ダイフク（6383） – Corporate Governance Report

Corporate Governance Report Translated from the original Japanese-language document Last update: April 11, 2022 Daifuku Co., Ltd. Representative: Hiroshi Geshiro, President and CEO Contact: Hideaki Takubo, Managing Officer, Corporate Functions Head Tel: +81-6-6472-1261 Stock code: 6383 www.daifuku.com Basic Information 1. Basic Views The corporate governance of Daifuku Co, Ltd. (the Company) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other The Daifuku Group (hereinafter, the “Group”) emphasizes the fulfillment of its corporate social responsibility (CSR) based on the following management philosophy: Automation that Inspires Inspire society, deliver prosperity and enhance well-being through our core competence―automated material handling technology. We will 1. strive to realize a sustainable society that minimizes burdens on people and the environment, respects human rights, and encourages responsible manufacturing. 2. work together with customers around the world to create optimal smart logistics solutions that incorporate innovative technologies. 3. ensure a fair and open corporate culture that respects diversity and allows each individual to excel. Further, we will strengthen our fundamental management practices globally to have a high level of transparency. Daifuku is a company with an Audit & Supervisory Board. The Company enhances its corporate governance framework by developing a Board of Directors consisting of nine members, including four independent outside directors, and an Audit & Supervisory Board consisting of four members, three of whom are elected from outside the Company. More than one third (or 44%) of the Board of Directors are independent outside directors. The composition indicates that the Company considers diversity. To supplement the functions of the Board of Directors, the Company has an Advisory Committee, which deliberates on the nomination, election and dismissal, and remuneration of the management team members. The Audit & Supervisory Board members strengthen cooperation with the Audit & Supervisory Board Office, which assists the duties of the Audit & Supervisory Board members, further strengthen cooperation between the Audit Division and the accounting auditor to deepen and streamline audit work. Under the direct control of the Board of Directors, the Audit Division audits the appropriateness of the development and operation of internal control systems within the Group. 1 To encourage rapid decision-making on business execution, the Company has introduced a corporate officer system. The Company has also introduced an audit officer system to strengthen auditing functions. The President and CEO (hereinafter, the “CEO”) directs each Global Business and the Corporate Functions and identifies and addresses issues common to the entire Group through the committees under the direct control of the CEO. [Reasons for Non-Compliance with the Principles of Japan’s Corporate Governance Code] Daifuku complies with all of the Principles of Japan’s Corporate Governance Code revised on June 11, 2021. [Disclosure Based on the Principles of Japan’s Corporate Governance Code] Updated The Group actively strives to enhance its corporate governance with the aim of ensuring the sustained growth of the Group and improved its medium- to long-term corporate value. Accordingly, the Daifuku Group’s Basic Policy for Corporate Governance (hereinafter, the “Policy”) has been clarified, and the Group’s status of efforts for all items of the Japan’s Corporate Governance Code (hereinafter, the “Code”) revised in 2021 has been summarized. The Policy is created as a reorganization of the conventional Daifuku Corporate Governance Guidelines and shows our basic approach to corporate governance at the beginning, organizes the specific response status in code order, and introduces reference points for the latest securities report (in Japanese) and Daifuku Report as integrated reporting. See our website for the Daifuku Group’s Basic Policy for Corporate Governance. The Policy includes contents for the Prime Market that will be applicable in April 2022. www.daifuku.com/ir/policy/governance Disclosures based on the Principles that specific matters should be disclosed are as follows: [Principle 1.4 Cross-Shareholdings] Our basic policy is to limit shareholdings, including shares held as cross-shareholdings, to the minimum necessary and to reduce them, and the Board of Directors confirms the status of individual holdings every year. In principle, we will no longer hold new shares for strategic purposes. On the other hand, Daifuku has established a firm relationship of trust with its customers through after-sales services as well as the delivery of products. Circumstances including these trade relations will also be taken into consideration when the economic rationale of cross-shareholdings, such as market capitalization, book value, transaction amounts, dividends, ROE, and risk of shareholdings, is examined. Shares, which the Board of Directors regards as having no significance, will be sold on a timely basis. With respect to the voting rights attached to cross-shareholdings, we will make decisions individually with an emphasis on improving the corporate value of the cross-shareholding partners over the medium to long term. At the time of the assessment, special attention will be paid to whether the cross-shareholding partner has been tarnished by scandals or has committed an antisocial act. If the cross-shareholding partner has been involved in such circumstances, its 2 managerial approach to improvement shall be scrutinized. Audit reports concerning that partner shall also be scrutinized. When a cross-shareholder indicates its intention to sell the Company’s shares, Daifuku shall not hinder the sale of the cross-held shares. [Principle 1.7 Related Party Transactions] The rules of the Board of Directors stipulate that, with respect to a conflict-of-interest transaction between a director and the Group, the director shall seek prior approval for the transaction from the Board of Directors and report it to the Board of Directors even after the fact. With respect to transactions with directors, Audit & Supervisory Board members, and their close relatives, we conduct a survey on the existence of transactions at the beginning of every fiscal year and report findings of material facts about related-party transactions to the Board of Directors. Any transactions between related parties are disclosed in accordance with applicable laws and the rules established by the Tokyo Stock Exchange. [Supplementary Principle 2.4.1 Ensuring diversity in the core human resources of a company] 1. Concept of ensuring diversity, policies for human resource development and internal environment development to ensure diversity We are promoting the employment of diverse human resources based on our management philosophy and the development of an environment where each employee is able to work actively with a sense of ”motivation” and ”ease of work.” Under the three-year business plan Value Transformation 2023, with the themes of adopting diverse human capital management systems and creating a global corporate culture, we are working to develop and promote human resources and improve employee engagement. 2. Status of ensuring diversity 1) Policies and goals for promoting women to managerial positions To facilitate the active participation of women, we are developing and expanding a time, economic, and reinstatement support system that enables us to fully demonstrate our abilities and grow while striving to balance childcare and work. In addition to increasing the ratio of female employees, the number of female employees working as practical leaders and section managers is increasing and their field of activity is expanding. In addition, in the general employer action plan based on the Act on Promotion of Women’s Participation and Advancement in the Workplace, we have set a target of increasing the number of female managers to 30 or more by April 1, 2023, compared with the previous target of 24 or more by March 31, 2025, as below. We will increase the number of female executives who are involved in management decision-making in the future. Changes in the number of female managers and targets 18 as of April 1, 2020 20 as of April 1, 2021 26 as of April 1, 2022 30 as of April 1, 2023 (target) * Three-Year Business Plan Value Transformation 2023 (April 1, 2021 – March 31, 2024) 2) Policies for promoting foreign nationals to managerial positions With the globalization of our business, the number of foreign employees is increasing each year through both regular hiring and mid-career hiring. In addition to graduates of Japanese universities, we also carry out regular recruitment of graduates of overseas universities. Of the regular hires in 3 fiscal 2022, 8.6% are foreign employees. We will continue to actively hire foreign employees. Four foreign managers are employed as of April 1, 2022. We expect that the number of foreign mangers will continue to increase in line with globalization. 3) Policies for promoting mid-career professionals to managerial positions We are actively hiring mid-career personnel, and the ratio of mid-career hires among full-time employees is 44.3% as of April 1, 2022. The same applies to the promotion to managerial positions. Mid-career hires accounted for 45.8% of assistant managers and 36.2% of managerial positions, as of April 1, 2022. Going forward, we will continue to introduce a professional system (a system different from the conventional remuneration system) in response to the sophistication of duties and actively hire mid-career personnel as qualified managers. [Principle 2.6 Roles of Corporate Pension Funds as Asset Owners] Daifuku’s basic policy on the investment of reserves to be applied to its defined benefit pension plan (hereinafter, “pension assets”) is to achieve the total returns that are deemed necessary in the long term while taking medium-term downside risks into consideration, to ensure the payment of pension benefits to pension scheme members, recipients, etc. in the future. – Daifuku shall appoint, evaluate, and manage asset managers in accordance with this basic policy. – Daifuku shall seek the safe and efficient management of its pension assets by establishing the Pension Assets Management Committee. – The Pension Assets Management Committee shall be chaired by the officer responsible for finance (the finance and accounting division manager). Committee members shall be the officers responsible for operations, such as personnel affairs, general affairs, finance and accounting, the chairperson of the labor union executive committee, and the head of the health insurance society. If a suspected conflict of interest might arise as a result of such members’ participation in deliberations, such members shall be excluded from deliberations as appropriate. [Principle 3.1 Full Disclosure] i) Company objectives (e.g., business principles), business strategies and business plans We have formulated and disclose our management philosophy, business strategies, and business plans. See our website for the management philosophy, business strategies, and business plans. www.daifuku.com/company/philosophy www.daifuku.com/jp/ir/policy/plan ii) Basic views and guidelines on corporate governance based on each of the principles of the Code Daifuku Group’s Basic Policy for Corporate Governance summarizes the basic views and guidelines on corporate governance based on each of the principles of the Code. iii) Board policies and procedures in determining the remuneration of senior management and directors We disclose these policies and procedures in securities reports (in Japanese), etc. iv) Board policies and procedures in the appointment/dismissal of senior management and the nomination of directors and kansayaku candidates We use the Advisory Committee. See Supplementary Principle 4.10.1. 4 v) Explanations with respect to individual appointments/dismissals and nominations based on iv). We summarize the background of each candidate and the reasons for their selection as a candidate in the proposal for the election of directors in the convening notice. [Supplementary Principle 3.1.3 Sustainability initiatives] 1. Disclosure on sustainability initiatives The Group positions its three-year business plan Value Transformation 2023, which started in April 2021, and the Sustainability Action Plan (hereinafter, the “Plan”) as the two wheels of its business strategy. We will contribute to realizing a sustainable society through our business activities. The Board of Directors receives status reports from the Sustainability Committee chaired by the CEO, which manages the progress of the Plan, to achieve the goals, and provides effective supervision. We regularly disclose details of our initiatives in the Daifuku Report, our website, CSR reports, etc. See our website for details: www.daifuku.com/sustainability/management/plan 2. Investing in human capital To realize the reform of the personnel system and the transformation of internal perceptions set forth in the three-year business plan, we will work to develop and appoint human resources through global talent management and improve employee engagement across the Group. 1) Human resources management We are building a human resources management platform across the Group, working to unify the evaluation, compensation, and development policies common to the Group, and building a talent management system for the promotion of human resources that transcends the boundaries of global business units. In addition, our employee engagement is defined as a relationship (career realization) that allows employees and the company to grow together based on employees’ willingness to contribute voluntarily (motivation to work) and an environment where employees can demonstrate their abilities (ease of work). We will foster a sense of unity and improve productivity for the entire Group, and work to promote detailed and considerate human resources management that responds to the diverse features of individuals. 2) Promoting diversity We are promoting the development of an environment where each employee is able to work with a sense of “motivation” and ”ease of work.” As part of work style reforms, we have introduced a work-from-home system for all employees to improve productivity and harmonize work-life balance. See Supplementary Principle 2.4.1 for the appointment of female managers. In addition to the target number of female managers, in the Plan we have set a target for the acquisition rate for male childcare leave (10% in fiscal 2023) and a target for the employment rate of persons with disabilities (statutory employment rate to achieve in fiscal 2023). 3) Human resources development We encourage our employees by providing self-motivated learning opportunities and a position-specific training system, as well as a global leadership training program for the next generation including candidates for senior management of non-Japan Group companies. In addition, the training attendance record is managed by the talent management system (human resources database), due to promotion requirements. 3. Investing in intellectual property 5 One of the themes of the Plan is to contribute to a smart society through technological development and the provision of products and services. As material issues, we have specified innovative technology development and invention promotion, and list the amount of innovation investment (R&D expense + digital transformation (DX) investment amount) and the number of patent registrations in KPIs. The amount of innovation investment in fiscal 2021 is planned to be 15 billion yen. We regard the number of patent registrations as one of the pillars of our intellectual property strategy, and will focus on enhancing quality by actively discovering high-quality patents in addition to the number of patents. We will also focus on promoting open innovation through industry-academia collaboration, which will lead to investment and commercialization in promising new fields. 4. Impact of climate change risks and opportunities on our business activities and profits 1) Response to the TCFD recommendations In 2019, we expressed our assent to the TCFD recommendations and in May 2020 we disclosed information on the impact of climate change risks and opportunities on our business activities and profits. As a result of scenario analysis at the time of disclosure, as a risk, the taxation of carbon tax may result in a decrease of 560 million yen on an operating income basis. As an opportunity, we believe that the risk will be outweighed by changes in the environment, such as increasing needs for e-commerce and low-temperature logistics, as well as the expansion of Daifuku Eco-Products (our eco-friendly products). We will scrutinize them further. See our website for details: www.daifuku.com/sustainability/environmental-management 2) Formulation of Daifuku Environmental Vision 2050 Based on the Sustainability Committee’s escalation to the Board of Directors, following the announcement of our assent to the TCFD recommendations, we formulated Daifuku Environmental Vision 2050, which aims for a world where material handling systems have zero environmental impact in 2050, and bears the slogan “One-Daifuku Zero.” In February 2021, we disclosed our vision for the future and our milestone target for 2030 at the same time as the three-year business plan. 3) Enhancing the quality and quantity of disclosures related to climate change In principle, the basic framework for responding to climate change will be reviewed in line with the drafting of three- to four-year business plans, and the Sustainability Committee will incorporate it into each business plan. The Committee will report to the Board of Directors whenever new risks or opportunities arise. The Committee regularly reports to the Board of Directors on progress and performance concerning indicators and targets. We will disclose the above contents through our website, etc. [Supplementary Principle 4.1.1 Scope and content of the matters delegated to the management] The Board of Directors delegates matters other than the important matters stipulated in the rules of the Board of Directors, such as the determination of management policies, business plans, and corporate governance system, to management. [Principle 4.9 Independence Standards and Qualification for Independent Directors] We have established our own independence standards and review them as necessary, and have included them in the convening notice, corporate governance report, and securities report (in 6 Japanese) to help shareholders make decisions on exercising their voting rights. As for an outline of what we expect from each independent outside director candidate, the status of their remarks, and the duties they have performed regarding their expected role, we make disclosure in the convening notice. [Supplementary Principle 4.10.1 Mandates and roles of a nomination committee and remuneration committee] As a company listed on the Prime Market, we have formulated the contents required for this clause in our internal rules as follows. 1. Composition: The Advisory Committee consists of at least one representative director and three or more members, including one or more outside directors, and meets at least three times a year. In fiscal 2021, the Committee consists of one representative director and all four outside directors. The Committee is chaired by one of the outside directors. 2. Roles and authority: When the Board of Directors decides on the following matters, it is to ensure the transparency of the resolution process at the Board meeting and the fairness of the resolution, by receiving an inquiry from the Board of Directors, examining the content in advance and making a report. The Board of Directors makes resolutions respecting the opinions of the Committee. – Appointment and dismissal of representative directors and election and dismissal of executives of the Board of Directors – Nomination of candidates for directors and Audit & Supervisory Board members – Election and dismissal of corporate officer candidates and corporate officers with roles – Election and dismissal of audit officer candidates and audit officers with roles – Remuneration of all directors and corporate officers [Supplementary Principle 4.11.1 Views on diversity of the Board of Directors, etc.] The Board of Directors identifies the skills that it should prepare in the medium to long term through the formulation of the management philosophy and three- to four-year business plans. Broadly speaking, the Board will consist of human resources who “work together with customers around the world to create optimal smart logistics solutions that incorporate innovative technologies” and “excel.” Regarding the policy and process of appointing candidates for directors, we submit the names of qualified persons who would be able to fulfill the duties and responsibilities to the Advisory Committee as those who could assume the fiduciary responsibility entrusted by the shareholders in view of their respective personality and insight, and the Board of Directors made final decision on such persons as candidates. When appointing candidates, we consider the balance of knowledge, experience, and skills of the board as a whole, diversity including gender and international aspects, and the optimization of board size, according to the social and business environment. The appearance after being elected at the ordinary general meeting of shareholders is shown as a skill matrix in the convening notice. See pages 68-69, Daifuku Report 2021 for the skills matrix. www.daifuku.com/ir/library/annualreport [Supplementary Principle 4.11.2 Status of concurrent posts of directors and Audit & Supervisory Board members] 7 Where directors and Audit & Supervisory Board members also serve as officers of other listed companies or others, important concurrent positions will be stated in the convening notice and the Corporate Governance Report. [Supplementary Principle 4.11.3 Evaluation of the Board of Directors’ effectiveness] Daifuku conducts a survey of all directors and Audit & Supervisory Board members concerning the effectiveness of the Board of Directors about once a year. The results of the survey are reported to the Board of Directors. In response to the report, the Board of Directors exchanges opinions and takes other measures to identify and resolve issues, and discloses a summary of the results in corporate governance reports, securities reports (in Japanese), etc. In conducting the survey, we use external organizations to ensure anonymity and collect frank opinions, and analyze the survey from two aspects: past comparison and comparison with other companies. See page 78, Daifuku Report 2021 for an overview of the 2020 survey. www.daifuku.com/ir/library/annualreport [Supplementary Principle 4.14.2 Training policy of directors and Audit & Supervisory Board members] Daifuku prepares the following activities as training for directors and Audit & Supervisory Board members, and will conduct and enhance these activities on an ongoing basis. 1. Giving the following lectures on the days of the Board of Directors’ meetings and similar – Lectures on compliance, which are given by external lawyers – Lectures on financial affairs, legal affairs, and other matters, which are given by outside officers, from their specialists’ points of view 2. Explanations of Daifuku’s business and inspection tours of its key facilities, which are aimed at outside officers subsidiaries 3. Participation in important internal meetings, such as meetings for all presidents of non-Japan 4. Training for acquiring knowledge of financial affairs, legal affairs, and other matters, which is provided for newly appointed officers 5. Distribution of books and other materials to directors and Audit & Supervisory Board members, which help them fulfill their roles and duties 6. Participation in external training sessions, seminars, and other [Principle 5.1 Policy for Constructive Dialogue with Shareholders] 1. Information provision through timely disclosure: Timely disclosure is made on an appropriate and timely basis mainly by the Disclosure Committee chaired by the CEO. 2. Investor relations (IR) activities for institutional investors and shareholders in and outside Japan: We hold a results briefing every quarterly earnings announcement. We also provide as many opportunities as possible for the management to hear the voices of shareholders and investors 8 directly through various meetings including IR activities outside of Japan. 3. IR activities for individual investors and shareholders in Japan: We organize a tour of our demo center within the Shiga Works for individual shareholders, and senior management explains the business overview to the tour participants. We also exhibit at IR fairs for individual investors and hold results briefings for investors at securities company branches. 4. General Meeting of Shareholders: Management, led by the CEO, strives to explain the questions with as much consideration as possible. 5. We endeavor to enhance the provision of voluntary information through our website, Daifuku Report integrated reporting, etc. 2. Capital Structure Foreign shareholding ratio 30% or more [Status of Major Shareholders] Name Number of shares held Percentage (%) The Master Trust Bank of Japan, 15,049,600 11.93 8,130,700 4,117,803 4,080,454 3,833,906 3,207,500 3,053,822 2,745,767 2,397,738 2,360,800 6.45 3.26 3.24 3.04 2.54 2.42 2.18 1.90 1.87 Ltd. (trust account) Custody Bank of Japan, Ltd. (trust account) Mizuho Bank, Ltd. Sumitomo Mitsui Banking Corporation MUFG Bank, Ltd. Chuo-Nittochi Co., Ltd. Daifuku Supplier Shareholder Association Nippon Life Insurance Company SSBTC CLIENT OMNIBUS ACCOUNT account 7) Custody Bank of Japan, Ltd. (trust Controlling shareholder (except for parent company) Parent company ――― None Supplementary Explanation 9 ――― 3. Corporate Attributes Updated Listed stock market and market section Prime, Tokyo Stock Exchange 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 Number of consolidated subsidiaries as of the end of the previous fiscal year March Machinery 1,000 or more From JPY100 billion to less than JPY1 trillion From 50 to less than 100 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with the Controlling Shareholder ――― Updated 5. Other Special Circumstances That May Have a Material Impact on Corporate Governance The Company has held shares of Contec Co., Ltd. as a listed subsidiary, but conducted a tender offer during the period of February 7 to March 23, 2022. Following the result of the tender offer, the Company is undertaking with procedures aimed at acquiring all of the target company’s share. The target company was listed on the Standard Market of the Tokyo Stock Exchange, but will be delisted after the prescribed procedures in accordance with the delisting standards of the Tokyo Stock Exchange. See our website for details on the tender offer (in Japanese): www.daifuku.com/jp/ir/assets/20220204_02 www.daifuku.com/jp/ir/assets/20220324_01 10 II. Business Management Organization and Other Corporate Governance Systems Regarding Decision-Making, Execution of Business, and Supervision in Management 1. Organizational Composition and Operation Form of organization Company with the Audit & Supervisory Board [Directors] Maximum number of directors stipulated in the Articles of Incorporation Term of office of directors stipulated in the Articles of Incorporation Chair of the Board of Directors Number of directors Outside directors 25 One year President and CEO 9 Appointed Number of outside directors Of outside directors, number of independent officers 4 3 Relationship with the Company (1) Name Attribute Mineo Sakai Yoshiaki Ozawa Academic From another company From another company Keiko Kaneko Lawyer * Categories for “Relationship with the Company” * Kaku Kato Relationship with the Company* a b c d e f g h △ ○ ○ i j k ○ ○ “○” 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 e. Major client or supplier of the 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 g. Major shareholder of the Company (or an executive of the said major shareholder if the h. Executive of a client or supplier of the Company (which does not correspond to any of d, e, or f) i. Executive of a company, between which and the Company outside officers are mutually appointed shareholder is a legal entity) (the director himself/herself only) (the director himself/herself only) 11 j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only) k. Other Name Yoshiaki Ozawa Relationship with the Company (2) Independent officer ✓ as once a of served Supplementary explanation of the relationship Mr. Yoshiaki Ozawa works concurrently as Professor of Business Management at St. Andrew’s University. He partner representative PricewaterhouseCoopers Aarata LLC, the Accounting Auditor of the Company, but since he resigned from this audit firm in September 2012, there have been no business transactions between him and the Company and therefore no relationships that would affect the independence required of an Outside Director. Reasons for appointment by leveraging He has considerable knowledge in financial and accounting matters and teaches accounting as a university professor his experience working abroad. At meetings of the Board of Directors, he offers professional advice and counsel to secure the transparency of management and enhance the supervision thereof based on his abundant experience and extensive knowledge, as well as to help us promote globalization of the Group. In addition, he works to supervise the team at Advisory management Committee mainly meetings, reflecting the evaluation of corporate performance and other results in the nomination and remuneration for officers from an independent and objective perspective. He has no personal, capital or business relationships with or any other interests in the Company and is able to fulfill his duties as Outside Director from an independent and objective perspective. He has abundant experience and extensive knowledge in corporation management that he has cultivated through the Chairman and Chief Executive Officer (CEO) of Kanematsu Electronics. At meetings of the Board of Directors, he offers advice and counsel to of secure transparency the management and enhance supervision thereof based on his abundant experience and extensive the positions as the Mineo Sakai ✓ Mr. Mineo Sakai served as the Chairman and Chief Executive Officer (CEO) of Kanematsu Electronics Ltd. until March 2018 and the Adviser of the same company from June 2019. Although there are transactions between the Company and Kanematsu Ltd. where he belongs, the amount of the transactions is less than Electronics 12 1% of the consolidated net sales of either company. in knowledge. In addition, he works to supervise the management team at Advisory Committee meetings, mainly reflecting the evaluation of corporate performance and other results the nomination and remuneration for officers from an objective independent perspective. He has no personal, capital or business relationships with or any other interests in the Company and is able to fulfill his duties as Outside Director from an independent and objective perspective. and 13 Kaku Kato ✓ Mr. Kaku Kato has been working concurrently as a visiting professor of Faculty of Law and Politics at Rikkyo University since April 2020. Keiko Kaneko Ms. Keiko Kaneko works for Anderson Mori & Tomotsune. Although the Company may outsource individual cases to Anderson Mori & Tomotsune where she belongs, there is no the advisory contract and amount of the transactions is less the consolidated net sales of either company. than 1% of 14 in internal control, corporation (environment, He conducts research on law at a university by leveraging his abundant experience and extensive knowledge management, in particularly in the fields of safety and ESG society, governance) as well as compliance cultivated and through the positions as executive officer at Mitsui & Co., Ltd. and Mitsui Oil Exploration Co., Ltd. At meetings of the Board of Directors, he offers advice and counsel to secure the transparency of management and enhance the supervision thereof from the viewpoint of corporate legal affairs. In addition, he works to supervise the management team at Committee meetings, Advisory mainly reflecting the evaluation of corporate performance and other the nomination and results remuneration for officers from an independent objective perspective. He has no personal, capital or business relationships with or any other interests in the Company and is able to fulfill his duties as Outside Director from an independent and objective perspective. She has experienced working at a trading company and as an associate professor of a graduate school. As a lawyer, she is actively involved in areas such as business acquisition, transactions and management of business enterprises, and regulations in the field of natural resources. At meetings of the Board of Directors, she offers advice and counsel to of transparency secure the management and enhance supervision her from thereof professional viewpoint. In addition, to he works the supervise team at Advisory management and the meetings, mainly Committee reflecting the evaluation of corporate performance and other results in the nomination and remuneration for officers from an independent and objective perspective. She has no personal, capital or business relationships with or any other interests in the Company and is able to fulfill her duties as Outside Director from an independent and objective perspective. In line with the policy of Anderson Mori & Tomotsune, the Company will not designate her as an independent officer as stipulated by the rules of the Tokyo Stock Exchange. However, she fully satisfies the requirements independence in set the forth standards the stipulated by Company, and therefore determined that her independence from the Company is sufficiently ensured. is it Voluntary establishment of committee(s) corresponding to nomination committee or remuneration committee Established Committee’s Name, Composition, and Attributes of Chair Committee corresponding to nomination committee Committee corresponding to remuneration committee Committee’s name Advisory Committee Advisory Committee Number of all committee members Full-time members Inside directors Outside directors Outside experts Other Chair 5 0 1 4 0 0 Supplementary Explanation Updated 15 5 0 1 4 0 0 One of outside directors One of outside directors As described below, the composition, etc. of the Advisory Committee is set out in the internal rules. – Composition and independence The Advisory Committee consists of three or more members, including one or more representative directors and one or more outside directors. The chair is an outside director. This composition of the Committee ensures its independence. In fiscal 2021, the Committee consists of all four outside directors and a representative director. – Method of selecting committee members The members are determined by resolution of the Board of Directors. – Name and roles of committee members Outside Director Yoshiaki Ozawa (chair), Outside Director Mineo Sakai, Outside Director Kaku Kato, Outside Director Keiko Kaneko, and Representative Director Hiroshi Geshiro – Authority and roles of the Committee The Committee deliberates on the nomination, and election and dismissal of management team members and remuneration for all directors and corporate officers. It reports the results of the deliberation to the Board of Directors. – Activities The main activities of the Advisory Committee are the deliberation on, and reporting of, the nomination, election and dismissal, and remuneration of officers. Five meetings were held in fiscal 2021. Of those meetings, three meetings were held to deliberate on officers’ remuneration in April 2021, January 2022, and March 2022. The results of the deliberations were discussed at the meeting of the Board of Directors in March 2022, and directors’ and corporate officers’ remuneration were determined. All committee members were present at all committee meetings. [Audit & Supervisory Board Members] Establishment of the Audit & Supervisory Board Maximum number of Audit & Supervisory Board members stipulated in the Articles of Incorporation Number of Audit & Supervisory Board members 5 4 Established Cooperation between Audit & Supervisory Board Members, Accounting Auditors and the Internal Audit Unit Audit & Supervisory Board members and the Audit Division work in collaboration from initial stage to plan and carry out individual audits and mutually raise audit effectiveness by reflecting information including their audit performance, individual results of audited units, and views shared at auditors’ meetings, in their audit practices on a timely manner. 16 Audit & Supervisory Board members undertake mutual cooperation with the accounting auditors by hearing audit plans and results conducted by accounting auditors and exchanging opinions when accompanying them on inventory inspections and on-site audits of installation sites. In addition, they participate in the tests conducted in Japan by the accounting auditors and internal inspectors to assess the status of internal control upgrades and operational status, and assessed the effectiveness of the tests. The Audit Division conducts internal control assessment tests effectively by having regular and as-needed meetings with the accounting auditors to share views and information. Appointment of outside members of the Audit & Supervisory Board Number of outside members of the Audit & Supervisory Board Of outside members of the Audit & Supervisory Board, number of independent officers 3 3 Appointed Relationship with the Company (1) Name Attribute Lawyer Ryosuke Aihara Academic Tsukasa Miyajima Nobuo Wada Academic * Categories for “Relationship with the Company” * Relationship with the Company* a b c d e f g h k l m i j △ ○ ○ ○ * “○” 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; “▲” when a close relative of the Audit & Supervisory Board member fell under the category in the past a. Executive of the Company or its subsidiaries b. Non-executive director or accounting advisor of the Company or its subsidiaries c. Non-executive director or executive of a parent company of the Company d. An Audit & Supervisory Board member of a parent company of the Company e. Executive of a fellow subsidiary company of the Company f. A 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, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company in addition to 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 legal entity) 17 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 company, between which and the Company outside officers are mutually appointed (the Audit & Supervisory Board member himself/herself only) l. Executive of a company or organization that receives a donation from the Company (the Audit & Supervisory Board member himself/herself only) m. Other Relationship with the Company (2) Independent officer ✓ Name Ryosuke Aihara a between transaction Supplementary explanation of the relationship Mr. Ryosuke Aihara works concurrently as a lawyer at Aihara General Law Office. delegation Despite agreement the Company and Mori Hamada & Matsumoto Law Office, with which he was affiliated until March 2016, he has never engaged in any matters that the Company previously delegated to the law office. Furthermore, amount the between said law office and the Company is insignificant, at less than 1% of both the annual revenue of the law office and the consolidated net sales of the Company. In addition, there have been no transactions whatsoever between the Aihara General Law Office to which he belongs and the Company during or since April 2016. Mr. Tsukasa Miyajima works concurrently as a professor at Graduate School of Law of Asahi University. Reasons for appointment counsel He is a lawyer who has specialized for years in corporate governance and compliance. He has given us advice and regarding overall management to ensure the legality of the management and enhance functions of management oversight and auditing from his professional viewpoint as a lawyer. He has no personal, capital or business relationships with or any other interests in the Company and is able to fulfill his duties as an outside member of the Audit & Supervisory Board from an independent and objective perspective. a is He university professor specializing in laws and has deep insight and extensive experience as an academic expert and a legal expert. He has given us professional advice and counsel to ensure the transparency of management and of enhance management and auditing thereof. supervision functions the 18 Tsukasa Miyajima ✓ Nobuo Wada ✓ Mr. Nobuo Wada works concurrently as an emeritus professor and a lecturer (part-time) at Nagoya University. He has no personal, capital or business relationships with or any other interests in the Company and is able to fulfill his duties as an outside member of the Audit & Supervisory Board from an independent and objective perspective. He has long been a professor at the university majoring in experimental into condensed matter research physics and has deep insight and extensive experience as an academic expert. He has given us advice and counsel to ensure the transparency of management and enhance the functions management of supervision and auditing thereof. He has no personal, capital or business relationships with or any other interests in the Company and is able to fulfill his duties as an outside member of the Audit & Supervisory Board from an independent and objective perspective. [Independent Officers] Number of independent officers 6 Other Matters Relating to Independent Officers Outside directors and outside members of the Audit & Supervisory Board, excluding the outside director Keiko Kaneko, are designated as independent officers as stipulated by the rules of the Tokyo Stock Exchange. In line with the policy of the law firm where the outside director Kaneko belongs, the Company do not designate her as an independent officer as stipulated by the rules of the Tokyo Stock Exchange, however, she fully satisfies the requirements set forth in the independence standards stipulated by the Company, and it is therefore determined that her independence from the Company is sufficiently ensured. Independence standards of outside directors and outside members of the Audit & Supervisory Board At Daifuku, outside directors and outside members of the Audit & Supervisory Board are considered independent if they do not fall under any of Articles 1 to 5 below. Article 1 19 A person who falls or fell under any of the following in the last three years: 1) A person who executes business of a company, etc. that is a key customer of Daifuku or whose key business partner is Daifuku (*1) 2) A lawyer who belongs to a law firm that has concluded an advisory contract with Daifuku or its subsidiary and who was actually in charge of legal business for Daifuku, a certified public accountant (or a certified tax accountant) who was an accounting auditor or accounting advisor of Daifuku or its subsidiary, or an employee, partner, or staff member who belongs to an auditing firm (or tax accountant corporation) that is an accounting auditor or accounting advisor of Daifuku or its subsidiary and who was actually in charge of the auditing service for Daifuku 3) A lawyer, certified public accountant, or certified tax accountant, if not applicable to the above item 2, who provides specialized services, etc. to Daifuku by receiving a large amount (*2) of money or assets other than remuneration for an officer, directly from the company 4) An officer or employee of a company, etc. that is a major shareholder (*3) of Daifuku Article 2 An officer or employee of Daifuku’s subsidiary or a person who held such a position during the ten years before being appointed as such status Article 3 An executive board member or any other person who executes business of an organization that receives donations or grants exceeding a certain amount (*4) from Daifuku (such as a public interest incorporated foundation, a public interest incorporated association, or a non-profit corporation) Article 4 The spouse or a relative within the second degree of relationship of a person who falls under any of Articles 1 to 3 above, or a relative living together with such a person Article 5 A person who does not fall under any of Articles 1 to 4 above, but who is deemed likely to have a virtual conflict of interest with Daifuku due to their relationship with the company (Notes) *1: A customer from whom Daifuku received payment of at least 2% of the amount of Daifuku’s annual consolidated net sales in the most recent fiscal year, or a business partner who received payment from Daifuku of at least 2% of the amount of its annual consolidated net sales in the most recent fiscal year *2: The annual average for the last three years of 10 million yen or more *3: A shareholder with 10% or more of the voting rights *4: The annual average for the last three years of 10 million yen or more, or 30% of the average total annual expenditure of the organization, whichever is larger [Incentives] Incentive policies for directors Performance-linked remuneration Supplementary Explanation 20 Remuneration for executive directors consists of a base salary as fixed compensation, a bonus as a short-term performance-linked compensation, and medium- to long-term performance-linked equity compensation (the Board Benefit Trust or BBT, non-monetary compensation). – Policy on the determination of the payment ratio of performance-based compensation and other compensation The payment ratio is not fixed because the link between the Company’s results and stock value is reflected in compensation. The Company determines the ratio, taking into consideration levels at other companies and the report from the Advisory Committee. – Indicators related to performance-based compensation, reasons for choosing them, and the method of determining the amount of performance-based compensation The funds for bonuses as short-term performance-linked compensation are a certain percentage of consolidated net income in a fiscal year, and bonuses are paid based on the basic allocation according to qualifications and positions and the evaluation allocation according to performance results at a certain time every year. Net income has been chosen as an indicator for performance-linked allocation because net income indicates the result of the efforts of all officers and employees. – Description of non-monetary compensation, etc. The Company has introduced the Board Benefit Trust as a medium- to long-term performance-linked equity compensation system for officers. In this system, standard points are set for each position. According to the degree of achievement of the business year target and the three-year business plan targets, coefficients from 0.0 to 1.0 (four levels) are assigned, and points are awarded accordingly. Accumulated points are paid in stock and money at the time of retirement. The degree of achievement in a fiscal year is calculated based on the degree of achievement of initial net income and profit margin plans in the fiscal year. The degree of achievement in the three-year business plan is calculated based on the latest management targets (including net sales, operating income, ROE targets) announced by the end of the previous fiscal year. The purpose of introducing this system is to make clearer the link between officers’ remuneration and the Company’s results and stock value and for officers to share with shareholders the benefit of rising stock prices and the risk of falling stock prices, which will motivate them to contribute to improving results and increase corporate value over the medium to long term. Recipients of stock options Supplementary Explanation ――― [Directors’ Remuneration] Disclosure of individual directors’ remuneration Supplementary Explanation Selected directors 21 In fiscal 2020, the remunerations paid to the directors and Audit & Supervisory Board members are as follows: Directors (excluding outside directors): Eight (8) persons, total remuneration of 409 million yen (base salaries: 164 million yen, bonuses: 182 million yen, the Board Benefit Trust: 63 million yen) Audit & Supervisory Board members (excluding outside members): Two (2) persons, total remuneration of 52 million yen (base salaries: 31 million yen, bonuses: 21 million yen) Outside officers: Seven (7) persons, total remuneration of 90 million yen (base salaries: 90 million yen) The following one director had total remuneration in fiscal 2020 of 100 million yen or more: Hiroshi Geshiro Hiroshi Geshiro (President and CEO): Total remuneration of 119 million yen (base salary: 55 million yen, bonus: 45 million yen, the Board Benefit Trust: 18 million yen) Policy on determining remuneration amounts and calculation methods Established Disclosure of Policy on Determining Remuneration Amounts and Calculation Methods – The Company resolved to set the annual amount of remuneration for directors at 700 million yen or less approved at the ordinary general meeting of shareholders held on June 2006. The basic policy is to pay remuneration for directors in accordance with the Internal Rules on Executive Remuneration and Bonus for Officers and the Rules on Executive Stock Benefits stipulated by the resolution of the Board of Directors so that the level of remuneration is appropriate for the roles and duties of directors. – The remuneration for the executive directors consist of base salary as a fixed compensation, a bonus as a short-term performance-linked compensation, and a medium- to long-term performance-linked equity compensation. – For outside directors who have a supervisory function, only the base salary shall be paid based on their duties. – The basic salary shall be fixed compensation based on the annual salary of officers by position, and the level shall be determined by comprehensively considering the qualifications and positions and the performance of the Company as well as levels at other companies. – Activities of the Board of Directors and a committee, etc. in the process of determining officers’ remuneration 22 The remuneration for directors shall be reviewed and reported by the Advisory Committee, which consists of outside directors and the representative director, and the total amount of base salary and bonuses shall be resolved annually by the Board of Directors. The CEO shall be delegated by the Board of Directors to determine the amount of remuneration for individual directors based on relevant internal rules. The Advisory Committee consists of three or more members, including one or more representative directors and one or more outside directors. The chair is an outside director. In fiscal 2020, the Committee consisted of all of the four outside directors and one representative director. – Delegation of authority to determine remuneration for individual directors The Board of Directors has the authority to decide on policies on the amount of officers’ remuneration, etc. and the method for calculating the amount. CEO Hiroshi Geshiro has been delegated to determine the amount of remuneration for individual directors for fiscal 2020 under the Internal Rules on Executive Remuneration and Bonus for Officers. The delegated authority is the authority to determine the monthly allocation of basic remuneration for each director and the allocation of bonus based on the evaluation of performance for each director. The authority has been delegated to the CEO because the CEO is in the most suitable position for maintaining an overview of the results at the entire Company, and at the same time, evaluating each director’s roles and responsibilities. To exercise the authority properly, the President and CEO determines remuneration for each director in line with the opinions of the Advisory Committee. – The reason why the Board of Directors has decided that remuneration for each director for fiscal 2020 is in line with the policy To ensure that the President and CEO exercises the authority properly, the Board of Directors has respected the Advisory Committee’s report on remuneration for each director, which is the result of the Committee’s deliberation in line with the policy, and has approved the remuneration. [Support System for Outside Directors and/or Outside Members of the Audit & Supervisory Board] The Secretary’s Office provides appropriate support to outside directors. The Audit & Supervisory Board Office provides information to Audit & Supervisory Board members, including outside Audit & Supervisory Board members, and assists in auditing duties and provides duties related to the Audit & Supervisory Board. On the communication front, the Company provides materials for meetings of the Board of Directors in advance, using IT and tablets, to give outside directors time to examine them. 23 2. Matters on Functions of Business Execution, Auditing, Supervision, Nomination and Remuneration Decisions (Overview of Current Corporate Governance System) Updated 1. Directors and the Board of Directors The Company’s Board of Directors consists of nine directors. The directors’ term of office is one year. The Company holds regular monthly meetings of the Board of Directors to make decisions on fundamental management issues, with extraordinary meetings convened as necessary, on six occasions during fiscal 2021. The Board of Directors shall delegate matters other than the important matters stipulated in the Rules of the Board of Directors, such as the determination of management policies, management plans, and corporate governance system, to directors and corporate officers. The four independent outside directors provide insightful advice and recommendations to the Board of Directors based on their abundant experience and extensive knowledge of corporate operations, corporate legal affairs, accounting, etc. They also ensure the transparency of management and supervise business execution by the inside directors. The independent outside directors include a woman and two persons who have experience engaging in corporate management. The detailed composition of the Board of Directors and a skill matrix are disclosed in convening notices, Daifuku Report, and security reports (in Japanese). Convening notices www.daifuku.com/ir/stock/shareholders Daifuku Report www.daifuku.com/ir/library/annualreport Securities reports (Japanese) www.daifuku.com/jp/ir/library/statements 2. Audit & Supervisory Board members and the Audit & Supervisory Board The Company maintains an Audit & Supervisory Board made up of four Audit & Supervisory Board members, three of whom are elected from outside the Company. The Company held meetings of the Audit & Supervisory Board on eight occasions during fiscal 2021. Audit & Supervisory Board members and the Audit & Supervisory Board shall fulfill their duties by stipulating and promoting the effective applications of the Rules of the Audit & Supervisory Board, Audit Standards, and Standards on Audit Concerning the Internal Control System, with regard to audit of directors’ fulfillment of duties, decisions over resolutions to be submitted to the General Meeting of Shareholders regarding election/dismissal and non-reappointment of the accounting auditor, and others, with due attention to their fiduciary responsibilities to shareholders and with an aim for sustainable growth and medium- and long-term improvement of the corporate value. 3. Advisory Committee A voluntary Advisory Committee has been established to strengthen the independence, objectivity and accountability of the Board of Directors’ functions on the matters of the nomination, election/dismissal, and the remuneration of directors, Audit & Supervisory Board members, corporate officers, and audit officers. The Committee is comprised of one representative director and four outside directors and meets at least three times a year. The Committee, which is chaired by one of the outside directors to ensure its transparency in the course of resolutions, held meetings on five occasions during fiscal 2021. 24 4. Other bodies, etc. The Management Advisory Meeting is held to confer important management matters. With directors and Audit & Supervisory Board members in attendance, this meeting also seeks the opinions of external specialists on an as-needed basis. Convened by the CEO as he sees fit, the Management Advisory Meeting meets on a timely basis as appropriate. In fiscal 2021, the Company held three meetings. In addition, the Company introduced a corporate officer system for the purposes of the following: 1) Accelerate decision-making on business execution through a reduction in the number of directors as well as further revitalizing the Board of Directors by promoting more rigorous deliberations. 2) Engage in functional and efficient business operations by promoting employees with knowledge of business operations to serve as corporate officers and execute business based on the authority bestowed upon them by the Board. With the introduction of a corporate officer system, the Company holds officers’ meetings with all directors, corporate officers, and Audit & Supervisory Board members, etc. attending. The meetings are held every month, fitting in with scheduled Board of Directors meetings. Corporate officers participate in meetings of the Board of Directors and the Management Advisory Meeting, depending on the matters to be discussed. In addition, once a year the Company holds the Daifuku Global Management Meeting, attended by senior executives of all non-Japan subsidiaries, to share business plans and exchange views. 5. Limitation of liability Under Article 427, Paragraph 1 of the Companies Act, the Company has entered into liability limitation agreements with outside directors and outside members of the Audit & Supervisory Board provided for in Article 423, Paragraph 1 of the Companies Act. The maximum amount of liability for damages under the agreement is an amount stipulated in laws and regulations. The agreement will be applied only if outside directors or outside members of the Audit & Supervisory Board have acted in good faith and without gross negligence in performing the duties that have caused the liability. 3. Reasons for Adoption of Current Corporate Governance System The Company is a company with an Audit & Supervisory Board. Under this basic structure, the Group has flexibly introduced and expanded systems to e