Governance

• Corporate Governance
• Evaluation of Board of Directors effectiveness
• Officer remuneration
• Cross Shareholdings
• BCP (Business Continuity Plan)
• Compliance
• Information Security

Corporate Governance

Basic approach

The Aichi Steel Group believes in the importance of realizing a sustainable society through business activities in order to achieve sustainable growth and improve mediumto long-term corporate value. Based on this belief, we work to enhance corporate governance so that we can manage our businesses with a high level of fairness, transparency, and efficiency in accordance with Our Vision, and build strong relationships with our shareholders, investors, customers, and all other stakeholders.

Initiatives for enhancing corporate governance

To sustainably increase our corporate value within a drastically changing business climate, we are striving to enhance our corporate governance based on the recognition that we need to anticipate change and address management issues with a sense of speed. We implement all of the principles of the Corporate Governance Code, which was revised in June 2021, and disclose details such as our sustainability initiatives and our constructive dialogues with shareholders and investors in our Corporate Governance Report. We also conduct management in a way that improves return on capital, including strengthening our intellectual and human capital and reviewing our portfolio.

Corporate governance structure

Aichi Steel uses an Audit & Supervisory Board member system, with a General Meeting of Shareholders, Board of Directors, Audit & Supervisory Board, and accounting auditors, to ensure the transparency and health of management. We also use a managing executive officer and executive officer system to reduce the number of directors, and improve the efficiency and speed of business execution. We enhance the function of the Board of Directors and improve its quality of management decision-making by ensuring at least one third of directors are independent outside directors. The Director Remuneration and Personnel Planning Committee is in charge of the nomination and remuneration of directors and managing executive officers. It enhances independence, objectivity, and transparency by considering and discussing these matters before consulting the Board of Directors. To conduct our operations, we have established in-house companies (four virtual companies built around our main businesses) and a Corporate Office (consisting of five headquarters that act as functional axes to support our business operations.) To strengthen compliance, particularly with regard to safety and quality, we have established the Risk Management Headquarters. The president of each in-house company and the headquarters general managers of the Corporate Office are responsible for executing operations as the chief officers. They are appointed by managing executive officers or executive officers, respectively, to support Aichi Steel’s president from a companywide perspective.

Changes in corporate governance structure

Board of Directors: Convened 15 times

The Board of Directors makes decisions concerning legal matters, and important matters for the management of Aichi Steel, and supervises business execution. Having one or more meetings a month, it comprises ten members in total; six directors (including two outside directors), two inside audit & supervisory board members, and two outside audit & supervisory board members. The two outside directors selected as independent officers meet the independence criteria set by securities exchanges. We have created support structures that enable our outside directors to adequately fulfill their management advisory and supervisory functions.

Main agenda items in FY2024 for the Board of Directors

Audit & Supervisory Board: Convened 13 times

The Audit & Supervisory Board is made up of four Audit & Supervisory Board members, including two outside members. It audits the execution of duties of directors and other officers, as well as business and financial performance. In addition to attending meetings of the Board of Directors and other important meetings, Audit & Supervisory Board members coordinate with accounting auditors and departments in charge of internal audits to provide oversight of management.

Director Remuneration and Personnel Planning Committee: Convened 3 times

We have established a discretionary Director Remuneration and Personnel Planning Committee as an advisory body to the Board of Directors on matters related to nomination and remuneration of directors, managing executive officers, and other officers. Comprising two independent outside directors and one inside director, the committee is chaired by an independent outside director to ensure objectivity and transparency.

Main agenda items for the Director Remuneration and Personnel Planning Committee

Organization chart

Approach to balance and diversity of board members and audit & supervisory board members

To enable accurate and prompt decision-making and appropriate risk management that delivers sustainable growth and improved medium- to long-term corporate value, our Board of Directors is composed of members with expertise in all business and function areas, and diverse knowledge, experience, and skills.

Determining perspective and independence in appointment of outside officers

In appointing outside officers, we focus on whether they have sufficient qualities to contribute to the company’s sustainable growth and the enhancement of our corporate value over the medium to long term. We take particular care to appoint those with management experience at other companies who can be expected to supervise the management of Aichi Steel.
The criteria for determining the independence of candidates for outside directors are based on a general consideration of factors such as career history, knowledge, and personality, with reference to the Enforcement Rules for Securities Listing Regulations provided by the Stock Exchange, etc.

Support structure for outside officers

To eliminate differences in access to information compared to internal officers, and to maximize their performance, we give outside officers briefings on agenda items before meetings, provide onsite inspections, and hold meetings on special topic reports to enable free and open discussion outside of meetings of the Board of Directors. In addition to members of the Board of Directors, presidents and general managers related to the special topics also attend the meetings, where they can all participate in more profound discussions that include medium- to long-term strategies.

Succession plan

We recognize that cultivating the next generation of management is an important issue. We believe that we have secured a system in which the Director Remuneration and Personnel Planning Committee, a discretionary body, discusses and evaluates the qualities, development direction, and achievements of candidate personnel from an objective perspective, while also providing appropriate advice. Also, the president personally conducts training for the next generation of managers by meeting with managing executive officers and executive officers on a regular basis to discuss their individual goals and accomplishments.
In an environment of increasing uncertainty, Aichi Steel continuously provides training to cultivate the ability to take managerial decisions based on diverse knowledge and perspectives required of top management. In FY2024, to drive health management, we held a health seminar for executives on the theme “The Path to a Healthy Lifestyle.” We also provide lectures on lifestyle-related diseases and frailty (age-related physical weakness), a topic that has gained attention in recent years, as well as practical instruction on relieving lower back pain and shoulder stiffness and moving safely.
Furthermore, we have focused on nurturing management personnel by targeting executive officers who are candidates for the next generation of management executives, introducing a support system in FY2024 for self-study to cultivate their organizational management and leadership skills.

Skill matrix for directors and managing executive officers

Our skill matrix defines the experience and expertise that we consider necessary to achieve Vision 2030. The expertise and experience of directors and managing executive officers are shown below.

Skill matrix for directors and managing executive officers

Evaluation of Board of Directors effectiveness

We evaluate the effectiveness of the Board of Directors every year to maintain and improve the effectiveness of our corporate governance. We interview and survey all members of the Board of Directors, analyze and evaluate their performance, and report effectiveness-related results, issues, and responses to the Board of Directors.
Our efforts and the results of our effectiveness evaluation are summarized below.

(1) Evaluation method

1. In February, the Board of Directors Secretariat conducted both quantitative and qualitative evaluations through questionnaires and interviews with all Directors and Audit & Supervisory Board Members, including those from outside the company, as well as in-house company Presidents and General Managers attending as observers.
2. Evaluation results and directions for addressing issues were compiled and reported to the Board of Directors meeting in March for discussion.
3. From April, improvement activities were carried out to enhance effectiveness.

(2) Evaluation items

1. Composition of the Board of Directors
2. Effectiveness of supervisory functions
3. Operations and deliberation activation
4. Support systems for executives

(3) Summary of FY2024 evaluation results

• We held special theme briefings for outside directors to deepen their understanding of our corporate activities and promote discussion. We worked on continuous improvement through annual planning in advance, increase in time and frequency, provision of opportunities for outside officers to provide information based on their own knowledge and experience, and on-site plant inspections. Board of Directors meeting times are also extended to achieve the above.
  Based on these efforts and questionnaire results, we evaluate that our Board of Directors is fulfilling its functions of important management decision-making and supervision of business execution.
• Outside directors requested additional information to facilitate discussions at Board of Director meetings, as an opportunity to improve the Board’s operations and effectiveness.
• With regard to sustainability initiatives, opinions were expressed on the ongoing need to further deepen discussions and promote discourse on a wider range of topics beyond carbon neutrality and human rights.

(4) Main improvement measures

We work to improve the following issues to further ensure the effectiveness of the Board of Directors.

1. Full discussion on sustainability initiatives
   We organize required agenda items throughout the year, and utilize special theme briefings and other forums to systematically conduct discussions on growth strategies and sustainability.
2. Support for outside officers
   In order to deepen their understanding of Aichi Steel and contribute to discussions at Board of Directors meetings, we will strengthen on-site inspections that can lead to company strategy and investment projects, and make improvements such as providing relevant information and creating opportunities to exchange opinions among internal and external officers.

Officer remuneration

Basic approach

Decision process

Aichi Steel established the Director Remuneration and Personnel Planning Committee, with the chair being an independent outside director and the majority of members also being independent outside directors, to ensure objectivity, fairness, and transparency in decisions such as remuneration for directors. The committee discusses director remuneration structures, levels, decision-making policies and procedures, and individual levels of remuneration based on the decision-making policies. Based on the results of those discussions, the Board of Directors determines policies for director remuneration, individual levels of remuneration, and other matters. From the perspective of maintaining independence, remuneration for outside directors is at fixed rate. From next fiscal year onward, we will review our officer remuneration compensation system to better tackle social issues, by incorporating perspectives that reflect not only economic value but also social value such as environmental considerations (sustainability indicators).

Remuneration structure

Remuneration and other payments to directors and Audit & Supervisory Board members

• 1. Performance-based remuneration includes bonus amounts determined by resolution at the meeting of the Board of Directors on May 15, 2025.
  2. Stock remuneration includes amounts related to restricted stock granted to directors (excluding outside directors) and expensed during the current fiscal year.
  3. The above includes directors and audit & supervisory board members who retired at the close of the 120th General Meeting of Shareholders held on June 13, 2024.

Cross Shareholdings

Maintaining and strengthening of trade and collaborative relationships with a range of companies are needed to ensure sustainable growth in a rapidly changing business environment. For this reason, Aichi Steel engages in cross holdings with other companies, but only if it deems them to be effective in improving corporate value from a medium- to long-term perspective in a comprehensive evaluation that considers its business strategy, future relationships with suppliers and affiliated companies, and other factors. As stated in the updated Medium-Term Management Plan released in February 2025, we will review the effectiveness of all holdings without exception and improve asset efficiency by selling those that do not demonstrate clear value.

Verification of cross shareholding suitability

Each year, at a meeting of the Board of Directors, we make comprehensive verifications and assessments of the suitability of each cross shareholding based on quantitative factors, including whether dividends, business profits, and other figures exceed our weighted average cost of capital, as well as qualitative factors, including trading status and business-level collaborations. If a shareholding is determined to be unsuitable according to the verification, we decide on what course of action to take, including disposing of the shares.

Criteria for exercising voting rights

Rather than applying uniform decisions from typical and short-term criteria, we make decisions on each agenda item separately. We consider them from various perspectives, including corporate value improvement and shareholder returns over the medium to long term, while fully respecting the management policy, business strategies, and other decisions of the companies in which we invest. When exercising our voting rights, we make comprehensive decisions on whether to approve agenda items after closely investigating factors such as business performance, governance, and capital policy that would represent a conflict of interest with us, or would change or dilute our shareholdings.

Changes in volume of cross shareholdings

BCP (Business Continuity Plan)

Basic approach

The business environment is significantly changing and diversifying due to climate change, tension in international affairs, and other issues impacting business activities, as well as social instability caused by growing inequality. These social and environmental challenges are having a major impact on companies’ value creation and business models. Faced with this situation, we have made risk management one of our top management priorities, and are working to minimize risks by enhancing and strengthening our controls. We classify potential impacts on business management as either “risks” (matters yet to materialize) or “crises” (emergencies that have materialized). We then focus on preventive measures that eliminate risks before they become crises, and on prompt and accurate initial and recovery responses that minimize damage in the event of a crisis occurring.

Specific initiatives

1. Reassessing major risks and studying

Having acquired IATF 16949^* certification in FY2022, we have begun to reevaluate our major risks and to improve our response when disasters and other events occur, with the aim of strengthening our resilience to such events. As part of this effort, we began re-examining our company-wide business continuity plan (BCP) in FY2023. Assuming a situation in which operations are suspended for one month or more, we analyze and assess the specific impact on our business, then plan and implement necessary measures focusing on prevention, recovery, and alternative production.

• An international standard for quality management systems specialized for the automotive industry and used by many of the world’s automakers as their global procurement standard for automotive parts

2. Disaster preparedness

(1) Response to Nankai Trough Earthquake Extra Information

Following the release of the first-ever Nankai Trough Earthquake Extra Information (Major Earthquake Advisory) in August 2024, we implemented response measures in accordance with our emergency response manual for major earthquakes. We have since identified areas for improvement, such as information dissemination, and are revising the manual to make the content more effective.

(2) Strengthening disaster information gathering capabilities

We have introduced a system that can centrally collect critical information necessary during a disaster from sources such as weather data, road/river cameras, and social media, using AI and fact-checking (distinguishing authentic information from misinformation and disinformation within large volumes of data). We will continue to improve our disaster assessment capabilities and accelerate our emergency decision-making.

(3) Disaster drills

We conduct companywide disaster drills twice a year. In May of FY2024, we conducted joint training with the Tokai City Fire Department at Chita Electronic Plant on initial response measures, prevention of spread, and rescue and first aid for injured employees in the event of a chemical leak. Additionally, in November we held an initial response drill assuming the immediate aftermath of a Nankai Trough earthquake. We simulated the division of roles, information gathering and consolidation, situational assessment, and provision of recommendations for decision-making, all necessary during an initial response. This allowed us to check our communication procedures during a disaster, which tend to be delayed during the critical initial response phase.

Strengthening of risk response

In order to cope more swiftly with an increasingly uncertain and complex business environment, we are verifying the effectiveness of measures to address emerging risks. We are gathering information about possible future risks more extensively and on a more global level than in the past.
Our functional divisions used to take the lead in addressing risks, but from now on, we will strengthen cooperation with our business divisions so that we can recognize risks more accurately than ever before and develop mechanisms to respond to them appropriately. By continuing to strengthen our risk response capabilities and reduce loss when risks materialize, we are striving to sustainably improve corporate value. In response to the release of the “Nankai Trough Earthquake Impact Assessment Report (Revised Version)” in March 2025, we will examine additional measures such as (1) reducing direct damage, (2) prioritizing human life and safeguarding livelihoods, and (3) early recovery.

Compliance

Basic approach to compliance

Based on the recognition that compliance is the foundation of our corporate activities, we established the Aichi Steel Group Action Guidelines which we are working to spread and put into practice among all our officers and employees. In addition to laws and regulations, we also comply with social norms and decency, and internal company rules. To this end, we are constantly striving to raise awareness of compliance, meet society’s expectations, and fulfill our social responsibilities as a company.

Promotion structure

To maintain and strengthen compliance levels across the Group as a whole, we conduct progress reviews at the Top Management Meeting chaired by the president. This system enables us to share, with all employees, the determined initiative policies and activity plans via the persons in charge of compliance in each division and domestic group company, and to reflect them in activities being conducted in each workplace. Group companies engage in compliance activities by establishing promotion structures suited to their own size and circumstances. The Compliance Liaison Meeting also convenes four times a year to share things like revisions to laws and regulations and points of concern regarding legal compliance, and to promote Groupwide compliance activities.

Organization chart

Specific initiatives

Whistle-blowing system

We have established a whistle-blowing system to promote early detection of violations of laws and regulations, and misconduct, within the company and to self-govern through appropriate measures. Called the Aichi Steel Compliance Hotline, we have established three contact points operated by external legal representatives, internal Audit & Supervisory Board members, and the General Affairs Division. Reported information is shared among the three contact points, and appropriate measures are taken to ensure privacy protection and to prevent disadvantageous treatment. In FY2024, 28 cases were reported, all of which were investigated, verified, and dealt with in an appropriate and timely manner in cooperation with the relevant internal and external parties.

Information Security

Basic approach to information security

We possess important information assets, including information entrusted to us by our customers and suppliers, as well as trade secrets held by us. Amid recent advances in the networking of remote operations and plant equipment, it is our corporate responsibility to protect information assets from annually increasing cyber attacks and other threats, as well as information leaks, and to ensure a stable supply of products. We also recognize that this is an important management issue, and are committed to taking information security measures.

Promotion structure

Based on automotive industry cybersecurity guidelines and led by a Chief Information Security Officer (CISO), we have established a system that enables us to maintain and improve our information security on a systematic and ongoing basis groupwide, while ensuring a uniform level of security globally. The CISO oversees our group’s overall information security and information asset protection, and individual organizations are responsible for planning, promotion, auditing, and support. Twice a year, the Board of Directors receives progress, issue, and other reports from the CISO as part of its supervisory function.

Organization chart