Kumagai Gumi : Corporate Governance Report

This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between the English version and the Japanese original, the original version shall prevail.

Corporate Governance

Kumagai Gumi Co., Ltd.

Last Updated: June 29, 2021

Kumagai Gumi Co., Ltd.

Yasunori Sakurano, President

Contact: 03-3235-8606

Accounting Department,

Administration Division

Securities Code: 1861

https://www.kumagaigumi.co.jp/

Below is the current corporate governance framework of Kumagai Gumi Co., Ltd. (the "Company" or "Kumagai Gumi"):

1. Basic Views on Corporate Governance Practices, Capital Structure, Corporate Profile and Other General Information

1. Our Approach to Corporate Governance

Through its core construction and other business activities, Kumagai Gumi is committed to maintaining a high standard of corporate governance practices and devotes considerable efforts to identifying and formalizing the best practices.

Under a leadership structure consisting of a Board of Directors, an Audit & Supervisory Board, and Accounting Auditors, the Company strives to further enhance the effectiveness of its corporate governance. We believe that sound and effective corporate practices are fundamental to the smooth, effective and transparent operation of a company and its ability to attract investors, protect the rights of shareholders and stakeholders, and enhance shareholder value.

With respect to Directors, their term of office is stipulated as lasting one (1) year in order to clarify management responsibilities and facilitate an optimal management structure to respond proactively to changes in the business environment. The Company has adopted an Executive Officer System so that the Directors can execute their duties efficiently.

With an aim to uphold these positions with integrity, provide unbiased opinions, and protect and help ensure shareholder success, Kumagai Gumi has appointed three (3) Outside Directors to its board, who come from diverse business and professional backgrounds and have extensive experience and expertise in corporate management. The Outside Directors have shared their valuable experience with the Board in order to promote the best interests of the Company and its

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shareholders, and have contributed their skills and expertise to the Company. As a result, the Company can further enhance the supervisory function of the Board of Directors.

Regarding the nomination and remuneration of Directors and Executive Officers, a resolution shall be made to the Board of Directors with respect to the report from the Nomination and Compensation Committee, consisting of the President and Representative Director and Outside Directors.

With respect to the Audit & Supervisory Board Members, professionals who possess appropriate experience and capabilities as well as financial, accounting and legal expertise shall be appointed as Outside Audit & Supervisory Board Members, whereby the Company aims to strengthen its auditing functions.

As for the accounting audit prescribed under the Companies Act and the Financial Instruments and Exchange Act, the Company has received detailed and rigorous audits from GYOSEI & CO.

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

Kumagai Gumi is in compliance with and stringently upholds all the principles of the Corporate Governance Code. The descriptions of each item in this report are based on the Corporate Governance Code prior to its revision in June 2021.

[Disclosure Based on the Principles of Corporate Governance Code]

[Principle 1-4] (Cross Holding)

(1) Policy Concerning the Reduction of Cross Holdings

Kumagai Gumi will reduce the number of cross-held shares, except for such cases as transactions for enhancing sustainable corporate value, strengthening business alliance, and obtaining more opportunities to generate profits. With regard to the cross-held shares, the board meeting will verify the significance of holding such shares every year, and when it is decided to be of little value to hold them, the Company will sell or reduce the number of such shares.

(2) The Significance of Cross Holdings

The Company comprehensively reviews the significance of cross-held shares; whether the earnings generated by cross holdings are sufficiently beneficial in relation to their capital cost, and whether it is worthwhile to hold such shares in the daily performance of business.

(3) The Standards Regarding the Exercise of Voting Rights Associated with Cross Holdings

When exercising its cross holdings voting rights, the Company will do so by determining whether owning stock in another publicly traded company will increase the value of the corporations in which it invests, from a medium- to long-term perspective. With regard to the following issues, among others, the Company will exercise its voting rights only after deliberately examining them in relation to raising corporate value.

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• Organizational restructuring, including the merger, acquisition, transfer, and/or takeover of animportant business
• Retirement allowances to executives to be paid by an underperforming company, such as a company with excessive liabilities
• A planned third-party share issuance that may have the risk of being considered a favorable issuance
• Introduction of defensive measures against hostile corporate takeovers

[Principle 1-7](Related-Party Transactions)

With respect to related-party transactions, the Company implements appropriate procedures in line with the content and nature of the transaction, in accordance with applicable laws, regulations and internal rules, so as not to impair the common interests of the Company and shareholders, and such transactions are brought before the Board of Directors to confirm their appropriateness and economic rationality unless it is clear that the terms and conditions of such transactions are the same as those of general transactions.

In addition, the Company conducts an annual inspection in order to determine whether or not there are any related-party transactions between a Director or his/her close relative(s) and the Company.

[Principle 2-6] (Pension Funds as an Asset Owner)

The Company has introduced a defined contribution pension plan, and to ensure that the plan is properly managed, the Company will carefully select an appropriate fund management company and provide training to its participants.

[Principle 3-1] (Information Disclosure)

1. With respect to Kumagai Gumi's management philosophy, management strategies, and management plan, please see the Company's website.

[Management Philosophy]

https://www.kumagaigumi.co.jp/en/company/vision.html

[Management Strategies/Management Plan]

(Medium-term Management Plan)

https://www.kumagaigumi.co.jp/en/ir/management/strategy.html

1. With respect to our basic view on corporate governance, please see "I.1 Corporate Governance Practices" in this report. Kumagai Gumi's basic policy on corporate governance is set forth as follows:

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(a) Ensuring shareholders' rights and equality

The Company believes that protection of shareholders' rights is crucial and strives to maintain an environment where such rights can be appropriately exercised, and gives utmost consideration to the substantive equality of shareholders.

(b) Appropriate collaboration with all stakeholders

The Company strives to collaborate appropriately with all stakeholders, respect their rights and status, and give rise to a corporate culture and climate that allows for the sound operation of business.

(c) Appropriate information disclosure and ensuring transparency

In order to earn the trust of and obtain positive evaluations from stakeholders, the Company strives to ensure the proactive and appropriate disclosure of information and the transparency of corporate management.

(d) Duties and Responsibilities of the Board of Directors

The Board of Directors of the Company will fulfill its duties and responsibilities accordingly to create an environment that supports risk-taking when necessary in actively pursuing sustainable growth and to increase medium- to long-term corporate value.

(e) Communication with shareholders

For the purposes of sustainable growth and the increase of medium- to long-term corporate value, the Company strives to engage in constructive and proactive communication with shareholders.

1. Please see [Director Compensation] of "II.1. Organizational Structure and Operations" in this report for the compensation of directors and senior executives.
2. The candidates for senior executives, including the President and Directors, are carefully examined and selected by the Board of Directors upon nomination by the President based on the report by the Nomination and Compensation Committee. The candidates for Audit & Supervisory Board Members are also carefully examined by the Board of Directors, based on the comments and opinions of the Audit & Supervisory Board upon nomination by the President. In choosing such candidates, the President carefully reviews their qualifications and qualities after considering whether such candidates have the knowledge, experience, and ability to perform the duties required for their roles in light of the professional and personal history of each candidate.

With regard to senior executives, including the President, in case there is a report by the Nomination and Compensation Committee that decides a senior executive falls under the dismissal criteria stipulated by the Board of Directors, the Board will examine and determine carefully as to whether it should dismiss the individual in question.

1. With respect to the Directors and the Audit & Supervisory Board Members, each candidate's professional career and personal history as well as the reasons for his or her appointment are disclosed in the convocation notice of an ordinary general meeting of shareholders.

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[Supplementary Principle 4-1-1] (Outline of the scope of the matters delegated to the management)

The Company has established the Rules of Board of Directors, and the matters stipulated in the laws and regulations and the Articles of Incorporation, and the matters that are material to the business execution are determined by the Board of Directors' resolutions. The Board of Directors has set forth the matters to be reported on the status of the business execution by the management under the Rules of Board of Directors, and strives to supervise such execution.

[Principle 4-9] (Criteria for determining independence of independent Outside Directors)

The Company has selected independent Outside Directors from business managers, academic experts, and lawyers, expecting them to bring their abundant experience and extensive knowledge from their past achievements in the management of the Company. The Company determines that any person who falls under the following criteria, in addition to the Independence Standards prescribed by the Tokyo Stock Exchange, is not independent.

[Company's Criteria for Determination of Independence]

1. A person who currently falls under any of (a) through (d) below:
2. 1. a major shareholder of the Company (a shareholder holding 10% or more of the voting rights in the Company) or a person who executes the business thereof;
   2. a person/entity whose annual business amount with the Company is over 2% of the respective consolidated total sales of the Company and such person/entity for their respective most recent fiscal years or a person who executes the business thereof;
   3. a person/entity who has received donations from the Company in the amount of JPY 10 million or more on average for the past three (3) fiscal years or a person who executes the business thereof; or
   4. a legal professional, an accounting professional, a consultant or a person belonging to any of such association who has received cash or other economic benefits from the Company, except for officer compensation, in the amount of JPY 10 million or more on average for the past three (3) fiscal years; or
3. A person who has fallen under any of (a) through (d) above at any time during the past three (3) years.

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