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, 2025, we have eight directors, complying 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 2024 with seven directors attending in full. (The remaining director was newly appointed to the board in June and only attended meetings conducted during his term of office, 10 in all.) 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. Since FY 2018, pre-meeting sessions have also been held to explain key agenda points and industry-specific sales strategies or engage non-executive directors in various discussions to deepen their understanding of the company's business and operations.

In January 2020, we changed how the board is chaired, electing a non-executive internal director familiar with internal affairs rather than having a rotating chairmanship. The intent of this change was for the board chair to set relevant and timely meeting agendas and drive collaboration between executives and external directors to help the board function more competently and responsibly in making major business decisions and providing management oversight. From April 2021, we elected an external director to chair the board to further enhance its oversight function and strengthen governance.

In line with revisions made to Japan's Corporate Governance Code (CGC) in FY 2021, our board sought to focus more on deliberating important company matters and exercising oversight by delegating more authority to the executive team. Accordingly, we make and execute business decisions in our Senior Executive Management Meeting (chaired by a non-executive internal director) and Executive Officers Meeting to improve our risk management capability even as we accelerate the business.

As the company transitioned to the Tokyo Stock Exchange's new Prime Market segment and Japan's Ministry of Economy, Trade and Industry updated its Practical Guidelines for Corporate Guidance Systems in FY 2022, we made changes in FY 2023 that include delegating even more authority to the executive team by putting the Executive Officers Meeting in charge of top-level decision making, and establishing a new Business Strategy Meeting that includes our non-executive internal director as a member to set the direction for the company's medium- to long-term strategies and ensure proper decision-making in the executive team.

The Business Review Committee (established in April 2021) also began operating within the 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 deliberations for top-level decision making.

The company conducts annual surveys to analyze and evaluate the effectiveness of our board of directors, verifying that corporate governance is enabling sustainable creation of increased corporate value. The following summarizes our FY 2024 evaluation approach and results.

Our board secretariat explained the purpose and details of the evaluation survey before distributing it to the eight directors and three Audit & Supervisory Board members for their feedback.

Using anonymously collected survey responses, the board held a discussion during its May 2025 meeting, confirming the evaluation method and process and identifying areas for improvement before finalization.

Based on the previous year's survey, the FY 2024 survey consisted of 15 questions to assess progress in improving the board's effectiveness in seven categories drawn from Japan's Corporate Governance Code.

Areas evaluated (corresponding CGC principles in parentheses)

（a）Composition of the board (4.6, 4.7, 4.8, 4.11)
（b）Roles/responsibilities of the board (2.4, 4.1, 4.2, 4.3, 4.8, 4.10, 4.11, 4.13)
（c）Operations of the board (4.12)
（d）System to support the board (4.8, 4.10, 4.13)
（e）Relationship with shareholders (5.1, 5.2)
（f）Other matters pertaining to overall effectiveness (write-in question)
（g）Management with consciousness of cost of capital and share prices (write-in question)

Directors and Audit & Supervisory Board members generally found the board to have functioned effectively during FY 2024 and recent months, with adequate efforts being made to better its performance from the previous year. There are, however, areas for improvement, which we will work to address.

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.

The maximum remuneration for board directors is JPY 400 million per year (excluding employee wages for executive positions they hold in the company) as approved at the annual general meeting of shareholders held in June 1997.

Internal directors also receive performance-based stock compensation paid through a Board Incentive Plan (BIP) Trust (since 2016), which does not count toward the annual maximum remuneration amount. This was approved at the shareholders meeting held in June 2021.

For executive directors/officers, the board's advisory committee sets out the following process to enable fair and transparent deliberations and review individual remuneration from multiple angles, including its consistency with the company's remuneration policy. The board is required to follow this process as part of the remuneration policy.

= 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 2024, the committee held eight 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.

(1) Policy

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.

(2) Criteria

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 one 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 member attends the Business Strategy Meeting, Executive Officers Meeting and other important in-house meetings (by Risk Management Committee and Sustainability Promotion Committee), where he audits/supervises different decision-making processes and resolutions reached, expressing his opinions when necessary. He also exchanges information with internal directors regularly to understand our business environment and challenges and provide advice accordingly.

Under the oversight of the Audit & Supervisory Board, he meets and works 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. He also goes on site visits to understand on-site information from department managers/heads and provide advice while reporting his work outcomes to the Audit & Supervisory Board. In addition, he meets 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 member.

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 in Japan but also two other group companies in Japan and 18 subsidiaries overseas. It also evaluates process-level controls (related to IT systems) for our Japan, USA and China 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.

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.