Summary of Fiscal 2024

What themes and issues did the Board of Directors place particular emphasis on in its discussions in fiscal 2024? Looking back over the past year, how would you summarize it in your capacity as Chair?

Fiscal 2024 was a truly pivotal year for OMRON, marking an important turning point as we simultaneously launched structural reforms and initiatives to lay the groundwork for medium- to long-term growth. In such a period of transformation, the role of the Board of Directors is of the utmost importance. At OMRON, in addition to regular Board of Directors meetings, we have created opportunities for focused discussions, such as off-site meetings and exchanges of opinions with the executive team. By expanding these opportunities, we sought to break free from conventional frameworks, offer broad and high-level perspectives, and support the challenges taken on by the executive team.

We placed particular emphasis on regaining the trust of our shareholders and meeting their expectations by strengthening the Board of Directors’ monitoring functions around two key pillars: “progress of restructuring” and “progress of strategies for realizing the long-term vision.” As part of our concrete discussions on medium- to long-term strategies, the Board of Directors received reports from management on the development of “strategic scenarios” looking beyond structural reforms, and deliberated on them. In doing so, we shared diverse views on topics such as the company’s ideal positioning in the capital markets, investment in global talent, synergy creation in the Data Solution Business, and regional strategies focused on North America, China, and Asia.

Furthermore, with regard to the Data Solution Business, which we have positioned as a future growth driver for OMRON, we held two free-discussion sessions. Centered on the Outside Directors, we discussed medium- to long-term goals, challenges to growth, the acceleration of collaboration with JMDC, and the positioning of corporate health-related investments. Looking back over the year, I believe the effectiveness of the Board of Directors has steadily improved, as essential dialogue encouraged contributions from each Director, raising both the quality and speed of our discussions.

Evaluation of Discussions on Medium- to Long-Term Business Strategy Beyond Structural Reforms

Looking beyond the structural reforms, you mentioned that off-site meetings and exchanges of opinions with the executive team were expanded. What outcomes have these initiatives produced, and how do you see them contributing to the medium- to long-term oversight functions?

In fiscal 2024, we expanded and actively utilized forums for dialogue outside the Board of Directors in order to strengthen our oversight functions. I believe that the broad and open discussions held in off-site meetings have led to deeper deliberations on agenda items at subsequent Board of Directors meetings, thereby enhancing the effectiveness of the Board of Directors.

I have come to strongly realize that essential dialogue lies at the very core of governance. Even with differing perspectives, sharing the common goal of enhancing corporate value and engaging in forward-looking discussions serve as a powerful force in supporting sound management. Going forward, I believe it is vital that Directors continue to engage in discussions with Executive Officers on an ongoing basis, provide timely advice, and further improve management transparency and the quality of decision-making. In doing so, we will ensure sustainable growth after structural reforms and fulfill our commitment to contributing to the enhancement of corporate value.

Board of Directors’ Operating Policy for Fiscal 2025 in Anticipation of the Post-Structural Reform Phase

In fiscal 2025, what policies and areas of focus will you place particular emphasis on in order to further enhance the effectiveness of the Board of Directors?

The operating policy of the Board of Directors for fiscal 2025 is “to enhance corporate value from a medium- to long-term perspective by strengthening discussions on growth strategies.” To this end, we have identified three priority themes: “formulation and execution of the medium-term management plan,” “improvement of our ability to effectively respond to change,” and “completion of structural reforms.”

Specifically, we have streamlined regular reports and other agenda items to create a structure that allows us to concentrate on medium- to long-term strategic discussions. In addition, we have established mechanisms to respond swiftly to change by enabling flexible reporting from the CEO and the setting of ad-hoc agenda items. Fiscal 2025 will be the year in which OMRON embarks on a future growth trajectory following the completion of structural reforms. The Board of Directors, too, will evolve into an entity that supports both strategy and execution, with a sharper focus on medium- to long-term growth strategies. To further improve the Board of Directors’ effectiveness, we also plan to introduce third-party evaluations. By incorporating external perspectives, we aim to identify essential issues that may not be visible through self-reflection alone and link them to sustainable corporate value enhancement.

I believe that there is no such thing as a perfect form of governance. As the environment surrounding companies continues to change, governance itself must also evolve. OMRON has established four advisory committees, CEO Selection, Personnel, Compensation, and Corporate Governance, within the framework of a company with an Audit & Supervisory Board, thereby enhancing transparency and objectivity and strengthening their role as a monitoring board. At the same time, because our structure is institutionally based on the management board framework, there are inevitably certain constraints in our efforts as a monitoring board. We will continue to consider ideal forms of governance, pursuing and continuously evolving our governance framework to best suit OMRON.

Our Commitment Reflected in the New Executive Compensation Plan

Please share the aims and intentions behind the newly introduced executive compensation plan.

The new compensation plan clearly establishes, at a structural level, each Director’s commitment to enhancing corporate value. First, for the President, we increased the weight of stock compensation within the pay structure. Initially, the President’s compensation structure was divided equally among base salary, short-term performance-linked compensation (bonus), and medium-to-long-term performance-linked compensation (stock compensation) at a ratio of 1:1:1. However, in order to reflect our commitment to enhancing corporate value in the compensation structure, we have gradually revised this ratio. The latest revision to 1:1:1.7 makes the President’s accountability and commitment to long-term management even clearer.

Second, we introduced a stock compensation structure for Outside Directors as well. This creates a foundation on which all Directors can take on challenges together toward the common goal of enhancing corporate value. It also helps secure the caliber of talent appropriate for Directors entrusted with critical responsibilities. We regard this revision as more than just a change to the compensation plan. It is an important step that elevates the quality of OMRON’s governance to the next stage.

Message to Shareholders: Commitment to Enhancing Corporate Value

Finally, please send a message to your shareholders regarding the Board of Directors’ commitment to enhancing corporate value, as well as your expectations for the future.

From our oversight role, the Board of Directors is committed to supporting the sustainable enhancement of corporate value by placing the highest priority on medium- to long-term strategy and its execution. It is our responsibility to believe in the growth vision championed by the executive team and to stand firmly behind their endeavors. This is because OMRON’s very reason for being is “to contribute to resolving social issues,” and the executive team’s endeavors to achieve this mission represent a future that should be shared with all stakeholders, including our shareholders.

Up to now, we have sincerely taken on board the perspectives of external stakeholders by feeding back insights gained through dialogue with shareholders and investors into Board of Directors discussions. Going forward, we will continue to actively create opportunities for such dialogue, thereby further enhancing the effectiveness of our governance and ensuring our path to corporate value enhancement.

The road to transformation is by no means a smooth one. Yet OMRON will advance step by step by drawing on its ability to turn change into opportunity and by harnessing diverse knowledge. No matter the situation, we will never cease striving for sustainable growth. We humbly ask for the continued understanding and support of our shareholders as we move forward together on this journey.