Daido Metal : Corporate Governance Report (December 3, 2021)

[NOTICE: This Corporate Governance Report is a translation of the Japanese original for reference purposes only. In the event of any discrepancy, the Japanese original shall prevail.]

Corporate Governance Report

Last Update: December 3, 2021

Daido Metal Co., Ltd.

Chairman & Chief Executive Officer (CEO)

Seigo Hanji

Contact: General Affairs Dept.

Tel: [phone]

Securities Code: 7245

http://www.daidometal.com/

The corporate governance of Daido Metal Co., Ltd. (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information

1. Basic Views

In order for the Company to be trusted by its stakeholders including shareholders, business partners and employees, the Company has structured its Board of Directors to achieve sustainable growth and enhance corporate value from medium- to long-term perspectives. The Company introduced an Executive Officer system to improve management efficiency.

In order to enhance transparency of the management, the Company relies on Outside Directors and Outside Audit & Supervisory board members to supervise other Directors.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code] Updated

All principles, including those for the prime market, are described based on the Corporate Governance Code as amended in June 2021.

[Supplementary Principle 3-1-3] Sustainability initiatives

The state of sustainability initiatives at the Company is described as stated in "Mandatory Disclosure items as per the Corporate Governance Code," but the Sustainability Committee is currently considering disclosure based on the framework of the TCFD or its equivalent, taking into account the current state of formulation of international standards on climate change risk. The Company expects to complete these considerations and plans to implement a framework by July 2022.

[Supplementary Principle 4-8-2] Appointment of the lead independent director

The Company appointed two independent outside directors at the 108th Annual Shareholders' Meeting and continues to do so thereafter. This formation works fine with two independent outside directors in close collaboration with each other with proactive communication with the senior management, creating an environment in which independent outside directors fulfill their function of monitoring and supervising. The Company therefore does not appoint the lead independent director at the present moment, but will consider its necessity when, for example, number of independent outside directors increases, in consultation with independent outside directors.

[Mandatory Disclosure items as per the Corporate Governance Code] Updated

All principles, including those for the prime market, are described based on the Corporate Governance Code as amended in June 2021.

[Principle 1-4]Cross-Shareholdings

The Company, being an independent company, is not affiliated with any particular corporate group, and thus it is necessary to maintain long-lasting, good relationships with business partners to continue its business. From this perspective, the Company believes that these holdings provide certain benefits to its business. The Board of Directors will assess every year the situation of each cross-shareholdings, evaluating the financial return during the previous year against our cost of capital, considering our business relationship or our contribution to local communities or to preservation of Japanese traditional culture.

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If it is recognized that there is no business relationship or a limited business relationship with the Company, the Company will consider reducing its shareholding by selling shares on the stock market, etc.

[Principle 1-4] Standards of exercising voting rights

The Company exercises its voting rights, with the aim to maintain smooth, stable and continuous relationships with customers.

In principle, the Company agrees on proposals made by the subject companies. However, if the Company considers it necessary to clarify the purpose of the proposal, considers that the proposal impairs significantly the corporate value of the subject company or of Daido Metal, or if the proposal is a proposal made by a shareholder, then the Company will scrutinize such proposals in detail and exercise its voting rights with agreement by a majority of Management Strategy Meeting members.

The Company sets up the rules of its exercise of voting rights for each of the following categories of proposals:

1. Proposals for appropriation of surplus and shareholder return
2. Proposals for appointment of Directors and Audit & Supervisory board members
3. Proposals for remuneration for each Director
4. Other proposals (including proposals made by a shareholder)

[Principle 1-7] Related Party Transactions

Followings are some example of transactions which the Company considers to be conflict-of-interest transactions; Transaction of Director with the Company for his/her own interest or that of third party, the Company providing guarantee for the benefit of the Director, other transactions between the Company and the third party where the interest of the Company conflicts with that of the Director.

The Company examines and approves each conflict-of-interest transaction between Directors and the Company (and its group companies) at the Board of Directors, with the detail of transactions submitted by the Director prior to the conclusion of the transaction, in order to confirm such transactions will not be detrimental to the interests of the Company.

Operating effectiveness of such control is one of the important audit items of Accounting Auditors, and it is also audited from time to time by the Audit & Supervisory Board Members.

No single shareholder holds more than 10% of the Company for the moment. When the Company has such shareholder (Major Shareholders as prescribed in Article 163(1) of the Financial Instruments and Exchange Act) in the future, the Company will examine its transaction with such shareholder at the Board of Directors in advance, to confirm it will not damage the interests of the Company or the common interests of shareholders.

[Supplementary Principle 2-4-1] Ensuring diversity in the appointment of core human resources

The Company believes that ensuring the diversity of employees, including officers and managers, is a source of strength for corporate development, and aims to create a working environment in which officers and employees can demonstrate their individuality and capabilities to the full. The Company established guidelines on human rights in January 2019, thereby emphasizing respect for the basic human rights of officers and employees and dignity of the individual, and striving to raise internal awareness of the importance of diversity. In addition, while continuing to hire and assign to managerial positions various human resources including women, foreign nationals and mid-career employees with various career backgrounds, the Company conducts education and training and develops workplace environments positively so that employees can be active at the Company at an early stage, and promotes their development and assignment as core human resources.

Details of efforts at the Company aimed at ensuring diversity, measurable targets and results are available on the Company's website.

* "Efforts aimed at ensuring diversity" at the Company: URL

[Principle 2-6] Roles of Corporate Pension Funds as Asset Owners

The Company manages a corporate pension fund, based on its strategic asset allocation, to fund the future pension benefits and lump-sum payment for its employees. On important matters regarding asset management, Asset Management Committee will receive professional advice from financial institutions, and ultimately the decisions are made by the Board of Representatives. The Company assigns personnel suitable for the Board of Representatives and Asset Management Committee, from Human Resources Planning department, Finance Department, etc., and as a representative of beneficiaries, a top official of labor union is appointed.

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Our corporate pension fund secretariat has persons with financial expertise and knowledge to sufficiently monitor performance and activities of each appointed fund management companies.

[Principle 3-1 (1)] Corporate Philosophy, Management Strategies, and Management Plans For Corporate Philosophy, please refer to the details provided on our website.

For Management Strategies and Management Plans, please refer to the following documents.

1. Securities Report
2. Business Report
3. Other Disclosure

The Company announces Management Strategies and Management Plans on various IR events for institutional and individual investors.

• Corporate Philosophy (https://www.daidometal.com/company/the-code/)
• Management Strategies and Management Plans (https://www.daidometal.com/investors/business-plan/)

[Principle 3-1 (2)] Basic Views and Guidelines on Corporate Governance Please refer to I-1 "Basic Views" of this report.

[Principle 3-1 (3)] Policies and Procedures in Determining the Remuneration of Senior Management, Directors The Company considers Executive Officers as part of senior management.

1. The Remuneration of Executive Officers
   The Remuneration of Executive Officers as employees is determined based on the Company's rules approved by the Board of Directors.
2. The Remuneration of Directors
   Please refer to "II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management 1. Organizational Composition and Operation [Director Remuneration]" in this report.

[Principle 3-1 (4)] Policies on and Procedures for the Appointment/Dismissal of Senior Management and the Nomination of candidates for Directors and for Audit & Supervisory Board Members

The election and nomination of candidates for Director, Auditor and Executive Officer are based on the election standards established in internal regulations, take into consideration work experience, management sense, leadership, personality, ethics, health, etc., and candidates for Director are discussed and determined by the Board of Directors after receiving comments from the Nomination Committee. Candidates for Audit

• Supervisory Board Members are nominated with the prior consent of the Audit & Supervisory Board. The dismissal of Directors, Audit & Supervisory Board Members and Senior Management is also resolved at the Board of Directors, as prescribed in the Company's rules on dismissal, considering how much the behavior of the person in question damage the Company's credit and corporate value, or whether the person in question is still fit and proper vis-à-vis Company's selection criteria.

[Principle 3-1 (5)] Explanations of the rationale for the Appointment/Dismissal of Senior Management, and the Nomination of candidates for Directors, and for Audit & Supervisory Board Members

1. The Appointment/Dismissal of Executive Officers
   Rationale for Appointment/Dismissal of each Executive Officer is provided to the Board of Directors in accordance with the Company's rules on selection/dismissal.
2. The Nomination and appointment of candidates for Director and for Audit & Supervisory Board Please refer to "Notice of Convocation of the 113th Annual Shareholders' Meeting" on the Company's website.

• Notice of Convocation of the 113th Annual Shareholders' Meeting https://ssl4.eir-parts.net/doc/7245/ir_material3/161446/00.pdf#page=50

[Supplementary Principle 3-1-3] Sustainability initiatives

With the aim of enhancing corporate value through ESG management, the Company has clarified the issues that it must address, such as "responding to climate change (energy conservation and rationalization)," "manufacturing and development of products towards natural energy, and "development of products that contribute to the environment," and disclosed them in its medium-term management plan. In April 2021, the Company established a "Sustainability Committee" chaired by the President to deliberate and discuss solutions to issues related to sustainability (CSR, ESG, SDGs), including the identification of materialities and the creation of processes for value creation.

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With regard to investment in human capital too, we respect diversity, character and individuality, and promote the realization of workplaces and the development of an environment where employees can demonstrate their individuality and abilities to the full. In particular, we perceive the "human resources" who promote our business strategy to be important capital and are implementing efforts in human resource development systematically. We are disclosing these efforts on the Company's website, etc.

As investments in intellectual property, we are developing technologies and products that can contribute to global society and focusing on R&D activities to continue growing perpetually based on the technology development policy presented in the medium-term management plan (announced in May 2021). Please refer to the securities report for specific R&D activities.

• "Medium-termmanagement plan": https://www.ir.daidometal.com/management/policy.html
• "Efforts aimed at ensuring diversity": URL
• "Securities Report 113": https://ssl4.eir-parts.net/doc/7245/yuho_pdf/S100LL8K/00.pdf#page=23

[Supplementary Principle 4-1-1] The Scope of Matters to Be Resolved at the Board of Directors and Matters Delegated to the Management

The Company has "Rules on the Board of Directors" which stipulates the matters to be resolved at the Board of Directors, and also matters to be delegated to the Directors, to enable an appropriate supervision of each department and a prompt decision-making.

Delegation is made to two Chief Officers in a comprehensive way, and to each Director individually. The Company monitors the balance between a scope of supervision of each Director and the speed of decision-making. If the delegated area becomes too large for the expansion of the business, or for the revision of delegated area, the Company revises the scope of matters to be resolved at the Board of Directors and the matters to be delegated to the Directors and Executive Officers as necessary.

[Principle 4-9] Standards for Independence of Outside Officers

The Company has established independence standards of Outside Officers, based on those established by the Tokyo Stock Exchange, but stricter standards. An outside director or an outside Audit & Supervisory board member who is deemed to have independence from the Company as required by this standards is registered as an independent outside director or as an independent outside Audit & Supervisory board member. For more details, please refer to [Standards for Independence of Outside Officers of DAIDO METAL CO., LTD.] on the Company's website.

• Standards for Independence of Outside Officers of DAIDO METAL CO., LTD. https://ssl4.eir-parts.net/doc/7245/ir_material2/146330/00.pdf

[Supplementary Principle 4-10-1] Use of optional mechanisms

The Company has established an optional Nomination Committee and Remuneration Committee consisting of two independent Outside Directors and an Inside Director.

Please refer to this report (II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management - 1. Organizational Composition and Operation, Committee's Name, Composition, and Attributes of Chairperson) for details of the composition of the committees, the view on their independence, authorities and roles, etc.

[Supplementary Principle 4-11-1] Views on the Balance between Knowledge, Experience, and Skills of the Board of Directors as a Whole, and on Diversity and Board Size

The Company maintains its Board size is appropriate with four inside directors and two outside directors for strategic and flexible decision-making.

The Board of Directors is comprised of those who are familiar with management, production, sales, technology, finance, etc., including members with rich international experience and a female member of Audit & Supervisory Board. The Company's Board of Directors will continue to discuss and pursue the need for greater diversity.

We have prepared a skill matrix listing the expertise and experience of each Director so please refer to this report (V. Other - 2. Other Matters Concerning Corporate Governance System).

[Supplementary Principle 4-11-2] Concurrent positions held by Directors and Audit and Supervisory Board Members at other listed companies

Directors and Audit and Supervisory Board Members concurrently serving as officers at other listed companies are disclosed in Business Report (attached to Notice of Convocation of the Annual Shareholders' Meeting) and in Securities Reports. Judging from status of their concurrent assignment, our Directors and

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Audit & Supervisory Board members are considered to be in a position to perform their duty properly.

[Supplementary Principle 4-11-3] Analysis and evaluation of effectiveness of the Board of Directors

The Company assesses the effectiveness of the Board of Directors, and use the result of the assessment to further improve the Board.

In December 2020, improvements based on the comments of earlier the same year were reported to the Board. In April 2021, the Company conducted the assessment of its Board of Directors' role and management during fiscal year 2020, using questionnaire sent out to 11 Directors and Audit & Supervisory Board Members, including external Directors and Members, and the result was reported to the Board in May 2021.

The result confirmed that the running of the Board Meeting provides enough time for discussion to enable swift decision making. There is still room for further improvement in the quantity of materials for discussion by the Board of Directors and the use of management indicators, etc. We will further refine the assessment, and make use of the result to make our Board of Directors more effective.

We will further refine the assessment, and make use of the result to make our Board of Directors more effective.

[Supplementary Principle 4-14-2] Training policy for Directors and Audit and Supervisory Board Members The Company provides training to newly appointed Directors and Audit and Supervisory Board Members, and seminars are held from time to time. On top of that, when new laws or regulations are introduced, internal seminars are organized with external specialist lecturers.

In fiscal year 2020, all Directors and Audit and Supervisory Board Members underwent training, including taking external courses on the SDGs and the sustainable improvement of corporate value.

[Principle 5-1] Policy for Constructive Dialogue with Shareholders

In order to achieve sustainable growth and mid-/long-term realization of corporate value, the Company considers it important to have constructive dialogue with shareholders.

Our structure for promoting constructive dialogue with shareholders is as follows.

1. Appointing a member of the management or a director who is responsible for overseeing and ensuring that constructive dialogue takes place.
   In the Company, the director in charge of public relations and investor relations is responsible for all dialogue with shareholders.
   (ⅱ) Measures to ensure positive cooperation between internal departments such as investor relations, corporate planning, general affairs, corporate finance, accounting and legal affairs with the aim of supporting dialogue
   The General Affairs Department (hereinafter referred to as "IR Department") is taking the lead in developing an internal system to further promote constructive dialogue with shareholders, in coordination with other related departments.
   (ⅲ) Measures to promote opportunities for dialogue aside from individual meetings (e.g., general investor meetings and other IR activities)
   We have periodical IR meeting with institutional investors and analysts where our top Management will present Company's mid-/long-term vision and latest financial results. Our IR department also carries out individual session with such investors and analysts. With regard to private investors, the Company is present in various IR events organized by Stock Exchanges or by Securities companies.
   For our current IR related activities, please read III. Implementation of Measures for Shareholders and Other Stakeholders 2. IR Activities.
   (ⅳ) Measures to appropriately and effectively relay shareholder views and concerns learned through dialogue to the senior management and the board
   In addition to management's direct communication with shareholders, IR Department provides feedback to all directors as necessary, on the opinions and other aspects of the dialogue with shareholders by sharing the reports of meetings.
   (ⅴ) Measures to control insider information when engaging in dialogue
   IR Department is a contact department regarding dialogue with shareholders and investors, and unify management of insider information (unpublished important facts) to prevent the leakage of the insider information to shareholders and investors.

2. Capital Structure

Foreign Shareholding Ratio	From 10% to less than 20%
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