Taisei : Corporate Governance Report

Corporate Governance Report

TAISEI CORPORATION

Last updated: August 2, 2021

Taisei Corporation

President and Chief Executive Officer, Representative Director: Yoshiro AIKAWA Inquiries: Yukio HABA, General Manager of Corporate Planning Department Securities Code: 1801 https://www.taisei.co.jp/

The following describes the state of corporate governance at Taisei Corporation.

I Fundamental approach to corporate governance, capital structure, corporate attributes, and other basic information

1. Fundamental approach

• In accordance with the Taisei Group Philosophy "To create a vibrant environment for all members of society" and the three pillars of the Taisei Spirit-"Active and Transparent Culture," "Value Creation," and "Evolution of Tradition"-to realize this philosophy, the Company aims to achieve sustained growth and to enhance corporate value in the medium and long run.
• The Company's fundamental approach to corporate governance is to ensure swiftness, appropriateness, fairness, and transparency in management decision-making in order to earn the trust of society while pursuing sustained development as a business.
• Taisei's Fundamental Corporate Governance Policy, which embodies the fundamental approach described above in response to the principles of the Corporate Governance Code, is posted on the Company's website.
  https://www.taisei.co.jp/about_us/wn/assets_cms/pdf/governance_basic_policy.pdf(Japanese)https://www.taisei.co.jp/english/assets/profile/governance/pdf/governance_basic_policy.pdf(English)

[Reasons for not putting into practice a part of the Corporate Governance Code's principles]

[Principle 1-4](Cross-shareholdings)

1. Policy on cross-shareholdings

In order to establish and strengthen long-term and stable relationships of mutual cooperation with its important business partners, to enhance its competitiveness, and to improve its profitability, the Company holds shares of such business partners as cross-shareholdings.

The Company's policy on cross-shareholdings is to sell such shares which, as a result of review, the Board of Directors (the "Board") deems as inconsistent with the policy because their holding is economically unreasonable from a medium- to long-term perspective and because their future prospects are dim. Thus, the Company believes that the number of shares held as cross-shareholdings will be reduced appropriately (for major such shares held by the Company, please refer to its financial statements).

https://www.taisei.co.jp/assets/about_us/corp/pdf/16104.pdf(Japanese Only) 2. Verification of the economic rationality of cross-shareholdings,etc. by the Board

The Board periodically verifies whether it is economically reasonable from a medium- to long-term perspective to keep any of the listed shares held as cross-shareholdings and whether their future outlook is bright by considering their consistency with the policy and a quantitative comparison of capital costs and return risks.

3. Criteria for the exercise of voting rights

The Company exercises its voting rights for cross-shareholdings appropriately from the viewpoint of whether holding them contributes to enhancing corporate value.

[Disclosure based on the principles of the Corporate Governance Code]

[Principle 1-3] (Fundamental capital policy)

The Company strives to maintain and improve its strong financial foundation in order to enable its stable and continuous growth.

Based on the presumption that the Company will maintain and improve such strong financial foundation, the Company recognizes the payout ratio and ROE as guidelines for capital policy, considers capital efficiency, and returns profits to stakeholders appropriately while making the payment of a long-term and stable dividend as a fundamental policy.

[Principle 1-7] (Transactions between related parties)

The Company ensures that transactions with any of its Members of the Board or Executive Officers, major shareholders, or other stakeholders are brought before the Board or the Management Committee in advance in accordance with the "Board Regulations" or the "Regulations of Management Committee" according to the importance and nature of such transactions so that the same are reviewed and approved through due procedures.

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[Principle 2-6] (Function fulfillment as the owner of corporate pension assets)

1. In managing reserve funds for the corporate pension plan, the Company has established a system that enables it to fulfill the functions to be expected as an asset owner mainly in the manner of monitoring management firms while enhancing the Company's management expertise through the methods such as obtaining advice from external experts.
2. To ensure that beneficiaries' interests are maximized and that conflicts of interest that may arise between the Company and beneficiaries are controlled appropriately, the Company verifies the management of reserve funds for the corporate pension plan through the Pension Preservation Council, which consists of members from the Company and labor union, and reviews the component ratio of policy assets.

[Principle 3-1] (Improvement of information disclosure)

1. The aims of the Company (the achievement of the corporate philosophy, etc.), management strategy, and management plans
   The Company's Structure of Values and Policies, which consists mainly of the Group Philosophy and management plans, is posted on its website.
   https://www.taisei.co.jp/about_us/corp/rinen(Japanese)https://www.taisei.co.jp/english/profile/philosophy/(English)
2. Fundamental approach to corporate governance and the fundamental policy based on the principles of the Corporate Governance Code

1. Fundamental approach

The Company's fundamental approach to corporate governance is described in Section I.1. "Fundamental approach" in this Report.

1. Fundamental policy

The Company's Fundamental Corporate Governance Policy, which describes its response in accordance with the principles of the Corporate Governance Code, is posted on its website.

https://www.taisei.co.jp/about_us/wn/assets_cms/pdf/governance_basic_policy.pdf(Japanese)https://www.taisei.co.jp/english/assets/profile/governance/pdf/governance_basic_policy.pdf(English)

3. Policy and procedure for the Board to determine remuneration for executives and Members of the Board

1. Policy

Remuneration for Members of the Board consists of fixed compensation and performance-based compensation (monetary compensation) as well as non-monetaryperformance-based compensation (stock compensation). Remuneration for Executive Officers consists of fixed compensation and performance-based compensation (monetary compensation) .

Remuneration for External Members of the Board is fixed compensation.

1. Procedure

The system of remuneration for Members of the Board and Executive Officers as well as the amount of remuneration for each Member of the Board and Executive Officer based thereupon are determined by the Board after discussions at the Remuneration Committee, the Board's organ of advance consultation, which is chaired by an External Member of the Board.

4. Policy and procedure for the Board to elect and dismiss executives as well as nominate candidates for Members of the Board and Audit & Supervisory Board Members

1. Policy

Candidates for Members of the Board and Audit & Supervisory Board Members are nominated, and Executive Officers are elected, from the viewpoint of selecting persons who will contribute to the Company's sustained growth and medium- to long-term enhancement of corporate value after taking account of their attributes such as their careers, achievements, character, knowledge, experience, and abilities as well as the overall balance among Members of the Board in addition to diversity, which includes gender and international background. Dismissal may be discussed if any of the attributes that were expected at the time of election to manifest are not recognized to have done so.

1. Procedure

Nomination of candidates for Members of the Board and Audit & Supervisory Board Members as well as election and dismissal of Executive Officers are determined by the Board after discussions at the Executive Personnel Committee, the Board's organ of advance consultation, which is chaired by an External Members of the Board.

5. Explanations about the election or dismissal of Executive Officers and the nomination of candidates for Members of the Board and Audit & Supervisory Board Members given upon election or dismissal, or nomination by the Board in accordance with Section 4 above

1. Candidates for Members of the Board

The reasons for each candidate for External Member of the Board's nomination are described in the financial statements and Section II.1. of this Report, "[Category: Members of the Board] Relationships with companies (2)." Financial statements: https://www.taisei.co.jp/assets/about_us/corp/pdf/16104.pdf(Japanese Only)

The reasons for nominating each candidate for Internal Members of the Board in 2020 are as follows.

Takashi YAMAUCHI, Member of the Board (re-elected in June 2021)

Mr. Takashi YAMAUCHI assumed the leadership of business management as President and Chief Executive Officer in April 2007 and has contributed to establishing the foundation for growth of the Company and the Taisei Group. In

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addition, he has led discussion at the meetings of the Board as Chairman and Representative Director and contributed to making the discussion more fruitful since April 2015. Since April 2020, he has managed the meetings of the Board appropriately as the Chairman of the Board. As Mr. Takashi YAMAUCHI can be expected to contribute to further enhancing the Company's corporate value with his excellent leadership, we nominate him as a candidate for Member of the Board again.

Yoshiro AIKAWA, Representative Director (re-elected in June 2021)

Ever since Mr. Yoshiro AIKAWA joined the Company, he had been engaged in the building construction business and he has successively held various posts such as Chief of Kyushu Branch; Chief of Marketing & Sales (Building Construction) Division II; and Chief of Architecture & Engineering Division (Integrated) and Chief of Building Construction Division. Since June 2020, he has managed the Company as President and Chief Executive Officer and contributed to establishing the foundation for future growth of the Company and the Taisei Group. As Mr. Yoshiro AIKAWA can be expected to contribute to enhancing the decision-making and supervising functions of the meetings of the Board based on his wealth of experience and profound knowledge, we nominate him as a candidate for Member of the Board again.

Shigeyuki SAKURAI, Representative Director (re-elected in June 2021)

Mr. Shigeyuki SAKURAI was appointed as a Member of the Board in June 2013, and he has been involved in the management of the Company as Representative Director and Executive Officer since April 2015. He has successively held various posts such as General Manager of Finance Department, General Manager of Accounting Department and Chief of Business Administration Division and he has contributed a lot to the improvement of the financial standing of the Company in a difficult business environment by making use of his considerable expert knowledge in the accounting and financial fields. As we have judged that his broad experience and knowledge are indispensable for reinforcing the decision-making and supervising functions of the board meetings, we nominate him as a candidate for Member of the Board again.

Shigeyoshi TANAKA, Representative Director (re-elected in June 2021)

Mr. Shigeyoshi TANAKA was appointed as a Member of the Board in June 2015, and he has been involved in the management of the Company as Representative Director and Executive Officer since April 2019. He has successively held various posts such as Chief of Kyushu Branch and Chief of Corporate Planning Office. At present, he is performing his duties as Chief of Civil Engineering Division. As Mr. Shigeyoshi TANAKA has considerable expert knowledge based on his broad experience to contribute to further enhancing the Company's corporate value through the development and promotion of strategies to overcome challenges such as reinforcement of production systems in the civil engineering sector, we nominate him as a candidate for Member of the Board again.

Norihiko YAGUCHI, Representative Director (re-elected in June 2021)

Mr. Norihiko YAGUCHI has many years of experience in the building construction business. He has successively held various posts such as Chief of Chugoku Branch and Chief of Architecture & Engineering Division (Integrated), and he has been involved in the management of the Company as Member of the Board and Executive Officer since June 2015. At present, he is performing his duties as Chief of Marketing & Sales Division (Integrated). As Mr. Norihiko YAGUCHI can be expected to contribute to further enhancing the Company's corporate value through the development and implementation of sales strategies, we nominate him as a candidate for Member of the Board again.

Hiroshi KIMURA, Member of the Board (re-elected in June 2021)

Ever since Mr. Hiroshi KIMURA joined the Company, he has been engaged in the civil engineering business and successively held various posts such as Chief of Chugoku Branch and Deputy Chief of Marketing & Sales (Civil Engineering) Division ever since he was appointed as an executive officer in April 2015. At present he is performing his duties as Deputy Chief of Marketing & Sales Division (Integrated) and Chief of Marketing & Sales (Civil Engineering) Division. As Mr. Hiroshi KIMURA can be expected to contribute to further enhancing the Company's corporate value through the development and promotion of sales by making use of his broad knowledge about the Company business in general, including civil engineering business, we nominate him as a candidate for Member of the Board again.

Atsushi YAMAMOTO, Member of the Board (newly elected in June 2021)

Ever since Mr. Atsushi YAMAMOTO joined the Company, he had been engaged in the business administration division, and since he was appointed as an executive officer, he has successively held various posts such as General Manager of Secretarial Department, and Deputy Chief of Business Administration Division. At present, he is performing his duty as Chief of Marketing & Sales Promotion Division with his plenty of experiences. As Mr. Atsushi YAMAMOTO is expected to contribute to further enhancing the Company's corporate value through his wide knowledge about the business management, we newly nominate him as a candidate for Member of the Board.

Yoshihiro TERAMOTO, Member of the Board (newly elected in June 2021)

Ever since Mr. Yoshihiro TERAMOTO joined the Company, he has been engaged in the building construction business and successively held various posts such as Chief of Kyusyu Branch and Chief of Yokohama Branch since he was appointed as an executive officer in April 2017. At present he is performing his duties as Chief of Architecture

1. & Engineering Division (Integrated) and Chief of Building Construction Division. As Mr. Yoshihiro TERAMOTO can be expected to contribute to further enhancing the Company's corporate value through the development and promotion of strategies to overcome challenges such as reinforcement of construction systems in the building construction sector, we newly nominate him as a candidate for Member of the Board.

2. Candidates for Audit & Supervisory Board Members

The reasons for each candidate for External Audit & Supervisory Board Member's nomination are described in the financial statements and Section II.1. of this Report, "[Category: Audit & Supervisory Board Members] Relationships with companies (2)."

Financial statements:https://www.taisei.co.jp/assets/about_us/corp/pdf/16104.pdf(Japanese Only)

The reasons for nominating each candidate for Internal Audit & Supervisory Board Membership in 2019 are as follows.

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Takashi HAYASHI, Audit & Supervisory Board Member (newly elected in June 2019)

Mr. Takashi HAYASHI has chiefly engaged in finance, accounting, and business administration; has held various posts, including Executive Officer at the Company and representative director at several subsidiaries; and possesses a high level of knowledge regarding finance and accounting as well as many years of experience as a corporate executive. Based on his past performance, he is considered to be suitable for carrying out the task of improving audits by Audit & Supervisory Board Members at the Company, and thus we nominate him as a candidate for Audit & Supervisory Board Member.

Akihiko NOMA, Audit & Supervisory Board Member (newly elected in June 2019)

Mr. Akihiko NOMA has mainly engaged in duties related to legal affairs and contracts; has held various posts, including manager of international business administration and project promotion departments; and possesses a high level of expertise and international perspective. Based on his past performance, he is considered to be suitable for carrying out the task of improving audits by Audit & Supervisory Board Members at the Company, and thus we nominate him as a candidate for Audit & Supervisory Board Member.

[Supplementary Principle 4-1-1] (Scope of delegation to executives)

The Board makes important decisions on business execution as stipulated in relevant laws and ordinances, the Articles of Incorporation, and the Board Regulations.

The Management Committee is newly established as the decision-making organ for business execution of the Company, and the Regulations of Management Committee stipulate the authority for decision-making related to business execution that is delegated to the Management Committee by the Board. Furthermore, the system of Executive Officers has been adopted to facilitate flexible execution of business.

[Principle 4-8] (Effective utilization of Independent External Members of the Board)

At present, four of the Company's twelve Members of the Board are Independent External Members of the Board. Among the External Members of the Board, Ms. Atsuko NISHIMURA has contributed to bolstering deliberations and

managerial supervision at the Board from diverse viewpoints that make the most of her international and objective perspectives based on her experience and knowledge as a diplomat since she became an External Member of the Board in 2017. Mr. Takao MURAKAMI, Mr. Norio OTSUKA, and Mr. Fumiya KOKUBU are contributing to strengthening decision- making and managerial supervision concerning important matters such as the election and dismissal of executives and management strategy planning by making the most of their rich experience and knowledge obtained as corporate managers and executives.

[Principle 4-9] (Criteria and attributes for judging the independency of Independent External Members of the Board)

The Board stipulates criteria for judging the independency of External Members of the Board in Article 18 of the Fundamental Corporate Governance Policy.

https://www.taisei.co.jp/about_us/wn/assets_cms/pdf/governance_basic_policy.pdf(Japanese)

https://www.taisei.co.jp/english/assets/profile/governance/pdf/governance_basic_policy.pdf(English)

[Supplementary Principle 4-11-1] (Structure of the Board and procedure for selecting members)

The Company's Board consists of eight Internal Members of the Board and four External Members of the Board that are elected in consideration of each member's character, knowledge, experience, and ability, the overall balance among the Board, and diversity (e.g., gender and international background). Internal Members of the Board strive to ensure appropriate decision-making and supervision of business execution by expressing useful opinions that make the most of their rich business experience obtained from years of engagement in the Company's business. External Members of the Board do so by expressing useful opinions from objective viewpoints based on their abundant experience and extensive knowledge as an executive or equivalent.

The policy and procedure for the election of Members of the Board are described in Section [Principle 3-1] 4.

[Supplementary Principle 4-11-2] (Posts held by Members of the Board or Audit & Supervisory Board Members concurrently) If a Member of the Board or Audit & Supervisory Board Member of the Company concurrently serves as an executive at other listed companies, he or she shall limit his or her service to the range necessary and reasonable to appropriately

fulfill such roles and responsibilities.

Important posts that Members of the Board and Audit & Supervisory Board Members of the Company hold concurrently as well as the attendance of External Members of the Board and External Audit & Supervisory Board Members at meetings of the Board and the Audit & Supervisory Board held in the fiscal year 2020 are included in the notice of the General Meeting of Shareholders.

https://www.taisei.co.jp/about_us/ir/soukai.html(Japanese)https://www.taisei.co.jp/english/ir/meeting/(English)

[Supplementary Principle 4-11-3] (Analysis and evaluation of the overall effectiveness of the Board)

The Board of the Company analyzes and evaluates effectiveness of the Board and discloses the results annually.

I. Our initiatives for the fiscal year 2020 based on our evaluation of the fiscal year 2019

In fiscal year 2020, in order to invigorate and substantiate the deliberations at the Board and further strengthen its supervisory functions, the Company reviewed the governance system and established the Management Committee, a

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decision-making organ for business execution, and strove for swifter decision-making by delegating a wider range of authority to the executive side.

Through our evaluation of effectiveness in the fiscal year 2019, we identified the challenges listed below as the Company reviewed the governance system:

• To further enhance discussions from a medium- to long-term perspective;
• To fully utilize the new governance system to maintain and strengthen competitiveness;
• To review the operation of the system continuously and flexibly depending on the situation;
• To prepare concise materials focusing on essential points; and
• To make effective use of information equipment for timely information sharing.

Based on the results of the evaluation, the Company worked on the following points in the fiscal year 2020: [To enhance deliberations in formulating a Medium-Term Business Plan]

In formulating a new Medium-Term Business Plan (2021-2023), the Board and the Management Committee strove to enhance discussions regarding our 10-year vision "Taisei Vision 2030", and initiatives for the next three years to realize the vision by holding several meetings and spending sufficient time thereon.

[To confirm the operation of the new governance system]

The Governance System Review Committee, one of the Committees within the Board, analyzed the agenda of the Board to compare the content and number of matters taken up for discussion, the time required for discussing them, and so forth with those for the previous year and verify the appropriateness thereof. Based on the results of the verification, the Committee examined the governance system to further improve it, mainly by reviewing matters to be brought before the Board.

[To make effective use of information equipment]

By improvement of a cloud environment and effective use of tablet devices, Members of the Board are provided an environment that enables them to view meeting materials in advance. In addition, a web conference system was introduced for certain part of the prior briefings for the Board.

II. Overview of our evaluation of the fiscal year 2020

The method used to evaluate effectiveness in the fiscal year 2020, the first year of the new system, and the results of the evaluation are as outlined below.

• Evaluation method and process

- The secretariat prepared a self-evaluation questionnaire (evaluation sheet for the Board) and obtained approval of its content from the Board, and all Members of Board and Audit & Supervisory Board conducted self-evaluations using the questionnaire.

- The evaluation items in the questionnaire are as listed below. Items 1 to 4 consisted of five-grade assessments and free descriptions, and Items 5 and 6 comprised free descriptions.

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1. Self-evaluation as a Member of the Board;

2. Structure and operation of the Board;

3. Effectiveness of the Board;

4. Support system;

5. Process and content of deliberation to formulate the Medium-Term Business Plan; and

6. General evaluation of the Board.

- The secretariat collated the results of the self-evaluations, and External Members of the Board conducted an overall assessment of them.

- At the same time, a lawyer prepared a third-party's opinion on the results of the self-evaluations.

- Then the Board deliberated on the effectiveness of the fiscal year 2020 based on the overall assessment and the third-party's opinion.

Results of the evaluation of effectiveness of the Board

• As the results of analysis, the Board is evaluated as functioning effectively through the invigorated, substantial deliberations on important matters such as the Medium-Term Business Plan and the efficient sharing of materials under the support system.

III. Future initiatives

In the future, in order to further enhance its effectiveness, the Board will improve its operation by tackling the challenges listed below:

• To follow up on the Medium-Term Business Plan and focus on discussions to enhance corporate value in the medium to long run;
• To narrow down the number of agenda items, simplify meeting materials and briefings, and take other measures to secure more time for deliberation;
• To ensure that internal and external executives sharing awareness and fully exchanging opinions through open- ended discussion, etc.;
• To consider specific ways to increase the effectiveness of group governance;
• To review the structure, functions, and discussion methods of the committees within the Board in a medium to long term perspective; and
• To create an even better environment from the viewpoint of BCP, such as online conferencing.

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