1. Fundamental concept

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1 Date of last revision: June 24, 2015 YAMAHA Corporation Takuya Nakata President and Representative Director Contact: General Administration Department (Stock Document) General Administration Division Securities Code: The status of corporate governance in Yamaha Corporation ( the Company ) is as follows: I Fundamental Concept of Corporate Governance and Basic Information on Capital Structure, Corporate Attributes, and Other Matters 1. Fundamental concept The Company positions the enhancement of corporate governance as an important issue of business operations and is striving to enhance corporate governance in a proactive manner. Based on its Corporate Slogan of Sharing Passion & Performance, the Company declares its Corporate Philosophy of With unique expertise and sensibilities cultivated through our devotion to sound and music, we are committed to creating profound excitement and cultural inspiration together with people everywhere in the world., and will strive to improve the effectiveness of its management, attain high global competitiveness and profitability, and increase its corporate value and brand value by fulfilling its corporate social responsibility in areas such as compliance, environment, safety, and contribution to regional society. In order to be such a corporation, the Company aims to manage its businesses with high transparency and quality and to pursue high operational efficiency by improving its business structures and systems, by implementing all necessary measures, and by disclosing information in a timely manner. In conducting its business, the Company endeavors to consider the balance of interests among its respective stakeholders shareholders, customers, people work with Yamaha, and local society. The Company declares its commitments to each of the stakeholders as set forth below and is aiming to fulfill those commitments. The Company works to maximize corporate value by maintaining the balance of interests among its stakeholders and enhancing the satisfaction of all stakeholders equitably. Management based on Customer Creed and High-Quality Creed (Commitment to Customers) Yamaha will fully satisfy the customer by continuing to offer high-quality and valuable products and services based on new and traditional technologies and creativity and artistry. 1

2 Sound and Transparent Management (Commitment to Shareholders) Yamaha will endeavor to sustain everlasting development through high-quality and transparent management while ensuring healthy profits and maintaining proper returns. Human-Oriented Management (Commitment to Those Who Work with Yamaha) Yamaha will strive to become an organization in which all of the people in working relationships with Yamaha respect each other s individuality and creativity and fully demonstrate their abilities through the performance of business operations. Management in Harmony with Society (Commitment to Society) Yamaha will contribute to the development of society, culture, and economy as a good corporate citizen by observing laws with ethics and making efforts to protect the environment. 2. Capital structure Percentage of shares owned by foreign shareholders More than 30% [Major shareholders] Name Number of shares held (shares) Ratio to total (%) The Master Trust Bank of Japan, Ltd. (trust a/c) 15,892, Japan Trustee Service Bank, Ltd. (trust a/c) 13,583, Yamaha Motor Co., Ltd. 10,326, Mizuho Bank, Ltd. 8,555, The Shizuoka Bank, Limited 8,349, Mitsui Sumitomo Insurance Co., Ltd. 8,008, Sumitomo Life Insurance Company 7,300, State Street Bank & Trust Company ,380, Nippon Life Insurance Company 5,002, BNP Paribas Securities (Japan), Ltd 2,967, Existence of majority-owning shareholders (excluding parent company) None 2

3 Existence of parent company None Supplementary explanation None 3. Corporate attributes Stock exchange listings Tokyo, First section Business year end March 31 every year Category of business Other products Number of employees at the end of the immediately preceding fiscal year (consolidated) 1,000 or more persons Net sales at the end of the immediately preceding fiscal year (consolidated) 100 billion or more and less than 1,000 billion Number of consolidated subsidiaries at the end of the immediately preceding fiscal year 50 or more and less than 100 companies 4. Guidelines concerning measures to protect minority shareholders in the dealing with majority-owning shareholders None 5. Other special conditions which may have material effects on corporate governance None 3

4 II Organization of Management for Operational Decision-making, Execution and Supervision, and Other Corporate Governance Structures 1. Matters related to the structure, operation, etc. of the organization Form of the organization The Company adopts the Corporate Auditor system. [Matters related to the Directors] Quorum of Directors under the Articles of Incorporation 15 persons Term of Directors under the Articles of Incorporation 1 year Chairman of the Board of Directors President Number of Directors 6 persons Are Any Outside Directors in Office? Yes Number of Outside Directors 3 persons Number of Outside Directors designated as Independent Directors/Audits 2 persons 4

5 Relations with the Company (1) Name Attribute Relations with the Company (*1) a b c d e f g h i j k Hiroyuki Yanagi He is from a company other than this Company. Yoshikatsu He is from a company Ota other than this Company. Shigeru He is from a company Nosaka other than this Company. *1 With respect to the relations with the Company, applicable item(s) are marked in accordance with the descriptions below. a: He executes business of the Company or an Affiliated Company. b: He executes business or a non-executive director of a Parent Company. c: He executes business of a Fellow Subsidiary. d: He is a person/entity for which the Company is a major client or a person who executes business for such person/client. e: He a major client of the Company or a person who executes business for such client. f: He is a consultant, accounting expert, or legal expert who receives large amounts of cash or other assets in addition to director compensation from the Company. g: He is a major shareholder of the Company (in cases where the shareholder is a corporation, a person who executes business of the corporation.) h: He executes business for a client of the Company (excluding persons categorized as any of d, e or f above.) i: He executes business for another company holding cross-directorships/ cross-auditorships with the Company. j: He/She executes business for an entity receiving contributions from the Company. k: Other relations 5

6 Relations with the Company (2) Name Independent Supplementary Reason for being elected as Director/ explanation on Outside Director (including reason for being Auditor the applicable designated as Independent Director/Auditor if item(s) he/she is designated as Independent Director/Auditor) Hiroyuki Hiroyuki Yanagi (Reason for being elected) Yanagi Doubles as President (1) He is a person of desirable character and has and Representative considerable insight as a director. director of Yamaha (2) He has ample experience in running businesses Motor Co., Ltd., in other industries. with which the (3) He can be expected to supervise and provide Company conducts advice on the Company s management for transactions for the improving the Company s brand value. lease of real estate, (Consideration of independence) etc. He doubles as president and representative director of Yamaha Motor Co., Ltd., in which the Company has an equity stake as a major shareholder. Accordingly, the Company does not designate him as an Independent Director but appoints him as an outside director for the reasons described above. Yoshikatsu Ota Yes None (Reason for being elected) (1) He is a person of desirable character and has considerable insight as a director. (2) He has ample experience in running businesses in other industries. (3) He can be expected to strengthen governance function and provide appropriate advice from an objective viewpoint. (Consideration of independence) Although he has been engaged in corporate management for many years, he himself and the companies he has been involved in as an 6

7 executive have never been major customers or business partners of the Company. With respect to positional/financial independence, he is not in a position to be considerably controlled by, or to considerably control, the management of the Company and therefore will not have conflict of interests with ordinary shareholders of the Company. Shigeru Nosaka Yes None (Reason for being elected) (1) He is a person of desirable character and has considerable insight as a director. (2) He has ample experience in running businesses in other industries. (3) He can be expected to strengthen governance function and provide appropriate advice from an objective viewpoint. (Consideration of independence) Although he has been engaged in corporate management for many years, he himself and the companies he has been involved in as an executive have never been major customers or business partners of the Company. With respect to positional/financial independence, he is not in a position to be considerably controlled by, or to considerably control, the management of the Company and therefore will not have conflict of interests with ordinary shareholders of the Company. Establishment of an optional committee which corresponds to the nominating committee or compensation committee Yes 7

8 Establishment and composition of the optional committee and the attribute of the chairman Name Number of Number of Number of Number of Attribute members full-time Inside Outside of the members Directors Directors committee chairman A committee Corporate corresponds to the nominating Directors Personnel Inside Director committee Committee A committee Corporate corresponds to the compensation Directors Personnel Committee Inside Director committee Supplementary explanation As an advisory panel to the Board of Directors, Corporate Directors Personnel Committee is established. The Committee discusses the matters relating the personnel of directors, including compensation to directors, and reports to the Board of Directors. As the Committee consists of no less than half of Outside Directors, the transparency and fairness of the processes and contents of the discussion are secured. [Matters related to the Corporate Auditors] Establishment of the Board of Auditors Yes Quorum of Auditors under the Articles of Incorporation 5 persons Number of Corporate Auditors 4 persons 8

9 Collaborations among the Corporate Auditors, the Accounting Auditor and the Internal Auditing Division As part of an effort to reinforce corporate governance, the Company strives to conduct effective and efficient audits through the collaborations among the Internal Auditing Division, the Corporate Auditors (including the Outside Auditors) and the Accounting Auditor. Specifically, among these three auditing functions, all audit plans are mutually disclosed and adjusted at the start of each fiscal year, and audit results are shared during each fiscal year, while the Accounting Auditor provides reports on the results of quarterly reviews and closing audits, additionally arranging meetings for periodic exchange of information and opinions in an attempt to share information and agendas. In addition, the Internal Auditing Division updates the Board of Auditors with the presentation of the auditing status report on a monthly basis. The Internal Control Divisions (the Compliance Division, the Risk Management Division, and the Finance and Accounting Division, etc.) regularly report to the Board of Auditors or the Full-time Auditors on the status of priority tasks and the audit results conducted by each auditing division. Meanwhile, audit results by these three auditing functions are also notified to concerned divisions to share information and to improve problematic issues across the Company, in an effort to reinforce the Internal Control System. Are Any Outside Auditors in Office? Yes Number of Outside Auditors 2 persons Number of Outside Auditors designated as Independent Directors/ Auditors 2 persons Relations with the Company (1) Name Attribute Relations with the Company (*1) a b c d e f g h i j k l m Hirohiko Ikeda Attorney at law Junya Hakoda Certified Public 9

10 Accountant *1 With respect to the relations with the Company, applicable item(s) are marked in accordance with the descriptions below. a: He executes business of the Company or an Affiliated Company. b: He is a non-executive director or an accounting advisor of the Company. c: He executes business or a non-executive director of a Parent Company. d: He is an auditor of a Parent Company. e: He executes business of a Fellow Subsidiary. f: He is a person/entity for which the Company is a major client or a person who executes business for such person/client. g: He a major client of the Company or a person who executes business for such client. h: He is a consultant, accounting expert, or legal expert who receives large amounts of cash or other assets in addition to director compensation from the Company. i: He is a major shareholder of the Company (in cases where the shareholder is a corporation, a person who executes business of the corporation.) j: He executes business for a client of the Company (excluding persons categorized as any of f, g or h above.) k: He executes business for another company holding cross-directorships/ cross-auditorships with the Company. l: He executes business for an entity receiving contributions from the Company. m: Other relations Relations with the Company (2) Name Hirohiko Ikeda Independent Director/ Auditor Supplementary explanation on the applicable item(s) Reason for being elected as Outside Auditors (including reason for being designated as Independent Director/ Auditors if he/she is designated as Independent Director/ Auditors) Yes None (Reason for being elected) (1) He is a person of desirable character and has considerable insight as a corporate auditor. (2) He is an attorney at law and is acquainted with laws and regulations. 10

11 Junya Hakoda (3) He can be expected to audit fairly and impartially from an objective viewpoint. (Consideration of independence) Although he has been working as an attorney at law for many years, with respect to positional/financial independence, he is not in a position to be considerably controlled by, or to considerably control, the management of the Company and therefore will not have conflict of interests with ordinary shareholders of the Company. Yes None (Reason for being elected) (1) He is a person of desirable character and has considerable insight as a corporate auditor. (2) He is a certified public accountant and is acquainted with finance and accounting. (3) He can be expected to audit fairly and impartially from an objective viewpoint. (Consideration of independent) Although he has been working as a certified public accountant for many years, with respect to positional/financial independence, he is not in a position to be considerably controlled by, or to considerably control, the management of the Company and therefore will not have conflict of interests with ordinary shareholders of the Company. [Matters related to the Independent Directors/ Auditors] Number of Independent Directors/ Auditors 4 persons Other matters related to the Independent Directors/ Auditors 11

12 None [Matters related to incentives] Implementation of measures to grant incentives to the Directors Introduction of a performance-based pay system Supplementary explanation on related matters The content of the performance-based pay system is described in Disclosure of company policies in deciding the amount of remunerations for Directors or the method for calculating such remunerations under Matters related to remunerations for Directors below. Persons to whom stock options are to be granted Supplementary explanation on related matters None [Matters related to remunerations for Directors] Scope of disclosure (remunerations for individual Directors) Remunerations for individual Directors are not disclosed. Supplementary explanation on related matters Amounts of remunerations, etc. paid to Directors and Corporate Auditors for the 191st Fiscal Year Directors: 8 persons 303 million (including Outside Directors:3 persons, 21 million) Corporate Auditors: 5 persons 71 million (including Outside Auditors:2 persons, 10 million) Notes: 1. The above numbers of Directors and Corporate Auditors include one Director and one Corporate Auditor who retired at the conclusion of the 190th Ordinary General 12

13 Shareholders Meeting on June 24, The above figures for Directors (excluding Outside Directors) include the payment of bonuses of 77 million based on the resolution adopted at the 191th Ordinary General Shareholders Meeting on June 23, Any company policies in deciding the amount of remunerations for Directors or the method for calculating such remunerations Yes Disclosure of company policies in deciding the amount of remunerations for Directors or the method for calculating such remunerations The Corporate Directors Personnel Committee, a body in which Outside Directors compose half or more of the members, sets the remuneration policies for Directors, and the Board of Auditors sets the remunerations for Corporate Auditors. Remunerations for Directors Remunerations for Directors are determined based on the following standards, within the upper limit of remunerations predetermined at the General Shareholders Meeting, in consideration of the standards of remunerations at peer companies, including primarily listed corporations, as well as the standards of remunerations for the Company s own employees. The remuneration for each Director (excluding Outside Directors) is set to consist of (1) a fixed amount, (2) a performance-based amount, and (3) bonuses for Directors. The performance-based amount in (2) is determined based on evaluation indices, namely, rate of sales (ROS), return on equity (ROE), the degree of increase in sales compared to the same period of the previous fiscal year, and the degree of improvement in operating income compared to the same period of the previous fiscal year, on a consolidated basis. The performance-based amount changes within the range from 0% to 50% of the fixed amount, depending on the performance. Bonuses for Directors in (3) are calculated in tandem with consolidated net income, within the upper limit of 0.5% of the consolidated net income for the previous fiscal year as predetermined at the General Shareholders Meeting. Starting from July 2015, Directors will acquire the Company s shares via the Director Shareholding Association in an amount of 12.5% of the fixed amount, and will continue to hold the shares during their terms of office. This will further enhance the Directors incentive to 13

14 improve medium- and long-term performance. Each Outside Director is paid remuneration in only a fixed amount determined in consideration of the balance with the remunerations for Directors and the scale of the Company s business operations. Remunerations for Corporate Auditors Each Corporate Auditor is paid remuneration in only a fixed amount within the upper limit of remunerations predetermined at the General Shareholders Meeting and in consideration of the balance with the remunerations for Directors and the scale of the Company s business operations. [Support system for Outside Directors (Outside Auditors)] The Company has the management meeting to discuss and share business challenges, generally once a month, for Directors and Corporate Auditors to share and understand more about important business matters. And the Company has the business report meeting, where the senior managers report business activities to the Outside Directors. In addition, the Outside Directors receive explanations about agenda of the Board of Directors if necessary. When a proposal is to be submitted to the Board of Directors Meeting or the Board of Auditors Meeting to be attended by Outside Auditors, the staff member working for the Corporate Auditors explains on the proposal prior to the meeting, if necessary, and facilitate the Auditor s work to perform a complete preliminary study. With respect to other material matters, the Company also strives at all times to maintain an efficient auditing environment by providing information, supplying materials, hearing opinions, supporting investigations, collecting information, etc. 14

15 2. Matters related to functions of business execution, audit and supervision, nomination, determination of remuneration, etc. (Board of Directors) The number of Directors of the Company is six (6) as of June 24, 2015 (three (3) of them are Outside Directors). The Board Meeting held monthly (in principle) is responsible for group-wide management functions, including strategy planning, the monitoring of the execution of departmental business, and guidance of the corporate group therefore. Outside Directors are elected to enhance supervisory function of the Board of Directors from an objective standpoint, for increasing transparency of the management, and gain good advice by utilizing his/her management experience in different industry and advanced expertise. To define the management responsibility of the Directors, the term of office of each Director is determined to be one (1) year. (Representative Director) The number of Representative Directors of the Company is one (1) as of June 24, 2015 (President & Representative Director). The President & Representative Director is the chief executive for all businesses of the Company and represents the Company. (Corporate Auditors & Board of Auditors) The number of Corporate Auditors of the Company is four (4) as of June 24, 2015 (two (2) of them are Outside Auditors). In addition to holding the Board of Auditors Meeting once a month in principle, they conduct periodic and comprehensive audits in each division and group company in accordance with their own plans. Further, they attend the Board of Directors Meeting and other important meetings, including the Management Meeting. With respect to the accounting audit, they endeavor to ensure the integrity and accuracy of accounting audit by periodically receiving reports on the progress of the auditing of the financial statements from the Accounting Auditor. To ensure correct decisions on the appropriateness of operational and accounting audit, one of Corporate Auditors with expertise in finance and accounting is appointed as the Full-time Auditor. To enable fair and impartial audit from an objective viewpoint, professionals independent of the Company (such as certified public accountants, attorneys at law) is involved in the Outside Auditors. In order to improve the auditing environment, the Company has established a Corporate Auditors Office staffed by employees working for the Corporate Auditors (staffed by one (1) personnel as of June 24, 2015). (Corporate Directors Personnel Committee) The Company has established Corporate Directors Personnel Committee in which no less than 15

16 half of Outside Directors are involved. The Company endeavors to ensure transparency and fairness in directors personnel procedures. (Risk Management Committee) Yamaha established the Risk Management Committee as an advisory body to the President and Representative Director. The Committee discusses risk management-related matters from a Company-wide perspective and reports its findings to the President and Representative Director. (Managing Council and Corporate Committees) The Company holds the Managing Meeting twice a month as a rule in order to discuss company-wide management issues arising from time to time and unify the views thereof as a company. The President & Representative Director, the Senior Executive Officers and the Standing Corporate Auditors attend the meeting. Further, the Company establishes a Corporate Committee for each strategic issue to deepen discussions on management strategic issues of importance. (Executive Officer) The Company adopts the executive officer system in order to strengthen its business execution function. Fifteen (15) Executive Officers (including five (5) Senior Executive Officers) assumed office as of June 24, In consideration of the importance of their responsibilities, in principle, Senior Executive Officers are General Managers of Business Groups and/or Staff Groups. Each General Manager of the Group is responsible for the business results of the Group under his or her supervision and issues appropriate commands and orders to enable his or her Group to fulfill its functions to the fullest possible extent. Each Executive Officer is assigned to the Division(s) in charge of major management issues. (Internal Audit) The Company has established an Internal Auditing Division (staffed by nine (9) personnel as of June 24, 2015) to review and assess the Company s system for the control and operation of overall management activities, as well as the performance of business executions, in view of legitimacy and rationality. Based on the results of this review and assessment, the Internal Auditing Division provides information related thereto and advice and recommendations for improvement and realignment. It also endeavors to improve audit efficiency by closely communicating and consulting with the Corporate Auditors and Accounting Auditor. (Accounting Auditor) 16

17 The Company employs Shin Nihon & Co. (English Name: Ernst & Young ShinNihon) as its Accounting Auditor. Two certified public accountants belonging to the said audit corporation, conduct the accounting audits of the Company. The said audit corporation has already introduced a voluntary shift system for Designated and Engagement Partners in order to ensure that the duration of the engagement does not exceed a certain fixed period. In addition, another eight (8) certified public accountants and nineteen (19) assistants help the aforementioned two certified public accountants conduct the auditing work. 3. Reasons behind the Company s adoption of the existing corporate governance system The Company, being a company with Corporate Auditors, has adopted measures to enhance its governance functions including the introduction of an Executive Officer system, establishment of Corporate Directors Personnel Committee and development of an Internal Audit System. The Company believes that such measures, along with the day-to-day business audits under the current audit system by Standing Corporate Auditors as well as fair and equitable audits by Outside Auditors with a high degree of independence, enhance the effectiveness of its governance. 17

18 III Measures for Shareholders and Other Stakeholders and their Implementation 1. Working to vitalize the General Shareholders Meeting and facilitate the exercise of voting rights Supplementary explanation Earlier dispatch of the notice of the Meeting Date of the Meeting to be fixed in principle on a day other than the day on which the largest number of companies holds annual shareholders meetings ( the peak day ). Exercise of voting rights through electromagnetic means Efforts to improve an environment for the institutional investors to exercise voting rights including the participation in the Electronic Voting Platform Provision of English version (summary) of the notice of the Meeting Others In an effort to solicit the exercise of as many voting rights as possible, the notice is dispatched at least three (3) weeks prior to the date of the Meeting in principle. In an effort to increase the number of shareholders able to attend the Meeting, the Company endeavors to select a day other than the peak day, to the extent feasible. The Company allows the electronic exercise of voting rights via the Internet. The Company has introduced the Tokyo Stock Exchange Platform to facilitate voting by institutional investors. For foreign shareholders, the Company prepares an English version (summary) of the notice of the Meeting and posts it on its website. To deepen the understanding of attending shareholders, the Company presents VTR presentations on the business reports. Further, it holds events such as mini-concerts after the Meeting, while introducing its products. 18

19 2. IR Activities Development and publishing of disclosure policies Periodic presentation meeting for individual investors Periodic presentation meeting for analysts and institutional investors Periodic presentation meeting for foreign investors Posting of IR materials via the website Supplementary explanation The Company has developed disclosure policies and published them on its website. The Company holds non-periodic company presentation meetings for individual investors in provincial cities. The Company holds an IR presentation meeting for securities analysts and institutional investors when releasing its quarterly results. It also organizes non-periodic facilities tours and business presentations The Company visits institutional investors in North America, Europe and Asia respectively once a year. The Company enriches its IR materials and provides information through its website, including the website for individual investors. Presentation by Representative Will not be made Will be made Will be made Placing department (or person) in charge of IR Corporate Planning Division 19

20 3. Reinforcing respect for the stakeholders positions Supplementary explanation The provision of internal rules, etc. concerning respect for stakeholders positions Environmental protection activities, CSR activities, etc. As stated in the section on the Fundamental Concept of Corporate Governance, the Company declares its commitments to each of the stakeholders shareholders, customers, people who work with Yamaha, and society and is aiming to fulfill those commitments. Further, specific action items are prescribed in the Codes of Conduct for Compliance, in order to fulfill the responsibilities to stakeholders. The Company declares its support for the UN Global Compact s ten (10) principles in the four (4) areas of human rights, labor, the environment and anti-corruption, while also promotes business or social activities based on its CSR concept such as respect for human rights or environmental preservation. The Company issues CSR reports annually, and endeavors to disclose its activities status in an easy-to-understand manner for stakeholders.. 20

21 IV Matters concerning the Internal Controls System, etc. 1. Basic policies concerning the Internal Controls System and the status of improvement of the system The Company is committed to improving its system to ensure the appropriate operation of its businesses (hereinafter referred to as the Internal Controls System ), in accordance with the Company Law and the Enforcement Regulations of the Company Law, as stated hereunder. It strives to qualitatively enhance the Internal Controls System in order to improve the efficiency of its business operations and the reliability of its accounting and financial information, strictly comply with the laws and regulations, strengthen its ability to secure the assets and control the risks, and pursue optimal corporate governance for the enhancement of the Company s corporate and brand value. 1. Systems to ensure that the Directors and employees comply with applicable laws, regulations, and the Articles of Incorporation in the execution of their duties (1) The Company has established the Yamaha Philosophy that consists of a Corporate Philosophy and code of conduct structured to realize the Corporate Philosophy. All of the Directors and employees of the group share and practice the Yamaha Philosophy. (2) The Board of Directors specifies in the Rules for the Board material matters to be resolved by the Board and requires the reasonable decision-making process and content of resolutions. The Representative Director(s) and Business Execution Director(s) report to the Board of Directors on the status of the business execution, and the Board supervises the execution of duties of each Director. (3) The Auditors audit the execution of duties by the Board of Directors in accordance with the audit standard and audit plan. (4) The Company is willing to increase the number of independent Outside Directors and independent Outside Auditors, and aims for more objective and transparent management. (5) The Meeting for Compliance established in the Company institutes the Codes of Conduct for Compliance, upgrades the relevant regulations and manuals, and strives to improve the penetration of compliance education throughout the group. (6) In order to realize effective compliance, an internal whistle-blowing system covering the whole group is adopted. (7) The Company declares the basic principle of the exclusion of anti-social forces, stands firm in its refusal to comply with unjustifiable requests from anti-social forces and in its commitment to never cover up scandals or other circumstances that may draw unjustifiable requests, and 21

22 endeavors to thoroughly implement the basic principle. 2. Systems concerning storage, management, etc. of information on the execution of duties by the Directors The Directors store and manage documents and other information related to the execution of their duties properly in compliance with applicable laws, regulations, and the internal regulations. 3. Internal regulations and other systems concerning management of risks of loss (1) With respect to serious risk in connection with the execution of business, the Risk Management Committee, an advisory organ of the President & Representative Director, comprehensively grasps the risk and formulates policies for the risk management of the whole group. (2) Responsible divisions are determined in accordance with the nature of the risk, upgrade the relevant regulations and manuals, and offer guidance and advice to the whole group. (3) Internal audits are conducted by the Internal Auditing Division to collect risk information and recommend appropriate responses. 4. Systems to ensure the efficient execution of duties by the Directors (1) The Company enhances the speed of business execution and the efficiency of management by defining the authorities and responsibilities of the Board of Directors and Representative Directors, the appropriate delegation of authority, the missions of each division and group company, and the command and order system, in addition to the measures to institute and maintain regulations concerning the execution of business, including the Rules for the Board of Directors, the Regulations on authorization, etc. (2) The Company has established the Management Meeting, etc., advisory organs of the President & Representative Director. These organs deliberate on material matters that may influence the whole group, including matters to be resolved by the Board of Directors, and report the results and findings to the President & Representative Director. (3) For the purpose of group-wide goal setting and performance evaluation, the Company has established a business management system that enables prompt business judgments and risk controls. 5. Systems to ensure the propriety of business operations in the corporate group consisting of the Company and its subsidiaries (1) The Company has established an internal control structure in the whole group based on a Group Management Charter that defines a basic policy for group management and a Group Internal Control Policy that defines a policy for internal control. (2) The Company and its subsidiaries institute and maintain regulations concerning the execution 22

23 of business, including the Rules for the Board of Directors, the Regulations on authorization, etc., to clarify the authorities of Directors, etc. and the command and order system. (3) The Company s subsidiaries obtain approval from the Company in advance when deciding certain material matters that may influence the group management, including the status of operations, and report certain matters to the Company. (4) The Company adopts a risk management system covering the whole group and extends compliance education to its group companies. 6. Matters concerning employees to be posted as assistants to the Auditor(s) for the execution of auditor duties. As a section dedicated to the assistance of the Corporate Auditors in performing the auditor duties, the Corporate Auditors Office is formed and functions under the direct control of the Board of Auditors. 7. Matters concerning independence from the Directors of employees engaged as assistants to the Corporate Auditors, and matters for ensuring the effectiveness of the instructions of the Corporate Auditors to the aforesaid employees The Board of Auditors receives a prior notice from the Director(s) concerning changes in the organization and staff members of the Auditors Office and, if necessary, expresses its opinions on those changes or requests modifications. Some staff employees who are not subject to the commands or orders of the Directors are posted in the Corporate Auditors Office. In addition, any personnel evaluation of those staff employees or any disciplinary action against them requires the prior approval of the Board of Auditors or the Full-time Auditor designated by the Board of Auditors. 8. Systems concerning reports to the Corporate Auditors (1) The Corporate Auditors attend the Management Meeting, the Executive Officers Meeting, and other important meetings, and express their opinions when necessary. (2) The Corporate Auditors inspect material documents for final decisions and request explanations or reports from the Directors or employees when necessary. (3) When requested, the following divisions provide periodic reports to the Corporate Auditors and the Board of Auditors on matters prescribed by laws and regulations and other matters covering the whole group. 1) Activity reports by the Internal Auditing Division on internal control practices and the results of internal audits, 2) Reports by the Legal Division on compliance and the operations of the internal whistle-blowing system and current conditions of whistle-blowing, 23

24 3) Reports by other staff divisions on compliance and the status of internal control activities. (4) The Company s subsidiaries provide reports to the Corporate Auditors, either directly or indirectly through the Company s Directors or employees, on material matters that may influence business operations and business results. 9. Systems to ensure that Directors and employees of the Company and its subsidiaries do not receive any disadvantageous treatment by reason of their reporting to Corporate Auditors The Company has established a system for strictly protecting the privacy of persons who report information to Corporate Auditors (whistleblowers) and for preventing the unreasonable punishment of whistleblowers in reprisal for whistleblowing. 10. Matters concerning the policy on accounting for expenses and debts incurred from the execution of duties by Corporate Auditors The Company bears expenses for auditing under the audit plan of the Board of Auditors. The Company also pays expenses accrued for auditing outside the audit plan, at the request of the Board of Auditors. 11. Other systems to ensure the effectiveness of auditing by the Corporate Auditors The President & Representative Director has periodic opportunities, either personally or through the Internal Auditing Division, to exchange views with the Corporate Auditors on the upgrading and operating status of the Internal Controls System. Through such exchanges, the President & Representative Director promotes the constant improvement of the system. The Company endeavors to ensure that the Corporate Auditors receive the assistance of outside experts, whenever the Corporate Auditors deem it necessary for their auditing. 2. Basic approach toward eliminating the anti-social forces and the status of its development This approach is embedded into the Internal Controls System. As stated in (7) of the 1. Systems to ensure that the Directors and employees comply with applicable laws, regulations, and the Articles of Incorporation in the execution of their duties under 1. Basic policies concerning the Internal Controls System and the status of improvement of the system. 24

25 V Other Matters 1. Matters concerning the anti-takeover measures 1. Basic Policy on the Composition of Persons to Control Decision-Making over the Financial and Business Policies of the Company We believe that persons who control the decision-making over the financial and business policies of the Company must be those who fully understand and appreciate the financial and business circumstances as well as the source of the corporate value of the Company, and are capable of continuously and sustainably ensuring and enhancing the corporate value of the Company and common interests of shareholders. We also believe that the final judgment as to whether to accept a purchase offer accompanying the transfer of controlling rights in the Company should be based on the will of all of the shareholders.. We will not reject large purchases of shares of the Company as far as it is beneficial to the corporate value of the Company and common interests of shareholders. However, a review of the purposes, etc. of the large purchases of shares reveals that many of the purchases make no contribution to the corporate value of the companies targeted for purchase or the common interests of their shareholders. In many cases a large purchase clearly impairs the corporate value of the targeted company and common interests of its shareholders, or exposes the shareholders of the targeted company to the risk of being forced to sell their shares, or fails to provide the Board of Directors and shareholders of the targeted company sufficient time and information to examine the purchaser s conditions or offer alternative plans, or requires the targeted company to negotiate with the purchaser in order to obtain more advantageous conditions than those offered by the purchaser. It must be emphasized that those who attempt a large purchase of shares of the Company must fully understand and appreciate not only the financial and business circumstances of the Company, but also the factors that constitute the source of the corporate value of the Company, including: (i) Inherent connections between our manufacturing operations, which are focused on musical instruments and related hardware, and our service operations, which include Yamaha music schools; (ii) Accumulation of traditional as well as state of the art technologies and the product development capabilities that integrate them; (iii) Global production system that ensures high product quality and cost performance as well as stable supply of products, and user-oriented marketing activities leveraging our global distribution network; (iv) Research and development activities along with Yamaha design that promote unique value creation; and (v) Long-term retention and development of human resources who serve as the basis of all corporate activities, and positive CSR (corporate social responsibility) activities, and must be capable of ensuring and developing these advantages on a medium-to-long 25

26 term basis. Otherwise, such purchase should only end up damaging the corporate value of the Company and common interests of shareholders. We believe that the persons engaged in large purchases that are not beneficial to the corporate value of the Company and common interests of shareholders as described above, are inappropriate as those who control the decision-making over the financial and business policies of the Company, and that we must protect the corporate value of the Company and common interests of shareholders by taking necessary and appropriate measures against such purchases. 2. Efforts to Keep the Control over Decision-Making on Financial and Business Policies out of the Hands of Inappropriate Persons in Light of the Basic Policy In order to secure and enhance corporate value and the common interests of the shareholders, measures using the issuance of Stock Acquisition Rights without compensation are renewed as a countermeasure against large-scale purchases of Company shares (hereinafter, such renewal is referred to as the Renewal, and the plan after the revision is referred to as the Plan ), with the approval of shareholders for On the Renewal of Measures for the Large Purchase of Company Shares(Anti-Takeover Measures) at the 189th Ordinary General Shareholders Meeting held on June 26, The outline of the Plan is as follows. When a purchaser purchases shares etc. of the Company, the Plan establishes procedures for presenting the management s plan or alternative plans, etc. to shareholders or for conducting negotiations, etc. with the person making such purchase (hereinafter referred to as the Purchaser ) upon securing a period for the Company to gather information and perform examinations, etc. concerning the relevant purchase by requesting the Purchaser to provide information on the relevant purchase in advance. The Plan shall be applicable in the event of purchase or other acquisition as described in (i) or (ii) below. (i) Concerning shares, etc. issued by the Company, any purchase that increases the holding ratio of shares etc. of the holder to 20% or greater, (ii) Concerning shares etc. issued by the Company, a tender offer that increases the total sum of the ratio of ownership of shares etc. of the relevant purchaser and the ratio of ownership of the shares etc. of a Special Stakeholder to 20% or greater. 26

27 When the Company recognizes the risk of a purchase that may impair the corporate value of the Company and common interests of shareholders, such as a purchase of shares etc. of the Company not in accordance with the procedures prescribed in the Plan, the Company will grant all of its shareholders (excluding the Company itself) Stock Acquisition Rights at the relevant point of time in accordance with the method for the allotment of Stock Acquisition Rights without compensation, with the exercise condition that the relevant Purchaser will not be allowed to exercise the Stock Acquisition Rights, and with the acquisition provision that the Company will acquire the Stock Acquisition Rights in exchange for Company shares from persons other than the relevant Purchaser. For judgment on implementation or non-implementation of the allotment of Stock Acquisition Rights without compensation, in order to rule out arbitrary judgments by the Board of Directors, the Company has resolved to ensure transparency by entrusting the judgment solely to an independent panel made up exclusively of Outside Officers and other independent persons in accordance with the Independent Panel Rules. Furthermore, for the purpose of confirming the intent of the shareholders with respect to the allotment of the Stock Acquisition Rights without compensation, the Board of Directors of the Company may call for the general shareholders meeting specifically for such purpose, as applicable under the Plan. The Independent Panel shall make a judgment on implementation or non-implementation of the allotment of Stock Acquisition Rights without compensation for a period not exceeding 90 days of the receipt of the information, and make recommendations to the Board of Directors based on the judgment above. The Independent Panel may also request the Board of Directors to provide their information and opinion for a judgment within that period. The Board of Directors will adopt a resolution with respect to implementation or non-implementation of the allotment of Stock Acquisition Rights without compensation, paying utmost attention to the above recommendation by the Independent Panel. Nonetheless, in case the general shareholders meeting for confirmation of the shareholders intent is held, the Board of Directors of the Company shall follow the resolution of the general shareholders meeting. Requirements for the allotment of Stock Acquisition Rights without compensation as part of the implementation of the Plan are as follows. The applicability of the following requirements must be determined solely based on the judgment of the Independent Panel, and by no other means. Reason for Implementation (I) 27

28 The Purchase is found not in compliance with the procedures under the Plan (including failing to provide sufficient time or information reasonably needed for evaluating the conditions of such Purchase), and the allotment of the Stock Acquisition Rights without compensation is deemed reasonable. Reason for Implementation (II) The Purchase is applicable to either of the following, and the allotment of the Stock Acquisition Rights without compensation is deemed reasonable. (a) The Purchaser poses a risk of clear infringement of the corporate value of the Company and common interests of shareholders through the actions enumerated in the following or similar actions: The Purchaser buys up shares and demands the Company or the related parties to repurchase the relevant shares at an inflated price. The Purchaser manages the Company to realize the interests of itself at the expense of the Company, just like that the Purchaser manages the Company temporarily and get the Company s valuable assets at a lower price. The Purchaser misappropriates the Company s assets to collateral or liquidation for the Purchaser or its affiliate companies. The Purchaser manages the Company temporarily and forces the Company to sell out the valuable assets unused for business at the moment. After that, the Purchaser demands high-dividend from the profit on disposal, or sell its own Company shares taking an opportunity of high stock price by it. (b) The Purchaser poses a risk of forcing shareholders to engage in a de facto sale of the shares by means such as a coercive two-stage purchase (to make a stock purchase, such as a tender offer, without soliciting the purchase of all the shares in the first purchase, and setting disadvantageous purchase conditions or deliberately making the conditions unclear for shareholders in the second stage). (c) The conditions for the Purchase proposed by the Purchaser, including the purchase price, form of payment, purchase timing, legality of the proposed purchase method, the possibility of purchase execution, and the policies pertaining to the handling towards other stakeholders such as shareholders of the Company following the Purchase, are insufficient or inappropriate in consideration of the intrinsic value of the Company. (d) The Purchaser damages the brand of the Company, damages relationships with the shareholders, employees, business partners, customers, and other persons essential to creating and upholding 28