YASKAWA Electric : Corporate Governance

Corporate Governance

Message from Outside Director

Strengthening Both

Defensive and

Offensive Governance

Outside Director,

Audit and Supervisory Committee Member

Toshikazu Koike

Appointment as Outside Director

This time, I will assume a heavy responsibility as an Outside Director and Audit and Supervisory Committee Member, and I feel motivated.

During my 23 years in the United States, I had a variety of experiences in sales, product planning, marketing, IT, logistics, customer service and finance. Since I became president of the Americas Regional Headquarters 21 years ago, I have been in charge of the management of the global group to this day. I would like to contribute to the sustainable growth of the Yaskawa Group and its eternal prosperity, based on the experience and knowledge I have accumulated, including many failures.

Expectations for management

The appeal of the Yaskawa Group is that it has a portfolio of businesses that are expected to grow, such as the environment and social infrastructure businesses, in addition to its core businesses such as motion control and robots. In addition, Yaskawa is actively engaged in new businesses such as biotechnology, and I feel that this has led to high evaluations from stakeholders. And by combining these businesses with value-added solutions to make them even stronger, I think we have a chance to make a big leap.

The Yaskawa Group's corporate governance in the future

As an outside director, I have an image of Yaskawa as an open corporate culture. From now on, in addition to the defensive governance that further enhances transparency and ethics, I believe it is necessary to foster a spirit of boldly taking on the challenge of business and strengthen both proac- tive governance that is rich in diversity.

45 YASKAWA Report 2021

Business Model	Vision and Strategy	Management Capitals	Corporate Governance	Business Promotion	Financial and Corporate
Information

Key Initiatives in FY2020 and KPIs in Mid-Term Business Plan "Challenge 25 Plus"

Achievements in FY2020

KPI for a Fair and Transparent Governance System (FY2022)

Awareness of the reporting system	Awareness of the reporting system for legal violations
for legal violations
Improvement by at least 20% from FY2018 level
27% improvement from FY2018
(Results of FY2020 employee questionnaire)	(Awareness is measured by employee questionnaire)
Level of implementation of information security measures	Level evaluation score for information security measures
20% improvement from FY2019
Improvement by 10% or more annually from FY2018
(Implemented audit assessment by external audit organization/	(Measurement of evaluation points for each IPA-compliant
Planned zero-trust security measures through the formulation
security index)
of a roadmap)
Implementation of disaster prevention	Improvement plan execution rate
in disaster prevention risk survey
risk surveys at major plants	100%
Implementation of self-evaluation of the Board of Directors	Implementation of self-evaluation of the Board of Directors
In addition to annual self-evaluations,third-party	In addition to annual self-evaluations,third-party
evaluations are conducted every three years	evaluations are conducted every three years

Major Initiatives in FY2020

Awareness of the reporting system for legal violations The Compliance Promotion Month was set up to raise awareness of the reporting system through the dissemination of messages from the top management and the activities of the legal experts, who are in charge of legal affairs and are well versed in business operations and applicable laws and regulations, as well as the activities of the compliance promotion leader established in each business division.

We will continue to strive to maintain and improve awareness of the reporting system through information dissemination and activities to prevent violations of laws and regulations.

Improvement of level evaluation score for information security measures

Since FY2020, Yaskawa has been engaged in digital management utilizing IT under the slogan of YASKAWA Digital Transformation (YDX). New threats and security risks are increasing in addition to conventional cyber attacks, such as cloud services and the increase of remote work in COVID crisis, which are essential for achieving these goals.

For this reason, we regard the response to information security risks as a management issue and consider these measures to be necessary investments for future business activities and growth. In FY2020, we conducted an information security audit by an external organization, established a new evaluation standard covering various guidelines and regulations, strengthened the system,

formulated a roadmap, implemented PDCA and necessary security measures, and conducted numerical evaluations. Going forward, we will define zero trust security* as three access layers: cloud, network, and endpoint, and move forward with the transition to a zero trust environment utilizing cloud resources, with the aim of further strengthening security. We will also confirm changes in the environment and technological progress based on the circumstances of other companies and strive to maintain and improve the security level.

• Zero-trustsecurity: The concept of security measures based on the assumption that "everything is untrustworthy"

Implementation of disaster prevention risk surveys at major plants

A disaster risk survey was conducted at four business sites in Japan (Yahatanishi, Yahatahigashi, Yukuhashi, Nakama,) and fire, water, and earthquake risks were eval- uated. Improvement plans were prepared for improvement proposals extracted as a result of the evaluation.

Continued implementation of the Board of Directors evaluation We conducted a survey of all directors. In addition, independent hearings with directors are conducted by a third-party organization once every 3 years, and are scheduled to be held in FY2021.

For details, please refer to "Evaluation of the Effectiveness of the Board of Directors" on page 48.

YASKAWA Report 2021 46

Corporate Governance

Basic Approach to Corporate Governance

Yaskawa has established Yaskawa Electric Corporate	corporate governance, with the aim of enhancing corporate
Governance Policy, which outlines its basic stance on	value for our stakeholders over the medium- to long-term.

Yaskawa Electric Corporate Governance Policy

Chapter 1 Ensuring Shareholder Rights and Equality 1. Policy for the General Meeting of Shareholders

2. Capital Policy

3. Policy on Cross-Shareholdings

4. Policy on Takeover Defense Measures

5. Policy for Transactions between Relevant Parties Chapter 2 Appropriate Collaboration with Stakeholders Except

Shareholders

1. Basic Concept for Strengthening Social and Relationship Capital

2. Social and Environmental Issues

Chapter 3 Ensuring Appropriate Information Disclosure and Transparency

Chapter 4 Responsibilities of the Board of Directors, etc. 1. Organization Design

2. Board of Directors Policy

3. Policy on Directors

4. Independent Outside Director

5. Access to Independent Experts

6. Advisory Committee

7. Exchange of information and sharing of awareness among independent outside directors

8. Directors' Remuneration

9. Roles of the Audit and Supervisory Committee Chapter 5 Communication with Shareholders Chapter 6 Other

*For details of this policy, please see the website.

https://www.yaskawa-global.com/wp-content/uploads/2021/02/Corporate_Governance_Policy.pdf

Corporate Governance System

As a Business-to-Business manufacturing company, Yaskawa's management requires in-depth knowledge of market characteristics and technological trends, it has selected a system with an Audit and Supervisory Committee as an institutional design for its organization on the assumption that the president has authority over management poli- cies, nominations, and compensation.

Furthermore, we have developed a governance system to enhance the effectiveness of the Board of Directors by actively incorporating external knowledge, and to strengthen both defensive and offensive governance, in order to continuously improve corporate value. Yaskawa will continue to pursue its best, enhance management transparency, and further enhance corporate governance.

47

History of Initiatives to Enhance Corporate Governance

FY		FY2012 - FY2014	FY2015 - FY2017	FY2018 - FY2020
		FY2012	FY2015	FY2018
		• Adoption of executive officer	• Transition to a company with Audit	• At least 1/3 of the board of directors are
		system	and Supervisory Committee	independent outside directors
		• Number of Directors was	• Voluntary Nomination Advisory	FY2019
		reduced to 12 from 20	Committee established	• Disclosed board skill matrix
				(In addition to the fields expected of each
Main measures		FY2014	FY2016	director, gender and age are listed)
	• Voluntary Remuneration	• Evaluation of the effectiveness of	FY2020
		Advisory Committee established	the Board of Directors	• Determination of basic policies for
			commenced	executive compensation
				•Established Yaskawa Electric
				Corporate Governance Policy
				•Established Sustainability Policy
				(March 2021)
		• Faster and more efficient	• Strengthening of offensive and	• Improving the independence and
		management decision-making	defensive governance	objectivity of the Board of Directors
Aim and purpose		and execution	• Ensuring transparency and fairness in	• Enhancement of information disclosure
	• Ensuring the appropriateness	nomination of director candidates	• Contributing to the realization of a
		and transparency of executive	• Improving the functions of the Board of	sustainable society in addition to
		compensation	Directors to increase corporate value	improving corporate value
Institution establishment	Company with Board of	Company with Audit and Supervisory Committee
Corporate Auditors
Composition of	Internal	6	8*	8*
Independent	1	3*	4*
the Board of
outside
Directors			（1）
(Female)
Composition of Audit	Internal	2	2	2
and Supervisory	Independent	2	3	4
Committee
outside
(Up to FY2014, data			（1）
(Female)
indicated as "Board of
Corporate Auditors")

• Including directors who are Audit and Supervisory Committee members.

YASKAWA Report 2021

Business Model	Vision and Strategy	Management Capitals	Corporate Governance	Business Promotion	Financial and Corporate
Information

Composition of the Board of Directors

Yaskawa's Board of Directors is composed of individuals with advanced knowledge and experience in various areas of corporate management. In addition, areas of particular importance in corporate management are defined as "corporate management and management strategy," " corporate governance," "finance and accounting," "legal affairs," "sales and marketing," "manufacturing, R & D and ICT," and "global."

Since May 2018, we have increased the number of independent outside directors to more than 1/3 of the Board of Directors.

In addition, the number of directors is not unevenly distributed in important areas of management where each director is expected to demonstrate his or her abilities.

• Please refer to the Notice of Convocation of the Ordinary General Meeting of
  Shareholders for the reasons for the election of each Director. https://www.yaskawa-global.com/wp-ontent/ uploads/2021/04/105_agm_en.pdf

Structures for the Board of Directors, the Audit and Supervisory Committee, and Advisory Committees

Structure

Field of capability that Yaskawa expect each director to demonstrate

Name (Age)

Attributes

Audit and

Nomination

Remuneration

Corporate

● Male

Board of

management

Corporate

Finance

Sales

Manufacturing

● Female

Supervisory

Advisory

Advisory

Legal

Global

Directors

Management

governance

Accounting

Marketing

R & D and IT

Committee

Committee

Committee*

strategy

Junji Tsuda

（70）

◎

●

●

●

●

●

Hiroshi Ogasawara （65）

○

◎

●

●

●

●

●

●

●

Shuji Murakami

（62）

○

○

●

●

●

●

●

●

Yoshikatsu Minami （61）

○

●

●

●

●

●

Masahiro Ogawa

（56）

○

●

●

●

●

●

●

Yasuhiko Morikawa （58）

○

●

●

●

●

●

●

Yuichiro Kato

（51）

Independent

○

○

○

●

●

●

●

●

●

Yuji Nakayama

（61）

○

◎

●

●

●

●

●

Koichi Tsukahata

（60）

○

○

●

●

●

●

Yoshiki Akita

（69）

Independent

○

○

○

〇

●

●

●

●

●

●

Junko Sasaki

（61）

Independent

○

○

○

○

●

●

●

●

●

○

Hideo Tsukamoto

（40）

Independent

○

○

○

○

●

●

●

●

●

Toshikazu Koike

（65）

Independent

○

○

○

◎

●

●

●

●

●

• Chairperson ○ Member

Note: The above table does not represent the full knowledge of each director. Age is as of the 105th general meeting of shareholders held on May 26, 2021.

Evaluation of the Effectiveness of the Board of Directors

Yaskawa has been conducting an evaluation of the effectiveness of the Board of Directors every year since FY2016 to ensure the sustainable enhancement of corporate value through the improvement of the effectiveness of the Board of Directors. All Directors, including Audit and Supervisory Committee Members, respond to the "Questionnaire on the Evaluation of the Board of Directors" (anonymous method) after understanding the purpose of the evaluation.

According to the FY2020 survey, respondents answered to more than 80% of the evaluation items as "done," indicating that the Board of Directors is generally effective. On the other hand, the response "urgent improvement is necessary" was also extracted, which was not extracted in the past two years. We believe this is an increase in the level required of the Board of Directors. We are working to further improve the effectiveness of these measures by taking them into account.

Executive Compensation

Basic policy on executive compensation

The Board of Directors of Yaskawa determines the compensation policy for Directors (excluding Audit and Supervisory Committee Members.)

As a basic policy, for the purpose of continuous enhancement of corporate value and enhancement of competitive- ness, the remuneration level of Yaskawa's officers shall be such that excellent human resources can be secured, and the incentive for short-term, medium- to long-term performance improvement shall function.

The basic policy for performance-linked compensation is as follows.

・Single-year compensation

In order to raise awareness of continuous profit improvement for the entire company, compensation will be provided according to profit performance in the previous fiscal year.

・Medium- to long-term compensation

Raise awareness of improving corporate value over the medium to long term and share benefits with stakeholders.

YASKAWA Report 2021 48

Corporate Governance

Compensation Advisory Committee

Remuneration to Directors

(Excluding Audit and Supervisory Committee Members)

• Basic compensation

The maximum amount of basic remuneration for Directors shall be a fixed limit of 430 million yen or less.

• Directors (excluding Outside Directors)
  A certain amount will be provided according to the performance evaluation and position of each director as he/she is responsible for improving corporate value.
• Outside Director
  A fixed amount will be provided in advance for the responsibility of supervising the execution of duties.
• Performance-linkedcompensation (single-year compensation)
• Directors (excluding Outside Directors)
  The maximum amount of performance-linked compen- sation shall be 1.0% or less of the consolidated net

income of the fiscal year prior to the General Meeting of Shareholders appointed or reappointed, in order to more clearly link compensation to consolidated perfor- mance. The amount of remuneration for each director is calculated by taking into account the relative results of Yaskawa from standard deviations with respect to operating profit, operating profit growth rates and ROA performance of other companies in the same industry.

• Outside Director
  Performance-linked compensation is not provided.
• Stock compensation (medium- to long-term compensation)
• Directors (excluding Outside Directors)
  The evaluation indices used to calculate stock-based com- pensation in mid-term business plan "Challenge 25 Plus" from FY2021 to FY2022 are as follows. The stock compen- sation is calculated by multiplying the performance factor according to the target value of each evaluation index.

Evaluation Indicators and Formulas for Stock Compensation for Directors (Excluding Outside Directors)

(a) Base amount by rank		(b) Operating profit amount	(c) Operating profit ratio
(Base amount for one year)		(Fiscal year concerned)	(Fiscal year concerned)
(d) Achievement level of ROIC		(e) Comparison of TSR with TOPIX		(f) Achievement level of CO2 emissions				Stock compen-
		reduction through Yaskawa products
(Fiscal year concerned)		(Fiscal year concerned)					sation to be paid
		(Fiscal year concerned)

Target

			Target value	Achievement factor
			FY2021	FY2022
(a) Base amount by rank
(Base amount for one year)
(b) Operating profit amount			42.0 billion yen or more	61.0 billion yen or more	(0.84/347×Operating profit amount)－a*1
(Fiscal year concerned)
	Less than 42.0 billion yen	Less than 61.0 billion yen	0.64/b×Operating profit amount*2
		Less than the results of the previous	Calculated based on the results	0
			fiscal year (27.1 billion yen)	of the previous fiscal year (2021)
(c) Operating profit ratio			9.8%	13.0%	0.80～1.20
(Fiscal year concerned)
(d) Achievement level of ROIC			11.3%	15.0%	0.80～1.0
(Fiscal year concerned)
(e) Comparison of TSR with TOPIX		No settings	TSR/TOPIX growth rate for the firscal year
(Fiscal year concerned)			concerned
(f) Achievement level of CO2 emissions
reduction through Yaskawa products		40 million tons	73 million tons	0.80～1.20
(Fiscal year concerned)
*1 a: Substitute the numbers on the right	FY2021: 0.017 FY2022: 0.477
*2 b: Substitute the numbers on the right	FY2021: 42.0	FY2022: 61.0

(a) Base amount by rank

In light of the size and responsibilities of the areas in which Directors are responsible and their contribution to Group management, the Company sets the base amount according to their positions after deliberation by the Compensation Advisory Committee.

(b) Operating profit amount (fiscal year concerned)

Evaluations are based on operating profit values for each fiscal year of the mid-term business plan"Challenge 25 Plus"from FY2020 to FY2021. From the time of exceeding the results of the previous fiscal year, evaluation is conducted by a certain coefficient, and the coefficient is set higher after

49 YASKAWA Report 2021