Espec : Corporate Governance Report

Corporate Governance Report

Last Update: April 27, 2021

ESPEC CORP.

President: Masaaki Ishida

Contact: General Affairs & Personnel Department Securities Code: 6859 https://www.espec.co.jp/english/

The corporate governance of ESPEC CORP. (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and

Other Basic Information

1. Basic Views

The Company firmly believes that a corporation is a public institution, or a social apparatus with roles and functions for fulfilling people's wishes and living up to the expectations of society. Based on this philosophy, the Company aims to become a highly efficient corporate medium for exchanging value. Accordingly, the Company shall provide all stakeholders with higher value through the mutually beneficial relationships it builds with shareholders, customers, business partners, employees and all other stakeholders it interacts with in the course of conducting its corporate business activities.

By continually enhancing corporate governance with this philosophy as an impetus, the Company shall realize sustainable growth and enhance corporate value over the medium to long term, while fulfilling its social responsibility to stakeholders.

The Company's basic views, policy for engagement in each principle, and status of implementation of the Corporate Governance Code have been formulated in a separate Basic Policy on Corporate Governance, publically disclosed on the Company's website. https://www.espec.co.jp/english/ir/management/pdf/governance_policy.pdf

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

The Company has implemented each principle of the Corporate Governance Code in accordance with the above basic policy.

[Disclosure Based on the Principles of the Corporate Governance Code] (Updated)

Please refer to the following articles of the Basic Policy on Corporate Governance for details on matters that ought to be disclosed under the Corporate Governance Code.

[Principle 1.4 Cross-Shareholdings]

Article 5. Cross-Shareholdings

At a meeting of the Board of Directors held on December 8, 2020, the Company verified the need for individual cross-shareholdings in its possession. As a result of the verification, the Company disclosed in its Annual Securities Report the shares it decided to continue to possess and the objectives in doing so.

[Principle 1.7 Related Party Transactions]

Article 6. Related Party Transactions

[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners]

To ensure appropriate operation of its defined benefit pension plan, the Company has established operational goals and a policy asset composition from a medium- to long-term standpoint, and entrusts its corporate pension to an investment management institution that accepts Japan's Stewardship Code. From an operational

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viewpoint, the Company assigns human resources with appropriate skills as heads of the finance and personnel departments and monitors the operational status of the operational institution. Moreover, to ensure transparency in regard to conflicts of interest, the Company notifies employees of the results of fund operations.

[Principle 3.1 Full Disclosure]

Article 1. Basic Stance on Corporate Governance

Article 7. The Company's Corporate Philosophy, Management Policy, and Relationship with Stakeholders Article 14. Method and Procedures for Nominating a Candidate for Director

Article 17. Method and Procedures for Nominating a Candidate for Audit & Supervisory Board Member Article 19. Compensation of Directors and Audit & Supervisory Board Members

The Company shall disclose its reasons behind the nomination of candidates for director and audit & supervisory board member in the reference materials to its Notice for Convening a Shareholders Meeting. https://www.espec.co.jp/english/news/2020/0525.pdf

[Supplementary Principle 4.1.1 Scope of Delegation to Management] Article 12. Roles of the Board of Directors

[Principle 4.9 Criteria for the Independence of Independent Outside Directors] Article 14. Method and Procedures for Nominating a Candidate for Director

[Supplementary Principle 4.11.1 Size, Diversity and Overall Balance of the Board of Directors] Article 13. Composition of the Board of Directors

Article 14. Method and Procedures for Nominating a Candidate for Director

[Supplementary Principle 4.11.2 Directors and Audit & Supervisory Board Members Concurrently Holding Positions at Other Listed Companies]

Article 20. Tenure of Outside Directors and Outside Audit & Supervisory Board Members and Their Concurrent Positions at Other Companies

The Company discloses the status of its directors and audit & supervisory board members holding important concurrent positions in other companies in the reference materials, business report and other content attached to its Notice for Convening a Shareholders Meeting.

[Supplementary Principle 4.11.3 Evaluating the Effectiveness of the Board of Directors] Article 21. Evaluating the Effectiveness of the Board of Directors

To evaluate the effectiveness of the Board of Directors during fiscal 2020, the Board of Directors met in April 2021 to analyze and evaluate their effectiveness as a whole. As an evaluation method, the outside directors as the responsible officers, had all board members and Audit & Supervisory Board members fill out a questionnaire-styleself-evaluation of the organization, functions,] and conduct of the Board of Directors, as well as the support it had received. Based on the results, follow-up interviews were conducted. As a result, it was judged that the effectiveness of the Board of Directors as a whole has been secured based on the confirmation that the Board had put in place an organization for fulfilling its function of supervising management, and that conditions within the Board contributed to discussions and exchanges of opinions in a free, uninhibited and constructive manner. Meanwhile, the Board of Directors confirmed the need to work on expanding the ratio of outside directors and ensuring the board's diversity as issues that must be addressed going forward. Looking ahead, we will continue to have discussions from various perspectives and endeavor to further improve the Board's effectiveness.

Results of the evaluation of the effectiveness of the Board of Directors have been posted on the Company's website.

https://www.espec.co.jp/english/csr/management/

[Supplementary Principle 4.14.2 Training for Directors and Audit & Supervisory Board Members]

Article 24. Training for Directors and Audit & Supervisory Board Members

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[Principle 5.1 Policy for Constructive Dialogue with Shareholders] Article 25. Dialogue with Shareholders

The Company has formulated and disclosed a separate investor relations IR policy outlining its basic stance for realizing a constructive dialogue with shareholders. https://www.espec.co.jp/english/ir/policy.html

2. Capital Structure

		Foreign Shareholding Ratio		From 10% to less than 20%
[Status of Major Shareholders] (Updated)
		Name / Company Name			Number of Shares Owned	Percentage (%)
	The Master Trust Bank of Japan, Ltd. (Trust account)		3,207,700	13.91
	ESPEC Business Partners' Stockholding Association		2,128,260	9.23
	Custody Bank of Japan, Ltd. (Trust account)		1,466,500	6.36
	Nippon Life Insurance Company		790,900	3.43
	ESPEC Employee Stockholding Association		725,799	3.14
	Mizuho Bank, Ltd.		513,500	2.22
	Yoshiki Sasaki		500,000	2.16
	TACHIBANA ELETECH CO., LTD.		419,083	1.81
	Custody Bank of Japan, Ltd. (Trust account 9)		375,100	1.62
	INABA DENKI SANGYO CO., LTD.		310,600	1.34
		Controlling Shareholder (except for Parent		-
		Company)
		Parent Company		None

Supplementary Explanation (Updated)

The Company owns 731,793 shares of treasury stock in addition to the shares mentioned above.

3. Corporate Attributes

	Listed Stock Market and Market Section			Tokyo Stock Exchange
			First Section
	Fiscal Year-End			March
	Type of Business			Electric Appliances
	Number of Employees (consolidated) as of the End			More than 1,000
	of the Previous Fiscal Year
	Sales (consolidated) as of the End of the Previous			From ¥10 billion to less than ¥100 billion
	Fiscal Year
	Number of Consolidated Subsidiaries as of the End			From 10 to less than 50
	of the Previous Fiscal Year
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1. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder
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2. Other Special Circumstances which may have Material Impact on Corporate Governance

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II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management

1. Organizational Composition and Operation

		Organization Form			Company with Audit & Supervisory Board
[Directors]
		Maximum Number of Directors	Stipulated	in	8
		Articles of Incorporation
		Term of Office Stipulated in	Articles	of
		Incorporation			1 year
		Chairperson of the Board			President
		Number of Directors			8
		Appointment of outside directors			Appointed
		Number of Outside Directors			2
		Number of Independent Directors			2

Outside Directors' Relationship with the Company (1) (Updated)

Name

Attribute

Relationship with the Company*

a

b

c

d

e

f

g

h

i

j

k

Hiroyuki Nagano

From another company

△

△

Toshiya Kosugi

From another company

△

• Categories for "Relationship with the Company"
• "○" when the director presently falls or has recently fallen under the category; "△" when the director fell under the category in the past
• "●" when a close relative of the director presently falls or has recently fallen under the category; "▲"when a close relative of the director fell under the category in the past

1. Executive of the Company or its subsidiaries
2. Non-executivedirector or executive of a parent company of the Company
3. Executive of a fellow subsidiary company of the Company
4. A party whose major client or supplier is the Company or an executive thereof
5. Major client or supplier of the listed company or an executive thereof
6. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as a director / audit & supervisory board member
7. Major shareholder of the Company (or an executive of the said major shareholder if the shareholder is a legal entity)
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h. Executive of a client or supplier company of the Company (which does not correspond to any of d, e, or f) (the director himself/herself only)

i. Executive of a company, between which and the Company outside directors/ outside audit & supervisory board member (said individual only)

j. Executive of a company or organization that receives a donation from the Company (the director himself/herself only)

k. Others

Outside Directors' Relationship with the Company (2)

				Designation			Supplementary
				as an
	Name					Explanation of			Reasons of Appointment
			independent
						the Relationship
				director
							Outside Director Hiroyuki		Outside Director Hiroyuki Nagano has
							Nagano is a professor at		acquired plenty of knowledge and
							the University of Hyogo,		experience from a career including the
							however the details were		management of Panasonic Plasma
							omitted from this report as		Display Co., Ltd. and as a professor at
							the scale and		the University of Hyogo studying
							characteristics of the		collaboration between industry and
							business and academic		academia in research and other areas.
							ties were deemed as		At the same time, he is deemed as
							posing no risk of affecting		posing no conflict of interest with the
							the independence of this		general shareholders while possessing a
							director based on the		high degree of independence from the
							Criteria for the		executive management of the Company.
				○		Independence of Outside		We therefore adjudge that he is
Hiroyuki Nagano			Officers of the Company.		sufficiently capable of carrying out his
							In addition, through the		role as outside director.
							corporate version of the
							hometown tax payment
							system, the Company
							made a donation of one
							million yen to the
							University of Hyogo's
							prefectural scholarship for
							foreign students in
							November 2019, but the
							details were omitted from
							this report as the amount
							donated was below the
							base amount.
							Outside Director Toshiya		Outside Director Toshiya Kosugi has
							Kosugi is the		acquired plenty of knowledge and
							representative employee		experience from a career that includes
							of the joint venture		the management of the joint venture
							company Truth, Human		company Truth, Human Science &
Toshiya Kosugi		○		Science & Management		Management Organization Laboratory
		Organization Laboratory		LLC, and research into the development
							LLC,, which had business		of human resources at the Graduate
							with the Company in		School of Science and Technology,
							March 2017 equivalent to		Keio University. At the same time, he is
							five hundred thousand		deemed as posing no conflict of interest
							yen, however the details		with the general shareholders while
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