name Membership of Audit and Supervisory Committee Designation as Independent Officer Supplementary Explanation of the Relationship Kazuko Fujita 〇 〇 Hiroko Tani 〇 〇 Certified public accountant and Certified tax accountant (FUJITA ACCOUNTANT OFFICE) public Certified (Tani accountant Public Certified Accountant Office and Choshu Audit Firm) Reasons of Appointment and business from an objective perspective, and to perform his auditing supervisory function successfully. As she has abundant experience gained through many years as a certified public accountant and certified tax accountant, she is judged to have considerable degree of knowledge of finance and accounting and a suitable personal character for an Outside Director of the Company as well as abundant insight and experience, to be optimally qualified to provide useful opinions for the Company’s business from an objective perspective, and to perform her auditing and supervisory function successfully. As she has abundant experience gained through many years as a certified public accountant, she is judged to have considerable degree of knowledge of finance and accounting and a suitable personal character for an Outside Director of the Company as well as abundant insight and experience, to be optimally qualified to provide useful opinions for the Company’s business from an objective perspective, and to perform her auditing and supervisory function successfully. [Audit and Supervisory Committee] Committee’s Composition and Attributes of Chairperson Audit and Supervisory Committee All Committee Members Full-time Members Inside Directors Chairperson Outside Directors 4 1 1 3 Inside Director – 12 – Appointment of Directors and/or Staff to Support the Audit and Supervisory Committee Appointed Matters Related to the Independence of Such Directors and/or Staff from Executive Directors Audit and Supervisory Officers who furnish support for duties of the Audit and Supervisory Committee as well as employees belonging to the Audit and Supervisory Committee Office, which serves as a specialist organizational body, perform their duties in alignment with instructions and orders of the Audit and Supervisory Committee. In addition, the Audit and Supervisory Committee engages in preliminary discussions on matters regarding personnel affairs with respect to the Audit and Supervisory Officer and employees belonging to the Audit and Supervisory Committee Office. Cooperation among Audit and Supervisory Committee, Accounting Auditors and Internal Audit Departments The Audit and Supervisory Committee and Deloitte Touche Tohmatsu LLC, the Accounting Auditor, work to maintain close cooperation. This involves holding regular meetings, engaging in debriefings regarding audit plans, attending audits during fiscal years, attending audits at fiscal year-end, engaging in debriefings on fiscal year-end audit results, receiving notifications on “Matters Related to the Performance of Duties of Financial Auditor(s),” and occasionally exchanging views. The Audit and Supervisory Committee and internal auditing body (Internal Audit Office and Nuclear Power Audit Office) work to improve and enhance audit functions through close cooperation on formulating audit plans and reporting audit results. [Voluntary Establishment of Nomination/Remuneration Committee] Voluntary Establishment of Committee(s) Corresponding to Nomination Committee or Remuneration Committee Established Committee’s Name, Composition, and Attributes of Chairperson Corresponding Committee Nomination Committee Personnel Advisory Committee to Corresponding Committee Remuneration Committee Remuneration Advisory Committee to Committee’s Name All Committee Members Full-time Members Inside Directors Outside Directors Outside Experts Other Chairperson Supplementary Explanation 4 0 1 3 0 0 4 0 1 3 0 0 Outside Director Outside Director [Personnel Advisory Committee] The Personnel Advisory Committee responds to inquiries regarding election, etc. of candidates for Director (including appointment of Senior Directors and Representative Directors) as well as the President & Chief Executive Officer and other Executive Officers, and furthermore reports findings upon engaging in deliberations as necessary. During fiscal 2020, the Committee held meetings two times, and all of the members attended the meetings. – 13 – The information on how the Committee engages in matters is provided in “iv) Policies and procedures implemented by the Board of Directors in the election/dismissal of senior management and the nomination of candidates for Director, [Principle 3.1 Full Disclosure], [Disclosure Based on the Principles of the Corporate Governance Code], 1. Basic Views, I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information” of this report. [Remuneration Advisory Committee] The Remuneration Advisory Committee responds to inquiries regarding design of the remuneration plan and specific amount of remuneration for Directors (excluding Audit and Supervisory Committee Members) as well as the President & Chief Executive Officer and other Executive Officers, and furthermore reports findings upon engaging in deliberations as necessary. During fiscal 2020, the Committee held meetings three times, and all of the members attended the meetings. The information on how the Committee engages in matters is provided in “[Director Remuneration], 1. Organizational Composition and Operation, II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management” of this report. [Independent Officers] Number of Independent Officers 5 Matters relating to Independent Officers All eligible Outside Directors are designated as independent officers. Electric power transactions with independent officers have not been presented because such transactions do not affect the independence of the independent officers given that such transactions constitute ordinary transactions carried out with general consumers and corporations. Junji Tsuda serves as Representative Director, Chairman of the Board of YASKAWA Electric Corporation, which is a business partner of the Company. However, because transaction amounts in the most recent fiscal year account for significantly less than 1% of consolidated net sales of both the Company and YASKAWA Electric Corporation, the relationship does not affect his independence as an independent officer. Kazuko Fujita previously belonged to the Company’s Accounting Auditor Deloitte Touche Tohmatsu LLC, but resigned in September 2009 (employed from August 2007 until September 2009). The Company makes payment of auditor remuneration and other amounts to the audit firm, but because such payment during the most recent fiscal year accounts for significantly less than 1% of revenues of Deloitte Touche Tohmatsu LLC, the relationship does not affect her independence as an independent officer. Incentive Policies for Directors Performance-linked Remuneration [Incentives] Supplementary Explanation The information related to the implementation of various measures to grant incentives to Directors is provided in “[Director Remuneration], 1. Organizational Composition and Operation, II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management” of this report. Recipients of Stock Options － Supplementary Explanation – 14 – － [Director Remuneration] Remuneration Supplementary Explanation Disclosure of Individual Directors’ No Individual Disclosure Amount of remuneration, etc. for Directors for fiscal 2020 〇 Basic remuneration [monetary remuneration / monthly remuneration] Directors (excluding Audit and Supervisory Committee Members): Directors (Audit and Supervisory Committee Members): 14 recipients 7 recipients ¥378 million ¥87 million Directors) ¥50 million ¥– million ¥82 million ¥– million Directors (excluding Audit and Supervisory Committee Members): Directors (Audit and Supervisory Committee Members): remuneration)] 9 recipients – recipients long-term performance-linked remuneration)] Directors (excluding Audit and Supervisory Committee Members): Directors (Audit and Supervisory Committee Members): 9 recipients – recipients Total: 21 recipients (including 8 Outside Directors) ¥466 million (including ¥60 million for Outside 〇 Performance-linked remuneration [monetary remuneration / bonus (short-term performance-linked Total: 9 recipients (including – Outside Directors) ¥50 million (including ¥– million for Outside Directors) 〇 Performance-linked remuneration [non-monetary remuneration / share remuneration (medium- to Total: 9 recipients (including – Outside Directors) ¥82 million (including ¥– million for Outside Directors) (Notes) 1. The Company makes payment of performance-linked remuneration to its Directors (excluding Directors who are Audit and Supervisory Committee Members and Outside Directors). Given that the performance-linked remuneration serves as incentive for Directors to improve financial performance, it consists of “bonus (short-term performance-linked remuneration)” determined according to financial performance of each fiscal year, and “share remuneration (medium- to long-term performance-linked remuneration)” for the aim of motivating Directors to increase corporate value over the medium to long term. The Company sets performance-linked remuneration amounts commensurate with professional duty requirements in a manner that makes the notion of responsibilities being linked to financial results clear. To such ends, the Company sets such amounts within a range for the total amount resolved at the General Meeting of Shareholders, based on performance indicators regarding factors that include progress made in achieving a – 15 – financial target for consolidated ordinary income (¥110.0 billion per year) set forth under the Medium-term Management Policy and the status of dividends paid to shareholders. 2. The Company provides share remuneration to Directors (excluding Directors who are Audit and Supervisory Committee Members and Outside Directors; hereinafter in this note, such Directors are referred to as “DIRECTORS”) as non-monetary remuneration. The share remuneration is a performance-linked share remuneration whereby the Company’s shares are acquired through a trust using underlying monetary funds contributed by the Company (hereinafter referred to as the “Trust”) and, in accordance with the Stock Grant Regulations for Officers established by the Company, whereby the Company’s shares and the sum of money equivalent to the value calculated at the current market price (hereinafter referred to as “the Company’s Shares, Etc.”) are paid to DIRECTORS through the Trust. In principle, DIRECTORS will receive the Company’s Shares, Etc. at the time of their resignation as DIRECTORS. 3. It was resolved, at the 94th Ordinary General Meeting of Shareholders held on June 27, 2018, to set the limit on monetary remuneration for Directors (excluding Directors who are Audit and Supervisory Committee Members) as ¥610 million or less annually for both monthly remuneration and bonus combined (including ¥40 million or less for Outside Directors for only monthly remuneration). There are 14 Directors (of which, 2 are Outside Directors; excluding Directors who are Audit and Supervisory Committee Members) as of the conclusion of the Ordinary General Meeting of Shareholders. In addition, at the 94th Ordinary General Meeting of Shareholders held on June 27, 2018, it was resolved to set the amount of non-monetary remuneration (share remuneration) at ¥390 million or less for three consecutive fiscal years, separately from the monetary remuneration (eligibility does not apply to Directors who are Audit and Supervisory Committee Members and Outside Directors). There are 12 Directors (excluding Directors who are Audit and Supervisory Committee Members and Outside Directors) as of the conclusion of the Ordinary General Meeting of Shareholders. At the 94th Ordinary General Meeting of Shareholders held on June 27, 2018, it was resolved to set the amount of monetary remuneration for Directors who are Audit and Supervisory Committee Members at ¥130 million or less annually. There are five Directors who are Audit and Supervisory Committee Members as of the conclusion of the Ordinary General Meeting of Shareholders. Total amounts of remuneration on a consolidated basis, etc. have not been individually disclosed because no single recipient was awarded remuneration amounting to ¥100 million or more. Policy on Determining Remuneration Amounts Established and Calculation Methods Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods (1) Matters related to determination policy pertaining content of remuneration, etc. for individual Directors (excluding Directors who are Audit and Supervisory Committee Members) (a) Method of determining the determination policy The Company makes decisions regarding determination policy pertaining content of remuneration, etc. for individual Directors (excluding Directors who are Audit and Supervisory Committee Members) (hereinafter referred to as the “Determination Policy”) at its meeting of the Board of Directors held on February 25, 2021. Such decisions by the Board of Directors are made based on deliberations of the Remuneration Advisory Committee, chaired by an Outside Director and the majority of whose members are Outside Directors. In addition, Audit and Supervisory Committee Members attend meetings of the Remuneration Advisory Committee where they confirm the appropriateness of the Committee’s discussions. (b) Details of the Determination Policy Details of the Determination Policy are as follows. – 16 – i) Basic policy Remuneration for individual Directors (excluding Directors who are Audit and Supervisory Committee Members) consists of basic remuneration and performance-linked remuneration. Remuneration for Outside Directors is limited to basic remuneration, without application of performance-linked remuneration in view of their duties. The Board of Directors decides remuneration amounts set within a range for the total amount resolved at the General Meeting of Shareholders, upon having taken into account deliberations of the Remuneration Advisory Committee, chaired by an Outside Director and the majority of whose members are Outside Directors. In addition, Audit and Supervisory Committee Members attend meetings of the Remuneration Advisory Committee where they confirm the appropriateness of the Committee’s discussions. ii) Policy on determining the calculation method of basic remuneration The basic remuneration serves as monthly remuneration, the amounts of which are commensurate with professional duty requirements and within a range for the total amount resolved at the General Meeting of Shareholders, upon having taken into account such factors as the Company’s business environment, remuneration levels at other companies, principally listed companies, and remuneration levels of the Company’s employees. iii) Policy on determination of details of performance-linked remuneration and calculation method of remuneration amount Given that the performance-linked remuneration serves as incentive for Directors to improve financial performance, it consists of “bonus” determined according to financial performance of each fiscal year, and “share remuneration” for the aim of motivating Directors to increase corporate value over the medium to long term. The Company sets performance-linked remuneration amounts commensurate with professional duty requirements and within a range for the total amount resolved at the General Meeting of Shareholders, based on performance indicators regarding factors that include progress made in achieving a financial target for ordinary income set forth under the Medium-term Management Policy and the status of dividends paid to shareholders. The bonus is paid at a certain time each year and share remuneration is paid upon resignation, in principle, but may not be paid depending on business performance. In addition, the Board of Directors makes decisions on performance indicators upon having taken into account deliberations of the Remuneration Advisory Committee in cases where performance indicators used in deciding performance-linked remuneration amounts become subject to review. iv) Policy on determination of composition ratio of the amounts of basic remuneration and performance-linked remuneration The Board of Directors makes decisions on the mix of remuneration components upon having taken into account deliberations of the Remuneration Advisory Committee regarding the proportional mix, which is configured such that those in higher positions receive a higher proportion of performance-linked remuneration. As a general rule, the mix of remuneration components is such that basic remuneration and performance-linked remuneration account for 70% and 30% of total remuneration, respectively, if performance indicator targets have been fully achieved. v) Matters related to delegation of decisions on individual remuneration The Board of Directors decides matters involving individual remuneration, upon having taken into account deliberations of the Remuneration Advisory Committee. However, by resolution of the Board of Directors, such decisions may be delegated to the Representative Director & Chairperson, who does not assume responsibility for business execution and serves as Chairman of the Board of Directors from the perspective of supervising business execution of the respective Directors (excluding Directors who are Audit and Supervisory Committee Members). In such cases, the Representative Director & Chairperson is to make such decisions upon having taken into account deliberations of the Remuneration Advisory Committee. In addition, the Remuneration Advisory Committee reports to the Board of Directors on matters involving appropriate execution of authority delegated by the Board of Directors, upon having confirmed such matters every fiscal year. – 17 – (c) Reasons that the Board of Directors has determined that remuneration, etc. for individual Directors (excluding Directors who are Audit and Supervisory Committee Members) for the current fiscal year is in alignment with the Determination Policy With respect to remuneration for individual Directors (excluding Directors who are Audit and Supervisory Committee Members) in the current fiscal year, the Remuneration Advisory Committee has confirmed that methods for calculating the basic remuneration and performance-linked remuneration as well as actual remuneration amounts have been subject to appropriate management and decision-making in accordance with the Determination Policy. The findings thereof were reported to the Board of Directors at its meeting held on April 30, 2021. The Board of Directors deems that actual remuneration aligns with the Determination Policy, and exhibits due respect for confirmation reporting of the Remuneration Advisory Committee. (2) Matters related to delegating decisions on remuneration, etc. for individual Directors (excluding Directors who are Audit and Supervisory Committee Members) For this fiscal year, Representative Director & Chairperson Michiaki Uriu made specific decisions regarding amounts of remuneration for individual Directors (excluding Directors who are Audit and Supervisory Committee Members). Such decisions were made pursuant to resolution of the Board of Directors, upon the Board of Directors having determined the most appropriate approach to be that of delegating such decisions to the Representative Director & Chairperson, who does not assume responsibility for business execution and serves as Chairman of the Board of Directors from the perspective of supervising business execution of the respective Directors (excluding Directors who are Audit and Supervisory Committee Members), taking the Determination Policy into account. Such authority entails determining allocations of basic remuneration and performance-linked remuneration for respective Directors (excluding Directors who are Audit and Supervisory Committee Members). To ensure that such authority has been properly exercised, the Representative Director & Chairperson determines remuneration for individual Directors (excluding Directors who are Audit and Supervisory Committee Members), upon having taken into account deliberations of the Remuneration Advisory Committee. In addition, the Remuneration Advisory Committee reports to the Board of Directors on matters involving appropriate execution of authority delegated by the Board of Directors, upon having confirmed such matters every fiscal year. (3) Matters related to determination policy pertaining content of remuneration, etc. for individual Directors who are Audit and Supervisory Committee Members (a) Method of determining the determination policy The Company’s Audit and Supervisory Committee made decisions regarding determination policy pertaining content of remuneration, etc. for individual Directors who are Audit and Supervisory Committee Members (hereinafter referred to as the “Determination Policy”) at the meeting of the Audit and Supervisory Committee held on February 24, 2021, on the basis of discussions involving Directors who are Audit and Supervisory Committee Members. (b) Details of the Determination Policy Details of the Determination Policy are as follows. Remuneration for individual Directors who are Audit and Supervisory Committee Members consists of monthly remuneration only, because it would be inappropriate to link their remuneration to business performance given the notion that such Directors assume the role of supervising and auditing management of the Company from a standpoint independent of business execution. Remuneration amounts are decided on the basis of discussions involving Directors who are Audit and Supervisory Committee Members, and within a range for the total amount resolved at the General Meeting of Shareholders. The remuneration is set at an amount appropriate to the individual’s duties to be performed, taking into account such factors as remuneration levels at other companies, principally listed companies, and remuneration levels of the Company’s employees. Such decisions are made upon having referred to content of deliberations regarding amounts of remuneration for individual Directors (excluding Directors who are Audit and Supervisory Committee Members), upon having taken into account factors such as the Company’s – 18 – business environment, as discussed in a meeting of the Remuneration Advisory Committee, chaired by an Outside Director and the majority of whose members are Outside Directors. [Supporting System for Outside Directors] Outside Directors are assigned a secretary tasked with liaising and coordinating with respective divisions within the Company. Furthermore, for Outside Directors who are Audit and Supervisory Committee Members, the Audit and Supervisory Committee Office is tasked with liaising, coordinating and reporting with respect to necessary matters. In addition, when meetings of the Board of Directors and Audit and Supervisory Committee are to be held, in principle, prior to such meetings Outside Directors receive materials and are provided with explanations as necessary from divisions in charge. [Retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.)] Information on retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) Name Responsibilities (Full/part time, with/without Term Job title/ position Employment terms compensation, etc.) Date when former role as president/ CEO ended June 27,2018 June 28,2007 Annual Contract Annual Contract March 31,2012 Annual Contract Masayoshi Nuki Honorary Advisor Michisada Kamata Executive Advisor Shingo Matsuo Executive Advisor group group Economic activities Social contribution activities Economic activities Social contribution activities Economic activities Social contribution activities group Full-time paid Part-time paid Part-time paid Number of retired presidents/CEOs holding advisory positions (sodanyaku, komon, etc.) 3 Others Basic matters regarding Honorary Advisors and Executive Advisors are stipulated in the Company’s internal rules. The Company appoints Honorary Advisors and Executive Advisors when engaging in external activities that are beneficial to the Company, such that include activities carried out on behalf of the company involving industry associations and economic organizations, activities that serve society as well as charitable activities and other such initiatives that involve committee membership, etc. Honorary Advisors and Executive Advisors are not involved in management of the Company, in terms of individual matters of business execution, decision making or otherwise. Decisions on matters involving election and remuneration of Honorary Advisors and Executive Advisors are made by the Board of Directors subsequent to deliberations having been undertaken by the Personnel Advisory Committee. – 19 – 2. Matters on Functions of Business Execution, Auditing, Oversight, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) In principle, the Board of Directors holds a meeting once a month or as otherwise necessary to decide on important corporate management matters and monitor implementation status. Members of the Board of Directors attend its meetings, unless not possible