Obayashi has a General Meeting of Shareholders, Board of Directors, Audit & Supervisory Board, financial auditor, and other statutory bodies. Additionally, we have established systems for making management decisions and conducting appropriate audits. We practice precise and swift decision-making through our executive officer system and Management Meeting. The latter is composed of members appointed from among the directors and executive officers.

We have appointed three Independent directors and 5 Outside Audit & Supervisory Board members. Independent directors provide advice on improving management efficiency and supervise all aspects of management from an independent position. Outside Audit and Supervisory Board members are responsible for ensuring effective corporate governance by conducting third-party checks independent of management. Our standards for appointing independent officers (Independent directors and Outside Audit & Supervisory Board members), including standards regarding independence, are as follows:

The directors make important management decisions and supervise management of the business. Audit & Supervisory Board Members audit the execution of duties by the Board of Directors, executive officers, and employees. Members of both bodies continually update their knowledge and skills relevant to these roles.

All directors, Audit & Supervisory Board Members and executive officers take a training course each year led by outside instructors. The course covers corporate governance, business risk management, sustainability, and other topics. As necessary, we also provide other training opportunities for directors and Audit & Supervisory Board Members. Such training may, for example, include external seminars. Audit & Supervisory Board Members regularly participate in external workshops to increase their understanding of their role and duties and learn the knowledge they need to perform them.

The Audit & Supervisory Board members and financial auditor each conduct audits from their independent standpoints. Audit & Supervisory Board members receive reports and briefings as required from the financial auditor. The two parties also cooperate to raise the effectiveness of audits by sharing information and opinions. Meanwhile, the Internal Control Audit Department is responsible for all audits conducted separately from the Audit & Supervisory Board members and financial auditor. Such audits are performed according to Obayashi's Internal Audit Regulations. The purpose of these audits is to monitor the effectiveness of internal control and the execution of duties by each Company department.

The Audit & Supervisory Board members and the Internal Control Audit Department also share information and opinions to raise the effectiveness of audits.

The basic policy on remuneration for each director and executive officer is to provide basic remuneration, a fixed amount that is determined in advance commensurate to the responsibilities of each position, and in addition determine the amount of performance-linked cash remuneration (bonus) and performance-linked stock remuneration for each fiscal year in accordance with each person's actual contribution to business performance. The purpose is to secure outstanding human resources and provide incentive to each director and executive officer to improve earnings and enhance corporate value.

Specifically, for basic remuneration (fixed cash remuneration), the Board of Directors sets forth a table of remuneration for each position following deliberation by the Remuneration Committee (chaired by an independent director, and of which independent directors make up a majority of the membership). At the end of each fiscal year, the Remuneration Committee determines the remuneration of each director and executive officer for the next fiscal year by applying the table to each person.

The goal of performance-linked cash remuneration (bonus) is to incentivize contributions to improving business performance for each fiscal year and to enhancing corporate value. Individuals are evaluated based on predetermined Group-wide and individual performance indicator targets. Cash bonuses are paid once a year to directors and executive officers (excluding Independent directors) based on the degree of achievement of the performance indicator targets.

The cash remuneration given to directors (i.e., the combined amount of basic remuneration and bonuses) is capped at ¥720 million per year in keeping with a resolution made at the 117th Ordinary General Meeting of Shareholders on June 24, 2021.

The performance-linked stock remuneration system is intended to incentivize contributions to improving business performance mainly over the medium to long term and to enhancing corporate and shareholder value. The system distributes Obayashi shares to directors and executive officers (excluding Independent directors and individuals residing overseas) based on the duties associated with each position and the degree of achievement of predetermined performance indicator targets. There are both fixed provision stock remuneration, meaning that the individual receives a predetermined number of shares commensurate to the duties associated with their position, and variable stock remuneration, in which the number of shares received depends on the degree of achievement of performance indicator targets. Variable stock remuneration is itself divided into two parts: short-term performance-linked stock remuneration (number of shares based on the degree of achievement of short-term performance indicator targets) and medium- to long-term performance-linked stock remuneration (number of shares based on the degree of achievement of medium- to long-term performance indicator targets).

We have stipulated in our rules that, if a director or executive officer with the right to receive the stock remuneration vested upon retirement is found to have committed an act of material violation, including a material breach of the duties of their position or the Company's internal rules, that person may be required to return the said remuneration.

The basic policy on Audit & Supervisory Board Member remuneration is to set an amount required to secure outstanding personnel. The ultimate aim thereby is to ensure that corporate governance functions effectively. Remuneration standards are established in advance through discussions by Audit & Supervisory Board Members. They are set separately for standing (full-time) members and outside (part-time) members. Remuneration is determined in line with those standards, capped at ¥10 million per month in keeping with a resolution made at the 101st Ordinary General Meeting of Shareholders on June 29, 2005.

In accordance with the Japanese Corporate Governance Code set forth by the Tokyo Stock Exchange, Obayashi submits Corporate Governance Report.