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Corporate Governance

Basic Approach

In order to deserve the trust of our shareholders and other stakeholders, the Company’s fundamental approach to corporate governance is not just to ensure compliance with laws and regulations and our Articles of Incorporation, but also to fulfill our social responsibilities based on corporate ethics and to contribute to society while continuously improving enterprise value through efficient and transparent management. We see this as a top management priority.
The azbil Group has established its long-term targets (to achieve by FY2030) and a medium-term plan (FY2021-FY2024), whose aim is to contribute “in-series” to a sustainable society and achieve growth through providing automation-related products and services. Guided by the Group philosophy of “human-centered automation”, we will secure our own medium- and long-term development while implementing sustainable enhancement of enterprise value. At the same time, we recognize that it is corporate governance which provides the foundation for such sustainable enhancement of enterprise value, and so improving corporate governance is a key issue for management. As a company with a three-committee board structure, we are therefore working to strengthen the supervisory and auditing functions of the Board of Directors, enhance the transparency and soundness of management, and clarify responsibilities for business execution.

Azbil Corporation's report on corporate governance (full text) is available here.

Corporate Governance Report revised on 25 June, 2024(PDF/902KB)

Basic Policy for Corporate Governance

(1) Ensuring the rights and equality of shareholders
In order to ensure that shareholders’ rights are substantially secured, the Company takes appropriate measures in accordance with laws and regulations, and, giving due consideration to all shareholders including foreign shareholders and minority shareholders, is promoting the development of an environment in which shareholders can exercise their rights equally and appropriately.

(2) Appropriate cooperation with stakeholders who are not shareholders
In order to achieve sustainable growth and increase enterprise value over the medium to long term, we believe that the Company must be strongly aware of its corporate social responsibility and conduct management that is appropriate for all our stakeholders. For this purpose, we have adopted “human-centered automation” as our Group philosophy to realize safety, comfort and fulfillment in people’s lives and works and contribute to the global environment. To this end, we have instituted Guiding Principles for azbil Group Business and established the azbil Group Code of Conduct to provide specific guidelines for all officers and employees of the Company and the azbil Group. We aim to connect our Group philosophy, Guiding Principles, Code of Conduct, and management strategy, leading “in series” to a sustainable society, and to realize a balance between resolving social issues and achieving sustainable growth. In addition, to contribute “in series” to the achievement of a sustainable society, we recognize it is important to build relationships of trust not only with shareholders but with all stakeholders—including employees, business partners, customers, creditors, and local communities—as well as accelerate transformation through appropriate collaboration with multiple stakeholders, and grow sustainably. Based on this awareness, we have formulated and published our Multi-stakeholder Policy. At the same time, we endorsed and published a Partnership-building Declaration, which seeks to increase added value throughout the supply chain and build relationships of co-prosperity with business partners.
You can find the Multi-stakeholder Policy and Partnership-building Declaration on our corporate website.
Multi-stakeholder Policy (Japanese only):https://www.azbil.com/jp/csr/csr-management/multi-stakeholder_policy.html
Partnership-building Declaration (Japanese only):https://www.azbil.com/jp/csr/csr-management/partnership.html
With regard to the internal reporting system, we believe it is important to (a) encourage employees to use this system by dispelling any concerns that in so doing they might be put at a disadvantage, and (b) ensure that the information thus conveyed is used appropriately. We have therefore established a user-friendly reporting & consultation system—the CSR Hotline—which ensures that the information received is reported to the president & CEO, Audit Committee members, and outside directors with due consideration given to personal information.

(3) Ensuring appropriate information disclosure and transparency
The Company strives to disseminate information so as to ensure transparency and fairness in decision-making, thus realizing effective corporate governance. Specifically, in order to ensure that all stakeholders have a proper understanding of financial information—such as the Company’s financial position and business results—as well as non-financial information—such as management strategy, management planning, management issues, and information relating to risk and governance—we actively disclose information on a voluntary basis in addition to the information stipulated by law. The Company also discloses policies and procedures regarding the appointment of candidates for directors and corporate executives (shikkoyaku), as well as the selection and dismissal of the CEO and other senior executives, and policies for deciding on the remuneration for directors and corporate executives. We will continue to strive to increase the scope of information covered by these disclosures and ensure transparency.
In addition, we are taking appropriate measures to ensure proper audits by the independent accounting auditor: the Company provides sufficient time for audits to be conducted, arranges for the independent accounting auditor to interview the president & CEO and the officer in charge of finance on a regular basis, and continuously conducts quarterly reporting between the independent accounting auditor, the Audit Committee, and the Internal Audit Department.

(4) Responsibilities of the Board of Directors, etc.
The basic mission of the Board of Directors is to put in place an appropriate corporate governance system and to implement this so as to achieve sustainable growth for the Company and enhance its enterprise value.
The Board Rules stipulate that basic management strategy and management plans are important items for deliberation, and following discussions that are unrestricted, robust and constructive, the Board will make appropriate decisions. Moreover, to ensure transparency and fairness in management, the Company will maintain systems for timely disclosure, internal control and risk management. At the same time, the Audit Committee, in cooperation with the Internal Audit Department, will successively provide appropriate audits and opinions on management.
The Company recognizes that independent outside directors play a key role in ensuring that the Board properly fulfills its functions and responsibilities, and thus it has appointed eight independent outside directors with a broad range of experience in corporate management and supervision, as well as considerable expertise and knowledge. Drawing on their diverse backgrounds, these independent outside directors adopt a wide range of perspectives to fulfill their responsibilities, offering advice on improving enterprise value, supervising management, etc. As of June 25, 2024, the total number of directors is 12, with outside directors representing a majority. Board composition demonstrates ample diversity, including that of nationality and gender.
For the Board of Directors to effectively fulfill its roles, the Company believes that, in appointing directors, it is important to promote diversity, taking into consideration the balance of knowledge and experience, and also to ensure transparency and objectivity in the selection process. From the viewpoint of sustainable increase in enterprise value, including the realization of the medium-term plan, the Company has set out what skill sets are expected of its directors and has confirmed the requisite independence, diversity, and anticipated skills of its current Board.
Regarding succession planning for the Company’s senior management, the Nomination Committee discusses the ongoing training and selection of successors; record the results of those discussions as well as the process of deliberation; and regularly report to the Board of Directors on details of their deliberations. The Company thus ensures that succession planning is implemented in an appropriate and objective manner, that the Board is proactively involved in succession planning, and that the training of potential successors is conducted systematically, with sufficient time and resources.

(5) Responsibilities of the Statutory Committees
As a company with a three-committee board structure, three statutory committees – the Nomination Committee, Audit Committee, and Remuneration Committee – have been established, each chaired by an independent outside director. Each committee has the following responsibilities.

（Nomination Committee）
The Nomination Committee is responsible for deciding proposals for the election/dismissal of directors to be submitted to the General Meeting of Shareholders; for selecting/dismissing members of statutory committees (Nomination, Audit, and Remuneration); for selecting/dismissing corporate executives; and for deliberating matters related to succession planning.
Nomination Committee members are selected from among the directors by a resolution of the Board of Directors; similarly, the chairperson is selected from among the outside directors by a resolution of the Board.
The content of committee deliberations and resolutions are reported to the Board of Directors in a timely and appropriate manner by a member of the Nomination Committee appointed for the purpose by the committee.

（Audit Committee）
The Audit Committee is responsible for auditing the execution of duties by corporate executives and directors; for preparing audit reports; for drawing up detailed proposals for the election, dismissal, or non-reappointment of the accounting auditor; and for promoting systematic auditing.
Audit Committee members are selected from among the directors by a resolution of the Board of Directors; similarly, the chairperson is selected from among the outside directors by a resolution of the Board.
The content of committee deliberations and resolutions are reported to the Board of Directors in a timely and appropriate manner by a member of the Audit Committee appointed for the purpose by the committee.

（Remuneration Committee）
The Remuneration Committee is responsible for determining policies related to the remuneration system for corporate executives and directors; for determining individual remuneration; and for deliberating on the establishment, revision, or abolition of remuneration systems as well as other matters related to executive remuneration.
Remuneration Committee members are selected from among the directors by a resolution of the Board of Directors; similarly, the chairperson is selected from among the outside directors by a resolution of the Board.
The content of committee deliberations and resolutions are reported to the Board of Directors in a timely and appropriate manner by a member of the Remuneration Committee appointed for the purpose by the committee.

(6) Dialogue with shareholders
In order to meet requirements for corporate accountability while contributing to sustainable growth and the enhancement of enterprise value over the medium to long term, the Company is working to develop and implement a system for promoting constructive dialogue with shareholders and investors.
Regarding the publication of management strategies and plans, as well as presenting basic policies such as earnings plans, the Company strives to provide straightforward explanations of the targets of financial affairs (sales, operating income, ROE, etc.) and non-financial affairs in our medium-term plan, as well as outlining strategies for achieving those targets.

(7) Overview of corporate governance system and reasons for adopting the system
To ensure its own medium- to long-term development, respond to the trust of all its stakeholders including its shareholders, and proceed with consistently increasing enterprise value, the azbil Group sets fortifying the underlying corporate governance as a management priority. Measures have included strengthening the supervisory and auditing functions of the Board of Directors, improving management transparency and soundness, and clarifying the structure of responsibility for the execution of duties.
As a company with a three-committee board structure, three statutory committees – the Nomination Committee, Audit Committee, and Remuneration Committee – have been established, each consisting of a majority of independent outside directors and being chaired by an independent outside director. In addition, by substantially transferring business execution authority from the Board of Directors to corporate executives with clear legal responsibilities, we are clearly separating supervisory and execution functions to ensure a business execution system based on flexible and efficient decision making, while at the same time enhancing the objective supervision of management.
Furthermore, as a company with a three-committee board structure, to ensure the effectiveness of monitoring by the Board of Directors, we have established a forum for providing information to directors and exchanging opinions with corporate executives in the form of a Liaison Meeting for Directors and Corporate Executives, and in addition, opinion exchange meetings are held regularly among outside directors. At the same time, we are continuing our system for executive officers charged with business execution, aiming to enhance quality and speed of decision making.
The Board of Directors is convened monthly in principle, to discuss and consider legal issues, and other important managerial matters as the highest decision-making body for management and provide a major direction, and to exercise appropriate supervision over execution in order to reflect opinions of stakeholders. In business execution, the Management Meeting, which corporate executives and executive officers with titles attend, has been established to serve as an executive-level advisory body to assist president & Group CEO in making decisions, and are attended by the full-time Audit Committee member to ensure the effectiveness of monitoring. The Management Meeting is held twice a month in principle as part of ongoing initiatives to strengthen business operations through prompt decision making and strict execution.
As of June 25, 2024, the Company has appointed a total of 12 directors, including four (4) who have accumulated experience in the Company’s business, management and audits (Hirozumi Sone, Kiyohiro Yamamoto, Takayuki Yokota, and Hisaya Katsuta), as well as eight (8) who are independent outside directors and have independence, broad experience, a wealth of expertise and knowledge, and rich diversity in the form of nationality and gender (Waka Fujiso, Mitsuhiro Nagahama, Anne Ka Tse Hung, Fumitoshi Sato, Shigeaki Yoshikawa, Tomoyasu Miura, Sachiko Ichikawa and Hiroshi Yoshida). Independent outside directors have reached the majority of the Board of Directors. In addition to working diligently to contribute to enhancement of the Company’s enterprise value through appropriate oversight and advice during the decision-making process at Board of Directors meetings, these independent outside directors regularly exchange opinions with corporate executives through a Liaison Meeting for Directors and Corporate Executives and other opportunities.

(8) Status of Activities of the Board of Directors and each committee
＜Status of Activities of the Board of Directors＞
In FY2023, the Board of Directors met a total of 12 times. The 12 directors attended all of the meetings. Major items discussed at the Board of Directors meetings are as follows.

＜Status of Activities of the Nomination Committee, the Audit Committee, and the Remuneration Committee＞
(Nomination Committee)
As of March 31, 2024, for the Nomination Committee, Takeshi Itoh (Independent Outside Director) serves as the Committee chairperson, Anne Ka Tse Hung (Independent Outside Director), Shigeaki Yoshikawa (Independent Outside Director), and Kiyohiro Yamamoto (Director, President & Group CEO) serve as committee members, with independent outside directors comprising a majority of the Committee. In FY2023, the Nomination Committee met twelve (12) times, and four (4) members of the Nomination Committee attended all of the meetings. Items implemented and specific contents of consideration by the Nomination Committee are as follows.

(Audit Committee)
As of March 31, 2024, for the Audit Committee, Fumitoshi Sato (Independent Outside Director) serves as the Committee chairperson, Minoru Sakuma (Independent Outside Director) and Hisaya Katsuta (Non-executive Inside Director) serve as committee members, with independent outside directors comprising a majority of the Committee. Two (2) independent outside directors and one (1) non-executive inside director who is versed in the Company’s businesses formulate audit plans together with the Internal Audit Department and conduct multifaceted auditing activities, and the internal Audit Committee member serves on a full-time basis, to enhance the effectiveness of audits by the Audit Committee. The Audit Committee chairperson Fumitoshi Sato has experience as the person responsible for the creation of financial statements as the officer in charge of accounting and finance at another operating company over many years and thus has a wealth of knowledge concerning financial affairs and accounting. Furthermore, the Company established an Audit Committee Office, an organization dedicated to assisting the Audit Committee in its duties, with three (3) staff members assigned to assist the Audit Committee in the execution of its duties.
The Audit Committee convenes in principle once a month and holds ad-hoc meetings, as necessary. In FY2023, it convened a total of 13 times and the three (3) Audit Committee members participated in all of the meetings. The main key audit items and specific audit details of the Audit Committee in FY2023 are as follows.

The following are details of (1) coordination with the Internal Audit Department, (2) coordination with the independent accounting auditor, and (3) Audit Committee’s evaluation of the audit firm.
(1) Coordination with the Internal Audit Department
In formulating the internal audit plan for the fiscal year, the Audit Committee closely coordinated with the Internal Audit Department. The Committee also requested the attendance at Audit Committee meetings of the Internal Audit Department head, who is the executive officer in charge of internal audits; this was to share information and exchange opinions on the progress of both the Audit Committee audit and the internal audit. As a new initiative, the Audit Committee also conducted joint audits of overseas subsidiaries with the Internal Audit Department.
(2) Coordination with the independent accounting auditor
Based on the evaluation criteria for accounting auditors established by the Audit Committee, we evaluated the robustness of audits by the independent accounting auditor, the independence of the independent accounting auditor, and the quality of the audits. This involved listening to the regular audit reports by the independent accounting auditor; evaluations of the independent accounting auditor by the Accounting Department, Internal Control Department, and Internal Audit Department; and attending audits conducted by the independent accounting auditor.
Moreover, regarding non-assurance services to be performed for the Company and its subsidiaries by the independent accounting auditor and network firms, the Audit Committee gave preapproval for such services after evaluating the degree of independence, referring to information provided by the independent accounting auditor, and checking with the relevant internal departments as appropriate.
In addition, the Audit Committee conducted explanatory hearings on the progress of examination of items and content of key audit matters (KAMs).
(3) Audit Committee’s evaluation of the audit firm
The Audit Committee has established criteria for evaluation of the independent accounting auditor under three headings: (1) professional competence; (2) audit quality control system and independence; and (3) audit plan, communication, and audit activities. The Committee evaluated the accounting audits by listening to regular audit/review reports from the independent accounting auditor, listening to explanations of the independent accounting auditor’s quality control system, witnessing the independent accounting auditor’s audits, and gathering information on the independent accounting auditor from the Accounting Department and Internal Audit Department.

(Remuneration Committee)
As of March 31, 2024, for the Remuneration Committee, Mitsuhiro Nagahama (Independent Outside Director) serves as the Committee chairperson, Waka Fujiso (Independent Outside Director), Tomoyasu Miura (Independent Outside Director), and Takayuki Yokota (Director, Representative Corporate Executive Deputy President) serve as committee members, with independent outside directors comprising a majority of the Committee. In FY2023, the Remuneration Committee met ten (10) times and all the four (4) Remuneration Committee members attended all of the meetings. Items implemented and specific contents of consideration by the Remuneration Committee are as follows.

(9) Appointment of candidates for directors, and the election/dismissal of the CEO and other senior executives
a. Directors
In terms of basic qualifications, a candidate director is to be a person with excellent character and insight who contributes to the growth of the Company and the Group as a whole and helps to enhance enterprise value. When nominating and electing candidates for the Board of Directors, the Nomination Committee also assesses the skills matrix and composition of the current committee, comprehensively taking into consideration diversity of the Board as a whole (nationality, gender, etc.).
b. The CEO and other senior executives
The appointment of the CEO and other senior executives (president & CEO, deputy president, and corporate executives) is decided by the Board of Directors after deliberation by the Nomination Committee, based on appointment criteria standards and the desired composition of the Board of Directors.
(Appointment criteria)
As the basic requirements, the CEO and other senior executives must have a full of understanding of the Group philosophy, deep knowledge of corporate management, wide-ranging experience both inside and outside Japan and a high level of insight into corporate governance, CSR, and compliance, as well as the ability to lead the entire Group and guide it to sustainable growth.
(Dismissal criteria)
Concerning policies and procedures for dismissing the CEO and other senior executives, the candidate for dismissal undergoes a fair and rigorous process of examination and deliberation by the Nomination Committee based on the following criteria. If the committee judges that the dismissal is appropriate, it is sent to the Board of Directors for approval.
Reasons for proposing dismissal include serious business problems arising from a violation of the law or the Articles of Incorporation, circumstances that makes it difficult for the person to perform and continue in the job, and a reason for retirement that is stipulated by law. In deliberating the dismissal of the president and CEO, the Nomination Committee will also take into consideration declining financial results and other such quantitative data.

Corporate Governance Framework (As of June 25, 2024)

Overall Balance and Diversity of the Board of Directors

In a rapidly changing business environment, we believe that the Company needs a Board of Directors that offers diversity and provides a good overall balance of knowledge and experience that will contribute to the enhancement of enterprise value over the medium to long term. Based on this fundamental principle, as of June 25, 2024, the Board of Directors consists of four (4) directors with executive experience in the Company’s business, audit and management and eight (8) independent outside directors with wide-ranging experience, extensive expertise and professional knowledge. Of the twelve (12) directors, three (3) are women (one of whom is a foreign national). Also, we have established the skill sets expected of the directors from the viewpoint of sustainable increase in enterprise value, including the realization of the Company’s medium-term plan, and we have confirmed the independence, diversity, and expected skills of the current entire Board of Directors.

Skills expected of directors (skills matrix)

Improving the Effectiveness of the Board of Directors

In order to clearly separate supervisory and executive functions, and to lend impetus to a further strengthening of the management oversight function, Azbil Corporation transitioned to a company with a three-committee board structure in June 2022. Through conducting objective and constructive deliberations, the Company’s Board of Directors decides on such matters as management strategy, supervises their execution, and strives to enhance enterprise value over the medium to long term. A survey is carried out every year to evaluate the effectiveness of the Board of Directors in properly fulfilling its roles and responsibilities, to identify issues and points of improvement, and to indicate ways in which the Board’s effectiveness might be enhanced. In addition, we call on the services of an outside organization at regular intervals. In FY2023, as in FY2022, we were thus able to confirm that, following the transition to a company with a three-committee board structure, steady progress has been made in both strengthening governance and improving the effectiveness of the Board of Directors. In addition, as a result of addressing the issues identified in FY2022, we assessed whether the effectiveness of the Board of Directors has definitely improved. Furthermore, in preparing for this evaluation, the Chairperson led a review of the approach and methodology to be used. We conducted the survey utilizing the survey items set up by an outside organization in FY2022, giving consideration to ensuring consistency over time.
For this survey of FY2023, all directors were asked for their opinions and assessments of the following survey items: (1) the role and functions of the Board of Directors; (2) the size and composition of the Board of Directors; (3) the operation of the Board of Directors; (4) the composition, role, and work of the Nomination Committee; (5) the composition, role, and work of the Remuneration Committee; (6) the composition, role, and work of the Audit Committee; (7) the support provided for outside directors; (8) investor and shareholder relations; (9) the overall effectiveness of the governance system and the Board of Directors; and (10) their own self evaluations. Based on the above, the Board of Directors held constructive discussions on current effectiveness as well as issue-sharing and future steps.
It has thus been concluded that the Board of Directors is of an appropriate size and composition, and is properly fulfilling its role, with its members plainly sharing the model supervisory function of the Board of a company with a three-committee board structure; that—thanks to the Liaison Meeting for Directors and Corporate Executives, established for directors as an opportunity to gather information and exchange opinions with corporate executives—there is appropriate communication between directors and corporate executives, as well as between internal directors and outside directors, and that this is functioning as a forum for discussion of important medium- and long-term management issues; that the size, composition, and deliberation topics of the three statutory committees for nomination, audit, and remuneration are all appropriate; and that the overall effectiveness of the Board of Directors is adequately ensured. In last year’s assessment of effectiveness, Board members all recognized how important it is to make a clearer division of supervisory and executive roles as well as improve the reference materials prepared for meetings so that the Board can discuss more important management issues, and also how important it is that the Board of Directors and Nomination Committee discuss the skills matrix to maintain the appropriate composition of the Board, improving it where possible. Consequently, in FY2023, the Company established a system to enhance the effectiveness of discussions at Board meetings by revising the criteria for submitting proposals to the Board and improving the materials prepared for the meetings. Furthermore, in addition to Board discussions of the medium-term plan, intensive deliberations were held at the Liaison Meeting for Directors and Corporate Executives and at off-site meetings regarding agenda items that had been identified—through effectiveness evaluations—as important management issues. The Board of Directors also discussed what skills matrix would help ensure the appropriate composition of the Board, improving it where possible. Initiatives such as these represent one of the items that were highly evaluated in this year’s survey of effectiveness.
Going forward, members agreed that the Board of Directors will redouble its efforts to (a) improve the reference materials prepared for meetings so that the Board can discuss more important management issues; (b) further strengthen monitoring of those matters for which authority is delegated; (c) discuss, along with the Nomination Committee, how to maintain and improve the appropriate composition of the Board of Directors; and (d) promote dialogue with outside directors and shareholders to enhance enterprise value over the medium to long term. In order to achieve sustainable growth and increase enterprise value over the medium to long term, the Company will continue its efforts to enhance the effectiveness of the Board of Directors.

Executive Compensation

As a company with a three-committee board structure, the Company’s Remuneration Committee, which is chaired by and composed of a majority of independent outside directors, sets policy on the determination of the individual remuneration of directors and corporate executives.

Remuneration Policy of Azbil Corporation

Guided by the azbil Group philosophy of “human-centered automation,” Azbil Corporation (“the Company”) aims to contribute “in series” to a sustainable society by providing automation-related products and services.
With regard to our executive remuneration system, in order to add impetus to the realization of our long-term targets (to achieve by FY2030) and the medium-term plan (FY2021-FY2024), we will further increase both the corporate executives’ awareness of the need to contribute to enhancing enterprise value and their motivation to maximize shareholder value, as well as ensuring that directors who are not responsible for business execution can share value with our shareholders. With this system, we will promote initiatives to contribute “in series” to a sustainable society.

The azbil Group philosophy

The azbil Group philosophy is to realize safety, comfort and fulfillment in people’s lives and contribute to global environmental preservation through “human-centered automation.” To achieve this,

• We create value together with customers at their site.
• We pursue our unique value based on the idea of “human-centered.”.
• We think towards the future and act progressively.

Basic policy regarding executive remuneration

Aiming to realize the Group philosophy, we have adopted the following basic policy for the remuneration of Company officers to motivate them not only for short-term performance but also to achieve medium- to long-term performance goals and to enhance enterprise value.

• Taking into consideration the nature of our business, remuneration should encourage awareness of the necessity to enhance enterprise value from a medium- to long-term perspective and further promote value sharing with our shareholders.
• Remuneration should help to secure talented management personnel to realize the Company’s management philosophy and achieve the medium- to long-term performance goals.
• The remuneration system should be highly independent and objective, and should enable us to fulfill our duty of accountability to stakeholders.

Remuneration levels

Remuneration levels for the Company officers (corporate executives and directors) are set by resolution of the Remuneration Committee after it has verified their appropriateness using data supplied by an external research agency. Also, the Committee reviews remuneration levels as necessary in response to changes in the external environment.

Remuneration structure

The remuneration structure for corporate executives (including those concurrently serving as directors; similarly hereinafter) is based on their roles and responsibilities, and consists of basic remuneration, which is a fixed monthly amount; bonuses, which are short-term incentives; and stock-based compensation, which is a medium- to long-term incentive. In order to ensure a remuneration structure that motivates officers to achieve the medium- and long-term performance goals and enhance enterprise value, the incentive component of remuneration has been increased, so that the combined remuneration for the president & CEO has the following structure: basic remuneration 40%, bonus (base amount) 30%, stock-based compensation (base amount) 30%. The remuneration structure for other corporate executives is determined in line with this, taking into consideration their expected roles and responsibilities. The remuneration for directors (not including those concurrently serving as corporate executives; similarly hereinafter) consists of basic remuneration and stock-based compensation.

• Corporate executives
  (1) Basic remuneration
  • Basic remuneration is paid as a fixed monthly monetary remuneration based on the position of the officer.
  (2) Bonus
  • A bonus is paid as performance-linked monetary remuneration that takes into consideration company performance and non-financial indicators for the single fiscal year.
  • As regards financial indicators, to improve enterprise value over the medium to long term, we use sales and operating income, which are the Company’s main management indices, as key performance indicators (KPIs). The amount of the bonus will fluctuate according to the degree by which these targets have been achieved, while taking into consideration also non-financial indicators.
  • Non-financial indicators are based on the degree of achievement of the various roles of the corporate executive, such as implementing measures to realize the medium-term plan, engagement in CSR management, and the development of human resources (succession training). The Remuneration Committee determines the amount of remuneration based on such evaluation.
  • Taking into account both financial and non-financial indicators, the final amount paid as a bonus will vary between 0% and 150%.
  • Remuneration is designed so that the higher the officer’s position, the higher the weighting of financial indicators. As an example, the KPIs and their respective evaluation weightings for the president and CEO are as follows.
  

(3) Stock-based compensation

• In principle, stock-based compensation is paid to the corporate executive following retirement from the current position, with the aim of continuous enhancement of enterprise value while sharing value with shareholders.
• A base amount for stock-based compensation is set for each position. Of this, 50% is performance-linked and 50% is not.
• As regards KPIs, the performance-linked component uses relative total shareholder return (TSR)—an indicator that evaluates our TSR relative to the Tokyo Price Index (TOPIX) by the Tokyo Stock Exchange—to ensure that officers and shareholders have a shared interest, and operating income margin, an indicator set forth in the medium-term plan. As a non-financial indicator, we use effective CO2 reduction at customers’ sites, which is one of the essential goals of the azbil Group for the SDGs. The performance-linked component will vary between 0% and 150% depending on the extent to which these targets have been achieved during the period covered by the medium-term plan. The evaluation weightings for each KPI are as follows.
  
  
• As a way to further encourage value sharing with shareholders, the non-performance-linked component is paid as stock-based compensation with vesting of a fixed number of shares.
• Stock-based compensation is paid through a trust-type stock compensation plan. Under this plan, points corresponding to an officer’s position are awarded annually, and Company shares equivalent to the number of points accumulated are transferred from the trust to the plan-eligible person following retirement from the current position.

Directors
(1) Basic remuneration

• Basic remuneration is paid as a fixed monthly monetary sum based on the responsibilities of the position.

(2) Stock-based compensation

• In principle, stock-based compensation is paid to the director following retirement from the current position, with the aim of continuously enhancing enterprise value while sharing value with shareholders.
• A base amount of stock-based compensation is determined, which is entirely non-performance-linked.
• Stock-based compensation is paid through a trust-type stock compensation plan. Under this plan, a certain number of points are awarded annually to those eligible, and Company shares equivalent to the number of points accumulated are transferred from the trust to the plan-eligible person following retirement from the current position.

Process for determining remuneration

• The Remuneration Committee determines the remuneration of directors and corporate executives. The majority of the members of the Remuneration Committee, including the chairperson, are outside directors, which ensures objectivity and transparency.
• The Remuneration Committee has the authority to determine the details of remuneration for individual directors and corporate executives. It arrives at evaluation decisions based primarily on (1) the policy governing remuneration details for individual directors and corporate executives; (2) the details of remuneration for individual directors and corporate executives; and (3) in the case of corporate executives, the degree of achievement of both company-wide performance targets and the individual targets set for each corporate executive for the purpose of determining performance-based remuneration.
• In the event of a substantial change in the external environment of the Company, the Remuneration Committee, after carefully deliberating on the appropriateness of the target values and calculation methods used for determining performance-linked remuneration, may take exceptional measures.

Forfeiture and return of remuneration (malus and clawback)

• If the financial results for a previous fiscal year are revised retrospectively, the Company can deny officers all or part of the Company shares, etc. (the performance-linked component) under the stock-based compensation plan, and may demand the return of all or part of the performance-linked compensation already paid to them.
• If it is determined that an officer is responsible for serious misconduct or a serious violation, the Company can deny all or part of the Company shares, etc., that were to be transferred to the officer under the stock-based compensation plan.

Disclosure policy

• In accordance with our disclosure policy and applicable laws and regulations, details of the executive remuneration system are compiled and disclosed promptly and proactively through the annual Securities Report, reference materials for the General Meeting of Shareholders, the Business Report, the Corporate Governance Report, company website, etc. The Company also implements a policy of active engagement with shareholders and investors.

Total amount of remuneration for officers in FY2023

Contribution of Outside Directors

In addition to the requirements for independent officers stipulated by the Tokyo Stock Exchange, we follow criteria for independence that we have formulated when appointing outside officers as prescribed by the Companies Act. Candidates deemed capable of providing constructive suggestions and accurate observations and advice concerning the company’s business and the improvement of enterprise value in the medium and long terms are appointed as outside directors. Our outside directors, from their diverse perspectives, are active in asking questions and giving suggestions at Board of Directors meetings, thereby contributing to sustainable corporate growth and the enhancement of enterprise value over the medium and long terms.

Reasons for Appointing Outside Directors and Their Attendance Record in FY2023

Waka Fujiso

She possesses extensive knowledge and experience that she gained mainly during her activities over many years as a public prosecutor, and, after retiring from the position of public prosecutor at the Supreme Public Prosecutors Office, during her service as a council member at a government agency at which time she also taught at a law school. At Board of Directors meetings of the Company, she not only supervises business execution, but also proactively offers opinions from the perspectives of sustainability and CSR based on her extensive knowledge and experience as a legal expert, aiming at more thorough compliance management and risk management as well as the enhancement of management transparency and fairness. In these ways, she fulfills such appropriate roles as supervising and giving advice on business execution.

Attendance record: Board of Directors meetings 12 of 12

Mitsuhiro Nagahama

He possesses broad knowledge and extensive experience in corporate management, financial/securities sectors and global business, as he has successively served in important posts at financial institutions. After he assumed the post of outside Audit & Supervisory Board member in 2015, he has audited the Company’s overall business with his outstanding insights on corporate governance and ideal way of company management. Furthermore, he has not only supervised business execution as an outside director since 2019, but also proactively offered opinions to enhance management transparency from the perspective of the capital markets and based on a global perspective. In these ways, he fulfills such appropriate roles as supervising and giving advice on business execution.

Attendance record: Board of Directors meetings 12 of 12

Anne Ka Tse Hung

She worked at an international law office as a partner attorney, and supported the conclusion of agreements for the international transactions of Japanese companies, in addition to overseas corporate matters. She also has business experience with many Japan-based companies, is familiar with Japanese business customs, and possesses knowledge in the industry to which the Company belongs. At Board of Directors meetings, she draws on her expert knowledge of international business not only to supervise business execution, but also to proactively offer opinions based on her global perspective, such as business promotion system targeting international business growth and her approach to investment for medium- and long-term growth. In these ways, she fulfills such appropriate roles as supervising and giving advice on business execution.

Attendance record: Board of Directors meetings 12of 12

Fumitoshi Sato

He has successively served in important posts at the Bank of Japan, and in addition to his broad knowledge and extensive experience in the financial sector, he has work experience in the management division overseeing accounting, legal affairs, and human resources at an operating company in the manufacturing industry and management experience as a director. After he assumed the post of outside Audit & Supervisory Board member in 2019, he audited the Company’s business in general, and since 2022 he has contributed to the improvement of the Company’s corporate governance and internal control as director (Audit Committee member). In the Company’s meetings of the Board of Directors, he proactively offers opinions regarding the appropriateness of the Company’s business and financial strategies, and from the perspective of risk management and corporate governance enhancement. In addition, he has knowledge of finance, accounting, and legal affairs, as well as knowledge of corporate management. In these ways, he fulfills such appropriate roles as supervising and giving advice on business execution.

Attendance record : Board of Directors meetings 12 of 12

Shigeaki Yoshikawa

He has held key positions in a general trading company with global operations, and has broad knowledge and abundant experience regarding overseas business development and business portfolio strategies, as well as corporate management experience and so forth at a think-tank consulting firm. He assumed the post of outside director of the Company in 2022, and he has proactively offered his opinions regarding the Company’s international business strategies, approach to business strategies for medium- to long-term growth and human resource development based on his extensive experience and insight into overseas business, as well as his knowledge of marketing and sales. In these ways, he fulfills such appropriate roles as supervising and giving advice on business execution.

Attendance record : Board of Directors meetings 12 of 12

Tomoyasu Miura

He has held key positions at a think-tank consulting firm and possesses extensive knowledge and experience in a wide range of fields, such as IT, technology innovation, and new business creation, as well as abundant experience in the development of management human resources at a public interest incorporated foundation. He assumed the post of outside director of the Company in 2022, and has proactively offered his opinions from the perspectives of business strategies, including consideration of technological aspects, for the Company’s medium- to long-term growth, and of human resource development, based on his abundant knowledge of the IT and technology domains, his experience of new business creation, and his experience of human resource development. In these ways, he fulfills such appropriate roles as supervising and giving advice on business execution.

Attendance record : Board of Directors meetings 12 of 12

Sachiko Ichikawa

She has a global perspective, extensive experience, broad knowledge and expertise as an attorney (in Japan and in New York State, the U.S.) and a U.S. certified public accountant. Moreover, she has served as an outside officer at other listed companies, primarily in the manufacturing industry, and has excellent insights concerning the ideal shape of corporate governance and company management. The Company judges that as an outside director of the Company, she can fulfill such appropriate roles as offering objective suggestions and advice for the enhancement of management transparency from wide-ranging perspectives as well as supervising business execution for the Board of Directors, utilizing her abundant and specialist knowledge and experience related to legal affairs and accounting, along with her insights in areas such as corporate governance and compliance.

Attendance record : Board of Directors meetings -/-^*
*Appointed at the 102nd Ordinary General Meeting of Shareholders held on June 25, 2024

Hiroshi Yoshida

He has held key positions at a globally operating listed chemical manufacturer. He has broad knowledge related to finance and accounting, abundant experience in management planning and strategy formulation in the manufacturing industry, and experience as both a corporate executive and an Audit & Supervisory Board member. The Company judges that as an outside director of the Company, he can fulfill such appropriate roles as offering objective suggestions and advice for the enhancement of management transparency from wide-ranging perspectives as well as supervising business execution for the Board of Directors, utilizing his wealth of specialist knowledge related to finance and accounting in addition to his extensive experience in management planning and strategy formulation in the manufacturing industry.

Attendance record : Board of Directors meetings -/-^*
*Appointed at the 102nd Ordinary General Meeting of Shareholders held on June 25, 2024

Comment by an Outside Director

Azbil corporate governance, present and future