Standards for Exercising Voting Rights on Japanese Stocks

The purpose of these Standards for Exercising Voting Rights on Japanese Stocks is to set forth specific standards to enable Amova Asset Management Co., Ltd. (“Amova AM”) to exercise voting rights on Japanese stocks in line with its Guidelines on Exercising Voting Rights. These Standards are also intended to ensure that Amova AM exercises voting rights systematically and consistently, and to contribute to Amova AM’s faithful fulfillment of its fiduciary duty. The standards indicated below are not necessarily intended to be applied formally and uniformly, but are instead intended to ensure that Amova AM makes voting decisions that help investee firms to grow sustainably and enhance their medium- and long-term corporate value based on an accurate grasp of the firms’ conditions and initiatives through engagement and other such means.

[1] Shareholder Returns

Investee firms are expected to maximize shareholder value over the medium and long term by generating economic value through the efficient use of cash, investing that value for growth and retaining it as internal reserves, and distributing it appropriately for such purposes as shareholder returns. Voting decisions on resolutions for the appropriation of surpluses shall be based on examinations as to whether the resolutions constitute shareholder return measures that will help to maximize medium- and long-term shareholder value based on considerations such as the firm’s growth stage, its business environment, its financial standing and its investment plans.

Resolutions for the appropriation of surpluses shall be voted against in principle in the below cases:

1. if the firm’s shareholder distribution ratio is less than 30% (excluding cases where the firm’s ROE has been 10% or more in any of the past three fiscal years);

2. if the firm is cash rich* and its shareholder distribution ratio is less than 50% (excluding cases where the firm’s ROE has been 10% or more in any of the past three fiscal years, and with consideration given to cases where the firm has clearly explained its use of cash in sources such as its investment plan);
(* a firm is cash rich if its net cash to total assets ratio is 30% or more and its equity ratio is 50% or more)

3. if the firm has paid out dividends in the past three consecutive fiscal years despite posting net losses in those years; or

4. if the level of the firm’s shareholder returns is otherwise deemed insufficient for the medium- and long-term enhancement of shareholder value.

[2] Appointments of Directors

Decisions shall be based on whether it is appropriate to entrust appointees with the management of the investee firm with the aim of maximizing the firm’s medium- and long-term shareholder value. Decisions shall be made comprehensively in view of the firm’s conditions and initiatives as ascertained through engagement and other such means in view of the below-mentioned criteria.
A firm’s board of directors is expected to make decisions intended to improve medium- and long-term shareholder value and to supervise the firm’s execution of business, and should fulfil those functions effectively. A board of directors should therefore be structured in a way that fully takes into consideration factors such as the abilities, characteristics and diversity of its members as well as its ratio of independent outside directors. It should also be of a size that enables it to make swift decisions on business matters.

Specifically, decisions to vote for or against such resolutions shall be made based on the below criteria. The criteria shall also apply to audit and supervisory committee members at firms that have audit and supervisory committees, and to audit committee members at firms that have nomination committees and other such committees.

1. If any of the below apply to the composition of a firm’s board of directors, resolutions for appointments of directors shall be voted against in principle given the status of directors as top managers:

• if the directors to be appointed do not include at least two outside directors who fulfill Amova AM’s standards for independence and the number of outside directors who fulfill Amova AM’s standards for independence does not come to at least one-third of the total (or the majority in the case of companies with parent companies);
• if no female directors are included (for TOPIX 500 constituents, from April 2026 this shall mean boards that have fewer than two female directors and a ratio of female directors that is below 15%); or
• if the number of statutory auditors or audit and supervisory committee members is set to decrease significantly without a reasonable explanation from the firm.

2. Resolutions for reappointments of directors shall be voted against in principle if any of the below apply:

• if the firm’s shareholder distribution ratio is less than 30% (excluding cases where the firm’s ROE has been 10% or more in any of the past three fiscal years);
• if the firm is cash rich* and its shareholder distribution ratio is less than 50% (excluding cases where the firm’s ROE has been 10% or more in any of the past three fiscal years, and with consideration given to cases where the firm has clearly explained its use of cash in sources such as its investment plan);
  (* a firm is cash rich if its net cash to total assets ratio is at least 30% and its equity ratio is at least 50%)
• if the firm has paid out dividends in the past three consecutive fiscal years despite posting net losses in those years;
• if the firm’s ROE has been less than 5% for the past three consecutive fiscal years and the firm has been in the bottom 50% of its sector (based on the Tokyo Stock Exchange’s 17 sector classifications) for ROE in the past three consecutive fiscal years, reappointment of directors in position during the relevant period is to be opposed (from April 2026, this shall apply to cases where ROE has been less than 8% for the past three consecutive fiscal years and the firm has been in the bottom 50% of its sector (based on the Tokyo Stock Exchange’s 17 sector classifications) for ROE in the past three consecutive fiscal years, but it shall not apply if the firm’s P/B ratio exceeds 1);
• if misconduct or antisocial conduct has occurred at the firm and the firm is deemed to be involved in or liable for the occurrence (the definition of misconduct and antisocial conduct shall include serious violations of laws and regulations, fraudulent accounting, quality falsification, conduct that causes environmental or social problems, and other conduct that damages social trust in the firm, and judgments shall take into account mitigating factors including recurrence prevention measures and other such responses); or
• if the firm’s management initiatives are deemed insufficient for the medium- and long-term enhancement of shareholder value.

3. Resolutions for appointments of outside directors shall be voted against in principle if any of the following apply (however, an individual decision on application of the independence requirement shall be made if a company is undergoing a management reorganization or other such conditions apply to it):

• if their board of directors meeting attendance ratio is less than 80% (the same shall apply to audit and supervisory committee members if their audit and supervisory committee meeting attendance ratio is less than 80%, and to audit committee members if their audit committee meeting attendance ratio is less than 80%); or
• if any of the below apply to them and they are deemed to lack sufficient independence as a result:

i. notification regarding them as an independent officer has not been submitted to a financial instruments exchange or there are no plans to do so;
ii. they are a major shareholder with a share exceeding 5%, or they currently work or have worked in the past five years at an organization that is a major shareholder; or
iii. they have been in their current position for more than 12 years.

4. If any of the below apply, resolutions for appointments of directors shall be voted against in principle given the status of directors as top managers:

• If the firm is a relatively high emitter of greenhouse gases and its initiatives regarding the climate change-related actions listed below are deemed insufficient:
  i. the development of climate change governance capabilities;
  ii. the establishment of medium- and long-term emissions reduction targets in line with the Paris Agreement;
  iii. the formulation and execution of a roadmap for realizing the above targets; and
  iv. information disclosure regarding sustainability/climate change action including the above items;
• if the firm has serious sustainability issues, its initiatives to address them are deemed insufficient and the situation is not deemed to be improving; or
• if the firm has cross-shareholdings totaling 20% or more of its net assets (however, consideration shall be given to cases where the firm has disclosed a plan to reduce cross-shareholdings to below 20% as well as sales of cross-shareholdings that occurred before its general meeting of shareholders).

[3] Appointments of Statutory Auditors

Given the importance of ensuring that statutory auditors monitor and supervise directors from an independent standpoint, resolutions for appointments of statutory auditors shall be voted against in principle if any of the below apply to them:

1. if they are deemed to be unsuitable for the position; or
2. if misconduct has occurred at the firm and they are deemed to be involved in or liable for the occurrence.

Resolutions for appointments of outside directors shall be voted against in principle if any of the below apply to them:

1. if their board of directors and board of statutory auditors meeting attendance ratio is less than 80%; or
2. if they are deemed to lack sufficient independence (criteria on the independence of outside directors shall apply mutatis mutandis to judgments on the independence of statutory auditors).

[4] Appointments of Accounting Auditors

Resolutions for appointments of accounting auditors shall be voted in favor of in principle. However, resolutions shall be voted against if they involve matters that cast doubt as to whether they will conduct audits fairly, or if there are doubts over their independence.

[5] Compensation for Officers

Compensation for officers and other such people shall be examined to determine whether it is linked appropriately to the interests of shareholders and thereby functions as an incentive to enhance shareholder value, and whether it is at an appropriate level in terms of the firm’s performance and its distribution of profits to shareholders. When compensation is determined, it is important for the basis for the calculation to be made clear and for the process to be made transparent by such means as using bodies whose important members are outside directors.

Resolutions related to compensation for officers shall be voted against in principle if any of the below items apply to them:

1. the payment of bonuses and raising of compensation caps despite the recipients’ management being at serious fault;
2. the payment of retirement bonuses (excluding allowances for termination); or
3. if any of the follow apply to a resolution related to stock compensation (including stock options):

i. granting of them to statutory auditors and Audit and Supervisory Committee Members (decisions on voting for or against granting of them to employees or third parties are to be determined based on examinations);
ii. if the transfer restriction period or the period when it is possible to exercise them is less than two years; or
iii. if the compensation (the sum of the potential dilution amount and the past amount) is 5% or more of the firm’s total issued shares.

[6] Takeover Defenses

Takeover defenses involve the risk of damaging shareholder value because they can be used to entrench management teams and can prevent normal shareholder value from being reflected in a firm’s stock price.

Resolutions for the introduction or continuation of takeover defenses shall be voted against in principle. If a firm decides on the introduction or continuation of its takeover defense only through a resolution of its board of directors without seeking the approval of its general meeting of shareholders, resolutions on the reappointment of its directors shall be voted against. Voting decisions regarding takeover defenses for use in emergencies shall be made individually based on detailed examinations of the takeover defenses’ content from the perspective of improving shareholder value.

[7] Restructuring

Business restructuring such as mergers, acquisitions, business transfers, business assumptions, share exchanges or share transfers shall be examined to determine whether they are consistent with the firm’s management strategy and whether they are the best option for helping to enhance its stock price in the medium and long term.

Resolutions for business restructuring shall be voted against if either of the below apply to them:

1. if a merger or exchange ratio, a price or other such matter is deemed to be inappropriate in terms of the interests of existing shareholders; or
2. if it is deemed clear that another aspect of the restructuring will damage shareholder value.

[8] Capital Policies

Resolutions related to capital policies shall be examined to ascertain whether they will help to enhance shareholder value in the medium and long term, and to determine that they will not damage the interests of existing shareholders.

1. Decisions on voting for or against resolutions for the issuance of stock (including class shares and preferred/subordinated shares) shall be based on examinations of matters including the purpose of the stock issuance and its impact on the interests of existing shareholders in light of the relevant firm’s financial position and business performance. Issuances that risk damaging shareholder value by diluting the holdings of existing shareholders significantly, serving the interests of recipients of the new shares, strengthening the control of the firm’s management or for other such reasons shall be voted against.
2. Decisions on voting for or against resolutions for issuances of new stock for third parties or dispositions of treasury shares shall be based on examinations of matters including the allottees, the degree of stock dilution, and comparisons of the allotment price with fair market value. Treasury share contributions to foundations shall be voted in favor of if 1) activities at the foundation are deemed to increase medium-to-long term corporate value, 2) voting rights of the contributed equities will not be exercised by the corporation or the foundation and 3) dilution is less than 3%.
3. Resolutions for acquisitions of treasury stock that are expected to significantly damage market liquidity shall be voted against.

[9] Changes to Articles of Incorporation

Resolutions for changes to a firm’s Articles of Incorporation shall be examined to ascertain whether they will help to enhance shareholder value, or to prevent damage to it, in the medium and long term, and to determine that they will not unnecessarily limit the rights of shareholders.

Resolutions for changes to a firm’s Articles of Incorporation shall be voted against in principle if any of the below items apply to them:

1. if they specify that appropriations of surpluses are to be conducted based on board of directors resolutions;
2. if the purpose of a resolution for raising an authorization limit has not been comprehensively and clearly explained in terms of how it will raise the firm’s corporate value;
3. if the purpose of a resolution for changing a firm’s fiscal year is deemed to be to postpone the holding of the firm’s regular general meeting of shareholders;
4. if a resolution for strengthening or easing resolution requirements is not fully explained in terms of its necessity and whether it will not damage shareholder value; or
5. if a resolution to increase the number of regular members of a firm’s board of directors is set to significantly increase the number without a reasonable explanation.

[10] Shareholder Resolutions

Decisions on voting for or against shareholder resolutions shall be based on individual examinations into their effect on shareholder value in the medium and long term. Shareholder resolutions with the potential to serve the interests of particular shareholders shall be voted against. Resolutions demanding disclosure on climate change responses shall be voted in favor of in principle except in the below cases:

1. if the firm’s efforts are in line with what is requested in the proposal; or
2. if realizing what is requested in the proposal would be disadvantageous for the firm or restrict its business activities.

[11] Revision and Abolition

Revision and abolition of these Standards shall be decided on by resolutions of the Stewardship and Proxy Voting Committee.

[12] Supplementary Provisions

These Standards shall take effect on April 1, 2025.

Established:

• February 15, 2006

Revised:

• April 13, 2006
• June 8, 2006
• September 29, 2006
• April 25, 2007
• June 6, 2007
• May 1, 2008
• May 2, 2008
• August 11, 2008
• July 5, 2010
• March 31, 2011
• March 31, 2015
• July 25, 2016
• January 24, 2017
• July, 28, 2017
• April 27, 2018
• February 19, 2019
• April 14, 2020
• February 25, 2021
• December 20, 2021
• March 7, 2023
• December 25, 2023
• February 25, 2025