Corporate governance

Itoki has adopted a supervisory system in which the Board of Directors makes management decisions and supervises the execution of business operations. As a complement to the Board of Directors, the Managing Directors' Meeting and the Executive Officers' Meeting are held to discuss important decisions, thoroughly implement management policies, and confirm the progress of business operations. We have also introduced an “Executive Officer System” to strengthen business execution functions and improve management efficiency. Corporate auditors attend meetings of the Board of Directors and other meetings to audit the status of business execution by directors, and the Board of Corporate Auditors works with the Accounting Auditors and the Internal Audit Division, which is independent of the business execution divisions, to conduct comprehensive and efficient audits. The Internal Auditing Department strives to enhance internal audits of the entire Group by conducting audits in a systematic manner.

Itoki's Board of Directors has established a system that creates synergy between strategic decision-making and objective oversight in order to balance the creation of sustainable corporate value with management transparency. By having executive directors who are well-versed in business activities and enable swift executive decisions, and outside directors who have advanced expertise and broad perspectives, fulfill their respective roles, the Board of Directors maintains sound management while also leading to agile decision-making. In principle, the Board of Directors meets once a month to decide on matters stipulated by law and the Articles of Incorporation, as well as important management issues, and to oversee business execution and sustainability activities.

The Audit & Supervisory Board conducts audits based on the Audit & Supervisory Board's audit standards, audit implementation plans, and division of duties established by the Audit & Supervisory Board, and monitors and audits management. The Audit & Supervisory Board receives explanations of audit plans and regular reports on the status of audits from the Accounting Auditor, and also receives reports on audit plans and the status of audits from the Audit Department, and submits opinions on the audit results. This system allows the Audit & Supervisory Board to understand the situation of the Company in a timely and appropriate manner in cooperation with the Accounting Auditor and the Audit Department. The Audit & Supervisory Board also exchanges opinions with Directors and other executives regularly and as necessary.

Itoki places importance on ensuring diversity across its Board of Directors, and appointed its first female director in 2023. To ensure an appropriate size for high-quality discussions and balance across the board, the Board is composed of executive directors who are familiar with company operations and capable of agile business execution, and outside directors who have advanced expertise and can be expected to provide management advice and supervision from a broad perspective. Two of the four outside directors have management experience at other companies, and two have leadership experience in the fields of government and education.

Furthermore, none of the four Outside Directors fall under any of the important disclosure criteria regarding independence, and they have no past or present conflicts of interest with the Company's management. Therefore, we have determined that there is no risk of a conflict of interest with general shareholders.

Itoki has selected the knowledge, experience, and abilities necessary for management as skill items with the aim of contributing to sustainable growth and improving corporate value over the medium to long term. Management is carried out by directors and auditors who have advanced expertise, extensive experience, and deep insight in their respective fields.
Additionally, in order to further enhance the supervisory function and diversity of the Board of Directors, we have welcomed new Outside Directors with advanced expertise in the fields of "finance and accounting" and "legal affairs and risk management," further strengthening our governance structure.

List of officers

In order to contribute to the company's sustainable growth and the improvement of its corporate value over the medium to long term, Itoki has established its own standards for the independence of outside directors, which are disclosed in the section on independent officers in the Corporate Governance Report. Furthermore, we appoint as independent outside directors individuals who meet our own independence standards in addition to the standards set by the Companies Act and stock exchanges.

[Independence criteria]

1. Not currently or in the past 10 years a business executive of the Company, its subsidiaries or affiliated companies
2. Not be a current major shareholder (shareholder holding 10% or more of total voting rights) or an executive officer of the company
3. The person is not an executive officer of a major business partner of the Company (a business partner with which the annual transaction amount exceeds 2% of the Company's consolidated sales, or a supplier with which the annual purchase amount exceeds 2% of the said company's consolidated sales).
4. Not a business executive of the Company's major lenders (financial institutions whose annual borrowing amount exceeds 2% of the Company's total assets)
5. Must not be a consultant, accountant, lawyer, or other professional who receives money or other assets of 10 million yen or more annually from the Company in addition to executive compensation.

ITOKI provides directors and auditors with the necessary opportunities, including external training, to ensure that they are aware of their roles and can appropriately fulfill their roles and responsibilities, both at the time of their appointment and after their appointment. Our basic policy is to provide support including: The support system is as follows.

To ensure that corporate governance functions effectively and continuously, Itoki analyzes and evaluates the effectiveness of the Board of Directors as a whole every year. Specifically, the effectiveness of the Board of Directors is confirmed by discussing and evaluating whether the proceedings and agenda setting are appropriate. Furthermore, issues for future efforts are identified and improvements are made to improve the functioning of the Board of Directors.

Remuneration for directors (excluding outside directors) consists of (1) fixed remuneration, (2) performance-linked variable remuneration, and (3) restricted stock remuneration (non-monetary remuneration) aimed at sustainably improving corporate value and sharing that value with shareholders. An overview of each remuneration system is as follows. Remuneration for outside directors consists of fixed remuneration and restricted stock remuneration.

At Itoki, we systematically develop the human resources who will take on future management roles, with the aim of achieving sustainable growth and increasing corporate value.
In fiscal 2024, we will select 16 candidates for the next generation of management leaders and implement the "4Star Academy"*, a program for developing next-generation executives that focuses on three areas: training, learning from others, and learning from experience. Through training and placement in key organizational positions, we encourage the transformation in awareness and behavior required of management and put the knowledge gained into practice.
Furthermore, each division is identifying and promoting future leaders, and each division chief is preparing to formulate a succession plan for their own organization. The Human Resources Department will provide support from a talent management perspective, and each division will actively identify and develop talented personnel, thereby expanding the pool of personnel suitable for management roles.

Major Group-wide measures to strengthen governance

• Improving the operation of group company legal governance concierges
• Optimizing Group Company Compliance Committees
• Improving risk management and safety and health management systems

Since 2011, we have continuously implemented the "Group Company Legal Concierge" as legal training for Group companies, targeting management and practitioners, providing information on legal reforms and supporting the development of regulations. From 2024, we will develop this into the "Group Company Legal Governance Concierge," expanding the content beyond legal matters to include a wide range of governance-related themes, and working to spread this knowledge to all Group companies.

Example themes

• Training on the Construction Industry Law
• Compliance/information security training
• Business and Human Rights Training
• Environmental/ISO14001 training

These ongoing efforts have further raised awareness of governance among Group companies, leading to the autonomous planning and implementation of unique governance strengthening measures tailored to the characteristics of each company's business.

Itoki's basic policy is to hold shares for strategic purposes only when it is deemed to contribute to the Itoki Group's economic development and medium- to long-term improvement of corporate value, from the perspective of maintaining and strengthening relationships with business partners. Furthermore, the Board of Directors annually reviews whether there is rationality in continuing to hold strategically held shares, such as whether the benefits of holding them are commensurate with the capital cost. If, as a result of this review, it is determined that there is little significance in holding them, it will proceed with the sale of those shares. In fiscal 2024, two shares were sold. When exercising voting rights for strategically held shares, we do not unconditionally approve proposals from the companies in which we hold shares, but rather exercise our voting rights after making an individual judgment based on whether we believe that the proposal will contribute to improving our corporate value.

Itoki introduced takeover defense measures in 2008, and at its most recent Ordinary General Meeting of Shareholders in 2023, it was approved to continue the measures until 2026. However, at its Board of Directors meeting in February 2025, it was decided to abolish the measures before their expiration, judging that steadily promoting various measures based on its medium-term management plan and striving for stable and sustainable growth and further strengthening of its corporate governance system would contribute to improving corporate value and ensuring the common interests of shareholders. Going forward, it will continue to practice management with an eye toward long-term value creation, while enhancing its credibility and transparency as a company.

Based on the audit plan for each fiscal year, we conduct audits of Itoki and its domestic and overseas group companies to determine whether business execution is being carried out appropriately in accordance with laws and internal regulations, and whether risks are being effectively managed. I am. Additionally, as an independent evaluation department for the "Internal Control Reporting System" based on the Financial Instruments and Exchange Act, it evaluates the effectiveness of the ITOKI Group as a whole. In addition to regularly reporting audits to management and the Board of Directors, information is shared with the Board of Corporate Auditors and accounting auditors as appropriate, and the internal audit department reports audit results to full-time corporate auditors. We are increasing the effectiveness and efficiency of internal audits.

Based on the "Basic Policy for Establishing an Internal Control System" resolved at the Board of Directors meeting held on May 31, 2006, Itoki strives to establish a system to ensure that the execution of duties by directors complies with laws and regulations and the Articles of Incorporation. Itoki also endeavors to establish an effective internal control system by regularly checking and improving the operation of the internal control system.