Governance Initiatives

Enhancing Risk Tolerance for Further Challenges

With Maximization of Shareholder Value (MSV) as our sole mission, we pursue our Asset Assembler model, in which we, with M&A as a key strategy, continuously accumulate high-quality assets led by exceptional management teams. Our Board of Directors, while respecting management’s decision-making authority, plays the role of examining, from multiple and objective perspectives, the potential risks of actions proposed by the management team and, with a clear view of our risk tolerance, boldly supporting the management team. With a majority shareholder holding approximately 59% of our shares, the Board of Directors also bears the responsibility of prioritizing the protection of minority shareholders’ interests. In other words, the Board must ensure that there is no conflict of interest between the majority shareholder and minority shareholders, and that the common interest of all shareholders is sought through MSV.

As a Company with Three Committees, our Board of Directors operates under a unique framework designed to enhance its effectiveness. Decision-making of the Nominating Committee and the Compensation Committee for appointment and compensation is limited to three individuals: the two Co-Presidents and one Executive Officer serving as General Counsel. As we operate globally and continue to pursue further M&As, this approach is intended to ensure that these two committees conduct effective evaluations within the scope of the Committees’ visibility of their performance.

On the other hand, decisions on the appointment and compensation of management teams at each Partner Company Group (PCG) are entrusted to the Co-Presidents. The Board receives annual reports and confirms how the Co-Presidents have identified and evaluated talent. In other words, under the Asset Assembler model, in which the Co-Presidents entrust management to each PCG, whether appropriate talent management is being carried out is positioned as one of the key elements in evaluating the Co-Presidents.

Appropriate operation of internal control and risk management across the Group is the premise for respecting the autonomy of each PCG and holding them accountable for operations under a high degree of delegated authority. In addition to frameworks such as our “Global Code of Conduct,” global risk management centered on Control Self-Assessment (CSA), and whistleblowing systems, our “Audit on Audit” model has been on track and operational. In this model, the Audit Committee oversees whether the internal control system is functioning appropriately through internal audits at each PCG. These frameworks, when they properly function, give the Co-Presidents greater confidence to take further risks and serve as a fundamental prerequisite for the Board in supporting the management team’s challenges.

Our relatively small Board, consisting of eight members in total, which includes only the two Co-Presidents from the management team, enables smooth communication, and we work to minimize the information gap not only between the management team and Directors, but also among Directors. Matters that do not require discussion are shared through the Board’s digital platform, allowing greater hours at Board meetings for deliberations on the most important growth strategies and major investments. Flexibly using Meeting of Independent Directors also serves to streamline issues, scenarios, and possible risks ahead of the Board meetings. As a result, our Board meetings can discuss, with a bigger picture in mind, what should be prioritized, where management resources should be allocated, and whether such decisions contribute to MSV. Through these efforts, I believe the quality of the Board’s discussions has improved further, and our shared understanding of pursuing MSV has been refined.

Needless to say, our challenges will continue. We as Directors will continue to examine the appropriate level of risks that the management team should assume and further enhance the Board’s risk tolerance. I also would like to emphasize that the value of the existing assets accumulated by the management team needs to steadily increase, which should further strengthen our management and expand the options available for the next investment. By accurately assessing these outcomes, we will continue to support bold challenges aimed at accumulating high-quality assets and fulfill our responsibility for contributing to MSV.

The Nominating Committee’s Mission: Maintaining an Optimal Execution and Oversight Structure

The Nominating Committee’s mission is to establish and sustain an optimal and effective structure for execution and oversight in support of Maximization of Shareholder Value (MSV). Among its responsibilities, the appointment and succession of top executive leadership is regarded as the Committee’s highest priority. Since transitioning to a Company with Three Committees in 2020, the Committee has continuously reviewed and enhanced the execution and oversight framework in response to the Company’s evolving growth stage and management environment. In succession planning, the Committee does not rely on uniform selection criteria or pre-defined development programs. Instead, greater emphasis is placed on identifying high-potential talent—both internally and externally—rather than solely on developing it. Through ongoing and close dialogue with the Co-Presidents, key members of management, and next-generation candidates, the Committee seeks to build a comprehensive understanding of leadership capabilities and character, while also clarifying the qualities required of future leaders. At the same time, the Committee prioritizes expanding the pipeline of next-generation candidates by leveraging both internal and external professional networks.

With respect to the composition of the Board of Directors, a key prerequisite for selecting an outstanding management team and entrusting it with execution is that the Board—responsible for oversight—shares a clear and common perspective on the principles and priorities that guide its judgments. In fall 2025, the Board had the opportunity to exchange views with AOC’s management team during their visit to Japan. On that occasion, AOC provided a detailed explanation of its business model and management policies, and Board members engaged in active discussions on topics such as the pursuit of further earnings opportunities and the potential application of AOC’s strengths across other Group companies. Through this engagement, I reaffirmed, in my capacity as Chairperson of the Nominating Committee, that the diversity of our current Board composition is functioning as intended; that all Board members share a common perspective on the values and priorities that underpin their decision-making from the standpoint of MSV; and that an effective structure is in place to support appropriate risk-taking by the execution side.

As Chairperson of the Nominating Committee, I will continue to ensure that the composition of the Board and the execution framework remain aligned with the Company’s stage of growth, while working to build and sustain a robust governance structure that supports the realization of MSV.

Compensation Decisions That Support the Pursuit of MSV

In determining the compensation of the Co-Presidents, the Compensation Committee places particular emphasis on ensuring that compensation serves as a source of motivation and incentive aligned with our Compensation Philosophy and supportive of the pursuit of Maximization of Shareholder Value (MSV). With MSV defined as the Company’s sole mission, the foundation of our governance framework is that both the executive and monitoring functions fulfill their respective responsibilities with a clear focus on the medium- to long-term pursuit of MSV.

The Compensation Committee consists of three Independent Directors with extensive experience in evaluating management and determining executive compensation, together with one non-Executive Director who has been involved with the Company and the paint industry for nearly 50 years. As an Independent Director, I serve as Chairperson of the Committee.

In assessing the performance of the Co-Presidents, the Compensation Committee takes a comprehensive and balanced view, considering prior-year results, medium- to long-term strategic execution, risk management to support sustainable growth, and share price performance, while also benchmarking these factors against peer companies. The Committee further incorporates deliberations of the Board, as well as ongoing dialogue with Independent Directors and key management. In determining compensation levels, the Committee rigorously evaluates appropriateness through comparisons with peer companies and broader market standards.

We believe that compensation decisions made through a transparent and objective process, designed to advance MSV, also foster meaningful alignment with the interests of shareholders. At the same time, we believe our foremost priority is to maximize the motivation of the Co-Presidents so that they can perform at the highest level in pursuing MSV, including by fostering an environment in which their entrepreneurial spirit can be fully manifested. From the perspective of the Compensation Committee, the most effective approach is a simple and transparent compensation structure that clearly communicates both our assessment and our expectations, while also taking into account continuity in compensation. Based on this determination, compensation for the Co-Presidents has consisted entirely of cash compensation since 2022.

Looking ahead, the Compensation Committee will continue to review and refine the optimal compensation framework to support the pursuit of MSV, taking into account changes in the Company’s operating environment and the ongoing evolution of its business foundation, thereby continuing to fulfill its responsibilities.

Enhancing the Effectiveness of the “Audit on Audit” and Strengthening Key Risks Monitoring

In the “Audit on Audit” framework, the Audit Committee plays a critical role in supporting sound risk-taking by execution aligned with the Asset Assembler strategy by ensuring that internal controls are appropriately designed and operating effectively. In fiscal 2025, the Committee identified key priority issues and rigorously monitored management’s execution through regular meetings with the Co-Presidents, complemented by ongoing dialogue with Directors, Executive Officers, and senior management of major partner companies in Japan and overseas. Control Self-Assessment (CSA) serves as a core mechanism for evaluating key processes and material risks, enabling management to assess the effectiveness of controls and drive continuous improvement. It facilitates end-to-end monitoring across the improvement cycle, from analyzing root-causes and developing corrective actions to implementing follow-ups and confirming the embedded sustainable operations.

As part of its monitoring of PCGs, the Audit Department focused on the operational status of subsidiaries within DuluxGroup and the NIPSEA Group, the establishment of governance and management systems at AOC following its acquisition in 2025, and credit risk management in China. In addition, through regular trilateral meetings with the Accounting Auditor and other occasions, the Department reviewed key financial reporting matters, including the appropriateness of accounting estimates and related disclosures. The Audit Committee also conducted its annual effectiveness evaluation, using a self-assessment questionnaire and optional comments to assess the performance of its monitoring function. Based on the results, the Committee identified the need to further strengthen coordination and enhance timely information sharing among internal audit functions across the Group.