Corporate Governance

We strive to establish and operate a corporate governance system that fulfills the trust placed in us by diverse stakeholders, maintains transparency, objectivity, and efficiency in management, and can respond quickly to changes in the business environment.

Our company's mission is "to break new ground and create the future," and our vision is to "support a better relationship between people and technology and accelerate the realization of a sustainable society" by providing value through "measuring, understanding, and connecting" utilizing measurement technology.

Therefore, we have established a basic sustainability policy and are earnestly committed to addressing issues such as safety, quality, environment, and human rights. We will also respond to the trust placed in us by diverse stakeholders, maintain transparency, objectivity, and efficiency in management, and develop and operate a corporate governance system that can respond quickly to changes in the business environment, aiming to improve corporate value and achieve sustainable growth in the medium to long term.

Our company has adopted a system of having a board of corporate auditors, and the Board of Directors and the Board of Corporate Auditors supervise and audit business operations. In addition, we have introduced an executive officer system with the aim of strengthening business execution functions and improving management efficiency. Furthermore, in order to enhance fairness, transparency, and objectivity regarding the nomination and compensation of officers and to improve corporate governance, we have established a Nominating Committee and a Compensation Committee as voluntary advisory bodies to the Board of Directors.

The Board of Directors meets at least once a month to make decisions on important matters such as management policies, deliberate on matters that fall under the Board of Directors regulations and the criteria for such matters, and receive reports on the business execution of each director, thereby supervising the performance of duties by the Board of Directors. Furthermore, we have established a system in which we appoint multiple outside directors to further strengthen the Board of Directors' oversight function of management.

During this fiscal year, we discussed important matters related to business execution, including our medium- to long-term business strategy and next medium-term management plan, analysis and consideration of achieving management that takes capital costs and stock prices into account, improvement of capital efficiency and capital policy, matters related to risk management, responses to sustainability, and matters related to human capital and engagement.

In addition, the committee responsible for internal control and risk management reports to the board of directors on a regular basis, and the director in charge of internal control reports to the board of directors on the operational status of internal control and risk management, as a general rule, once a quarter.

The Board of Corporate Auditors consists of three outside corporate auditors. Based on the audit plan, the corporate auditors directly attend important meetings such as the Board of Directors meetings and management meetings, and also conduct investigations into the operations and financial condition of the company and its subsidiaries to ensure that appropriate audits are conducted regarding management decision-making and business execution.

The main matters considered by the Board of Corporate Auditors include the formulation of audit policies and plans, the preparation of audit results and audit reports, matters related to the evaluation, appointment, and dismissal of accounting auditors and agreement on audit fees, and the status of the development and operation of our group's corporate governance and internal control systems.

The Nominating Committee, an advisory body to the Board of Directors, provides recommendations on the appointment and dismissal of directors, the selection and dismissal of representative directors and executive directors, the appointment and dismissal of executive officers, and the selection and dismissal of executive officers. In fiscal year 2024, the committee met 10 times to deliberate on matters concerning the appointment and dismissal of directors, matters concerning the appointment and dismissal of executive officers, matters concerning succession planning, etc.

The Compensation Committee, an advisory body to the Board of Directors, provides recommendations on basic policies regarding directors' compensation, maximum compensation limits, and other important management-related compensation matters. In fiscal year 2024, the committee met eight times to review the appropriateness of individual directors' compensation, examine the operational status of the revised executive compensation system, and organize issues for future revisions to the executive compensation system.

The Management Meeting, comprised of executive directors and executive officers, meets every other week in principle to conduct detailed preliminary reviews of matters to be submitted to the Board of Directors, make decisions on important matters related to business execution other than those to be submitted to the Board of Directors, and receive reports on business execution from executive officers. Outside directors and auditors are also permitted to attend the Management Meeting and express their opinions.

The Internal Audit Department is established as an internal audit department directly under the President and CEO. The Internal Audit Department is staffed with dedicated personnel who are well-versed in internal operations and possess expertise in internal controls through the J-SOX Promotion Committee and other channels. Based on the internal audit plan, the department conducts internal audits of the company and its subsidiaries. The results of the internal audits are reported to the Board of Directors and the full-time corporate auditors, and the audited departments are notified, and corrective actions are taken as necessary.

The Internal Audit Office supports and assists the Corporate Auditors in smoothly performing their duties, and also collaborates with the External Auditors.

The internal control department has established a Compliance Committee, a J-SOX Promotion Committee, and a Risk Management Committee to formulate policies and plans for the effective functioning of internal controls, and to collect and monitor information through the committee members.

Executive compensation systems are one of the important topics in corporate governance.

Our executive compensation is designed to enable executives to demonstrate entrepreneurial spirit for continuous and long-term performance improvement, realize management policies (management strategies), and meet shareholder expectations. The level of compensation aims to be such that it can secure talented individuals, both inside and outside the company, who will drive the company's development. Appropriate levels are set for each position by regularly utilizing external objective data and evaluation data. Furthermore, a Compensation Committee is involved in ensuring an appropriate process that guarantees transparency and objectivity in determining compensation.

Regarding director compensation, the maximum amount of monetary compensation for directors (annual amount) and the total amount of monetary compensation to be paid to eligible directors in exchange for the granting of restricted stock were determined by a resolution of the 69th Ordinary General Meeting of Shareholders held on March 17, 2023.

The compensation for directors and executive officers consists of "fixed compensation" as base compensation, "performance-linked compensation" that reflects the company's short-term and medium-term performance as well as the performance of the business they are responsible for, and "stock compensation" (restricted stock compensation) as an incentive for management from a shareholder perspective and for improving corporate value in the medium to long term. Furthermore, in order to ensure that sound incentives for sustainable growth function, the ratio of the compensation structure is set appropriately according to the role. In addition, the monetary compensation for outside directors consists only of "fixed compensation" at a level commensurate with their role, and "performance-linked compensation" is not paid. Regarding stock compensation, considering the advisory function of outside directors to management within our company (improvement of corporate value through advice based on expertise, etc.), we have determined that it is appropriate to pay a certain level of stock compensation, and outside directors are also eligible for stock compensation.

• Fixed compensation is determined according to the position of each director and executive officer.

• The performance-linked compensation system uses a combination of financial indicators, such as consolidated order intake, consolidated sales, and consolidated operating profit, and non-financial indicators, such as KPIs from the medium-term management plan. For the financial indicators, short-term performance targets and medium-term growth targets are set for each, aiming to secure annual performance while also achieving medium- to long-term growth. For the non-financial indicators, the system evaluates the implementation items in the medium-term management plan and the progress of sustainability-related plans.

• Stock-based compensation, a form of non-monetary compensation, was introduced in the 70th fiscal year with the aim of providing an incentive to enhance corporate value in the medium to long term and to further share value with shareholders. This restricted stock is granted according to the employee's position, within the limits of stock-based compensation determined by a resolution of the general shareholders' meeting, as stipulated in our internal regulations.

The maximum amount of compensation for corporate auditors was resolved at the 61st Ordinary General Meeting of Shareholders held on March 13, 2015. Corporate auditor compensation is determined by the Board of Corporate Auditors, taking into consideration the standards of other companies and according to the role of the auditors. Furthermore, corporate auditors will only receive "fixed compensation," and will not be paid "performance-linked compensation" or "stock-based compensation."

Our company aims to strengthen its management foundation and increase its internal reserves to prepare for future business development. Recognizing the return of profits to shareholders as one of our key management policies, our basic policy is to provide continuous and stable dividends, with a medium-term consolidated dividend payout ratio of approximately 30% as a guideline.

Furthermore, our policy regarding the acquisition of treasury stock is based on the principles of improving capital efficiency, implementing a flexible capital policy in response to changes in the business environment, and returning more profits to our shareholders. We aim to implement this flexibly with the objective of improving shareholder value per share and ROE, while taking into account investments in growth and our financial structure.

Furthermore, our executives are required to demonstrate a strong commitment to results as a unified management team, including reflecting the status of strategy implementation in the evaluation of senior management. In recent years, with the delegation of authority to the executive side, the role of the Board of Directors is shifting from deliberating on individual matters to discussing the broader direction of corporate strategy. As auditors, we will continue to make recommendations to enable deeper discussions regarding the status of strategy implementation and other related matters.

While our company is still in the midst of a period of significant transformation, reforms that seize opportunities for change are steadily progressing. Growth requires both bottom-up activities driven by the employees themselves and the execution of management strategies. We believe that if we can advance these together as a company, the path to new growth will become even more certain.

From an external perspective, it can be said that our company has more strengths than our employees realize. Stage IV has a clear reform and action plan that leverages these strengths, and I feel there are high expectations for future growth. Precisely because this is a crucial phase for growth, we will pay close attention to the development and operation of our governance, and strive to promote the improvement of corporate governance. Together with our employees and other stakeholders, we aim to become a company where everyone can continue to experience sustainable growth.