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Corporate Governance

Brother Group Basic Policies on Corporate Governance

Preamble

Brother Industries, Ltd. has established basic policies concerning corporate governance (hereafter referred to as the Basic Policies) in accordance with the resolution adopted by its board of directors.

Section 1: General Provisions

Article 1: The Fundamental Ideas of Corporate Governance
The Brother Group has established the Brother Group Global Charter (hereafter referred to as the Global Charter) as the basis of all of its activities conducted worldwide, and sets enhancement of its corporate value over the long term by optimizing management resources and creating customer value, development of long-term trustful relationships with its shareholders by enhancement of corporate transparency through active provision of corporate information to shareholders, etc. as the fundamental concepts of the group's corporate governance.

Section 2: Securing the Rights and Equal Treatment of Shareholders

Article 2: The Basic Policies concerning Cross-shareholdings and Execution of Voting Rights regarding Cross-shareholdings

  1. Brother Industries, Ltd. holds shares of other listed companies when building good business relationships with such companies is considered likely to contribute to improvement of its corporate value over the mid to long-term (hereafter referred to as cross-shareholdings).
  2. The board of directors examines the appropriateness of its individual cross-shareholdings on an annual basis and expedites reduction of holdings determined deficient in meaning.
  3. Brother Industries, Ltd. generally exercises its voting rights related to its cross-shareholdings. Brother Industries, Ltd. approves an agenda after carefully examining its contents, except when it may potentially harm Brother's mid to long-term economic interest and when it is obvious that the shareholder value will be damaged such as by antisocial acts by listed companies or the management of listed companies.

Article 3: Related Party Transactions
In cases in which a director is processing a transaction that could potentially create business competition with Brother Industries, Ltd. or result in a conflict of interest with Brother Industries, Ltd., that director must receive approval from the board of directors in accordance with the procedure stipulated by the company rules.

Section 3: Appropriate Cooperation with Stakeholders

Article 4: The Business Principles, Code of Practice, and Relationships with the Stakeholders
The Global Charter consists of the basic policies and code of practice concerning daily decision-making and actions of Brother Industries, Ltd. and the Brother Group's directors, executive officers, employees, etc., and sets forth their relationships with the stakeholders.

Section 4: The Responsibilities of the Board of Directors, etc.

Article 5: The Roles of the Board of Directors

  1. Brother Industries, Ltd. implements an executive officer system, whereby executive operations by executive officers and supervision by the board of directors are separated in an effort to ensure swift decision-making and strengthen its corporate governance.
  2. The board of directors holds responsibility to deliberate and make decisions on important executive operations stipulated by laws, the articles of incorporation and company rules, and to supervise directors and executive officers as to their execution of duties.
  3. The board of directors shall delegate items other than the ones that require decision making on an executive operation by the board of directors as defined in the previous clause to the representative directors, executive directors or executive officers.

Article 6: The Composition of the Board of Directors

  1. The board of directors must not exceed 11 members as stipulated in the articles of incorporation, and include an adequate number of outside directors needed to supervise important administrative decision-making and execution of executive operations at the board of directors.
  2. The board of directors shall consist of diverse members with dissimilar backgrounds such as knowledge and experience, whereby it can contribute to global business operations of the Brother Group.

Article 7: The Qualifications and the Appointment Procedures for Directors and Executive Officers

  1. A director must possess a fine personality and perception, and an ability to appropriately execute the director's duties.
  2. An outside director must possess considerable experience in corporate management, and be in compliance with the standards stipulated in Appendix 1 (hereafter referred to as the Independence Standards), in addition to meeting the qualifications indicated in the previous clause.
  3. A candidate for a director is decided by the board of directors in accordance with Clause 1 and 2 of this article and through the procedure taken by the Nomination Committee as stipulated in Article 13.
  4. Brother Industries, Ltd. must disclose the reasons for its selection of candidates for directors in the notice of convocation of general meeting of shareholders.
  5. An executive officer must possess a fine personality and perception, be acquainted with the business and operation under the executive officer's direction, and must retain the ability to pursue the duties of an executive officer properly.
  6. An executive officer is appointed by the board of directors based on the qualifications indicated in the previous clause, and through the procedures taken by the Nomination Committee as stipulated in Article 13.

Article 8: The Composition of the Board of Auditors

  1. The board of auditors must not exceed five members as stipulated in the articles of incorporation, and outside statutory auditors must comprise 50 percent or more of the members.
  2. The board of auditors must consist of at least one statutory auditor with sufficient expertise in finance and accounting.

Article 9: The Qualifications and Appointment Procedure of Statutory Auditors

  1. A statutory auditor must possess a fine personality and perception, and the ability to properly pursue duties as a statutory auditor.
  2. An outside statutory auditor must be in compliance with the Independence Standards, in addition to meeting the qualifications indicated in the previous clause.
  3. A candidate for a statutory auditor is decided by the board of directors in accordance with Clause 1 and 2 of this article, and after receiving the approval of the board of auditors.
  4. Brother Industries, Ltd. must disclose the reasons for its selection of candidates for statutory auditors in the notice of convocation of the general meeting of shareholders.

Article 10: The Roles of Outside Directors

Brother Industries, Ltd. requests its outside directors to fulfill roles to provide advice on its business management, make decisions on important items, and supervise the execution of business from a perspective independent of Brother's top management based on their respective and extensive experience, achievements, and knowledge.

Article 11: Outside Officers Holding Concurrent Posts

Brother Industries, Ltd. annually discloses the status on the holding of concurrent posts of outside directors and outside statutory auditors (hereafter collectively refer to outside officers) in the notice of convocation of the general meeting of shareholders and the company's annual securities report.

Article 12: Establishment of the Nomination Committee and the Compensation Committee

  1. Brother Industries, Ltd. has established the Nomination Committee and the Compensation Committee as arbitrary advisory committees of the board of directors.
  2. The Nomination Committee and the Compensation Committee must include outside directors as their majority members, and must appoint outside directors as the committees' chairpersons.

Article 13: The Nomination Committee

The Nomination Committee must deliberate on the agendas of the general shareholder meeting concerning appointment or removal of directors and the agendas of the board of directors concerning appointment or removal of executive officers in a fair, transparent and strict manner before the agendas concerned are finalized, and report the outcome to the board of directors. The Nomination Committee must also report on the contents of the Independence Standards and succession planning for the CEO and other top management to the board of directors.

Article 14: The Compensation Committee

  1. The Compensation Committee must discuss the contents of the company rules concerning the standard for calculating the remunerations for directors and executive officers, and the contents of respective remunerations of respective individuals, and report the outcome to the board of directors.
  2. The basic policies concerning remunerations of Brother Industries, Ltd.'s directors and executive officers are as stipulated in Article 15.

Article 15: Remunerations of Directors and other Top Management

  1. Remunerations of the directors and executive officers must be appropriate, fair and balanced in a way that contributes to further enhancement of the motivation of the directors and executive officers in order to maximize the corporate value of Brother Industries, Ltd.
  2. In addition to the basic remunerations provided to all, the remunerations of directors also consist of performance-based remunerations reflecting their responsibilities for achievement in the group's year-on-year business performance, and stock options for a stock-linked compensation plan for directors offered as an incentive for long-term improvement of corporate value, which are given as remunerations provided to directors excluding outside directors.
  3. The remunerations of executive officers consist of basic remunerations, performance-based remunerations, and stock options for a stock-linked compensation plan for directors and executive officers.
  4. The remunerations of directors must be calculated in accordance with the company rules, discussed and reported by the Compensation Committee, and approved by the board of directors. The remuneration of executive officers must be calculated in accordance with the company rules, discussed and reported by the Compensation Committee, and approved by the board of directors or president.
  5. In the case in which the Compensation Committee reports the amount of remunerations of directors and executive officers, it must refer to the standards for remunerations, etc. of other companies that can serve as proper subjects for comparison, and review the appropriateness of the amount of the remunerations.
  6. Brother Industries, Ltd. shall disclose the sum of remunerations paid to its directors in an appropriate manner.

Article 16: The Policies concerning Training for Directors and Statutory Auditors

  1. Directors and statutory auditors must actively collect information related to the Brother Group's business outlines, legal compliance, corporate governance and other issues and continue to acquire knowledge and skills in order to fulfill their roles.
  2. A newly appointed outside officer must be briefed on the Brother Group's management strategies, business outlines and other important matters by the president or those who are appointed by the president.
  3. Brother Industries, Ltd. shall provide its directors and statutory auditors with opportunities for training while referring to the evaluation, etc. stipulated in Article 17 (outside officers are also given opportunities to obtain knowledge about the Brother Group's business outlines).

Article 17: Evaluation

The respective directors and statutory auditors shall conduct evaluations of the board of directors' effectiveness, etc. annually, and shall submit the outcome to the board of directors. Based on the evaluations submitted, the board of directors shall analyze and evaluate the effectiveness of the entire board of directors, and disclose a summary of its results in a timely and appropriate manner.

Section 5: Dialogues with Shareholders

Article 18: Dialogues with Shareholders
The basic policies concerning establishment of organizational structures and measures aimed at promoting constructive dialogues between Brother Industries, Ltd. and its shareholders are as stipulated in Appendix 2.

End of Document
Date of Establishment: November 2, 2015
Date of Revision: November 29, 2018

Appendix 1: The Brother Industries, Ltd. Independence Standards for Outside Officers

  1. Brother Industries, Ltd. shall determine that an individual to which any of the following is applicable, as not "independent" of Brother Industries, Ltd.
    1. An incumbent or past director, executive officer, manager or employee (including an executive officer) of Brother Industries, Ltd. or its subsidiaries (hereafter collectively referred to as Brother Industries, Ltd. etc.).
    2. An individual who is currently serving or served within the past five years as a business executor*1 of a corporation or any other organization (hereafter referred to as a corporation, etc.) that applies to one of the following.
      • A corporation, etc. which is the major shareholder*2 of Brother Industries, Ltd.
      • A corporation, etc. of which Brother Industries, Ltd. etc. is the major shareholder
      • A corporation, etc., which paid Brother Industries, Ltd., etc. an amount of money that is more than two percent of the consolidated net sales of Brother Industries, Ltd. during the business year concerned
      • A corporation, etc. which received either ten million yen as annual payment or a payment equal to two percent of the consolidated net sales of said corporation, etc., whichever is larger, from Brother Industries, Ltd. etc. during the relevant business year
      • A corporation/organization, etc. which obtained more than ten million yen as annual payment or a payment more than two percent of the gross income or recurring revenue of said corporation/organization, etc. whichever is larger, from Brother Industries, Ltd. as a donation or grant during the applicable business year
    3. An individual who currently serves or served within the past five years as a business executor of a company, at which an individual from Brother Industries, Ltd., etc. serves as its director.
    4. A certified public accountant who currently serves or served within the past five years as an accounting auditor of Brother Industries, Ltd., etc., or currently belongs or belonged within the past five years to an auditing firm, which serves as the accounting auditor of Brother Industries, Ltd., etc.
    5. A consultant, accounting specialist, or a legal expert who currently receives or received within the past five years either a payment of more than two percent of the net sales of the business year or ten million yen, whichever is higher, from Brother Industries, Ltd., etc. (excluding the remuneration of officers).
      (In the case that the recipient of said compensation is an organization, such as a corporation or guild, this applies to the consultant, accounting specialist or legal expert who belongs to the organization concerned.)
    6. An individual who is currently a close relative*3 or was a close relative within the past five years of the respective individuals mentioned in 1.1 through 1.5 above (excluding individuals who are not considered as important individuals*4).
  2. In selecting nominees for outside officers, the Nomination Committee and board of directors must confirm their independence from Brother Industries, Ltd.
  1. A business executor is a director in charge of executing a business operation or an executive officer of a corporation or any other organization, an officer or employee in charge of executing a business operation of any other corporation, etc.,, those who fulfill the duty stipulated in the Article 598 (1) of the Japanese Companies Act or any other individual that has a similar responsibility, employee, director (excluding an outside director), a manager who has a similar responsibility, or those who execute tasks of employees, etc.
  2. Refers to a shareholder who holds more than ten percent of the voting rights.
  3. Refers to relatives within the second degree of kinship.
  4. As to 1.1 through 1.3 above, an important individual means a director, executive officer, or an employee who is a department manager or at a higher position (including an executive officer). As to 1.4 above, it refers to certified public accountants belonging to respective auditing firms. As for 1.5 above, it means a director, executive officer, an employee who is a department manager or at a higher position (including an executive officer), certified public accountants belonging to respective auditing firms, or attorneys belonging to respective law firms.

Appendix 2: The Policies concerning Constructive Dialogues with Shareholders

  1. Fundamental Ideas
    By increasing the opportunities to provide information to shareholders and investors and conveying the latest information in a clearly understandable manner, strive to enhance the corporate transparency and build long-term relationships of trust.
  2. An Individual in Charge of Presiding over Dialogues with Shareholders
    Assign an executive officer in charge of holding constructive dialogues with shareholders and investors, and allow that officer to collaborate with the relevant in-house departments supporting the convening of dialogues on a daily basis.
  3. The Ways to Hold Dialogues and the System to Utilize Feedback
    1. In addition to organizing a briefing, telephone conference, etc. for analysts and institutional investors after the announcements of year-end and quarterly consolidated results, provide information via the Brother Group's official website and various other documents.
    2. Brother Industries, Ltd. shall strive to properly share with its directors, the opinions from shareholders obtained through dialogues with them.
  4. Administration of Insider Information in Dialogues with Shareholders
    In compliance with the company rules concerning information management, establish a proactive system to prevent the divulging of insider information.

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