(Center) Takeo Obayashi Chairman of the Board

(Left) Masako Orii Independent Director, Chair of the Recommendation Committee

(Right) Hiroyuki Kato Independent Director, Chair of the Remuneration Committee

Obayashi First, I would like to express my gratitude to our independent directors for their meticulous advance preparation and their thorough understanding of the highly specialized topics related to each individual business. Meeting materials are distributed to Board members with sufficient time for review and the executive team carefully explains all agenda items in advance. As a director myself, I also try to make an effort to point out any aspects in advance that I think might be difficult to understand. At actual Board meetings, the people in charge of individual agenda items and the secretariat are on hand to provide supplements where necessary, so I think the overall discussion flows well and is easy to understand. Having said that, independent directors often speak out when a particular point is hard to follow, and we provide supplementary explanations on such points. If the person in charge of an agenda item assumes that all board members are already aware of a particular point, they may not provide sufficient explanation, so I make every effort to ensure that does not happen.

Orii As chair, Mr. Obayashi respects each member's remarks and facilitates the proceedings with care, so as an independent director, I feel that an atmosphere has been fostered in which it is easy to express opinions on any agenda items. Generally speaking, unspoken pressure to make a decision by a certain time can hinder thorough discussion, but there is no such sense of pressure in Obayashi Corporation's board meetings. We are given multiple opportunities to speak frankly and even to ask basic questions, and I feel that our opinions are taken seriously.

Obayashi I am very glad to hear you say that. I also learn a great deal from these interactions and pick up on perspectives or areas of concern that we had not necessarily considered. I think this is true not only for me, but also for the executive side. It is a question of daily trial and error, but I am doing my utmost to determine the best way to conduct board meetings in order to further improve the effectiveness of the Board of Directors.

Kato I believe that people are the most important factor in the sustainable enhancement of corporate value. Corporate value is fundamentally created by people, and from this perspective, the remuneration system which serves as a source of incentive and motivation for personnel, is an extremely important element. Based on this approach, the Remuneration Committee works hard to build a remuneration system that helps enhance corporate value. We also focus on ensuring transparency and objectivity in the system design. In recent years, talent mobility has increased, making it essential to have remuneration systems that help secure and retain outstanding individuals. We conducted multifaceted discussions in FY2024 based on this very awareness.
As a company with a public mission, the Obayashi Group is duty-bound to pursue not only economic value, but also social value. For that reason, our current remuneration system incorporates not only KPIs focused on financial value and shareholder value, such as return on equity (ROE), earnings per share (EPS), and total shareholder return (TSR), but also those focused on non-financial, such as the CO2 emissions reduction rate. Setting ESG-related KPIs enables each employee to gain an understanding of the contribution their daily work is making to society. We believe these mechanisms will ultimately help increase Obayashi Group's overall corporate value.
One other point to add: It is not enough to simply put a system in place; you must also commit yourself to its implementation. For example, in the construction business, where it takes time for any project to yield profits, often the decisions made by predecessors will affect the results of their successors, so we need to carefully evaluate the effort and contributions made each year rather than simply evaluating the achievement of results planned for that one year.

Obayashi ​In FY2024, the Remuneration Committee discussed the remuneration of Mr. Kenji Hasuwa, the former president, who assumed the role of Vice Chairman following the change in presidency.

Orii In establishing the position of Vice Chairman, we took into account that this matter concerns the role of top executives after they step down. The Nomination Committee thoroughly discussed the position's function within Obayashi, its social significance, and the assurance of corporate governance, while the Remuneration Committee fully deliberated on the remuneration structure.

Orii The Recommendation Committee has the important function of deliberating on the appointment of corporate officers and submitting the results of those discussions to the Board of Directors. In particular, matters concerning the appointment of the president are directly connected to the Obayashi Group's medium- to long-term growth strategy and are therefore of the utmost importance. We manage the committee with full awareness of their significance. I am extremely confident that the Obayashi Group can provide intrinsic value to society, and I would like to see the Group continue to enhance that value in a sustainable manner. As an independent director, I try to approach all discussions from an objective standpoint, not only to ensure the perspective of shareholders is taken into account, but also to uphold the trust placed in Obayashi by employees and society at large.
With respect to the composition of the committee, the majority of members are independent directors, and the committee is also chaired by an independent director. I believe this composition ensures effective governance, and a high degree of governance has been maintained not only in form, but also in substance. Over the past few years in particular, the Group as a whole has been determined to improve governance. This has raised the committee members' awareness of their duties, and I feel that the quality of discussion in the committee is improving every year.
For me as the chair, I strive to facilitate discussions that enable each member to share frank views. When members shared opinions in last year's discussions, others would freely add supplementary explanations or different perspectives, which helped develop a well-balanced, constructive discussion. It also helped clarify the points of discussion and the central issues for decision-making. This culture of free expression is not exclusive to the Recommendation Committee, but is also a feature of the entire Board of Directors.

Obayashi The committees have started actively discussing succession planning and remuneration system over the past few years, and I feel that a foundation for full-fledged discussions has been developed.

Orii I agree. It was never a case of having a clearly determined vision from the beginning, but rather of encouraging repeated discussion to foster a common understanding of the topics requiring a governance perspective. And the process is still ongoing.

Obayashi ​We had almost no such systems in place five or six years ago, let alone a decade ago. The progress we have made in recent years has been enormous. In view of the preparations put in place to date, I expect that both of you will continue to demonstrate your valuable skills and promote even better governance.

Kato The recommendation and remuneration of officers are intricately linked, so you cannot discuss one without the other. We have to first discuss the nature of the positions and the evaluation of officers in the Recommendation Committee and then consider how to design remuneration systems based on those factors. As chairs of the Recommendation Committee and the Remuneration Committee, Ms. Orii and I both serve on each other's committees, which, as a structure, naturally fosters close cooperation between the two.

Orii That is right. However, while we have made great progress on cooperation between the two committees, cooperation with the Board of Directors could be improved and we need to work on how to better share information.

Orii On the topic of the change of president, the selection criteria and the rules relating to successor planning were put in place under the previous chair of the Recommendation Committee. We were therefore able to proceed transparently and objectively with the process of appointing a president in accordance with those established rules. Specifically, the Recommendation Committee regularly checked and evaluated the process by which the president selects and trains successor candidates. Periodic discussions on, for instance, potential changes in the candidates or the key requirements, resulted in the implementation of a dynamic succession plan.
While the appointment was based on a training plan established as an internal rule, we narrowed down the successor candidates not simply by comparing the individual characteristics of each candidate, but also by working backwards from a consideration of what roles the next president would be expected to play and what qualities they would need to possess. The crux of the discussion focused on group and global needs, capital policy, and sustainability measures given the commitment to promoting the current medium-term business plan and medium- to long-term growth strategy. We concluded that Mr. Toshimi Sato was the best person to lead that drive.

Kato I used the terms "group" and "global" in my previous job* and they are certainly important perspectives for Obayashi Group right now. Naturally, the domestic construction business will continue to be at the core of the Group operations, but, given the future business environment, it is essential to achieve growth in overseas construction, real estate development, and non-construction areas including green energy. Given those circumstances, we all agreed that Mr. Sato was the most suitable candidate for ensuring governance and growing Obayashi.
*MITSUI & CO., LTD.

Obayashi I basically agree with what you are both saying. The individual qualities of the president and other managers are important when selecting corporate leaders, but the demands of the operating environment are also key, such as the type of person required to address the social and corporate conditions of the day. Discussions surrounding the development of the next successor and future management personnel have already started up following Mr. Sato's appointment. At the moment, the biggest challenge facing Obayashi Group is a shortage of talent with global management acumen. One of the major topics will be how to train leaders who possess the global management acumen necessary for discussions at Management Meeting and Board of Directors level. Business outside Japan currently accounts for one third of Obayashi's business and we are currently looking to increase that ratio. As such, management needs to have an intuitive understanding of global business environments. Not everyone necessarily needs to have international work experience, but we definitely need to make a determined effort to develop more talent with such skills.

Orii ​I have had the opportunity to interact with the new president, Mr. Sato, on a daily basis through his remarks and explanations at Board meetings, and I sense he is a truly trustworthy person. I believe that his wealth of knowledge and sincere attitude will garner trust from a wide range of stakeholders. From my perspective as an independent director, I think he is the type of person who can put you at ease during interactions with him.

Kato He is a very equal-minded person without preconceptions. He is the type of leader who listens carefully to other people's opinions, then distills them to create his own ideas. In today's rapidly changing environment, we need flexible leaders with good listening skills, and Mr. Sato perfectly embodies the image of a modern manager. He does not rely on predetermined ideas, so it is easy for those around him to express their opinions. I look forward to seeing him more actively convey his message to others going forward.

Orii If the successor candidate has already been appointed as a director and we have the opportunity to interact with them on a daily basis, then, yes, we naturally form an understanding of that person. However, we have access to much less information about other successor candidates with whom we have limited contact. That is why I asked Mr. Obayashi and the former president, Mr. Hasuwa, to create opportunities for independent directors to interact with executive officers who could become successor candidates. We were able to establish settings that naturally encourage dialogue, not only at formal venues such as Board meetings, but also at informal venues such as the social gatherings that take place after the Executive Officers Meeting. Having had the opportunity to directly witness candidates' approaches and personalities at these venues was hugely beneficial when making selection decisions, and I hope this will continue going forward.

Obayashi Given our desire to expand the organization, I decided to have one-on-one meetings with all newly appointed executive officers from this year. These direct exchanges are a great way of getting to know more about an individual's approach and personality. I learned a great deal myself from these interviews, and they also enable me to respond more appropriately to any questions from independent directors. I hear that the newly appointed executive officers also liked these meetings. Many of them looked relaxed as we talked and this serves to create a good atmosphere for the future.

Orii These interviews bring management and executive members closer together and help foster a strong organizational culture. Being able to meet and talk directly to the chairman, who serves to carry on the founding spirit, is an opportunity for younger employees and newly appointed executive officers to more deeply understand the Obayashi Philosophy and corporate culture, and increases individual motivation. 

Orii ​The Obayashi Group has made steady progress in advancing governance over the past few years, but it is important to keep up the pace and move on to the next phase. In light of recent dramatic changes in social and economic environments and scandals that have swept through the corporate world, human capital and corporate culture are attracting increasing attention as the foundations upon which corporate trust is built. I have been involved in fostering organizational culture and instilling management philosophy, so I understand the vital need to ensure that everyone, from top management to frontline employees, is aware that they must be united in supporting healthy growth. The Group boasts a strong cultural foundation inspired by the Obayashi Three Pledges to quality, value, and efficiency passed down since its establishment. Instilling governance based on this DNA across the Group will be both a challenge and a source of strength for the future. In particular, as Obayashi undertakes more international M&As, another core global governance challenge will center on how best to share its philosophy and culture with newly acquired companies and encourage a sense of unity as a member of the Obayashi Group.

Kato The Group needs to continue maintaining and developing its foundational domestic construction business as its core, balancing business profitability and quality. However, the key to future growth will lie in strengthening governance across all subsidiaries in Japan and overseas, and in securing greater management capabilities for its global business. Developing capable global management talent is vital for maintaining and enhancing Obayashi's strong grip over its business outside Japan. This is partly the job of the executive team, but I take the Obayashi Group's people-oriented approach very seriously. The development and deployment of human resources can be both a constraint and a driver of growth, and I am convinced that investing in human capital will prove the key to Obayashi's future expansion and sustainable competitiveness.

Orii From a diversity perspective, the appointment of Ayako Kameda as Obayashi Corporation's first female executive officer in FY2024 represented significant progress. Ms. Kameda once told me at a social gathering that she had become interested in Obayashi Corporation because there were several women on the Board of Directors, and that left a strong impression on me. I hope we will see a natural progression in women being appointed to executive functions, regardless of whether they joined Obayashi as new graduates or mid-career hires. Obayashi management now has a deeper understanding of the importance of diversity and people will be watching how this is achieved in practice. These days, when we talk of the risks associated with homogeneity, diversity can often be a wellspring of competitiveness. I would like to continue to support and encourage the appointment of women as the first step in promoting greater diversity.

Obayashi Business outside Japan now accounts for approximately one third of Group sales and we are currently evolving into a global company. Companies that joined the Obayashi Group through M&A in particular often have different cultures and historical experiences. How best to share and uphold the innate Obayashi characteristics, basic values, and approach to governance while also respecting the independence of such companies is a major challenge. To ensure that current performance drives us into the future, we need to optimize shareholder returns, human capital investment, growth investment, and other capital allocations. 
Strategically building governance to support these processes is also necessary. Specifically, structural design issues such as who to appoint as leaders and what the supporting remuneration system should look like are directly linked to growth strategies. It is vital for us to recognize that executive recommendation and remuneration systems, governance, and growth strategies now constitute an intertwined whole. The big topics facing Obayashi going forward, I believe, will be how to build a unified governance system for the whole Group and how to train talented individuals who can comprehend and promote effective global management.

October 2025