Komatsu : > Corporate Governance

Resolution of ESG Issues through Growth Strategies

Corporate Governance

A Century of Creating the	Top Management's Views on	Evolution of Business Model for	Resolution of ESG Issues through	Corporate Profile
Workplaces of the Future	Komatsu's Management Issues and	Creating the Workplaces of the Future	Growth Strategies
	Strategies for the Next Century

• Message from an Outside Director

Promoting discussion to identify areas needing change in pursuit of sustainable growth- Cutting a strong start for growing over the next century

Makoto Kigawa

Outside Director

identified. These reports are great for helping outside directors understand what is going on inside of the Company. I quickly adopted this approach and implemented these reports for board meetings at Yamato Holdings Co., Ltd., where I am representative director. In addition, the president himself accurately explains issues at Board meetings, which does a lot for the ease of discussion. One particular example of this ease of discussion that comes to mind is the acquisition of Joy Global Inc. (cur- rently, Komatsu Mining Corp.), which moved into the final decision phase shortly after I became an Outside Director in 2016. What makes this episode so memorable is how brisk and unrestrained the discussion was, even among Outside Directors, despite the late stage of the process. When a matter has been discussed a number of times, it is common for new opinions to stop being heard at later stages of discussion. A company that is able to engage in such a high degree of discussion is definitely a healthy company.

At the moment, I have no complaints about the composition

of Komatsu's Board of Directors or the evaluations of its effec- tiveness. The June 2021 revision to Japan's Corporate Governance Code has created a need for even more robust corporate governance. I think that the diversity of the Board of Directors will be key to realizing this more robust governance. Komatsu is evolving with the times. For example, it appointed a non-Japanese Outside Director in 2020. However, if the Company were to evolve further, with an eye to the type of Board membership that will be required in the future, it could create a Board of Directors that would allow decision-making and oversight functions aimed at improving corporate value to be exercised based on more diverse input and opinions. I think the decision to prepare and disclose a skill matrix detailing the expertise of Outside Directors and Outside Audit & Supervisory Board Members will help the Board of Directors become more effective while driving the evolution of corporate governance at the Company.

Strengths and Issues of Komatsu as a 100-Year-Old Company

Changes in Komatsu's Operating Environment, Issues, and Expectations for the Next Mid-Term Management Plan

I believe that Komatsu's strengths can be seen in its unshakable brand image, which was fostered through action based on the management principle of "maximizing the trust given to us by our stakeholders and society through a commitment to quality and reliability," as well as in the human resource development initiatives based on The Komatsu Way (please see page 44) that support this brand power. Despite the fact that, today, about 70% of Komatsu's employees are of non-Japanese nationality, The Komatsu Way is embraced by employees around the world and has permeated all corners of the organization. The Komatsu Group truly is a united global organization, and the strength of this unity forms the foundation for the manufacturing capabilities

and innovativeness that are also strengths of Komatsu. Another strength is the corporate constitution that Komatsu has shaped through exhaustive business structure reforms advanced based on the keyword of DANTOTSU since the turn of the century.

These strengths have led to a sense of confidence that success can be achieved by adhering to Komatsu's approach. However, if this confidence turns into overconfidence, it might threaten to make the Company overly conservative in the face of change. I therefore think there is a need for discussion to clarify which aspects of Komatsu should be carried forward through the next century and which should be changed.

The current mid-term management plan was formulated based on discussions that took place when President Ogawa was still a senior executive officer. I believe that there would be no issues with transferring the basic framework of the current plan onto the next. However, the speed of change in the operating environment today exceeds that when the current plan was formulated. Accordingly, it will be important to implement the next plan, while making flexible revisions. Moreover, we are currently seeing increased political and economic instability along with massive changes in people's values. Now is thus a crucial time when it comes to ensuring Komatsu can cut a strong start for growing over the next 100 years.

low environmental impacts.

The third category of risks is competition risks in solutions businesses, such as those pertaining to Smart Construction. Komatsu's solutions businesses are currently at a stage in their growth in which it is time for the technologies and expertise Komatsu has developed in Japan to be deployed in overseas markets. The Company is currently the frontrunner with regard to such solutions. However, if Komatsu is to maintain its competitiveness in this area, it will need to bring its levels of quality in line with international standards. This will be incredibly important, so I hope Komatsu will do what needs to be done. It is unlikely that Komatsu will see a sudden change in the competitive climate in

Constructive Discussion at Board Meetings and Potential for Increased Diversity to Improve Corporate Value

When formulating the next mid-term management plan, there are largely three categories of risks that will need to be consid- ered. The first is geopolitical risks. In recent years, we have seen an increased trend toward countries implementing policies solely for the benefit of their own national interests, giving rise to geo-

its core manufacturing operations. However, outside of these operations, in service and solutions businesses, which are more closely connected to end users, it is possible that there may be changes in competitors. Rivals with business models that had not been anticipated might also appear. Moreover, this is not an

As a Director, I believe that I have an important role to play by providing advice pertaining to business strategies to the executive team based on an understanding that I am charged with supervising the executive function. For example, I have management experience related to the logistics industry. In 2020, we saw a sudden jump in the price of marine transportation, and the resulting disruption to the parts supply chain has become a social issue. We have been able to confirm that, at the moment, there have been no serious obstructions to local production or supply chain disruptions stemming from soaring parts transportation costs. Regardless, we must address the risk of supply

chains being disrupted due to extreme circumstances, which, in addition to the current COVID-19 pandemic, could include natural disasters, political conflicts, or other such issues. Given such risks, it is another important role of directors to confirm the current conditions while also pointing out potential future risks and offering advice in relation to these risks.

I believe that Komatsu's Board of Directors has an incredibly conducive atmosphere for encouraging open discussion and sees frank exchanges of opinion. Board meetings begin with a report from President Ogawa in which he explains the circumstances within the Company and any issues that he has

economic risks. These risks could manifest in forms such as trade restrictions or tariffs; in areas related to financial markets, digital transformations, or intellectual properties; or even as acts of cyberterrorism or other extreme circumstances. It is therefore vital to discuss these risks before they materialize.

The second category of risks is climate change risks. It can be expected that coal businesses will become less prosperous in the future. This situation will create a need for Komatsu to consider how to develop its mining equipment business, which caters to such coal businesses. At the same time, the Company must ramp up development of electric equipment and other products with

era in which a company can be competitive in the solutions business on its own. The degrees to which Komatsu will pursue alliances and to which it will boldly move forward on its own will be important elements of strategies.

At the same time, a change of perspective could reveal that these risks actually represent business opportunities. I therefore think it is important that Komatsu, with its exceptional manufacturing capabilities, identify new areas, areas in which it must change, and its strategies for these areas and accelerate its efforts as to not become overly conservative.

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Resolution of ESG Issues through Growth Strategies

Corporate Governance

A Century of Creating the	Top Management's Views on	Evolution of Business Model for	Resolution of ESG Issues through	Corporate Profile
Workplaces of the Future	Komatsu's Management Issues and	Creating the Workplaces of the Future	Growth Strategies
	Strategies for the Next Century

Basic Stance on Corporate Governance

To become a company which enjoys more trust from all stakeholders, the Company is working to strengthen corporate governance, improve management efficiency, advocate corporate ethics and ensure sound management on a group-wide basis. To further improve the transparency of management for its shareholders and investors, the Company discloses information in a fair and timely manner and actively engages in investor relations activities by holding meetings with ­shareholders and investors.

Activities of the Board of Directors

The Company holds Board of Directors' meetings periodically at least once every month. The Board of Directors deliberates and makes resolutions on important matters, determines management policies of Komatsu, and rigorously controls and supervises the execution of duties by all members of the executive management team including Representative Directors. Of the nine (9) Directors on the Board, four (4) are Outside Directors to

ensure transparent and objective management.

In FY2020, Outside Directors and Outside Audit & Supervisory Board Members held meetings at which these outside officers shared opinions regarding management issues from their objective and independent standpoints. Discussions with the President were also arranged to foster shared recognition.

Corporate Governance Framework

At the Company, the Board of Directors is positioned as the core of corporate governance, and to improve the effectiveness of discussions at meetings of the Board of Directors, the Company has worked to put in place a system to ensure thorough discussions of important management matters and prompt decision making, and reform their operational

aspect. Having introduced the Executive Officer (Shikko Yakuin)

System in 1999, the Company has separated management decision making and supervisory functions from executive functions to the extent permitted by laws and regulations, and while appointing both Outside Directors and Outside Audit & Supervisory Board Members, limits the Board of Directors to a small number of members.

Characteristics of Komatsu's Board of Directors

• Monthly reports from the CEO (recent important items and other topics)
• Monthly reports from the CFO (performance, order trends, borrowings, etc.)
• Annual proposal plans and follow-up
• Multiple discussions on important items (deliberation → resolution)
• Business reports to Board of Directors covering nearly 100% of sales- generating activities
• Proactive expression of opinions by Audit & Supervisory Board Members in addition to Directors
• Opportunities for free discussion at Board of Directors' meetings

Board of Directors' Meeting Attendance and Agenda Item Numbers in FY2020 (April 1, 2020-March 31, 2021)

Attendance	Outside Directors	100%
Outside Audit & Supervisory	100%
	Board Members
Agenda item	Reports	41
numbers	Deliberations, Resolutions	33
Free discussion		3 times

Corporate Governance of the Company (As of June 30, 2021)

Figures inrepresent the number of meetings in FY2020.

Evaluation of the Effectiveness of the Board of Directors

General Meeting of Shareholders

The Company is working to improve the effectiveness of the Board of Directors and performs annual evaluations and analyses of the effectiveness of the Board of Directors for this reason.

Elect / Discharge
Elect / Discharge

	15	Audit		15
Audit &	times		times
Supervisory Board	Office of
(Standing 2 / Outside 3)	Corporate	Board of Directors
Collaboration		Auditors' Staff	(Standing 5 / Outside 4)
	Advise / Suggest
Audit
International
	Advisory Board	Elect / Discharge /	Report /
			Supervise
				Submission

Elect / Discharge

Audit reports	Accounting Auditors
	(Audit corporation)
Recommend	Nomination	2
	Advisory Committee	times
Recommend	Compensation Advisory	1
Committee	time

Evaluation Process

Survey		Collection of survey		Discussion among		Report of discussion
After discussion by the Board of		results from all Directors		Outside Directors and		results, evaluation and
Directors on the method to be used		and Audit & Supervisory		Outside Audit &		analysis of effectiveness,
for FY2020 evaluation, based on the		Board Members		Supervisory Board		and discussion of the
method applied in the previous year
and the results thereof, the Company				Members based on		matters for improvement
conducted a survey out of consider-				survey responses		at meeting of the Board of
ation for the nature of an effective						Directors
Board of Directors.

Internal

Auditing

Dept.

Executive Functions

President and CEO

Strategy Review Committee

Komatsu Group's Global Operations

Major Committees

Product Safety Committee

Compliance Committee

Risk Management Committee

Export Control Committee

Sustainability Promotion

Survey topics:	• Composition of the Board of Directors	• Structure through which important matters are
		• Contents of agendas	reported, proposed, and followed up
		• Straightforward and meaningful discussions	• Succession plans for CEO
		• Provision of information and presentation of	• Other items
		agendas by executives

Internal audit	Executive Officers and Global Officers 57

• Japan 30
• Global 27 (including 19 foreign nationals)

Committee

Disclosure Committee

Collaboration

Outline of the Results

The assessment shows a generally high level of achievement for each item and confirms that there were no serious problems concerning the effectiveness. The Company received excellent evalua-

With respect to the conducting of Board meetings, positive evaluations were received with regard to the arrangement of online meetings in response to the COVID-19 pandemic, but

Decide on the details of the items including election and discharge / Confirm suitability or independency of the Accounting Auditors

Recommend

Audit reports

tions for various factors, such as the following: the timely sharing of issues, problems, and other information provided in monthly reports by the President himself in Board meetings and the fact that Board members followed up the implementation status of resolutions made by the Board of Directors based on regular reports.

there were a few suggestions for improvement pertaining to the need to expand the range of specific strategic themes discussed and to the nature of regular reports on business execution. The Company will make those improvements and work to make the Board of Directors further effective in the future.

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Major Activities of Outside Directors and Outside Audit & Supervisory Board Members in FY2020

Resolution of ESG Issues through Growth Strategies

Corporate Governance

A Century of Creating the	Top Management's Views on	Evolution of Business Model for	Resolution of ESG Issues through	Corporate Profile
Workplaces of the Future	Komatsu's Management Issues and	Creating the Workplaces of the Future	Growth Strategies
	Strategies for the Next Century

Corporate Governance Reforms

The Company has proceeded to implement reforms to its corporate governance system in order to ensure effective and adequate performance of matters related to decision making, management and supervision, such as separation of corporate management from business execution, enhancement of corporate management decision making by the Board of Directors, strict management and supervision of business execution, measures undertaken by Outside Directors to improve transparency and objectivity of management, and measures undertaken by the Audit & Supervisory Board to appropriately audit Directors'

execution of duties. As a means to supplement executive func- tions, the Company established the International Advisory Board (IAB) in 1995. Through the IAB, the Company aims to secure objective advice and suggestions from experts from Japan and abroad about how to function as a global company by exchanging opinions and holding discussions. Going forward, the Company will pursue increases to the effectiveness of the Board of Directors while appointing Outside Directors to ensure transparency and soundness and promoting openness and accountability in management.

Outside Directors

Makoto Kigawa	Mr. Makoto Kigawa previously served as Representative Director at both Yamato Holdings Co.,	Attendance of the Meetings
Ltd. and Yamato Transport Co., Ltd. He has been actively expressing a wide range of opinions	Meeting of the Board of Directors 100%
Major Career	at the meetings of the Board of Directors mainly from the standpoint of appropriately monitor-	(15 meetings out of the 15 meetings held)
Representative Director at both	ing the management strategies of the Company and contributing to the enhancement of the
Yamato Holdings Co., Ltd. and	Company's medium- and long-term corporate value. During FY2020, he accordingly provided
Yamato Transport Co., Ltd.	comments based on his rich experience in the business world, particularly concerning such
	issues as working from home and other personnel arrangements, competitive strategies
	involving ICT, and inventory management. He also served as Chairman of the Company's
	Nomination Advisory Committee and the Compensation Advisory Committee.
Takeshi Kunibe	Mr. Takeshi Kunibe has served as Representative Director, President of Sumitomo Mitsui Banking	Attendance of the Meetings
Corporation and Representative Director and President as well as Director President and	Meeting of the Board of Directors 100%
Major Career	Representative Executive Officer of Sumitomo Mitsui Financial Group, Inc., and serves as Chairman	(11 meetings out of the 11 meetings held)

Board of Directors

28 members	1999:	2003:	2005:	2017:	2021:
8 members	8 members	10 members	8 members	9 members
(0 Outside Directors)
	(1 Outside Director)	(2 Outside Directors)	(3 Outside Directors)	(3 Outside Directors)	(4 Outside Directors)
Audit & Supervisory Board
3 members	1994:			2006:
Supervisory Board	4 members		5 members
(1 Outside Audit &
Member)	(2 Outside Audit & Supervisory Board Members)	(3 Outside Audit & Supervisory Board Members)
Other organizations and systems
		Executive Officer System
			(1999)
				Global officers
				(2016)
		Compensation Advisory Committee	7 outside members, 1 standing member
		4 outside members, 1 standing member
			(2020)
		(1999)

Nomination Advisory Committee

(2015)

3 outside members, 2 standing members

International Advisory Board

(1995)

3-4 domestic and overseas experts

Hitech & Innovation International Advisory Board

(2015)

4-6 overseas experts

Compliance Committee

(2001)

Members of senior management and labor representatives

Representative Director of	of the Board of said company. He has been actively expressing a wide range of opinions at the
meetings of the Board of Directors, mainly from the standpoint of contributing to sustaining and
Sumitomo Mitsui Financial
improving transparency and soundness of management as well as enhancing corporate gover-
Group, Inc.
nance. During FY2020, he accordingly provided comments based on his rich experience in the
Representative Executive Officer
of Sumitomo Mitsui Banking	business world, particularly concerning the M&A management system, business plan during the
Corporation	COVID-19 pandemic, and ESG initiatives. In addition, he was a member of the Company's
Nomination Advisory Committee and the Compensation Advisory Committee.
Arthur M. Mitchell	Mr. Arthur M. Mitchell has worked for many years as a New York state attorney and foreign law	Attendance of the Meetings
attorney in Japan. He has been actively expressing a wide range of opinions at the meetings	Meeting of the Board of Directors 100%
Major Career	of the Board of Directors, mainly from the standpoint of mitigating and avoiding risk in the	(11 meetings out of the 11 meetings held)
Foreign lawyer of White & Case	Company's global business operations and contributing to the enhancement of the
LLP	Company's medium- and long-term corporate value. During FY2020, he accordingly provided
comments based on his international perspective and professional standpoint, particularly
	concerning such issues as business alliance strategy, data-related legal compliance, and ini-
	tiatives geared to the North American market. In addition, he was a member of the Company's
	Nomination Advisory Committee and the Compensation Advisory Committee.

Note: As Outside Directors Mr. Takeshi Kunibe and Mr. Arthur M. Mitchell were elected at the 151st Ordinary General Meeting of Shareholders held in June 2020, their maximum number of meetings of attendance is different from that of the other Directors.

Outside Audit & Supervisory Board Members

Hirohide	FY2020, based on his professional standpoint, he provided comments at the meetings of the	Meeting of the Board of Directors 100%
Yamaguchi	Mr. Hirohide Yamaguchi previously served as Deputy Governor of the Bank of Japan. During	Attendance of the Meetings
Board of Directors and the meetings of the Audit & Supervisory Board concerning such issues	(15 meetings out of the 15 meetings held)
Major Career	as the status of the global economy, demand trends, and audit systems. In addition, he was a	Meeting of the Audit & Supervisory Board
member of the Company's Compensation Advisory Committee.	100%
Deputy Governor of the
	(15 meetings out of the 15 meetings held)
Bank of Japan
Eiko Shinotsuka	economics, labor relations, and law. During FY2020, based on her professional standpoint,	Meeting of the Board of Directors 100%
	Ms. Eiko Shinotsuka possesses wide-ranging knowledge and experience in fields such as	Attendance of the Meetings
Major Career	she provided comments at the meetings of the Board of Directors and the meetings of the	(15 meetings out of the 15 meetings held)
Professor Emeritus,	Audit & Supervisory Board concerning such issues as utilizing global human resources, envi-	Meeting of the Audit & Supervisory Board
Ochanomizu University,	ronmental measures, and employee safety and health management. In addition, she was a	100%
Commissioner, National	member of the Company's Compensation Advisory Committee.	(15 meetings out of the 15 meetings held)
Personnel Authority, Member of
the Bank of Japan's Policy Board
Kotaro Ohno	his professional standpoint, he provided comments at the meetings of the Board of Directors	Meeting of the Board of Directors 100%
	Mr. Kotaro Ohno possesses rich experience in the legal profession. During FY2020, based on	Attendance of the Meetings
Major Career	and the meetings of the Audit & Supervisory Board concerning such issues as the compli-	(15 meetings out of the 15 meetings held)
Prosecutor-General, Special	ance system, Group company management, and securing human resources. In addition, he	Meeting of the Audit & Supervisory Board
Counsel, Mori Hamada &	was a member of the Company's Compensation Advisory Committee and an observer of the	100%
Matsumoto	Compliance Committee.	(15 meetings out of the 15 meetings held)

Composition of Directors and Audit & Supervisory Board Members (As of June 30, 2021)

Outside	Internal	Outside
4	5	3
Of whom,	Directors	Of whom,
	women 1
non-Japanese 1
Of whom, women 1

Audit &	Internal
2
Supervisory
Board Members

Introduction of New Outside Directors

The following one new outside director was appointed at the General Meeting of Shareholders held in June 2021.

Naoko Saiki	Ms. Naoko Saiki has considerable knowledge and abundant experience in international affairs, international law, and the field of economics as she
served in positions such as Director-General of the Economic Affairs Bureau and Director-General of the International Legal Affairs Bureau at the
Major Career	Ministry of Foreign Affairs.
Director-General, Economic	Utilizing this knowledge and experience, her recommendations concerning the overall management of the Company are expected to contribute
Affairs Bureau and International	to the enhancement of the medium- to long-term corporate value of the Company. Therefore, the Company nominates her as a candidate for
Legal Affairs Bureau, Ministry of	Outside Director.
Foreign Affairs	Although Ms. Saiki has no experience in participating in the management of other companies directly, the Company judged that she would be
	able to execute the duties of Outside Director adequately because of the reasons above.

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Resolution of ESG Issues through Growth Strategies

Corporate Governance

A Century of Creating the	Top Management's Views on	Evolution of Business Model for	Resolution of ESG Issues through	Corporate Profile
Workplaces of the Future	Komatsu's Management Issues and	Creating the Workplaces of the Future	Growth Strategies
	Strategies for the Next Century

Activities of Advisory Committees

Committee Name	Nomination Advisory Committee	Compensation Advisory Committee
Chairman	Outside Director (Makoto Kigawa)	Outside Director (Makoto Kigawa)
		4 Outside Directors (Makoto Kigawa, Takeshi Kunibe,
	4 Outside Directors (Makoto Kigawa, Takeshi Kunibe,	Arthur M. Mitchell, Naoko Saiki )
Members	3 Outside Audit & Supervisory Board Members (Hirohide
Arthur M. Mitchell, Naoko Saiki )
Yamaguchi, Eiko Shinotsuka, Kotaro Ohno)
(As of June 30, 2021)	Chairman of the Board
1 external expert (Advisor: Shinji Hatta, Honorary Professor,
	President
	Aoyama Gakuin University)
		Chairperson of the Board
	Selection of next President and deliberation, resolution, and	Deliberation, resolution, and reporting to the Board of
	Directors and Audit & Supervisory Board on remuneration
	reporting to the Board of Directors on human resource devel-
Purpose	systems for Directors, Audit & Supervisory Board Members,
opment methods, succession plans, and appointment and
	and Executive Officers to ensure objectivity and
	dismissal of Directors
	transparency
Meetings in FY2020	2	1
	• Selection and cultivation of candidates for next President	• Monthly compensation levels for Directors and Audit &
Agenda items in	• Selection of a new Outside Director candidate	Supervisory Board Members in FY2021
• Concurrent positions held by Chairman of the Board and	• Performance-based remuneration for Directors for FY2020
FY2020	Outside Directors	(projections)
	• Proposal of Directors and Audit & Supervisory Board	• Evaluation indicators for performance-based remuneration
	Members for FY2021, etc.	in FY2021

Remuneration Systems

In an effort to maintain an objective and transparent remuneration system, the policy and levels of remuneration for Directors and Audit & Supervisory Board Members of the Company are deliberated by the Compensation Advisory Committee. Taking its reports and recommendations into consideration, the remuneration for Directors is determined by the Board of Directors, and the remuneration for Audit & Supervisory Board Members is determined by discussions by the Audit & Supervisory Board Members, respectively, within the range previously determined by resolution of the General Meeting of Shareholders. With regard to the level of monthly remuneration paid as basic remu- neration, comparison by position at other key, globally active manufacturers in Japan is made by the Compensation Advisory Committee and is reflected in its reports and recommendations.

The remuneration for Directors excluding the Outside Directors (hereinafter "Internal Directors") comprises basic remuneration (fixed remuneration) and performance-based remuneration linked to the Company's consolidated performance for a

single fiscal year (bonus in cash and the Stock-Based Remuneration A) as well as the performance-based remuneration (Stock-Based Remuneration B) that will reflect the degree of achievement of the targets raised in the mid-term management plan, so that it will further contribute to the enhancement of the medium- and long-term corporate value of the Company, by linking the remuneration.

The remuneration for Outside Directors only consists of basic remuneration (fixed remuneration) designed to support their role to make recommendations with respect to the overall management of the Company as a member of the Board of Directors.

Furthermore, the remuneration for Audit & Supervisory Board Members only consists of basic remuneration (fixed remuneration) designed to support their independent position with authority to audit the execution of duties by Directors without getting fettered by the movements of corporate performance of the Company.

The retirement allowance system for Directors and Audit & Supervisory Board Members was terminated as of June 2007.

Succession Plans

One of the items contained in the Code of Conduct for Leadership/Top Management that has been described in The Komatsu Way since its establishment in 2006 is "continue to think about your succession plan."

In order to ensure that Komatsu's management values are transmitted to the next generation, the basic requirements for candidates for the position of President are discussed and clearly defined by the Human Resource Advisory Committee.

In addition, successors for important domestic and overseas positions up to and including that of the President are decided through the annual implementation of succession plans (see chart below).

Selected successors are assigned to challenging tasks and granted even larger roles in the organization to systematically develop them in an environment that encourages the pursuit of mutual growth.

Composition of Remuneration of Directors and Audit & Supervisory Board Members

		Basic Remuneration		Performance-Based Remuneration for a Single Year	Performance-Based Remuneration Linked to
			Performance of Mid-Term Management Plan
		(Fixed Remuneration)		(Monthly Remuneration x 0-24 months)
Internal		(Monthly Remuneration x 0-3 months)
Directors	Monthly remuneration x		Bonus in Cash (2/3, in	Stock-Based Remuneration A		Stock-Based Remuneration B
			(1/3, in principle)
		12 months		principle)*			Restricted Stocks
				Restricted Stocks
Outside	Basic Remuneration
Directors and	(Fixed Remuneration)
Audit &	Monthly remuneration x				Not influenced by Company performance
Supervisory
Board Members		12 months

* The upper limit for Bonus in Cash is set at 12 months' worth of monthly remuneration; the remainder of bonuses is to be paid as Stock-Based Remuneration A.

Performance-Based Remuneration Linked to Performance of Mid-Term Management Plan

Overview of Succession Plans

Results Feedback

Succession Plans	Evaluation and Selection of	Human Resource Relocations
Successors	and Cultivation

	Oversight of Implementation Process
	Board of Directors
	Human Resource Advisory Committee
Key Points for Cultivating	1. Foster willpower necessary to overcome challenges by having candidates experience
Leadership/Top Management	extremely difficult situations
Successors	2. Nurture organizational operation capabilities needed to unite parties with differing interests
	3. Cultivate compliance awareness to prevent misconduct

The Company will pay Internal Directors the equivalent of a three-month portion of monthly remuneration every fiscal year as remuneration linked to the period of the Company's Mid-Term Management Plan by granting restricted stock as stock-based remuneration (Stock-Based Remuneration B). In deciding Stock-Based Remuneration B, after the expiry of the period of the mid-term management plan, the number of shares on which to lift transfer restrictions (within a range of 0-100%) will be decided based on the achievement of the management targets of the Mid-Term Management Plan presented in the following table and as a general rule; the restriction of transfer on the shares will be lifted after three years from delivery.

Management Indicators and Management Targets in Mid-Term Management Plan (FY2019-FY2021)

	Management Indicator	Management Target
Growth	• Sales growth rate	• Growth rate above the industry's average*1
Profitability	• Operating income ratio	• Industry's top-level operating income ratio*1
Efficiency	• ROE	• ROE of 10% or higher
Financial position	• Net debt-to-equity ratio*2	• Industry's top-level financial position
Retail finance business	• ROA	• ROA of 1.5% to 2.0%
• Net debt-to-equity ratio*2	• 5.0 or under for net debt-to-equity ratio*2
	• Reduction of environmental impact	• CO2 emissions: Decrease by 50% in 2030 from 2010
ESG	Renewable energy use: Increase to 50% of total energy use in 2030
• Evaluation by external organizations	• Selected for DJSI*3
		(World & Asia Pacific) and for CDP*4 A-List (Climate Changes and Water Risk), etc.
Shareholder return	• Consolidated payout ratio	• Keep a fair balance between investment for growth and shareholder return (including stock
buybacks), while placing main priority on investment
		• Set goal of a consolidated payout ratio of 40% or higher

*1 Relative comparison with domestic and foreign major competitors in the same industry

*2 Net debt-to-equity ratio = (Interest-bearing debt - Cash and cash equivalents - Time deposits) / Shareholders' equity of the Company *3 Dow Jones Sustainability Indices: SRI indices generated by S&P Dow Jones of the United States and RobecoSAM of Switzerland

*4 International non-profit organization that advocates the reduction of greenhouse gas emissions and protection of water resources and forests by companies and governments

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Corporate Governance

Major Executive Committees

Committee Name
(Committees indicated with an	Purpose	Meeting Frequency
asterisk [*] are chaired
by the President.)
Product Safety	Effective promotion of Companywide product safety activities based on basic product safety	2 times a year and when
Committee	policies defined in product safety regulations	necessary
Compliance Committee*	Discussion on and decision and execution of policies and important measures pertaining to group-	2 times a year and when
wide compliance	necessary
Risk Management	Primarily discussion and approval of group-wide risk management tasks and risk countermeasures	1 time a year and when
Committee	necessary
Export Control	Discussion on and decision and execution of policies and important measures regarding group-wide	1 time a year and when
Committee	export control (trade security management)	necessary
Sustainability Promotion	Formulation of group-wide environmental measures and discussion of progress to facilitate	1 time a year and when
promotion of environmental preservation throughout the Group and discussion on and execution of
Committee*	necessary
group-wide CSR policies and important measures and activities
	Discussion and assessment to facilitate accurate information disclosure as required by the Financial	4 times a year and when
Disclosure Committee	Instruments and Exchange Act and submission of recommendations to internal information control
necessary
	representatives regarding judgments on material developments
The Komatsu Way	Discussion on and decision and execution of policies and important measures regarding human
resources, labor affairs, education and human resource development, The Komatsu Way, total quality	2 times a year
Committee*	management, employee benefits, and occupational health and safety management for the

A Century of Creating the	Top Management's Views on	Evolution of Business Model for	Resolution of ESG Issues through	Corporate Profile
Workplaces of the Future	Komatsu's Management Issues and	Creating the Workplaces of the Future	Growth Strategies
	Strategies for the Next Century

Stakeholder Engagement

In order to gain more trust from all stakeholders, the Company is strengthening corporate governance and top management is practicing direct engagement with stakeholders.

Share information on the Komatsu Group's vision and		Provide as many opportunities for engagement as
the issues it faces (employees, suppliers, distributors)	Society	­possible and practice proper information disclosure to
	facilitate understanding of Komatsu

Distributors

Customers

Employees

Suppliers

Shareholders

Investors and

Mass media

Communities

Analysts

Distributor

Midori-kai

Meetings with

Visits from top

General

Visits to inves-

Interviews

Meetings with

meetings

General meet-

the President

management

Meeting of

tors worldwide

mayors, gover-

ings with

Shareholders

Analysts

nors, etc.

management

Shareholder

meetings

meetings

Financial results

briefings

Direct Communication by Top Management

Company and the Group

	Appointments of Advisors of the International Advisory Board
Topics	Komatsu established the IAB back in 1995 for the Board of Directors to incorporate, from external experts, objective
advice and suggestions concerning management and operations of Komatsu as a global company. The IAB has met
	a total of 36 times in the conventional and new organizations combined. In April 2020, Komatsu commenced the 8th
	session of the IAB for management with the following new advisors. The term of service for each advisor is set at

Major Investor Relations Activities in FY2020

To further improve the transparency of management for our shareholders and investors, we disclose information in a fair and timely manner and actively engage in investor relations activities by holding meetings with shareholders and investors.

In FY2020, certain face-to-face communication activities were canceled in response to the COVID-19 pandemic, but we

continued to provide and enhance communication activities nonetheless, employing virtual and online venues for events and providing access to archived video. In addition, we established an official Komatsu YouTube account, which is being used for organizing and distributing the latest videos on the Company.

three years as a general rule.

Komatsu will continue to incorporate advice and suggestions from IAB advisors with expertise in global business, further improve management, and strengthen its corporate governance in order to enhance its corporate value.

Advisors of the 8th Session of the IAB for Management (FY2020-FY2022)

Name		Current Position and Brief Background
	2018-Present	Chairman of the Board, Elanco Animal Health
R. David Hoover	2015-February 2021	Board of Directors, Edgewell Personal Care Company
2009-2018	Board of Directors, Eli Lilly and Company

For Institutional Investors

Financial results briefings* (4 times) Small meetings* (7 times) Business briefings* (1 time) Overseas investor relations activities* (4 times)

Individual meetings* (over 190)

* Held through virtual or online venues

For Shareholders and

Individual Investors

Shareholder meetings* (1 time)

Factory tours for shareholders canceled → Replaced with virtual factory tours and videos Individual investor meetings* (4 times)

Gifts of appreciation for long-term shareholders

Homepage

Financial information

• Financial results briefings
• Sales and profits gains reports
• Quarterly reports, etc.

Web interviews with the President (4 times)

Komatsu Report, etc.

	2000-2015	Board of Directors, Energizer Holdings, Inc.
	1996-2013	Board of Directors, Ball Corporation (Chairman, 2002-2013)
	2015-Present	Vice President Commissioner of PT Adaro Power
Kusmayanto Kadiman	2010-Present	President Commissioner of BFI Finance
2004-2009	The State Minister for Research and Technology of the Republic of Indonesia
	2001-2004	President of Bandung Institute of Technology (ITB)
	2006-Present	Chairman of the Board of Directors, F-Secure Corporation
Risto Siilasmaa	(He is the founder of F-Secure Corporation.)
2012-2020
	Chairman of the Board of Directors, Nokia Corporation
Mitoji Yabunaka	2018-Present	Visiting Professor, Ritsumeikan University
2014-2020	Outside Director, Komatsu Ltd.
	2008-2010	Vice Minister, Ministry of Foreign Affairs

Engagement Topics

Komatsu holds meetings for institutional investors and securities analysts to deepen their understanding of the Company. The following online meetings were held in 2020.

Date	Meeting Name	Attendants	Topics
December 16, 2020	KOMATSU IR-DAY 2020	90	1. The pursuit of safety and productivity at mine sites
	2. Komatsu's environmental activities

Web	For materials from meetings, please refer to Komatsu's corporate website:​	Web	Komatsu's Official YouTube Channel
	https://www.komatsu.jp/en/ir/library/results/2020		https://www.youtube.com/c/komatsu/featured

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Komatsu Report 2021

Komatsu Report 2021

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