Corporate Governance

SUBARU has chosen a structure with a board of corporate auditors. The Board of Directors (eight members, of which three are independent outside directors) and the Board of Corporate Auditors (four members, of which two are independent outside auditors) decide, supervise, and audit the execution of important business.
This structure also enables us to achieve more sound and efficient business operations through increased effectiveness of management monitoring by involving highly independent outside directors and outside corporate auditors. At SUBARU, in order to enhance the practical governance structure based on our present organizational design, we have established two voluntary meetings: the Executive Nomination Meeting (consisting of five directors, of which three are independent outside directors) and the Executive Compensation Meeting (also consisting of five directors, of which three are independent outside directors).

As of the resolution of the 93rd Ordinary General Meeting of Shareholders held on June 19, 2024, SUBARU's corporate governance structure and the composition of the Board of Directors, Board of Corporate Auditors, Executive Nomination Meeting, and Executive Compensation Meeting are as follows.

Corporate Governance Structure

Composition of FYE March 2025 Board of Directors, Board of Corporate Auditors, Executive Nomination Committee, and Executive Compensation Committee

◎ and 〇 indicate attendance of the chairman and other members, respectively.

SUBARU has adopted an executive officer system and delegates directors' business execution authority to executive officers. By doing this, SUBARU clearly separates the function of decision making and the oversight of corporate management from that of the execution of business operations, expediting decision making.

Major Items Deliberated in FYE March 2024

The main activities of the Board of Directors, the Executive Nomination Committee, and the Executive Compensation Committee are as follows.

Board of Directors

Meetings of the Board of Directors are held in principle once a month, and as needed otherwise, deliberating important matters based on the rules of the Board of Directors.
In FYE March 2024, the Board of Directors consisted of eight directors, including three independent outside directors, and met 13 times, chaired by Director and Chairman Tomomi Nakamura. The board's business during the fiscal year included overall oversight of Company management and determinations on important business execution.
In addition to the number of Board of Directors meetings held in the above table, one resolution was adopted in writing that was deemed to be a resolution of the Board of Directors in accordance with Article 370 of the Companies Act and the Articles of Incorporation.

Major Themes

• Determination of candidates for directors and corporate auditors, as well as the CEO and other members of the management team
• Matters pertaining to repurchase and cancellation of own shares
• Determination to revise the executive compensation system and the policy for determining the content of compensation, etc. for each individual director, and to delegate to the Executive Compensation Meeting regarding the determination of compensation, etc. for each individual director and executive officers under the executive compensation system
• Discussions on reports related to medium- and long-term management issues, including the EV strategy, IR/SR activities, the Sustainability Committee, and the Risk Management and Compliance Committee

The meeting is composed of three independent outside directors (Mr. Yasuyuki Abe, Ms. Miwako Doi and Mr. Fuminao Hachiuma) and two internal directors (Mr. Tomomi Nakamura and Mr. Atsushi Osaki). In order to ensure fairness and transparency of decisions on executive appointment, this voluntary committee, on request for consultation by the BoD, approves and submits the proposals to the BoD for the nomination of candidates for directors and corporate auditors and the selection and dismissal of executive officers, including the Chief Executive Officer (CEO), after ample deliberation.
The Executive Nomination Meeting was held eight times in FYE March 2024, chaired by Director and Chairman Tomomi Nakamura.

Major Themes

• Creating a succession plan for the CEO and others, 360-degree evaluation of executives, development of executive human resources with a focus on the CEO using the skills matrix for executives, revision of the skills matrix for executives (addition of ’reasons for skill selection” and ’definition of skill possession,” acceleration of the process for determining the executive structure, the Company's executive structure)
• Deliberations, etc., on personnel matters and the division of duties, as well as on the reporting of executive appointments for major subsidiaries

The meeting is composed of three independent outside directors (Mr. Yasuyuki Abe, Ms. Miwako Doi and Mr. Fuminao Hachiuma) and two internal directors (Mr. Tomomi Nakamura and Mr. Atsushi Osaki).
In order to ensure objectivity and transparency of decisions on executive compensation, this voluntary committee, on the basis of delegation by the BoD, determines individual compensation amounts per director and other issues after ample deliberation.
With regard to revisions of the compensation system and other matters pertaining to compensation overall, proposals approved by the Executive Compensation Meeting are deliberated and decided on by the BoD.
The Executive Compensation Meeting was held eight times in FYE March 2024, chaired by Director and Chairman Tomomi Nakamura.

Major Themes

• Reporting on proposed revisions to the director compensation system and the policy for determining the details of remuneration, etc., for individual directors
• Consideration of executive compensation levels using external survey data
• Determination of individual performance-linked compensation amounts for directors (excluding outside directors) and executive officers based on their evaluations
• Determination of individual base amounts, etc. for restricted stock compensation

Membership, Meetings Held, and Attendance for the Board of Directors, Executive Nomination Meeting, and Executive Compensation Meeting for FYE March 2024

◎ and 〇 indicate attendance of the chairman and other members, respectively.

*1

Tetsuo Fujinuki, Director, Fuminao Hachiuma, Independent Outside Director, and Yasumasa Masuda, Independent Outside Auditor, were elected and appointed at the 92nd Ordinary General Meeting of Shareholders held on June 21, 2023.

*2

Atsushi Osaki, Director, and Fuminao Hachiuma, Independent Outside Director, were appointed as members of the Executive Nomination Committee and the Executive Compensation Committee by resolution of the Board of Directors held on June 21, 2023. This applies to subsequent meetings of the Executive Nomination Committee and the Executive Compensation Committee.

SUBARU recognizes that decision making regarding top management changes and successor selection may have a critical influence on corporate value. Therefore, in order to ensure a successful succession at the right timing, we invest substantial time and resources to carefully develop and implement succession plans.

In order to hand over the business to the right person, the BoD, as part of its essential duties, develops succession plans that can convince all stakeholder groups. To ensure objectivity and transparency in the process for deciding on the replacement and selection of the CEO, the BoD appropriately supervises the preparation of proposals by the current CEO through discussions at the Executive Nomination Meeting.

To be able to implement succession plans appropriately, the CEO begins to prepare for selection and development of their successor candidates independently upon assuming office. Key processes for this purpose include providing information on candidates to outside directors on an ongoing basis, particularly by enabling the directors to monitor the candidates in person continuously in day-to-day business settings, as a measure to ensure appropriate and timely evaluation and selection down the road.

The BoD and Executive Nomination Meeting meet on a regular basis to review the list of essential qualities and skills required of the CEO, which may include removing and adding items, in consideration of perception of current trends, changes in the business environment surrounding the Company, and the future direction of the Group's business strategies.

To ensure the objectivity of the successor selection process and increase the effectiveness of its supervision by the Board of Directors and Executive Nomination Meeting, it is important to have effective selection criteria in place, particularly for use by outside directors. To this end, SUBARU discloses two sets of criteria: ’Abilities required of the SUBARU Group's CEO” and ’Five key qualities required of the SUBARU Group's CEO.” These criteria serve as a guide for evaluating candidates in light of quality, competency, experience, track record, specialized expertise, personality, and other factors, which have been discussed and decided on by the Board of Directors and Executive Nomination Meeting.

Note: Expenses to be incurred for offering the above training to directors and auditors, including outside officers and executive officers are borne by the Company.

Nomination Criteria

• The outside directors are expected to perform a monitoring function independent from the management team and provide appropriate advice on management on the basis of a wide range of sophisticated knowledge.
• The outside corporate auditors are expected to perform a management oversight function independent from the management team and undertake their role of auditing from the viewpoint of legality and appropriateness on the basis of broad and advanced knowledge.
• SUBARU has established criteria for independence of outside officers in addition to the criteria for independence established by the Tokyo Stock Exchange, and appoints outside directors and outside corporate auditors who meet those criteria.

*

The status of “Significant Current Positions” is as of September 30, 2024.

Matters Concerning the Policy for Determining Details of Compensation for Individual Directors

SUBARU deliberated and decided on the proposal of the Policy for Determining Details of Compensation for Individual Directors approved by the Executive Compensation Meeting at the Board of Directors' meeting held on March 3, 2022. To the right is the summary of the policy.

Overview of executive compensation system

Composition of compensation

The ratio of compensation for the Representative Director, President and CEO will be set as 45% for basic compensation, 30% for annual performance-linked compensation, and 25% for restricted stock compensation (15% for variable compensation type (PSU) + 10% for fixed compensation type (RS*)) upon achievement of the KPIs set forth in the STEP mid-term management vision.
As before, outside directors will only receive basic compensation.

*Restricted stock

Compensation System for Directors (excluding outside directors)

Total Compensation for Directors and Auditors for FYE March 2024

(Millions of yen)

*1

Figures in the above table include two internal directors, one outside director, and two outside corporate auditors who resigned before the last day of FYE March 2024. At the end of FYE March 2024, there were eight directors, including three outside directors, and four corporate auditors, including two outside corporate auditors.

*2

Total amounts in the above table represent the amounts recorded as expenses at the end of FYE March 2024 and include contingent compensation (such as phantom stock and PSUs granted to non-residents in Japan).

*3

The amounts for phantom stock and PSUs are calculated based on the closing price of the Company's common stock on the Tokyo Stock Exchange Prime Market as of March 31, 2024, and the stock price at the time of grant will be applied for the actual payment.

Revision of Executive Compensation System

To provide more incentive for Company directors and executive officers (excluding outside directors) for achieving sustained improvement of the SUBARU Group's value over the medium and long term, we revised our restricted stock compensation plan in FYE March 2025 as part of our review of the executive compensation system. The revisions primarily focus on the following three points, which were approved at the 93rd Ordinary General Meeting of Shareholders held on June 19, 2024, and have been applied to the executive compensation for FYE March 2025.

Greater Ratio of Stock Compensation

In FYE March 2018, we introduced fixed compensation type restricted stock compensation (RS) for directors and executive officers. In FYE March 2023, we added variable compensation type performance share units (PSU), gradually increasing the weight of stock compensation. In the FYE March 2025 revision, we further increased the proportion of stock compensation to strengthen the link between compensation and the enhancement of corporate value. As a result of this revision, the composition ratio of basic compensation, annual performance-linked bonuses, and restricted stock compensation for the Representative Director, President and CEO has been set at 1:0.5:0.7 (for the latter, 0.5 for PSUs plus 0.2 for RS). As before, outside directors will only receive basic compensation.

Addition of Relative TSR (vs. TOPIX Growth Rate Including Dividends) as a KPI for PSUs

In the FYE March 2025 revision, we added relative TSR (compared to the TOPIX growth rate including dividends) as a new KPI in the quantitative (financial) evaluation, in addition to the previous KPIs. This indicator is aimed at enhancing corporate value.

Introduction of a Clawback Clause for Stock Compensation

To improve compensation governance, a clawback clause has been introduced into the stock compensation system alongside the increase in the proportion of stock compensation. If, during the restricted transfer period or within three years after the termination of the restrictions on transfer, it is found that an executive has committed an act of misconduct or that there is a material error in the performance on which the grant of stock was premised, the Company may, based on the details discussed and decided by the Executive Compensation Meeting and by a resolution of the Board of Directors, acquire the executive in question's allotted shares in whole or in part without compensation, or demand that the executive pay an amount equivalent to the market value of the shares in question.

The approval of the Board of Directors is obtained in advance where a transaction poses the risk of a conflict of interest. A report on the positions that each director has held concurrently over the past financial year is provided once a year at the April meeting of the Board of Directors (a report to confirm that there have been no improper transactions or positions held).

The Board of Corporate Auditors, as an independent organization entrusted by shareholders, is responsible for ensuring the sound and sustainable growth of SUBARU and establishing a high-quality corporate governance system that can be trusted by society by performing audits of the execution of duties by directors, passing resolutions on the contents of proposal items regarding the appointment and dismissal, or non-reappointment, of accounting auditors that are to be submitted to the General Meeting of Shareholders, and performing business audits, accounting audits, and other matters prescribed by laws and regulations.
The number of Board of Corporate Auditors members is stipulated to be up to five in the Articles of Incorporation, and as of the conclusion of the 92nd Annual General Meeting of Shareholders held on June 21, 2023, the board consists of four members (including two independent outside auditors). The chairman is a standing corporate auditor, and the board held 12 meetings in the fiscal year 2023.

Auditing by Corporate Auditors

In addition to attending important meetings such as the Board of Directors, the Company’s corporate auditors engage in activities that include exchanging opinions with executive officers and communicating individually with the directors and corporate auditors of Group companies. Through these efforts, they gather extensive information on business execution, including the development and operational status of internal controls across the Group, as well as verify their effectiveness. Additionally, necessary advice and recommendations are provided based on the observations obtained from these audit activities.

Activities in FYE March 2024

Major Activities of the Corporate Auditors

• Confirming management monitoring and execution

Each corporate auditor attended important meetings, including those of the Board of Directors, Executive Management Board Meeting, and Risk Management and Compliance Committee. When in attendance, they monitored management decision-making processes, sought explanations as necessary (including through opportunities other than those meetings), and actively expressed their opinions.

• Communication with directors, executive officers, and others, and confirmation of internal control status at various business establishments, including Group companies

Through exchanges of opinions with directors, executive officers, and others, as well as visits to and inspections of major business establishments and Group companies, and collaboration with the directors and corporate auditors of Group companies, the corporate auditors confirmed the status of business execution, including the development and operation of the Group’s internal controls.
Through regular meetings with the Legal Department, Risk Management and Compliance Office, and Internal Audit Department, they confirmed the status of risk management practices across the Group.

• Cooperation in the three-party audit system

Corporate auditors conducted regular reporting sessions with the Internal Audit Department and accounting auditors, facilitating information sharing and exchanges of opinions that fostered close cooperation in the three-party audit system. By implementing coordinated audit activities, they carried out mutual verification of the effectiveness of internal controls across the Group.

Board of Corporate Auditors Number of Meetings Held: 12

• Matters for resolution

Audit policy, audit plan and division of audit duties, consent to agenda items for the General Meeting of Shareholders (appointment of corporate auditors), evaluation and selection/dismissal of the accounting auditors, consent to the audit fee for the accounting auditors, preparation of the audit report, etc., for the current fiscal year.

• Matters for reporting

The Board of Corporate Auditors shared reports and insights based on findings obtained from individual corporate auditor activities. Additionally, the Board received reports from the responsible departments on risk management issues from a preventive audit perspective, enabling them to verify the appropriateness of management execution.

Internal Auditing

The Internal Audit Department evaluates the development and operational status of internal controls and the effectiveness of risk management from an independent and objective standpoint, while verifying the appropriateness of business execution at SUBARU and its Group companies in Japan and overseas, providing advice and proposals for improvement as required.

System and Initiatives

The Internal Audit Department, comprising 18 members, reports directly to the President. This department formulates a business audit plan at the beginning of each fiscal year, taking into consideration the risks and internal control status of the entire Group, and conducts operational audits accordingly.

Reporting of Business Audit Results

Audit reports on business execution are distributed to all directors, corporate auditors, and relevant departments, and simultaneously presented to the President at a monthly reporting meeting. Reports are also provided to the Board of Directors semiannually and to a joint meeting composed of all executive officers on a quarterly basis.

Management System

With the aim of increasing the effectiveness of internal controls and risk management, the Internal Audit Department was made independent of the Risk Management Group (overseen by the Chief Risk Management Officer (CRMO)) to ensure a higher level of independence of internal audit units in the organization and to enhance the effectiveness of internal controls.

Internal Control System

In accordance with the Companies Act and the Ordinance for Enforcement of the Companies Act, SUBARU's Board of Directors has adopted a basic policy on putting in place systems that ensure that the performance of duties by directors is in conformity with laws and regulations and with the Articles of Incorporation, and other systems prescribed in the ordinance of the Ministry of Justice as being necessary to ensure the appropriate operations of the Company and the corporate group consisting of the Company and its subsidiaries. The Board of Directors maintains and operates this basic policy, reviewing it as needed.

Regarding internal control reporting systems pursuant to the Financial Instruments and Exchange Act, the evaluation of the internal control system related to financial reporting is dated the final day of the consolidated accounting period and is conducted in accordance with generally accepted assessment standards for internal control over financial reporting.
The President and Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) evaluated the status of the development of the internal control system related to financial reporting as of March 31, 2024 and affirmed that it has been established properly and functions effectively, and issued an internal control report audited by the accounting auditors to that effect.

• Annual Securities Report and Internal Control Report for FYE March 2024 (Japanese version only)
• Financial Report for the Fiscal Year Ended March 31, 2024

The SUBARU Group has established a Group-wide governance stance that contributes to the sound business operations of the Group's global companies in order to maintain and enhance brand value and enhance the overall strength of the Group in response to social demands, including for sound corporate governance.

Group Companies (Affiliates in Japan, Excluding SUBARU Dealerships)

In the SUBARU Group, the Business Administration Department of SUBARU manages each Group company and their businesses to promote more unified activities. In addition, we have created a system in which SUBARU's corporate departments support these activities, thereby enhancing the effectiveness of Group governance.

1. Accelerating the group collaboration system

The efforts of the Group's collaboration system that started in FYE March 2022 have penetrated the Group, and communication between the Business Administration Department and Group companies has gradually deepened. SUBARU's corporate departments have established a new Group Review Meeting for collaborative discussion of major issues with each Group company to enhance the effectiveness of governance. By accelerating these efforts, we are working to further enhance the quality of Group governance.

■ Deepening communication with the Business Administration Department

We have introduced and implemented a new tool that allows Group companies and the Business Administration Department to review the goals and outcomes of the year's business activities and governance initiatives throughout the year. Through this, we are not only enhancing communication between both parties but also elevating the quality of governance.

■ Enhancing support for Group companies

Relevant corporate departments are working together to evaluate and implement concrete support measures for Group companies as appropriate. As an example, SUBARU is continuing to explore and implement corporate-related measures, including activities in which staff from SUBARU's finance and administration departments share information and provide support in financial and accounting domains to each company in addition to enhancing education programs for Group employees.

2. Initiatives to enhance the effectiveness of governance

As basic governance activities, we continue to promote the development of forums for information sharing and exchange of opinions with Group companies and the creation of educational opportunities. As part of this, we share information on governance-related themes at meetings of Group company presidents, respond quickly to various issues at the Management Department Steering Committee, and regularly discuss corporate issues at the Group Review Meeting, which was launched in FYE March 2024. In addition, we are also focusing on employee education as part of efforts to enhance the quality of Group human resources.
Through these efforts, we are working to further improve the effectiveness of Group governance.

Initiatives in the SUBARU Group

• Held meetings of Group company presidents (three meetings in June and November 2022, and March 2023)
• Held Management Department Steering Committee meetings (six meetings from April and then every other month, covering 26 topics)
• Held Group Review Meetings to foster collaborative discussions between SUBARU and its Group companies regarding key corporate challenges (two in FYE March 2024)
• Information sharing through a dedicated portal site for Group companies
• Held workshops for newly appointed executives (once in April)
• Staff from finance and administration departments share information and provide support to individual companies
• Extended SUBARU's educational framework to Group company employees
• Dispatched personnel from the Business Administration Department of SUBARU to play a part in the management of Group companies by serving as part-time directors
• Enhanced the quality of auditing through appropriate assignment of standing corporate auditors (14, March 31, 2023)

Dealerships

Enhancing governance at SUBARU dealerships involves the Japan Sales & Marketing Division assuming the responsibilities of the Business Administration Department. This enables close communication between SUBARU and its dealerships, advancing initiatives that contribute to the Group's sustainable growth and medium- to long-term enhancement of corporate value.

Initiatives for SUBARU dealerships

• Established the Risk Management and Compliance Committee
• Developed regulations and established and enhanced operation of an internal control system for audits, etc., conducted by the auditing departments of dealerships
• Held General Meeting of Shareholders and Board of Directors' meetings
• Enhanced the quality of auditing through appropriate assignment of full-time corporate auditors (introduced full-time corporate auditors at 10 companies)

Note: Parentheses indicate information as of April 2024.

Efforts to deepen communication between SUBARU and its dealerships

• Held monthly Leadership Meetings with 10 key dealerships we have invested in
• Held Specialist Committee meetings in four areas (sales, service, pre-owned vehicles, and IT) (at least once every six months)
• Meetings of the Internal Audit Department Liaison Committee (held twice a year)
• Implemented dealership audits through SUBARU's Audit Department
• Dispatched part-time directors from SUBARU to 10 dealerships
• Implemented training for newly appointed executives at SUBARU dealerships
• Established and enhanced operation of an internal control system for audits, etc. based on J-SOX, conducted by the auditing departments of dealerships
• Held General Meeting of Shareholders and Board of Directors' meetings
• Enhanced the quality of auditing through appropriate assignment of full-time corporate auditors (introduced full-time corporate auditors at 10 companies)

Note: Parentheses indicate information as of April 2024.

(1) Policy for cross-shareholding
SUBARU holds listed stocks as cross-shareholdings and engages in dialogues with the companies in question. Each year, SUBARU's Board of Directors quantitatively measures and compares benefits from holding, using dividend yield, and the capital cost involved, using weighted average cost of capital (WACC), in order to verify each. The Company will maintain these holdings only if it deems, based on the results of this verification, that the shares will contribute to its medium- to long-term management and business strategies in a qualitative manner.

(2) Verification details for cross-shareholding
Based on the above policy, SUBARU has steadily reduced the number of listed stocks held as cross-shareholding. As a result, 60 issues held at the end of March 2015 decreased to two issues at the end of March 2021. We consider these two issues to be essential to hold at this time for the following reasons, but we will continue to hold dialogue with these companies at least once a year, and the Board of Directors will evaluate and scrutinize these issues annually to determine whether they should be held or not.

As of March 31, 2024

(3) Criteria for exercising voting rights for cross-shareholding
With regard to the exercise of voting rights for listed stocks held as cross-shareholding, the Board of Directors deliberates on and determines the criteria for exercise with evaluation items such as whether the company is consistently exhibiting poor performance, whether a sufficient number of independent outside directors are in place and if management is supervised appropriately, and whether there are any corporate governance issues present. Although these are our general principles, we hold dialogues at least once a year with companies whose stock we hold to avoid making blanket decisions. Accordingly, we exercise our voting rights appropriately in light of the performance, management policies, and medium- to long-term management plans of the companies in question, as well as from the perspectives of corporate value enhancement, corporate governance, and social responsibility.
In addition, we will continue to verify whether or not our criteria for exercise of voting rights warrant review.