Sanwa : Corporate Governance Report（June 24, 2022 ）

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Corporate Governance Report

Last Updated: June 24, 2022

Sanwa Holdings Corporation

Representative Director, President, Yasushi Takayama Contact: General Manager of General Affairs Department, Hiroyuki Yoshitake Securities Code: 5929 https://www.sanwa-hldgs.co.jp/english/

The corporate governance of Sanwa Holdings Corporation (the "Company") is described below.

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

1. Basic Views

As a global access systems company that is developing business in regions in the U.S., Europe and Asia as well as in Japan, the Company aims to continue growing and improving corporate value, and also to contribute to the sustainable development of society through good faith and fair business activities on the basis of the Company's "Mission," "Our Values," "Principles of Business" and "Compliance Code of Conduct." To forms its foundation, the Company makes efforts to build highly transparent Group management while positioning corporate governance as an important management issue.

The Sanwa Group is committed to offering products and services that provide safety, security and convenience to further contribute to the prosperity of society.

To deliver products and services to satisfy all customers.

To become a true global player and be highly valued in each market in the world.

To bring together the creativity of each individual in a team environment for the enhancement of corporate value.

• We implement business activities with appreciation and sincerity to increase our customers' trust.
• We produce products with good quality and reasonable cost meeting domestic and overseas needs and establish the leading brand.
• We forecast our customers' future needs and always try to improve the technical level and productivity in every division.
• We comply with the rules and make our workplace friendly, open, challenging, and rewarding.
• We are driven by inspiration, strive to achieve our high level goals, recognize our roles and responsibilities, and contribute to the creation of corporate value.

• The Sanwa Group must conduct company activities with top priority placed on the safety of the products and services that we provide.
• The Sanwa Group will not seek profit through actions that violate the Compliance Code of Conduct.
• All management personnel and supervisors of the Sanwa Group will take the lead in observing the Compliance Code of Conduct, and will act in such a way as to be a good example for the staff under them.

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[Reasons for Non-compliance with the Principles of Japan's Corporate Governance Code] [Updated]

The Company has implemented each principle of Japan's Corporate Governance Code. In addition, this report is based on the revised code (including the content for the Prime Market).

[Disclosure Based on the Principles of Japan's Corporate Governance Code] [Updated]

Principle 1.3 Basic Strategy for Capital Policy

In our capital policy, we place importance on improving capital efficiency after having secured financial stability. Our basic approach is to maintain a balance between these two elements while increasing corporate value in the medium to long term by making optimal investments and providing returns to shareholders.

To realize Sanwa Global Vision 2030, which is the Company's Long-Term Vision, and Mid-Term Management Plan 2024, we will pursue our capital policy, etc. while placing top priority on strategic growth investments.

1. Composition of capital and liabilities
2. 1. Our policy is to maintain the shareholders' equity ratio at 40% or higher.
   2. We will strive to maintain a debt structure that does not harm the Company's financial soundness.
3. Investments
4. 1. Capital investments
      In principle, we make capital investments necessary for maintaining and continuing existing businesses within the range of depreciation.
   2. M&A, business tie-ups and other investments
      We preferentially consider investments in core businesses and in related fields that can be expected to grow into core businesses in the future.
5. Shareholder returns
6. 1. Our target payout ratio is 40% of consolidated profit (Profit attributable to owners of the parent company).
   2. We give preference to the type of investments listed above, but will consider repurchasing the Company's own shares if there are no substantial cash outflows related to such investments.

Principle 1.4 Shares Held as Cross-Shareholdings

In certain cases, we purchase and hold the shares of business partners to build good relationships with them and to increase the Company's corporate value from a medium- to long-term perspective through maintenance of smooth business transactions.

For cross-shareholdings of listed companies, the Board of Directors considers the relevance of aspects such as the holding benefits (dividends received and business transaction benefits) and capital cost against the acquisition price (WACC is set at 6%) for each share. For stocks that are no longer needed, the Board of Directors will quickly discuss selling them.

The Company exercises its voting rights related to cross-shareholdings in accordance with the following standard:

The Company shall exercise its voting rights based on a comprehensive judgment regarding whether the proposal will contribute to the sustainable growth of the issuer of shares, and whether it will contribute to the maintenance and enhancement of the corporate value of the Company, among other matters.

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Principle 1.7 Related Party Transactions

If the Company conducts significant transactions with officers of the Company, it shall obtain the approval of the Board of Directors in advance and report on the results.

When the Company conducts large transactions, it must obtain the approval of the Board of Directors based on internal decision-making regulations. Transactions with major shareholders or other related parties are examined for their appropriateness as part of the approval procedures.

Supplementary Principle 2.4.1 Ensuring Diversity in the Promotion of Core Human Resources, etc.

The Company hires and promotes human resources, placing importance on individual characteristics and abilities regardless of gender, nationality and employment type. We believe that creating a free and open workplace environment that respects diverse values is essential in order to realize sustainable growth and increase corporate value.

The Sanwa Global Vision 2030 calls for "Enhance sustainability management" as the basic strategy and sets KPIs from each of "Manufacturing," "Environment" and "People" perspectives. Of them, in terms of "People," we have identified "Promotion of diversity" as one of key ESG materiality, chosen KPIs linked to it, and set the female managerial employees rate (consolidated) at 15% (fiscal 2020: 11.2%) and the female employee rate (consolidated) at 20% (fiscal 2020: 17.9%) by fiscal 2030.

Furthermore, the Sanwa Group has been expanding its businesses globally into countries in the Americas, Europe and Asia as well as in Japan. In these areas, we have no notion of mid-career hires and non-Japanese employees, and hence no differences have been made in promotion in rank and promotion to management. Therefore, the Sanwa Group has not set any special target as for mid-career hires and non-Japanese employees. For your reference, for Sanwa Shutter Corporation, a core operating company of the Sanwa Group, approximately half of the employees were mid-career hires, and approximately half of employees in managerial positions were mid- career hires as of October 2021. Thus, there is no impact to promotion to management due to discrepancies in employment type.

To achieve the above, in accordance with the action plan based on the Act on the Promotion of Female Participation and Career Advancement in the Workplace, the Company is developing an environment and system that allow employees to manage both work and family life and creating a workplace in which female employees can comfortably work. The Company established a specialized organization for the development of human resources and structured various types of training according to position and purpose to establish a system for the development of diverse human resources.

Principle 2.6 Functioning as Asset Owner of Corporate Pension Funds

With regard to the pension management system, we established the Sanwa Shutter Corporate Pension Fund. In addition to a full-time managing director, management is undertaken by directors and representatives selected from each Group company.

The management of the reserve fund is based on management guidelines established by the corporate pension fund, and important matters, such as decisions on asset allocation policy and recipients entrusted with assets, are resolved by a board of representatives using external consultants as needed. The fund is managed and controlled in an appropriate manner to prevent conflicts of interest between pension beneficiaries and the Company. We carry out stewardship activities that can be implemented as a corporate pension fund. These include assigning employees familiar with the practical side of the business to the full-time managing director, the Board of Trustees requiring that each investment institution entrusted with assets fulfills its stewardship responsibilities, and receiving of reports on the results.

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Principle 3.1 Enhancement of Information Disclosure

1. We formulated the Sanwa Group's "Mission, Values and Principles of Business" in 2002 to respond to changes in the operating environment while continuing the policies that have defined the Company since its establishment. The specifics are disclosed on the Company's website.

(https://www.sanwa-hldgs.co.jp/english/corporate/philosophy.html)

The Sanwa Group's management policy and the Mid-Term Management Plan are also disclosed on the Company's website.

• Management Policy, Long-term Vision and Medium-term Management Plan (https://www.sanwa-hldgs.co.jp/english/ir/management/)

1. Our basic approach to corporate governance is available on the Company's website and annual securities reports (in Japanese only).
   (https://www.sanwa-hldgs.co.jp/english/csr/effort/governance)
2. Our policy for determining compensation amounts for Directors is provided in the Director Compensation section of this report, in the convocation notice of the General Meeting of Shareholders, and in annual securities reports (in Japanese only).
   Furthermore, the Company's Audit and Supervisory Committee has authority to verify the compensation proposal, etc. and form an opinion in order to ensure objectivity and transparency.
3. The Board of Directors of the Company selects executives who will set and promote business directions and strategies with competitiveness on a global scale in mind.
   Candidates for directors are selected based on individual abilities, insight, and experience as well as in consideration of the balance of the overall Board of Directors and the Audit and Supervisory Committee and diversity. (At least one person who is an expert in finance and accounting is appointed as a director serving as an Audit and Supervisory Committee member.) A decision will be made on the candidates following verification by the Audit and Supervisory Committee and an ensuing discussion by the Board of Directors.
   Furthermore, candidates for directors are selected based on advice from the Nomination and Compensation Committee after consultation by the Board of Directors.
   The reasons for the selection of individual candidates for directors are provided in the convocation notice of the General Meeting of Shareholders.
   The selection of executives (excluding directors) and the dismissal of executives use the same procedure, with a proposal made after deliberation by the Board of Directors.
4. The backgrounds of individual executives (those above directors) and the reasons for selecting them as candidates are disclosed in the convocation notice of the General Meeting of Shareholders for the period when each individual director was elected.
   Furthermore, directors who have resigned or been dismissed are listed in the business report (in Japanese only) for the following fiscal year as before.
   (The convocation notice of the General Meeting of Shareholders is available on the Company's website. https://www.sanwa-hldgs.co.jp/english/ir/stock_info/meeting.html)

Supplementary Principle 3.1.3 Initiatives, etc. on Sustainability

1. The Company's sustainability initiatives are described in "Implementation of Environmental Activities, CSR Activities, etc." of "3. Measures to Ensure Due Respect for Stakeholders" in this report.
2. The Company classifies key ESG issues (materiality) under the categories of "Manufacturing," "Environment," "People" and "Management Foundation," and the six types of capital (natural capital, social and relationship capital, human capital, technology/manufactured capital, intellectual capital and financial capital) corresponding to each category are described in the Integrated Report.
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1. Information regarding disclosures based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), etc. related to risks and opportunities arising from climate change is available on the Company's website.
   (https://www.sanwa-hldgs.co.jp/english/csr/effort/environment/contributive/climate_risk.html)

Supplementary Principle 4.1.1 Roles and Responsibilities of the Board of Directors (1)

The Board of Directors, which makes important management decisions and supervises directors' execution of business, also makes decisions on important business execution matters that are deemed within the purview of the Board of Directors by law or the Company's Articles of Incorporation. The substance of those decisions is made clear according to the "Board of Directors Regulations" in the Company's internal regulations.

Principle 4.8 Effective Use of Independent Outside Directors

Four of the Company's ten directors (40%) are outside directors. We judge that all four outside directors fulfill the Company's independence criteria and we have submitted the list to the Tokyo Stock Exchange that they have been designated as independent officers.

Based on their respective abundant experience and specialist knowledge, the four outside directors provide advice on management and audit and supervise business execution by the directors from a neutral standpoint, independent from business execution, adequately enhancing the supervision function of the Board of Directors.

Principle 4.9 Independence Standards and Qualification for Independent Outside Directors

Regarding independence of outside directors, please refer to "Independence Criteria for Outside Officers" on our website.

(https://www.sanwa-

hldgs.co.jp/english/csr/effort/governance/pdf/Independence_Criteria_for_Outside_Officers.pdf)

Supplementary Principle 4.10.1 Mandates, Roles, etc. of the Nomination Committee and Compensation Committee

The Company established a Nomination and Compensation Committee in January 2021 as an advisory body (voluntary) to the Board of Directors to enhance the fairness, transparency, and objectivity of procedures related to the nomination and compensation of directors (excluding directors serving as Audit and Supervisory Committee members) and executive officers. The Committee, a majority of whose members are outside directors, deliberates in response to consultations from the Board of Directors on matters such as nomination proposals for candidates for directors, etc., as well as calculation methods, etc. for compensation for directors, etc. and for individual compensation, and advises on the results of its deliberations to the Board of Directors.

Supplementary Principle 4.11.1 Preconditions for Board of Directors and Audit & Supervisory Board Effectiveness (1)

The Company's Articles of Incorporation specifies that the appropriate number of directors shall be no more than 17 in order to facilitate quick and decisive decision-making to adjust to changes in the global operating environment and to ensure diversity of views.

The standard we use in appointing directors is whether they possess the necessary abilities, knowledge, experience and other attributes to monitor and supervise the Company's management from a global perspective and to make important decisions concerning business operations. The knowledge, experience and abilities of each director are indicated in the "Skill Matrix" in this report. In addition, importance is placed on management experience at other companies when selecting candidates for independent outside directors.

Supplementary Principle 4.11.2 Preconditions for Board of Directors and Audit & Supervisory Board Effectiveness (2)

If a director is serving concurrently as a director or auditor at other companies, we confirm that the number of concurrent positions is reasonable so that the director can devote sufficient time and effort to fulfilling his or her role and responsibilities as a director of the Company.

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