KITO : Corporate Governance Report 20220324

Corporate Governance Report

Date last modified: March 24, 2022

KITO CORPORATION

President & CEO: Yoshio Kito

Contact: Legal Affairs Office.

TEL: [phone]

TSE Code: 6409

https://kito.com

The status of corporate governance of the Company is as follows.

I. Basic Concept on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information

1. Basic Concept

The Company will, with the aim of achieving sustainable growth and improvement of corporate value on a medium to long-term basis, make efforts to enhance corporate governance in accordance with the basic concepts described below based on the belief that the essence of corporate governance lies in increasing the dynamism of management by securing the transparency and fairness thereof and making management decisions in a prompt and decisive manner.

1. To respect the rights of the shareholders and secure equality among them.
2. To consider the interests of the stakeholders including the shareholders and cooperate with them in an appropriate manner.
3. To disclose corporate information in an appropriate manner to secure transparency of management.
4. To have the board of directors, taking into account the fiduciary responsibility and accountability to shareholders, enhance separation of the execution of management from the supervision thereof and the function of management supervision by outside directors to ensure the sustainable growth of the Company, enhancement of corporate value on a medium to long-term basis, and improvement of profitability and capital efficiency.
5. To have constructive dialogue with the shareholders.

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

The Company has implemented each principle in the Corporate Governance Code.

This report is written based on the revised Corporate Governance Code in June 2021.

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

The Company's Basic policy on Corporate Governance is disclosed on the Company's website, in addition to this report.

(https://kito.com/ir/governance)

[Principle 1.4 Cross-Shareholding]

1. Policies for Holding of Shares for Political Purposes
   The Company will hold listed shares of its business partners for political purposes only in the cases that the holding of the shares including the number of shares to be held is deemed rational when its importance in the Company's business strategies and business relationship with the trading partners are comprehensively considered. The rationality for holding such shares will be verified on a regular basis. Also, as a result of the verification, the basic policy is to promptly dispose of and reduce the number of shares held for political purpose that it is considered that the significance of its possession is weak.
2. Exercise of Voting Rights
   The Company will make a decision concerning the exercise of its voting rights in terms of each agendum after confirming, while respecting the management policies of the companies it invests in, the attitude toward returns to its shareholders, corporate governance, contribution to the increase in the Company's corporate value on a medium to long-term basis as well as the prospect of its business relationship with the Company in the future and its corporate social responsibility.
3. Sale the Company's Shares by the cross-shareholders
4. • 1 -

When cross-shareholders (i.e., shareholders who hold a company's shares for the purpose of cross- shareholdings) indicate their intention to sell their shares, the Companies will respect their intention.

1. Do not engage in transactions that harm the interests of the shareholders of the Company between the cross-shareholders and the Company
   Regardless of whether the client is a cross shareholder or not, the Company has sufficiently verified the economic rationality in transactions, and the Company has not made any transactions that would harm the interests of the company or its shareholders.

[Principle 1.7 Related party transactions]

Conflict-of-interest transactions between the Company and its director, executive manager or controlling shareholder or competing transactions by the Company's director or executive manager, if any, will be subject to presentation to the board of directors for approval pursuant to the provisions of the Regulations of the Board of Directors

[Supplementary Principle 2.4.1 Ensuring Diversity in the Promotion of Core Human Resources]

Recognizing the importance of the vitality and challenge of our employees, as well as the diversity of perspectives and values that contribute to the sustainable growth and development of the company, the corporate philosophy of our company is to "aim for an organization with a harmonious mix of diverse members."

We believe that diversity of human resources is an important factor for innovation and new value creation. As well as hiring new graduates with various backgrounds and experiences, we have traditionally focused on career hiring that emphasizes ability, knowledge, and experience. We also take an open stance in hiring and promoting managers and core human resources.

Although the number of female managers is currently in the 3% range, we will make comprehensive efforts, including enhancing opportunities such as recruitment and career education, and improving our personnel system, to expand opportunities and aim for 6% of female managers in five years of the next medium-term plan.

The Company believes that the Company has established an environment to actively recruit mid-career employees and to receive a wide range of work experience and corporate culture from other industries, and considers them as valuable and diverse human resources who bring new perspectives and ideas to the Company. As more than 40% of our managers are mid-career hires, we believe that we are making full use of their talent, and we have not set any targets.

To date, we have focused on various global perspectives and a management system that optimizes overall management. Since 2008, we have hired foreign nationals as executive officers. At present, 6 out of 15 executive officers are foreign nationals, and we believe that sufficient efforts have been made to promote foreign nationals to managerial positions.

Although the program has been suspended due to the coronavirus, since 2015 it has been held under the title of "KITO University" for personnel selected mainly from young people and leaders from Japan and overseas subsidiaries, as an opportunity to deepen their understanding of the corporate philosophy and philosophy of management, as well as exchange and cross-cultural understanding among Group companies.

Since 2011, we have created a master plan for the employment of people with disabilities, aiming to create a work environment where people with various individuality can work, and to become a company where everyone can work comfortably. Based on the principle of assigning persons with disabilities to and working at in-house workplaces, we have worked together with employees at workplaces where persons with disabilities are assigned. As a result, the number of employees with disabilities now stands at 34, with statutory employment rate of just under 7%.

We introduced a selective retirement age (at 65) system in 2013, providing an environment in which veterans continue to work. We believe that the experience and knowledge of the younger and middle generations and their senior generations will be fully utilized together, providing a foundation for our company's continued growth.

< Status of Ensuring Diversity >

• Employees (as of March 31, 2021)
  547 men (81%) / 130 women (19%)
  376 new graduates (56%) / 301 mid-career employees (44%)
• • 2 -

• Management (as of March 31, 2021)
  79 men (96.3%) / 3 women (3.7%)
  43 new graduates (52%) / 39 mid-career employees (48%)
• Foreign nationals

6 out of 15 Executive Officers (40%) (as of December 23, 2021)

13 Employees (1.9%) (8 men / 5 women, 7 new graduates / 6 mid-career employees) (as of March 31, 2021)

• Persons with Disabilities (as of the end of March 2021) 34 persons / 6.8% statutory employment rate
• Seniors (as of March 2021)

36 persons aged 60 or older (34 men / 2 women)

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

The Company acknowledges the fact that the operation of the reserve fund of corporate pension plans affects the financial condition of the Company in addition to the stable asset formation of employees.

Based on the acknowledgement, in order to enhance the expertise in the management of corporate pensions and to demonstrate the functions as the asset owner to be expected, the Company will work on the improvement of the operation of corporate pension by developing planned human resource and planned placement of that human resource.

[Principle 3.1 Full Disclosure]

1. We disclose our business philosophy, business strategy and business plan on our website, securities report, etc. (https://kito.com/ir/library)
2. Basic concept and basic policy on corporate governance
   The basic concept of corporate governance is described in "1. Basic concept" of "I. Basic concept and capital structure of corporate governance, corporate attributes and other basic information" in this report. Please refer to it. The basic policy is also disclosed on our website.
   (https://kito.com/ir/governance)
3. Policies and procedures for the Board of Directors to determine the remuneration of senior executives and directors
   The policies and procedures for determining executive compensation are disclosed in "II.1. [Director Relationship] and [Director Compensation]" in this report and the securities report. (https://kito.com/ir/library)
4. Policies and procedures for electing and dismissing executives and nominating director and auditor candidates
   The Company is convinced that diverse human resources, regardless of gender or nationality, will bring new ideas and ideas to the Group's businesses and drive innovation.
   
   (Election)
5. 1. With regard to internal directors, persons with experience in business divisions such as sales and manufacturing, and persons with experience in planning, development and management will be elected.
   2. With regard to outside directors and outside corporate auditors, they are expected to be appointed based on their knowledge, experience, ability, and personality, as well as those who can proactively make recommendations and raise issues regarding the Company's decision-making.

(Dismissal)

If there is an unfair act or a violation of the law or the Articles of Incorporation in relation to the execution of duties, the dismissal of the director and / or the auditor is considered.

The board members will be recommended to the Board of Directors after deliberation by the Nomination and Compensation Committee, and will be proposed to the Ordinary General Meeting of Shareholders after resolution by the Board of Directors.

After the deliberation of the Nomination and Remuneration Committee, the Board of Directors will get the consent of the Board of Corporate Auditors, and the Board of Directors will make a resolution prior to the Ordinary General Meeting of Shareholders.

- 3 -

When dismissing a Corporate Auditor, the Company will propose it to the Ordinary General Meeting of Shareholders.

1. Explanation of the appointment and nomination of individual directors and corporate auditors
   The reasons for the appointment and nomination of Directors and Corporate Auditors are described individually in the Notice of the General Meeting of Shareholders. (https://kito.com/wp/wp-content/uploads/Notice-of-the-77th-Ordinary-General-Meeting-of-Shareholders.pdf)

[Supplementary Principle 3.1.3 Initiatives for Sustainability]

Our stance and policies on sustainability are as follows. Please refer to our website for its initiatives. (https://kito.com/jp/csr)

KITO has been providing products with superior safety, operability, and durability, with the first priority placed on the realization of a safe and efficient work environment for workers, in order to solve the universal problem of gravity. We believe that our products, which have become indispensable to social infrastructure, will continue to contribute to the development of various industries in every region.

As the future of society and the economy is difficult to predict and changes drastically, in order to continue providing high added value into the future, we aim to be a "Continuing to be sensitive to changes in society, cultivating business through continuous innovation, developing new markets, and continuing to serve society". We will work to improve our corporate value over the long term by organizing the framework for realization into the following five.

1. Inexhaustible pursuit and provision of products and services that meet the needs of society
   We will promote the development of products needed by society and develop business activities that contribute to the creation of added value for customers and the expansion of new businesses and markets.
2. Coexistence and co-prosperity with environmental, social and business partners
   We will make effective use of limited resources throughout the supply chain and strive to reduce the impact on the natural environment. In order to solve various social issues, we will strengthen the relationship of trust with our business partners, such as suppliers, sales and service networks, and utilize our mutual strengths to achieve coexistence and co-prosperity.
3. Management Foundation for Sustainable Future Creation
   By maintaining a highly profitable business structure that generates stable profits over the long term, we will ensure reinvestment for future business growth and management strategy options. We will increase our tolerance for unexpected events such as sudden changes in the external environment and stay ahead of changes in the natural environment and society.
4. Environment where diverse human resources can fully demonstrate their abilities
   We will create an environment in which employees can fully demonstrate their abilities and work in a sound manner both mentally and physically, and we will work together as individuals, teams, and organizations to expand results.
5. Organizational formation based on corporate philosophy
   The Corporate Philosophy is positioned as the top concept of decision making and action guidelines, and we aim to form an organization with the Corporate Philosophy as the unifying force. We are a team of people with a strong sense of ethics, and a team with the ability to execute to achieve our goals enhances corporate sustainability.

We believe that creating a company where employees can feel happiness and pride will lead to increased added value for customers and prosperity for all stakeholders. Aiming to create a bright, dynamic and attractive workplace, we have implemented a variety of software and hardware initiatives, including the promotion of corporate philosophy management and the review of organizations and systems. We are also working to develop human resources for the new stage of our global strategy, including strengthening diversity and fostering the next generation of business leaders. We are continuing discussions on our next medium-term management plan toward the new fiscal year of April 2022, and will actively implement personnel measures to achieve its management goals.

We promote research and development by constantly imagining future customer use environments and needs, as well as new industries and markets. The results of research and development are properly managed and utilized as intellectual property, whether tangible or intangible, to maximize profits. In addition, by

- 4 -

establishing in-house systems such as the "Commendation for Employee Inventions, etc." and "Technology Research Report", we build a culture in which all engineers create new business and new technology ideas and new design and manufacturing know-how. The results of new inventions and research activities not only activate existing technologies, but also play a major role in the adoption, accumulation, and transmission of new technologies and in improving the knowledge and motivation of engineers. KITO products are broadly divided into standard products and specialty products that are customized according to the customer's work environment. Based on the philosophy of "value both standard and specialty products" which has not changed since its foundation, a large number of new technologies have been born from manufacturing at KITO. Our intellectual property activities will continue to evolve so that we can continue to be a company that benefits society.

The Kito Group has endorsed the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) as established by the Financial Stability Board, has disclosed climate-related information based on the TCFD framework on our website, and will continue to enhance its disclosure. For our approach toward the four TCFD-designated thematic areas of governance, strategy, risk management, and metrics and targets, please refer to our website at; https://kito.com/csr/tcfd.

[Supplementary Principle 4.1.1 Scope and content of the matters delegated to the management]

The Board of Directors, as a decision-making body for the management of the Company, resolves legal matters, determines and approves basic management policies and important matters in business execution and supervises directors' execution of duties. In addition, it is positioned as the highest decision-making body of the Group, and makes important decisions regarding group companies and controls the entire group. The Company has introduced a division system and delegated the execution of operations within the scope of division of duties of each director.

[Principle 4.9 Independence standards and qualification for independent directors]

In order to objectively judge the independence of outside directors and outside corporate auditors, the Company independently defines and determines the independence criteria based on the independence criteria established by the Financial Instruments Exchange. In addition, we will judge based on not only independence, but also from the perspective of knowledge, experience, ability, personality, and from the perspective on whether candidates for directors and corporate auditors can expect to make proactive proposals and issues for the Company's decision-making.

[Supplementary Principle 4.11.1 A view on the appropriate balance between knowledge, experience and skills of the board as a whole, and also on diversity and appropriate board size]

In terms of the composition of our board of directors, we believe that it is desirable for directors to have a good balance of knowledge, experience, and ability, and to have diversity in genders and nationality, and to have the board of directors in a proper size. The policies and procedures for the election of Directors of the Company are as described in "Disclosure based on the principles of the Corporate Governance Code" of "I. Basic Policy and Capital Structure for Corporate Governance, Corporate Attributes and Other Basic Information" section of this report,. Please refer to 3-1: Full Disclosure (iv). The skill matrices of each Director and Corporate Auditors, which indicate the skills, careers and expertise held by and expected of them, are shown in the attached sheet.

[Supplementary Principle 4.11.2 Major concurrent positions in other organizations of directors/corporate auditors]

The important concurrent positions of the Company's directors and corporate auditors are described in the Notice of the General Meeting of Shareholders. (https://kito.com/wp/wp-content/uploads/Notice-of-the-77th-Ordinary-General-Meeting-of-Shareholders.pdf)

[Supplementary Principle 4.11.3 Analysis and evaluation on effectiveness of Board of Directors]

Below are the results of the most recent (fiscal 2020, the fiscal year ended March 31, 2021)evaluation of the effectiveness of the Company's Board of Directors.

1. Evaluation method
   A questionnaire was sent to all seven Directors and three Corporate Auditors to obtain their opinions on the following items, with a five-point scale for each item and a column for free entry of opinions. The evaluation items for fiscal 2020 year are the same as the evaluation items for fiscal 2019 (based on the TSE Corporate Governance Code revised in June 2018).
2. • 5 -