Daiwa House Industry : Chapter 8 Governance [1.5MB］

Governance

Management Structure .......... 878

Messages from Representatives of Outside Directors and Audit & Supervisory Board Members .......... 90

Chapter

Daiwa House Group Integrated Report 2023 86

Message from the CEO

Long-Term Vision and the 7th Plan

The Story of the Group's

Value Creation

Message from the CFO

Developing

our Businesses

Environmental Vision

Strengthening	Governance	Financial Results,
our Bases	Corporate Information

Chapter 8 Governance

Management Structure

The Daiwa House Group positions enhancing its structure of governance as a priority issue for management so that we may continue to be a company that earns the trust of society. We take the basic stance of working to construct a system of accurate and timely decision making and business execution, as well as a framework of appropriate oversight and supervision. The 7th Plan includes provisions to promote reinforcement of the restructuring of governance that was completed as a priority issue in the 6th Plan. Along with transforming our vision in tune with expanding business operations and the management environment, we aim for sustainable improvements in corporate value to realize Our Hopes for the Future based on diverse viewpoints and long-term perspectives.

Concept of governance system enhancement

Corporate governance

1	Optimization of		2	Foster next generation of
management structure		business managers
Strengthen the supervisory		Set age limits to allow for smooth
functions of outside directors		succession and run programs to
and enhance			foster next generation
medium-tolong-term
management strategy

Ongoing updates

Follow up on actions and make improvements to meet the challenges posed by a growing number of new risks and opportunities

Establish emergency			Restructure the system of
response practices and			business execution
preventive measures, and put		by delegating responsibilities
operational environment in place			and authority
4	Entrench risk		3	Improve system of
management structure		business execution

Business risk management

		Initiatives in the 7th Medium-Term Management Plan	Approaches in fiscal 2022
		Optimization of management structure
	1	Reviewed the agenda standard for meetings of the Board of Directors
	Raise the proportion of stock remuneration in director	Revised the agenda standard for meetings of the Board of Directors to secure time for proposals related
	remuneration and introduce non-financial evaluation indicators	to "strengthening the monitoring function of the Board of Directors," including raising the amount of the
	Strengthen monitoring function of the Board of Directors	agenda standard for decisions related to business execution to that in line with the scale of the business
		Foster next generation of business managers	Expanded the succession planning system for the next generation of business managers
	2	Continued effort to pass on the spirit of our founder through qualitative improvements in the
	Build a succession process for Directors/Executive Officers	entire Group by integrating the D-Succeed system and the Daiwa House Juku for training man-
			agement successors and expanding off-site training opportunities
			Newly established the Management Strategy Planning Headquarters
			In April 2023, established the Management Strategy Planning Headquarters, aiming at building an
			integrated strategy to enhance the Group's value. Transferred the Corporate Strategy Planning, Business
			Development, and Sustainability Planning Department under the Management Administration
			Headquarters, to the Management Strategy Planning Headquarters. Launched the Business Human
			Resources Planning Department to optimize human resources to achieve our business plan and
		Improve system of business execution	design an organizational structure aligned with overall strategy. Further, started the DX Planning
	3
	Prepare and strengthen regional corporate functions overseas	Department to promote DX strategies for the business divisions and Group companies.
	Internal reorganization
	Strengthen asset management in line with asset increase
	Regarding our operations within Japan, under the business division-based system, abolished the
	Continuous improvement of organizations and functions
	existing block system and instituted a new structure having the head office and	offices tasked with
	for overlapping businesses within the Group
	administrative and supervisory functions, as well as branches thereunder in each area. Rearranged
	Continual improvement of the Group's head office functions	the region across the country into 11 areas where the head office and	offices	are allocated as the
	and optimal allocation of human resources	regional headquarters in each area, replacing the existing structure in which block managers in 15
			blocks nationwide had supported the branches and branch offices' management. By reorganizing
			the business divisions as branch offices thereunder in each area, strengthen administrative and
			supervisory functions to provide management support and enhance governance.
			Began work on formulating detailed management indicators for our overseas business
			Developed detailed management indicators, and plan to start on-site management using the
			detailed management indicators
		Entrench risk management structure
	4	Established an information security system
	Effectively operate and continuously improve risk management structure	Overhauled the structure of information security rules to reflect recent diversification of societal
	Continuously strengthen the efficient business operating base to	demands for information security and the Group's diversified business	operations. Accordingly,
	sustain risk management and compliance activities	revised the existing Information Security Statement in line with these activities.

Daiwa House Group Integrated Report 2023 87

Message from the CEO

Long-Term Vision and the 7th Plan

The Story of the Group's

Value Creation

Message from the CFO

Developing

our Businesses

Environmental Vision

Strengthening	Governance	Financial Results,
our Bases	Corporate Information

1 Optimization of management structure

Create an optimal management structure for supervision of medium-to-long-term management strategies for enhancing corporate value

Based on the philosophy of "Don't do things because they will make a profit, but because they will be of service to society" that the Daiwa House Group has valued since our founding, the Board of Directors sees its mission as being to put Our Hopes for the Future into practice and to foster the next generation who will take up the challenge in the future. To realize this, executive management must always explore the needs of society based on the attitude of a bottom-up approach while the Board of Directors, as a group that co-creates value for individuals, communities, and people's lifestyles deliberates and decides how to embody such needs as a business, and quickly grasps reported risks regarding business execution to control and oversee these risks.

The Board of Directors has outside members who account for over one-third of the Board. By making greater use of diverse and external knowledge, experience and know-how possessed by outside directors, we aim for trustworthy and transparent management.

In fiscal 2022, the Board of Directors discussed and deliberated on the following matters.

Management strategies

• Formulation of the Seventh Medium-Term Management Plan
• Formulation of the Action Plan for the Environment "Endless Green Program 2026"
• Determination of the Digital Transformation initiative plan
• Decision on key themes for technological development at the Central Research Laboratory

Governance

• Enhancement of head office's strategic functions
  (newly established the Management Strategy Planning Headquarters)
• Amendment to the Information Security Statement
• Report on self-review results and revision of the Corporate Governance Guidelines
• Evaluation of the effectiveness of the Board of Directors
• Revision of agenda standards for meetings of the Board of Directors (e.g., transfer of authority to executive divisions)

Investment projects

• Approval of Osaka Marubiru reconstruction plan and initiatives for Expo 2025 Osaka Kansai
• Approval of M&A projects (e.g., Kouyama UNYU Co., Ltd. becoming a wholly owned subsidiary)
• Approval of important potential investments in the real estate development business and other businesses in the US, Asia, and other regions

Other than the above, the Board of Directors deliberates and passes resolutions, as necessary, on matters stipulated by laws, regulations, and the Articles of Incorporation.

Board of Directors

Nomination Advisory Committee Remuneration Advisory Committee

Ratio of outside members: 71.4%

Outside: 5, Inside: 2 (CEO and CFO)

(Chair: an independent outside director)

Representative

Directors

Outside3 Directors

5 13

( female: 2 )

Inside Directors

5

Ratio of	38.5%
Outside Directors:

Daiwa House Group Integrated Report 2023 88

Message from the CEO

Long-Term Vision and the 7th Plan

The Story of the Group's

Value Creation

Message from the CFO

Developing

our Businesses

Environmental Vision

Strengthening	Governance	Financial Results,
our Bases	Corporate Information

Improvements to management resilience based on a multi-faceted and long-term approach so as to better suit our operating environment and the expanding scope of our business

	Corporate Auditors			Outside Auditors
					(Independent Officer)	(Independent Officer)	(Independent Officer)

Non-		A G	A G	A G		A G		A G	A G
Tomoyuki Nakazato	Tadatoshi Maeda	Yoshinori Hashimoto	Akihisa Watanabe		Tatsuji Kishimoto	Takashi Maruyama
Executives
				Outside Directors
	(Independent Officer)	(Independent Officer)	(Independent Officer)	(Independent Officer)	(Independent Officer)

B N R G

B N R G

B N R G

B N R G

B N R G

Yukiko Yabu

Yukinori Kuwano

Miwa Seki

Kazuhiro Yoshizawa

Yujiro Ito

Representative

Executive

Executive

Vice President, CFO

President, CEO

Vice President

Head of Management

Head of Technology

Administration

Directors

B N R G

B N R

G

B G

Keiichi Yoshii (64)

Takeshi Kosokabe (65)

Yoshiyuki Murata (68)

Senior Managing Executive Officer

Managing Executive Officer

Managing Executive Officer

Managing Executive Officer

Managing Executive Officer

Head of Commercial

Head of Management

Head of

Head of Compliance /

Head of

Construction Business

Strategy Planning Headquarters

Rental Apartment Building

Quality Assurance

Single-Family Housing Business

Corporate Governance Committee (2 times/year)

Internal Control

Structure of Committee for strengthening monitoring function of Board of Directors

Nomination	N			Remuneration	R
Advisory Committee			Advisory Committee
Board of Directors	B			Audit & Supervisory	A
						Board
	Corporate Governance Committee G

Reason for new appointments

Name	Reason for appointment

Executive Directors	Head of	Head of Overseas						Head of
General Construction Business	In charge of Livness Business					Environment and Energy Business
	B	B		B	B		B
	Keisuke Shimonishi (64)	Hirotsugu Otomo (63)	Kazuhito Dekura (61)	Yoshinori Ariyoshi (64)	Toshiya Nagase (60)

Note: Figures in parentheses are the ages as of April 2023

Committee (4 times/year)

Takashi Maruyama

He has long-term experience in corporate management at corporate groups with diverse business opera- tions. The Company expects that he will audit the overall management of the Company and provide useful advice from an independent standpoint by utilizing his abundant knowledge based on his career.

Daiwa House Group Integrated Report 2023 89

Message from the CEO

Long-Term Vision and the 7th Plan

The Story of the Group's

Value Creation

Message from the CFO

Developing

our Businesses

Environmental Vision

Strengthening	Governance	Financial Results,
our Bases	Corporate Information

Messages from Representatives of the Outside Directors and Audit & Supervisory Board Members

-Contributing to improvement of corporate value in the medium to long term

Contributing to Daiwa House Group's sustainable growth amid

the latest global trends

Yukinori Kuwano

Outside Director (Independent Officer) B N R G

Amid major changes taking place globally, including trends such as SDGs, ESG, and digital and green transformation, we defined our Purpose as "Our future landscape-Celebrating the Joys of Life." I am determined to do my best to make things happen in this new direction. In 2001-about 21 years ago, when I was in my previous position, Daiwa House Group's consolidated net sales were approximately ¥1 trillion and operating income was ¥44.2 billion. I was later given the opportunity to become an outside director of Daiwa House, and in fiscal 2022, the Company posted consolidated net sales of ¥4.9 trillion and operating income of ¥465.3 billion-robust growth of roughly five times for net sales and 11 times for operating income. The Group has grown into the housing and construction industry leader thanks to the hard work of employees and close cooperation of other stakeholders. The objective of the 7th Plan is to complete a model for sustainable growth to maximize business value and social value over the long term. I too am determined to do my utmost to make this happen.

I am chairman of the Corporate Governance Committee, and unfortunately, two years ago, we received administrative measures including a business suspension order from the Ministry of Land, Infrastructure, and Transport, because some of our operation and management engineers were not properly qualified. I felt responsible for this serious breach as chairman of the Corporate Governance Committee and took steps to rectify it, such as investigating the cause and ensuring there will be no recurrence. These cases relating to corporate governance are an essential part of completing a sustainable growth model. Going forward we will be working to benefit shareholders, doing our best to help the company maintain vigorous growth with an uncompromising approach to strengthening governance.

Roles and functions fulfilled by outside directors

Our outside directors are tasked with helping to foster a corporate culture that contributes toward improving the Company's corporate value from a highly independent position, making the most of their backgrounds such as specialist knowledge and experience.

Yukinori Kuwano became an Outside Audit & Supervisory Board Member in June 2008 and an Outside Director in June 2020. With highly specialized knowledge in photovoltaic power generation, he has provided useful advice regarding the operations and projections of the Environment and Energy Business. He has expressed many opinions and offered critiques over the years at meetings including those of the Board of Directors as a company executive, shareholder, and consumer. He chairs the Corporate Governance Committee, Nomination Advisory Committee, and Remuneration Advisory Committee, communicating with the management team from an independent position. At meetings where themes for discussion by the Corporate Governance Committee are selected, he also plays a coordination role among Outside Directors, such as having them discuss human capital performance and work environment provision that contribute to sustainable management among many management issues, reflecting the requests and opinions of shareholders and institutional investors fielded by the IR, General Affairs, and other departments. Currently, he also plays the important role of supervising progress in building information modeling (BIM) and digital transition as part of key digital transformation strategies that apply across all management policies of the Seventh Medium-Term Management Plan.

All the other outside directors help us strengthen governance (especially the supervisory function) by attending meetings of the Board of Directors, advisory committees of the Board of Directors (Board Committees), etc. They have also been active in providing feedback during Board of Directors meetings and related meetings on the Our Hopes for the Future Project, which looks ahead to 2055, our centennial year, taking the initiative so that we can implement the best corporate governance.

Daiwa House Group Integrated Report 2023 90