Corporate Governance

Our Philosophy (Purpose) is defined as “We create new value for society through visualization of the invisible.” The OSAKI Group’s aim is and always will be to contribute to society through our business activities.

In line with this Philosophy (Purpose), Osaki Electric emphasizes the interests of shareholders and other stakeholders and recognizes that enhancing corporate governance is an extremely important management issue for the long-term maximization of corporate value. We will continue to work to increase management efficiency, transparency, and fairness.

Following its fundamental approach, the basic policy of the
OSAKI Group for corporate governance is as follows.

1. Ensure the substantial rights and equality of shareholders.
2. Maintain good relationships with stakeholders, including business partners, shareholders, financial institutions, employees, and local communities.
3. Ensure transparency through the timely disclosure of corporate information.
4. Ensure that Board directors and corporate auditors fulfill their fiduciary and accountability responsibilities to shareholders.
5. Engage in constructive dialogue with shareholders.

Osaki Electric has a board of four auditors that includes two independent auditors, providing an auditing function for objective management oversight. The Board of Directors consists of seven members, three of whom are independent directors.

The independent directors and auditors were selected for their extensive management experience and practical knowledge, and the insight based on those qualities, and the external monitoring they perform will strengthen management monitoring and oversight functions.

The introduction of an executive officer system in June 2020 has further enhanced the supervisory function of the Board of Directors and at the same time ensured the speed and flexibility of executive functions, forming an ideal corporate governance system.

The Board of Directors consists of seven members, including three independent directors. The Board of Directors supervises executive directors and executive officers to ensure the fairness and transparency of management and decides on matters that based on law and regulations cannot be delegated to directors.

The authority regarding other matters to be resolved and decided on is delegated to executive directors and executive officers, and the Board of Directors conducts appropriate supervision based on status reports.

In principle, the Board of Directors holds monthly meetings and convenes further if necessary. Important matters are discussed at the Management Council prior to the board meetings, with an eye to delivering meaningful discussions and clarifying decision-making processes. This practice allows the Board to respond flexibly to management environment changes and service efficient operations.

Additionally, Management Meetings involving internal directors are held on a weekly basis in principle. They implement multi-faceted studies and discussions of management issues that impact the OSAKI Group. The Executive Officers Meeting is held once a month in principle to share information on a company-wide scale and to expedite business operations.

As a part of Group governance, a Group Management Meeting is held once a month in principle, monitoring the activities of Osaki Electric, Enegate Co., Ltd and EDMI Limited.

The company seeks persons who have extensive management experience and practical knowledge as well as keen insight based on those qualities. These persons are appointed as directors or auditors who are independent of the management team. We expect these officers to provide good, independent advice, supervision and auditing of our business operations and activities.

Independent directors fulfill their supervisory function by attending the Board of Directors, the Group Management Meeting and other important meetings such as the Management Council as an opportunity to consider matters ahead of the Board of Directors and by taking part
in deliberations and resolutions on important matters relating to the general management of the Company and offering useful and appropriate advice. Independent directors and auditors also organize meetings as appropriate to exchange information and opinions.

Independent auditors seek to enhance audits by attending board meetings, the Group Management Meeting and other important meetings such as the Management Council as an opportunity to consider matters ahead of board meetings, holding regular meetings with Representative Directors to exchange opinions, and conducting on-site audits of each division and Group companies as appropriate.

In addition, like other auditors, independent auditors exchange information and opinions through meetings with the Accounting Auditor, the Management Audit Office and internal control departments and other means.

Criteria used by Osaki Electric to determine the independence of these officers are based on the listing guidelines of the Tokyo Stock Exchange.

Osaki Electric introduced the executive officer system on June 25, 2020. This shifted the focus of the Board of Directors to strengthening Group governance by defining its main role as management decision-making and supervision of business execution. By clarifying authority and responsibility for the execution of business, the Company established a system whereby executive officers execute business under the direction and supervision of the President and COO, increasing the agility of execution. By functioning with speed and agility as a holding company, Osaki Electric aims to maximize the corporate value of the Group as a whole. Accordingly, the Company’s Board of Directors has been significantly downsized from fifteen directors before the introduction of the executive officer system to seven directors, three of whom are independent directors. The clarification of supervisory and executive functions as a result of the executive officer system and the downsizing of the Board of Directors as a result also creates an environment where independent directors can function more effectively. Management believes that these steps have further strengthened the supervisory function of the Board of Directors and helped elevate the corporate value of Osaki Electric and the OSAKI Group.

The Company has a small Board of Directors, which is responsible for important management decision-making functions and business execution supervisory functions, with capable personnel. The Company places importance on the following eight fields as skills that the Directors are expected to have so as to appropriately fulfill the functions.

The skills matrix below shows the skills that each Director and Auditor. We believe that the Board of Directors as a whole has a diversity and balance of skills.

Osaki Electric has a Board of Auditors, which fulfills a management oversight function through a system of audits by auditors including independent auditors. The Company has four auditors, two of whom are classed as independent auditors and independent officers to fulfill an independent checking function and ensure the independence and objectivity of the management oversight function. One of the independent auditors has a wealth of experience and expertise gained from holding important positions in central government ministries and agencies and as an attorney, and the other independent auditor has certificated public accountant and tax accountant qualifications and a wealth of practical experience in finance and accounting.

Audits are conducted by each auditor in accordance with audit policies and audit plans determined by the Board of Auditors. Auditors attend important meetings, including meetings of the Board of Directors, the Management Council and Group Management Meetings, and express
opinions as appropriate. They also inspect business operations and assets, view important decision-making documents, and conduct interview surveys of the directors and executive officers in charge of each division. Through these activities, the Board of Auditors confirms whether directors have engaged in fraudulent activities in their execution of duties as well as compliance with laws and regulations and the Articles of Incorporation.

In fiscal 2023, auditors conducted audits, focusing on the following seven key audit matters.

1. Each division’s future initiatives to address issues to consider identified in “Implementation in Response to Audit Recommendations (Interim Report, Final Report)”
2. Implementation of the Group growth strategy
3. Response to the unification of specifications of all power companies for second-generation smart meters
4. Initiatives to address issues in overseas business
5. Initiatives for achieving operating profitability in the smart locks business
6. Initiatives for expanding commercial sales business
7. Initiatives for strengthening corporate governance and risk management, addressing environmental problems and other sustainability issues, and securing, developing and appointing diverse human resources
    

To fulfill its role of overseeing audits, the Board of Auditors compiled the results of the audits in the business year at the end of each fiscal year and submitted reports during the Board of Directors and other meetings.

Osaki Electric established a Nomination and Remuneration Committee as an advisory body to the Board of Directors.

The new committee strengthens the fairness, objectivity, and transparency of procedures relating to the nomination and remuneration of directors and auditors.

The Nomination and Remuneration Committee has five members, the majority of whom are independent directors or auditors. The chairman is an independent director.

The roles of the Nomination and Remuneration Committee include matters for which it receives consultation from the Board of Directors specified on the right.

1. Matters concerning the appointment and dismissal of directors and executive officers
2. Matters concerning the selection and dismissal of representative directors
3. Matters concerning the selection and dismissal of executive directors and executive officers with a role
4. Matters relating to succession planning (including successor development)
5. Director and executive officer remuneration system and remuneration determination policy
6. Details of remuneration for individual directors and executive officers
7. Remuneration limits for directors
8. Other matters deemed necessary by the Board of Directors

Osaki Electric conducts regular analysis and evaluation of the functioning of the Board of Directors to make continuous improvements as required.

Starting from the fiscal year ended March 31, 2018, we conducted an analysis and evaluation every year in the form of a questionnaire, under the supervision of an outside consultant; however, in the fiscal year ended March 31, 2024, we opted for a discussion format from the viewpoint of exploring issues in more depth.

In the fiscal year ended March 31, 2024, we confirmed the status of actions based on issues identified in the previous fiscal year and, more than ever before, conducted analysis and evaluation of the effectiveness of the Board of Directors as a whole from the perspective of materiality.

As a result, we confirmed that our Board of Directors has continued to make gradual improvement and progress and is effective, while at the same time recognizing that greater focus on the formulation of a successor plan is an issue that needs to be addressed.

In summary, it was found that specific policies and strategies on human capital had been formulated and the member composition of the Nomination and Remuneration Committee had been reviewed, and that advance discussion of important matters such as the Mid-Term Management Plan at the Management Council had enabled more efficient operation of the Board of Directors. We also confirmed that the Nomination and Remuneration Committee Regulations had been revised to clearly specify formulation of a successor plan as part of the committee's role and responsibilities and that discussions on the formulation of a successor plan had begun.

Osaki Electric provides the following training to directors and auditors at its own expense so that its directors and auditors properly fulfill their expected roles as individuals who are a part of the Company’s organs of corporate governance.

1. Newly appointed directors and newly appointed auditors
   Participation in outside seminars directly after assuming office
   Internal corporate governance training
2. Directors and auditors
   Delivery of seminars on topics such as the Companies
   Act by outside experts at least once a year
   Encouragement to participate in seminars on other useful topics
3. Independent directors and independent auditors
   Provision of internal training on the Company’s business in general (including tours of business sites) directly after assuming office, in addition to the foregoing

(1) Matters pertaining to the policy on determining the content of remuneration, etc. for individual directors

The Company has established a policy on determining the content of remuneration, etc. for individual directors (hereinafter referred to as the ‘determination policy’). This determination policy was determined by resolution of the Board of Directors based on the deliberations and report of the Nomination and Remuneration

Committee, a majority of whose members are independent directors and independent auditors.

When determining the content of remuneration, etc. for individual directors, the Nomination and Remuneration Committee considered consistency with the determination policy and appropriateness, and the

Board of Directors also basically respected the committee’s report, judging it to be in line with the determination policy.

The amount of remuneration of each auditor is determined through consultation among the auditors.

Starting from the fiscal year ended March 31, 2022, the Company abolished stock options as stock-based remuneration and introduced a restricted stock unit plan (excludes independent directors) to increase incentives to improve performance in the medium and long term and to further promote shared values with shareholders. Furthermore, to increase incentives to improve business results in the short term, the Company introduced performance-linked remuneration to be included within the total amount of annual monetary remuneration for directors of 300 million yen (provided that this amount does not include the employee wages of any director who is also an employee) resolved at the 92nd Ordinary General Meeting of Shareholders held on June 29, 2006.

Basic policy

The Company’s basic policy is that officers’ remuneration shall be set at a level and composed in such a way that allows the Company to attract and retain the talent required for continuous enhancement of corporate value and improvement of corporate competitiveness and to function as an incentive to improve performance. More specifically, remuneration for directors who are responsible for business execution shall consist of basic remuneration, performance-linked remuneration and restricted stock units, and the percentages of each component shall be set at the optimal level for contributing to the sustainable improvement of corporate value. The remuneration for independent directors shall consist of basic remuneration only.

Basic remuneration
Basic remuneration shall be fixed monetary remuneration paid monthly.

The amount of basic remuneration shall be determined based on an officer’s position, responsibilities and other factors and shall be reviewed in a timely manner taking into consideration factors such as business results, pay levels at other companies and social conditions.

Performance-linked remuneration

Performance-linked remuneration shall be monetary remuneration that reflects performance indicators to raise the awareness of performance improvement each business year, and an amount calculated according to the degree of attainment of a target value shall be paid as a bonus at a certain time every year, with the consolidated and non-consolidated operating margins, which indicate income earned from the core business each fiscal year used as a benchmark. In the fiscal year under review, the consolidated operating margin was 6.2% against a target level of 3.3% and the non-consolidated operating margin was 6.8% against a target level of 2.1%.

Restricted stock units

At a set time each year, directors who are responsible for business execution are granted restricted stock units with a restriction period of up to 30 years, for the purpose of promoting shared values with shareholders and increasing incentives for improvement of performance in the medium and long term. The number of shares to be granted is determined based on various factors including position and responsibilities.

(2) Matters related to resolutions of the General Meeting of Shareholders about remuneration, etc. for directors and auditors

The Company’s 92nd Ordinary General Meeting of Shareholders held on June 29, 2006 resolved that the amount of monetary remuneration for directors shall not exceed 300 million yen per year (provided that this amount does not include the employee wages of any director who is also an employee). The number of directors as of the conclusion of the 92nd Ordinary General Meeting of Shareholders was fifteen. Aside from such monetary remuneration, the 107th Ordinary General Meeting of Shareholders held on June 25, 2021 resolved that the amount of monetary claim remuneration for the granting of restricted stock units shall not exceed 100 million yen per year (provided that this amount does not include the employee wages of any director who is also an employee). The number of directors (excluding independent directors) as of the conclusion of the 107th Ordinary General Meeting of Shareholders was five.

The 95th Ordinary General Meeting of Shareholders held on June 26,  2009 resolved that the amount of monetary remuneration for auditors shall not exceed 70 million yen per year (including monetary remuneration for independent auditors not exceeding 20 million yen per year). The number of auditors at the conclusion of the 95th Ordinary General Meeting of Shareholders was four (including two independent auditors).

(3) Matters related to delegation of determination of the content of remuneration, etc. for individual directors

Yoshihide Watanabe, Chairman and CEO (Representative Director) and Mitsuyasu Watanabe, President and COO (Representative Director) both determine specific content such as the amount of remuneration for individual directors, taking the deliberations and report of the Nomination and Remuneration Committee into consideration and in accordance with a resolution by the Board of Directors delegating authority to them. The reason for delegation is that the Company judges that objectivity and propriety are ensured through the deliberations of the Nomination and Remuneration Committee and that these two individuals are familiar with the Group’s management environment and circumstances and are capable of making an overall judgment.

On the election of the Chief Executive Officer (CEO) or other Representative Director, the Chairman and CEO (Representative Director) prepares a proposal and consults the other Representative Director before submitting the proposal to the Board of Directors. Through the establishment of the Nomination and Remuneration Committee as an optional advisory body for the Board of Directors and its involvement in this process, the Company increases independence, objectivity and accountability in relation to the nomination process. We have clearly specified in regulations that succession planning is part of the role of the Nomination and Remuneration Committee, and we have also begun implementing initiatives, including successor development initiatives.