Corporate Governance Structure

BIL positions the Board of Directors as an organization that decides on basic management policies, makes high-level management decisions, and supervises the execution of operations. We adopt the structure of a company with an Audit & Supervisory Board. In addition, to ensure high transparency and objectivity, we have continuously enhanced our corporate governance structure. In order to enhance the management system focusing on sustainability, we established the Sustainability Committee in FY2022, which is chaired by the Representative Director & President, to conduct ongoing discussions on sustainability and report regularly to the Board of Directors.

BIL positions the Board of Directors as an organ that carries out decision-making on the basic policies of management, high-level management decisions, and supervision of executive operations. As such, the structure of a company with a board of company auditors is adopted as it is thought to be appropriate. The Board of Directors consists of 11 directors (including five Outside Directors)^*, of which one is a female director. In principle, meetings, which are chaired by the Director & Chairman, are held once each month. In FY2021, the Board of Directors held 12 meetings. To increase medium- to long-term corporate value, the board formulates management strategies and plans and carries out decision-making on important executive operations. At the same time, the Board Supervises Directors, Executive Officers, and other parties in their execution of operations, and strives to establish structures that ensure management soundness, such as the Group's internal control and risk management systems.

• (As of June 20, 2022)

The Audit & Supervisory Board consists of five Corporate Auditors (including three Outside Auditors)^*, and held a total of 12 meetings in FY2021.
The Corporate Auditors have high levels of expertise in fields such as law and accounting, and following the audit standards established by the Audit & Supervisory Board, mainly conduct the audit activities given below, audit the Directors' execution of duties, and conduct audits on the state of establishment and implementation of the Group's internal control system.

Main activities

• Attendance of Board of Directors' meetings and voicing of opinions
• On-site audits of group companies and listening to reports
• Interviews and opinion exchange with Directors
• Interviews and opinion exchange with executive departments
• Regular exchange of information and opinions with the Internal Auditing Department and Accounting Auditors (such as three-way audit liaison conferences between the Audit & Supervisory Board, Accounting Auditors, and Internal Auditing Department, and meetings for reports on financial results)

• (As of June 20, 2022)

BIL appoints many independent Outside Directors with extensive experience in corporate management to ensure objective and neutral oversight of management from an external point of view, and thereby strengthens its management oversight function. BIL's Independent Outside Directors provide management advice, decide important matters, and oversee executive operations based on their respective abundant experience, careers, and insights from perspectives independent of BIL's management.

BIL has introduced an executive officer system to ensure swift decision-making by separating executive operations and supervision. There are 15 Executive Officers (including one female Executive Officer) and four group executive officers (including two non-Japanese nationals)^*. Of the executive officers, five are concurrently directors. Executive officers—including group executive officers—are elected by the Board of Directors, and carry out decision-making and execution of executive operations delegated by the Board of Directors in accordance with the basic management policies determined by the board. At the same time, the executive officers are responsible for overseeing the operations of businesses, departments, and group subsidiaries under their supervision.

• (As of June 20, 2022)

BIL has established the Nomination Committee and Compensation Committee as arbitrary advisory committees to the Board of Directors, in order to enhance the independence and objectivity of the functions of the Board of Directors regarding the appointment or removal and remuneration of Directors and Executive Officers. Each of the committees consists of seven Directors^*, including five Outside Directors as well as the Director & Chairman and the Representative Director & President, and appoints an Outside Director as its chairperson (Nomination Committee: Keisuke Takeuchi; Compensation Committee: Kazunari Uchida).
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 also reports on matters such as the succession planning for the CEO and other top management to the Board of Directors. The Nomination Committee primarily discusses matters related to the election of Directors, executive officers, and other senior management, and related matters. The Nomination Committee met four times in FY2021, and the attendance rate of each member was 100%.
The Compensation Committee must discuss the contents of the Company rules concerning the standard for calculating the remuneration for Directors and executive officers, and the contents of respective remunerations of respective individuals, and report the outcome to the Board of Directors. The Compensation Committee primarily discusses matters related to compensation for Directors, executive officers, and other senior management, including content, calculation method, individual payment amounts, and comparisons with the compensation levels of other companies. The Compensation Committee met eight times in FY2021, and the attendance rate of each member was 100%.

• (As of June 20, 2022

Brother Industries, Ltd. Governance Structure (As of June 20, 2022)

At BIL, respective directors and auditors every year evaluate the effectiveness of the Board of Directors and report the results to the Board of Directors. Based on the evaluation, the Board of Directors analyzes and assesses the effectiveness of the entire Board of Directors and discloses a summary of its results in a timely and appropriate manner.
The evaluation of the Board of Directors for FY2021 was conducted in February 2022 by having all directors and corporate auditors answer a survey developed after seeking the opinions of external consultants. The survey's main questions are given below.

• Composition and operation of the Board of Directors
• Management and business strategies
• Corporate ethics and risk management
• Performance monitoring and evaluation and remuneration of the management
• Dialogues with shareholders, etc.
• Previous fiscal year's issues and results of measures

To guarantee objective analysis, the consolidation of the survey and analysis of results are tasked to external consultants. The Board of Directors' secretariat conducts analysis using the consolidated data. A cycle is then implemented whereby analysis results, improvement measures, and other information is reported to and discussed by the Board of Directors, improvement measures are implemented, and then re-evaluation takes place in the following year.

1. Design of questions for measuring effectiveness of the Board of Directors together with external consultants taking into consideration factors such as social trends related to corporate governance.
2. Evaluation regarding the effectiveness of the Board of Directors is conducted using a survey method for all directors and corporate auditors. The survey's consolidation and analysis of results are tasked to external consultants. The survey response rate for FY2021 was 100%.
3. The results of the survey are analyzed together with external consultants, identifying issues and proposing improvement measures to improve the effectiveness of the Board of Directors. The analysis results, improvement measures, and other matters are reported to the Board of Directors and discussed.
4. After discussion by the Board of Directors, measures are implemented to improve the effectiveness of the Board of Directors. The effects of these efforts are confirmed by the directors and corporate auditors during the following fiscal year's effectiveness evaluation survey.

At the meeting of the Board of Directors held in May 2022, the evaluation results were discussed, and it was confirmed that BIL's Board of Directors functioned effectively in general. At the same time, through the evaluation of the Board of Directors, opinions were raised regarding requests and room for improvement about the following areas.

• Add measures to actively implement discussions regarding business portfolio, capital costs, and digital transformation
• Expand and enhance the scope of discussions regarding sustainable management
• Further improve the quality of board meeting materials to ensure appropriate discussion by directors
• Continuously provide opportunities for directors to obtain knowledge in order to fulfill their roles

The Board of Directors will continue to improve the board's effectiveness taking into consideration these opinions.

The results of the previous effectiveness evaluation of the Board of Directors in February 2021 confirmed that BIL's board was functioning effectively overall. However, the issues below were pointed out and the following measures were taken in FY2021.

BIL has established an officer remuneration system that facilitates the recruitment and retention of outstanding managerial human resources from inside and outside the Company and serves the purpose of sustainably increasing corporate value and has adopted a policy of paying remuneration at appropriate levels according to job responsibilities and performance. Effective from the current fiscal year, we have revised the details of the performance-based and stock-based remuneration plans with the aim of continuously improving our corporate value.
The Company's Director remuneration is composed of the following:

Full-time Directors who do not concurrently serve as executive Directors (excluding Outside Directors) are paid only basic remuneration and stock-based compensation. Outside Directors and part-time Directors are paid only basic remuneration.
Objectivity and transparency regarding the amounts and calculation methods of all forms of Director remuneration are insured by specifying them in detail in the Company's Director Remuneration Rules and Share Grant Rules (collectively referred to as the "Director Remuneration Rules etc."). Revisions to the Director Remuneration Rules etc. require deliberation by the Compensation Committee and a resolution by the Board of Directors.
Remuneration paid to the Company's Corporate Auditors comprises only basic remuneration, which is fixed-amount remuneration, and is prescribed in the Corporate Auditor Remuneration Rules established by the Audit & Supervisory Board.

Amounts and Calculation Methods of Officer Remuneration

Basic remuneration

Basic remuneration paid to Directors and Corporate Auditors is a fixed amount of remuneration and is determined corresponding to their positions and job responsibilities within a remuneration limit approved by the General Meeting of Shareholders. Basic remuneration paid to Directors and Corporate Auditors is limited to 400 million yen per year and 140 million yen per year respectively.

Annual bonus

Annual bonus paid to full-time Directors who concurrently serve as Executive Officers are limited to 0.4% of the amount of consolidated profit (profit for the period attributable to owners of the parent company) for each fiscal year and paid based on reports of the Compensation Committee and resolutions of the Board of Directors.
Annual bonus is calculated using the calculation method specified below. However, the total amount of annual bonus in each fiscal year is limited to 0.4% of the amount of consolidated profit for the relevant period. If as a result of the following calculation, the total payment amount exceeds this limit, the amount is adjusted to within the limit.

• In this section, "revenue" refers to consolidated revenue and "profit for the period" refers to profit for the period attributable to owners of the parent company.

1. The "allocation ratio" is determined based on the sum of "base points" corresponding to the director's position and the predetermined "base point unit price," "base revenue," and "base profit for the period."
2. Based on the allocation ratio from (1), the total annual bonus fund for the relevant fiscal year is calculated according to the following formula:
   Aggregate fund 1 = Consolidated profit for the period × Allocation ratio × 1/2
   Aggregate fund 2 = Consolidated profit for the period × Allocation ratio × 1/2 × Revenue adjustment coefficient (as specified in the following table)
   Aggregate bonus fund = Aggregate fund 1 + Aggregate fund 2

• "Consolidated profit for the period" refers to profit for the period attributable to owners of the parent company.

3. Aggregate bonus fund is proportionally divided according to the base points for each position of each eligible Director, and the provisional distribution amount for each eligible Director is calculated.
4. The Representative Director and President may propose a special supplementary amount of up to 10% of the provisional distribution amount for each Director eligible for payment, excluding himself.
5. After the Compensation Committee examines the total provisional distribution amount and special supplementary amounts for each Director eligible for payment and the total payment amount, the Committee submits to the Board of Directors a proposal on the annual bonus payment amount for each Director eligible for payment, and payment is made to each eligible Director pursuant to a resolution of the Board of Directors.

Stock-based compensation

Stock-based compensation is variable remuneration linked to the degree of attainment of medium-term strategies and so on and the degree of increase in shareholder value in order to provide incentives to contribute to enhancing the Company's corporate value over the medium to long term. Stock-based compensation makes use of a share grant trust mechanism whereby shares and other securities are granted to Directors eligible (excluding Outside Directors, part-time Directors, and Directors who are non-residents of Japan) for payment using a trust to which the Company contributes funds.

1. The Company grants to each eligible Director 50% of the number obtained by dividing the predetermined base amount of stock-based compensation by the base stock price according to the Director's position in the Company as fixed points and 50% as performance-linked points for the period covered by the medium-term strategy, etc. (referred to simply as the "applicable period") in each fiscal year, and the points accumulate.
2. After termination of the applicable period, the cumulative number of performance-linked points is calculated for each Director according to the following formula and a final determination of the performance-linked point final value is made.

Formula
Performance-linked point final value = (A) + (B) + (C) + (D)
(A) Performance-linked cumulative value × 25% × Revenue coefficient^*1
(B) Performance-linked cumulative value × 25% × Profit coefficient^*2
(C) Performance-linked cumulative value × 25% × ESG coefficient^*3
(D) Performance-linked cumulative value × 25% × TSR coefficient^*4

*1 Revenue Coefficient

-Calculated in accordance with the following table according to the degree of achievement of the consolidated revenue target in the final fiscal year in the applicable period.

*2. Profit coefficient

-Calculated in accordance with the following table according to the degree of achievement of the consolidated profit for the period (profit for the period attributable to owners of the parent company) target in the final fiscal year in the applicable period.

*3. ESG coefficient

-Calculated in accordance with the following table according to the degree of achievement of the CO₂ reduction amount target for Scope 1 and Scope 2 during the applicable period.

*4. TSR coefficient

-Calculated in accordance with the following table according to the Company's TOPIX outperformer ratio (the "TSR OP Ratio") during the applicable period.

-The TSR OP Ratio is calculated as indicated below.
TSR OP ratio (%) = The Company's TSR ÷ TOPIX including dividends × 100

1. The Company's TSR indicates total shareholder returns including capital gains and dividends during the applicable period.
2. In the case where a director leaves his/her position as Director before termination of the applicable period due to expiration of his/her term, an adjustment calculation is made based on the above.

1. A director who satisfies the eligibility requirements to receive stock-based compensation will receive 70% of the accumulated points granted based on (1) and (2) above after leaving his/her position and will receive monetary benefits equivalent to the remaining points.

The composition ratio of individual remuneration, etc. for each type of remuneration

The composition ratio of remuneration for each full-time Director who concurrently serves as an Executive Officer is as follows when actual values are in agreement with the short-term performance target, which is an indicator for the annual bonus, and the medium-term performance target, which is an indicator for stock-based compensation. Basic remuneration (fixed) : Annual bonus (performance-based) : Stock-based compensation (performance-based)= generally 5 : 3 : 2
The composition ratio of remuneration for each full-time Director who does not concurrently serve as an Executive Officer is as follows when actual values are in agreement with the medium-term performance target, which is an indicator for stock-based compensation.
Basic remuneration (fixed) : Stock-based compensation (performance-based) = generally 3 : 1

Clawback and Malus clause

With regard to annual bonus and stock-based compensation, in the case where a Director engaged in non-conforming conduct, accounting irregularities, or the like, the Company may demand that the Director return all or part of remuneration previously paid pursuant to a recommendation by the Compensation Committee and a decision of the Board of Directors.

The Compensation Committee's activities in the course of determining the amount of officer compensation

The Compensation Committee verifies the appropriateness of remuneration, etc. by position and type of Director and the total remuneration level while making reference to objective remuneration level data from external research organizations on a regular basis each year.

As part of these activities, the Compensation Committee deliberated on the agenda items indicated below in FY2021.

The Board of Directors' activities in the course of determining the amount of officer compensation

The Board of Directors deliberated on and decided matters on officer remuneration for FY2021 as indicated below.

Amounts of officer remuneration

(For one year from April 1, 2021 to March 31, 2022)

1. The amount of remuneration paid to Directors does not include the employee salary portion for those employees who also serve as Directors.
2. The officers receiving remuneration shown in the table above includes three directors (of which one was an Outside Director) who left their positions during FY2021.
   (of which one was an Outside Director) who left their positions during FY2021.
3. The remuneration paid to Directors in FY2021 was calculated and paid based on the previous "the policy on determining renumeration for individual Directors" that was set at the Board of Directors meeting held in March 2021. For the details of the policy, please see the Company's 130th Securities Report on pages 73 to 75.

For other information on officer remuneration, please see the Securities Report.

BIL's Board of Directors is composed of various types of individuals with different knowledge and experiences to contribute to the sustainable management of the Brother Group's global business operations. BIL, placing importance on both supervisory and advisory functions of the Board of Directors, places particular emphasis on appointing Outside Directors who are independent of its management and who possess a wealth of management experience.
BIL expects each Director and Corporate Auditor, toward achieving the Brother Group's vision "At your side 2030," to contribute to the nine areas of expertise in the skill matrix in terms of both supervision and advice, in order to actively respond to sustainability issues as well as form business strategies including growth strategies in the industrial areas under the CS B2024 Medium-Term Business Strategy.

Skills Matrix（As of June 20, 2022）

1. The information above does not include all of the expertise possessed by each Director and Auditor.

• Corporate Governance Report [PDF/471KB] (Last update: October 7, 2022)