Characteristics of the Board of Directors/Evaluating the effectiveness of the Board of Directors

Business Foundation

Governance

Characteristics of the Board of Directors

Function and Role of the Board of Directors

The Board of Directors fulfills its responsibilities as stipulated by laws and regulations and the Articles of Incorporation. It also makes decisions on important business matters as set forth in the Rules of Board of Directors, whilst also aiming to exercise its supervisory function regarding business execution.

To guarantee the effectiveness of oversight, the Board has a majority of independent directors, and to ensure a considerable degree of diversity among its members, gender, nationality, and other factors are also taken into consideration. The governance structure is designed to enhance transparency and fairness by appointing company managers, academics, and those with specialized knowledge of law, finance, and accounting.

Efforts to ensure and improve the effectiveness of the Board of Directors

figure: Board of Directors → Demonstrate supervisory functions → Executive divisions (Review and implement measures based on discussions at the Board of Directors meetings) → Report on results of review and implementation — A virtuous cycle created by demonstrating the supervisory function of the Board of Directors

All directors, including the chairman, are acutely aware of the need to guarantee and improve the effectiveness of the Board. We have established a cycle of constantly engaging in discussions and utilizing opinions to share timely and appropriate information about the Company’s business over the course of the year with the following specific initiatives.

1. Preliminary briefing sessions for the Board of Directors

In order to ensure that the discussions of the Board of Directors are constructive and productive, preliminary briefing sessions are held for all outside directors before every meeting of the Board. During the Board meetings, discussions are informed by the opinions and questions raised at these sessions. Integrating preliminary briefings and Board meetings in this way allows for discussions to be both efficient and substantial, and ensures that the knowledge and perspectives of outside directors are also directly reflected in how the Board operates.

2. Giving scope to the supervisory function of the Board of Directors

We actively undertake initiatives that help the Board demonstrate its supervisory function, such as by strengthening information sharing so that the directors can better understand how business is being executed. This ensures sufficient communication is maintained without creating a sense of distance between the Board of Directors and the executive divisions.

Specific initiatives
Business execution reports made by business CEOs and Group CxOs at the Board of Directors Providing observer access to directors to sit in on various committee meetings, such as the Global Executive Committee and the Managerial Administrative Committee Holding information-sharing meetings to provide timely updates to outside directors regarding items of business execution, without restricting the discussions solely to Board agenda items Holding free discussions about information concerning business operations Having outside directors and representative executive officers exchange opinions etc.

Specific initiatives

Business execution reports made by business CEOs and Group CxOs at the Board of Directors
Providing observer access to directors to sit in on various committee meetings, such as the Global Executive Committee and the Managerial Administrative Committee
Holding information-sharing meetings to provide timely updates to outside directors regarding items of business execution, without restricting the discussions solely to Board agenda items
Holding free discussions about information concerning business operations
Having outside directors and representative executive officers exchange opinions

etc.

Evaluating the effectiveness of the Board of Directors

Improving the effectiveness of the Board of Directors through PDCA cycles

As part of its efforts to improve the effectiveness of the Board of Directors, every year the Company issues a questionnaire, which includes a self-evaluation section, to each Director. We use the results of these questionnaires to analyze and evaluate the effectiveness of the Board of Directors as a whole. We also work to improve the functionality of the Board of Directors, and strengthen corporate governance. To this end, we actively incorporate the the opinions of Directors, verify measures for any identified issues and for the further evolution of the Company, and carry out PDCA cycles for the execution of concrete initiatives that enhance the functionality of the Board of Directors.

figure: Step 1 Analysis and evaluation → Step 2 Determining measures → Step 3 Execution → Step 1 — PDCA cycles to improve the effectiveness of the Board of Directors

FY2022 evaluation results and FY2023 initiatives
Main assessments of FY2022 initiatives	Opinions were actively exchanged during the preliminary briefings held in conjunction with Board meetings, and as such, the sessions were assessed to be extremely valuable. Discussions during the Board meetings were assessed to have become more substantial than before, but at the same time, there was feedback suggesting that additional information and insights from other directors who did not attend the preliminary session would have been useful and that more clarification is needed regarding which points are to be discussed during the bord meeting. Alongside the continued practice of expanded free discussions introduced in the previous fiscal year and the executive division reports and continual Board discussions, the on-site visits to each business were assessed to be useful in better understanding how business is being carried out. The balance between in-person and online Board meetings in the post-COVID era, as well as efforts to go paperless, were assessed to be contributing to really effective Board management. To allocate enough time for discussions on important future topics, it was suggested that free discussion time be further utilized and that the timely sharing of information needs to be continued going forward.
Initiatives in Fiscal 2023	The following are the topics that the Company’s directors believe management ought to start or continue, discussing in more depth, as well as initiatives that might be effective in enabling the Board to function better. The Company will bear these items in mind and continue to take measures to enhance the Board’s effectiveness. Topics that ought to be discussed in more depth by management: Evaluating and increasing the value of non-visible assets such as branding and engagement Policies for handling ESG-related issues Policy on constructive communication with the capital markets New value creation through DX and RDP Business portfolio and policy on synergies between businesses Policy on measuring the benefits of purpose management Risk management policy, including a cybersecurity framework Key initiatives to enable the Board of Directors to function better Issue-driven, focused discussions dedicated to important topics Clarifying what matters should be deliberated at Board meetings and using preliminary briefing sessions effectively Establishing mechanisms to help the Board understand the Company’s operations, including on-site visits Ensuring communication and information sharing between outside directors and statutory committees