Komatsu : > Interview with the outside directors, Corporate governance, Risk management

4 Corporate governance

4

Corporate governance

To become a company that enjoys more trust from all stakeholders, Komatsu is working to strengthen corporate governance, improve management efficiency, advocate corporate ethics, and ensure sound management on a Groupwide basis. To further improve the transparency of management for its shareholders and investors, the Company discloses information in a fair and timely manner and actively engages in investor relations activities by holding meetings with shareholders and investors.

Contents

1. Interview with the outside directors

1. Corporate governance

1. Risk management

1. Directors and audit & supervisory board members

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4 Corporate governance

Interview with the outside directors

Special interview

Special interview

Toward medium- and long-term improvement of Komatsu group's corporate value

Q Two years have passed since your appointment as an Outside Director at Komatsu. What is your current impression of the management and the Board of Directors?

I believe that some of the most important aspects of corporate management include the formulation of proactive strategies that are always a step ahead of the times and the implementation of finely tuned measures at the workplace level in order to facilitate the advancement of said strategies. It is also crucial to combine the elements of what cannot change such as its corporate phi- losophy, and what can change in order to evolve its business models adapting properly to trends in the operating environment.

Komatsu, for example, is promoting cutting-edge solutions, like Smart Construction, while remaining true to its Management Principle by upholding its commitment to quality and reliability. The Company has also unveiled its roadmap for achieving carbon neutrality by 2050. I am convinced that the Company is making steady steps forward toward more effective corporate management.

As for meetings of Komatsu's Board of Directors, I think they feature an atmosphere that is conducive to expressing one's opinion, which lends itself to lively discussion. Each meeting includes a report from the President on recent management issues and topics of interest. These reports make it easy for Outside Directors to maintain an up-to-date understanding of the issues faced by management, and this understanding enables effective discussions at meetings. The Company also prepares videos to brief us prior to Board meet- ings, ensuring that we can devote sufficient time to

Takeshi Kunibe

Outside Director

discussions on the days of meetings. All in all, I believe Board meetings are functioning at a very effective level.

Q Was there anything in particular about the discussions regarding the mid-term management plan that took place in FY2021 that stood out to you?

Discussions were held for each step in formulating the new mid-term management plan, and we were thus able to engage in lively debate on the ESG issues extracted from a materiality assessment of the Company. Now is a particularly volatile time. Accordingly, I used my position as Outside Director to participate in the planning of strategies by pointing out issues regarding responses to changes in the operating environment and how, as well as how effectively, Komatsu competes.

Komatsu's mid-term management plan was shaped through a backcasting process that began with a clear vision of the goals for the plan. This, I believe, is a highly effective approach given the current uncertain business environment. Moreover, the plan lays out a clear direction for strategies aimed at pursuing innovation in both products, such as developing automatic and autonomous construction and mining equipment, as well as in solutions, through which the Company aims to achieve the overall optimization of workplace processes.

I look forward to seeing Komatsu achieve sustainable growth by advancing the three pillars of growth strategies as envisioned. M&A activities will be a critical aspect of these strategies. It will become increasingly important for the Board of Directors to continue to discuss the business portfolio illustrated by the new mid-term management plan in order to maximize corporate value.

Q Do you see any challenges that Komatsu faces with regard to risk management?

Risks are inevitable for a company. As such, it is imperative for managers to heighten their receptiveness toward risks so that they can better detect risks and formulate response measures. From my supervisory standpoint as an Outside Director, I look at whether or not the executive team is responding flexibly to changes in the operating environment and swiftly and steadily implementing the necessary measures. I also pay attention to management's ability to react to irregular occurrences through diligent discussion and quick and effective response measures. I think that, going forward, the Company will need to call

upon the expertise and insights of Outside Directors and Outside Audit & Supervisory Board Members to project future developments and discuss how they will impact the growth potential and competitiveness of the Company from a cross-business perspective. Specific factors that need to be considered are important management themes, like global operating environment changes and geopolitical risks.

Q What are your opinions regarding the effectiveness of Komatsu's Board of Directors?

I have not had the experience of being involved in the management of a manufacturer previously. Nevertheless, my understanding of Komatsu's businesses has grown during my first year as an Outside Director, thanks to the briefings on agenda items provided prior to Board meetings, which have included explanations on the sales channels and markets that are required to understand the matter at hand.

Komatsu's Board of Directors features members with a wide variety of backgrounds, and discussions are quite lively. I have a unique perspective on the Board as someone not from Japan, and I can provide this perspective along with the experience and insight as an attorney I have gained inside and outside of Japan to offer frank opinions and comments. In terms of proceedings, we receive quarterly updates on the status of implementation and progress of each resolution made by the Board of Directors. We are also informed of any issues that should arise. As such, I see no major issues with regard to the effectiveness of the Board of Directors.

If I were to raise an issue, it would be with the business reports received at Board meetings. These reports are indeed thorough and detailed, but perhaps they are too detailed in the sense that they do not account for the information gap between Outside Directors and internal members of the Company. I therefore see room for improvement with regard to discussions of overall directives at Board meetings. Specifically, I think that the themes selected could be better focused and the structure of materials more refined, while still reflecting the outcomes of prior discussions among internal members. I see this as one area to further improve the effectiveness of the Board.

Q What are your thoughts regarding sustainability and corporate governance?

We talked about sustainability quite a lot last year. I also had the opportunity to provide lectures to Executive Officers on the subject of sustainability governance. My definition of "sus- tainability governance" is a structure or system that involves positioning sustainability at the heart of all corporate activities. Promoting sustainability governance entails linking a clear vision and frameworks, like ESG for example, to corporate activities, setting initiative targets and KPIs accordingly, and reflecting these in Director compensation.

Moreover, Komatsu established its Sustainability Policy in 2021. This policy, which is designed to contribute to the realization of a sustainable society and facilitate business growth, was decided via resolution by the Board of Directors. In addi- tion, the current mid-term management plan contains the new and challenging goal of achieving carbon neutrality by 2050, which complements the prior management target of reducing

Arthur M. Mitchell

Outside Director

CO2 emissions by 50% compared with 2010 by 2030. Furthermore, the plan links the compensation of Directors to the degree of accomplishment of management targets. In this manner, the Company has been effectively developing frameworks centered on sustainability. I hope to see Komatsu working to form organic links between these initiatives in the future.

Q What issues do you think Komatsu might face in practicing sustainability management?

As exemplified in the TCFD's recommendations for climate change-related disclosure, there are growing expectations with regard to disclosure of information on ESG activities. At the same time, however, the atmosphere overseas is such that, depending on how this disclosure is performed, it could result in accusations of "greenwashing" from external organizations, which carries with it the risk of lawsuits. For this reason, it is important for Outside Directors to act with the same level of responsibility as internal officers when discussing sustainability management.

Given this reality, it is crucial for the KPIs put forth by companies to be meaningful, material, and measurable. The Board of Directors, meanwhile, will need to highlight the gap between Komatsu's targets and the reality of its ESG initiatives and to verify the measures being implemented to close this gap. Moreover, I think the Company should study new frameworks, such as OKR (Objectives and Key Results), a goal-setting framework to encourage ambitious targets for pursuing sustainable growth through innovation. The Board should also discuss strategies for minimizing risks in the current volatile market.

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Corporate governance

Basic views on corporate governance

4 Corporate governance

Corporate governance reforms

To become a company which enjoys more trust from all stakeholders, the Company is working to strengthen corporate gover- nance, improve management efficiency, advocate corporate ethics, and ensure sound management on a group-wide basis. To further improve the transparency of management for its shareholders and investors, the Company discloses information in a fair and timely manner and actively engages in investor relations activities by holding meetings with shareholders and investors.

Corporate governance framework

The Company has proceeded to implement reforms to its corporate governance system in order to ensure effective and adequate performance of matters related to decision-making, management and supervision, such as separation of corporate management from business execution, enhancement of corporate management decision-making by the Board of Directors, strict management and supervision of business execution, measures undertaken by Outside Directors to improve transparency and objectivity of management, and measures undertaken by the Audit & Supervisory Board to appropriately audit

Directors' execution of duties. As a means to supplement executive functions, the Company established the International Advisory Board (IAB) in 1995. Through the IAB, the Company aims to secure objective advice and suggestions from experts from Japan and abroad about how to function as a global company by exchanging opinions and holding discussions. Going forward, the Company will pursue increases to the effectiveness of the Board of Directors while appointing Outside Directors to ensure transparency and soundness and promoting openness and accountability in management.

At the Company, the Board of Directors is positioned as the core of corporate governance, and to improve the effectiveness of discussions at meetings of the Board of Directors, the Company has worked to put in place a system to ensure thorough discussions of important management matters and prompt decision-making, and reform their operational aspect. Having introduced the Executive Officer (Shikko Yakuin)

Corporate governance of the company (As of June 30, 2022)

System in 1999, the Company has separated management decision-making and supervisory functions from executive functions to the extent permitted by laws and regulations, and while appointing both Outside Directors and Outside Audit & Supervisory Board Members, limits the Board of Directors to a small number of members.

Board of directors

28 members	1999:	2003:	2005:	2017:	2021:
8 members	8 members	10 members	8 members	9 members
(0 Outside Directors)
	(1 Outside Director)	(2 Outside Directors)	(3 Outside Directors)	(3 Outside Directors)	(4 Outside Directors)

Audit & supervisory board

3 members	1994:	2006:
Supervisory Board	4 members	5 members
(1 Outside Audit &		(3 Outside Audit & Supervisory Board Members)
Member)	(2 Outside Audit & Supervisory Board Members)

		General Meeting of Shareholders
	Elect / Discharge			Elect / Discharge		Elect / Discharge
	Audit &	Audit			Audit reports	Accounting Auditors
Supervisory Board
Office of				(Audit corporation)
(Standing 2 / Outside 3)	Board of Directors
Corporate
	Auditors' Staff	(Standing 5 /	Recommend	Nomination Advisory
Collaboration	Advise /		Outside 4)
			Committee
Audit	International	Suggest				Compensation Advisory
			Recommend
	Advisory Board	Elect / Discharge /	Committee
			Supervise	Report /
				Submission

Other organizations and systems

Organization / System	Establishment	Overview
		The Nomination Advisory Committee discusses matters related to the nomination of candidates for
Nomination Advisory		positions as Directors and Audit & Supervisory Board Members and the appointment and dismissal
2015	of the President and other executive officers and reports the results of these discussions to the
Committee	Board of Directors.
		Current members: Four Outside Directors, including the chairperson; Chairman of the Board; and
		President
		The Compensation Advisory Committee is responsible for discussing policies and levels for com-
Compensation Advisory		pensation of Directors and Audit & Supervisory Board Members and reporting the results of these
1999	discussions to the Board of Directors and the Audit & Supervisory Board.
Committee
	Current members: Four Outside Directors, including the chairperson; three Outside Audit &
		Supervisory Board Members; one external expert; and one internal member

Executive Functions

President and CEO Internal Auditing

Dept.

Strategy Review

Committee

Komatsu Group's Global Operations

Internal auditExecutive Officers and Global Officers 60  • Japan 33

 • Global 27 (including 19 foreign nationals)

Collaboration

Major Committees

Product Safety Committee

Compliance Committee

Risk Management Committee

Export Control Committee

Sustainability Promotion

Committee

Disclosure Committee

International		The International Advisory Board was established with the purpose of incorporating the objective
1995	advice and suggestions of external experts on the management and corporate activities expected of a
Advisory Board
	global company into the discussions of the Board of Directors.
Executive Officer		An Executive Officer (Shikko Yakuin) System was introduced in 1999 to separate supervisory
1999	functions from executive functions. This system has enabled the Company to limit the Board of
System
	Directors to a small number of members.
Global Officers	2016	Global officers are appointed to senior management positions at major overseas subsidiaries to
facilitate the consolidated management of the Komatsu Group.

Composition of directors and audit & supervisory board members (As of June 30, 2022)

Outside	Internal	Outside		Internal
4	5	3	Audit &	2

Decide on the details of the items including election and discharge / Confirm suitability or independency of the Accounting Auditors

Recommend Audit reports

		Directors				Supervisory
Of whom,			Of whom,	Board
non-Japanese 1				women 1	Members
Of whom,
women 1

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Corporate governance

Activities of the board of directors

4 Corporate governance

materials, minutes, other information of the Board of Directors	database which houses materials and minutes of the Board of
and other major committee meetings in the past. This data-	the Audit & Supervisory Board in the past. This database can

The Company holds Board of Directors' meetings periodically, at least once every month. The Board of Directors deliberates and makes resolutions on important matters, determines management policies of Komatsu, and rigorously controls and supervises the execution of duties by all members of the executive management team including Representative Directors. Of the nine (9) Directors on the Board, four (4) are Outside Directors to ensure transparent and objective management.

Outside Directors and Outside Audit & Supervisory Board Members held meetings at which these outside officers shared opinions regarding management issues from their objective and independent standpoints. Discussions with the President were also arranged to foster shared recognition.

Characteristics of Komatsu's board of directors

• Monthly reports from the CEO (recent important items and other topics)
• Monthly reports from the CFO (performance, order trends, borrowings, etc.)
• Annual proposal plans and follow-up
• Multiple discussions on important items (deliberation → resolution)
• Business reports to Board of Directors covering nearly 100% of sales generating activities
• Proactive expression of opinions by Audit & Supervisory Board Members in addition to Directors
• Opportunities for free discussion at Board of Directors meetings

Board of directors' meeting attendance and agenda item Numbers in FY2021 (April 1, 2021-March 31, 2022)

Attendance	Outside Directors	100%
Outside Audit & Supervisory Board Members	100%
Agenda item numbers	Reports	37
Deliberations, Resolutions	42
Free discussion		3 times

base can be accessed by all members of the Board of	be accessed by all members of the Board of the Audit &
Directors and the Audit & Supervisory Board Members, includ-	Supervisory Board Members, including Outside Members.
ing Outside Members. The Company has also built the

Major activities of outside directors and outside audit & supervisory board members in FY2021

Outside directors

Makoto Kigawa	Mr. Makoto Kigawa previously served as Representative Director at both Yamato Holdings Co., Ltd. and Yamato Transport Co.,	Attendance at the Meetings
Ltd. He has been actively expressing a wide range of opinions at the meetings of the Board of Directors, mainly from the	Meeting of the Board of
Major career	standpoint of appropriately monitoring the management strategies of the Company and contributing to the enhancement of the	Directors 100%
Representative Director at both	Company's medium- and long-term corporate value. During FY2021, he provided comments based on his rich experience in the	(15 meetings out of the
Yamato Holdings Co., Ltd. and	business world, particularly concerning such issues as supply chain optimization, solutions businesses, and risk management.	15 meetings held)
He also served as Chairman of the Company's Nomination Advisory Committee and the Compensation Advisory Committee.
Yamato Transport Co., Ltd.
Takeshi Kunibe	Mr. Takeshi Kunibe has served as Representative Director, President of Sumitomo Mitsui Banking Corporation and	Attendance at the Meetings
Representative Director and President as well as Director President and Representative Executive Officer of Sumitomo Mitsui	Meeting of the Board of
Major career	Financial Group, Inc., and serves as Chairman of the Board of both companies. He has been actively expressing a wide range of	Directors 100%
Representative Director of Sumitomo	opinions at the meetings of the Board of Directors, mainly from the standpoint of contributing to sustaining and improving	(15 meetings out of the
transparency and soundness of management as well as enhancing corporate governance. During FY2021, he provided	15 meetings held)
Mitsui Financial Group, Inc.	comments based on his rich experience in the business world, particularly concerning such issues as climate change

Evaluation of the effectiveness of the board of directors

The Company is working to improve the effectiveness of the Board of Directors and performs annual evaluations and analyses of the effectiveness of the Board of Directors for this reason.

Evaluation process

					2 Collection of questionnaire			3 Discussion among Outside			4 Report of discussion results,
	1 Survey			responses from all Directors and			Directors and Outside Audit &			evaluation and analysis of effec-
					Supervisory Board			tiveness, and discussion of the
					Audit & Supervisory			Members based on			matters for improvement at Board
					Board Members			questionnaire responses			of Directors' meetings
	Survey topics:	• Composition of the Board of Directors		• Reporting, explanations, information provision,		• Role and functions of the Board of Directors
	• Agenda setting		• Discussions		• Self-evaluations
				and follow-up activities

Outline of the results

Representative Executive Officer of	response, the mid-term management plan, and economic security measures. In addition, he was a member of the Company's
Sumitomo Mitsui Banking Corporation	Nomination Advisory Committee and the Compensation Advisory Committee.
Arthur M. Mitchell	Mr. Arthur M. Mitchell has worked for many years as a New York state attorney and foreign law attorney in Japan. He has been	Attendance at the Meetings
actively expressing a wide range of opinions at the meetings of the Board of Directors, mainly from the standpoint of mitigating and	Meeting of the Board of
Major career	avoiding risk in the Company's global business operations and contributing to the enhancement of the Company's medium- and	Directors 100%
Registed foreign lawyer of White &	long-term corporate value. During FY2021, he accordingly provided comments based on his international perspective and	(15 meetings out of the
Case LLP	professional standpoint, particularly concerning such issues as business alliance strategy, data-related legal compliance, and	15 meetings held)
initiatives geared to the North American market. In addition, he was a member of the Company's Nomination Advisory Committee
	and the Compensation Advisory Committee.
Naoko Saiki	Ms. Naoko Saiki has considerable knowledge and abundant experience in international affairs, international law, and the field of	Attendance at the Meetings
economics as she served in positions such as Director-General of the Economic Affairs Bureau and Director-General of the	Meeting of the Board of
Major career	International Legal Affairs Bureau at the Ministry of Foreign Affairs. She has been actively expressing a wide range of opinions at	Directors 100%
Director-General, Economic Affairs	the meetings of the Board of Directors, mainly from the standpoint of contributing to the enhancement of the Company's	(11 meetings out of the
Bureau and International Legal Affairs	medium- and long-term corporate value. During FY2021, she provided comments based on her international perspective and	11 meetings held)
professional standpoint, particularly concerning such issues as country risks, evaluation indicators for the mid-term management
Bureau, Ministry of Foreign Affairs	plan, and frameworks regarding subsidiaries. In addition, she was a member of the Company's Nomination Advisory Committee
	and the Compensation Advisory Committee.

Note: As Outside Director, Naoko Saiki was appointed at the 152nd Ordinary General Meeting of Shareholders held in June 2021, and her maximum number of meetings of attendance is different from that of the other Directors.

Outside audit & supervisory board members

Hirohide Yamaguchi	Mr. Hirohide Yamaguchi previously served as Deputy Governor of the Bank of Japan.	Attendance at the Meetings
During FY2021, based on his professional standpoint, he provided comments at the	Meeting of the Board of Directors 100%
Major career	meetings of the Board of Directors and the Audit & Supervisory Board concerning such	(15 meetings out of the 15 meetings held)
Deputy Governor of the Bank of Japan	issues as the status of the global economy, coordination with accounting auditors, and	Meeting of the Audit & Supervisory Board 100%

The assessment shows a generally high level of achievement for each item and confirms that there were no serious problems concerning the effectiveness. The assessment shows a generally high level of achievement for each item and confirms that there were no serious problems concerning the effectiveness. The Company received positive evaluations of the efforts made to improve the management of the Board of Directors in FY2021 in the following aspects of (1) set-up of Groupwide themes, (2) improvement of questions and answers by reporting clearly defined issues, and (3) adoption of explanatory video presentations before Board meetings.

With respect to the conducting of Board meetings, there were a few suggestions for improvement. These included how to expand discussions of strategic, individual themes designed to improve corporate value; how business executions should be reported to contribute to advice, audits, and supervision of Directors and Auditors; and the promotion of dialogues between the Board of Directors and its stakeholders. The Company will implement such improvements to make the Board of Directors further effective in the future.

	compliance systems. In addition, he was a member of the Company's Compensation	(15 meetings out of the 15 meetings held)
	Advisory Committee.
Eiko Shinotsuka	Ms. Eiko Shinotsuka possesses wide-ranging knowledge and experience in fields such as	Attendance at the Meetings
economics, labor relations, and law. During FY2021, based on her professional standpoint,	Meeting of the Board of Directors 100%
Major career	she provided comments at the meetings of the Board of Directors and the Audit &	(15 meetings out of the 15 meetings held)
Professor Emeritus, Ochanomizu University,	Supervisory Board concerning such issues as safety management systems, operational	Meeting of the Audit & Supervisory Board 100%
Commissioner, National Personnel Authority,	audits, and human resource recruitment and diversity. In addition, she was a member of the	(15 meetings out of the 15 meetings held)
Member of the Bank of Japan's Policy Board	Company's Compensation Advisory Committee.
Kotaro Ohno	Mr. Kotaro Ohno possesses rich experience in the legal profession. During FY2021,	Attendance at the Meetings
based on his professional standpoint, he provided comments at the meetings of the	Meeting of the Board of Directors 100%
Major career	Board of Directors and the Audit & Supervisory Board concerning such issues as global	(15 meetings out of the 15 meetings held)
Prosecutor-General, Special Counsel,	oversight systems, human resource recruitment and utilization, and internal control	Meeting of the Audit & Supervisory Board 100%
systems. In addition, he was a member of the Company's Compensation Advisory
Mori Hamada & Matsumoto	Committee and an observer of the Compliance Committee.	(15 meetings out of the 15 meetings held)

Supporting system for outside directors and audit & supervisory board members

Introduction of new outside director and outside audit & supervisory board member

As general rule, the Company provides materials for Board of Directors to Outside Directors and Outside Audit & Supervisory Board Members in advance of the meetings so that they have sufficient time to review the matters that are to be discussed. With respect to matters that may be of particular importance, the Board of Directors discusses them at the Board of Directors prior to the Board of Directors where such matters are scheduled for resolution. In this manner, the Company ensures that the Directors have sufficient time to review the matters before decisions are

made and that they will have an opportunity to consider the points noted in earlier discussions before deciding upon such matters.

For newly appointed Outside Directors and Outside Audit & Supervisory Board Members, the concerned departments conducts explanatory meetings concerning the information requiring decision-making by the Board of Directors, as needed. Such meetings are attended by the Secretariat of the Board of Directors and held prior to Board of Director meetings.

The Company has built the database which houses

The following new Outside Director and Outside Audit & Supervisory Board Member were appointed at the Ordinary General Meeting of Shareholders held in June 2022.

Outside director	Mr. Michitaka Sawada has considerable knowledge and abundant experience in the business world having engaged in the management
Michitaka Sawada	Director, Chair of Kao Corporation.
	of global conglomerates and ESG management in positions such as Representative Director, President and Chief Executive Officer and
Major career	Utilizing this knowledge and experience, his recommendations concerning the overall management of the Company are expected to
Representative Director,	contribute to the enhancement of the Company's medium- and long-term corporate value. Therefore, the Company nominates him as a
President and Chief Executive Officer of Kao Corporation	candidate for Outside Director.
Outside audit & supervisory board member	Mr. Tatsuro Kosaka has considerable knowledge and abundant experience in the business world having engaged in global corporate
Tatsuro Kosaka	Pharmaceutical Co., Ltd.
	management in positions such as Representative Director, President & CEO and Representative Director, Chairman & CEO of Chugai
Major career	Utilizing this knowledge and experience, the Company expects him to execute his duties as an Outside Audit & Supervisory Board
Representative Director, President &	Member by performing managerial oversight from the perspective of a corporate manager. Therefore, the Company nominates him as a
CEO of Chugai Pharmaceutical Co., Ltd.	candidate for Outside Audit & Supervisory Board Member.

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Corporate governance

Activities of advisory committees

4 Corporate governance

Remuneration systems

Committee name	Nomination advisory committee	Compensation advisory committee
Chairman	Outside Director (Takeshi Kunibe)	Outside Director (Takeshi Kunibe)
	4 Outside Directors	4 Outside Directors (Takeshi Kunibe, Arthur M. Mitchell,
	Naoko Saiki, Michitaka Sawada)
Members	(Takeshi Kunibe, Arthur M. Mitchell, Naoko Saiki,	3 Outside Audit & Supervisory Board Members
Michitaka Sawada)	(Eiko Shinotsuka, Kotaro Ohno, Tatsuro Kosaka)
(As of June 30, 2022)
Chairman of the Board	1 external expert (Shinji Hatta, Honorary Professor,
	President	Aoyama Gakuin University)
		Chairman of the Board
	Deliberation, resolution, and reporting to the Board of	Deliberation, resolution, and reporting to the Board of
	Directors and Audit & Supervisory Board on remuneration
Purpose	Directors on selection of the next President and human
systems for Directors, Audit & Supervisory Board
resource development methods, succession plans, and
	Members, and Executive Officers to ensure objectivity
	appointment and dismissal of Directors
	and transparency
Meetings in FY2021	5	1
	• Selection and cultivation of candidates for the next
	President	• Monthly compensation levels for Directors and Audit &
	• Selection of a new Outside Director and audit & supervi-
	Supervisory Board Members in FY2022
Agenda items	sory board member candidate
• Performance-based remuneration for Directors for
• Outside Director positions held at other companies by
in FY2021	FY2021 (projections)
Chairman of the Board
	• Evaluation indicators for performance-based remunera-
	• Skill matrix for Board of Directors
	tion in FY2022, etc.
	• Proposal of Directors and Audit & Supervisory Board

In an effort to maintain an objective and transparent remuneration system, the policy and levels of remuneration for Directors and Audit & Supervisory Board Members of the Company are deliberated by the Compensation Advisory Committee. Taking its reports and recommendations into consideration, the remuneration for Directors is determined by the Board of Directors, and the remuneration for Audit & Supervisory Board Members is determined by discussions by the Audit & Supervisory Board Members, respectively, within the range previously determined by resolution of the General Meeting of Shareholders. With regard to the level of monthly remuneration paid as basic remu- neration, comparison by position at other key, globally active manufacturers in Japan is made by the Compensation Advisory Committee and is reflected in its reports and recommendations.

The remuneration for Directors excluding the Outside Directors (hereinafter "Internal Directors") comprises basic remuneration (fixed remuneration) and performance-based remuneration linked to the Company's consolidated

performance for a single fiscal year (bonus in cash and the Stock-Based Remuneration A) as well as the performance- based remuneration (Stock-Based Remuneration B) that will reflect the degree of achievement of the targets raised in the mid-term management plan, so that it will further contribute to the enhancement of the medium- and long-term corporate value of the Company, by linking the remuneration.

The remuneration for Outside Directors only consists of basic remuneration (fixed remuneration) designed to support their role to make recommendations with respect to the overall management of the Company as a member of the Board of Directors. Furthermore, the remuneration for Audit & Supervisory Board Members only consists of basic remuneration (fixed remuneration) designed to support their independent position with authority to audit the execution of duties by Directors without getting fettered by the movements of corporate performance of the Company. The retirement allowance system for Directors and Audit & Supervisory Board Members was terminated as of June 2007.

Members for FY2022, etc.

Succession plans

Composition of remuneration of directors and audit & supervisory board members

			Performance-Based
	Basic Remuneration	Performance-Based Remuneration for a Single Year	Remuneration Linked to
	Performance of Mid-term
Internal	(Fixed Remuneration)	(Monthly remuneration 0-24 months)
management plan (Monthly
Directors			remuneration 0-3 months)

One of the items contained in the Code of Conduct for Leadership / Top Management that has been described in The Komatsu Way since its establishment in 2006 is "continue to think about your succession plan."

In order to ensure that Komatsu's management values are transmitted to the next generation, the basic requirements for candidates for the position of President are discussed and clearly defined by the Nomination Advisory Committee. In

Overview of succession plans

addition, successors for important domestic and overseas positions up to and including that of the President are decided through the annual implementation of succession plans (see chart below).

Selected candidates are assigned to challenging tasks and granted even larger roles in the organization to systematically develop them in an environment that encourages the pursuit of mutual growth.

	Monthly remuneration x	Bonus in Cash (2/3, in principle)*	Stock-Based Remuneration A	Stock-Based Remuneration B
	12 months	(1/3, in principle) Restricted Stock	Restricted Stock
Outside	Basic Remuneration	Not influenced by Company performance
Directors and	(Fixed Remuneration)
Audit &	Monthly remuneration x
Supervisory
Board Members	12 months

* The upper limit for Bonus in Cash is set at 12 months' worth of monthly remuneration; the remainder of bonuses is to be paid as Stock-Based Remuneration A.

Results Feedback

Succession Plans	Evaluation and Selection of	Human Resource Relocations and
Successors	Cultivation

	Oversight of Implementation Process
	Board of Directors
	Nomination Advisory Committee
Key Points for Cultivating	1. Foster willpower necessary to overcome challenges by having candidates experience extremely
Leadership/Top	difficult situations
2. Nurture organizational operation capabilities needed to unite parties with differing interests
Management Successors
3. Cultivate compliance awareness to prevent misconduct

Performance-based remuneration linked to performance of Mid-term management plan

The Company will pay Internal Directors the equivalent of a three-month portion of monthly remuneration every fiscal year as remuneration linked to the period of the Company's mid-term management plan by granting restricted stock as stock-based remuneration (Stock-Based Remuneration B). In deciding Stock-Based Remuneration B, after the expiry of the period of the mid- term management plan, the number of shares on which to lift transfer restrictions (within a range of 0%-100%) will be decided based on the achievement of the management targets of the mid-term management plan presented in the above table and as a general rule; the restriction of transfer on the shares will be lifted after three years from delivery.

Malus and clawback system

The Company resolved on Malus (reduction / confiscation) and Clawback (return) system at the meeting of the Board of Directors held in April 2022. In the event of a significant revision of financial statements or an event that has a significant impact on the reputation of the Company due to the execution of business by Directors, the performance-based remuneration paid to the Internal Directors could be required to be reduced, confiscated, or refunded. In principle, the content of the refund request, etc. will be decided by the Board of Directors after deliberation by the Compensation Advisory Committee according to each event.

WEB The Company adopted all principles of Japan's Corporate Governance Code after its June 2021 revision.

https://www.komatsu.jp/en/-/media/home/ir/corporate-governance/cgr_en.pdf?rev=30c1c9376d714556bf1e8499edc483eb& hash=74B4E3CB68D8D237C24B4F16B5914A07

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Komatsu Report 2022

Komatsu Report 2022

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