Corporate Governance

Overview of corporate governance

Corporate governance structure

KITZ places sustainability management at the core of management strategy in the Long-term Management Vision “Beyond New Heights 2030—Change the Flow” and aims to increase corporate value through sustained growth and create social value by delivering solutions to social challenges through our business. Amidst a management environment undergoing drastic changes in order to realize these aims and meet the expectations of stakeholders that include shareholders and customers, further enhancement of corporate governance and management speed is required.

To address these needs, in March 2024, we transitioned our corporate structure to that of a company with a nominating committee, etc. This transition enables us to clearly separate supervisory and execution functions, strengthen the oversight functions of the Board of Directors, and delegate a great deal of business execution authority from the Board of Directors to senior executive officers. This, in turn, enables swift and agile decision making.

In terms of corporate bodies associated with corporate governance, in addition to the Board of Directors, Nominating Committee, Audit Committee, and Compensation Committee, we have established a non-statutory Risk Committee. We have also adjusted the composition of the Board of Directors so that independent outside directors comprise at least one-third of its members (currently account for a majority of members) to strengthen the Board’s oversight functions.
For executive functions, we have also appointed senior executive officers and established a Board of Senior Executive Officers.

Supervisory function

Board of Directors and Directors

Based on their fiduciary responsibility of management to shareholders, the Board of Directors places importance on the determination or strategic discussions about such matters as the Long-term Management Vision and Medium-term Management Plans, annual management plans, and the Basic Policy on Management with the aim for sustained growth and enhancement of corporate value over the medium to long term of the KITZ Group, in addition to resolutions specified in laws, regulations, the articles of association, and the Board of Directors’ regulations. In addition, the Board of Directors delegates significant business execution authority to senior executive officers and oversees business execution through such means as receiving periodic reports on business execution from senior executive officers. Moreover, in principle, the Board of Directors meets monthly in regular Board meetings, quarterly in Board meetings on financial results, and at other times as necessary in extraordinary Board meetings.

KITZ determines in the articles of association that the number of directors shall be 14 at most. As of the last day of March 2024, the Board of Directors consists of 10 directors. The majority of the Board is made up of seven outside directors, two of whom are women. Moreover, one of the directors is a director who concurrently serves as a senior executive officer.

As for the chairperson of the meeting of the Board of Directors, it is served by the Director, Chairman of the Board at this time because it is also important for the chairperson of the Board of Directors meeting to fully recognize and understand the realities and issues confronting KITZ. In order to enhance the decision-making function, the function of management supervision, and the advice function of the Board of Directors, outside directors are selected who have extensive experience and knowledge about business management and are well versed in legal affairs.

KITZ considers securing diversity in the composition of the Board of Directors to be important so that deliberations at meetings of the Board of Directors can be held multilaterally and appropriately in order to realize increases in corporate value over the medium to long term. Therefore, regarding the appointment of candidates for directors, based on our Policy for Election and Removal of Directors and Senior Executive Officers, we consider various factors including knowledge, experience, capability, expertise, gender, internationality, business career, and age, focusing on a good balance for the candidates as a whole.

Skill Matrix of Directors

KITZ formulates and discloses a skill matrix of directors so as to visualize the balance of diversity and skills of the Board of Directors. The main areas in which each director is expected to demonstrate specialized knowledge based on past experience are indicated with up to three marks. This does not indicate all knowledge and experience that each director possesses.

Reasons for electing each director are disclosed in the description of the election agenda in the NOTICE OF THE 110TH ORDINARY GENERAL MEETING OF SHAREHOLDERS (pages 16 to 25).

Independent Officers

Outside directors meet the Independence Standards for Outside Directors of the Tokyo Stock Exchange and the Company. The Company has registered all such directors with the Tokyo Stock Exchange as independent officers.

Support Structure for Directors

We are considerate of the fact that, for directors to fully understand the business challenges the company must cope with and make appropriate and precise decisions, explanations may be necessary in addition to providing directors with information or documents regarding agendas before holding meetings of the Board of Directors. Moreover, the management-planning division, relevant divisions, and each related division of each committee support directors directly or indirectly so that the directors can obtain necessary information in more detail.

We will allow Outside Directors to attend various meetings and visit business offices, including those of the KITZ Group, so that Directors can obtain the information necessary for decision-making at any time. Additionally, we will allow Outside Directors to hear the opinions of lawyers, certified public accountants, and other outside experts at our expense regarding business issues that require appropriate and accurate judgment.

Training Structure for Directors

To acquire the necessary knowledge and improve themselves, we will provide opportunities for them to participate in training at external educational institutions and management study sessions held by inviting external instructors based on themes after they assume office or from the time they are candidates. In order for Outside Directors to grasp and understand necessary information regarding the business, finance, organization, and other aspects of the Company and its subsidiaries after assuming office, we will explain our corporate philosophy system, Long-term Management Vision, Medium-term Management Plan, business overview, the industry to which we belong, history, governance system, compliance system, and other matters.

Additionally, regarding content verification for director training, the training shall be improved as necessary by summarizing opinions after conducting a survey regarding the effectiveness of the Board of Directors.

Composition and Roles of Each Committee

Various committees are composed of directors appointed by resolutions at meetings of the Board of Directors. The majority of them are outside directors. The committees are chaired by outside directors, appointed by resolutions at meetings of the Board of Directors.

Nominating Committee

The Nominating Committee determines the contents of agendas regarding the election and removal of directors to be submitted to general meetings of shareholders, and also performs their duties stipulated in laws, regulations, the articles of association, the Board of Directors’ regulations, and Nominating Committee regulations.

Audit Committee

The Audit Committee audits the execution of duties by directors and executive officers, and performs their duties stipulated in laws, regulations, the articles of association, the Board of Directors’ regulations, and Audit Committee regulations in order to ensure sound and sustainable growth of the Company in response to the mandate we received from shareholders.
The committee also periodically convenes three-way audit meetings with the accounting auditor and head of the Internal Audit Office to explain and report to one another on respective auditing plans, auditing results, and other matters. They also share information, exchange views, and coordinate.

At least one individual with experience and knowledge of financial accounting is selected as a member to serve on the Audit Committee, as well as a full-time Audit Committee member to ensure the effectiveness of audits. An Audit Committee Office is also established under the Audit Committee, where full-time office staff who are independent of the execution of business operations assist the duties of the Audit Committee members and the Audit Committee.

Compensation Committee

The committee develops policies regarding the determination of individual compensation, etc., for directors and senior executive officers and determines the details of their compensation.

Risk Committee (non-statutory)

A non-statutory Risk Committee has been established to assist the Board of Directors in overseeing the KITZ Group’s risk management.

Composition and Chairperson of Nominating Committee, Audit Committee, Compensation Committee, and Risk Committee

Independent Outside Directors Meeting and Lead Independent Outside Director

Independent outside directors have established an Independent Outside Directors Meeting as a body independent of the Board of Directors. The meeting comprises all independent outside directors of the Company, and a lead independent outside director is appointed from among them by a mutual vote.

The main purposes of the Independent Outside Directors Meeting are to exchange information required to actively contribute to discussions in Board of Directors meetings, promote common recognition of various matters, and freely discuss matters, including the businesses of KITZ and its corporate governance.

Policy on Determining the Content of the Individual Compensation for Directors and Senior Executive Officers

KITZ fairly and appropriately determines compensation paid to directors and senior executive officers by securing transparency through the establishment of the Compensation Committee, of which the majority is composed of outside directors, and having an outside director as a chairperson.

The Compensation Committee establishes the Policy for determining the individual Compensation for Directors and Executive Officers, and based on the said policy, determines the contents of the individual compensation for directors and executive officers. The summary of the Policy for determining the individual Compensation for Directors and Executive Officers is as follows:

Ensuring the Effectiveness of the Board of Directors

KITZ performs an Evaluation Regarding the Effectiveness of Board of Directors as a survey questionnaire targeting all directors every year with the aim to enhance the effectiveness of corporate governance and improve functions of the whole Board of Directors. This survey is conducted by distributing questionnaires where the respondents give their names especially for important matters and receiving answers based on each principle of the Corporate Governance Code.

In the questionnaire survey conducted in February 2024, formulation and implementation of management strategy, sustainability initiatives, constitution of the Board of Directors, appointment and compensation of directors and officers, matters concerning audits and outside directors, vitalization of discussion at Board meetings, and response to investors and other stakeholders were asked. Feedback regarding discussions at Board meetings was also collected.

The result of the evaluation says that the effectiveness of the Board of Directors is ensured in general. In addition, constructive feedback and suggestions were also received regarding matters such as the progress in management of business plans, the improvement of earning capabilities and capital efficiency, the execution of strategies concerning the business portfolio and business restructuring, successor plans, and sustainability initiatives. In light of the results of the survey, the Board of Directors shares the issues raised and discusses measures for future improvements and other matters.

Execution Function

Senior Executive Officers

The Board of Directors elects five senior executive officers by resolution and appoints one of them to be the representative executive officer (president). Senior executive officers are delegated broad authority from the Board of Directors and engage in swift decision-making regarding management and the execution of operations.

In addition, several executive officers are appointed as key employees under the direction of the senior executive officers.

Board of Senior Executive Officers

The Board of Directors has established a Board of Senior Executive Officers made up of all senior executive officers. The Board of Senior Executive Officers makes decisions through deliberation over the execution of operations delegated to all senior executive officers from the Board of Directors.

Management Meeting

KITZ has a Management Meeting under the command of the representative executive officer and president. The Management Meeting consists of all senior executive officers, executive officers, and department heads that senior executive officers and executive officers nominate. The Management Meeting is held every month. In addition to lively discussions over important management issues, the Management Meeting manages the progress of management plans and makes adjustments accordingly.

Dialogue with shareholders and investors

Promotion of dialogue with shareholders

KITZ is making these efforts to promote dialogue with shareholders.

• 1. In order to provide information to all shareholders and investors in a timely, accurate, and fair manner, we will formulate a disclosure policy and disclose it on our website.
• 2. In principle, we will hold quarterly financial results briefings for institutional investors and analysts, and annual company briefings for individual investors, in which the Representative Executive Officer & President, the Divisional Supervisors designated by the Representative Executive Officer & President, or the Manager of the IR Division will provide the explanation. In addition, Directors, including Outside Directors, will attend as necessary to promote dialogues with shareholders.
• 3. When we receive a request for an interview from shareholders, the Manager of the IR Division will, in principle, respond to such request, or depending on the purpose of the interview and the number of shares owned, the Representative Executive Officer & President, the Divisional Supervisors designated by the Representative Executive Officer & President, or the Manager of the IR Division will respond to such request.
• 4. When we engage in dialogue with shareholders, we will appropriately manage information to prevent insider trading.
• 5. We will explain our Long-term Management Vision, Medium-term Management Plan, and other plans in an easy-to-understand manner.
• 6. Managers of divisions in charge of IR, corporate planning, finance, accounting, sustainability promotion, general affairs, legal affairs will work together organically as necessary to support dialogues with shareholders.
• 7. The Manager of the IR Division will regularly report opinions, requests, and other matters obtained through dialogues with institutional investors and analysts to the Representative Executive Officer & President, and as necessary, the Representative Executive Officer & President will report the details to the Board of Directors and the Board of Senior Executive Officers as well as use them to improve management.
• 8. In addition to financial information, such as financial statements and securities reports, we will disclose IR information, such as management information, stock information, and general meetings of shareholders’ information, on our website.
• 9. In principle, we will check the status of shareholders at least once a year.

Action to Implement Management that is Conscious of Cost of Capital and Stock Price

KITZ has resolved policies and specific initiatives regarding actions to implement management that is conscious of cost of capital and stock price based on analysis and evaluation of the current situation at a meeting of the Board of Directors. KITZ analyzed the cost of capital from two perspectives: the calculation based on the CAPM methodology and the rate of return expected by investors. Currently, KITZ’s balance sheet profitability is aligned with the rate of return expected by investors. However, gaining market confidence in our potential for medium to long-term earnings growth remains a key priority for KITZ.

In response, KITZ intends to enhance its corporate value by pursuing “ROIC×ESG” management, accelerating the growth strategy, and strengthening the IR strategy. These efforts are aimed at increasing corporate value by facilitating further profit generation, fostering growth expectations, and reducing the cost of capital.

In addition, regarding the [KITZ’s action to implement management that is conscious of cost of the capital and stock price] that is a request for disclosure from the Tokyo Stock Exchange on March 31, 2023, it is disclosed on the website (Link setting: https://www.kitz.com/en/investor_ir/management-policy/m_vision/).

Cross-Shareholdings

Reduction of Cross-Shareholdings

KITZ’ basic policy is to not maintain cross-shareholdings for the purposes of securing stable shareholders. In addition, share issues judged not to satisfy the Policy on Cross-Shareholdings are reduced as much as possible. The Board of Directors closely examines cross-shareholdings, quantitative economic rationality, the risks of maintaining such holdings, and other factors to verify whether it is appropriate to maintain the cross-shareholdings.

Changes in the number of listed stocks held for the purposes other than the pure investment and the ratio of cross-shareholdings to net assets

(Note) 1. Number of shares held by parent company: Excludes stocks with a small amount (approximately 1 million yen) of which the minimum number of shares (1 unit) is held for information gathering purposes.
(Note) 2. Ratio of cross-shareholdings to net assets (%) = cross-shareholdings (balance sheet amount) ÷ consolidated net assets.

Standards for Exercising Voting Rights on Cross-Shareholdings

Regarding the exercise of voting rights related to cross-shareholdings, we will decide whether to approve or disapprove each proposal, comprehensively considering the stock issuing company’s management status and governance structure, the presence or absence of appropriate decision-making that leads to medium- to long-term improvements in corporate value, and whether or not this will lead to an increase in the corporate value of the KITZ Group.

Response to Large Acquisition of Our Shares

The act of acquiring a number of shares that enable them to control our financial and business policy decisions (hereinafter referred to as “Large Acquisition Act”) are responded to as follows:

• 1. We consider that whether or not shareholders respond to Large Acquisition Act will be determined by the will of shareholders, and we will not introduce so-called takeover defense measures.
• 2. From the perspective of securing and improving our corporate value and the common interests of shareholders, we will request that the person who intends to carry out the Large Acquisition Act provide the necessary and sufficient information in order to appropriately judge the pros and cons of such Large Acquisition Act. Then, by disclosing the opinions of the Board of Directors regarding such Large Acquisition Act, we will strive to secure the period and information necessary for shareholders to consider the pros and cons of such Large Acquisition Act and implement the appropriate measures based on the Financial Instruments and Exchange Act, the Companies Act, and other related laws and regulations.