Tohoku Electric Power Incorporated : Corporate Governance Report

Corporate Governance Report

Last Update: July 14, 2021

Tohoku Electric Power Co., Inc.

Kojiro Higuchi, Representative Director & President

Contact: Office of Legal and Shareholders Affairs

General Affairs Dept., Internal Services Div.

TEL: [phone] (Switchboard)

Securities Code: 9506 https://www.tohoku-epco.co.jp/

The corporate governance of Tohoku Electric Power Co., Inc. (the "Company") is described below.

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

Basic Information

1. Basic Views UPDATED

Under the management philosophy of "Prosper with local communities" and the group slogan of "Yori, Sou, Chikara (the Strength to Work Alongside)," which are upheld in the Tohoku Electric Power Group Medium- to Long-Term Vision "Yori Sou next," the Company aims to grow along with the sustainable development of society by working toward the building of a smart society through the provision of energy and other various services while engaging in dialogue with its stakeholders and working alongside its customers and local communities.

With this aim, in order to conduct proper business management, the Company continuously endeavors to enhance its corporate governance by securing corporate ethics and legal compliance, promoting sincere, fair and transparent business management, and increasing the rigor of its internal control and risk management.

Recognizing that enhancement of corporate governance is one of the key management issues, the Company will engage in initiatives to achieve sustainable growth and raise mid- to long-term corporate value, such as improving the agility, soundness and transparency of management, in order to meet stakeholders' expectations.

Of note, the Company's basic views on corporate governance, the operation policy and other matters related to corporate governance are stipulated in the "Basic Policy on Corporate Governance" and disclosed on the Company's website. Please refer to the following URL. https://www.tohoku-epco.co.jp/ir/policy/governance/index.html

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

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=○ In regard to [Supplementary Principle 1.1.1 Analysis of causes of opposing votes], the analysis had not yet been conducted by the Board of Directors and thus a disclosure to that effect was made in the report disclosed on December 8, 2015. At the meeting of the Board of Directors held in February 2016, the results of analysis of the exercise of voting rights were reported, and the necessity of responding to shareholders was examined. As similar efforts will continue to be made in the future, said disclosure was deleted from this column in the report disclosed on March 8, 2016.

• In regard to [Principle 1.4 Cross-Shareholdings], examination concerning major cross-shareholdings had not yet been conducted by the Board of Directors and thus a disclosure to that effect was made in the report disclosed on December 8, 2015. At the meeting of the Board of Directors held in February 2016, the mid- to long-term economic rationale and future outlook of major cross-shareholdings were examined, taking into consideration associated risks and returns, etc. As similar efforts will continue to be made in the future, said disclosure was deleted from this column in the report disclosed on March 8, 2016.
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• In regard to [Supplementary Principle 1.2.4 Use of the Electronic Voting Platform and the provision of English translations of the convening notices of general shareholder meeting], the convening notice had not yet been translated into English and thus a disclosure to that effect was made in the report disclosed on December 8, 2015. Since the 92nd Ordinary General Meeting of Shareholders held in 2016, the English version of the convening notice (brief version) and reference documents for the General Meeting of Shareholders have been posted on the Electronic Voting Platform. As translation into English will continue in the future, said disclosure was deleted from this column in the report disclosed on July 6, 2016.
• In regard to [Principle 4.8 Effective Use of Independent Directors], multiple Independent Directors had not yet been elected and thus a disclosure to that effect was made in the report disclosed on December 8, 2015. At the 92nd Ordinary General Meeting of Shareholders held in 2016, two Independent Directors were appointed, so said disclosure was deleted from this column in this report disclosed on July 6, 2016.
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  The Company complies with every principle of Japan's Corporate Governance Code revised in June 2018.

[Disclosure Based on the Principles of the Corporate Governance Code] UPDATED

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• Disclosures updated on July 14, 2021

• The statement in [II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management] 1. Matters Related to Organizational Composition and Operation, [Directors] Outside Directors' Relationship with the Company (2), and [Status of Those Who Retired from the Post of Representative Director & President and Others] Names of Advisors Who Served as Representative Director & President and Others in the Past was updated.
  ■ Disclosures updated on June 28, 2021
• The following items have been updated.

• [Principle 1.4 Cross-shareholdings]
• [Principle 3.1 Full Disclosure] (i) Company objectives (e.g., business principles), business strategies and business plans, (iii) Policies and procedures to determine the remuneration of Directors, (iv) Board policies and procedures in the appointment/dismissal of senior management and the nomination of candidates for Directors, (v) Explanations for the individual appointments and nominations in appointing senior management and nominating candidates for Directors
• [Supplementary Principle 4.1.1 Scope and Content of the Matters Delegated to Management]
• [Supplementary Principle 4.11.1 Views on the overall balance, diversity and inclusiveness, and appropriate size of the Board of the Directors]
• [Supplementary Principle 4.11.2: Significant Concurrent Positions where Directors and Audit and Supervisory Board Members also Serve as Directors, Audit and Supervisory Board Members or Management at Other Companies]
• [Supplementary Principle 4.11.3 Analysis and Evaluation of the Effectiveness of the Board of Directors as a Whole]
  ■ Disclosures updated on April 12, 2021 ○ The following items have been revised.
• [Principle 3.1 Full Disclosure] (v) Explanations for the individual appointments and nominations in appointing senior management and nominating candidates for Directors
• [Supplementary Principle 4.1.1 Scope and Content of the Matters Delegated to Management]

• Disclosures updated on March 3, 2021
• The following items have been revised.
  ・ [Principle 3-1 Full Disclosure] (iii) Policies and procedures to determine the remuneration of Directors and (iv) Board policies and procedures in the appointment/dismissal of senior management and the nomination of candidates for Directors
  ・ [Supplementary Principle 4.11.1] Views on the overall balance, diversity and inclusiveness, and appropriate size of the Board of the Directors]
• Disclosures updated on July 21, 2020
• The statement in [II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management] 1. Matters Related to
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Organizational Composition and Operation, [Directors] Outside Directors' Relationship with the Company

(2) was updated.

• Disclosures updated on July 8, 2020
  ○ The following items have been revised.
  ・[Principle 3.1 Full Disclosure] iii) Policies and procedures to determine the remuneration of Directors, and v) Explanations for the individual appointments and nominations in appointing senior management and nominating candidates for Directors
  ・[Supplementary Principle 4.1.1 Scope and Content of the Matters Delegated to Management]
  ・ [Supplementary Principle 4.11.2 Significant Concurrent Positions where Directors and Audit and Supervisory Board Members also Serve as Directors, Audit and Supervisory Board Members or Management at Other Companies]
  ・[Supplementary Principle 4.11.3 Analysis and Evaluation of the Effectiveness of the Board of Directors as a Whole]
  ・[Principle 5.1 Policy for Constructive Dialogue with Shareholders]
• Disclosures updated on April 7, 2020

• The following items have been revised. ・[Principle 1.4 Cross-shareholdings]
  ・[Principle 1.7 Related Party Transactions]
  ・[Principle 3.1 Full Disclosure] iii) Policies and procedures to determine the remuneration of Directors, iv) Board policies and procedures in the appointment/dismissal of senior management and the nomination of candidates for Directors, and v) Explanations for the individual appointments and nominations in appointing senior management and nominating candidates for Directors
  ・[Supplementary Principle 4.1.1 Scope and Content of the Matters Delegated to Management]
  ・[Supplementary Principle 4.11.1 Views on the overall balance, diversity and inclusiveness, and appropriate size of the Board of the Directors]
  ・ [Supplementary Principle 4.11.2 Significant Concurrent Positions where Directors and Audit and Supervisory Board Members also Serve as Directors, Audit and Supervisory Board Members or Management at Other Companies]
  ・[Supplementary Principle 4.11.3 Analysis and Evaluation of the Effectiveness of the Board of Directors as a Whole]
  ■ Disclosures updated on March 10, 2020
• The statement in [Principle 3.1 Full Disclosure] "i) Company objectives (e.g., business principles), business strategies and business plans" was updated.
  ■ Disclosures updated on July 8, 2019
• The following items have been revised.

• [Principle 3.1 Full Disclosure] v) Explanations for the individual appointments and nominations in appointing senior management and nominating candidates for Directors
• [Supplementary Principle 4.11.2 Significant Concurrent Positions where Directors and Audit and Supervisory Board Members also Serve as Directors, Audit and Supervisory Board Members or Management at Other Companies]
  ・[Supplementary Principle 4.11.3 Analysis and Evaluation of the Effectiveness of the Board of Directors as a Whole]
  ■ Disclosures updated on December 18, 2018
  ○ The following items have been revised. ・[Principle 1.4 Cross-shareholdings]
  ・[Principle 1.7 Related Party Transactions]
  ・[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners]
  ・[Principle 3.1 Full Disclosure] "iv) Board policies and procedures in the appointment/dismissal of senior management and the nomination of directors
  ・[Supplementary Principle 4.11.1 Views on the overall balanced, diverse and inclusive, and appropriate size of the Board of the Directors]
  All principles are stated based on the Code revised in June 2018.
  ■ Disclosures updated on July 5, 2018
  ○ The following items have been revised.
  ・[Principle 3.1 Full Disclosure] iii) Policies and procedures to determine the remuneration of Directors, iv) Board policies and procedures to appoint the senior management and nominate candidates for Directors, and
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1. Explanations for the individual appointments and nominations in appointing senior management and nominating candidates for Directors
   ・[Supplementary Principle 4.1.1 Scope and Content of the Matters Delegated to Management] ・[Supplementary Principle 4.9 Independence Standards and Qualification for Outside Directors]
   ・[Supplementary Principle 4.11.1 Views on the overall balanced, diverse and inclusive, and appropriate size of the Board of the Directors]
   ・ [Supplementary Principle 4.11.2 Significant Concurrent Positions where Directors and Audit and Supervisory Board Members also Serve as Directors, Audit and Supervisory Board Members or Management at Other Companies]
   ・[Supplementary Principle 4.11.3 Analysis and Evaluation of the Effectiveness of the Board of Directors as a Whole]
   ・[Supplementary Principle 4.14.2 Training Policy for Directors]
   ・[Principle 5.1 Policy for Constructive Dialogue with Shareholders]
   ■ Disclosures updated on April 17, 2018
   ○ The list of Officers at the end of [Principle 3.1 Full Disclosure] "v) Explanations with respect to the individual appointments and nominations in the appointment of the senior management and the nomination of candidates for directors and Audit and supervisory board members" was updated on April 1, 2018.
   ○ The statement in [Supplementary Principle 4.1.1 Scope and content of the matters delegated to Management] was updated.
   ■ Disclosures updated on July 5, 2017
   ○ The respective reasons for individual appointments of Directors and Audit and Supervisory Board Members in [Principle 3.1 Full Disclosure] "v) Explanations with respect to the individual appointments and nominations in the appointment of the senior management and the nomination of candidates for directors and Audit and supervisory board members" were updated.
   ○ The number of Directors stated in [Supplementary Principle 4.1.1 Scope and content of the matters delegated to Management] and [Supplementary Principle 4.11.1 View on the balance of the board as a whole and diversity and appropriate board size] was updated.
   ○ The statement in [Supplementary Principle 4.11.2 Significant concurrent positions where directors and Audit and supervisory board members also serve as directors, Audit and supervisory board members or Management at other companies] was updated.
   ○ The statement in [Supplementary Principle 4.11.3 Analysis and evaluation of the board's effectiveness as a whole] was updated.
   ■ Disclosures updated on February 9, 2017
   ○ The statement in [Principle 3.1 Full Disclosure] "i) Company objectives (e.g., business principles), business strategies and business plans" was updated.
   ○ The statement in [Principle 3.1 Full Disclosure] "iii) Board policies and procedures in determining the remuneration of directors and Audit and supervisory board members" and "iv) Board policies and procedures in the appointment of the senior management and the nomination of candidates for directors and Audit and supervisory board members" was updated, given the establishment of the "Nomination & Compensation Advisory Committee."
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   [Principle 1.4 Cross-Shareholdings]○ Policies
   In cases where listed shares are to be held as cross-shareholdings, the Company makes the decision by taking all factors into consideration based on such criteria as whether or not the objectives are fulfilled-e.g.,cross-shareholdings that help facilitate and improve the efficiency of the operation of the electric power business, cross-shareholdings that contribute to the development of the Company's business through regional promotion, cross-shareholdings that lead to improvements in customer services and increase in demand through the effective use of electricity, and even the accumulation of expertise that translate into future business development-and examines whether the benefits and risks from each holding cover the Company's cost of capital, with the aim of fulfilling the Tohoku Electric Power Group Medium- to Long-Term Vision "Yori Sou next."
   Based on the Board of Directors' assessment regarding whether or not to hold each individual cross- shareholdings, the cross-held shares which do not meet their objectives and standards are subject to being sold. The results of this assessment shall be disclosed.

• Result of the Assessment

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As for each individual cross-shareholdings, the Board of Directors comprehensively assessed all cross-held shares based on its objectives and economic rationale (whether associated benefits and risks such as the dividend and appraisal profit or loss cover the Company's cost of capital). As a result, seven issues were sold in FY2020, which means that the number of held issues was 13 as of March 31, 2021.

• Exercise of voting rights on shares

In regard to the exercise of voting rights on shares held in the form of cross-shareholdings, the Company checks the investee companies on a case-by-case basis focusing on such matters as to whether or not the investee company is engaged in management that places importance on its development and shareholders' interests, and whether or not the investee company performs antisocial acts. In addition, the Company determines whether to vote for or against proposals concerning such matters as shareholder returns, increase in authorized capital, anti-takeover measures and business restructuring by conducting a detailed examination on an individual basis as necessary.

[Principle 1.7 Related Party Transactions]

At the Company, conflict-of-interest transactions by Directors are subject to prior approval (resolution) of the Board of Directors, and the transaction results are reported to the Board of Directors after the completion of such transactions.

In regard to compliance with laws and regulations, social norms, etc., the Company has established and disclosed the "Basic Procurement Guidelines" on its website; even in cases where its business partner is a related party, the Company performs transactions by taking the same approach as per the Guidelines.

Electricity supply/demand agreements are properly handled based on the Guidelines for Proper Electric Power Trade, the Guidelines Concerning the Management of the Electricity Retail Business, the disclosed rates and other supply conditions, and the Electricity Supply Implementation Guidelines.

"Basic Procurement Guidelines" (https://www.tohoku-epco.co.jp/partne/sizai/chota_2.html)

[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners]

The Company adopts defined benefit corporate pension plan and proceeds asset management based on Pension Funds Management Guidelines and ratio of asset allocation which were determined at the management committee, thus making sure of stable formation of return on plan assets and future pension benefit for pension participants and beneficiaries.

The Pension Committee, comprised of members from Human Capital Dept., Accounting and Finance Dept., and Labor Union, is also established. Committee members shall regularly report the management situation and examine significant items such as revision of basic asset allocation and change of management institutions. In this process, the Company enhances reliability and appropriately manages conflicts of interest by utilizing asset management consulting services.

[Principle 3.1 Full Disclosure]

i) Company objectives (e.g., business principles), business strategies and business plans

Since its founding, the Company has been achieving growth together with the six prefectures of the Tohoku and Niigata region through the stable supply of power, with its basic principle: "No prosperity for Tohoku, no development of our company."

However, the business environment surrounding the Company is at a major turning point due to a number of factors, including intensified competition, the spin-off of the transmission and distribution division into a separate company, and recent changes in the power supply and demand structure caused by the expanding use of renewable energy and digitalization. Additionally, the six prefectures of the Tohoku and Niigata Prefecture are facing a significant change in their social structure caused by depopulation, birthrate decline, and population aging which are accelerating faster than the rest of Japan.

In this era of rapid change, the Company needs to fundamentally reform and proactively meet challenges in order to keep growing with local communities in the future.

To this end, the Company has developed the Tohoku Electric Power Group Medium- to Long-Term Vision "Yori Sou next." It states what we want to be in the 2030s, namely, "a business group that helps Tohoku lead the new era in building a smart society and that grows with the continued development of society."

With the aim of fulfilling "Yori Sou next," the Company will thoroughly enhance its competitiveness through structural reforms in its power supply business, which is the core business of its group, and boldly challenge itself to transform its business model, positioning a smart-society-building business as a growing business. In the business, the Company will strive to resolve social issues and build a smart society where local residents can lead comfortable, safe, and secure lives.

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