Sekisui House : Section５ Management Foundation

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SEKISUI HOUSE Value Report

67

Value Creation Story

Mechanisms and Catalysts

Strategies and Initiatives

Mid-Term Management Plan

Management Foundation

ESG Management

Data

CONTENTS

for Creating Value

for Sustainable Growth

5Section

Management Foundation

1. Message from the Chairperson of the Board of Directors
2. Corporate Governance

83 Two Outside Directors of the Board Share Their Views

1. Measures Based on Receipt of Comprehensive Evaluation Report on Problems with the Purchase of Land for Condominiums
2. Themes and KPIs of Core Initiatives for Material Issues
3. Directors of the Board and Audit and Supervisory Board Members

92 Main External Evaluations and Awards

	Section 1		Section 2		Section 3		Section 4	Section 5	Section 6
	Value Creation Story		Mechanisms and Catalysts		Strategies and Initiatives		Mid-Term Management Plan	Management Foundation	ESG Management
CONTENTS		for Creating Value		for Sustainable Growth

Message from the Chairperson of the Board of Directors

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Data

We intend to further evolve corporate governance to provide the value that modern society demands.

Guided by a global vision to make home the happiest place in the world, all Sekisui House Group companies have operated together seamlessly and proactively in a rapidly changing business environment. Customer support has increased further as a result, enabling record results for the Group in FY2021.

• During FY2021, Sekisui House's Board of Directors consisted of 10 members, four of whom were outside directors. The Board proactively discussed an array of management issues so that Sekisui House could provide safe, secure and comfortable housing for beautiful townscapes.
• The ongoing COVID-19 pandemic has increased customer requirements for comfortable living because most people are spending more time at home. We need to respond to changes in the business environment swiftly to generate sound, sustainable growth. We therefore require broadly based human resource development to support our businesses, and investment to develop innovative technologies is also key.
• Committed to ongoing, sincere dialogue with stakeholders, the Board of Directors will further enhance governance with an emphasis on operating soundness and transparency and even more effective resource allocation and deployment to deliver the value that modern society demands.

Toshifumi Kitazawa

Independent Outside Director of the Board

(Chairperson of the Board of Directors)

Has held positions including President & Chief Executive Officer, and Vice Chairman & Director at Tokio Marine & Nichido Fire Insurance Co., Ltd. Appointed Independent Outside Director of the Company in April 2020.

	Section 1		Section 2		Section 3		Section 4
	Value Creation Story		Mechanisms and Catalysts		Strategies and Initiatives		Mid-Term Management Plan
CONTENTS		for Creating Value		for Sustainable Growth

Corporate Governance

Basic Concept

In accordance with our corporate philosophy of love of humanity, under which we pursue truth & trust, deliver the highest quality and technology and create enriching homes and environments, the Group considers corporate governance to be one of its major management challenges. The Sekisui House Group has improved the effectiveness of its corporate governance to increase corporate value while sustainably earning the trust of shareholders, investors and other all stakeholders, and has put in place a system that enables speedy management marked by integrity. The Company discloses to its stakeholders the Sekisui House, Ltd. Basic Policy on Corporate Governance, in which the fundamental concept and the framework of the Company's corporate governance is established. The Sekisui House Group positioned 2018 as the first year of governance reforms. We are steadily implementing each initiative to build a resilient management base for long- term, sustained growth in corporate value.

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Management Foundation	ESG Management		Data

• Integrity-sincerityand high moral values-is central to our governance reforms. This concept resonates with our philosophy of love of humanity, and with our stance of truth and trust. We prioritize integrity in all corporate activities, from the actions of the Board of Directors to personnel evaluation, sales, production and construction, while implementing reforms as a leading company in ESG management.

* Details regarding the Basic Policy on Corporate Governance are available on our website.

Basic Policy on Corporate Governance

Key Initiatives since 2019

Revised term of office for	• We shortened the term of office for directors from two years to one year to clarify the
management responsibilities of directors, increase opportunities for shareholders to take a
directors	vote of confidence, and build a management team that can respond quickly to changes in
	the business environment.
Abolished the executive	• We abolished the executive advisor/advisor system to add transparency to our management
advisor/advisor system	team and clarify accountability, which in turn further strengthens corporate governance.

• The General Meeting of Shareholders held in April 2019 introduced a restricted stock remuneration system and abolished the bonus system for outside directors.
• The General Meeting of Shareholders held in April 2020 clarified basic remuneration policy,
  Fundamentally revised the revised the basis for proportional allocation of remuneration and determined appropriate

remuneration system for	remuneration levels.
officers	• We introduced performance-related bonuses and a performance-related stock remuneration
	plan, revised the payment limits under the restricted stock remuneration plan, and clarified
	the key performance indicators (KPIs) for performance-related remuneration and the
	calculation method.
	• To ensure that directors share value with shareholders in a long-term and sustainable
	manner, while in office directors (excluding outside directors) are encouraged to increase
Introduced shareholding	their holdings of the Company's shares up to the equivalent of a predetermined value (based
on the market value of the shares), and after reaching the baseline, they are obligated to
guidelines
maintain ownership of at least the baseline monetary value of the Company's shares.
	• The baseline monetary value is two times annual basic remuneration for representative
	directors and equal to annual basic remuneration for other eligible directors.
Established provisions	• In order to minimize excessive risk taking by directors (excluding outside directors) and to
for recovering	ensure sound management, we formulated malus and clawback provisions that require
stock remuneration	officers to return their stock remuneration in full or in part before vesting if certain events
(malus and clawback)	occur.

Formulated criteria and	• The Personnel Affairs and Remuneration Committee regularly deliberates on basic policies
procedures for appointing and	and procedures for appointing internal directors and succession plans for representative
dismissing senior management	directors and other officers.

Improved independence of	• We have increased the number of outside directors on the Board of Directors from four in
FY2021 to five in FY2022 to further strengthen the management supervision function of the
the Board of Directors
Board of Directors and the corporate governance system.

Key Initiatives in 2021

Outside director appointed	• We selected the Chairperson of the Board of Directors from among outside directors to
Chairperson of the Board
strengthen the effectiveness of the management supervision function of the Board of Directors.
of Directors
Clarification of the Board of	• We clarified the knowledge, experience and abilities expected of each candidate for director,
Directors skills matrix	and the reasons for choosing each skill category based on management strategies and plans.
Reform of the executive	• We strengthened development of management personnel in each division and construction
of a sustainable leader pipeline through clarification of roles, personnel requirements, and
officer system
the process of appointment and dismissal.
Strengthened disclosure of	• We disclosed of the items and targets of the ESG management indicators which are the KPIs
the officers' remuneration	of the Performance Share Units (PSU).
system	• We disclosed of individual remuneration of all internal directors.

8. Increasing the integrity of heads of branches

9. Introduction of a restricted stock remuneration system (2019)

10. Abolition of the bonus system for outside directors of the Board (2019)

7. Ensuring the independence and strengthening the check- and-balancefunctions of the heads of general affairs of sales administration headquarters and branches

Section 1

Section 2

Section 3

Section 4

Section 5

Section 6

Section 7

SEKISUI HOUSE Value Report

70

Value Creation Story

Mechanisms and Catalysts

Strategies and Initiatives

Mid-Term Management Plan

Management Foundation

ESG Management

Data

CONTENTS

for Creating Value

for Sustainable Growth

Corporate Governance

Changes in Governance

2002 Executive officer system introduced

2003 Sekisui House Group Corporate Code of Conduct formulated

2005 CSR Committee established

2006 Retirement bonus system for directors abolished and stock remuneration-type stock option system introduced

2008 One outside director appointed 2009 Outside Audit and Supervisory Board members increased from two to three

2012 Outside directors of the Board increased to two

2016 Basic Policy on Corporate Governance formulated

Personnel Affairs and Remuneration Committee and Risk Management Committee established as consultative bodies to the Board of Directors

2018 First year of corporate governance reforms

Increased the number of outside directors of the Board from two to three and the number of outside Audit and Supervisory Board members from three to four

1. Introduction of a mandatory retirement age of   6. Evaluation of the effectiveness of the Board of Directors 70 for representative directors of the Board

2. Appointment of women as outside officers

3. Increase the transparency of and enliven meetings of the Board of Directors

4. Establishment of Management Meetings

5. Clarification of departments under the control of directors of the Board

2020 Revised the basis for proportional allocation of remuneration and determined appropriate remuneration levels Increased the number of outside directors of the Board from three to four

Established the ESG Promotion Committee (reorganization of the CSR Committee)

2021 Reform of the executive officer system

Outside director of the Board appointed as Chairperson of the Board of Directors Disclosed individual remuneration of internal directors of the Board

2022 Increased the number of outside directors of the Board from four to five

Composition of the Board of	(Upper row) Directors of the Board		Ratio of outside officers (Directors
Directors and Audit and	(Lower row) Audit and Supervisory	Ratio of outside	of the Board and Audit and
Supervisory Board	Board members	directors of the Board	Supervisory Board members)

2009	7.7	%	22.2	%
2012	18.2	%	31.3	%
2018	27.3	%	41.2	%
2020	33.3	%	44.4	%
2021	40.0%	50.0%

Male internal officer

Female internal officer

Male outside officer

Female outside officer

Corporate Governance Highlights (As of April 27, 2022)

Composition of the Board of Directors	Ratio of outside directors	Ratio of outside Audit and
and Audit and Supervisory Board	of the Board	Supervisory Board members	Ratio of outside officers	Ratio of female officers
	50.0% (5 of 10)	60.0% (3 of 5)	53.3% (8 of 15)*	26.7% (4 of 15)*

• 5 of 10 directors of the Board and 3 of 5 Audit and Supervisory Board members

• 3 of 10 directors of the Board and 1 of 5 Audit and Supervisory Board members

Section 1

Section 2

Section 3

Section 4

Section 5

Section 6

Section 7

SEKISUI HOUSE Value Report

71

Value Creation Story

Mechanisms and Catalysts

Strategies and Initiatives

Mid-Term Management Plan

Management Foundation

ESG Management

Data

CONTENTS

for Creating Value

for Sustainable Growth

Corporate Governance

Direction of Governance Reforms under the Fifth Mid-Term Management Plan

Direction of Reforms and Evaluation of Governance to Date

The Sekisui House Group is conducting governance reforms that balance enhancing the effectiveness of governance with sustainable corporate growth. Achieving this balance requires active communication and the participation of every employee. Innovation and communication are therefore the watchwords of our initiatives.

• We have steadily implemented 27 specific initiatives over the four years since the beginning of 2018, which we positioned as the first year of governance reforms. These initiatives include the introduction of a mandatory retirement

age of 70 for representative directors of the Board, establishment of Management Meetings, and clarification of departments under the control of directors of the Board.

• To further enhance the effectiveness of corporate governance, we will promote more governance reforms for both senior management and business-level management.

1 Reforms at the Senior Management Level

1. Systemic corporate governance reforms and enhanced effectiveness
   Aim‌ for management innovation through collaborative creation with outside officers and by engendering fair and healthy tension.
2. 1. Review the overall design of the governance system.
   2. 1. Review the Personnel Affairs and Remuneration Committee system (chairperson and composition) to strengthen its effectiveness.
      2. Review the role of Management Meetings in the business execution system.
      3. Reform the executive officer system and develop candidates for the senior management team.
   3. Implement a PDCA cycle that uses third-party reviews and draws on outside expertise.
   4. 1. Have an external third-party evaluate the effectiveness of the Board of Directors on a regular basis.
      2. Improve adherence to the Corporate Governance Code and shareholder relations activities based on third-party and other reviews.
3. Enhance information disclosure and promote dialogue with stakeholders Gain the trust of stakeholders through honest and fair information disclosure.
4. 1. Produce an Integrated Report to tell our corporate story.
   2. Further enhance opportunities for dialogue with institutional investors and individual shareholders.

Under the Fifth Mid-Term Management Plan, we are conducting systemic corporate governance reforms aimed at management innovation through collaborative creation and fair and healthy tension with outside directors of the Board.

• We have been working to enhance effectiveness through a review of the structure of the Personnel Affairs and Remuneration Committee, which is the consultative body with regard to personnel and remuneration for directors of the Board and executive officers. We also worked to facilitate a moderate separation of the management supervisory and business execution functions through measures including enhancing the supervisory function by increasing the independence of the Board of Directors and promoting the delegation of authority through reforms to Management Meetings and the executive officer system.
• In particular, we improved the transparency of the Personnel Affairs and Remuneration Committee by not only making the chairperson of the committee an outside director of the Board, but also by making the majority of committee members outside directors of the Board. Committee members not belonging to the Company participated in the nomination of director of the Board candidates from the stage of selecting skill matrix categories and were actively involved in the process of nominating the CEO, which stimulated discussions. These measures markedly improved the committee's effectiveness.

2 Reforms at the Business Management Level

1. Increase integrity among business managers
   Achieve governance based on mutual trust through managers with a high level of integrity.
2. 1. Clarify requirements of business managers and establish and strengthen systems for their development.
   2. Broaden the scope of those subject to integrity management training (including head office employees in positions of responsibility and officers of Group companies).
3. Strengthen Group governance systems
   Foster mutual trust among Group companies based on the corporate philosophy.
4. 1. Establish a governance system that will maximize management synergies for the entire Group.
   2. 1. Clarify the authority and responsibilities of the parent company and subsidiaries and reflect these in the design of the organization.
      2. Build a network linking the administrative headquarters of the parent company and subsidiaries, and establish lines of reporting.
   3. Strengthen the development of human resources and allocate them appropriately.
   4. 1. Strengthen development of governance-related human resources. (Recruitment from outside the Group, exchange of human resources among Group companies) (Integrity + Experience and Knowledge + Ability to Act)
      2. Allocate such human resources appropriately, including to overseas subsidiaries.
   5. Promote cooperation among auditors at the parent company and at subsidiaries.

The Sekisui House Group's strengths are a function of the ability of its front-line organization, including the various sales administration headquarters, branches, factories, and Group companies in Japan and overseas. This is because our front- line organization is most aware of operational issues from the perspective of customers. Accordingly, we will implement governance reforms at the business management level to further enhance our front-line capabilities.

• We have expanded the scope of integrity management training to include employees in positions of responsibility at the head office and factories and senior management in the Group companies in addition to executives at the various sales administration headquarters. We also worked for substantive improvement in integrity by enhancing management diagnostics (multi-rater assessment) and interviews with the directors in charge. Additional initiatives include establishing lines of reporting in a governance network for the heads of general affairs at offices with a focus on management departments such as the Auditing Department, Human Resources and General Affairs Department, and Legal Department. Concurrently, we will optimize the Group-wide allocation of governance-related human resources, including at overseas subsidiaries.