Corporate Governance

Basic stance on corporate governance

AISIN Group builds strong relationships with all of our stakeholders and achieves steady long-term growth and expansion to maximize our value as a company. In order to accomplish this, we believe that it is important to conduct our business activities in a fair and transparent way in order to be a trusted corporate citizen in the international community. We carry out corporate governance according to our Basic Policy on Corporate Governance. We are also endeavoring to achieve sustainable growth and increase our value as a company in the medium to long term through ongoing effectiveness reviews and enhancements of our corporate governance based on factors such as changes in our business environment.

Corporate governance structure

AISIN Group uses an audit and supervisory board system to strengthen the management and supervision of the Board of Directors and enable more efficient management by our operating officers system. To enable more accurate, faster and fairer decision making, we established a framework from June 2019 in which at least one third of our directors are independent external directors. To enable more independent, objective decision-making about appointing and compensating directors and operating officers, decisions of this nature are reviewed and discussed by the Officers Personnel Committee and Compensation Committee, with external directors accounting for the majority of members, before being raised at the Board of Directors meeting.

Initiatives to improve corporate governance

From April 1, 2020, we appointed a new president and operating officer for our operating officers system to enable more flexible changes to the system when an officer is transferred. On June 16, 2020, a partial change to our articles of articles of incorporation was approved at the General Meeting of Shareholders, allowing the president to be selected from our operating officers. The position of executive vice president has also been eliminated to clarify roles in decisionmaking and business operations within the director system. These changes, among others, will further strengthen our corporate governance.

Board of Directors

Members of our Board of Directors, Audit & Supervisory Board, Officers Personnel Committee and Compensation Committee

（◎ Chair　〇 Members）

Ratio of external directors

*The number of meetings is for fiscal year 2020.

Policies and procedures on the appointment and dismissal of directors and auditors

When appointing and dismissing members of our Board of Directors, we seek the optimum balance of knowledge, experience and skills to ensure the suitable, swift and fair decision-making that is needed to achieve sustainable growth and increase our value as a company in the medium and long term. We take a comprehensive approach, including appointing multiple external directors with advanced expertise inside and outside the industry. We are conscious of the need for efficient consolidated management and appoint directors of key subsidiaries as directors of Aisin Seiki.

Nomination, appointment and dismissal is reviewed and discussed by our Officers Personnel Committee, in which the majority of members are external directors, to select candidates for director and auditor positions. Decisions for directors are made on discussion at the General Meeting of Shareholders based on internal decisions made by the Board of Directors. Decisions for auditors are made on discussion at the General Meeting of Shareholders based on internal decisions made by the Board of Directors and agreed upon by our auditors.

Specialties and experience of directors and auditors

Main reports and proposals at Board of Directors meetings

(July 2019 - June 2020)

Initiatives for a more active Board of Directors

We believe that it is important that every member of our Board of Directors brings their own knowledge and experience to their management activities, and we endeavor to facilitate active discussion between our directors, including external directors.

Separation of supervision and execution

• Slimmed down management framework
• Diverse balance of knowledge, experience and skills

Sufficient time for discussion

• Review of standards for discussions by Board of Directors
• Prior explanation of proposed topics for discussion, etc. for external directors
• Creation of annual schedule for Board of Directors meetings

Sharing of information and strengthening of framework for collaboration

• Sharing of details of decisions at important meetings such as management committee meetings
• Holding opinion exchange meetings, round-table conferences, training, etc.
• Observation of domestic and overseas subsidiaries, etc. by external directors

Effectiveness evaluation of Board of Directors

Our Board of Directors includes multiple external directors to guarantee that functions performed by the Board of Directors, such as decision-making and the running of meetings, are executed effectively. Interviews are held with all external directors and auditors to ask about the effectiveness of the Board of Directors as a whole and improvements are made based on their answers.

Evaluation and issues for fiscal year 2020

In our interviews at the end of fiscal year 2020, our external directors expressed that the overall effectiveness of our Board of Directors had improved. Positive points included more active discussion on important issues and a sufficient support framework. Issues included the need for further enhancement of on-site observations and opinion exchanges about strategies and risks.

Improvements and future initiatives

We are creating venues for free discussion between external directors and operating officers to provide more opportunities for exchanges of opinion where necessary, an issue that was raised. Attendees discuss and provide advice on a wide range of topics, such as energy business strategies for building a zero carbon society and visions for a research company in AISIN Group. On-site observations are also done when there are no severe outbreaks of COVID-19.

Initiatives to strengthen internal control

Aisin Seiki is strengthening measures based on the Basic Policy Concerning the Establishment of Internal Control, which was approved by a resolution of the Board of Directors.

The core group companies in AISIN belong to consolidated committees such as the Consolidated Business Ethics Committee, the Consolidated Risk Management Committee, the Consolidated Environmental Committee and the Consolidated Safety and Health Committee, which carry out comprehensive notification and executive activities such as establishing and enacting basic policies to optimize operations and minimize risk, creating guides and carrying out training. The committees also monitor operations throughout the company to ensure that all sites are operating effectively. With regard to auditing activities conducted by internal auditing departments, as of January 2018, the group has sought to enhance its auditing structure by consolidating the auditing functions of its 13 core group companies within group headquarters. Moving forward, we plan to audit all of the group’s consolidated subsidiaries on a regular basis using the genchi genbutsu (go and see) approach.

Additionally, a summary of all activities geared toward improving and strengthening internal controls is reported at a meeting of the Board of Directors, held during April of each year, to verify the adequacy of these initiatives.

Criteria and characteristics of independent external directors

All independent external directors appointed by Aisin Seiki are expected to fulfill the following duties and obligations.

• Apply specialized knowledge, wide-ranging experience and other assets gained from previous roles to their management at Aisin Seiki.
• Provide warnings and advice about risks from an impartial and fair perspective in important decision-making settings such as meetings of the Board of Directors.
• Preside over conflicts of interest between the company and parties such as its management or controlling shareholders
• Appropriately represent outside views at meetings of the Board of Directors. When selecting candidates for external director positions, we focus on specialized expertise and a wide range of experience that will enable the candidate to provide frank and constructive advice about our management, in addition to the requirements for independence set by the Companies Act and the Tokyo Stock Exchange.

Sharing of information with external officers

external directors and auditors carrying out their roles and duties effectively from an independent, objective standpoint. External directors attend monthly round-table conferences with top management and auditors in an initiative to facilitate meaningful discussion at venues such as our Board of Directors meetings.

To promote understanding among external directors and auditors about the businesses and functions of our company, we endeavor to facilitate exchanges of information and boost awareness through venues such as observations of plants, test courses and relevant companies and discussions with the relevant officers and managers in each headquarters and division.

We have also appointed specific staff in our Corporate Planning Dept. and Audit & Supervisory Board Office to facilitate communication and coordination with external directors and auditors and ensure that the information required by external directors and auditors is provided accurately.

Remuneration of officers

Basic stance on remuneration of officers

• (1) Remuneration shall motivate our officers to work toward achieving AISIN Group’s corporate principles and following its management policies.
• (2) Remuneration shall reflect the responsibilities, results, etc. of each officer.
• (3) Remuneration shall reflect the business environment and short- to medium-term results of AISIN Group and encourage officers to improve our corporate value and manage from the perspective of our shareholders.

Remuneration structure for officers

As officers oversee the operations of the company, the remuneration structure for directors (other than external directors) comprises a fixed monthly salary along with bonuses and stock options tied to results.

In recognition of their position as officers responsible for providing supervision and advice or audits of our management from an independent standpoint, external directors and auditors receive only a monthly salary with no bonuses or stock options.

System and configuration of remuneration for directors and auditors

Remuneration amount for directors and auditors

Method for deciding remuneration of officers

Remuneration of directors is decided by the Compensation Committee, in which the majority of members are external directors. The remuneration system and decision method are deliberated on to ensure that officers are paid appropriately and the amount for each position is discussed before a final decision is made by the Board of Directors.

The monthly salary for each auditor is decided upon discussion between the auditors.

Equity

Basic policy regarding cross-shareholdings

To survive the intense competition and continue to grow in the automotive parts and home and energy businesses where we operate, we believe that it is essential to build a cooperative relationship with various companies throughout all processes including development, procurement, production, distribution and sales. For this reason, AISIN retains cross-shareholdings to maintain and improve our company’s value in the medium- to long-term, from an all-encompassing perspective including business strategies and business relationships with trading partners. AISIN does not hold investment shares for net investment for the purpose of receiving profit from changes in the value of our own shares or dividends generated by our shares.

Method for verifying whether to hold shares

Where necessary, AISIN communicates constructively with companies in which we hold shares from the perspective of maintaining and improving the value of the company and driving sustainable growth. These conversations take place with the aim of sharing business issues and solving problems. At each year’s Board of Directors meeting, we discuss all of our cross-shareholdings. Taking into account factors such as benefits and risks based on capital costs, we verify the economic viability and future prospects of the shares from a medium- to long-term perspective based on the return and risk and reflect this in specific explanations of the aims and viability of retaining the shares. If shares are not expected to contribute to maintaining and improving the medium- to long-term value of the company, we consider reducing them. We made a decision at the Board of Directors meeting in May 2020 about whether to hold shares in each individual brand, taking into account quantitative factors such as how much we have traded with them recently and the dividend yield and the company’s ROE compared to our weighted average capital cost, and qualitative factors such as the purpose of holding the shares and our future trading relationship and business development based on our business policies.

Cross-shareholdings held by AISIN

Standard for exercising voting rights

Voting at AISIN is not used to make uniform yes / no judgments according to regular-short-term standards. Rather, points such as the management policies and strategies of companies being invested in are given plenty of weight and decisions are made from the perspective of corporate value in the medium to long term and whether the decision will maintain or increase returns for shareholders.

When voting on each proposal, we confirm points such as whether the company focuses on growth and shareholder profits in its management and whether the company engages in any practices that are harmful to society. Points such as shareholder returns, expansion of authorized capital, measures to prevent takeovers and business restructuring are also evaluated individually as necessary and the outcomes of discussions with the company are taken into account when deciding whether to agree to a proposal.

In the event that a company holding shares in AISIN expresses the intent to sell its shares, AISIN does not prevent the sale.

Ensuring the rights and equality of our shareholders

We endeavor to provide sufficient time for our shareholders to discuss each item at the General Meeting of Shareholders and disclose information in a fair and appropriate manner so that all of our shareholders can make suitable judgments about how to vote. We also strive to create a voting environment that ensures the rights and equality of all of our shareholders, including shareholders with a small number of shares and overseas shareholders including practical shareholders.