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    6448   JP3830000000

BROTHER INDUSTRIES, LTD.

(6448)
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Brother Industries : (Updated) Corporate Governance Report

06/25/2021 EDT

CORPORATE GOVERNANCE

BROTHER INDUSTRIES, LTD.

Last updated: June 24, 2021

Brother Industries, Ltd.

Ichiro Sasaki, Representative Director & President

Contact: Law, Environment & General Affairs Dept.

Tel: +81-52-824-2071

Securities Code: 6448 https://global.brother/en

The corporate governance of Brother Industries, Ltd. (hereafter referred to as the Company) is described below.

I Basic Views on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information

1. Basic Views

The Brother Group (hereafter referred to as the Group) has established the Brother Group Global Charter (hereafter referred to as the Global Charter) as the basis of all of its activities conducted worldwide, and sets enhancement of its corporate value over the long term by optimizing management resources and creating customer value, development of long-term trustful relationships with its shareholders by enhancement of corporate transparency through active provision of corporate information to shareholders, etc. as the fundamental ideas of the Group's corporate governance.

[Reasons for Non-Compliance with the Principles of the Corporate Governance Code]

The Company complies with all of the principles set forth in the Corporate Governance Code.

[Disclosure Based on the Principles of the Corporate Governance Code] [Principle 1-4Cross-Shareholdings]Updated

The Company holds shares of other listed companies (hereafter referred to as cross-shareholdings) when building good business relationships with such companies is considered likely to improve its corporate value over the mid to long-term. The Board of Directors also examines the appropriateness of its cross-shareholdings on an annual basis and expedites reduction of holdings determined deficient in meaning.

As a result of examining the purpose of holding shares, dividend yield, market value, other benefits and risks for individual share at the Board of Directors meeting held in December 2020, it was decided to reduce the holding of shares determined deficient in meaning. In general, the Company exercises its voting rights for its cross-shareholdings. The Company approves an agenda item after carefully examining its contents, except when it potentially harms the Company's mid to long-term economic interest and when it is obvious that the shareholder value will be damaged (such as by antisocial acts by listed companies or the management of listed companies).

[Principle 1-7 Related Party Transactions]

In cases in which Directors are processing a transaction that could potentially create business competition with the Company or result in a conflict of interest with the Company, they must receive approval from the Board of Directors in accordance with the procedure stipulated in the internal rules.

[Principle 2-6 Fulfilling the Function as an Asset Owner of Corporate Pension]

The corporate pension plan of the Group consists of a defined benefit pension plan that manages funds and contributions under the Brother Pension Fund and a defined contribution pension plan under which funds and contributions are managed by employees themselves.

For the Brother Pension Fund, the Company has implemented personnel and operational measures such as the measures below so that the Fund can fulfill its expected function as the asset owner.

  1. In operating the Brother Pension Fund, the Company appoints persons with appropriate background and aptitude to become Directors of Investment, and has them participate in various workshops to improve their expertise in fund management.
  2. The Company contains an Asset Management Committee, which consists of managerial personnel from the finance and personnel departments (department head and above) as well as officers of labor unions, that convenes on a quarterly basis to confirm investment performance. With regard to an asset management trustee whose performance has not been satisfactory for a certain period of time, the Asset Management Committee may examine, together with an external consultant, the necessity for a replacement and select a specific alternative asset management trustee.
  3. Conflicts of interest that may arise between beneficiaries of the Brother Pension Fund and the Company are appropriately managed by adapting a resolution for any important operational matter of the Fund at a conference of delegates, half of whom are employees as beneficiaries under the fund agreement, and entering into a discretionary agreement with the asset management trustee with regard to the selection of individual companies invested in and exercise of voting rights.

1

[Principle 3-1 Full Disclosure]

  1. The Global Charter consists of the basic policies and code of practice concerning daily decision making and actions of the Company and the Group's Directors, Executive Officers, employees, etc., and sets forth their relationships with the stakeholders. The Global Charter can be found on the Group's official website (https://global.brother/en/corporate/principle).
    In addition, the Company's Mid-Term Business Strategy is disclosed on the Group's official website (https://global.brother/en/corporate/csb).
  2. The Company's basic views with respect to corporate governance are described in "I. 1. Basic Views."

The fundamental policy is described in "Brother Group Basic Policies on Corporate Governance" (https://global.brother/en/corporate/governance/policy).

  1. The Company believes that remunerations of Directors and Executive Officers must be appropriate, fair and balanced in such a way that they contribute to further enhancement of the motivation of Directors and Executive Officers concerned to maximize the corporate value of the Company.
    In addition to the basic remunerations provided to all Directors, the remunerations of Directors also consist of performance-based remunerations reflecting their responsibilities and achievements in the Group's year-on-year business performance. Stock options for a stock-linked compensation plans for Directors are also offered as an incentive for long-term improvement of corporate value. These are given as the remunerations provided to Directors who are not Outside Directors. The remunerations of Executive Officers consist of basic remunerations, performance-based remunerations, and stock options for a stock-linked compensation plan for Executive Officers. The remunerations of Directors must be calculated in accordance to the internal rules, discussed and reported by the Compensation Committee as an arbitrary advisory committee to the Board of Directors, and approved by the Board of Directors. The remuneration of Executive Officers must be calculated in accordance with the internal rules, discussed and reported by the Compensation Committee, and approved by the Board of Directors or President.
    In the case in which the Compensation Committee reports on the amount of remunerations of Directors and Executive Officers, it must refer to the standards for remunerations, etc. of other, comparable companies and review the appropriateness of the remuneration amount.
    The Company shall disclose the sum of remunerations paid to its Directors in an appropriate manner.
  2. The Company's policy and procedures to appoint or remove candidates for Directors and Corporate Auditors are as follows.

The Company believes that Directors must possess a fine personality, insight and an ability to execute their duties as Director appropriately. The Company also believes that an Outside Director must possesses considerable experience in corporate management and comply with the standards stipulated in Principle 4-9 below (hereafter referred to as the Independence Standards), in addition to meeting the above-mentioned qualifications. A candidate for Director is decided by the Board of Directors through the procedure taken by the Nomination Committee as an arbitrary advisory committee to the Board of Directors.

The Company believes that an Executive Officer must possess a fine personality, insight, be acquainted with the business and operation of which they take charge of and must retain the ability to pursue their duties as Executive Officer properly. An Executive Officer is appointed by the Board of Directors through the procedure taken by the Nomination Committee.

The Nomination Committee must deliberate on the agenda items of the General Shareholder Meeting that concern the appointment or removal of Directors and the agenda items of the Board of Directors concerning the appointment or removal of Executive Officers in a fair, transparent and strict manner before the agenda items concerned are finalized, and report the outcome to the Board of Directors.

The Company believes that a Corporate Auditor must possess a fine personality, insight and the ability to pursue their duties as a Corporate Auditor properly. The Company also believes that an Outside Auditor must comply with Independence Standards, in addition to meeting the above-mentioned qualifications. A candidate for Corporate Auditor is decided by the Board of Directors with approval from the Audit & Supervisory Board. The Company further believes that at least one Corporate Auditor must have sufficient expertise in finance and accounting.

  1. The Company must disclose the reasons for its selection of candidates for Directors and Auditors in the notice of convocation at the general meeting of shareholders.
    The Company disclosed the reasons for its selection of candidates for Directors and Corporate Auditors in the notice of the 129th Ordinary General Shareholder Meeting held on June 23, 2021.

[Principle 4-1 The Roles and Responsibilities of the Board of Directors] Supplementary Principle 4-1(1)

The Company has implemented an Executive Officer System, whereby executive operations by Executive Officers and supervision by the Board of Directors are separated in an effort to ensure swift decision-making and strengthen its corporate governance.

The Board of Directors holds the responsibility to deliberate and make decisions on important executive operations that are stipulated by laws, the Articles of Incorporation and internal rules, and oversees Directors and Executive Officers as to the execution of their duties.

The Board of Directors shall delegate items other than the ones that require a decision making on an executive operation by the Board of Directors, as defined above to representative Directors, Executive Directors or Executive Officers.

[Principle 4-9 Independence Standards and Qualification for Independent Outside Directors]

The Company believes that an Outside Director must possesses considerable experience in corporate management and comply with the Company's Independence Standards. The Company's Independence Standards is described in "Matters relating to Independent Officers" under "II.1. [Independent Officers]" of this report.

[Principle 4-11 Conditions Precedent to Ensuring the Effectiveness of the Board of Directors and the Audit & Supervisory Board]

Supplementary Principle 4-11(1)

2

The Board of Directors must not exceed eleven members, as stipulated in the Articles of Incorporation, and include an adequate number of Outside Directors, needed to oversee important administrative decision-making and implement executive operations with the Board of Directors. In addition, the Board of Directors shall consist of a diverse group of members with dissimilar backgrounds, knowledge and experience, whereby they can contribute to the global business operations of the Group.

Supplementary Principle 4-11(2)

The Company discloses the status as to holding of concurrent posts of Outside Directors and Outside Auditors (hereafter collectively refer to Outside Officers) annually in the notice of convocation at the general meeting of shareholders and the Company's Annual Securities Report.

Supplementary Principle 4-11(3)

Respective Directors and Corporate Auditors shall conduct evaluations of the Board of Directors' effectiveness, etc. annually and submit their findings to the Board of Directors. Based on the evaluations submitted, the Board of Directors shall analyze and evaluate the effectiveness of the entire Board of Directors, and disclose the summary of its results in a timely and appropriate manner.

  1. Based on the results of the previous evaluation of the Board of Directors' effectiveness in February 2020, the following measures were taken in fiscal 2020:
    • Moving up the timing of providing materials for Board of Directors meetings in advance;
    • Planning acquisition of knowledge by Directors;
    • Explaining points that were discussed in the Compensation Committee and Nomination Committee, at Board of Directors meetings; and
    • Deliberating management issues of group companies at Board of Directors meetings.
  2. During February 2021, the Board of Directors was evaluated by all Directors and Corporate Auditors through responses to questionnaires prepared with advice from an external consultant.
    The Company requested that the external consultant should collect the questionnaires and analyze the result to ensure an objective analysis, and the Company's Board of Directors Secretariat made an analysis using the aggregated data.
    The results from the questionnaires were discussed at the Board of Directors meeting held in May 2021, and it was confirmed that the Company's Board of Directors was functioning effectively.
    Questionnaire items were as follows:
    (Composition and operation of the Board of Directors)

  3. - Composition and diversity of the Board of Directors - Selection of agendas
    - Enrichment of the content and amount of materials, and explanations - Provision of opportunities for acquiring knowledge
    - Recognition of roles and action
    - Workability of the Nomination Committee and the Compensation Committee

(Management strategies and business strategies)

  • Provision of necessary information for deliberating on plans, such as management plans
  • Enrichment of deliberations on plans such as management plans, and confirmation of those plans' progress
  • Allocation of business portfolio/managerial resources
  • Capital cost-conscious management
  • Sustainable management
  • Digital transformation (DX)
  • Cross-shareholdingspolicy

(Corporate ethics and risk management)

  • Review of fostering the corporate philosophy, etc.
  • Construction of the risk management process
  • Response to individual risks
  • Statement of opinion by a Corporate Auditor to the Board of Directors and the management

(Performance monitoring, and evaluation and compensation of the management)

  • Involvement in group governance
  • Deliberation of remunerations by the Compensation Committee
  • Deliberation of the appointment or removal of Directors by the Nomination Committee
  • CEO candidate succession planning

(Discussions with shareholders and other stakeholders)

  • Decision-makingwith stakeholders in mind
  • Feedback to the Board of Directors with regard to the content of discussions with shareholders

(Look-back on measures taken in fiscal 2020)

  • Looking back on respective measures (described above) taken in fiscal 2020 for effective improvement (Other free comments)

3

3. Opinions about requests and room for improvement, such as the following items, were expressed through the evaluation of the Board of Directors:

  • Further expansion of opportunities to acquire knowledge so that Directors can deepen understanding of their responsibilities and fulfill their roles
  • Enhancement of discussions about business portfolio, capital cost, sustainable management, and DX when deliberating the next mid-term plan
  • Sharing of agendas with the Board of Directors and presentation of agendas to the Board of Directors as appropriate to ensure rationality and transparency of the Compensation Committee and Nomination Committee

Based on these opinions, the Board of Directors will make further efforts to improve its effectiveness.

[Principle 4-14 Trainings for Directors and Corporate Auditors] Supplementary Principle 4-14(2)

The Company believes that Directors and Corporate Auditors must collect information related to the Company's business plans, legal compliance, corporate governance and other issues actively, and continue to acquire knowledge and skills in order to fulfill their roles. Newly appointed Outside Officers must be briefed on the Company's management strategies, business plans and other critical issues by the President, or someone appointed by the President.

The Company shall provide its Directors and Corporate Auditors with opportunities to attending training using the evaluation, etc. stipulated in Supplementary Principle 4-11(3) as reference (Outside Officers are also given opportunities to obtain knowledge about the Group's business plans).

[Principle 5-1 Policy for Constructive Discussions with Shareholders]

The basic policies concerning the establishment of organizational structures and measures aimed at promoting constructive discussions between the Company and its shareholders are as follows.

  1. Basic Views
    By increasing the number of opportunities to provide shareholders and investors with information and conveying the latest information in a clearly understandable manner, strive to enhance corporate transparency and build long-term relationships of trust.
  2. An Individual in Charge of Presiding over Discussions with Shareholders
    Assign an Executive Officer to be in charge of holding constructive discussions with shareholders and investors, and allow that executive officer to collaborate with the relevant in-house departments, supporting the convening of discussions on a daily basis.
  3. The Ways to Hold Discussions and the System to Utilize Feedback
    1. In addition to organizing briefings, telephone conferences, etc. for analysts and institutional investors after the announcements of year-end and quarterly consolidated results, provide information via the Group's official website and various other documents such as shareholder newsletters.
    2. The Company shall strive to properly share opinions from shareholders obtained through the discussions with the Directors.
  4. Management of Insider Information in Discussions with Shareholders
    In compliance with the internal rules concerning information management, establish a proactive system to prevent the divulging of insider information

2. Capital Structure

Foreign Shareholding RatioMore than 30%

[Status of Major Shareholders] Updated

Name/Company name

Number of Shares

Percentag

Held

e (%)

The Master Trust Bank of Japan, Ltd. (Trust account)

22,075,200

8.48

SSBC CLIENT OMNIBUS ACCOUNT

12,034,662

4.62

Nippon Life Insurance Company

11,798,179

4.53

Custody Bank of Japan, Ltd. (Trust account)

11,189,500

4.30

Sumitomo Mitsui Banking Corporation

6,058,681

2.33

Sumitomo Life Insurance Company

4,499,000

1.73

Brother Employees Shareholding Plan

4,492,964

1.73

MUFG Bank, Ltd.

3,796,974

1.46

Custody Bank of Japan, Ltd. (Trust account No. 5)

3,751,700

1.44

Custody Bank of Japan, Ltd. (Trust account No. 7)

3,687,100

1.42

Controlling Shareholder (excluding Parent Company)

-

Parent Company

None

Supplementary Explanation Updated

4

The status of major shareholders is as of March 31, 2021. The percentage of shares held was calculated based on the total number of shares outstanding excluding the number of treasury shares.

5

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

Brother Industries Ltd. published this content on 25 June 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 June 2021 13:05:04 UTC.


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