Corporate Governance

Basic Stance on Corporate Governance

Aware that fulfilling its social responsibility as better citizens and as a better corporate citizen is a significant role, the TODA KOGYO Group will continue to base its business management on its Management Principle and its Management Policy, aspiring to achieve sound and continuous development towards the future. We will comply with relevant laws and ordinances, internal regulations and rules on the basis of the spirit of compliance. Our leaders will take the initiative to set examples and ensure that they are followed within the Company and known to companies in the Group and to business partners. In addition, we will not enter into any relationships with anti-social forces or groups.
We will enhance the Board of Directors' function of monitoring business execution to ensure transparency in management. We will also seek to establish agile corporate governance that can swiftly respond to changes in circumstances. In addition, we will determine the principles set out below and endeavor to implement them for the purpose of equally protecting the rights and interests of shareholders and other stakeholders through the proper disclosure of information.

• We will endeavor to protect shareholders' rights.
• We will endeavor to ensure equality among shareholders.
• We will endeavor to build smooth relationships with non-shareholding stakeholders.
• We will endeavor to ensure information disclosure and transparency.
• We will endeavor to enhance supervision of management in a bid to ensure accountability to shareholders.

Overview of Corporate Governance System and Reasons for This System

Overview of the corporate governance system

TODA KOGYO decided to transform from a company with a bo ard of auditors to a company with an audit and supervisory committee, aiming to further strengthen corporate governance. This change took effect following a resolution at the 89th Annual General Meeting of Shareholders on June 28, 2022.

Business Execution

The Board of Directors is an approval body for the decision of important business execution. The Board of Directors is chaired by Shigeru Takaragi as Representative Director. Apart from the chair, it has four Directors who do not serve as Audit and Supervisory Committee members, including three Outside Directors, and four Directors who are also members of the Audit and Supervisory Committee, including three Outside Directors. As such, it has a total of nine members. The four independent Outside Directors make up at least one third of the total members of the Board. That strengthens the independence of the Board of Directors and management transparency. The Board of Directors meets regularly at least once a month to discuss important matters and to make quick and appropriate decisions.

TODA KOGYO has an executive officers system. This system is int ended to separate decision-making on management policies and on important business execution from day-to-day business operations. That in turn helps to strengthen the supervisory function and the business execution function. The Management Conference holds monthly meetings for understanding the status of business execution at individual operating divisions. Directors and Executive Officers attend the meetings to report and discuss business policies, business plans, their implementation of separate operating divisions as well as any problems they are facing. If there is any important matter that should be referred to the Board of Directors pursuant to the Regulations on the Board of Directors, it will be proposed to the Board of Directors.
The Nomination and Compensation Advisory Committee has been set up as a voluntary advisory body to the Board of Directors. It is intended to increase the fairness, transparency and objectivity of procedures for the nomination and compensation of Directors and Executive Officers and to enhance corporate governance. This committee consists of five members. They are Shigeru Takaragi, Representative Director, chairing the committee, and four independent Outside Directors. In answer to consultations from the Board of Directors, the committee discusses matters related to the election and dismissal of Directors and Executive Officers and to compensation for them, and submits reports to the Board of Directors.

Auditing and Supervision

The Audit and Supervisory Committee members and the accounting auditors hold regular meetings. They collaborate with each other through briefings on auditing plans, explanations about matters that accounting auditors should report to the Audit and Supervisory Committee m embers, reports and reviews related to summaries of quarterly financial results, and reports providing auditing summaries. They also meet as needed to provide information and exchange views on matters necessary to the auditing process. They thus strive to make auditing more appropriate and reliable and to strengthen their collaboration. The Audit and Supervisory Committee and the Internal Audit Department regularly exchange information with each other on the building, implementation and evaluation of the internal control system.

Schematic of the corporate governance system

Reasoning for the Adoption of this System

We have adopted the structure of a company with an audit and supervisory committee as a form of governance in our management. The Board of Directors, including Outside Directors, is a decision-making body for important business execution. It also supervises business execution. The Board of Directors consists of Directors who are familiar with the Group's businesses and who understand the importance of developing fundamental technologies as the Group's strength. It is therefore prepared to make timely and appropriate managerial decisions. In addition to its regular monthly meetings, it holds extraordinary meetings as needed to supervise business execution and to discuss and make decisions on basic and important matters. After the shift from a company with a board of auditors to a company with an audit and supervisory committee, we will further strengthen the Board of Directors' supervisory functions and monitoring system. We will thus continue to enhance our corporate governance. We elected three people from outside the Company who possess a high level of independence as members of the Audit and Supervisory Committee to furnish its audit structure with monitoring functions featuring high levels of objectivity and impartiality.