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Corporate Governance

KYB, as a responsible corporate citizen contributing to society, has established a system for the effective functioning of corporate governance.

In order to fulfill the corporate social responsibility as to contribution to the society as well as to meet shareholders’ expectations through realization of sustainable and stable growth and the increase of corporate value, we pursue a speedy and efficient management structure, a highly fair and transparent management supervisory function, and continuous efforts to strengthen and enhance our corporate governance by the following corporate spirit and basic policies.

Corporate Governance Policy

1. We shall respect the rights of shareholders, and ensure the equal and fair treatment of all shareholders.
2. We shall take the benefits of stakeholders into consideration and endeavor to appropriately cooperate with those stakeholders.
3. We shall disclose not only the information in compliance with the relevant laws and regulations, but also actively provide the important and/or useful information to stakeholders for their well-informed decision making.
4. The Board of Directors shall be cognizant of its fiduciary responsibility and accountability to shareholders, and shall appropriately fulfill its roles and responsibilities in order to promote sustainable and stable corporate growth and increase corporate value, profitability, and capital efficiency.
5. We shall engage in constructive dialogue with shareholders, and make efforts to obtain shareholders’ support regarding the Company’s Business Policies and also reflect shareholders’ opinions and concerns in the improvement of management.

Overview of the corporate governance system

We take “Audit & Supervisory Board system” defined by Companies Act in Japan and our corporate governance structure mainly consists of Board of Directors, Audit & Supervisory Board and Audit & Supervisory Board Members. In addition, we have Board of Executive Officers for the purpose of making speedy decisions and the effective execution of operation.

(1) Board of Directors: The Board of Directors comprises seven members,including four outside directors. In principle, the Board of Directors meets once a month. The Board of Directors makes decisions based on laws, the Articles of Incorporation and Company regulations, and deliberates on policies and other important matters involving management.The Board of Directors also oversees the management of business operations. In addition, four outside directors are registered as independent officers.
(2) Board of Executive Officers: The Board of Executive Officers, a body that reports directly to the Board of Directors, deliberates on important
matters concerning management from a Company-wide perspective.
(3) Other Management Committees: We have also established other management committees, including the Management Report Meeting, where functional and business divisions/departments report on the status of business execution, and the Operational Review Meeting, where the The president or the full-time directors visit production sites to review and follow-up on matters related to policy development and important manufacturing issues, and the Overseas Headquarters Reporting Meeting ,where the President periodically monitors the status of management at overseas group companies. These meetings aim to strengthen Group management oversight.
(4) Audit & Supervisory Board: The Audit & Supervisory Board comprises four full-time and one part-time Audit & Supervisory Board member.Two full-time Audit & Supervisory Board members and one part-time Audit & Supervisory Board member are outside members. Through audits by outside Audit & Supervisory Board members, we expect to achieve effective management oversight and have concluded that an effective governance system is in place. In addition, three of the outside Audit & Supervisory Board members are registered as independent officers.
(5) Corporate Governance Structure

Internal Control System Policy

To ensure the appropriateness of business operations, following “ Basic Policy for Internal Control System ” has been resolved by the Board of Directors.

1. System necessary to ensure that the execution of the duties of the Company’s and its subsidiaries’ Directors and employees complies with laws, regulations and articles of incorporation

(1) The Company shall establish the “Corporate Guiding Principles” in order to ensure that the officers and employees of the corporate group comprising the KYB Corporation and its subsidiaries (hereinafter referred to as “the KAYABA Group”) comply with laws, regulations and articles of incorporation, and that corporate activities are conducted impartially and in good faith on high ethical standards.
(2) In order to establish the highest value of compliance, which is a prerequisite for the realization of our Corporate Spirit, we have set up the Compliance Committee which our President serve as a Chairman and promote the KAYABA Group's compliance based on "Regulations on the Promotion of Group Compliance", as well as providing education and training for the officers and employees of the KAYABA Group and engage in fostering compliance awareness and reforming such awareness.
(3) The Company’s Audit Dept. shall conduct risk-based audits and investigate whether there was fraud or not and shall report the results to the Board of Directors.
(4) The J-SOX Office of the Audit Dept. shall conduct assessments of internal controls related to financial reporting and shall report the results to the Board of Directors.
(5) The KAYABA Group shall implement measures to prevent the recurrence of improper conduct.
(6) In order to prevent the risk of corporate scandals, our functional departments will carry out various inspections and audits.
(7) An appropriate whistle-blowing system shall be put in place inside and outside the Company in order to ensure that employees and others of the KAYABA Group are able to report information or serious doubts regarding illegal or improper conduct without fear of negative consequences. Efforts shall be made to ensure awareness of the system and increase its effectiveness. The Internal Control Dept. shall present information regarding the Group’s internal reports to the Board of Directors at fixed intervals.

2. System for preserving and managing information on the performance of the duties of the Company’s and its subsidiaries’ Directors

(1) The KAYABA Group shall preserve and manage information regarding Directors’ performance of their duties in accordance with laws, regulations and internal rules and regulations.
(2) Based on the “Standard Information Security Policy,” the Company shall construct a system to protect information assets and take measures against the risk of information leaks and information system failures caused by cyber-attacks.

3. System related to the management of the risk of loss and relevant regulations of the Company and its subsidiaries

(1) “Risk Management Rules,” which stipulate systematic risk management, shall be established in order to promote the KAYABA Group’s risk management.
(2) A Risk Management Committee, which shall identify the KAYABA Group’s potential risks and measure their severity as well as determine serious risks and the department to be responsible for those risks, shall be established. The Risk Management Committee shall report on the department’s activities aimed at countering serious risks to the Board of Directors at fixed intervals.
(3) When the fact of occurrence of a serious issue is confirmed in the KAYABA Group, it must be ensured that the person in charge of the prompt report immediately inform the President of the fact in accordance with the “Rules of Prompt Report.” The President shall give directions to the relevant parties in accordance with the fact of occurrence of the issue and take measures to minimize its impact.
(4) The Company shall proactively strive to collect information from sites so that early signs of corporate misconduct can be detected and addressed as quickly as possible.

4. System to ensure the efficient execution of the duties of the Company’s and its subsidiaries’ Directors

(1) The KAYABA Group, in order to achieve swift decision-making and efficient business operations, shall set “Board of Directors Regulations,” which stipulate matters to be approved by or reported to the Board of Directors.
(2) The KAYABA Group shall formulate its mid-term and fiscal-year business plans, share management objectives, and report on the progress of business execution at management meetings at fixed intervals.
(3) The Board of Executive Officers and other management committees shall perform adequate prior deliberations on important matters concerning management and business execution so that the Board of Directors can make decisions properly and efficiently.

5. System to ensure the fair business operations of the corporate group consisting of the Company and its subsidiaries

(1) System related to the reporting of information to the Company regarding the execution of the duties of the Directors and others of the Company’s subsidiaries
- i. “KAYABA Group Business Procedure Management Rules” shall be established in order to maintain the soundness of the KAYABA Group as well as to increase the efficiency of its consolidated management.
- ii. Based on the“KAYABA Group Business Procedure Management Rules,”the subsidiaries shall report on their management status at the Company’s management meetings at fixed intervals.
(2) “Global Regulation Defining Extent of Job Authorities,” which specifies matters for which subsidiaries of the Company shall ask for the Company’s prior approval or on which they shall report to the Company, shall be established. Based on the “Global Regulation Defining Extent of Job Authorities,” each subsidiary shall establish its Administrative Authority Regulations.
(3) The KAYABA Group shall appropriately monitor the situation of the Group governance and seek to strengthen the governance within the KAYABA Group.
(4) The Managing Executive Officer or higher position themselves shall control each overseas region toward independence of each overseas bases.

6. Matters regarding employees who assist Audit & Supervisory Board Members when Audit & Supervisory Board Members seek assistance in their duties

If Audit & Supervisory Board Members should request the assistance of an employee,
it falls upon the Board of Directors to arrange the provision of such employee.

7. Matters regarding such employees’ independence from Directors and the effectiveness of instruction to such employees

A personnel change involving the assisting employee, his or her performance assessment, disciplinary action against him or her and other relevant actions shall be carried out with the consent of the Audit & Supervisory Board.

8. System related to the reporting to Audit & Supervisory Board Members by Directors and employees of the Company and its subsidiaries

(1) When a fact comes to light that could cause substantial damage to the KAYABA Group, officers and employees of the KAYABA Group shall immediately report it to Audit & Supervisory Board Members.
(2) Directors and Executive Officers shall report to Audit & Supervisory Board Members through the Board of Directors and the Board of Executive Officers on the execution of the duties they are responsible for.
(3) The KAYABA Group shall not treat any person unfavorably on the basis that he or she made a report to Audit & Supervisory Board Members.

9. Other systems to ensure effective audits by Audit & Supervisory Board Members

(1) The Board of Directors shall ensure that Audit & Supervisory Board Members have the opportunity to attend management meetings, access important documents and conduct on-site investigations in the KAYABA Group and other relevant activities.
(2) Representative Directors shall hold meetings with Audit & Supervisory Board Members at fixed intervals and exchange views and ideas on management policies, issues that the Company should address, risks surrounding the Company, important issues identified through audits, and other issues.
(3) In order to ensure the effectiveness of audits, opportunities shall be ensured for information exchange and coordination among outside Directors, Audit & Supervisory Board Members, Audit & Supervisory Board Members of Group companies, Audit Dept. and external Accounting Auditor.
(4) The Company shall bear costs necessary for Audit & Supervisory Board Members to execute their duties and shall promptly carry out the procedure for advance payment or reimbursement.

Independence criteria for outside directors and outside Audit & Supervisory Board Members

KYB has established the following criteria for the independence of outside directors and outside Audit & Supervisory Board Members, based on the requirements for independent directors and auditors stipulated by financial instrument exchanges. If any of these should apply, we will judge an individual as lacking in independence.

1. A business executive*1 of the Company or its subsidiaries (hereinafter referred to as “the Group”)
2. A business executive of a major lender to the Group*2
3. A major shareholder*3 of the Company or their business executives
4. A major customer of the Group’s products or services*4 or their business executives
5. A major supplier of the Group’s products or services*5 or their business executives
6. Consultants, accounting experts, or legal experts who receive ¥10 million per year or more in cash or other assets from the Group, excepting remuneration for directors (if an organization such as a corporation is receiving such assets and such assets exceed 2% of the annual gross revenue of such organization, executive persons who belong to such an organization).
7. A person who receives donations of 10 million yen or more per year from the Group (if an organization such as a corporation is receiving such donations, business executives who belong to such an organization)
8. A business executive of a corporation or other organization that mutually dispatches directors, executive officers, or others to the Group.
9. A business executive of an audit corporation that serves as the accounting auditor of the Group
10. A person who has once fallen under the above condition 1 in the past, or has under any of any of the above conditions 2 through 6 in the past three years. Also, a person who has once fallen under any of the above conditions 7 to 9 in the past 10 years.
11. A spouse or a relative within the second degree of kinship of a person who falls under any of the above conditions 1 to 10
12. Any other person who has a special reason that may give rise to a conflict of interest with the Company
*1. Business executive refers to executive officers as defined in Article 2, Paragraph 3, Item 6 of the Regulations for Enforcement of the Companies Act, and includes not only business executives but also their employees.
*2. A major lender to the Group refers to financial institutions and other large creditors that are absolutely essential to the Company’s financing to the degree that there is no substitute.
*3. A major shareholder refers to those who hold 10% or more of the voting rights of the Company as of the end of the fiscal year, regardless of whether the rights are held directly or indirectly (including those who hold rights indirectly through trust banks or other institutions).
*4. A major customer of the Group’s products or services refers to those whose annual transaction amounts exceeds 2% of the Group's consolidated net sales.
*5. A major supplier of the Group’s products or services refers to those whose annual transaction value exceeds 2% of the Group’s consolidated net sales.