Corporate Governance

In addition to the board, we have an Audit & Supervisory Board to enhance auditing controls. We also have an executive system in place to separate operational functions from managerial decision-making and oversight functions to enable quicker decisions.

As of June 30, 2026, we have eight directors, in compliance with our Articles of Incorporation, which limit the number of directors to no more than 12. Out of these eight, two are concurrently serving as executive officers, one as non-executive internal director, and the remaining five as external directors. External directors make up the majority of our board and help ensure proper oversight of the management team with their independent perspectives.

The board of directors meets once a month in principle; it convened 13 times in FY 2025 with all directors (including the director who retired in March 2026) attending in full. At board meetings, matters stipulated by law and the Articles of Incorporation as well as important company matters governed by board regulations are brought up for discussion and review in a planned and comprehensive manner. To deepen the board’s understanding of the company’s business and operations, we have been holding pre-meeting sessions since FY 2018 (to explain key agenda points and industry-specific sales strategies or engage non-executive directors in various discussions) and inviting external directors to observe and offer advice for executive decision-making at the Executive Officers Meeting since FY 2025.

In line with revisions made to Japan’s Corporate Governance Code (CGC) in FY 2021, we are working to renew our executive structure to accelerate growth and improve our risk management capability while delegating more authority to the executive team in phases so the board can focus more on deliberating important company matters and exercising oversight. And to ensure proper executive decision-making, we have involved our non-executive internal director in establishing a Business Strategy Meeting, which sets the direction for medium- to long-term strategies. 

The Business Review Committee also began operating under supervision of our Executive Officers Meeting starting from FY 2023. This committee examines and analyzes risks the company takes in conducting business (when making investments and loans, acquiring and disposing of stock and fixed assets, entering into business partnerships or important agreements, and selling or buying businesses) to improve the quality of decision-making.

The company conducts annual surveys to analyze and evaluate the effectiveness of our board of directors, verifying that corporate governance is sustainably increasing corporate value. The following summarizes our FY 2025 evaluation approach and results.

The remuneration structure for board members is an extremely important element of corporate governance. The company adopts the following policy with the board's approval.

a. Remuneration amount shall be set at a level capable of securing and retaining board members to make important management decisions and supervise business execution.
b. Remuneration structure shall be geared toward the company's sustainable growth and greater medium- to long-term corporate value, and resonate with the values of shareholders and other stakeholders.
c. The board shall comply with the remuneration determination process set out by its advisory committee for accountability, fairness and transparency.

= Remuneration level and coefficient shall remain fixed unless there are major changes in conditions. (February 2022)

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= The representative director(s) shall assess officers based on business and individual achievements, and his/her assessment be discussed among internal directors for evaluation across multiple dimensions. (Every May)

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= Remuneration shall be decided after checking and ensuring that there are no flaws in the evaluation outcomes and decision-making process. (Every May)

The board's advisory committee looks into not only the above process but also all other matters related to remuneration. In FY 2025, the committee held nine meetings in total.

Remuneration for the company's directors consists of basic compensation (fixed monetary sum), performance-based monetary compensation and performance-based stock compensation. The weighting of each component is decided by considering balance with overall remuneration amount and position of officer, whereby those in higher positions receive a larger ratio of performance-based compensation. The above does not apply to non-executive directors, who shall only receive fixed compensation and non-performance stock compensation, and Audit & Supervisory Board members, who shall only receive fixed compensation of an amount that is decided with their consensus to ensure their independence and objectivity.

Performance-based monetary compensation is dependent on the achievement of individual objectives, serving as a reward and penalty mechanism for motivating officers to contribute to the company's growth through their respective roles and responsibilities. Performance-based stock compensation, on the other hand, depends on business achievement that is measured by the company's degree of accomplishment of its consolidated operating income, ROIC and employee engagement score targets. This ensures we consider not only immediate results but also human capital management, alignment with shareholder interests and the company's capital efficiency for medium- and long-term growth.

We select, via a transparent process, candidates who are able to actively contribute to the board's decision-making and managerial oversight functions with their extensive experience/expertise and excellent character/discernment.

We have a Nomination & Remuneration Advisory Committee (since June 2024; was formerly established as two separate committees in April 2021) that is chaired by an independent external director and comprised in majority of external directors. The committee functions to not only propose the appointment and dismissal of individual candidates, but also look into the board's composition and overall operation (including decision-making on appointment policies or standards/processes and succession planning) to provide reports and recommendations.

Appointment/selection criteria are as follows.

Our external directors and Audit & Supervisory Board members are deemed independent only if not affiliated in any of the following ways.

1. Involved in the day-to-day operations (e.g., as employee, executive officer, internal director or full-time Audit & Supervisory Board member) at SATO Corporation or its subsidiaries (the "SATO Group") currently or within the past ten years.

2. Owns 10% or more of SATO Corporation's total voting rights directly or indirectly or is involved in the day-to-day operations at a third party that holds 10% voting rights.

3. Involved in the day-to-day operations at a major customer or lender^*1 of the SATO Group.

4. Involved in the day-to-day operations of a major supplier or borrower^*2 of the SATO Group.

5. Represents or works for SATO Corporation's audit firm.

6. Receives significant payment^*3 other than compensation for board service from the SATO Group for provision of professional services (e.g., legal, accounting or consulting) or belongs to any corporation/organization that receives such payments.

7. Receives charitable contributions from the SATO Group in an amount of or exceeding 10 million yen per year or 2% of total annual revenues or is involved in the day-to-day operations at any corporation/organization that receives such contributions.

8. Is the spouse or immediate family of someone who is related to SATO in any of the ways described in (2) to (7) above and assumes a key position^*4.

9. Is the spouse or immediate family of someone who assumes a key position^*4 in the SATO Group.

10. Is affiliated to SATO in any of the ways described in (2) to (9) above currently or within the past three years.

The company has an Audit & Supervisory Board comprising two full-time and two external members. The external members provide suggestions on our audit activities, leveraging their respective legal and accounting expertise.

Audit & Supervisory Board members attend board of directors meetings to check major business decisions and the effectiveness of internal controls, expressing their opinions when necessary. Members regularly receive explanations on audit plans and key audit matters (KAM), as well as quarterly and year-end auditor's reports from the company's audit firm. They also check the audit firm's work for appropriateness and legal compliance to assess the firm for its performance.

The full-time members attend the Executive Officers Meeting and other important in-house meetings (by Risk Management Committee and Sustainability Promotion Committee), where they audit/supervise different decision-making processes and resolutions reached, expressing their opinions when necessary. They also exchange information with internal directors regularly to understand our business environment and challenges and provide advice accordingly.

Under the oversight of the Audit & Supervisory Board, full-time members meet and work closely with our internal audit department to undertake a wide range of other activities, including verifying the readiness/operation of internal controls, examining the financial reporting system and reviewing various resolution/report documents. They also go on site visits to understand on-site information from department managers/heads and provide advice while reporting their work outcomes to the Audit & Supervisory Board. In addition, they meet with the audit firm to exchange opinions and gather information every month to create an environment conducive to proper auditing.

We aim to strengthen controls and deter fraud and error through an internal audit department (seven members) that reports directly to our Group CEO and works closely with our full-time Audit & Supervisory Board members.

The department evaluates company-level controls over book closing in accordance with Japan's Financial Instruments and Exchange Act (J-SOX) for not just the headquarters office and one group company in Japan but also 19 subsidiaries overseas. It also evaluates process-level controls (related to IT systems) for our Japan, USA, China and Russia subsidiaries and Malaysia factory.

Also, the department reviews business structure and operations, conducting site visits and remote auditing for different branches/divisions identified via the risk-based approach to prepare and submit reports to our Group CEO and Audit & Supervisory Board. Based on the reports, the Group CEO will instruct relevant managers to take action on those areas needing improvement and have the internal audit department follow up on them accordingly.

When deemed necessary by internal directors or full-time Audit & Supervisory Board members, representatives from the audit department shall attend board of directors meetings to report internal audit results and participate in board deliberations.

The company receives accounting audits from professional services firm KPMG Azsa LLC, in compliance with provisions of the Companies Act and Financial Instruments and Exchange Act. There exist no material relationships of interest between the company and the audit firm or its personnel conducting our accounting audits that need to be reported under the Certified Public Accountants Act.